Residential Secure Income (RESI), a real estate investment trust targeting inflation-linked dividends from the social housing sector, has raised £180 million in its stock market flotation.
Although RESI fell short of its £300 million target, the amount raised is more than the average achieved in a flurry of new investment trust and investment company launches this year.
However, it is half the amount drawn in by rival Civitas Social Housing (CSH) which attracted £350 million last November when it became the first listed fund to focus on the housing association and local authority properties.
Nevertheless, the trust’s chair, the Rt Hon Baroness Dean of Thornton le Fylde, said she was delighted with investors’ response to the company’s plans to generate a 5% inflation-linked yield and an 8% total return from a portfolio of homes. She said it had identified an investment pipeline of £350 million, adding:
‘We now expect accelerated deployment of net proceeds providing our new shareholders with secure, long-dated, inflation-linked income returns with the potential for capital growth,’ she said.
Ben Fry, managing director of Resi Capital Management, the company’s fund manager, added: ‘We have worked with housing associations to generate an exciting pipeline of predominantly large-scale investment opportunities and expect to make a meaningful contribution to the UK housing shortage by allowing housing associations and local authorities to recycle capital into socially and economically beneficial new housing.’
Resi Capital Management is a wholly-owned subsidiary of TradeRisks, an adviser to housing associations and local authorities which says it has arranged over £10 billion of debt and financing arrangements.
The shares will start trading at 100p on Wednesday with an initial net asset value, after flotation costs, of 98p.
First half flotations
The first half of this year saw nine initial public offers (IPOs) by closed-ended funds (see table below) listing on the London Stock Exchange. This is up from just six for the whole of 2016 when Brexit uncertainty hit sentiment both before and after the EU referendum.
|Investment trust / company||Total raised||Date||Invests in||Target yield|
|TOC Propety Backed Lending (PBLT)||£17m||24-Jan||Property loans||7%|
|LXI Reit (LXI)||£138m||27-Feb||UK commercial property||5% (3% yr 1)|
|Impact Healthcare Reit (IHR)||£160m||07-Mar||UK residential care homes||6%|
|BioPharma Credit (BPCR)||£606m||27-Mar||Global pharma debt/royalties||7% (4% yr 1)|
|Downing Strategic Micro-Cap (DSM)||£56m||09-May||UK micro-caps||n/a|
|Jupiter Emerging & Frontier Income (JEFI)||£90m||15-May||Emerging & fronteir equity||4%|
|PRS Reit (PRSR)||£250m||31-May||UK private rental properties||6% (5% yr 1)|
|AEW UK Long Lease (AEWL)||£80.5m||06-Jun||UK property leases >18 years||5.5% (3.25% yr 1)|
|Scotgems (SGEM)||£50.3m||26-Jun||Global smaller companies||n/a|
|First half total||£1,448m|
|Aberforth Split Level Income (ASIT)||£190m||03-Jul||UK smaller companies||4% (ordinary shares)|
|Residential Secure Income (RESI)||£180m||12-Jul||UK social housing||5% (3% yr 1)|
Source: Numis Securities
As the table shows it has been a tale of two markets with three conventional equity investment trusts – Scotgems (SGEM) for global smaller companies, Jupiter Emerging & Frontier Income (JEFI) and Downing Strategic Micro-Cap (DSM) investing in UK smaller companies – raising just £200 million of the £1.45 billion raised in total.
By contrast, the other six launches fell within the ‘alternative income’ camp and generally fared much better.
BioPharma Credit (BPCR) did best with its offer of healthcare bond and royalty income, raising £606 million, including £269 million from a pre-existing seed portfolio; while PRS Reit (PRS) took in £250 million as investors jumped at the chance to invest in private rental homes outside London. AEW Long Lease (AEWL) did comparatively badly, raking in £80.5 million but TOC Property Backed Lending (PBLT) did worst, attracing just £17 million.
Strictly speaking, RESI is not the first launch of the second half of the year as Aberforth Split Level Income (ASIT), a rollover fund for the former Aberforth Geared Income (AGIT) , started its seven-year life on 3 July with £190.25 million of assets, although only a small proportion of this was new money.
Also, Edward Bramson’s new takeover fund, Sherborne Investors (Guernsey) C (SIGC), is scheduled to float this Wednesday. It is seeking to raise £700 million, which would it make this year’s biggest launch so far.
Inflows and outflows
The revival in IPOs was dwarfed by a surge of money into existing investment trusts. Just over £4 billion was raised in secondary share issuance in the first six months of the year: £2.7 billion of this came in a record second quarter rush, led by infrastructure fund International Public Partnerships (INPP) which raised £330 million.
Despite a total of £5.5 billion of inflows from IPOs and secondary shares issues, more money left the £159 billion investment company sector in the first half, according to Numis Securities. A spike in corporate activity meant an estimated £6.4 billion of capital – excluding regular dividends – was returned to investors, up from £4 billion for the whole of last year.
Again, the second quarter was busy with the reconstruction of Polar Capital Global Healthcare (PCGH) and Aberforth Geared Income, liquidation of M&G High Income and return of capital at Electra Private Equity (ELTA) and Better Capital 2009 (BCAP) all putting money in shareholders’ pockets.