AEWL - Strategic Review could provide short-term Capital Gain
Posted: June 23rd, 2019, 9:56 am
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%.
=======================================
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:
============================================
“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.”
============================================
On 9th May a further statement conveyed better news re MMT and this was fully confirmed with an Update on 22nd May:
============================================
-- 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
=============================================
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.
=============================================
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%.