Are you losing dividends on your property investment trust due to a takeover bid?
Matthew Norris is managing director of real estate securities at Gravis.
Time is money — and in the world of real estate investment trust (REIT) takeovers, it's increasingly shareholders who are footing the bill.
Charging for time is especially visible in real estate, where every day has value — whether it's a hotel room for a night, an apartment for a year, or a logistics warehouse for a decade.
REITs are portfolios of income-generating assets — and when a buyer approaches, particularly at a discount to net asset value, shareholders should not be left unpaid while the deal negotiations drag on.
UK REITs ended April trading at a wider than average 27 per cent discount to net asset value.
It's a discount that has lasted many months now, and has attracted opportunistic attention, with REITs such as NHS landlord Assura and multi-let industrial estate owner Warehouse REIT becoming active targets for private equity buyers.
Owning attractive assets in sought-after locations, these REITs offer resilient and growing income streams — exactly the kind of cash-generative assets that private capital seeks.
Assura has grown its dividend by an impressive 7 per cent per annum over the past decade.
But as the pace of takeovers accelerates, a fundamental misalignment has emerged — one that disadvantages shareholders and blindly transfers value to private equity buyers.
The financial deadzone benefiting bidders
The problem lies in the financial dead zone that exists between a board disclosing a possible takeover approach and the publication of a binding offer under the Takeover Code.
While deadlines are set to mitigate this risk, they are often extended — sometimes multiple times.
This can create an income blackout period — at times stretching into months — during which the REIT continues to collect rent, but the benefit disappears into a blind spot where shareholders see no new income, despite still bearing the business risk.
Every day that passes during this period is worth something - the so-called 'tick value' – and, in today's REIT takeovers, it is value that private equity buyers have managed to capture before assuming any economic risk, while existing shareholders go without.
Take the proposed takeover of Warehouse REIT as an example. It is now in its third month in the public domain, and while rental income hasn't paused, shareholders have received nothing.
On a yield north of 6 per cent, even a single quarter of delay equates to a 1.5 per cent return quietly stockpiled for the buyer who's yet to carry the risk.
Delays benefit the buyer
In the current wave of private equity offers, the price — typically anchored to a historic reference point — has not been adjusted for the rental income earned during the due diligence period.
And because REITs benefit from contractual rental flows, that income is not hypothetical — it is real, visible, and largely guaranteed.
What's more, these cash flows aren't static. REITs are not fixed-income vehicles - the best are growth-income businesses.
That is precisely why private equity and others are interested in acquiring them, particularly given the current valuation gap.
Rent reversion, where market rents exceed in-place rents, is especially strong in accommodation, logistics facilities, urban warehouses, and West End offices, enabling some REITs in those areas to post meaningful increases in dividend payouts.
Grainger, the UK's largest listed landlord, recently boosted its interim dividend by an impressive 12 per cen t, for example.
In effect, REITs subject to takeovers are growing their income base even as shareholders wait for the formal offer to be made.
And here lies the conflict. In a sector offering yields above 5 per cent and embedded income growth — with the Bank of England in rate-cutting mode, potentially lowering future financing costs — it can suit highly leveraged private equity buyers to drag out the deal timeline.
Delaying completion defers the moment they must fund the transaction and start incurring financing costs.
Those who bear the risk should receive the reward
This misalignment demands correction. REIT investors should continue to receive dividends — including for part-period income — while their capital remains exposed, especially given that the prospective acquirer can still walk away before making a firm offer.
This reflects a basic principle: those who bear the risk should receive the reward.
REIT management teams don't suspend their pay during negotiations. Shareholders shouldn't have their income suspended either.
It's time for REIT boards to demand more — and negotiate harder for shareholders. If the buyer wants the income, let them take the risk — and make a firm offer quickly.
If not, the income should flow where it belongs: to the shareholders whose capital is still on the line.
Unlike recent private equity bids, the proposed public-to-public takeover of Assura by Primary Health Properties honours the next dividend payment — and doesn't net it off against the offer price. As it should be.
In real estate, time always has a price. The same should apply during the takeover process.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Leader Live
an hour ago
- Leader Live
Brexit rules spark ‘clear demand' for more motorhome parking, lobby group says
Boosting provision for these vehicles would generate more revenue for local businesses and increase the number of visitors to tourist destinations outside the peak summer season, the Campaign for Real Aires (Campra) said. Aires is a French word used to describe designated stopping places for motorcaravans – the collective term for motorhomes and campervans – which are much more common in continental Europe than the UK. Post-Brexit rules mean UK passport holders are prohibited from being in the Schengen area – which covers most of the European Union and some other European nations – for more than 90 days within a 180-day period. That means many UK-based motorcaravan users are seeking domestic destinations for overnight trips. But a survey of 6,731 users suggested 88% are dissatisfied with the UK's availability of overnight parking in desirable locations. The poll also indicated that motorcaravaners spend an average of £51 per day in local businesses and £23 per night on overnight parking or campsite fees. Many respondents commented on the UK's lack of infrastructure and welcoming attitude compared with continental Europe, Campra said. Last month, Hampshire County Council approved plans to ban campervans and motorhomes from staying overnight at the south coast beauty spot of Keyhaven, near Lymington. It claimed the move would 'bring order' to the area. Campra managing director Steve Haywood said welcoming motorcaravans to an area 'can be a hugely positive move'. He went on: 'There is a clear demand – emphasised by post-Brexit travel restrictions – for more overnight stay options in UK towns and cities, and those towns and cities could benefit hugely by embracing motorcaravans. 'More councils are seeing the benefits of providing facilities, instead of suffering the cost of enforcement and bans, not to mention the loss of potential revenue to businesses. 'In Fleetwood, Lancashire, for example, the introduction of overnight parking in the seafront car park for £5 per night has seen a huge boost in revenue for local shops, and has been so successful that additional facilities are now being planned for motorcaravanners. 'Every council that has operated a 12-month trial aire has been successful and made the overnight parking permanent.' Driver and Vehicle Licensing Agency figures show more than 416,000 motorcaravans are registered in the UK. A spokesperson for the Local Government Association said: 'Policies around overnight motorcaravan parking and the provision of facilities are a matter for local councils.'
South Wales Guardian
an hour ago
- South Wales Guardian
Brexit rules spark ‘clear demand' for more motorhome parking, lobby group says
Boosting provision for these vehicles would generate more revenue for local businesses and increase the number of visitors to tourist destinations outside the peak summer season, the Campaign for Real Aires (Campra) said. Aires is a French word used to describe designated stopping places for motorcaravans – the collective term for motorhomes and campervans – which are much more common in continental Europe than the UK. Post-Brexit rules mean UK passport holders are prohibited from being in the Schengen area – which covers most of the European Union and some other European nations – for more than 90 days within a 180-day period. That means many UK-based motorcaravan users are seeking domestic destinations for overnight trips. But a survey of 6,731 users suggested 88% are dissatisfied with the UK's availability of overnight parking in desirable locations. The poll also indicated that motorcaravaners spend an average of £51 per day in local businesses and £23 per night on overnight parking or campsite fees. Many respondents commented on the UK's lack of infrastructure and welcoming attitude compared with continental Europe, Campra said. Last month, Hampshire County Council approved plans to ban campervans and motorhomes from staying overnight at the south coast beauty spot of Keyhaven, near Lymington. It claimed the move would 'bring order' to the area. Campra managing director Steve Haywood said welcoming motorcaravans to an area 'can be a hugely positive move'. He went on: 'There is a clear demand – emphasised by post-Brexit travel restrictions – for more overnight stay options in UK towns and cities, and those towns and cities could benefit hugely by embracing motorcaravans. 'More councils are seeing the benefits of providing facilities, instead of suffering the cost of enforcement and bans, not to mention the loss of potential revenue to businesses. 'In Fleetwood, Lancashire, for example, the introduction of overnight parking in the seafront car park for £5 per night has seen a huge boost in revenue for local shops, and has been so successful that additional facilities are now being planned for motorcaravanners. 'Every council that has operated a 12-month trial aire has been successful and made the overnight parking permanent.' Driver and Vehicle Licensing Agency figures show more than 416,000 motorcaravans are registered in the UK. A spokesperson for the Local Government Association said: 'Policies around overnight motorcaravan parking and the provision of facilities are a matter for local councils.'
North Wales Chronicle
an hour ago
- North Wales Chronicle
Farage plans to charge non-doms £250,000 fee which will be given to poor
On Monday, the party leader and MP for Clacton will reveal the policy which he said would 'encourage the return of wealth and talent to the United Kingdom', according to the Telegraph. The Labour Government abolished the non-dom tax status in April, which is where UK residents whose permanent home or domicile for tax purposes is outside the UK. Last year, former Conservative chancellor Jeremy Hunt revealed plans to scrap the tax status before successor Rachel Reeves sped up the process. Reform UK's policy would mean 'every high-net-worth newcoming (or returning leaver)' would pay a £250,000 one-off fee 'in return for a stable, indefinite remittance-style regime on offshore income and a 20-year inheritance-tax shield', Mr Farage wrote in an article for the Telegraph. All of this fee would be given to Britain's lowest-paid full-time workers through an automatic tax-free dividend via HMRC, the party leader added. In response, Labour said the policy was a 'golden ticket for foreign billionaires to avoid the tax they owe in this country'. Mr Farage wrote: 'Our policy is simple – Britain must be a place where success is celebrated, not punished with excessive taxes, crippling energy costs, or punitive inheritance levies. 'We will actively encourage the return of wealth and talent to the United Kingdom, on the clear condition that those who come here deliver immediate, visible benefits to our workers.' The plan would mean around 2.5 million 'hard-working Britons' would receive an 'annual cash bonus', the Reform UK leader claimed. He added: 'Our policy is not a 'golden visa' or a backdoor to citizenship. 'It is a one-time flat tax paid by newcomers in exchange for the certainty of a favourable tax status. 'Individuals will still be liable for all standard UK taxes on UK-sourced income, property and spending. 'But they won't be taxed on offshore income and gains for the duration of their agreed status.' A Labour spokesperson said: 'Nigel Farage can brand this whatever he wants – the reality is his first proper policy is a golden ticket for foreign billionaires to avoid the tax they owe in this country. 'As ever with Reform, the devil is in the detail. 'This giveaway would reduce revenues raised from the rich that would have to be made up elsewhere – through tax hikes on working families or through Farage's promise to charge them to use the NHS.'
