Update: Glenstone, the largest shareholder in Alternative Income REIT (AIRE), has launched a bid approach for the £56m real estate investment trust with a view to selling most of the company’s assets and winding it down.

Shares in AIRE, the smallest London-listed commercial property fund, rose 3.9%, or 2.7p, to 72.4p on Friday after Glenstone, a 24% stake holder, said it was considering a possible cash offer. However, they reversed this gain on Monday morning after AIRE’s independent directors said it would not grant Glenstone access to do due diligence until it had said what its offer would be.

The statements indicate a divided board. AIRE has three directors: chair Simon Bennett and non-executive directors Stephanie Eastment and Adam Smith, a Glenstone director and shareholder, who also owns 2.4% of AIRE. In total that gives Glenstone a 26.4% position in AIRE.

Glenstone’s move follows the withdrawal last month by AEW UK REIT (AEWU) from takeover discussions which Glenstone said offered a “viable exit” for its investment. 

Glenstone, a £97m REIT listed on Guernsey’s International Stock Exchange (TISE), said it had received no response to a letter to AIRE’s independent board committee on 27 April requesting an explanation of the due diligence concerns which led to AEWU’s withdrawal and of the level of costs it had incurred. 

The committee consists of Bennett and Eastment but excludes Smith.

As AIRE’s efforts to find a buyer had found no other interested parties, Glenstone said it had also requested the company consider a managed wind-down and enter into talks over the terms of a cash offer.   

This morning AIRE responded sayings Bennett and Eastment had engaged with Glenstone and its advisers before the announcement on Friday. It said that as Glenstone had not referred to any offer price or range of prices, nor terms and conditions, they were unable to form a view on the possible offer.

AIRE revealed that Glenstone had made an indicative cash proposal at 66.5p per share on 12 November at a 20.8% discount to net asset value of 84p and 11.3% below the then share price of 75p, an approach it said “fundamentally undervalued” the company and was “unequivocally rejected” by Bennett and Eastment on 17 November.

The entire board, including Smith, had supported the possible offer by AEWU which was priced at a 3% discount, which it considered fair value, AIRE said, until it was withdrawn after problems during due diligence.

AIRE’s two independent directors would only give Glenstone access to commercial data to conduct its due diligence once it had made a proposal that could be recommended to shareholders. They believe Smith “has a deep understanding of the portfolio and its underlying assets having served on the board of Alternative Income for the last five years.”

AIRE also disclosed that in its letter Glenstone had demanded another representative be elected to the board and that a transfer of the company’s listing from the London Stock Exchange to TISE be considered. The board said the Guernsey exchange lacked the liquidity and shareholder protections of a listing on LSE’s main market.

It urged shareholders to take no action at this time.

If AEWU’s bid talks had been successful, it would have reunited AIRE with fund manager AEW, the Natixis subsidiary that launched it as the AEW Long Lease REIT in 2017. AEW ran the portfolio for two years but was served notice in 2019 with the investment contract passing to M7 Real Estate.

Shares in AIRE have generated a 50% total return over five years. They stand on a 15% discount and yield 8%.

Our view

James Carthew, head of investment company research at QuotedData, said: “The independent directors are recommending that shareholders take no action in response to the Glenstone announcement and we agree with that stance. A firm bid is needed before any judgment can be made.”

Stay a step ahead. Our daily newsletter brings you the latest on investment trusts and active ETFs. Subscribe here.