The first investment trust public listing in over a year has unveiled its initial public offering prospectus and is aiming to raise £500m.
Special Opportunities REIT (real estate investment trust) said it would look to debut on the London market next month in the largest REIT IPO in well over a decade and the first since 2021.
The IPO would be the largest for the UK this year so far.
The former management team of LXi REIT Advisors, which saw its investment trust merge with Londonmetric Property earlier this year, is behind the new trust.
The new team has said the trust “would target high-quality properties being sold by distressed and/or highly motivated sellers.”
The appetite for investment trusts has fallen to the lowest level in over a decade, leading to a lack of new IPOs on the market.
The only trusts to float last year were the Onward Opportunities Trust and Ashoka Whiteoak Emerging Markets, which is currently attempting to merge with the much larger Asia Dragon trust.
A survey conducted by investment trust specialist Winterflood in February found that only five per cent of its clients were ‘very likely’ to support investment trust IPOs and secondary placings this year.
While the problems plaguing London’s market have certainly not helped, a general lack of interest in trusts has compounded the problems for the sector, as mergers between big asset managers have given them fewer buyers to chase.
Nevertheless, that hasn’t stopped Special Opportunities REIT from targeting a high £500m fundraising, expecting that it will find buyers.
Commitments have been received from three cornerstone investors, Goldentree Asset Management, Columbia Threadneedle funds like TR Property Investment Trust, and the Bhavnani family office, for a total of between £104m and £119m.
The investment trust also said that £4m will be invested by its management team and non-executive directors at the IPO to show their commitment to the trust.
CEO Simon Lee, who was previously co-fund manager of LXi REIT, said: “We have used our extensive industry relationships to establish an attractive and deep short-term pipeline of high-quality portfolio and single asset deals against which we expect to deploy the net IPO proceeds within six months.”
The investment trust will aim to benefit from the cyclical nature of the UK real estate market, hoping to pick up properties at less than they’re worth due to the nature of their buyers.
“We expect to deliver significant value growth following the highly selective acquisition of these properties by leveraging the current structural oversupply of UK commercial real estate,” added Lee.
Targeting a minimum return of 12 to 15 per cent every year, the trust said it had the potential to deliver over 20 per cent per year.
It will also target a dividend of over three pence per share in its first year and over six pence per share in the year after.
The investment trust will close applications for IPO on 11 June.