New UK property trust targets bond-like income
LXi Reit taps shift in investor demand for security over capital growth
A new real estate investment trust preparing for a London listing will buy properties with ultra-long leases to tap into investor appetite for bond-like returns.
LXi Reit, whose board includes senior figures in the UK property industry, will this week announce plans for a £200m flotation in February, according to a person familiar with the plans. The trust will be able to issue up to 200m additional shares through a placing programme in its first year.
It is the latest in a series of flotations and equity raises tapping into demand for steady income in a low-yield environment, particularly among pension funds and insurance companies which need to match long-term liabilities.
The shift in investor focus from growth to income has been further boosted by fears that capital growth in the current property cycle is drawing to an end, according to analysts.
The new investment trust, run by the private equity real estate firm Osprey Equity Partners, will buy properties with 20- or 30-year inflation-protected leases, such as hotels, industrial properties and retail sites.
This profile is similar to that of Secure Income Reit, a fund whose management company is chaired by Nick Leslau, the well-known property investor.
Shares in Secure Income Reit, which owns assets including 55 Travelodge hotels and the theme parks Alton Towers and Thorpe Park, have outperformed all other London-listed property stocks over the past year, with a rise of 19.4 per cent, according to Canaccord Genuity figures. By contrast, developers, especially those with exposure to London, experienced falls as large as 26 per cent.
Secure Income now has a market capitalisation of almost £720m after raising £140m in a heavily oversubscribed placing last October.
Another property fund focused on long leases, Impact Healthcare Reit, is planning a £180m flotation in March and will invest in residential care homes. Civitas Social Housing, the first Reit investing in social homes, was oversubscribed ahead of its £350m float in November, also targeting long-term inflation-linked yields.
Analysts at the investment bank Stifel said earlier this month that investors had shifted away from seeking growth, including harnessing rises in land values, and towards income from the property sector.
“The disparity between the two really became apparent post the EU referendum as investors sought out security and income over capital growth,” they said.
Major insurers, including Standard Life and M&G, run unlisted income real estate funds but until recently this sector has been difficult to access through the public markets.
LXi will target a dividend yield of at least 5 per cent a year. Its board will be chaired by Stephen Hubbard, who also chairs the UK division of CBRE, the world’s largest firm of property advisers.