Shares in Alternative Income REIT (LON:AIRE) climbed after the commercial property-focused fund said it views a potential all-share offer from AEW UK REIT (LON:AEWU) as superior to a competing bid from Glenstone REIT.
AIRE is now assessing the terms of larger peer AEW UK REIT’s possible offer. This was made on 16 July and values AIRE at 77.4p. That represents a premium of around 10.6% to the 70p offer on the table from Glenstone, AIRE’s largest shareholder with a 25% stake.
In a statement, AIRE’s board said it ‘strongly recommends’ that AIRE shareholders who have not accepted Glenstone’s offer ‘do not do so’.
While a previous proposal from AEWU did not proceed, AIRE’s board ‘welcomes AEWU’s renewed interest and intends to engage with AEWU to determine whether the AEWU possible offer can be developed into a firm offer capable of recommendation’.
Superior outcome
In short, AIRE believes AEWU’s offer has the potential to deliver a more attractive outcome for AIRE shareholders than the offer from Glenstone. This is ‘both from a price and corporate governance perspective’.
AIRE also stressed that AEWU’s proposal would give AIRE shareholders the option to remain invested in an income-producing REIT. AEWU has paid an 8p per share annual dividend since 2016.
Implied value
The possible offer from AEWU, whose management group AEW previously ran AIRE, has an implied value of circa 77.4p per AIRE share. This is based on the proposed exchange ratio of 0.725 shares in AEWU, which closed at 106.8p on 15 July.
This represents a premium of 10.6% to the 70.0p per share under the Glenstone offer, if AIRE declares a fourth interim dividend of 1.4p per share in order to meet its annual dividend target. However, since the AEWU possible offer is entirely in shares, its implied value will fluctuate with the AEWU share price.
The board will be writing to AIRE shareholders today, setting out in detail the reasons why it believes they should spurn Glenstone’s offer. In our view, a potential takeover of AIRE by AEWU looks more compelling for several reasons.
Besides the premium to the Glenstone offer, AIRE shareholders would benefit from a merger with AEWU by becoming shareholders in a larger, more liquid vehicle. AEWU holders would also benefit from the enlarged entities’ increased scale and the purchase of a high-yielding portfolio at a small discount to book value.
Sharesify also notes that AEWU has a strong long-term performance track record. The company also has a history of trading at one of the tightest discounts in the property investment trust sector.
Read the press release here: https://www.londonstockexchange.com/news-article/AIRE/statement-regarding-possible-offer-from-aew/17694704
