Alternative Income shares jump on Glenstone tender offer

Former AEW long lease real estate investment trust dismisses bid for a 25% stake in its shares and a seat on its board by Glenstone Properties, saying offer undervalues the company.

Alternative Income Reit (AIRE ) has brushed off Glenstone Properties bid for a 25% stake, saying the approach ‘significantly undervalues’ the long-lease property portfolio planning an overhaul under new fund manager M7.

The £42m sub-scale real estate investment trust saw its shares jump 8% to 58p yesterday on Glenstone’s 59.25p per tender offer for up to a quarter of its shares.

Even after the spike, shares Reit are down over 17% this year after the Covid-19 pandemic and subsequent lockdown put pressure on rent collections as commercial tenants struggled, though AIRE is confident of a bounce back.  

Rebuffing Glenstone’s attempt to become the dominant shareholder with a seat on its board, AIRE board said the offer ‘significantly undervalues the company, representing a discount of 29% to the 30 June 2020 net asset value (NAV) per share of 83.58p, underpinned by robust rent collection’.

Guernsey-listed Glenstone had argued that its offer represented a premium of 12.9% above the last closing price pre-bid and would provide AIRE shareholders with ‘a liquidity event’ amid the uncertain economic outlook. It said it did not intend to make a takeover bid but did want representation on the board.

Numis analyst Priyesh Parmar said the bid ‘represents an interesting twist in the life of AIRE’, which he said had been sub-scale since its launch over three years ago.

‘Having appointed a new manager, we had expected the strategy to get more interesting with potential for M7 to inject assets and scale the vehicle to a more institutional size,’ he said. 

AIRE pointed to its latest annual results that showed ‘the resilience of the existing portfolio and robust rent collection’ despite a 6.6% fall in its NAV over the 12 months.

The trust, which last year sacked manager AEW and renamed from AEW Long Lease Reit, plans an overhaul under its new manager M7 Real Estate. M7 has proposed abandoning the long lease strategy with which it launched over three years ago, as it said competition of the assets has made them too expensive to deliver decent shareholder returns.

It wants to lower the requirement to buy properties with average lease lengths from 18 years to 12 years and remove the requirement for 85% of the its rents to be inflation linked.

Under M7’s proposals it wants to ease a restriction that prevents it investing more than 30% of the portfolio in traditional retail, office, and industrial properties, forcing it to focus on alternative sectors such as hotels, leisure facilities, and supermarkets.  

This will allow it to increase exposure to industrials, in particular warehouses, which have become increasingly sought after during the surge in online shopping caused by coronavirus lockdown and social distancing restrictions.

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