A new listed company focusing on long-term secure income is to launch on the London Stock Exchange.
LXI REIT, chaired by Stephen Hubbard, UK chairman of CBRE, hopes to raise £200m from the listing.
It is the latest of a growing number of firms to invest in secure assets and will target what it sees as long-term, inflation-protected commercial property. Assets acquired will have 20- to 30-year leases, institutional clients and upward-only rent reviews. The REIT will take on no development activity. Target LTVs will be 30%, with a maximum of 35%.
Hubbard said: “In this low- yield environment with higher inflation looming on the horizon, the company’s intention is to deliver attractive, inflation-protected income and capital returns, underpinned by a secure and diversified portfolio of property investments let or prelet to a wide range of financially strong tenants on long-term and index-linked leases.”
The firm said it already had a substantial pipeline and expected to invest its initial capital within six months of its IPO.
LXI REIT will target a minimum annual dividend yield of 5%. The net total shareholder return is expected to be 8%.
The company will be managed by LJ Capital and advised by LXI REIT Advisors, which will receive an annual fee of 0.75% based on market capitalisation, and no performance fee.
Peel Hunt is sole sponsor, broker, placing agent and intermediaries offer adviser.
LXI directors
- John White is former investment partner at Cushman & Wakefield and co-founder of Osprey Equity Partners (part of the LJ Partnership, which has more than $4.5bn of property under management)
- Simon Lee is former solicitor at Slaughter & May and co-founder of Osprey Equity Partners
- Stephen Hubbard is UK chairman, CBRE
- Colin Smith is former chairman of Poundland, currently chairman of Hilton Food Group
- John Cartwright is chief executive of AREF
Secure asset investors
Secure Income REIT
- Led by: Nick Leslau
- Launched: 2014
- Market cap: £730m
Civitas Social Housing
- Led by: Paul Bridge
- Launched: November 2016
- Market cap: £350m
Impact Healthcare REIT
- Led by: Rupert Barclay
- Due to launch: March 2017
- Target cap: £180m
Comment: REITS specialising in secure-income assets are attractive – but hurdles must be overcome
Hemant Kotak, managing director, Green Street Advisors
This idea of long, secure income with an element of inflation-linked leases is very attractive. Much of property’s return comes from income, and in our low-yield environment, the income aspect becomes ever more important.
Although the underlying investments might be attractive, there are problems, and one of them is that the REIT doesn’t have a portfolio that it is listing with. Acquiring properties will take time and there will be a drag on returns.
The REIT is also trying to get off the ground with an IPO that is small in scale, especially compared with Secure Income REIT. There are a few advantages with scale. You can shed the cost burden of managing a portfolio over a larger platform and you potentially have better access to debt financing.
But it can be done. Tritax Big Box went from a standing start to £1.5bn.
Some investors, however, will choose to wait on the sidelines until the company grows in scale and has a bit more of a proven strategy.
The fact that it is a cash box, externally managed, and has low liquidity are all hurdles, but the underlying investment is attractive.
