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AEW UK eyes share issue to fund move into cheap retail property

23 January 2020

Talk of ‘death of the high street’ is overdone, says Laura Elkin, co-manager of high yielding AEW UK real estate investment trust.

High-yielding real estate investment trust (Reit) AEW UK (AEWU ) is considering raising more money in a new share issue as co-fund manager Laura Elkin eyes retail opportunities created by dramatic price falls.

Launched four years ago, the £152m trust offers a high 8% dividend yield and its shares stand at a 6% premium over net asset value. 

Elkin, who manages the trust with Alex Short, said it was ‘early days’ but a share issue was ‘something we are looking into’ after the share price recovery following the Conservative election victory last month that has buoyed the UK property market

The trust’s current share placing programme expires next month and Elkin told Investment Trust Insider a decision would be made before then.

Any money raised by the trust will be used to add to the offices and industrial properties already owed by the fund but Elkin said she was also interested in retail. The sector has been hard hit by reduce footfall on the high street as consumers buy more goods online, pushing retailers into ‘company voluntary arrangements’ that force landlords into rent cuts.

Elkin said retail values have been slashed due to ‘structural reasons’ but there was potential to snap up cheap retail properties and change their use to benefit of the portfolio.

‘In isolated cases we are starting to see places where value has capitulated to the extent where alternative use plays in these locations look attractive,’ she said.

‘You will see some of that in the pipeline.’

Instead of looking at the immediate value of high street and retail properties, Elkin was looking ‘five or 10 years’ down the line and what value can be created by changing the planning consent.

‘We are not a development heavy strategy, we’re an income strategy so we are looking for assets that are producing income but often we find with change of use, it can be very accretive to value, and that value is captured by changing the planning consent,’ she said.

‘The high street will look very different over the long term.’

She said talk of ‘death of high street’ was overdone and that change is more likely.

The trust also wants to expand its portfolio of industrial buildings near convenient ‘transport interchanges’ and offices in ‘vibrant, growing city centres’, of which Bristol is a ‘current favourite’.

While the portfolio currently has no City of London offices, which have taken a hit from Brexit uncertainty, it has in the past and Elkin hasn’t ruled out future investment.

‘We do not hold any City of London because we think during the last four-and-a-half years we have not had any great opportunities come in,’ she said.

‘But we have been a large investor in the City in the past and we are tracking that market to see when it starts to look attractive again.’

The potential to expand the trust comes as management team AEW, which is owned by French asset management giant Natixis, faces the sack from sister trust AEW Long Lease (AEWL ). The board of $61m  AEWL served notice on its fund manager following the collapse of its biggest tenant Meridian Metal Trading.

Launched in June 2017 the Reit is also run by Short. It started a strategic review last year in a bid to improve investor returns, including a share issue, a sale, and disposing of its assets in order to return money to shareholders.

Elkin said any decision to grow AEWU was not linked to the precarious nature of the long lease mandate.

‘I do not think that anything that long lease is experiencing at present is relevant to AEWU but I will say that we would like to grow because we have a lot of happy shareholders that want to increase exposure, and see more liquidity coming through, and because they see scope in our strong pipeline,’ she said.

Investment company news brought to you by Citywire Financial Publishers Limited.

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