This article first appeared in Green Street News.
As SpaceX’s futuristic vision captivates Wall Street, London’s IPO candidates need to focus on income
As an investor in UK and European property equities, it has been hard not to feel a pang of FOMO watching the frenetic action on Wall Street. SpaceX has – with the heaviest possible emphasis on “at time of writing” – proved itself worthy of every out-of-this-world metaphor commentators have in their armoury, while Anthropic and OpenAI look set to join the fun with their own mega-IPOs. America is flooding its stock market with new shares and investors are falling over themselves to buy them.
Against that backdrop, the London Stock Exchange does not just look quiet on the IPO front, but almost mute. The only recent excitement in the corner of the UK equity market that engrosses the property sector has been a build-to-rent platform out of Dublin1
But boring is not necessarily a bad place to be right now. The names enlivening the New York exchanges are also some of the most aggressively valued businesses on the planet. Listed property, a sector that cannot compete on perilous hype, has the advantage of not having to defend such hype, either. In fact, the sector has attributes that may prove invaluable to the non-Reddit dwelling investor for the next phase of the cycle: tangible, in-demand assets; disciplined balance sheet management; the ability to buy in at generous discounts; and improving earnings. But all the IPO excitement across the pond still begs the question; what might fuel a similar resurgence here? Might property have a role to play? I think it may, but not by pretending every portfolio deserves a ticker.
I have covered the dozens of cases of listed property company M&A in previous columns, so I won’t rehash the importance of this activity here, except to note that the proposed all-share consortium offer for Picton Property Income feels like one of the final chapters. This is a well-run business where lack of scale has become an insurmountable constraint on profitability. Its assets now potentially look set to move to listed platforms with other virtues – LondonMetric Property (LMP) with its scale, stronger liquidity, and greater management firepower; and Schroder Real Estate Investment Trust (SREI) with its lower management fee, immediately improving earnings efficiency. That is what consolidation should do: leave shareholders holding something stronger while, ideally, keeping quality property on the listed market.
The income test
With the pool of obvious sub-scale vehicles shrinking, the next chapter cannot simply be more consolidation. That is where the IPO conversation becomes interesting. The first challenge that is often cited here is the discounts at which property companies trade. Why pay full price for a fresh portfolio when investors can buy similar assets in the existing market for 75p or 80p in the Pound? Few people, the thinking goes, queue for the grand opening when the clearance rack is already stacked with good stock.
But investors are no longer treating published NAV as the main pricing mechanism for listed property companies. In practice, they are pricing off income, and the prospect of income growth. Share prices now tend to settle where they need to deliver, say, a 7-8 percent implied yield. If the assets at book value only generate a 5-6 percent yield, the equity trades at a discount to make the maths work. If income, rather than stated asset value, is now what prices existing property companies, then income trajectory will be the test for anything new as well.
Discounts alone, therefore, don’t preclude IPO activity in listed property, which means we can turn our attention to which subsectors are best positioned to deliver the earnings growth that would make a new listing fly rather than flop.
In-demand sectors
The obvious examples are retail warehousing and multi-let industrial, both subsectors where vacancy is low, the development pipeline is thin, and occupational demand has so far proven resilient. Furthermore, there are few quality assets in these sub-sectors remaining on the public markets – with Blackstone folding Hansteen, Industrials REIT, and St Modwen into Indurent, under the sharp eye of Julian Carey. A well-structured IPO in either would start from a position of genuine differentiation, rather than merely adding another diversified landlord to a crowded shelf.
But, the next live test may in fact come from residential. Oaktree is reportedly working on a London listing for CompassRock2, its UK and Ireland build-to-rent platform, at a valuation of around £1.2bn, targeting £500m of primary equity. Its homes sit in supply-constrained markets across the south of England and Dublin. Oaktree is reportedly expected to retain both the existing management team and a substantial stake, giving public market buyers the sponsor alignment they rightly want to see. The deal will still have to clear the arithmetical hurdle that dogs most private equity exits into public markets. PE owners typically run property portfolios with levels of debt that listed investors will not tolerate, so an IPO usually means reducing leverage and adding fresh equity, which mechanically drags down prospective returns.
Even so, it is encouraging to see the idea progressing in a sector where NAV obsession might otherwise kill the conversation before it starts. Grainger is the obvious comparator and trades at a wide discount to NAV. But again, the question is not which vehicle looks optically “cheaper” today. It is which one can grow earnings faster from here. If CompassRock’s rental growth, occupancy and operating platform allow it to compound income faster than Grainger can from its discounted base, that will be the measure of whether its IPO deserves to fly.
The other requirement to get another listed property company off the ground may be cheaper money. June’s UK inflation news gives the market one less reason to fear that the Bank of England is about to be forced back into a more hawkish corner. But inflation is still above target, geopolitical risk has not disappeared, and the cost of capital is still the most aggressively unglamorous obstacle in the room.
Consolidation has done what it needed to. It has removed weak wrappers, improved scale and shown that the listed sector can fix some of its own structural problems. London does not need to compete with America’s rocket launches. But if listed real estate is going to lift off again, the market should be looking at earnings, not NAV, as the critical item on the pre-flight checklist. Cheaper capital may provide the fuel, but only genuine income growth will decide what deserves to fly.
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Approved by Columbia Threadneedle Management Limited on 16/07/26.
