Abrdn Property Income Trust’s (API) proposed merger with Custodian Property Income Reit (CREI) has fallen through after it failed to gain sufficient shareholder backing at a general and court meeting held yesterday (27 March).

In a stock exchange announcement, API chair James Clifton-Brown said the trust’s board will now pursue a managed wind down instead.

Overall, 60.8% and 61.4% of shareholders backed the merger at the court and general meeting respectively. However, both votes fell short of the 75% needed to move forward with the Custodian deal.

Custodian had fought off a rival bid from Urban Logistics in recent weeks.

See also: API asset sale ‘casts doubt’ on merits of Custodian merger

David MacLellan, chair of CREI said: “Having heeded clear calls from the market regarding the need for consolidation amongst the listed Reits, we worked with our investment manager and the API board of directors to negotiate what we believe to be a fair deal for all shareholders of both API and CREI.

“Our proposal was fully aligned with the existing investment strategies of both companies and structured on an NTA-to-NTA basis to ensure that the exchange ratio was based upon the latest respective underlying property valuations.

“Furthermore, it was unanimously recommended by the API Board and allowed both API and CREI shareholders to benefit from the long-term benefits of being invested in a combined business which brought together two highly complementary portfolios, with a growing and fully covered dividend.”

He added the trust was therefore ‘disappointed’ that the merger fell short of the required votes in favour.

“In fact, shareholders accounting for just 14% of API’s register proved sufficient to prevent the resolutions passing. These votes were, we understand, primarily from institutional investors who believe a ‘managed wind-down’ of API’s portfolio will better protect shareholder value, despite the API Board clearly and publicly setting out the flaws in this conclusion.

“CREI wishes API and its shareholders every success in the future as API continues as an independent business. The CREI Board believes it is important to note that it viewed the transaction as an augmentation of, rather than critical to, the strategy that CREI has pursued successfully over the 10 years since it launched in 2014.

“Instead of gaining a jump in scale via the recommended merger, CREI will maintain its strategy of incremental growth and, most importantly, continue to offer CREI shareholders an attractive dividend from a highly diversified portfolio, significant rental growth potential, low costs relative to its peers, as well as a strong balance sheet with a low cost of debt.”

Last week, the trust announced the sale of two properties for a combined £16.6m, representing a 0.3% discount to the portfolio’s December valuation. The sale prompted QuotedData analysts to question the merits of the CREI merger.

API said the net disposal values that would be realised in a managed wind down would be lower than those achievable on carefully selected individual assets marketed by API in the ordinary course of business.