(MENAFN- ProactiveInvestors)The listing on AIM of Pacific Industrial & Logistics REIT plc (LON:PILR) earlier this month passed with little fanfare as did its first deal a day later. Whether the real estate investment trust (REIT) backed by property 'doyen' Sir John Beckwith remains a secret is another matter. Its principals Christopher Turner and Richard Moffitt have some ambitious plans to grow a significant portfolio in property's 'forgotten sector'. This specialist segment comprises 'sub-£10mln' industrial and logistics buildings measuring 10000-100000 square feet that are too big to interest the private investors but too small to really shift the dial for the large outfits. However it is not just a case of small is beautiful. It is also about location too. That's because Pacific is hitching its wagon to the e-commerce revolution that has totally transformed the world of retail. So its warehouses and units will be the hubs for van delivery businesses that carry the parcel that last mile for the likes of Amazon and ASOS. This means they will be close to major towns and cities and have quick and easy access to arterial roads in and out of these areas. The £27mln purchase of the M1Portfolio exemplifies Pacific's approach. Consisting of 11 warehouses and units it sits in what's known in property circles as the 'golden triangle' which is bounded by the M1 M6 and M42 motorways. Tenants include BSS Price's Candles Arqadia and Winit. 'What we refer to as the forgotten sector is a very simple model' says Turner. 'We tend to target single-let buildings where we are getting four rent cheques a year paid by tenants that want and need to be in the location they are in. 'It is not complicated by service charges that you get with big industrial estates. We see it as a simple and straightforward model.' Turner says Pacific has 'visibility' on another £300mln-worth of stock that would meet its requirements. Its plans this year aren't quite that ambitious. However it hopes to raise £50-£100mln to fund further acquisitions possibly before the summer break that brings the City to a grinding halt. And it already has funding in place from the Spanish bank Santander for up to £50mln part of which is being used to finance the M1 deal. Turner reckons the business could grow to £500mln at which point it will pop up on the radar screen of larger property operators. In the meantime Turner and his colleagues are simply looking to develop the business. To augment its income Pacific is looking at managing other companies' assets. Renewing leases on longer terms will also help boost the value of the assets it accumulates. 'Our lease terms are sub-10 years; many are sub-five years' says Turner. 'If we have a good tenant we obviously look to hold on to them by encouraging them to take a longer lease. By improving the lease [term] we are delivering value for the business.' Pacific's is an interesting model. It is a REIT which confers certain tax advantages. Having this status means it must also return 90% of its profits as dividends to investors. So far so ordinary but here's the wrinkle: for management to actually get paid the return to shareholders must be more than 6%. That's quadruple the best savings rate. Turner is pretty confident he can hit that target. He points out the properties identified are paying rental yields of 7.25-8.5%. The M1 Portfolio is in that sweet spot. Borrowing money to part finance transactions 'will quickly get us up to double digit yields' says Turner. 'So we shouldn't struggle [hitting the 6% target].' The model obviously appealed to City investors such as Investec and Rathbones which got in at the IPO and have said they will back Pacific all the way. Meanwhile Sir John Beckwith and his 'affiliates' have ploughed £9mln into the company. Worth £400mln he founded investment firms London & Edinburgh Trust Rutland Trust River and Mercantile and Pacific Investments. 'John is one the more well-known doyens of the property industry. He has backed us substantially.' Having been integral to creating and developing the newly floated business Beckwith understands the scale of the opportunity. 'We think e-commerce is likely to grow by another 20% over eight to 10 years' says Turner. 'It has already had a massive impact on the existing distribution stock and warehouses. 'Stock isn't being built at rate it is being taken up so there is huge pressure on demand for available space. 'So we know there will be rental growth just through the demand. 'This trend towards online buying is only going to get stronger.'
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