It ain’t half hot, Dad . . .
You’ll warm to property trust run by legendary screenwriter’s son
THE Bank of England may have raised its base rate for the first time in a decade but most savings accounts still offer paltry returns.
For investors in search of income, Reits (real estate investment trusts) can offer an appealing alternative.
Many property firms are defined as Reits, which essentially means they pay out most of their post-tax profits in dividends. A number of Reits have joined the stock market recently – all focusing on specific areas of the property sector and all promising regular, inflation-busting income. So how do they do it?
The business models are broadly similar. They invest in properties, let them out, then use the rental income to pay dividends. They all claim to be low risk, either because their tenants are very reliable or because they are diverse.
Tritax Big Box for example, owns huge warehouses, used by retailers to store and distribute goods. Empiric Student Property invests in student digs. Residential Secure Income invests in social housing.
So far, these firms – all past Midas tips – have done what they said they would do. Dividends are being paid and the shares have risen. As economic conditions change, however, it is important to keep a close eye on these investments to make sure they continue to measure up.
This week, two more groups are hoping to surf the wave – M7 Multi-let Reit and Civitas Social Housing.
M7 MULTI-LET REIT
IT’S a dreadful name but the idea is sound – investing in light industrial and office space outside London. To do this the firm aims to raise £300million by offering shares to investors at 100p each. It expects to offer a dividend of 6.5p from next year, payable quarterly.
M7 is run by Richard Croft, whose father David wrote some of Britain’s best-loved TV comedy shows including It Ain’t Half Hot Mum, Dad’s Army and Are You Being Served? Young Croft wanted to be an actor but his father counselled against it, suggesting he had neither the looks nor the talent to make it on to the silver screen. He turned to property and has spent the past 25 years in the business.
In 2009, he co-founded M7 Real Estate, a business that now manages more than a thousand retail, office and light industrial properties across Europe. M7 is owned by 16 partners, each of whom has worked in the sector for about two decades. Now they are putting their collective experience into the multi-let Reit.
Light industrial estates and small regional offices are often overlooked by large property developers because individual tenants tend to be small and there are several of them on each site, so they involve a certain amount of management.
As a result, assets are often more reasonably priced than with other commercial property, particularly as the M7 Multi-let Reit is targeting the regions, rather than London.
There are other advantages. Having a number of tenants on each estate means that, even if one falls behind on rent or worse, the overall impact is low. M7 has already lined up two property portfolios for the Reit. Rent will be coming from several hundred tenants, none of whom will be responsible for more than 3 per cent of the total.
The two portfolios are together valued at almost £120million but M7 has a pipeline of other deals lined up, valued at more than £400 million.
Most of the tenants are small companies and demand for space is very high. The number of regional offices and light industrial estates has fallen over the past decade, while new businesses are being formed all the time and many established firms are moving to the regions from London.
M7 is well connected in terms of gaining access to new properties and it is recognised as an impressive manager.
The team focuses on doing simple things well, such as talking regularly to tenants, keeping estates clean and answering new enquiries quickly. As a sign of confidence in the new Reit, the M7 partners are investing £7million of their own money in the business.
Most property managers are paid according to the value of their property portfolios. M7 fees will be calculated as a percentage of rent collected, encouraging the business to generate plenty of income.
The deadline for applications is Tuesday and forms are available from most major stockbrokers. Midas verdict: Some investors may feel nervous about M7 and its focus on small businesses, but the sector has proved remarkably stable over the past 15 years and more. Croft and his team bring a wealth of experience with them and the dividend prospects are attractive. Worth a punt.