Property trust merger bad for investors, says analyst

Brokerage firm Canaccord Genuity says shareholders should vote against the merger of F&C Commercial Property trust (FCPT) and the UK Commercial Property trust (UKCPT) because it is not in investors' interests.

Earlier this month, the board of FCPT agreed to a takeover by the Ignis-managed UK UKCPT which would create a £1.7bn company.

Under the terms of the deal, FCPT shareholders will receive new UKCPT shares on a NAV for NAV basis. Alternatively, there is the option of a cash exit for FCPT shareholders at 91p per share.

However, the broker says the deal offers more risk than reward.

"Canaccord Genuity believes the boards of both funds, and particularly of FCPT, have not acted in the best interests of all shareholders, that alternative options should be placed before the market, and that existing shareholders should vote against the merger plans," it says.

Analysts say the merger holds a number of negatives for investors, these include:

• Lack of investor choice regarding specific asset type or alternative fund choice for investors

• Removal of proven and high quality management team from the trust sector

• Significant questions over post-merger liquidity stemming from new stock issuance, key holder sales and ongoing issues of investability

• Asset dilution of the arguably stronger FCPT asset base within a more regional and retail based environment

• Key tenant risk given strong exposure to the Government (directly and indirectly) via the UKCM portfolio

In addition, it does believe the merger would lead to a reduced TER, as claimed by the board of FCPT.

F&C has sought to halt the merger by offering an alternative plan. Although details of this are yet to be made public, Canaccord recommends shareholders awaits F&C's proposals before agreeing to the merger.