Custodian Property Income REIT and Abrdn Property Income Trust have agreed to a £1B merger in a deal that values API at £237M.

The trusts said that under the terms of the deal, CREI shareholders would hold 60% and API shareholders 40% of the merged company, Custodian Property Income, with the transaction valuing API’s shares at 62p, a premium of 29% on the trust's closing price on Thursday.

CREI holds £615.2M in assets and is trading at a 15% discount to net asset value, according to the Association of Investment Companies, while API holds £454.6M and is running at a 42% discount to NAV.

The merger is subject to shareholder approval and would create a larger portfolio with around 200 assets with an average lot size of £5.1M and a combined property value of over £1B as of 31 December.

In the merger statement, the companies said that CREI and API share an income-focused investment strategy with an emphasis on regional, below-institutional-sized assets that are positioned to capture rental growth and yield advantage to generate higher income returns and capital growth for shareholders.

Combined holdings would see around 44% of revenue from the industrial sector, 20% from offices, 18% from retail warehousing and 6% from high street retail, with the remainder divided among pubs and restaurants, gyms, drive-thru, motor trade, leisure and trade counter, data centres, student housing, hotels and healthcare.

API directors said they intend to unanimously recommend that shareholders vote in favour of the deal, which is aimed at creating a differentiated REIT with enhanced diversification and share liquidity and a "fully covered and sustainable" dividend.

Once the merger is complete, Mattioli Woods subsidiary Custodian Capital will provide investment management, administrative and advisory services.