Schroders and Grafton Advisors have announced plans to raise around £100m through an initial public offering on the Alternative Investment Market (AIM) next month with capital exclusively investing in the joint venture’s West End of London Property Unit Trust (WELPUT).
A newly-formed closed-ended investment company has been established, West End of London Property Investment Company (WELPIC), to invest the capital in WELPUT, which based on a target of £100m would equate to a 15.45% stake in the property unit trust.
Oriel Securities is the sole bookrunner, adviser and broker to WELPIC which will seek admission to the AIM market on 5 February.
WELPIC aims to grow the listed stake in WELPUT to more than £250m in the next 18 months to two years, likely through a second capital raising as well as by purchasing WELPUT units in the secondary market from divesting investors.
WELPUT’s existing 84 unitholders – 76.3% are public and private pension funds as well as charities, insurance funds and other property funds – also have the option of migrating their investment into WELPIC.
Schroders and Grafton Advisors’ strategy reflects the evolution of investment markets post the global financial crisis. Real estate investors now demand much greater transparency and liquidity, which is lacking in the unlisted fund market.
Alongside this is a more gradual evolution in the domestic pension fund market, commonly the majority investors in such prime property funds, with a migration from defined benefit to defined contribution (DC) pension schemes.
Schroders and Grafton are positioning WELPIC to capture the increasing volume of capital from DC pension schemes, through discretionary wealth managers, which similarly require transparency and liquidity as an investment pre-requisite.
“The property fund industry is heading into different territory in the coming years with the migration the listed investment driven by this need for greater transparency and liquidity post the global financial crisis,” explained William Hill, head of property at Schroders.
Capital seeking listed real estate exposure is growing, while the universe for unlisted property investment is shrinking, added Hill.
WELPUT, launched by Schroders and Grafton Advisors in July 2001, owns a 12-strong West End and Midtown predominantly office property portfolio valued at £873m, as at 28 December, which includes £246.2m in senior debt in two facilities.
The first facility has a maximum headroom of £230m and is provided by a syndicate of a legacy Eurohypo participation, along with AXA Real Estate’s debt fund and Deutsche Bank. Only £181.2m is drawn on the five year facility, which expires in December 2015, priced at an all-in, fully hedged cost of 4.8%.
WELPUT’s second facility is a six-year £85m senior loan with MetLife, at an all-in cost of 3.6%, which expires in December 2017. WELPUT has £68.8m in undrawn senior debt from a total £315m available across the two facilities.
The WELPUT portfolio includes: stakes in Southside, Victoria, SW1; Stirling Square, 5-7 Carlton Gardens; 98 Theobald’s Road; 3 St James’s Square; 16/17 Connaught Place; as well as some wholly-owned properties.
Nigel Kempner, head of Grafton Advisors, property adviser to WELPUT, said: “The West End and Mid-Town office markets are experiencing a shortage in available supply of new space with an increasing amount of demand.
“This environment normally leads to rental growth, which we anticipate will be strong over the next two years at least, whilst also generating continued interest from international investors, leading to strengthening capital values.
“Our portfolio is well positioned to take advantage of these market conditions and we believe that WELPIC will provide investors with a unique opportunity to participate in this growth.”
Grafton Advisors is wholly owned by Quintain Estates and Development PLC.