In a bold move to scale its operations and bolster earnings, Custodian Property Income REIT (CREI) has announced the acquisition of a €26m (£22.1m) UK property portfolio through an all-share purchase of Merlin Properties Limited, a private family-run business with deep regional roots. The acquisition comprises 28 diversified, small lot-size assets spread across the East Midlands, totalling approximately 18,000m² of commercial space and an additional 2,700m² of residential housing stock poised for near-term sale.
The transaction, structured as a corporate acquisition, is tax-efficient for both parties. By issuing 22.9m new shares with a further 1.7m deferred, CREI not only absorbs a high-yielding portfolio with a net initial yield of 8.1% and 99% occupancy but also avoids property transfer taxes like SDLT and LBTT. This adds an immediate earnings uplift and reduces the company's loan-to-value ratio from 27.1% to 25.8%, further strengthening its balance sheet at a time when capital market conditions are tight.
“We have been clear that a key element of our strategy is to seek opportunities to scale the business through corporate and/or portfolio acquisitions,” said Richard Shepherd-Cross, Managing Director of Custodian Capital Limited, the investment manager of CREI. “The Transaction provides us with a portfolio that is both a strong fit with our income-focused strategy and highly complementary to our existing property portfolio.”
The portfolio mirrors CREI’s existing industrial and regional tilt, with 46% of income derived from industrial assets and the rest evenly split between high street offices and edge-of-town retail. The top 15 occupiers represent 50% of the €2m annual rent roll, and no single tenant exceeds 5% exposure, enhancing diversification and reducing risk. In a market with rising costs and tighter margins, the absence of gearing in the acquired portfolio stands out as a major advantage, especially for developers and investors eyeing low-risk, income-generating assets.
While the market may focus on yield and scale, one aspect largely overlooked is the embedded ESG upside. CREI's investment team has already identified environmental performance upgrades within the newly acquired assets, unlocking potential value through sustainable retrofits and lease restructuring, a growing priority among institutional investors.
“Operating the Merlin portfolio, which our family has compiled and managed over the last 40 years, has become increasingly demanding,” added Hubert Lynch, Founder Director of Merlin Properties. “We have undertaken the Transaction in a tax-efficient manner to ensure our family’s continued exposure to property investment... through a professionally managed fund with a strong track record.”
People Mentioned
Richard Shepherd-Cross – Managing Director, Custodian Capital Limited
David MacLellan – Chairman, Custodian Property Income REIT
Hubert Lynch – Founder Director, Merlin Properties Limited
Companies Mentioned
Custodian Property Income REIT – UK REIT focused on regional income-producing properties
Custodian Capital Limited – Investment Manager for Custodian REIT
Merlin Properties Limited – Acquired family-run property company with regional UK assets
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