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AEW UK Long Lease hoists for sale sign after tenant collapse

11 April 2019

Real estate investment trust serves notice on its fund manager and launches a strategic review which could see it sold or wound up less than two years after launch.

AEW UK Long Lease Reit (AEWL) has served notice on its fund manager and is considering whether the small real estate investment trust has a future following the collapse of its biggest tenant, Meridian Metal Trading, last week.

AEW UK Investment Management, which launched the £67 million Reit in June 2017, will have its contract terminated in a year’s time, unless the board decides to reinstate it following a strategic review.

That seems unlikely though with the board looking at ‘all options’ to improve investor returns, including a share issue, selling the company to a bidder or disposing its assets and returning money to shareholders.

‘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,’ chairman Steve Smith told the stock market yesterday.

In an update this morning, Smith said the company was now considered to be in an ‘offer period’ under the Takeover Code, although it said it was not currently in talks and had not been approached about any possible offer.

Meridian’s fall into administration threatens the value of two properties it leases from the Reit, equal to 9.4% of its portfolio. The loss of its £660,000 rent would reduce the trust’s dividend cover around 1.1 times to 0.95, according to analysts at Liberum.

Since 3 April, when the trust announced Meridian’s plight, its shares have declined 6.5% from 88p to 82.3p, down a further 0.7p today, 12% below their launch price 21 months ago.

They have fallen to a 13.6% discount below their net asset value of 97.5p at the end of last year, and entered the 'cheap' list of last week's 'Trust Watch'. Last week the company said that if the Meridian properties became vacant their reduced value would knock around 4p off the NAV per share.

Administrator Duff & Phelps is reportedly looking for a buyer for Meridian, a Dudley-based steel supplier employing 170 people.

AEWL was launched to invest in long, inflation-linked leases of 18 years or more on properties from a range of sectors. Its shares currently yield 6.6%.

AEW UK also runs AEW UK Reit (AEWU), a £139 million real estate investment trust investing in smaller properties which is run by the same manager, Alex Short.

Its shares trade on an 8.5% discount and 8.7% yield. Launched in 2015, it has been more successful, generating a total shareholder return of 20% over three years.

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