The real estate investment trust is sector is hopping with M&A excitement this afternoon as AEW UK REIT (AEWU) makes a move on Alternative Income REIT (AIRE) and LondonMetric Property (LMP) and Schroder Real Estate (SREI) collaborate in a potential carve-up of Picton Property Income (PCTN).
Alternative Income, a £60m long lease fund, one of the smallest in a sector that has shrunk on consolidation, rose 3.5% to 74.5p after its chair Simon Bennett said he had received an indicative, non-binding all-share offer from AEW UK.
AEW UK, a £165m strong performing generalist focused on smaller commercial properties outside London, confirmed it had made the approach. The company, whose assets are run by Laura Elkin at AEW, has made no secret of its ambition to grow by acquisition. It wants to take advantage of its comparatively strong rating with shares standing 5% below net asset value in contrast to the 24% average discount in the AIC UK Commercial Property sector. The shares slipped 1.6%.
Picton, a £400m REIT, was already in play and the subject of confirmed interest from LondonMetric, a £4.3bn consolidator with a long record of acquisitions, after putting itself up for sale in January. The twist is the involvement of £234m Schroder Real Estate (SREI) in the approach, given LMP has an 11% stake in SREI. PCTN gained 0.8% and SREI shed 1.5%.
Picton confirmed it had received a joint approach from LMP and SREI which said involved an all-share offer of equity in both companies.
Our view
Richard Williams, senior analyst at QuotedData, said: “AIRE has struggled to gain any traction with investors – being too small and its shares too illiquid – and so it has been a potential M&A candidate for a long time. AEWU has been a retail investor darling due to its high dividend pay-out, but too has struggled to grow, with the board and management making no secret of their desire to expand. Both trusts focus on smaller lot size properties that fall below the radar of institutional investors, so it makes sense that the two former stablemate AEW REITs merge. There are some portfolio nuances to get your head around, however, but we believe AIRE’s long let, index-linked properties should sit nicely with AEWU’s asset-management intensive portfolio.
“AEWU has reportedly also run the rule over PCTN’s portfolio, but it looks as though – as we predicted – LMP will likely win the day with the help of Schroder REIT (although a bidding war for PCTN wouldn’t go amiss). It would appear LMP would take on the logistics assets (around 67% of the portfolio), if the deal were to go through, while SREI (in which LMP is an 11% shareholder) would take the retail and offices. On the face of it, not the greatest outcome for SREI shareholders, but we will have to wait and see how the portfolio would be divvied up if a deal does progress and the price it pays for the assets before making judgement. There are some strong performing retail warehouses and offices in the portfolio and if acquired at the right price could provide SREI with some solid income and growth potential.”
