Fund of the Fortnight: Ediston Property
Commercial real estate is currently a good source of income and returns from property are (normally) uncorrelated to bonds and equities. IPD, the property data firm, compiles a monthly index of UK commercial property values. The latest data showed that in the month of June capital values rose 1.6%, the highest monthly figure since March 2010. For the year 2014 as a whole forecast total return from UK commercial property could be 12-14%.
Ediston Property is a new London-listed UK REIT (Real Estate Investment Trust) which will start trading at the beginning of August. The IPO hopes to raise £85m to £150m. It aims to provide shareholders with an attractive level of income with the prospect of income and capital growth. The initial annual dividend target is 5.5p (paid monthly at rate of 0.4583p pcm), which will grow as rents increase. This invests in a diversified portfolio of good quality, income producing, UK commercial properties. As a REIT it will be able to buy properties or portfolios of properties in a tax efficient manner. This REIT will not make any speculative developments.
Though Ediston Real Estate is a relatively new company (set up in 2004) with only £350m under management, the small team of 9 has an average of 21 years of real estate experience. Senior employees have “down-sized” from large institutions (such as Standard Life and SWIP) where they set up and ran retail property funds. There is significant alignment of interest since this new REIT carries their company name and key staff are investing in the IPO. Being a new fund it will be unencumbered by legacy assets in regions where valuations may have already peaked, like some of its larger peers. The seed portfolio comprises 5 properties valued at £77m so investors get immediate exposure to UK property. It has an HMRC-approved stamp duty mitigation scheme which means the opening NAV will be in the range of 95.3p to 96.5p, depending on how much is raised at the IPO.
Simon Moore is a Research Team Leader at Bestinvest.
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