Real Estate Investors (RLE) has announced a plan to wind up its portfolio of Midlands-based commercial property by selling off assets over the next three years.

Real Estate Investors, which invests in offices, retail, healthcare assets, leisure facilities, and food stores in the Midlands, has suffered with the wider real estate investment trust market during the recent period of high interest rates and political instability.

Shares in the trust have dropped 10% over the past year, and now trade at a lowly 31p each, a 49% discount to net asset value (NAV), which has sparked the decision to wind the trust up. 

The shares rose 1.6p, or 5%, to 31.6p at the news. Shareholders, which include Chris Mills’ Harwood Capital, fund manaer Ruffer and trust bargain hunter Nick Greenwood’s MIGO Opportunities (MIGO ), stand to make further gains as the gradual liquidation sees the stock move to asset value.  

‘Given the ongoing substantial discount between the share price and net asset value, combined with a lack of liquidity in its shares, the board has concluded that it will conduct an orderly strategic sale of the company’s portfolio over the next three years with the objective of maximising the return of capital to shareholders,’ said the board, chaired by William Wyatt, former chief executive of Caledonia Investments (CLDN ).

The board is considering the individual sale of properties, a smaller portfolio of assets, or the sale of the entire portfolio, with the ‘initial priority to repay the company’s debt’.

It has already sold £56.4m of property over the past three years at or above book value and reduced its debt from £101m to £54.3m as of the end of last year.

To incentivise manager Paul Bassi and finance director Marcus Daly to offload property, the board is replacing its ‘long-term incentive plan’ with a ‘shorter-term incentive plan’ that will encourage the management team to achieve ‘an orderly and timely disposal of the company’s assets to maximise the capital return to shareholders’.

Under the new incentive plan, the manager will receive a ‘proportion of a notional cash pool which will be created from the excess of total shareholder return over the market value of the company as at 31 December 2023’.

To ensure a timely disposal of assets, the pool will be reduced over time to encourage swift sales. The minimum amount ringfenced for incentive payments to management is £410,000.

Bassi and Daly will also have their salaries cut by one-third, to £367,000 from £550,000 and to £229,000 from £344,000, respectively, while executive board salaries will also be cut by a third to save on costs. Bonuses will be cut to a maximum of 50% of new salary from 100% of basic salary.

Bassi said during 2023, ‘despite an inactive property market’, sales totalling £17.97m were made, mostly to private investors, and the profits were used to reduce debt by £17.1m.

‘With the benefit of our unique market insight, we will continue to capitalise on ongoing buyer demand for our smaller lot sizes from private investors and special purchasers,’ he said.

‘We have identified other larger assets that are ready for disposal, some of which we will hold for income until corporate and institutional buyer demand returns.’

He said assets will continue to be ‘intensively’ managed to maximise income, reduce vacancy levels, and support the fully-covered dividend.

Although the new strategy is in place, Bassi warned market sentiment remains weak and ‘we anticipate valuation decline across the industry’.

‘This is due to the lowest level of transactions since the financial crisis of 2008, high interest rates, and the political uncertainty in an election year,’ he said.