A merger between real estate investment trusts (REITs) Tritax Big Box REIT PLC (LSE:BBOX) and UK Commercial Property (UKCM) could pave the way for more mergers in the sector.
That’s according to RBC Brewin Dolphin analysts, who noted that the £924 million all-paper bid from Tritax to create the UK’s fourth-largest REIT would help bring British trusts in line with larger peers across the Atlantic.
“At their current scale, the UK’s REITs are limited by their size,” RBC Brewin Dolphin's John Moore commented.
“This has an effect on the capital they can attract, the terms on which they can borrow, and ultimately the deals they can do. Combine them all and you have just one of the main North American property asset managers - they simply can’t compete on a global scale.”
Combined, Tritax and UKCM would manage a portfolio worth approximately £6.3 billion, generating over £290 million in rental income annually.
Tritax tables £924m all-paper deal for UK Commercial Property REIT (LSE:UKCM)
The deal itself comes after mergers between LondonMetric and LXi, alongside Abrdn Property Income Trust and Custodian Property Income REIT, both announced in January.
“LondonMetric [...] is trying to build scale so it can make the most of the period we are going through by buying cheap assets,” Moore added, “property is increasingly a scale business - the larger players will likely be the winners of the next few years”.
“The LondonMetric-LXi deal puts pressure on the entire sector - two mergers have followed and more could be on the way. It is the start of something, and we should soon see more activity in the sector.”