I was rather hoping that we’d see a pause for breath on the new issue front in August but yesterday brought news that there’s yet another big box REIT heading our way. It’s called the Warehouse REIT (which will sit nicely alongside the Supermarket and Big Box REIT) and it’s looking to raise £150m, with the placing closing on 15th September, with new shares expected to commence trading on 20 September.
According to Numis the fund already has a seed portfolio of – you guessed it, warehouses – ready to go, via the purchase of the Tilstone Property Portfolio, “comprising 27 assets valued in taggregate at £108.85m, delivering a 7% net initial yield as at 31 March 2017. The assets primarily comprise multi-let warehouses in the industrial/manufacturing, storage and distribution, trade-counter and retail warehouse/leisure sub-sectors. The properties are occupied by 129 tenants with the top ten by rent roll including Boots, Amazon, Asda and Argos”.
The fund looks to have a modest income target of 4.5% per annum on the issue price (the fund is targeting a first dividend of 1p in January 2018, followed by 1.5p in May 2018) with total returns of 10% per annum. In terms of gearing, the fund is looking for a LTV of 30 to 40%, which looks about average, subject to a maximum LTV of 50%. Numis also reports that “on receipt of FCA approval, the investment manager will be Tilstone Partners (TPL), which has assembled the seed portfolio. The directors of TPL will retain £16m of equity in Warehouse REIT, which will be locked up for two years, with members of the Board and management team subscribing for a further a £1.8m in shares. Management of the properties will be out-sourced to Savills. “
I’ve already made clear my reservations about rival funds such as the Big Box REIT. My main worry is that investors have jumped on to the logistics park expansion theme and overpriced long lease assets, where there is questionable alternative land use. Premiums of 10% or more over NAV strike me as expensive but I’m also world wise enough to recognize that there is obviously a lot of demand out there for these assets – and the income stream. There is a long cycle in favor of these logistics assets, helped along by e-commerce, and I don’t see that reversing any time soon. My gut instinct is that this will do well, especially with retail investors (there is an intermediary offer) and we could see a handy 2 to 4% premium emerge. I also think that there is room for industrial and warehouse assets within a portfolio of diversified REITs and this might be one of those funds.