March 28, 2023
An initial public offering (IPO) in any sector is a process that requires careful preparation. The planning, to ensure both a successful IPO and a positive start as a newly public company, begin well in advance.
IPSX, the only
regulated stock exchange dedicated to trading commercial real estate, has
created a Practitioners Guide to commercial real estate IPOs, to
demystify the process and illustrate the opportunities and obligations for
This is the first of two blogs outlining each important step in a commercial real estate IPO admission process.
An IPO on IPSX, takes place when a company offers to sell its own, new or existing, shares to investors through the stock exchange. This can be of interest to both existing shareholders, who may wish to sell the shares they have previously bought privately, as well as to new investors, who may wish to purchase shares previously unavailable. There are several reasons why owners of a real estate company – and real estate assets – would seek admission to trading on a Recognised Investment Exchange. For example:
Before these benefits can be realised, the owners must understand the
process and the steps involved. From the outset, companies must be deemed
‘appropriate for admission’. The process of seeking an IPO requires commitment
from the directors of the business.
Appointing a team of advisers
Any company wishing to seek admission to trading on a Recognised Investment
Exchange begins by appointing a team of advisers to facilitate the IPO process.
This team will usually include a Lead Adviser, broker, reporting accountant,
lawyer, valuer and financial PR. Clear purpose and role definition should be
established early to avoid inefficiencies in the process.
The role of the Lead Adviser
The Lead Adviser’s primary role is to prepare the company, which owns
the assets, for admission. They will
also manage the IPO process by ensuring the lawyers, brokers, accountants,
valuers and PR advisers all execute their roles as required. The Lead Adviser
has a key role as project manager and advises on all aspects of the process
including the preparation of the prospectus or admission document. They also
have to sign an application form confirming that the company is suitable and
has complied with IPSX rules. The Lead Adviser needs to be either an FCA
Authorised Person or a member of a designated professional body (FCA Handbook, section 326).
The role of the broker
A broker will advise the company on all shareholder and investor related
aspects of the IPO process and will help to gauge the demand for shares being
issued or sold. Their main responsibility is to advise the company on its
relationship with the investor community. The broker can also be the Lead Adviser.
Legal, accounting and due diligence
The company’s legal advisers will perform a number of workstreams as part of the admission process. These include advice on tax and corporate structuring, property due diligence and preparation and verification of the prospectus and other public documents. They will also provide legal opinions.
The company will also need to appoint a reporting accountant to report on the company’s financial record and carry out financial due diligence. Audited historical financial information on the company covering the last three years (or such shorter period that the company has been in operation) is required for inclusion in the company’s prospectus ahead of IPO.
Valuation for an IPSX IPO
Where a company is listed on IPSX, an Approved Valuer will issue a
report prepared according to the standards and guidelines of the Royal
Institution of Chartered Surveyors’ (RICS) Red Book. This report will include a
detailed SWOT analysis of the asset, its covenant strength (i.e. tenants), its location
and local market conditions, as well as an assessment of comparable properties.
Communicating with investors
Companies, with their broker and lead adviser, looking to
access the public markets will develop and articulate a strong equity story
that clearly explains why investors should believe in the company, its
management and its future prospects.
Ongoing activity following admission to IPSX
Following the company’s
admission to trading on IPSX, the broker is generally responsible for preparing
update reports for distribution within the investor community, based on the
company’s announcements. This may also include commentary on other companies or
property sales taking place in the sector.
A successful IPO
After a successful IPO, the hard work really begins. An effective financial communications and investor relations strategy, which targets investors, analysts and the media, as well as wider stakeholders, is crucial. This should include preparations for conferences and analyst meetings, financial calendar events and general corporate positioning. A well organised infrastructure in place will ensure your company’s management is engaging with the market effectively and can help create supportive conditions to underpin the company’s share price over the longer term.
IPSX is the world’s first, regulated real estate stock exchange. It provides a robust and proven market for issuers seeking to raise capital and is regulated by the Financial Conduct Authority.
Find out more about the IPO process for commercial real estate in Part 2.
IPSX Wholesale is a market exclusively for institutional and professional investors.