ING Real Estate Investment Management became the latest in a string of fund managers on Monday to announce an initial public offering of an offshore property trust. The IPO of the Guernsey-based ING Real Estate Income Trust is expected to take place in October and will consist of a portfolio of commercial properties in Britain valued at about £490 mln. with holdings in four sectors: offices (40%), retail and retail warehouses (30%), industrial (22%) and leisure 8%.
The new company will have a target gross annualised dividend yield of 6.25%, ING REIM said in a statement. "The launch of the company represents a significant strategic step for ING REIM UK and will realise our long-standing ambition to create an income-focused real estate investment vehicle which will be open, for the first time, to all investors," Robert Houston, chairman and chief executive of ING REIM said. ING REIM UK, is part of Dutch financial services company ING, which has €37 bln. in property assets under management.
Strong growth in property trusts
The fund manger's IPO takes the market capitalisation of the UK offshore quoted property trust sector to about £3.5 bln. and it joins a stream of recent listings including those by Teesland, F&C and Insight. The tax efficient offshore status of trusts means they can tap into property's strong income yield from rents and deliver relatively high dividends to investors averaging between 5.4% to 6.3% - far in excess of the average 2.3% yield of the UK's conventional property companies. The trusts' shares trade at a premium to the value of their underlying property assets or net asset value (NAV), unlike the onshore listed property firms, which trade at a discount to NAV, largely due to taxes. They've been likened to an early example in the UK of U.S.-style real estate investment trusts (REITs), which pay little tax at the corporate level provided most of the company's income is paid out as dividends to investors, and have experienced massive market growth since the early 1990s. Onshore REITs could be introduced into Britain in 2006 and are forecast to at least double the size of the quoted property sector over the next five years if they go ahead. "The offshore listed property trusts are REITs in all but name. There's been a lot of investor interest in the strong dividend yields they offer," Elliot Caldwell, fund manager of the UK ING Real Estate Income Trust told Reuters. British commercial property has produced higher investment returns over the past three, five and 10 years than either UK equities or gilts, although stocks have overtaken bricks and mortar in the past year.