General market volatility and dampened investor enthusiasm has seen a slight slump in the amount of capital raised by new investment trusts in 2018, but a few interesting companies have still managed to recently raise cash from public markets.
One such firm is Tritax EuroBox (LSE: EBOX), a REIT focusing solely on European big box warehouses. If the name sound familiar that’s because Tritax is the manager behind the UK-focused Tritax BigBox, which has done very well and over the past five years delivered a total return of over 80% thanks to a hefty dividend and capital appreciation.
The plan for EuroBox is much the same as for Tritax’s first publicly-traded REIT, namely to use the £301m it raised with its IPO to buy up large warehouses situated near major motorways and sign long-term leases with blue-chip customers. This same strategy has worked phenomenally well in the UK thanks to fast-rising demand for such warehouses from pureplay e-commerce retailers and traditional retailers that need to quickly and efficiently deliver goods to customer’s homes as well as to stores.
With little to suggest that this trend will slow down any time soon, EuroBox is well-positioned then to profit from its ability to purchase existing locations or to build its own warehouses on a completely pre-let basis, which removes a huge amount of risk for the fund and investors. As the fund just went public and is in the process of making its first purchases, returns are completely hypothetical right now, but Tritax is targeting a 4.75% dividend yield and medium-term target return of 9%.
Both of these targets look eminently achievable in my eyes and given Tritax’s great track record with BigBox, I think income investors would be well-served by checking out EuroBox for themselves.
A novel market newcomer
While EuroBox investors can at least use the track record of BigBox and US-listed warehouse REITS as a guide to what to expect, investors in the brand new Hipgnosis Songs Fund (LSE: SONG) are very much on their own.
Hipgnosis has been set up by music industry veteran Merck Mercuriadis, who has served as manager to Elton John and Guns N’ Roses among other big names, to purchase writers’, publishers’ and performance rights to songwriters’ creations. The company’s IPO raised £202.2m towards the end of June and the fund has already made its first investment, a 75% interest in the catalogue of songwriter The-Dream for $23.75m. This purchase includes the rights to 302 songs performed by artists such Justin Bieber, Jay-Z and Rihanna.
Once it owns the songwriter’s rights to songs, the fund can license them as well as earn royalties each time they are played. This income stream is intended to be directed towards further acquisitions and steady dividends paid to shareholders. Management’s target is for an initial dividend yield of around 5% with annual NAV returns of 10%.
The fund is certainly a novel idea and with big names in the music industry lined up behind it, it certainly won’t lack for insider knowledge and expertise. However, with a relatively untested businesses model I’ll be watching from the sidelines for the time being to see how it all shakes out for Hipgnosis.
