Recently, the Ethical Property Company (EPC) announced that they would be undertaking their ninth equity share issue. This is an astonishing achievement for a firm in impact investment and seems almost unnoticed by the normal sector commentators. Below I will explore why, but first it is worth discussing some of the things that are unusual about EPC.
Very few high-impact businesses undertake share issues. EPC has completed four share issues since 2001 and has raised more than £12 million since its first issue. These have occurred in the UK where the company already has nearly 1,400 shareholders. AIM-listed Good Energy Group PLC is another company that has been able to attract UK shareholders, as has Cafe Direct, they are still exceptions.
EPC has also expanded its model outside of the UK. Four share issues have been undertaken in Europe (in France and Belgium) and the company has explored expansion opportunities in Australia as well. Such international expansion by UK impact-oriented firms is also rare.
EPC’s activities are rather straightforward. The company purchases commercial office buildings and lets them to “social change tenants”. These tenants are charged levels of rent which are below the market and given more favourable and flexible terms. In addition, the firm runs the buildings in a more tenant-oriented fashion and endeavours to achieve high environmental standards.
Such premises are in particularly high demand as charities and impact-oriented tenants are seeing grant income squeezed, prompting a search for cost-savings. As a result, demand for EPC’s services is rising. Whilst gross rental yields on the firm’s properties may be slightly lower than commercial landlords, EPC is able to enjoy lower voids, thereby boosting income.
The model the company has developed has enabled it to be profitable every year since it was founded in 1998, and it has paid a dividend every year since 2001. It has increased its net asset value and it just announced updated valuation figures as well as a potential unrealised gain it may achieve on one of its existing properties near the Old Street roundabout.
Of course, there are still obstacles EPC needs to overcome; shareholders are able to trade their shares through Ethex, but liquidity is indeed limited; as a property company it did suffer in the immediate aftermath of the financial crisis. Furthermore, its tenants face obvious levels of uncertainty due to government budget cuts.
None of this explains the point I alluded to right at the outset, which is why this has been relatively unnoticed and as a firm within the sector its activities are frequently unremarked upon, but there are three factors which may be important.
Firstly, the firm is based in Oxford. Although Oxford is not far from London, it is my contention that London-based firms receive a disproportionate share of the attention in the impact investment sector. Secondly, the firm has been around for 17 years and in my opinion there is a strong bias in the UK market towards businesses that are new and exciting. A track record of 17 years may be interesting, but EPC is hardly new. Finally, EPC is a firm that has concentrated on providing services to clients rather than communicating what it hopes to achieve. Even in the impact investment arena we still live in a world where steak is less noticed than “sizzle”.
First published in Third Sector in September 2015.