It is full steam ahead for LIC IPOs with the latest offer from URB Investments, a Listed Investment Company (LIC) focused on investing in listed companies and direct property assets that are exposed to urban renewal and regeneration. Unlike many of the LICs available which tend to focus on broader markets, URB's proposed niche makes it quite a unique offering. URB are seeking to raise up to $300m, with the offer closing on 30 March 2017.
Rather than try to define it ourselves, we're best placed to take URB's definition straight from page 1 of their prospectus:
Urban renewal and regeneration is the transformation of existing urban areas to accommodate much denser and generally mixed used environments. Urban renewal and regeneration is characterised by the unlocking of under-utilised areas for jobs, investment and housing. It typically involves rezoning land whilst investing in hard and soft infrastructure required to cater for the desired new future of an area. Overall, urban renewal and regeneration enables the use and development of an area to better align with the current and future needs of a growing city. It can generate a number of benefits including new infrastructure, better use of existing infrastructure, increased productivity, additional expenditure and new employment opportunities.
Again from the prospectus:
URB will seek to benefit from urban renewal and regeneration by investing in assets that have exposure to population growth, population density, major infrastructure investment, housing growth, new employment, revitalisation of town centres, re-zoning and use of land changes, education services, healthcare services and tourism growth.
Further, URB will invest in a mixture of direct shares and property, with shares that are seeking to capitalise on urban renewal and regeneration comprising at least 50% of the investment portfolio. The property component of the portfolio will target property that is set to benefit from urban renewal by focusing on factors like potential for rezoning and gentrification of areas.
When investing in direct property, URB will be investing alongside Washington H Soul Pattinson (SOL), a company which already has a long history of property investment, with a right to invest in an equal basis a selection of properties focused on urban renewal and regeneration which are offered to them. They will also acquire an interest in three properties when they list as seed investments.
URB is a new company, however it has a long history attached to it. Through a complex web of company ownership structures established in 1969, brick manufacturer, Brickworks (BKW) and pharmacy chain, Washington H Soul Pattinson (SOL) acquired a large stake in one another (around 45%), reportedly to reduce the threat of hostile takeovers (a practice that is now illegal, but grandfathered). Both companies have now diversified to become multi company conglomerates, with many investors lumping them into the same asset class as Listed Investment Companies, with exposure to telecommunications, coal mining, property development and listed investment companies. The Milner family have controlling stakes in both companies.
One of the listed investment companies in the BKW/SOL portfolio is BKI Investments (BKI), a $980m LIC established in 2003 and previously known as Brickworks Investment Company. BKI is managed by Contact Asset Management PTY LTD, a company part owned and run by Tom Milner of the Milner family. It feels like its been a long time getting to this point but Contact Asset Management will also be the managers for URB. Additionally, URB will use Pitt Street Real Estate Partners as their property adviser, which is a division of SOL. SOL has also committed to having a 10% holding of URB. So whilst the company is new, it has one of the longest and most complex histories of any company on the ASX. We can only assume their accountants and legal advisers earn a fortune in managing the web of entities!
Whilst the BKW / SOL history lesson above may bore some, it is an important to note, as URB will invest in many of the same property assets that SOL holds and SOL will be a URB shareholder. As a result it would be expected that returns may be somewhat correlated to that of BKW and SOL, however one would need to do their own analysis to determine how much they will be correlated.
URB is targeting such a niche that there are very few alternatives available on the ASX. If we filter by 'infrastructure' investments in the ETF Watch Fund Database, a total of 4 results are returned. These include LIC Argo Listed Infrastructure (ALI), actively managed ETFs AMP Capital Global Infrastructure (GLIN) and Magellan Infrastructure Fund (MICH), as well as Vaneck's index tracking Global Infrastructure ETF (IFRA). By applying a 'property' filter to the fund database, 5 ETFs are returned. URB isn't really infrastructure or property and really fills its own niche being the only listed fund available focusing on urban renewal and regeneration.
As per the usual LIC IPO process, investors in the IPO will be gifted a free option for every share they purchase. These options have an expiry date of around 12 months after listing (7 April 2018). Shares will be listed at $1.10, with Net Asset Value of between $1.065 to $1.069. Investors in the IPO should be aware of the above 2 facts, as exercise of options in the future will result in dilution of capital, and for every $1.10 invested, the investor will actually receive $1.065 worth of shares. Management fees of 0.75% pa will apply once the fund is listed.
This post was prepared with publicly available information available from URB Investments Limited. ETF Watch did not receive any payment from URB for this post.