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AEWL - Strategic Review could provide short-term Capital Gain

Posted: June 23rd, 2019, 9:56 am
by SKYSHIP
Sunday is always a good day for a little leisurely research. Here is the story on what I believe to be a very good value play. Commercial Property is my joint favourite sector for value, alongside Private Equity. Following the recent Strategic Review announcement, this one offers the very real prospect for corporate action and perhaps a 12.5%+ gain in the near future - see text. I was a recent buyer at current levels.

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AEW UK Long Lease REIT (AEWL)

AEWL’s Mission is to invest in long lease properties to generate a secure and predictable income return, sustainable in real terms, whilst at least maintaining capital values in real terms.

It has however been a bit of a dog since its over-confident IPO two years ago.
Then 2 months ago they announced the Administration of their largest tenant, which accounted for 9.8% of their rent roll and 9.4% of their property portfolio. Their valuers stated that should the properties be vacated then the result would be to wipe £4m off the previous £10.75m valuation - a 4% NAV impairment !
On 10th April the Company issued a statement saying:

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“In view of the sub-scale size of the Group, its performance since IPO, and the recent news in respect of Meridian Metal Trading Limited (MMT), the Board is reviewing the options for the future of AEWL.
The Board will seek to achieve value for shareholders either by expanding the Group's equity and asset base to achieve full dividend cover, considering offers from interested parties, or by selling the Group's portfolio and returning funds to shareholders.”
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On 9th May a further statement conveyed better news re MMT and this was fully confirmed with an Update on 22nd May:

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-- We are pleased to announce that earlier today the leases have been assigned to Meridian Steel for all three properties. Under the terms of the new lease arrangements, the passing rental income for the three industrial assets, two located in Dudley and one in Sheffield, will remain unchanged at GBP659,000, following an initial 12-month rent free period. The leases, which will run for a period of eight years, are linked to the Retail Price Index, with annual reviews and are all guaranteed by DITH.

-- Following the assignment of the leases, Knight Frank LLP, AEWL's independent valuer, has valued the properties at GBP8.85 million. The impact of this revised valuation would increase the Group's reported NAV based on the balance sheet as at 31 March 2019 (see below) by GBP2.05 million (2.55 pence per share).
https://uk.advfn.com/stock-market/londo ... V/79976020
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So, the net effect is that the NAV is restored to 95.77p and the Company is undergoing a Strategic Review, as essentially it lacks the critical mass to continue as it is.

Other high-yielding propcos confronted this problem earlier in the cycle through a placing, or by underwriting large portfolio acquisitions – EPIC & WHR are two such, both doing so at the underlying NAV.

IMO it may now be too late to adopt the same route, so perhaps more likely that AEW, the £60billion AUM property asset manager, may have to call time on this minnow and ease it out of the public sector through a trade sale or liquidation.
It is now nearly 11weeks since the Review announcement; so it is surely likely that some resolution will need to be announced fairly soon, I would suggest certainly before mid-July.

With the shares trading at 76.5p-77.0p; one is buying at a 19.6% NAV discount and a 7.1% yield. So a good yield whilst one waits for whatever outcome; but IMO the most likely outcome is some corporate action which will provide shareholders with a quite rapid c12.5% capital gain from current levels.

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Incidentally, one last thing, just in case you are wondering about their Retail exposure, here is a sector breakdown of their property portfolio:

Sector weightings
The sector weightings, by value, of the property portfolio as at 31 March 2019 were: Hotels 21.9%; Industrial 18.3%; Residential care homes 16.3%; Car showrooms 13.6%; Student accommodation 10.9%; Leisure 8.7%; Power station 4.4%; Petrol station 4.0%; and Nursery 1.9%.

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: June 23rd, 2019, 11:31 am
by BusyBumbleBee
Interesting, Skyship - thank-you : but what an eclectic mix of properties. One can see who might buy some of them but some could be very difficult, Not for me I fear.

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: June 23rd, 2019, 12:47 pm
by SKYSHIP
Hi BB - eclectic list of properties - for sure, but pretty well matches CREI's properties - and they trade at a 9.5% PREMIUM!!!

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: June 23rd, 2019, 4:56 pm
by BusyBumbleBee
SKYSHIP wrote:Hi BB - eclectic list of properties - for sure, but pretty well matches CREI's properties - and they trade at a 9.5% PREMIUM!!!
Agreed (having looked them up) - is the quality of the assets similar? Cos if so CREI would do well to buy them out at NAV!

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: June 23rd, 2019, 5:21 pm
by SKYSHIP
Good thinking - could be a good fit. Also CREI are constantly issuing equity (at a premium!) and might like to take out the portfolio at a reasonable discount, say 5%-7% (89p-91p equivalent), which would still be a good result for an AEWL buyer down at 77p.

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: February 6th, 2020, 10:43 am
by SKYSHIP
Regional propco AEWL: NAV, dividend & Update this morning. I added to my holding there as the figures, both Dividend cover and NAV, were better than I expected.

https://uk.advfn.com/stock-market/londo ... o/81684852

I had thought that they might temporarily cut the dividend so as to have full year cover; but the stats show not really necessary.

At 73.5p the discount = 22.3% & the yield = 7.5%; so AEWL is certainly one of the best value minor REITs, with most of the others climbing to new highs and discounts disappearing.

The Liberum view this morning is "we see the longer term goal of growing the size of the company as challenging given the current scale and share rating". More like impossible I would say; so a trade sale still the most likely outcome.

The BoD have been too self-interested by far; otherwise a deal would have been done at the time of last year’s Review. It has been suggested that AEWL with a MCap of just £59m could live on as a Zombie; however more likely that they will get taken out at some stage, albeit at a c10% NAV discount.

Still, such an outcome would deliver 85p - 15% up on where they are now! I could live with that; in the meantime I'll enjoy the 7.5% yield...

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: February 6th, 2020, 7:15 pm
by SteMiS
I don't really follow AEWL that closely but surely, with 92% of leases subject to inflation linking and an average WAULT to break of 20.0 years, in the medium term the dividend should increase at least in line with inflation (since it's now pretty much covered). With valuations also (simplistically) likely to track upwards in the medium term at a similar rate, NAV and share price should similarly rise. So at the current share price, without any closing of the discount, that's an annual return of maybe 10.0%. Don't see why AEWL should be in a hurry to accept an offer that isn't decent value for shareholders?

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: February 9th, 2020, 1:08 pm
by flyer61
Given the weather thought I would take a look.

Biggest property (by value) is a tower block for students in Salford. Reading the student reviews I do hope the lease is FR&I for the tenant.

The CPI/RPI uplifts across the portfolio are attractive however it would only take one or two tenants to go bust and at 73p it might look, shall we say, fully valued. The market may well have the pricing right on this one. Barring insolvencies amongst the tenants the yield going forward seems fairly secure.

All IMHO.

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: February 9th, 2020, 2:31 pm
by SKYSHIP
Flyer

# "however it would only take one or two tenants to go bust and at 73p it might look, shall we say, fully valued" - you could of course say the same thing about any of the smaller REITs; and indeed AEWL did suffer from the temporary outing of one of their tenants. But that was in the past. The nature of a tenant default is always a temporary setback as properties re-let, especially in a growing economy.

# "The market may well have the pricing right on this one" - so how would you equate CREI on a 9% premium; AEWU on a 2% premium; WHR on a 9% premium - but the Market is valuing this one correctly at a 22% discount!?

If you are going to post something, please do attempt to justify it rather than just saying IMHO...

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: February 9th, 2020, 4:01 pm
by MaraMan
Thanks for posting SKYSHIP, it's an interesting proposition. I am looking at this sector to move some funds into. Recently Investors Chron had a buy recommendation on LXI REIT which has a 19+% premium at the moment and pays a divi of 4.1%. LXI does have a better LTV ratio and longer debt maturity, but not excessively so, and of course is much bigger. If I have a particular concern it is the small size of AEWL, but as you say it's worth seeing how it plays out following the strategic review. The general rationale for this sector at the moment as proposed by IC is valid and on that basis, and though I can't see any reference to inflation-linked leases as LXI has there is little sign of inflation ticking up dramatically. I think AEWL is worth a go, so thanks again.

MM

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: February 9th, 2020, 7:13 pm
by BusyBumbleBee
SKYSHIP wrote:Flyer

# "however it would only take one or two tenants to go bust and at 73p it might look, shall we say, fully valued" - you could of course say the same thing about any of the smaller REITs; and indeed AEWL did suffer from the temporary outing of one of their tenants. But that was in the past. The nature of a tenant default is always a temporary setback as properties re-let, especially in a growing economy.

# "The market may well have the pricing right on this one" - so how would you equate CREI on a 9% premium; AEWU on a 2% premium; WHR on a 9% premium - but the Market is valuing this one correctly at a 22% discount!?

If you are going to post something, please do attempt to justify it rather than just saying IMHO...

Greetings Skyship - that's a little harsh. I thought it was a balanced and thoughtful post which added to the discussion. I have been looking at this but cannot see why it is so undervalued by the market.

So a question of for you - would you sell AEWU to buy AEWL?

with kind regards - BBB

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: February 9th, 2020, 8:47 pm
by SKYSHIP
Yes, perhaps a little harsh - sorry Flyer.

Would I sell AEWU to buy AEWL. Yes indeed.

I don't see any growth in AEWU, but seriously expect a resolution to AEWL's future to be by way of a trade sale.

AEWU trading at a 1.5% premium versus the 22.3% discount for AEWL.

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: February 11th, 2020, 2:31 pm
by SteMiS
SKYSHIP wrote:Yes, perhaps a little harsh - sorry Flyer.

Would I sell AEWU to buy AEWL. Yes indeed.

I don't see any growth in AEWU, but seriously expect a resolution to AEWL's future to be by way of a trade sale.

AEWU trading at a 1.5% premium versus the 22.3% discount for AEWL.

AEWU and AEWL are different plays. AEWL has long leases with rent inflation nailed into the leases; so a stable, slowly rising yield with 'maybe' corporation action to provide a bit of a gain. AEWU has short leases bought at below market rent, which it hopes to add value to by developing/re-letting on longer leases at (higher) market rents.

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: February 28th, 2020, 10:42 am
by flyer61
SKYSHIP no hard feelings! Unfortunately whilst I think my brain works fine getting from that department and out through my fingers into the written word has always been a challenge for me.

DAEJAN...was genius! I wonder how many other 'closet' private Companies are thinking of pulling their public listing so they don't face scrutiny of their boards composition. Any others that spring to mind?

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: March 3rd, 2020, 11:24 pm
by airbus330

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: March 4th, 2020, 1:28 pm
by BusyBumbleBee
airbus330 wrote:Name change forthcoming.
https://citywire.co.uk/investment-trust ... ider+Daily
Name change has already taken place (2nd March) and the ticker is now AIRE the old ticker of AEWL is redundant now. ADVFN has kept the trail of RNS's though.

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: March 7th, 2020, 9:21 am
by SKYSHIP
flyer - sorry for no reply - hadn't dropped by here for over a week....and what a week!

No other big ideas at the moment; though having had two this year (GGP & DJAN), I'm expecting a third to come
round the corner before too long -:)

Should it come, I am more than likely to post on my rarely visited ADVFB blog/thread - as below:

https://uk.advfn.com/cmn/fbb/thread.php3?id=45437484

Re: AEWL - Strategic Review could provide short-term Capital Gain

Posted: March 8th, 2020, 4:57 pm
by SKYSHIP
I know the rules about re-posting a press tip are fairly strict here - so, having waited a few days, just to say that Simon Thompson tipped AEWL in his IC Online column on 2nd March:

Herewith a small excerpt, an edited extract of the closing remarks. You'll find more elsewhere I feel sure.

"... AEWL’s share price trades 23% below EPRA NAV of 94.63p even though the company has a modestly geared balance sheet (36% LTV), 100% occupancy rate and a weighted average unexpired lease term of 20 years to the next break. Having advised buying the shares just above the current price in my October 2019 Alpha Report, I feel that AEWL’s share price discount to NAV should narrow markedly in the coming year to complement returns from four quarterly dividends of 1.375p a share. Buy."