AEW has changed the investment strategy of its top-performing UK Core Property Fund to core-plus and increased its maximum leverage capacity to 30% of the value of the fund’s total assets.
The fund will be renamed the AEW UK Core Plus Property Fund. As part of the migration, a significant new investor has committed to the fund.
AEW said the core-plus fund “will seek to capitalise on market inefficiencies and acquire attractively priced and high-quality multi-sector commercial real estate at the margins of prime locations across the UK”, with the aim of achieving “superior investment returns over the long term”. The strategy focuses on strong stock selection and identifying properties with high income streams and the potential for active asset management to increase capital value.
Richard Tanner, AEW’s senior portfolio manager, told IPE Real Assets: “We took the opportunity of migrating to core-plus to make it easier for the fund to look agnostically between direct and indirect holdings. We’ve freed ourselves so we can buy interests in other people’s funds, buy property shares, or buy directly into real estate.”
Tanner said the rationale for the change was also driven by the need to make the fund more attractive to international investors.
He said: “[Our core-plus fund] is more akin to other open-ended, diversified funds around the world, and we picked up, particularly in Asia and North America, that pension funds are more used to a slightly higher-yielding, leveraged version of a core fund.”
Tanner added that the evolution into core-plus ”will allow us to take advantage of the price dislocations we are seeing in the commercial property market”.
Following the change in strategy, AEW’s core-plus fund has made four acquisitions: Harbour Island, an office and retail asset in Canary Wharf for £18.2m, reflecting a net internal yield (NIY) of 8.2%; Hythe Marine Park in Southampton, a 12.6-acre freehold marine services industrial estate, with an additional 33 acres of foreshore held on a long leasehold basis. The purchase price was £14m, reflecting a NIY of 9.2%.
The fund has also purchased Barton Court, in Bath, a mixed-use island site consisting of 54,074sqft over basement, ground and three upper floors with a mix of retail and offices. The purchase price was £8.25m reflecting a NIY of 12%. The retail anchor is Anthropolgie and the office is anchored by Stone King.
Following the acquisition of Armourers House in Bristol in February 2022, the fund has acquired the adjoining interest to the property, 3 Queens Square, for £705,000 which AEW said “will assist in delivering high-quality refurbished office accommodation in line with the business plan”.
Tanner added: “The high-yielding acquisitions recently completed are evidence of our commitment to seeking out attractively priced properties where we can leverage our proven active-management capabilities and deliver value for both investors and tenants.”
The fund’s investment objective is to provide a return from capital appreciation and income over the longer term and to deliver, over time, a total return in excess of 8% per annum and outperformance of the benchmark, the All Balanced Property Funds Index – MSCI/AREF UK Quarterly Fund Index – weighted average.
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