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Oxbridge colleges select First Property to run UK fund

Last updated: 06:55 16 Jan 2017 EST, First published: 03:20 16 Jan 2017 EST

Christ Church college, Oxford
The colleges have committed to invest £14.5mln in the fund

First Property Group PLC (LON:FPO) has established a new fund, Fprop UK Special Opportunities LP, to invest in commercial property in the United Kingdom.

The fund has been set up in association with three Oxbridge colleges: Christ Church (Oxford); St Catherine’s College (Oxford) and Robinson College (Cambridge).

Equity commitments made by the colleges to the fund amount to £14.5mln. In addition First Property, which operates both as an investor and a fund manager, has made a commitment of £725,000.

Investments by the fund may be leveraged, with a maximum loan amount of 50% of the value of the investments, First Property told investors.

Doing the arithmetic for us, First Property added the fund therefore has a total buying power of just over £30mln.

First Property Group will earn annual fees from the new fund calculated by reference to the value of the properties under management.

"The fund aims to invest in higher yielding commercial property investments with development angles or other ways in which to enhance value,” said Ben Habib, chief executive of First Property.

“The economy of the UK is robust and we anticipate that this strategy will yield healthy returns for its investors. The establishment of this fund, so shortly after our recent announcement on SIPS [see below], illustrates the momentum building within our fund management division," he added.

Speaking to Proactive Investors, Business Development director Jeremy Barkes said it was not the first mandate the group had received from Oxbridge universities.

That previous investment was in the Fprop PDR fund, which some investors may remember moved swiftly in the second half of 2013 to take advantage of what was supposed to be a temporary change in permitted development rights in respect of the conversion of office space into residential buildings.

That fund generated spectacular results, which may have had a bearing on the decision of the Oxbridge colleges to give First Property the latest mandate.

Barkes said that what was supposed to be a temporary change to permitted development rights became permanent in 2016, and this should prove beneficial to the office properties market.

“The opportunity lies in secondary office buildings,” Barkes said. “A number of offices have been and are still being converted into flats, taking supply out of the market.”

“With us, our focus is on income. We don’t buy anything yielding less than 6%,” Barkes said.

There is much else to like about the UK commercial property market, especially market nervousness over Brexit.

“A lot of property prices have fallen since the Brexit vote. We don’t share that nervousness,” Barkes said.

House broker welcomed the latest announcement.

“When invested, this will make a useful addition to the group’s fund under management which currently stand at c£457mln (including group properties) and it also adds some high profile names to the group’s blue-chip client list,” the broker said.

“We are not changing our forecasts at this point but, once fully invested, we estimate that this will add a few hundred thousand pounds to profits, providing modest upside to recurring annual profits of c. £9.4mln,” Arden said.

The broker suggested that with further scope for new mandates, plus the chance to gainfully invest some £13mln of its own cash, there is a chance its earnings forecasts will be on the conservative side.

Based on its current forecast for the year to March 2017, the shares trade on a measly 8.7 times earnings per share, while the dividend yield is 3.2%.

Shares in First Property rose 1% to 49p on the news.

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