Warehouse REIT’s goal to raise £150m in an IPO is the first step in an “ambitious growth” strategy, the company has said, as it looks to buck the trend of property placings failing to meet their targets this year.
The company published its intention to float on the London Stock Exchange on 21 August – the eighth property company to do so this year – with plans to tap into the growth of e-commerce by investing in UK urban warehouses.
Although a new property company has listed almost every month this year, and only three of the seven that are now trading hit their placing targets, Andrew Bird, who assembled Warehouse REIT’s seed portfolio, shrugged off fears that investors have real estate fatigue.
He pointed to Tritax Big Box REIT, which raised £350m in a placing in May on an initial target of £200m, as evidence that the industrial sector is more resilient than others.
That, he said, means the company is drawing investor interest even during what is traditionally a quiet period.
Bird said: “Maybe other sectors where the yield is less sustainable have had more mixed investor receptions, but the feedback we’re getting is that the product is being supported well by the wealth management community.
“I think we’re bucking the trend. We’ve got full diaries all the way through the rest of August now.
“We’ve had a tremendous response and a lot of people want to see it. August is no barrier at the present.”
Bird, managing director of Tilstone Partners, spent four years assembling a £109m seed portfolio of 27 urban warehouse properties with Simon Hope, head of capital markets at Savills and non-executive chairman of Tilstone, and Paul Makin, investment director of Tilstone.
Martin Meech, property director at Travis Perkins, is also among the non-executives.
He said: “It has always been our intention to list the company since [Tilstone’s] incorporation, but now that we’ve assembled £100m of assets, the listing is the best way to support our ambitious growth strategy to become a large dedicated warehouse REIT.”
The company will target a 5.5% dividend yield in its first year with a return of 10%. It anticipates rental growth of 3-4% per year, driven by continued demand from e-commerce and retailers’ investment in last-mile delivery.
Its initial goal is to reach a net asset value of £500m and has a maximum gearing level of 50%.
Bird said: “We’re about dividend and dividend growth. It’s not trading, it’s not development. The only time we would develop is to enhance return on capital and earnings.”
With industrial demand outstripping supply and UK online spending forecast to double over the next five years, Hope said there is considerable potential for rental growth in the sector.
“There is a paradigm shift in terms of the warehouse market and how it’s disintermediating the high street and shopping mall. If you haven’t got a digital strategy, you’ve got a problem,” he said.
Tilstone Property will retain a £16m equity interest in the REIT with members of its board and management team subscribing to another £1.8m in shares in order to align their interest.
Bird said: “We’re leaving our money in this vehicle because we very much believe in the story.”
Warehouse REIT’s intention to float comes three weeks after pan-European industrial investor M7 announced that it is lining up a prospective IPO for the start of October.
Bird said that Warehouse REIT’s portfolio will set itself apart from M7.
“We’re purely warehouse, purely UK urban space. We’re about sector specialism and we’ll stick to what we know,” he said.
COMMENT: ‘It’s saturation’
There’s waning investor enthusiasm, to put it mildly, writes Alan Carter, director, specialist sales, Stifel Nicolaus Europe.
These vehicles are all within a pretty narrow target range in the sums they wish to raise. On that kind of scale, you rule out a lot of fund managers.
It’s only small cap fund managers, income fund managers and some of the dedicated REIT funds you’re appealing to.
This isn’t a sort of £2bn IPO or a £5bn IPO that the whole market’s got to be involved in. The pool of buyers is quite narrow and a lot of people have been to the same investors over and over again.
Each vehicle is unique and each one entirely different, of course, except that the subsectors they operate in are, generally, in the secure long-term income stream sector.
They’re all promising a 5%+ dividend yield that will grow at RPI where they have index-linked leases or where it’s got exposure to a certain part of the market that still has a bit of growth left in it.
But there are plenty of bigger companies that have stuck their snout in the trough on the way up and have done really well – like Assura or New River or Secure Income REIT or Tritax – and the buy side is thinking: “We might like this story but now it’s a bit of a struggle for us to take any more.”
There are others who will support a certain type of vehicle in a certain area, but the pool of buyers you’re pitching at is relatively narrow.
It’s saturation. It’s happened before. It’ll happen again. Simple as that.
To send feedback, e-mail karl.tomusk@egi.co.uk or tweet @ktomusk or @estatesgazette
