Mailbox REIT‘s imminent listing has been described as a “watershed moment” for the sector.
This is because it marks the first-ever IPO on the International Property Securities Exchange (IPSX) – a new market devoted purely to commercial real estate.
For Richard Croft, the chairman of M7 Real Estate, the REIT’s asset manager, it also represents a move towards “democratising” investment in the commercial property industry.
“It allows you, me, everybody to be able to buy shares directly in assets,” he explains.
The asset in question is The Mailbox, which sits on the site of a former Royal Mail sorting office that has been transformed into a 698,000 square foot mixed-use development in the heart of Birmingham.
It is hoped the city centre building will be the first of many properties to list on the FCA-recognised IPSX, providing competition to collective property funds.
“At the moment you can’t invest in the big commercial assets unless it’s through a listed property fund or company, or an open-ended fund,” explains M7’s Croft.
“Over time you will be able to build your own property fund as more buildings are listed on the exchange.
“You will be able to trade shares on your phone and earn the kind of dividend streams that would be expected of real estate investment and with financial capital value upside.
“From this perspective, it offers a world of opportunity for a wide range of investors.”
As well as managing the first listing on the new exchange, Croft is also an independent director of the IPSX. So, he is fully invested in this project to shake up the property investment sector.
Unfazed by current headwinds
If he is fazed by the current headwinds – Covid, Brexit and the extreme challenges being faced by the leisure and hospitality sectors – he does not show it.
“Covid will end. And once it does, once we emerge, we will do so with a very, very good product,” he says.
Mailbox REIT is looking to raise GBP62.5mln at GBP1 a share when it lists next month, which would give it a market capitalisation of GBP116mln.
Some GBP50mln of the net proceeds will be used to reduce debt – and in doing so will take the loan to value ratio below the 40% maximum set by IPSX rules.
A total of GBP5.2mln is being set aside to redevelop level-one of The Mailbox’s car park into office space, adding a further 50,000 square feet to the total, while the balance will be used for “general working capital purposes”.
Key to investors is the potential for increased rental income, which will drive future dividend growth.
Narrowing the gap between the estimated rental value of GBP12.8mln and the current ‘passing rent’ of GBP9.3mln would help in this regard.
So would a plan to generate an additional GBP1mln of annual rent by converting parking into office space, while repositioning the building as ‘live, work, play’ space by adding an “ancillary retail and leisure offering”.
With a projected 5% yield, the REIT should appeal to the income investors. Those looking for capital appreciation should note the property’s conservative valuation.
“Once you look through the fog to the post-Covid environment this is a very attractive building that we know will outperform the rest of Birmingham. Investors coming in now should see a significant uplift,” says Croft.