IPSX: Year One

Taken from an article by Property Week, first published on 26th May 2022: IPSX: year one | Insight | Property Week

IPSX, the world’s first exchange dedicated to the trading of real estate assets, was founded in 2016, but took some years to gain approval from the Financial Conduct Authority. After all, establishing the UK’s seventh exchange was a big deal for the financial sector. 

One year on, how are things panning out for IPSX? Has the exchange, and the properties listed on it, performed as expected? And what do its backers predict for its second year of operations? 

IPSX group chief executive Roger Clarke always had confidence that having the ability to invest in properties, rather than companies that own properties, would prove a compelling proposition. 

“If you buy shares [in a property developer], you’re really backing a management team and you don’t really know what they’re going to do next,” he says. 

“You don’t really know how or when they’re going to sell the assets they’ve developed. We wanted IPSX to be a place where you could buy assets rather than back a management team.” 

IPSX gained approval from the regulator in 2019 and was ready to roll, when the Covid pandemic promptly knocked the global economy to the floor. 

That the first listing – of Birmingham’s Mailbox shopping centre – happened in May 2021, at a time when the vaccine rollout was still working its way down the age categories, is, at first glance, remarkable. 

But Clarke believes the exchange had gained enough momentum by then that even Covid could not hold back the Mailbox flotation. 

“[Mailbox owner] M7 was just determined and kept going at it when there were all of those headwinds,” he says. “It might have been easier to just pull it.” 

Mailbox REIT chairman Stephen Barter was a key player in trying to establish a version of IPSX in the 1980s. He says he is very happy with how the asset has performed over the past year, saying it has “done everything we hoped it would do”. Mailbox REIT shares now trade for £1.05 and have not fallen below £1.01 in the past year. 

“It has traded at a decent premium to the issue price. It’s issued quarterly dividends of 7% and it’s gone up in capital value by 4.5%,” says Barter. “We’ve got about 70 shareholders with a mixture of UK institutions, international funds and high-net-worth individuals. We have a pathway to net zero carbon and a good ESG policy. That is exactly what we’d hoped would happen.” 

Barter is not surprised by how the Mailbox has performed. Indeed, he thinks the building was an ideal first flotation for IPSX. 

“It had very stable income,” he says. “It was a good mix of tenants underpinned by the BBC, which has about 23% [of the space]. They’ve been paying rent 100% throughout the lockdowns. The second thing is it’s mixed use, so there’s diversity of tenant type.” 

Barter describes it as a good growth story, which, he says, “you need for any IPO”. 

“The Birmingham office market has continued to do very well, not least because of people moving out of London but also because of the levelling-up agenda. It was right not to do it in London initially,” he says. “You don’t get many chances to make a little piece of history – and change the property landscape maybe, which is something I’ve always enjoyed doing.” 

The second listing on IPSX took place last December and was rather different. Again, it was brought forward by M7, but this time with a portfolio of “enhanced retail warehouses”, a new generation of e-warehouses. This was a departure from the original idea for IPSX, which was all about listing individual buildings. 

Ultimately, however, Clarke says the team decided that they would allow the listing of portfolios, provided they were made up of very similar assets. 

“It was a portfolio of 17 retail warehouses all under the same sort of lease structure or operations,” he says. “Together, they were valued at £110m, so smaller lot sizes but a really good spread of tenants. It’s also a sector that has performed extremely well through lockdown.” 

Indeed, M7 Regional E-Warehouse REIT, the structure created for the listing, recently put out its first quarterly results, which showed its share value had increased by 9%. 

Planned flotations 

So far that’s it, in terms of listings on IPSX. But Clarke says another four flotations – a mix of individual assets and portfolios – should be completed by the end of summer. 

The assets comprise the Capital Building in Liverpool, owned by Starwood Capital Group; Bridgewater Place in Leeds, which is being brought forward by M7; a portfolio of social housing aimed at vulnerable people; and another residential portfolio, of mixed tenure but all around Canterbury. 

However, the current economic environment could present these proposed listings with challenges. With inflation hitting 9% in April – thanks in no small part to the impact of the Ukraine war on energy and grain prices – some economists are predicting a recession, which could affect confidence. 

The recent cryptocurrency crash has further affected investors. 

Despite all this, Clarke is confident the four listings will happen, not least because real estate suddenly looks attractive compared with other investment options. 

“Real estate really is the least worst place to put money,” he says. “We’re a safer haven than ever, so I think we do have deals still coming in the next few weeks,” he says. 

“Just like last year, it seems crazy to be trying to do it, but I think we will. There’s always been some kind of macro [economic] issue going on ever since we started this. We went from Brexit to Covid-19 to Ukraine.” 

Clarke is also open about the fact that he had hoped more listings would have happened by now. After all, back in March 2021, ahead of the Mailbox listing, he said in an interview: “We have a big pipeline of many assets worth together several billion pounds.” Clearly, not all have floated. 

He concedes IPSX is a bit behind where he hoped it to be. “We’re probably on track to where we thought we should be in terms of origination,” says Clarke. “It’s just that this year execution has taken longer than we might have hoped. I still expect to go into the summer with five or six listings, rather than two. That would be a great first half [of the year].” 

How about this time next year? Where does Clarke think IPSX will have got to in terms of listings? 

“What I hope to see over the next 12 months is that we settle into a run race of new deals,” he says. “I’d like to do another 12 deals over the next 12 months. That’s what I am telling the investors in the exchange.” 

Achieving critical mass 

James Max, M7 Regional E-Warehouse REIT chairman, says achieving critical mass will be of vital importance to the success of IPSX. “We need to get a lot more assets listed on the exchange to provide that real diversity of investment options,” he says. 

“What will be the true measure of success is when there are a whole range of assets up and listed and people can start to make real choices between different assets, classes and sizes. 

“The template is there, the model is up and running, the tech works and the transactional structures work. It needs the next push. It might take years and I don’t think anybody thinks it will happen overnight, but the infrastructure is there and it’s robust.” 

For IPSX non-executive director Rob Bould, the exchange will be supported by Oxford Properties’ acquisition of M7 in September, following regulatory approval. 

“One of the tangential benefits of M7 being bought by Oxford is that Oxford then joined the shareholder register with a meaningful investment in the exchange,” he says. “When you start to get that type of investor and the peer group those people travel in [that’s a big deal for IPSX]. 

So, IPSX would like to have seen more flotations by this point, but its backers are confident that more will happen imminently. Moreover, the progress to date has to be placed in the context of a period of huge and ongoing economic uncertainty. It will be fascinating to see what happens next.