At a general meeting last week shareholders voted in favour of the change in strategy of property loans provider Develop North (LON: DVNO) to include property investment and the share issue to finance the enlarged business. There is an offer that could raise up to £58m at 81.6p/share.
The planned fundraising has taken slightly longer than anticipated to be launched, but the investment adviser wanted to ensure everything was in place first.
NAV is currently 77.5p/share. Management is targeting an annual yield of 6%-7%, plus a 4% annual capital increase. The current yield is 5.2%.
The company currently provides property-backed loans in north east England. This will continue, but there will also be direct investments in commercial and residential property. Each of the areas – loans, commercial and residential – is likely to account for around one-third of the portfolio.
The initial aim is to build up a portfolio of assets with a net asset value of £100m and then increasing it to £300m in five years. There is a revolving credit facility available, as well as potential co-investment opportunities.
In January, Michelle Percy was appointed chief executive. She previously worked for Newcastle City Council and was involved in public private partnerships. She is independent of investment adviser Tier One Capital and adds further experience of the economy in north east England.
There is a retail offer that closes on 30 March. Cavendish is the retail offer coordinator. Authorised intermediaries that have been confirmed are AJ Bell, Interactive Investor, Hargreaves Lansdown, Redmayne Bentley and Shore Capital. There are other intermediaries awaiting confirmation.
The current share price is 77.5p. The bid offer spread is 73p/82p, so it costs slightly more to buy the shares in the market than via the offer. That spread reflects the limited volumes. Liquidity could improve after the offer because of the wider spread of shareholdings and that could narrow the bid/offer spread.
It is uncertain how much cash will be raised but Develop North can raise more cash at a later date following the approvals at the recent general meeting. The potential yield, combined with potential growth in assets, will be attractive to investors.