Time is money — and in the world of real estate investment trust (REIT) takeovers, it’s increasingly shareholders who are footing the bill.

Charging for time is especially visible in real estate, where every day has value — whether it’s a hotel room for a night, an apartment for a year, or a logistics warehouse for a decade. REITs are portfolios of income-generating assets — and when a buyer approaches, particularly at a discount to net asset value, shareholders should not be left unpaid while the deal negotiations drag on.

UK REITs ended April trading at a wider than average 27 per cent discount to net asset value. It’s a discount that has lasted many months now, and has attracted opportunistic attention, with REITs such as NHS landlord Assura and multi-let industrial estate owner Warehouse REIT becoming active targets for private equity buyers.

Owning attractive assets in sought-after locations, these REITs offer resilient and growing income streams — exactly the kind of cash-generative assets that private capital seeks. Assura has grown its dividend by an impressive 7 per cent per annum over the past decade. But as the pace of takeovers accelerates, a fundamental misalignment has emerged — one that disadvantages shareholders and blindly transfers value to private equity buyers.

The financial deadzone benefiting bidders

The problem lies in the financial dead zone that exists between a board disclosing a possible takeover approach and the publication of a binding offer under the Takeover Code.

While deadlines are set to mitigate this risk, they are often extended — sometimes multiple times. This can create an income blackout period — at times stretching into months — during which the REIT continues to collect rent, but the benefit disappears into a blind spot where shareholders see no new income, despite still bearing the business risk.

Every day that passes during this period is worth something - the so-called ‘tick value’ – and, in today’s REIT takeovers, it is value that private equity buyers have managed to capture before assuming any economic risk, while existing shareholders go without.

Take the proposed takeover of Warehouse REIT as an example. It is now in its third month in the public domain, and while rental income hasn’t paused, shareholders have received nothing. On a yield north of 6 per cent, even a single quarter of delay equates to a 1.5 per cent return quietly stockpiled for the buyer who’s yet to carry the risk.

Delays increase income and decrease financing costs for the buyer

In the current wave of private equity offers, the price — typically anchored to a historic reference point — has not been adjusted for the rental income earned during the due diligence period. And because REITs benefit from contractual rental flows, that income is not hypothetical — it is real, visible, and largely guaranteed.

What’s more, these cash flows aren’t static. REITs are not fixed-income vehicles - the best are growth-income businesses. That is precisely why private equity and others are interested in acquiring them, particularly given the current valuation gap.

Rent reversion, where market rents exceed in-place rents, is especially strong in accommodation, logistics facilities, urban warehouses, and West End offices, enabling some REITs in those areas to post meaningful increases in dividend payouts. Grainger, the UK’s largest listed landlord, recently boosted its interim dividend by an impressive 12 per cent, for example.

In effect, REITs subject to takeovers are growing their income base even as shareholders wait for the formal offer to be made. And here lies the conflict. In a sector offering yields above 5 per cent and embedded income growth — with the Bank of England in rate-cutting mode, potentially lowering future financing costs — it can suit highly leveraged private equity buyers to drag out the deal timeline. Delaying completion defers the moment they must fund the transaction and start incurring financing costs.

Those who bear the risk should receive the reward

This misalignment demands correction. REIT investors should continue to receive dividends — including for part-period income — while their capital remains exposed, especially given that the prospective acquirer can still walk away before making a firm offer. This reflects a basic principle: those who bear the risk should receive the reward.

REIT management teams don’t suspend their pay during negotiations. Shareholders shouldn’t have their income suspended either.

It’s time for REIT boards to demand more — and negotiate harder for shareholders. If the buyer wants the income, let them take the risk — and make a firm offer quickly. If not, the income should flow where it belongs: to the shareholders whose capital is still on the line.

Unlike recent private equity bids, the proposed public-to-public takeover of Assura by Primary Health Properties honours the next dividend payment — and doesn’t net it off against the offer price. As it should be.

In real estate, time always has a price. The same should apply during the takeover process.

Important information

The VT Gravis UK Listed Property Fund is an investor in Assura, Grainger, Primary Health Properties and Warehouse REIT. The VT Gravis UK Infrastructure Income Fund is an investor in Assura and Primary Health Properties.

This article is issued by Gravis Advisory Limited (“GAL”), which is authorised and regulated by the Financial Conduct Authority. GAL’s registered office address is 24 Savile Row, London, United Kingdom, W1S 2ES. The company is registered in England and Wales under registration number 09910124.

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