The board of Ediston Property Investment Company (EPIC) has launched a strategic review into the future of the company that could result in it being merged with another REIT or sold.
The company, like many other REITs, has been battling a persistent wide discount to net asset value (NAV), which has severely impacted its ability to grow.
The board said its preferred outcome was a merger with one or more REITs, but the strategic review could also result in selling the entire issued share capital or selling its portfolio and returning money to shareholders.
In a statement it said: “While the company is well positioned from an investment perspective, and has in place a very capable investment manager, both the board and the manager recognise that the company, like many of its peers, remains of a size which might deter some potential investors. Challenges as to liquidity, the ability of larger investors to achieve their desired quantum of investment commitment, market profile and cost efficiencies are all directly referable to the modest size of the company. In addition, the company’s share rating, while better than many of its peers within the real estate investment trust (REIT) sector, nevertheless reflects a material discount to net asset value.
“Growing the company has been a stated objective of the EPIC board for a number of years. Unfortunately, for the reasons noted above, the board has concluded that it is unlikely to be able to raise new capital in the short or medium term. This is particularly disappointing given the opportunities which the board and manager anticipate may arise to acquire properties that could substantially enhance returns to shareholders over the medium term. The board and manager recognise that the challenges described above are faced by many of the company’s peers in the REIT sector, and they have concluded that these challenges may be best addressed by achieving consolidation in the sector so shareholders can enjoy the ensuing economies of scale and enhanced liquidity. The EPIC board believes that such consolidation would enable investors to benefit from the medium-term recovery in the real estate sector through a re-rating of the REITs’ share prices and the attractive investment opportunities that are available to larger REITs.
“Accordingly, the board today announces that it is undertaking a strategic review of the options available to the company to maximise value for shareholders. The board, for the reasons stated above, has a preference for structuring a merger with one or more REITs; but it will consider all options available to the company that offer maximum value for its shareholders including, but not limited to, selling the entire issued, and to be issued, share capital of the company, undertaking some other form of consolidation, combination, merger or comparable corporate action, and selling the company’s portfolio or subsidiaries and returning monies to shareholders.”
William Hill, chairman of EPIC, added: “The board believes that it is an important time for new capital to flow into the real estate sector. The state of markets clearly impacts the timing of when investors might wish to invest new capital; but even when conditions are optimal, the opportunity will be lost if there are other factors at play that inhibit those investment decisions being made. However, it is in the gift of participants within the listed real estate sector to do something about this, and therefore a key element in the Board’s decision to announce the strategic review.”
There is no certainty that any changes will result from the strategic review. Further announcements will be made in due course.
[QD comment: It would be a shame to see EPIC go – its investment strategy and execution has been good, focusing on retail parks, which offer higher investment yields and don’t have the pressures that high street/shopping centre retail assets have come under in the past few years. However, as the board said, its share price has been trading on a wide discount for a long time (24% at the close of market yesterday) and it seems there is little chance this will recover. A merger with one of the diversified peers makes sense as too does a merger with NewRiver REIT, which invests in similar assets. With most of the REIT sector trading on similar or wider discounts, consolidation in one form or another is likely to be the trend in the real estate sector for the foreseeable.]
EPIC : Ediston Property considers future