A single-asset real estate investment trust (REIT) is something a bit new. The Mailbox REIT is a new trust that has just one building in its portfolio, Mailbox Birmingham, the former Royal Mail sorting office. This has been turned into a shopping and office space development that is used by the likes of Harvey Nichols and the BBC.
The property is currently valued at around £175m. The fund is being managed by M7 Real Estate, which has 46% of the shares. M7 Real Estate is planning to raise more when it lists the REIT on the prime segment of the International Property Securities Exchange. This is a new exchange which is setting out to provide investors with the opportunity to invest in single building opportunities through the REIT structure.
Investors in the REIT will get a 5% dividend via long dated income streams. The Mailbox already produces a passing rent of £9.3m, most of which comes from office space (47%). There are 46 tenants, among them Q-Park and Advanced Business Software. Unexpired leases run at an average of 14.9 years. Leisure accounts for a further 21%, with car parking at 19%.
M7 Real Estate thinks that we are far from seeing the end of the office, and also argues that the Mailbox building is well equipped to facilitate social distancing over the short term during the coronavirus pandemic. It argues that real estate companies can still provide investors with a more predictable dividend stream than many listed companies at the moment.
“A genuine watershed moment”
But what we really find interesting about this concept is the roll out of the IPSX which allows investors to take tactical stakes in different developments, helping to reduce costs and liquidity issues that can be thrown up by the commercial property asset class.
“This is a genuine watershed moment and the sign of things to come, I am quite convinced,” said one property insider at a London investment bank, who asked not to be named. “My read is that the shares can be traded in the same way that any other listed equity is; the liquidity doesn’t come from selling the underlying property, but there being enough buyers and sellers of the shares in the REIT that strike prices can be agreed and the shares change hands. It’s very different from an open or closed-ended fund in that respect: no gating or forced sales of the property to match redemption requests.”
This innovation could be what commercial property investment requires as it seeks to navigate the bumpy road of coronavirus lockdowns in the UK this winter. It could also be a way for talented property investment professionals to tap new sources of investment interested in regional or local opportunities like the Mailbox, which simply have not existed before.
The IPSX is the world’s first regulated stock exchange which is dedicated to the IPO and secondary market trading of companies that specifically own institutional grade real estate assets and multiple assets with commonality. A number of firms have already signed up to become approved valuers or market makers. Among them are Savills, Peel Hunt and WHIreland.
Mailbox REIT is expected to be admitted to the IPSX on 21 October, with an anticipated market cap of £116m. WHIreland is acting as the lead adviser of the listing.