Investment trust insider on Achilles and North Atlantic Smaller – James Carthew: Activist Achilles and the wide discounts on Chris Mills’ other trusts
Our columnist responds to questions about how recently-launched Achilles can attack other trusts for being on discounts when North Atlantic Smaller Companies, run by one of the same managers, trades one-third below NAV.
Last week’s bid by Blackstone and Sixth Street Partners for Warehouse Reit (WHR) marked another item in a long list of corporate activity aimed at exploiting discounts in the UK property investment company sector. The total offer of 110.5p was rejected by WHR’s board and for good reason since it came at a sizeable (roughly 15%) discount to the portfolio’s net asset value (NAV).
Investors may be keen to free up cash from trusts investing in property and alternative assets, but not at any price. WHR’s share price jumped, but is still barely above £1, suggesting that investors do not think a deal is doable.
Apart from the discounted offer price, some shareholders may also be reluctant to cash in their investment based on a NAV reflecting valuations that must be near cyclical lows. As UK interest rates fall, property valuations should be recovering again. The economic outlook for the UK may not be great, but the occupancy rate on WHR’s portfolio is 96.4%, rents on its portfolio have been rising, and the fund reckons that its rents are still below market levels, so there is the potential for further rental growth.
Over the past five years, in NAV terms, WHR is the best-performing of the companies in the Association of Investment Companies’ Property – UK Logistics sector, averaging about 8.6% per annum. Nevertheless, like many of its peers, it trades on too wide a discount and investors’ patience is not infinite.
Given the discount, I had thought that WHR would be a likely target for recently launched Achilles (AIC). We are all dying to know which trusts it will target, but… read more here