BC Asset Management is to launch a property split-cap investment trust called Property Income & Grow...
BC Asset Management is to launch a property split-cap investment trust called Property Income & Growth Fund, writes Adam Lewis.
BFS Asset Management has also confirmed it is to launch a property based income fund with Collins Stewart but as yet cannot release any of the specifics.
BC's trust is aiming to go live on 25 May, after an institutional placing, with a fund size of £180m, of which by the end of its first year it aims to have 75% invested in UK property, and 25% in income shares.
Richer Cross will run the property portfolio, while David Bruce and Michael Yeo will manage the income side.
Yeo said that the property portfolio will be a mix of five different sectors; 50%-70% will be in offices, 10%-30% in industrial property, 5%-15% in retail, and 5%-15% in retail warehouses.
The income portfolio will be mostly invested in other high yielding investment trusts, although Yeo said there is a facility to invest in equities and bonds. Yeo said the group anticipates a dividend of 9p per share after the first year, and dividends are thereafter anticipated to increase by 5% per annum.
The split trust will have 45% of assets in undated ordinaries, 15% in zero dividend preference shares (ZDPs), and a bank debt facility equating to 40% of assets. Yeo said after rollup of the ZDPs, which have an eight year life, they should return 9% per year. The annual management fee of the trust will be 1.2%.
The two new property splits follow the launch two weeks ago of The Real Estates Opportunities trust by Aberdeen, a £804m fund which has property portfolios run by Jermyn Investment Properties in the UK and Castle Market Holdings in Ireland.
Nick Greenwood, head of investment trusts at Christows, said the advantage of investing in properties is the yields that are generated thorough rent.
In normal bar-bell splits, half the portfolio is invested in growth and half in income. The splits in which the trust invests make up the income stream and the growth portfolio does not provide yield at all, he said.
He added: 'However, if the growth portfolio is buying into property, the rents mean that it too will be achieving an income, which places less strain on the income portfolio. It is almost a split on splits, by achieving a decent yield on property, the income portfolio is awarded more flexibility.'
Greenwood said that three split-caps being launched quickly after each another is not surprising, as groups need to be able to react quickly to market demand to tap into new monies.
In September and October 2000 the trend with splits was North America rather than the current interest in property. Three US splits were launched in quick succession, LeggMason American Assets, American Monthly Income from Aberdeen, and US Growth & Income from BC Asset Management.
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