Secondary trading undercuts Welput’s sale of new units

Schroders raises only a third of £200m equity it sought for London fund

Schroders has raised just over one third of the new equity it had hoped to attract for its flagship central London fund. The fund manager had a mandate early last year from investors in the West End of London Property Unit Trust (Welput) to issue £200m of new units in the £780m fund by the end of June 2011. But Jane Gravestock, head  of fund management, special funds UK, said there had been subscriptions for only £74m of new equity by the closing date. Gravestock said the level of equity raised was “slightly disappointing”. She said one explanation for this was that there had been a high level of trading in Welput in the secondary market over the period, demonstrating continuing demand for the fund from investors.

“If you add the £118m of units traded between January 2010 and June 2011 to the £74m, you get pretty close to £200m. “The secondary market take- up is great, as it demonstrates liquidity, but it meant that the new equity raising was slightly disappointing. We will continue to look to raise new equity and  can issue units to the value of 10% of net asset value each year.” Welput’s current financial year ends in September and the trust’s NAV is £550m. The £74m was raised at two prices: an initial offering price, at a 6% premium to NAV, which attracted about £35m  of subscriptions; and a more recent offering, at a 3.75% premium to NAV, which was almost completely taken up. Gravestock said the lower price was possible because the units partly funded the trust’s £41m purchase of 7-8 St Martin’s Place near Trafalgar Square.

“The deal was agreed through a Jersey unit trust, so there was no stamp duty payable and the price did not dilute existing investors,” she added. The building, bought at a 5.9% yield, will produce income to 2015 and its purchase is part of the strategy to supplement longer-term core income with exposure to the central London letting market. Grafton Advisors advises Welput. The trust is also selling the second largest of its 10 assets, Southside in Victoria. Nine new investors have come into Welput as a result of the secondary trades and new units taken up. Gravestock said about half the turnover on the secondary market was due to “large balanced funds reducing their holdings, either because they were overweight in pooled vehicles generally, or because they had taken the decision to invest in direct property, rather than indirectly”. Gravestock has now moved back to London after nine years based in Jersey. Lucy Lilley, who joined last September from Land Securities, has taken her place as Jersey-based fund manager for Welput and Hercules Unit Trust, reporting to Gravestock.