Warehouse (WHR ) is reinstating plans for a big share issue that fund manager Andrew Bird said would allow the company to snap up prime properties at knock-down prices from forced sellers.
The £336m AIM-listed real estate investment trust (Reit) was forced to put a capital raise on ice when the coronavirus pandemic stuck global markets in March.
Specialist industrial and logistics trust LondonMetric Property (LMP) successfully raised £120m last month, defying the real estate rslump, and is currently the only trust in its sector trading on a premium.
There are still two deals in the pipeline but Bird said the acceleration of e-commerce during the virus-induced lockdown means the trust is interested in exposing the portfolio to tenants with online businesses.
‘We are looking at who the winners and losers in this situation,’ he said. ‘4.5% of our income comes from Amazon and we would like to grow exposure to that company. We want to follow the success stories.’
Warehouses and logistics have been the property sectors that have benefited most from the Covid-19 crisis, which hit Reits exceptionally hard.
Bird said while property transactions had fallen there was still demand for warehouses and he had ‘signed leases all the way through lockdown’.
Warehouse has its eyes on an investment pipeline of up to £350m, with over £100m advanced and £250m in detailed negotiations.
He said buying now rather than pre-lockdown means ‘we will get improved prices but there will not be a substantial price shift’.
‘What we will see is that there will be greater quality, prime assets come to market because those with mixed portfolios and open-ended funds need to release cash and their most liquid assets will be warehouses,’ he said. ‘We will be able to afford better quality [property].’
‘Open-ended funds need to raise money,’ said Bird. ‘They become forced sellers. That is explicitly where we are shopping.’
Warehouse Reit’s portfolio has held up against the Covid-19 crisis with net asset value (NAV) calculated to the EPRA property industry standing falling marginally to 109.5p per share in the year to 31 March compared to 109.7p in the previous year.
The value of the portfolio has risen 2.5% year-on-year to £450.5m but has fallen from £454.9m since the beginning of the year. The trust has maintained its dividend of 6p per year, covered 105% by earnings, and its shares trade 5.8% below NAV, one of the narrowest discounts in the UK commercial property sector.
About 90% of rent invoiced in March has been received, with a further 4% of tenants agreeing to pay Warehouse monthly.
Bird said he was conscious that investors had an increased focus on dividends due to the number of UK companies that have cut or cancelled their payouts during the crisis.
With this in mind, Bird said he wants to buy new properties that will help to extend the WAULT, or weighted average unexpired lease term, meaning he wants tenants to tie in for longer periods to guarantee rent yield.
‘As everyone focuses on downside risk...shareholders will appreciate longer-dated income,’ he said.
This shift in focus will mean Bird is focusing on different types of property, most notably single-let buildings that he said would have ‘stood out’ too much when the fund was smaller as they would have represented too high a weighting.
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