Investment and property veteran targets warehouse sector to expand scope of high-yielding Pacific Industrial & Logistics Reit he launched last year.
Pacific Industrial & Logistics (PILR), a £25 million real estate investment trust (Reit) floated by property and investment veteran Sir John Beckwith last year, is having another go at scaling up with a proposed share placing of up to £110 million.
The Reit, which targets a dividend yield of at least 6% for shareholders who backed its April 2016 initial public offer (IPO), invests in regional warehouses and ‘last mile’ depots used by companies to distribute goods to people’s homes.
This is a sector most associated with Tritax Big Box (BBOX), although the £2 billion investment company, which raised £350 million in a heavily oversubscribed share offer in May, focuses on larger warehouses and logistics facilities.
Beckwith, an investment entrepreneur who helped found fund managers River & Mercantile, Liontrust and Thames River Capital, owned over a third of Pacific Industrial shares when it came to market last year.
If successful the fund raise would be transformational for the AIM-listed company, which raised £12.2 million at its IPO and raised a further £11.1 million last November. Its shares have risen 17.5% since launch and at 117.5p today yield just over 5%. It aims for an annual total return of 10-15%.
The company says the money would be used to finance a pipeline of 27 UK properties at a cost of £170 million and a net initial yield of 7.2%. The assets are fully let, with an average lease term of 5.6 years.
Investment manager Christopher Turner believes there is potential to grow rents and to lengthen leases over the medium term. These acquisitions are expected to be geared at approximately 40%.
The board pointed out the last mile industrial and regional logistics market currently benefits from increased levels of e-commerce activity and strong occupier demand.
Further details about the share placing will be announced on or before 28 July 2017.
Under the current tiered fee structure, a management fee is not paid until shareholders receive an annual dividend yield of at least 6%. After this threshold has been reached, the manager receives a proportion of the excess yield, with costs capped at £650,000 per annum.
If the share placing goes ahead, this charging structure will be replaced with a fee of 0.95% per annum of the group's net asset value (in line with the EPRA’s methodology), paid on a quarterly basis. A performance fee of 10% of EPRA NAV returns will be levied above 9%, plus 10% of share price returns over 9% per annum in the period from the placing up to 30 September 2020.
Increasing the size of the investment company should lower operating costs and help strengthen dividend payouts, the company says.
Nigel Rich, non-executive chairman, added: ‘Having successfully deployed the monies raised at IPO and at the subsequent equity raise, we see a compelling opportunity to significantly expand the scale of our business through a pipeline of off-market acquisitions, enhancing the company's ability to deliver target returns whilst benefiting shareholders by reducing the total expense ratio.’
Canaccord Genuity is the company's nominated adviser, joint financial adviser with Kinmont Advisory, and sole bookrunner. Radnor Capital Partners is serving as the placing agent.