After years in the making, the International Property Securities Exchange (IPSX) could have its watershed moment.
The first company announced its intention to float on the exchange this week, which if successful could signal a transformation in the way investors gain exposure to property assets.
IPSX was established to enable the listing of individual properties (or multiple assets with commonality), giving investors access to individual property assets and a new way to invest in real estate.
The exchange, which is regulated by the FCA, hoped to hold its first IPO in 2019, but last year’s uncertainty around Brexit and the general election – and, more recently, the COVID-19 pandemic – have delayed developments.
But this week, Mailbox REIT published a prospectus detailing its intention to raise £62.5m through an IPO. It owns the Mailbox in Birmingham, the UK’s largest mixed-use asset outside London that has been independently valued at £179m.
M7 Real Estate, which bought the property in December 2019, will act as asset manager and retain ownership of around 46% of the share capital after admission.
Making prime landmark assets such as the Mailbox available to all types of investors, large and small, seems an exciting proposition. Gaining exposure to these types of assets is normally only really available to large institutional investors.
Investors will have much greater transparency on individual asset performance than with current real estate funds and REITs and can select which assets they do or don’t want to invest in, as well as their level of exposure.
The Mailbox is an interesting first asset. It comprises around 698,000 square foot of space located at the Royal Mail’s former sorting office in Birmingham.
Its £9.3m annual income is diversified across 46 tenants (including the BBC, Advanced Business Software & Solutions, WSP Management Services and Harvey Nichols Stores) and a number of uses including office (47.6% by passing rent), car parking (18.9%), leisure (21.2%), retail (11.4%) and other (1%). The weighted average unexpired lease term (WAULT) is 14.3 years.
What will be key to investors is the potential for rental and dividend growth (Mailbox REIT is targeting a dividend yield of 5% per annum). Mailbox has an estimated rental value (ERV) of £12.8m (which means if all the space was let today it would achieve a 37% uplift in rent).
M7 plans to reposition the asset as a ‘Live Work Play’ destination with a complementary, ancillary retail and leisure offering.
Around £5.2m of the offer proceeds will be invested in converting the first floor of the property from retail to around 50,000 square foot of office space. This will push rents on from the current £1 per square foot to around £27.50 per square foot, generating over £1m in additional annual rent.
The office sector is currently in a state of flux, due to COVID-19 and working-from-home. QuotedData’s view is that prime offices, for which Mailbox certainly is, will endure. The Birmingham office market has seen rents increase 2% a year over the last 10 years and supply decrease by 6% per year over the same period.
Like most London Stock Exchange-listed REITs, the asset’s rent collection rates have been hit during the pandemic, with the company stating that 82.3% was received for the March quarter and 68.7% for June (as at 6 August 2020), with the deficit mainly coming from the retail and leisure tenants.
With hundreds of companies waiting in the wings, all eyes will now be on the success of the Mailbox REIT IPO. This could be a defining moment in the way investors invest in property.