SMALL CAP SHARE IDEAS: Single-asset Mailbox REIT gears up to IPO on new real estate exchange
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 – 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.
Asset: Mailbox REIT owns the Mailbox building in Birmingham city centre – a former Royal Mail sorting office that has been transformed into a 698,000 square foot office-led development
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 office-led development in the heart of Birmingham.
It is hoped the city centre building will be the first of many properties to list on the Financial Conduct Authority-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.’
Mailbox REIT is looking to raise £66million at £1 a share when it lists next month, which would give it a market capitalisation of £119.5million.
Post-IPO, the debt will be £70million, giving gearing of 38 per cent. M7 will be keeping a 45 per cent stake in the business, meaning its and investors’ goals are aligned.
Mailbox REIT said it will offer an initial dividend yield of 5 per cent. There is the opportunity to push the pay-out up further if a partnership with IWG, the owner of Regus, provides the income boost both sides expect.
Mailbox REIT landed an agreement with office space company IWG ahead of the float
The aim is to lift the operating income for Level-One of the Mailbox from £1 per square foot to around £27.50, asset manager M7 said when announcing the tie-up.
‘Based on comparable IWG locations in central Birmingham and other similar sites this could be achieved in two years,’ it added.
The medium-term plan is to ‘incrementally increase’ the dividend yield to 7 per cent and beyond.
There may also scope for capital appreciation of the asset, which has been independently valued at £179million, particularly as the world emerges from Covid.
But remember, there’s no such thing as a risk-free investment. This is a new listing in the property sector – a sector that has struggled mightily in the teeth of some formidable economic headwinds caused by the coronavirus pandemic.
Mailbox REIT is also the first company to float on the IPSX. So, if you are particularly risk averse you may want to wait to see whether the model works before testing the water.
None of the foregoing is any substitute for research.
The prospectus is a treasure trove of information that can be found on the London Stock Exchange’s Regulatory News Service and the company’s website.
There’s supplementary information there too on the IWG tie-up, as well as Mailbox REIT’s updated, medium-term dividend projection.