13 Mar 2023
M7 announces its intention to float E-warehouse portfolio on IPSX
M7 Box+ REIT plc (“Box+ REIT” or the “Company“), a newly established, externally managed closed-ended investment company announces that it intends to apply for the Company’s shares to be admitted to trading on the Wholesale segment of IPSX by way of an introduction (the “Admission“). Upon Admission, the Company proposes to acquire a portfolio of seven let and operational e-warehouses (the “Property Portfolio”) from M7 Box+ II LP (“M7 Box+ II” or the “Fund”). As at 31 December 2022, the Property Portfolio was valued at £228.9 million.
The proposed Admission aims to allow Fund investors to benefit from transferring and onshoring their investment from a closed ended, Jersey domiciled private investment vehicle to an investment in a U.K. vehicle which has the potential to offer liquidity via a public listing on a regulated stock exchange and benefits from the advantages of the U.K. government’s REIT regime. Due to the nature of the transaction, there will be no fundraising exercise upon Admission.
The Company’s objective is to provide Shareholders with a sustainable level of income together with the potential for income and capital growth. Box+ REIT aims to achieve this by investing in a geographically diversified portfolio of enhanced warehouse (e-warehouse) properties across the UK.
M7 Real Estate Financial Services Ltd (the “AIFM”), will serve as alternative investment fund manager to the Company and M7 Real Estate Ltd (“M7” or the “Asset Manager” and together with its subsidiaries, the “M7 Group”) will act as asset manager to the Company in respect of the Property Portfolio. M7 will directly own c.4.69% of the Company’s share capital after Admission.
Dickson Minto W.S. (“Dickson Minto”) is acting as IPSX Lead Adviser.
The Company will apply to become a real estate investment trust to which Part 12 of the UK Corporation Tax Act 2010 applies (a “REIT”) and in summary means that the Company will not pay U.K. corporation tax on income and capital gains from its property rental business in the U.K. and elsewhere provided that certain conditions are satisfied.
Value-add e-warehouse focused investment strategy supported by strong structural drivers.
The Company will invest in the existing portfolio of value-add e-warehouse assets across the U.K. The Company aims to take advantage of the anticipated continued occupier demand for last mile logistics and warehouse space, which is driven by structural changes to consumer behaviour and an increased focus from businesses on their supply chain, as well as the resultant strong investor demand for assets in the sector.
This strategy takes advantage of the pricing arbitrage between industrial and e-warehousing assets. The historic lack of distinction between generic retail assets and retail warehouses has led to mispricing for these fundamentally good assets, while the industrial asset class in recent years has witnessed significant yield compression and historically high capital values.
An e-warehouse is defined, by M7, as a warehouse with enhanced planning uses which means there is the flexibility to change the use of the warehouse in the future. They are typically large regular shaped industrial units with retail frontages that could easily be converted to pure industrial use and are typically located with good accessibility and sufficient car parking that could be used for yard space in the event of conversion. It is these types of characteristics which in M7’s opinion underpin the value of the asset.
The accessibility of edge of town or out of town retail parks compared to town centre or covered schemes meant that footfall has also recovered more quickly post the pandemic. Retail park footfall returned to almost pre-pandemic levels in April 2021 and that level has been maintained since; while high street and shopping centre footfall levels remain further below their pre-pandemic levels.
Portfolio provides diverse and secure income with a strong track record of rent collection
The Property Portfolio comprises seven e-warehouse properties located across the U.K., assembled by the M7 Group. As at 31 December 2022, the 811,712 sq. ft. portfolio was let to a diversified base of 40 occupiers with a contracted rent of £16.2 million per annum, 67.7% of which is contracted to the Property Portfolio’s top ten tenants. These comprised B&Q Limited (31.40%), DSG Retail Ltd (9.86%), Aldi Stores Ltd (5.57%), B&M Retail Ltd (4.58%), Dunelm (3.70%), Matalan Retail Ltd, (3.05%), DFS Furniture Company (2.89%), Carpetright plc (2.55%), Pets at Home Ltd (2.23%) and Fitness First Clubs Ltd (1.88%).
The Property Portfolio has delivered robust rent collections prior to and since the outbreak of the COVID-19 pandemic, and during the recent economic downturn.
In Q4 2022, rent collections stood at 98.8%, the Property Portfolio was 100% occupied and it had a weighted average unexpired lease term of 4.81 years. The Investment Manager believes that the Property Portfolio will continue to provide a strong, defensive and diversified income return whilst also offering multiple value-add opportunities.
The Company will seek to create value through the active asset management of the Property Portfolio, by renovating, extending, customising and/or repurposing the properties as necessary to ensure they are fit-for-purpose to seek to achieve the Company’s investment objective.
Retail warehouse market remains robust
M7 is of the view that the outlook for the UK economy appears to be stabilising, and possibly even improving, as the end of the first quarter of 2023 approaches. Despite the continued squeeze on consumer spending, the occupational market in the retail warehouse sector remains robust for the time being.
With the Office for National Statistics suggesting that online penetration levels are stabilising at c. 26%, M7 believes that there will be an ever-greater emphasis on the combining of online and physical retail. It is of the view that there will be benefits from investing in physical retail to add to the shopper experience to differentiate from shopping online which is expected to, concurrently, lead to an increase in tenant diversity. Mixing food, leisure and entertainment as well as having more integration with online retail (including more showroom and click and collect models) is also expected to improve attractiveness to both shoppers and occupiers.
M7 believes that retail parks are well positioned to take advantage of this demand as they are typically in convenient and accessible locations making them well suited to click and collect of online orders and returns, as well as providing an opportunity to form part of the logistics network for retailer delivery. This hybrid retail and last mile logistics potential has increasingly become a factor for consideration from an investor perspective in some locations.
M7 is a highly experienced Asset Manager with strong track record of value add performance and is aligned to shareholders through a significant investment in the Company.
As at 31 December 2022, the M7 Group managed circa 620 assets comprising 54.5 million sq. ft. and valued at approximately €6.9 billion on behalf of real estate investors such as Blackstone and M&G.
Since its inception, the M7 Group has worked with Starwood Capital, Oaktree Capital, Goldman Sachs, Blackstone, HIG Capital, Westbrook Partners, Europa Capital and M&G Real Estate among others. The M7 Group currently operates 43 mandates in the form of joint ventures, managed funds and separate accounts.
As at 31 December 2022, Oxford Properties Group has invested over €1.7 billion gross through M7 since acquiring the platform in September 2021, helping to accelerate its ambitions to build a European logistics portfolio of scale.
The AIFM is also the alternative investment fund manager of Mailbox REIT plc, M7 Regional E-Warehouse REIT plc and BWP REIT plc which are admitted to trading on IPSX Wholesale.
Strong independent non-executive Board
Robert Gilchrist has been appointed non-executive chairman of the Company. He brings over 40 years of experience in the real estate industry with a deep knowledge of creating and managing pan-European private equity real estate funds. In 2004, Robert co-founded Rockspring Property Investment Managers and was appointed Chief Executive in 2008. He grew the Company into one of the UK’s leading pan-European Real Estate Fund Managers, with approximately €8 billion under management before leading the sale of Rockspring to Patrizia Immobilien in 2018. Prior to Rockspring, he held positions at several prestigious firms including DTZ, MIM Property Services, and PRICOA Property Investment Management Ltd.
The Board also comprises Kayte McLean and Tony Edgely. Kayte is a Finance & Operations expert at MGT Investment Management and is also the co-founder of GTO Partners LLP, where she served as the Chief Financial Officer. Tony was a partner at Brockton Capital from 2010-2018 and prior to that he was the Managing Director of Jones Lang LaSalle Corporate Finance Ltd.
Richard Croft, Executive Chairman of M7, added: “The proposed Admission of M7 Box+ REIT to IPSX Wholesale further emphasises the platform’s ability to act as a capital markets alternative for property owners, being the fourth company to list on the exchange in two years. In this case IPSX has allowed investors in a Jersey based fund to on shore their investment into a new vehicle that benefits from the UK Government’s tax efficient REIT regime with shares traded on a regulated and liquid exchange.
“M7 Box+ REIT, initially comprising seven let and operational assets which are immediately income producing, will invest in a geographically diversified portfolio of e-warehouse properties across the UK. We believe that the historic lack of distinction between generic retail assets and retail warehouses has led to mispricing for these properties which are supported by strong market fundamentals. Despite Covid-19 and the current economic headwinds, well-located e-warehouses have demonstrated a consistent level of rental growth in recent years due to robust occupier demand, driven by continued e-commerce penetration and an increased focus from businesses on their supply chain. As such, we have identified an opportunity in this subsector, which offers substantial scalability potential in the UK, supporting our aim to provide shareholders with a sustainable level of income together with the potential for income and capital growth.”
The Company expects Admission and commencement of dealings to commence in April 2023.