October 10, 2017 / 2:34 PM / a year ago

UPDATE 1-M7 joins Britain's property IPO boom

(Adds industry sources, REIT context, detail)

By Esha Vaish

Oct 10 (Reuters) - Property investment firm M7 Real Estate launched a sale of shares in a new company on Tuesday, M7 Multi-Let REIT, which owns and manages industrial and office property, aiming to raise 300 million pounds ($395 million) on the London stock market.

REITs are raising more capital than ever on the London exchange, its data shows, as investors shift away from less liquid forms of property investment. M7 Multi-Let will be London’s largest REIT IPO announced so far this year.

Such trusts have raised 2.3 billion pounds in new issues and initial public offerings compared with 2.1 billion pounds in the whole of 2016. It’s the highest since 2014 when REITs raised 2.5 billion pounds over the full year.

Property industry experts say real estate yield-seeking investors have been switching to REITs from open-ended funds since Britain voted to leave the European Union.

In the immediate aftermath of Brexit, open-ended funds were forced to sell property to satisfy higher levels of investor redemptions, raising shareholder concerns about investing in them.

“Because it’s (REIT) a close ended vehicle... all investors can do is buy and sell in the secondary market. All that does is put pressure on the shares, it doesn’t shrink the size of the investment trust like redemptions from open-ended funds do,” said Iain Daly, partner at advisory Radnor Capital.

Low interest rates eating into yields in areas like fixed income have also driven a wide group of investors towards REITs. Under the REIT structure, most of the income generated from renting out properties is returned to investor without any tax.

Recent IPOs have been in alternative property sectors such as healthcare and student accommodation, driven by investors favouring long leases and steady tenants, rather than shopping centres and offices which are seen as more vulnerable to an economic downturn.

“Where the market perceives challenges ahead in core shopping centres and core offices... then the valuation starts to reflect that,” said Simon Hope, head of global capital markets at Savills.

M7 Real Estate said the REIT aims to target multi-let regional British real estate assets, which it says are important to small and medium-sized enterprises but often overlooked by investors due to the small individual lot sizes and because they need intensive management.

“There are sectors where there is a demand and supply mismatch,” said Richard Croft, chief executive at M7 Real Estate. “We’re very bearish on London. If Brexit is going to happen the regions are going to be a much better place to be an investor.”

M7 Real Estate, already manages over 995 industrial, office and retail properties worth approximately 4.6 billion euros ($5.4 billion), with its British portfolio currently valued at 1.1 billion pounds.

Barclays Bank is acting as its REIT’s sponsor, global co-ordinator and bookrunner in the issue. ($1 = 0.7585 pounds) (Reporting by Esha Vaish; Writing by Dasha Afanasieva; Editing by Greg Mahlich and Keith Weir)

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