The boards of Starlight Bidco Limited and the Balanced Commercial Property Trust have agreed on a recommended cash offer for the entire issued share capital of BCPT, following a strategic review by the trust’s board.
BCPT commenced a review in April this year, as the trust’s discount remained stubbornly high over the last one, three and five years, reaching an average discount to NAV of 31% over the last 12 months.
The board cited headwinds including dwindling investor demand for listed real estate assets, the trust’s small size compared to peers in the sector, low trading volumes due to a concentrated shareholder register, and the cost disclosure regime making the trust appear less attractive to investors.
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During the review period, BCPT was approached by 12 interested parties. Following initial proposals, revised proposals and diligence meetings, the board agreed for Bidco to acquire the trust’s entire share capital. The transaction will take place via a court-sanctioned scheme of arrangement under Part VIII of the Companies Law of Guernsey.
The proposed purchase will be put to scheme shareholders at the court meeting and BCPT shareholders at a general meeting. The acquisition must be approved by 75% of scheme shareholders during the court meeting, and 75% of trust shareholders during the general meeting.
The cash consideration represents a premium of 21.5% to its closing price of 79p per share as at 12 April – the last business day prior to the start of the offer period.
Relative to BCPT’s last reported NAV per share of 105p as at 30 June, however, the cash consideration represents an 8.7% discount.
The deal values the trust’s total issued share capital at £673.5m on a fully diluted basis. Cash payable to the trust’s existing shareholders will be financed by equity, which will be invested by Starwood Funds.
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Private investment firm Starwood Capital, which specialises in global real estate, energy infrastructure and oil & gas, formed Bidco on behalf of Starwood funds in order to make the acquisition.
A spokesperson for Columbia Threadneedle, which has been the investment adviser to BCPT since March 2005, said: “The property total return from the portfolio, since inception, is 6.10% annualised, outperforming the MSCI UK Quarterly Property Index, which returned 5.02%.
“We have continually repositioned the portfolio through market cycles towards high quality assets which we believe represent excellent value creation opportunities. In our view the current portfolio is well positioned to take advantage of an improving market environment, with lower interest rates, pricing stability and improving sentiment.
“This value, along with the reduction in the discount over the past year from over 40% to under 20%, is recognised in the offer that has been received by the BCPT board.”
It added: “We are disappointed by the board’s decision to recommend the offer, as we believe there remains considerable upside to the portfolio of assets, particularly at this point in the market cycle, which we would like all long-term shareholders to benefit from.”
