UK Commercial Property REIT and Picton Property Income are in discussions to merge the two real estate trusts.
The pair confirmed via stock exchange announcements that they are working out the terms of a potential all-share deal, but there is no certainty one will be agreed.
UKCP chair Peter Pereira Gray was named as the person overseeing announcements on the possible deal from its side, with Rothschild acting as the advising bank.
On the Picton side, chief executive Michael Morris and finance director Andrew Dewhirst are steering negotiations, with advice from Lazard.
The trusts both said further announcements will follow in due course.
Under takeover rules, Picton as the acquirer must confirm whether it is making a firm offer by 5pm on 6 December 2023.
UKCP REIT is run by Abrdn. Its shares are trading at 56p for a market cap of £730m. The current discount to NAV is 31%.