LONDON, UK: The UK Residential REIT (URES) announced its intention to proceed with an initial public offering (IPO) of new Ordinary Shares and to apply for the admission of its shares to the premium listing segment of the Official List of the FCA and to trading on the Main Market for listed securities of the London Stock Exchange.

The UK Residential REIT will invest in a diversified portfolio of affordable, residential properties in strong UK rental markets outside of prime central London.

With the IPO net proceeds, the Company intends to acquire a £145m seed portfolio of 28 properties, comprising 1,214 residential units. This means that the Company will be income generating immediately upon the acquisition of the Seed Assets and will have no material development risk, minimising cash drag.

The Company has identified a £440 million pipeline of further investment opportunities and expects the balance of the net proceeds to be invested within twelve months of Admission.

The Company is targeting a dividend yield of 5.5 per cent1 per annum from 1 July 2022 once fully invested2 and a net total Shareholder return of 10 per cent per annum. The net total Shareholder return will be divided between income (payable by way of dividends) and potential growth in NAV.

Dividends will be supported from rental income from the properties, which has been proven to be resilient in past economic downturns. The Company also aims to target properties that provide scope for capital appreciation through active asset management initiatives including refurbishments and asset repositioning.

URES will be managed by L1 Capital UK Property Advisors Limited. The L1 management team and their affiliates will have an investment of no less than £5 million in Ordinary Shares in aggregate3.

URES is targeting Gross Issue Proceeds of £150 million, before expenses by means of a placing, offer for subscription and intermediaries offer of 150 million Ordinary Shares (the “Issue”) plus an Issue of up to 50 million Consideration Shares in connection with the acquisition of Seed Assets at an issue price of £1.00 per Ordinary Share. Expected market capitalisation following the completion of the acquisition of Seed Assets of £200 million.

Panmure Gordon (UK) Limited is sponsor and Panmure Gordon (UK) Limited together with RBC Capital Markets are acting as Joint Bookrunners.

Subject to the Company achieving its target fundraise of £150 million pursuant to the Initial Issue, the Company intends to acquire all the Seed Assets shortly after Initial Admission for an aggregate purchase price of approximately £145 million (with approximately £14.8 million of the cash consideration, in respect of three properties, deferred until completion of remedial works), representing a net yield of 5.8 per cent.

The purchase price will be satisfied by a mixture of cash and the issue of up to approximately 50 million Consideration Shares at the Initial Issue Price upon completion of the relevant acquisitions. The properties are tenanted, day-one income generating and supporting return from income from their acquisition. The aggregate purchase price of the Seed Assets also represents an attractive discount of approximately 29 per cent. to the replacement or rebuilding cost.

The underlying properties held in the Seed Assets comprise 28 properties containing an aggregate of 1,214 residential units, 6 ground floor commercial units, and two additional student properties. The Seed Assets are primarily located in strong rental macro-locations in the UK outside of central London, which include Manchester, Sheffield, Leeds, Liverpool and Bristol, amongst others and strong local micro-locations within the relevant City Centres.

The properties typically target the mid-market rental segment within their local markets (typical rent between £600 to £850 per calendar month). The average occupancy rate of the Seed Assets properties is approximately 95 per cent over the past 2 years. The Seed Assets have also experienced robust rental collection rates over calendar year 2020 (average 97 per cent. collection rate) despite the COVID induced macroeconomic downturn, which is a reflection of the overall defensiveness of the mid-market rental segment and the properties’ locations. The Seed Assets have achieved an average rental growth of 5.1 per cent per annum (weighted by income) since their original acquisition by the Seed Asset Vendors.