Horizon Asset Management, a Cayman Islands-registered fund manager which focusses on UK real estate, has launched an offering of bonds secured by residential property. The firm described the method of raising finance as a cost-effective alternative to a traditional bank loan.
Horizon is aiming to raise in the region of £5 million through the issue of the bonds, but may follow it up with a second, similar-sized bond offer. The five-year bond will pay a 5 percent annual coupon.
The Income Bond Series One notes will be secured by houses and flats held within Horizon’s Alpha Property Fund. The properties are located in the southern English counties of Dorset, Hampshire and Sussex, with a particular concentration in the city of Portsmouth.
The quarterly coupon will be generated from the rental income of the properties. Any gains or losses to the property portfolio will be attributed to the shareholders of the fund. The bond offers a 100 percent return on capital after five years, Horizon said.
The firm is targeting institutional, retail and family office investors.
Horizon said that the aim of the bond is to reduce its reliance on bank borrowing and to allow it to increase the size of the property portfolio. Part of the proceeds will be used to repay debt owed to Bank of Scotland.
The Alpha Property Fund, which is currently around 30 percent leveraged, is 71 percent invested in purpose-built flats, 11 percent in converted flats and 18 percent in terraced houses.
“Investors are increasingly seeking income and a return of 5 percent per annum is an outstanding proposition in the current savings and investment environment. The fact that the capital is secured against a real asset base should also be highly reassuring to investors,” said Bill McClintock, director of Horizon Asset Management and the Alpha Property Fund.
“We are seeing some great opportunities in the UK residential market and this is a cost-effective way to enhance returns for investors in the Alpha Property Fund, too,” he added.
Alpha Property Fund was launched in December 2007 with institutional capital and was registered as a mutual fund in February 2015. It has returned 7.67 percent return over the past twelve months and an annualised return of 7.31 percent since launch.