Interim Results

RNS Number : 6803O

Pacific Industrial & Log REIT PLC

09 November 2016

 

9 November 2016

Pacific Industrial & Logistics REIT plc

("Pacific Industrial & Logistics", the "Company" or the "Group")

Interim Results for the period ended 30 September 2016

Pacific Industrial & Logistics REIT plc (AIM:PILR), a Real Estate Investment Trust focused on sub £10m lot size industrial and logistics properties, is pleased to issue its interim financial results following the close of the first reporting period to 30 September 2016.

HIGHLIGHTS

·      Adjusted NAV* up 24% to 123.87p from issue price of 100p

·      £29.9m valuation, a 10.7% uplift on the Company's portfolio since acquisition (on purchase price of £27m)

·      Rental income of £1.0m, Operating profit of £3.1m for the period

*NAV at 30 September 2016 is 122.18p. Adjusted NAV is 123.87p (adding back the fair-value movement of an interest rate swap). Diluted NAV (adjusting for warrants in issue) is 116.47p and Adjusted Diluted NAV is 117.78p.

Richard Moffitt, CEO of Pacific Industrial & Logistics, commented:

"We are delighted to report that the Company has performed well in the interim period to 30 September 2016, through upward-only rent reviews and active asset management in a sector that continues to benefit from strong fundamentals post-EU referendum".

For further information regarding Pacific Industrial & Logistics REIT plc please call: 

Pacific Industrial & Logistics REIT Plc Richard Moffitt  CEO	[phone]
finnCap - Nominated Adviser and Broker Stuart Andrews/ Grant Bergman/ Giles Rolls Corporate Finance Christian Hobart Corporate Broking	[phone]

 

Chairman's Statement

Overview

The Company's IPO in April 2016 raised gross proceeds of £12.2m. The Company's Ordinary Shares were admitted to trading on the AIM Market of the London Stock Exchange on 13 April 2016.

In accordance with the Company's Investment Policy, the net proceeds of the IPO were invested on 14 April 2016 in a portfolio of smaller lot size industrial and logistics properties (single let) situated across the Midlands, with an average lot size across the portfolio of less than £10m. The purchase value of the portfolio was £27.0m (excluding purchaser costs of £0.5m) on 14 April 2016 and had rental income of £2.0m (representing a Net Initial Yield of 7.3%)

As at 30 September 2016, the Group's portfolio consisted of 11 properties, let to an array of SME tenants, all of whom have continued to trade well following the result of the EU referendum. The acquisition was funded from the proceeds of the IPO and the drawdown of a senior debt facility (£15.5m) provided to the Group by Santander.

The Group's portfolio has been independently valued by CBRE in accordance with the RICS Valuation - Professional Standards (the "Red Book"). As at 30 September 2016 the Group's portfolio had a market value of £29.9m (up 10.7% from IPO).

The Group's investment manager, Pacific Capital Partners Limited, has identified further opportunities to acquire high yielding assets which meet the Group's investment criteria and the Company will be exploring opportunities to raise additional equity proceeds this year.

Financial Results

On an IFRS basis, operating profit for the Group for the period from 13 April 2016 to 30 September 2016 was £3.1m, with total comprehensive income of £2.6m. Net earnings per Share for the period were 25.29 pence (basic), which includes the net valuation gain recognised as a result of the revaluation of investment property and derivative interest rate swaps. The unaudited Adjusted Net Asset Value per share as at 30 September 2016 was up 24% to 123.87 pence per share from an issue price of 100.00 pence per share.

Financing

As at 30 September 2016, the Group has raised £12.2m of (gross) proceeds and signed a senior debt facility with Santander totalling £50m (of which £15.3m remains drawn across the first portfolio of assets which were acquired as a corporate transaction). This facility has a term of 3 years and reflects a current loan to value (LTV) of 51%.

In the medium term the Group's target LTV is 45% which is allowed for in the facility.

Hedging

A significant portion (70%) of the Group's senior debt facility has been hedged, with the Group entering into a three year interest rate swap (fixed) effective from 14 April 2016. The fixed rate, excluding lending margin of 235 bps, was 93bps. The Group's average cost of borrowing on senior debt is approximately 318bps, including the lending margin.

Outlook

The Company has performed well since IPO, delivering on its stated initial objectives. The Board believes that by consolidating a high quality logistics and industrial portfolio of smaller lot sizes across established regions, the Group will offer investors exposure to a sector that offers high yields and attractive returns.

The smaller lot size market has excellent fundamentals and compared to other asset classes offers both income and capital preservation. The sector that the Company operates in has shown little change since the result of the EU referendum and we are aware of a number of transactions recently closing at pre-referendum valuations. We believe the sector remains robust as consumers continue to migrate online and demand for last mile and regional logistics remains high.

The Board and the manager has an identified pipeline of attractive assets that are complementary to its existing portfolio and located in attractive logistical locations. We are confident of continuing to deliver excellent returns for our shareholders.

Jonathan Gray

Chairman

9 November 2016
 

Manager's Report

Overview

The industrial and logistics market in the UK continues to see strong occupier demand outweighing available supply. This is due to on-going under-investment in the sector which is principally due to some substantial barriers to entry; namely, the cost of replacement, availability of land, planning constraints, letting risk and lack of available funding. This results in an ongoing supply constraint regarding quality industrial and logistics assets across the UK. Strong occupier demand, owing in particular to the growth in e-commerce and investment by retailers and suppliers in e-fulfilment supply chain capability, also means that there is sustained low void across key locations. Amazon, for example, acquired 15 buildings totalling 2.4m sq ft during 2015 as it continued to expand it logistics business.

The Company's focus and Investment Policy is to invest in well-located, fit-for-purpose last mile or regional logistics facilities in the UK, which display appealing characteristics:

-       A strong tenant financial covenant and evidence of commitment (including fit-out, location and value within the tenant's operation)

-       Quality stock which may be mispriced by the market (leveraging the experience and track record of the manager to drive a stock selection strategy)

-       Opportunity for rental growth and out-performance by way of asset management, tenant mix and the re-gearing of leases

-       Strong local occupational market

-       Existing buildings, which are acquired at below replacement cost

-       Property and location characteristics (building quality, age, scale, site cover, internal operational efficiencies)

-       Logistical access to main arterial roads

The manager's focus is on upward-only rent review leases, with reviews typically taking place every 5 years and delivering an increase in the rent at the relevant agreed growth rate, compounded over the period.

Valuation

The Company's portfolio has been independently valued by CBRE in accordance with the RICS Valuation - Professional Standards (the "Red Book").

As at 30 September 2016, the Company's portfolio had a market value of £29.9m as compared with the combined initial purchase price of £27.0m (excluding purchaser costs of £0.5m), an increase of £2.9m or 10.7%. This increase in valuation reflects a combination of asset management conducted by the manager to date, examples are included to the left, the prevailing supply and demand imbalance which is applying upward pressure on rents, with yields holding steady post-referendum, and the advantage gained by the manager's stock selection and off-market transaction.

Financial Results

On an IFRS basis, underlying operating profit (before accounting for changes in fair value on investment properties) for the interim period was £0.7m. The main driver of this positive performance was the strong rental income generated by the portfolio, which equates to a running yield on book cost of 7.3% per annum.

The results were also impacted by the gain recognised on the revaluation of investment properties of £2.4m, covering all costs associated with the portfolio purchase.

Administrative and other costs, which includes Manager fees and other costs attributable to the running of the Company, for the period, were £0.2m, equivalent to 0.9% of the market value of the portfolio as at 30 September 2016.

The total comprehensive income for the period was £2.6m, which equates to an earnings per share (basic) of 25.29 pence.

Financing and Hedging

During the period, the Group drew down £15.5m with Santander on a long term borrowing facility of £50m. The average margin across these loans is 235bps (excluding lender margin).

The Group's medium term target is to reduce the LTV ratio from its current 51% to a more conservative level of 45% against the Group's gross asset value. The Company has £2m of redeemable preference shares outstanding which were issued to affiliates of Pacific Investments Limited. These are entitled to 6% cumulative interest and are redeemable at anytime over a period of up to 18 months.

The facility includes an amortisation charge and is secured against the properties of the portfolio. The manager is in discussions with a view to broadening the Company's debt funding relationships.

The Company's debt strategy is to minimise the effect of a significant rise in underlying interest rates by utilising interest rates swaps.

Market Outlook

The Board and the manager believe that a significant opportunity exists for investment in the UK industrial and logistics market, owing to strong tenant demand and limited stock supply.

The UK continues to be one of the fastest growing adaptors of online retail and there is a requirement for tenants to develop their e-fulfilment capability accordingly. As such, key geographic regions across the UK are seeing improvements year-on-year in leasing activity. Demand for lots has increased significantly and is driven by manufacturing / distribution and the continued growth in e-commerce. Parcel carriers, retailers and companies within the UK manufacturing supply chain are all involved with the rise in take-up of smaller format lots.

Smaller lots

Yields on smaller lots (sub-£10m) are historically c. 1.0% higher than those of larger lots as investors and real estate investment funds are almost unilaterally focussed on lot sizes in excess of £10m. Smaller lots therefore trade at a discount to more institutional grade assets due to the reduced weight of money targeting this stock. There is also a less active debt market for smaller companies and investors in this lot size, which can be seen as a hangover from the 2008 financial crisis.

Online

The growth in online retail has been a key driver of the increase in logistics facilities. According to research by Goldman Sachs (2015), online sales are expected to grow by 15% CAGR over the next five years in the UK.  

Supply

Supply levels for logistics property peaked in 2009 following a period of speculative development in the run up to the economic downturn. Following strong occupational demand resulting from the recent economic recovery there is now a significant shortage.

Whilst there have been recent tentative steps towards the speculative development of smaller floorplate buildings, this has yet to result in availability matching the requirement for take-up across the UK. Indeed, supply is more than a third lower than the peak post-recession in 2009.

Supply remains low by historical standards and there remains a lack of land earmarked for warehouse development.

Demand

Demand for smaller lot size warehouses in recent years has been strong. The underlying driver being a lack of new building availability and high replacement cost. According to CBRE's United Kingdom Logistics - The Property Perspective H1 2016 report, demand for logistics warehousing has been exceptionally strong in H1 2016, with take-up of 13.5m sq ft compared to 9.5m sq ft in H1 2015. CBRE also note that whilst theoretically the referendum result may influence the market there is little evidence to suggest this is the case and that the "changes hitting the logistics sector at present, and the growth of key sectors including online retail will … continue to be the biggest influence on occupier demand and [this] has not been changed by the referendum result". The Midlands was the most active location in H1 with 42% of the UK take-up.

Rents

According to CBRE's Monthly Index (August 2016), industrial and logistics was the best performing commercial property sub-sector year-on-year. This strong performance has continued through 2016 with positive rental growth and total return, whilst rental values have held steady post-referendum.

Acquisitions

The focus on the manager will be to continue acquiring attractive assets with the potential for rental growth in light of the current market dynamic of diminishing supply and increasing occupier demand.

The manger is focussed on maintaining and building existing tenant relationships with a view to extending the Company's reputation as a leader in the smaller lot size market.

Richard Moffitt and Christopher Turner

9 November 2016

Condensed Consolidated Statement of Comprehensive Income

For the period ended 30 September 2016

		30 September
		2016
		(unaudited)
	Note	£'000
Rental income		988
Cost of sales		(10)
Gross income		978
Administrative and other expenses		(234)
Long-term investment plan charge	8	(17)
Operating profit before changes in fair value of
investment properties and interest rate derivatives		727
Changes in fair value of investment property	9	2,383
Operating profit		3,110
Finance expense	5	(327)
Changes in fair value of interest rate derivatives		(174)
Profit before taxation		2,609
Tax credit/(charge) for the period		-
Profit and total comprehensive income (attributable to the shareholders)		2,609
Earnings per share - basic	7	25.29p
Earnings per share - diluted	7	25.07p

Condensed Consolidated Statement of Financial Position

As at 30 September 2016

		30 September
		2016
		(unaudited)
	Note	£'000
Non-current assets
Investment property	9	29,900
Total non-current assets		29,900
Current assets
Trade and other receivables		181
Cash and cash equivalents		1,890
Total current assets		2,071
Total assets		31,971
Current liabilities
Trade and other payables		(1,530)
Deferred rental income		(513)
Total current liabilities		(2,043)
Non-current liabilities
Redeemable preference share	13	(2,000)
Interest rate derivatives	12	(174)
Bank borrowings	11	(15,147)
Total non-current liabilities		(17,321)
Total liabilities		(19,364)
Total net assets		12,607
Equity
Share capital	13	103
Share premium	14	9,787
Share warrant reserve		91
Other reserves		17
Retained earnings		2,609
Total equity		12,607
Net Asset Value per share basic	16	122.18p
Net Asset Value per share diluted	16	116.47p

Condensed Consolidated Cash Flow Statement

For the period ended 30 September 2016

		30 September
		2016
		(unaudited)
	Note	£'000
Cash flows from operating activities
Profit for the period (attributable to equity shareholders)		2,609
Less: changes in fair value of investment property		(2,383)
Add: changes in fair value of interest rate derivatives		174
Add: finance expense		327
Long-term investment plan		17
Increase in trade and other receivables		(159)
Increase in trade and other payables		582
Cash generated from operations		1,167
Net cash flow generated from operating activities		1,167
Investing activities
Acquisition of a subsidiary, net of cash acquired	10	(26,135)
Net cash flow used in investing activities		(26,135)
Financing activities
Proceeds from issue of ordinary share capital		10,177
Proceeds from issue of preference shares		2,000
Cost of share issue		(196)
Bank borrowings drawn		15,525
Bank borrowings repaid		(175)
Loan arrangement fees paid		(240)
Interest paid		(233)
Net cash flow generated from financing activities		26,858
Net increase in cash and cash equivalents for the period		1,890
Cash and cash equivalents at start of period		-
Cash and cash equivalents at end of period		1,890

Condensed Consolidated Statement of Changed in Equity

For the period ended 30 September 2016

			Share
	Share	Share	warrant	Other	Retained
	capital	premium	reserves	reserves	earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000
1 April 2016	-	-	-	-	-	-
Profit for the period	-	-	-	-	2,609	2,609
Total comprehensive income	-	-	-	-	2,609	2,609
Long term incentive plan	-	-	-	17	-	17
Issue of Ordinary Shares	103	9,983	91	-	-	10,177
Share issue costs	-	(196)	-	-	-	(196)
30 September 2016 (unaudited)	103	9,787	91	17	2,609	12,607

1.     General information

Pacific Industrial & Logistics REIT plc (the "Company") and its subsidiaries (the "Group") carry on the business of property asset management throughout the United Kingdom. The Company is a public limited company incorporated and domiciled in England and Wales and listed on the AIM Market of The London Stock Exchange. The registered office address is 124 Sloane Street, London, SW1X 9BW.

2.     Basis of preparation

The condensed consolidated financial statements for the Group for the period ended 30 September 2016 have been reviewed by the Company's Auditor for issue on 4 November 2016.

The Group's financial information has been prepared on a historical cost basis, except for investment property and derivative interest rate caps which have been measured at fair value.

The functional currency of the Group is considered to be pounds sterling as this is the currency of the primary environment in which the company operates.

Going concern

The directors have made an assessment of the Group's ability to continue as a going concern and are satisfied that the Group has sufficient resources to continue in business for the foreseeable future, a period of not less than twelve months from the date of this report. For this reason, the directors adopt the going concern basis of accounting in preparing these consolidated interim financial statements.

Statutory accounts

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of Companies Act 2006 ("the Act"). The first set of statutory accounts the company will file with the Registrar of Companies will be for the period ended 31 March 2017.

The information for the period ended 30 September 2016 is unaudited.

3. Significant accounting judgements, estimates and assumptions

The preparation of the financial statements in conformity with the generally accepted accounting practices requires management to make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the statement of financial position date and the reported amounts of revenue and expenses during the reporting period.

Business combinations 

The Group acquires subsidiaries that own real estate. At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property.

Where such acquisitions are not judged to be the acquisition of a business, they are not treated as business combinations. Rather the cost to acquire the corporate entity is allocated between identifiable assets and liabilities of the entity based upon their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred tax arises.

Long-term investment plan

In determining the fair value of equity settled share based awards and the related charge to the statement of comprehensive income, the group makes assumptions about future events and market conditions.

In particular, judgement must be formed as to the likely number of shares that will vest, and the fair value of each award granted.

The fair value is determined using a valuation model which is dependent on a number of assumptions of the group's future dividend policy and the future volatility in the price of the group's shares. Such assumptions are based on publicly available information and reflects market expectation. Different assumptions about these factors to those made by the group could materially affect the reported value of long-term investment plan.

Details of the group's long-term investment plan can be found in note 8.

Fair value of investment property

The market value of investment property is determined by real estate valuation experts, to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. Each property has been valued on an individual basis. The valuation experts use recognised valuation techniques and the principles of IFRS 13.

The valuations have been prepared in accordance with RICS Valuation - Professional Standards January 2014 (the "Red Book"). Factors reflected include current market conditions, annual rentals, lease lengths and location. The significant methods and assumptions used by the valuers in estimating the fair value of investment property are set out in note 9.

4.     Principal accounting policies

The principal accounting policies applied in the preparation of these interim financial statements are set out below. These policies, which are also applicable to the financial statements of the Company, have been consistently applied to all the years presented.

Basis of consolidation

The financial statements consolidate the accounts of the Company and all subsidiary undertakings drawn up to the same year end.

Subsidiaries

Subsidiaries are entities which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiary entities are consolidated from the date on which control is transferred to the Group and are deconsolidated from the date on which control ceases. In respect of subsidiaries, inter-company transactions and unrealised gains on intra-group transactions are eliminated on consolidation.

The financial information of the subsidiaries is prepared for the same reporting periods as the parent company, using consistent accounting policies.

Borrowing costs

Borrowing costs in relation to interest charges on bank borrowings are expensed in the period to which they relate. Fees incurred in relation to the arrangement of bank borrowings are capitalised and expensed on a straight line basis over the term of the loan.

Segmental reporting

IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reported to the chief operating decision maker to allocate resources to the segments and to assess their performance. Following the strategic review, the directors consider there to be only one reportable segment, being the investment in the United Kingdom in medium size industrial warehouses.

Investment properties

Investment properties comprises completed property that is held to earn rentals or for capital appreciation or both.

Investment properties are initially recognised at cost including transactions costs. Transaction costs include transfer taxes and professional fees for legal services. Subsequent to initial recognition investment properties are carried at fair value, as determined by real estate valuation experts. Gains or losses arising from change in fair value is recognised in the statement of comprehensive income in the period in which they arise.

On disposal of an investment property, the difference between the disposal proceeds and the carrying amount is recognised in the statement of comprehensive income.

Revenue recognition

Revenue comprises rental income from operating leases on investment property (net of any incentives given to the lessees) and is recognised on a straight line basis over the term of the lease.

Long-term investment plan

The fair value of long-term investment plan is calculated at the grant date using the Monte Carlo Model.

The resulting cost is charged to the Condensed Statement of Comprehensive Income over the vesting period. The value of the charge is adjusted to reflect expected and actual levels of vesting.

Financial instruments

Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest rate method.

A provision is established for irrecoverable amounts when there is objective evidence that amounts due under the original payment terms will not be collected. The amount of any provision is recognised in the statement of comprehensive income.

Cash and cash equivalents are recognised initially at fair value and subsequently measured at amortised cost. Cash and cash equivalents comprise cash in hand, deposits held with banks and other short-term, highly liquid investments with original maturities of three months or less.

Financial liabilities

Financial liabilities and equity instruments issued by the Group are classified in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost using the effective interest rate method.

Derivative financial instruments

Derivative financial instruments, comprising interest rate caps and swaps for hedging purposes, are initially recognised at cost and are subsequently measured at fair value being the estimated amount that the Group would receive or pay to terminate the agreement at the period end date, taking into account current interest rate expectations and the current credit rating of the Group and its counterparties. The gain or loss at each fair value measurement date is recognised in the statement of comprehensive income. Premiums payable under such arrangements are initially capitalised into the statement of financial position, subsequently they are remeasured and held at their fair values.

Preference shares

Preference shares issued by the Company are classified in accordance with the contractual arrangements entered into. Issued preference shares that pay a fixed dividend or have a mandatory redemption features at a future date are recognised within liabilities.

5.     Finance expense

		30 September
		2016
		(unaudited)
For the six months ended		£'000
Interest on bank borrowings		233
Amortisation of loan arrangement fees		37
Interest on preference shares		57
		327
Changes in fair value of interest rate derivative		174
		174

6.     Taxation

As a REIT, the Group is exempt from corporation tax on the profits and gains from its property investment business, provided it continues to meet certain conditions as per REIT regulations. For the period ending 30 September 2016, the Group did not have any non-qualifying profits and accordingly there is no tax charge in the period. Any non-qualifying profits and gains however will continue to be subject to corporation tax.

7.     Earnings per share

The calculation of the basic earnings per share (EPS) was based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the period.

This calculation is as follows:

		30 September
		2016
For the six months ended		(unaudited)
Profit attributable to Ordinary Shareholders
Total comprehensive income (£'000)		2,609
Weighted average number of Ordinary Shares in issue		10,317,910
Basic earnings per share (pence)		25.29p
Number of diluted shares under warrant		90,810
Weighted average number of Ordinary Shares for the purpose of dilutive earnings per share		10,408,720
Diluted earnings per share (pence)		25.07p

The calculation of diluted earnings per share assumes conversion of all potentially dilutive Ordinary Shares, which arise from warrants. A calculation is performed to determine the number of warrants that are potentially dilutive based on the number of shares that could have been acquired at fair value, considering the monetary value of the subscription rights attached to outstanding warrants.

8.     Long-term investment plan (LTIP)

Under the terms of the Company's Long Term Investment Plan (LTIP), accounted for as an equity settled share based payment, at 30 September 2016 Pacific Industrial LLP, an affiliate of Pacific Investments Limited, has subscribed for 1,000 A Ordinary Shares of £0.01 each and 1,000 B Ordinary Shares of £0.01 each issued in Pacific Industrial & Logistics Limited, a subsidiary of the Company, as detailed

				Fair Value at Grant	Charge for the Period
Date granted		Class of Share	Number	£'000	£'000
April 2016		A Ordinary	1,000	76	13
April 2016		B Ordinary	1,000	43	4

1.     The Company is obliged to acquire the A Ordinary Shares and B Ordinary Shares on the third and fifth anniversary of Admission respectively (or on a change of control of the Company) in return for Ordinary Shares (at the prevailing market value) or, at the election of the Company for cash.

2.     On the third anniversary of Admission the holders of the A Ordinary Shares shall receive, in aggregate the greater of: (i) £10 multiplied by the number of A Ordinary Shares in issue; and (ii) 20 per cent. of the increase in market value of an Ordinary Share (adjusted to take dividends and other distributions into account) above the Issue Price increased by an 8 per cent. Compounding hurdle from Admission multiplied by the number of Ordinary Shares in issue.

3.     On the fifth anniversary of the IPO, the Company will acquire the second class of incentive shares from Pacific LLP. The price that the Company will acquire these incentive shares will be an amount equal to 20 per cent. of the increase in the price of an Ordinary Share since the higher of: (i) the IPO above an 8 per cent. compounding hurdle from Admission; and (ii) the third anniversary of Admission (again adjusted to take dividends and other distributions into account), above an 8 per cent. compounding hurdle from the third anniversary multiplied by the number of Ordinary Shares then in issue.

9.     Investment property

In accordance with IAS 40 "Investment Property", the carrying value of investment property at its fair value as determined by an external valuer. This valuation has been conducted by CBRE and has been prepared as at 30 September 2016, in accordance with the RICS Valuation - Professional Standards January 2014 (the "Red Book").

The valuations have been prepared in accordance with those recommended by the International Valuation Standards Committee and are consistent with the principles in IFRS 13.

		Investment	Investment
		properties	properties
		freehold	long leasehold	Total
		£'000	£'000	£'000
As at 1 April 2016		-	-	-
Property additions		25,270	2,247	27,517
Change in fair value during the period		2,151	232	2,383
As at 30 September 2016		27,421	2,479	29,900

10.  Business combinations

On 14 April 2016 the Group obtained sole control of Alanchoice Limited, through the acquisition of the entire issued share capital in the company. The acquisition increased the Group's owned property portfolio by £27.5m (including purchaser costs of £0.5m), comprising 11 assets.

Any associated fees in arranging the bank borrowings that are unamortised as at the period end are offset against amounts drawn on the facilities as shown in the table below.

		Book Value	Fair Value Adjustments	Total
		£'000	£'000	£'000
Investment properties		27,000	517	27,517
Cash		1,382	-	1,382
Other receivables		247	(225)	22
Other liabilities		(1,660)	256	(1,404)
Total		26,969	548	27,517
Net cash outflow arising on acquisition:
Total consideration				27,517
Cash and cash equivalents acquired				(1,382)
Cash consideration net of cash acquired				26,135

11.  Bank borrowings

Any associated fees in arranging the bank borrowings that are unamortised as at the period end are offset against amounts drawn on the facilities as shown in the following table.

		30 September
		2016
		(unaudited)
		£'000
Bank borrowings drawn: due in more than one year		15,350
Less: unamortised costs		(203)
Total bank borrowings per the Condensed Consolidated Statement of Financial Position		15,147

12.  Interest rate derivatives

The Group has used interest rate swaps to mitigate exposure to interest rate risk. The total fair value of these contracts are recorded in the statement of financial position. The interest rate derivatives are marked to market by the relevant counterparty banks on a quarterly basis in accordance with IAS 39. Any movement in the fair value of the interest rate derivatives are taken to finance costs in the statement of comprehensive income.

		30 September
		2016
		(unaudited)
		£'000
Non-current liabilities: derivative interest rate swaps		(174)

13.  Share capital

		30 September	30 September
		2016	2016
		(unaudited)	(unaudited)
		Number	£'000
Issued and fully paid up Ordinary shares at 1p each		10,317,910	103
At beginning of period		-	-
Issued and fully paid - 8 December 2015		1	-
Redeemed at par value - 13 April 2016 (IPO)		(1)	-
Issued and fully paid - 13 April 2016 (IPO)		10,317,910	103
At 30 September 2016		10,317,910	103

The Company has two million redeemable £1 preference shares outstanding which were issued at par to affiliates of Pacific Investments Limited. These are entitled to 6% cumulative interest and are redeemable over a period of up to 18 months and accordingly have been accounted for as a liability.

On winding-up of the Company, the preference shares will convert into Ordinary shares on a one-for-one basis in accordance with the Articles, and such Ordinary shares will rank pari passu with existing Ordinary shares.

At 30 September 2016, there were 3,027,000 warrant shares in issue. Each warrant holder has the right to subscribe for new Ordinary shares on the basis of one new Ordinary share for each warrant held at a strike price of 97.00 pence per Ordinary share.

14.  Share premium

		30 September
		2016
		(unaudited)
		£'000
Balance at the beginning of the period		-
Share premium on the issue of Ordinary shares		9,983
Share issue costs		(196)
		9,787

15.  Related party transactions

Transactions between the Company and its subsidiaries are in the normal course of business. Such transactions are eliminated on consolidation.

Share capital

The below table details the share transactions of related parties over the period.

Name	How related	No. of shares	Transaction	Date
Richard Moffitt	Non-executive director	250,000	Share purchase	13 April 2016
Jonathan Gray	Non-executive director	20,000	Share purchase	13 April 2016
Bruce Anderson	Non-executive director	10,000	Share purchase	13 April 2016

Long-term investment plan

Under the terms of the Company's long-term investment plan, at 30 September 2016 Pacific Industrial LLP, an affiliate of Pacific Investments Limited has subscribed for shares in Pacific Industrial & Logistics Limited. Further details have been provided in note 8.

16.  Net asset value per share (NAV)

Basic NAV per share is calculated by dividing net assets in the Consolidated Statement of Financial Position attributable Ordinary shareholders by the number of Ordinary shares outstanding at the end of the period.

Net Asset Values have been calculated as follows:

		30 September
		2016
		(unaudited)
Net assets per Condensed Consolidated Statement of Financial Position (£'000)		12,607
Ordinary shares:
Weighted average number of Ordinary Shares in issue		10,317,910
Basic Net Asset Value per share (pence)		122.18p

At 30 September 2016, there were 3,027,000 warrant shares in issue. Each warrant holder has the right to subscribe for new Ordinary shares on the basis of one new Ordinary share for each warrant held at a strike price of 97.00 pence per Ordinary share.

		30 September
		2016
		(unaudited)
Net assets per Condensed Consolidated Statement of Financial Position (£'000)		12,607
Add: cash received from issued share warrants (£'000)		2,936
Diluted Net Asset Value (£'000)		15,543
Ordinary shares:
Weighted average number of Ordinary shares for the purpose of dilutive Net Asset Value per share		13,344,910
Diluted Net Asset Value per share (pence)		116.47p

The adjusted NAV is seen as a fairer reflection of the Group's financial position. This is calculated by adding back the derivative interest rate swap to the net assets as at 30 September 2016 per the Condensed Consolidated Statement of Financial Position.

Net asset values have been calculated as follows:

		30 September
		2016
		(unaudited)
Net assets per Condensed Consolidated Statement of Financial Position (£'000)		12,607
Add back: derivative interest rate swaps (£'000)		174
Adjusted Net Asset Value (£'000)		12,781
Ordinary shares:
Weighted average number of Ordinary Shares in issue		10,317,910
Adjusted basic Net Asset Value per share (pence)		123.87p

		30 September
		2016
		(unaudited)
Adjusted Net assets per Condensed Consolidated Statement of Financial Position (£'000)		12,781
Add: cash received from issued share warrants (£'000)		2,936
Adjusted diluted Net Asset Value (£'000)		15,717
Ordinary shares:
Weighted average number of Ordinary Shares for the purpose of dilutive Net Asset Value per share		13,344,910
Adjusted diluted Net Asset Value per share (pence)		117.78p

A copy of the interim financial results is available on the Company's website - www.pacificil.com

Copies of the Interim Report for the six months ended 30 September 2016 will be available, free of charge, for a period of one month from the registered office of the Company - 124 Sloane Street, London, SW1X 9BW

For further information regarding Pacific Industrial & Logistics REIT plc please call: 

Pacific Industrial & Logistics REIT Plc Richard Moffitt  CEO	[phone]
finnCap - Nominated Adviser and Broker Stuart Andrews/ Grant Bergman/ Giles Rolls Corporate Finance Christian Hobart Corporate Broking Radnor Capital Partners - Capital Advisory Tom Durie / Joshua Cryer	[phone] [phone]

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014

 

END

 

 

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