BWP Trust and Newmark Property REIT back merger to create $3.5b real estate portfolio

The boards of real estate financing specialists BWP Trust (ASX: BWP) and Newmark Property REIT (ASX: NPR) continue to back a proposed $250 million merger announced in late January.

In releasing its bidder’s statement and half-year results today, BWP management said the bid implementation deed takeover offer for Newmark makes strong sense for both companies.

BWP, a real estate investment trust (REIT) investing in and managing commercial properties throughout Australia, says the merger proposal provides an opportunity to combine BWP’s and NPR’s complementary portfolios of quality assets and similar tenant profiles.

Managing director Mark Scatena said the proposal reflects BWP’s focus on profitably growing the portfolio through assets with strong location attributes and tenant covenants.

“The merger proposal demonstrates the trust’s ability to leverage its capital structure and disciplined focus on portfolio growth, consistent with our objective of providing unitholders with a secure and growing income stream and long-term capital growth,” Mr Scatena said.

Among the benefits to BWP unitholders, Mr Scatena said the larger portfolio will increase the scale and relevance of the company, supporting its ongoing strategy to create long-term value through the addition of nine quality large format retailing assets creating a $3.5 billion portfolio of 84 geographically-diversified properties.

He also noted that the NPR’s assets are 73% leased to Wesfarmers tenants including Bunnings, Officeworks and Kmart.

Mr Scatena said the enhanced diversification and improved lease expiry profile of NPR’s properties will further enhance BWP’s asset diversification, maintain geographic diversity and improve BWP’s weighted average lease expiry profile from 3.6 years to 3.9 years.

Numerous benefits

According to BWP, NPR security holders will benefit from lower gearing and a significantly improved capital management position, with BWP rated strongly by credit rating agencies able to draw on approximately $165m of debt capacity across diversified sources including banks and corporate bonds with a weighted maturity of approximately three years.

The merger proposal would also provide NPR securityholders with enhanced scale, investor relevance and trading liquidity with access to relevant ASX indices.

NPR managing director Chris Langford said that with continued market uncertainty and the challenges facing the REIT sector, the BWP merger proposal is a highly attractive offer for NPR securityholders.

“The consideration reflects a material premium to NPR’s trading price and provides an opportunity to participate in a larger merged group with lower gearing.”

“The independent board committee, comprising the responsible entity’s independent directors, has concluded that the proposal is in the best interests of NPR securityholders and unanimously recommends that NPR security holders accept the BWP takeover offer, in the absence of a superior proposal.”

Merger proposal details

The merger proposal is for an all-scrip transaction, pursuant to which NPR securityholders will receive 0.4 BWP units for every 1.0 NPR security held.

Based on BWP’s closing price of $3.47 on 23 January 2024, the merger ratio represents an implied price of $1.39 per NPR security and for NPR represents a total equity value of $246.8m and a total enterprise value of $517.4m.

The merger price also represents a 43.1% premium to NPR’s closing price of $0.97 on 23 January 2024.

Separately, BWP has entered into a sale and purchase agreement (SPA) with Newmark Property Group to acquire 100% of the shares in NRML, the responsible entity of NPR.

The SPA is conditional on the merger proposal being declared or becoming unconditional.