Custodian REIT plc
(“Custodian REIT”)
Possible offer for DRUM Income Plus REIT plc
Custodian REIT (LSE: CREI), the UK property investment company, notes the announcement made today by DRUM Income Plus REIT plc (“DRIP”) regarding a possible securities exchange offer by Custodian REIT for the entire issued share capital of DRIP, which is repeated below:
Drum Income Plus REIT plc (“DRIP” or the “Company”)
Possible Offer for the Company
The Board of DRIP announces it is in discussions regarding a possible securities exchange offer by Custodian REIT plc (“Custodian”) for the entire issued and to be issued share capital of the Company (the “Possible Offer”). There can be no certainty that any firm offer will be made.
The Possible Offer under consideration and evaluation by Custodian is a securities exchange offer at a ratio of 0.535 Custodian ordinary shares for each DRIP ordinary share (the “Exchange Ratio”) (subject to the reservations set out below). The Exchange Ratio would give an implied value for the entire issued and to be issued share capital of DRIP of approximately £21.6 million (based on a closing price of 105.80 pence per Custodian share on 3 August 2021, being the latest practicable date prior to this announcement).
At the value implied by the Exchange Ratio, the Possible Offer represents a premium of approximately:
- 8.8 per cent. to the bid market closing price of 52.00 pence per DRIP share on 3 August 2021; and,
- 11.2 per cent. to the volume weighted average price for DRIP shares of 50.85 pence over the 12 month period ended on and including 3 August 2021.
Custodian will adjust the Exchange Ratio in the event that: (a) either Custodian or DRIP announces, declares, makes or pays any one or more dividends or other distributions on or after the date of this Announcement and prior to completion of the Possible Offer (save in relation to the making or payment of any dividend or distribution that was announced or declared prior to the date of this Announcement) that is in aggregate in excess of 1.25 pence per Custodian share or 0.75 pence per DRIP share respectively (the amount of such excess in each case being the “Excess”), in which event the adjustment to the Exchange Ratio shall be to take account of the Excess; and/or (b) at the time of completion of the Possible Offer, either Custodian or DRIP has announced, declared, made or paid its regular quarterly dividend of 1.25 pence per Custodian share and 0.75 pence per DRIP share as applicable, but the other has not announced, declared, made or paid such dividend (a “Dividend Discrepancy”), in which case the adjustment to the Exchange Ratio shall be to take account of the Dividend Discrepancy.
The Board of DRIP has confirmed to Custodian that the Possible Offer is at a value the Board of DRIP would be minded to recommend, should a firm intention to make an offer pursuant to Rule 2.7 of the Code be announced on the terms contained in the Possible Offer, and has therefore agreed that Custodian should be provided with access to due diligence materials.
Custodian has received an irrevocable undertaking from DRIP's largest shareholder, Seven Investment Management LLP (“7IM”) to support the Possible Offer, should a formal offer be made. The irrevocable undertaking is in respect of 26,266,690 ordinary shares, representing approximately 68.76 per cent. of DRIP's issued ordinary share capital, in respect of which 7IM has investment management discretion and can procure the exercise of the voting rights attaching to such shares in favour of a scheme or to accept an offer. Further details regarding the irrevocable undertaking are set out in the Appendix.
Custodian believes that on successful completion of the Possible Offer, if made, DRIP shareholders would benefit from, inter alia, gaining exposure to a larger portfolio with more diversity by sector and geography with a property strategy consistent with that of DRIP, and a holding in a significantly larger company offering accessible liquidity and lower ongoing charges as a percentage of net asset value. In addition, DRIP shareholders would hold shares in a company that has predominantly traded on a premium to net asset value since IPO and has managed to grow through the issuance of new shares, whilst current Custodian shareholders would benefit from exposure to DRIP's portfolio with low purchaser's costs.
In accordance with Rule 2.6(a) of the Code, Custodian is required, by not later than 5.00 pm on 1 September 2021, either to announce a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Code or to announce that it does not intend to make an offer for the Company, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended only with the consent of the Panel on Takeovers and Mergers (“Takeover Panel”) in accordance with Rule 2.6(c) of the Code.
As a consequence of this announcement, an offer period has now commenced in respect of DRIP in accordance with the rules of the Code and the attention of shareholders is drawn to the disclosure requirements of Rule 8 of the Code, which are summarised below.
This announcement has been made with the consent of Custodian and 7IM.
For the purposes of Rule 2.5(a) of the Code, Custodian has reserved the right to make an offer on less favourable terms than those set out in this announcement:
- with the agreement or recommendation of the Board of DRIP; and/or
- if a third party announces a possible or firm intention to make an offer for DRIP on terms less favourable than the value implied by the Exchange Ratio; and/or
- following an announcement by DRIP of a whitewash transaction pursuant to the Code.
A further announcement regarding the Possible Offer will be made in due course as appropriate.