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UK Reit fundraising explodes in Q3

Reit managers making good use of strong investor appetite
October 7, 2021
  • Fundraising for completed deals passed £1bn in the period
  • Global private market fundraising activity is more subdued

Fundraising activity among UK-based real estate investment trusts (Reits) exploded to a four-year high in the third quarter of 2021, as a return in transactional activity and the appetite of yield-hungry investors translated into a string of large share placings.  

Data compiled by the Association of Investment Companies (AIC) found UK Reits raised £683m in the three months to September, a sharp rebound from the £35m-worth of shares sold in the second quarter of 2021 and the highest figure since the same period in 2017.

The AIC counted four fundraisings in the period: a stretched £100m raise by LXI (LXI) to fund a series of asset purchases in the education and supermarket sectors; a £108m share sale by Urban Logistics (SHED) to target a pipeline of deals; a £350m discounted placing by Home (HOME) to help it acquire a homeless accommodation portfolio; and an oversubscribed £125m issue by care home landlord Target Healthcare (THRL).

Both the LXI and Urban Logistics placings included offerings for retail investors through the PrimaryBid platform.

The quarter would have likely set a record had the figures included the £55.6m raised by private rental focused PRS (PRS) and the £300m of new shares sold by logistics asset specialist Tritax Big Box (BBOX). Though both deals completed in the period, the AIC calculates its figures based on the date new shares are admitted to trading.

In addition to those placings, the fourth quarter looks set to include a £100m raise by Supermarket Income (SUPR) and the proposed initial public offering of supported housing landlord Responsible Housing. Last month, the BMO-managed group announced plans to raise up to £250m to acquire a portfolio of assets.

The surge in placing activity comes amid growing investor interest in assets offering inflation-protected income growth, continued aversion to weak bond returns, and greater post-pandemic consensus between buyers and sellers on valuations in some corners of the property market.

But the trend also reflects buoyant activity across the UK-listed investment companies tracked by the AIC. Secondary fundraisings in the sector have climbed to £8.71bn so far this year, which already eclipses 2019’s record of £7.35bn. Initial public offerings raised a further £2.1bn, the AIC said, again surpassing the 2019 and 2020 tallies.

“There is clearly strong investor demand and the closed-ended structure of investment companies continues to provide investors with a proven means of gaining exposure to less liquid assets,” said Richard Stone, chief executive of the AIC.

Though renewable energy infrastructure secondary fundraising stands at £1.7bn for 2021, this is eclipsed by the £1.8bn raised by the listed property sector.

Funds focused on property markets outside the UK have been particularly active this year. These include Tritax Eurobox (EBOX), which has issued £412m in fresh equity so far this year, and Aberdeen Standard European Logistics Income (ASLI), which last week completed an oversubscribed £125m placing to fund the purchase of warehouses on the continent.

The picture appears to be less sanguine in private real estate markets, despite surging commitments to private equity funds by large investors. Just 85 real estate funds closed in the first half of 2021, down from 123 in the same period in 2020, according to a recent report by private capital data provider Pitchbook.

In 2020, the amount of capital in private funds targeting real estate assets dropped for the first time since 2011, a trend which Pitchbook put down to a “significant dispersion in how investors are funding strategies” and performance of various property classes since the pandemic hit.