Alternative Income REIT (AIRE) has announced its intention to amend its investment policy following a review of the business by new investment adviser M7 Real Estate.
M7’s review concluded that AIRE’s investment policy should change so that it can take advantage of investment opportunities in the market “at an attractive entry yield that are expected to benefit from the significant and accelerating movement away from high street retail to online shopping, a substantial shift in sentiment in the business space market and changes in the credit environment”.
The most significant proposed changes are:
· A reduction in the minimum weighted average unexpired lease term (WAULT) of the portfolio to 12 years;
· Removal of the requirement for leases representing 85% of gross passing rent to be linked to inflation (RPI or CPI); and
· Removal of the restrictions relating to permitted sectors, including the differentiation between traditional and non-traditional sectors.
The board is consulting with the company’s shareholders and it will seek the relevant regulatory approvals and formal shareholder approval for the amendments in due course.
Rationale for changing current investment policy
AIRE, which was launched in 2017 under the name AEW UK Long Lease REIT, currently has a focus on constructing a diversified portfolio of assets in the alternative and specialist sectors with a WAULT of 18 years and inflation linkage on at least 85% of the portfolio’s gross passing rent.
The strategy involved buying smaller lot sized assets on very long let leases, but the company has seen increasing competition and has resulted in acquisitions that, whilst meeting its investment policy, provide limited scope for rental growth or asset management-led value enhancement. The company said it was M7’s view that the practice of buying very long leases in an increasingly competitive market is expected to lead to further premium pricing and will not necessarily deliver best value for shareholders.
A more balanced approach between security of tenure and asset management-led opportunity in sectors that are increasingly benefiting from ongoing market shifts is expected to achieve more attractive income returns and capital growth, it added.
Although the income from the portfolio, as at 30 June 2020, was 88% inflation linked to the (RPI) or (CPI), the review found this limits the investment opportunities available to the company and potentially limits its growth.
The current investment policy was constructed with a detailed set of restrictions, including specific sector exposures. Many of these were required to differentiate the company’s investment policy from that of other investment vehicles managed by the company’s former investment manager, AEW UK Investment Management.
Future growth
M7 has identified investment opportunities for the company which it believes will deliver higher value and earnings, strong and secure cashflow and contribute to a stable and growing dividend whilst maintaining a relatively long WAULT.
“The board believes that, in light of this, the ongoing changes to the property markets and the opportunities that M7 has identified, that the company will be best placed to deliver significant added value to shareholders with less restrictive investment parameters,” it said.
In order to take advantage of investment opportunities, the board is consulting with existing and potential new shareholders on the level of support for a fundraising.
AIRE : Alternative Income REIT to amend investment policy after review