Results for the Year Ended 31 March 2022
Urban Logistics REIT plc
("Urban Logistics", the "Company" or the "Group")
Results for the Year Ended 31 March 2022
Urban Logistics (LSE: SHED; FTSE 250), the last mile logistics focused REIT, is pleased to report its results for the year ended 31 March 2022.
Richard Moffitt, CEO, today commented:
"Our strategy of focusing on mid box, last mile, single let logistics assets has continued to deliver with the company having produced a total accounting return of 29% in the year and 16.4% averaged over the years since IPO. This strategy has been executed by buying well; our acquisitions in the year have an average net initial yield of 5.3% and have provided the opportunity for us to enhance income and value through our asset management initiatives."
Key Highlights
A transformational year with £358 million of equity capital raised, a move to the Main Market and inclusion in FTSE250.
Strong Financial Performance & Balance Sheet
· Property valuation uplift of £153m, 25.4% growth on a like for like basis
· Net rental income of £36.5m (+59.8% on FY21)
· Total Property Return of 30.3% (FY21: 17.1%)
· IFRS profit before tax of £172m (+261% on FY21)
· Adjusted EPS (which includes impacts of capital raise) of 6.71p (FY21: 6.76p)
· Total Accounting Return of 29% for the year and 16.4% p.a. since IPO to 31 March 2022
· Total dividend per share for FY22 of 7.60p (FY21: 7.60p)
· EPRA NTA share of 188.8p (+ 23.9% on FY22)
· Weighted average cost of debt for the year of 2.55%, with 74% hedged (FY21: 2.89%, with 69% hedged)
· Debt of £239m includes an £88m facility with sustainability linked metrics
· LTV 11.3% (FY21: 27.9%)
High Quality, Focused Portfolio of Last Mile/Last Touch Mid Box Logistics Assets
· Significant capital deployment in FY22:
o Acquisitions: £282 million aggregate consideration, weighted average NIY of 5.3%
o Developments: 9 forward funding agreements with £52.9 million deployed, current yield on cost of 6.7%
· Total portfolio of 113 mid box urban logistics assets covering 8.3 million sq ft with a valuation £1,015m (+99.9% on FY 21)
· Affordable average rent per sq ft of £5.59; Low EPRA vacancy rate of 6.9% (FY21: 6.9%)
· High gross to net rental income ratio 97.2% (FY21: 96.5%)
· High rent collection: 99.9% of FY22 rents demanded were collected (FY21: 99.9%)
· WAULT of 7.7 years (FY21: 7.4 years) - Balanced portfolio of assets combining longer leases which provide for very stable long-term cashflows and shorter-term leases which provide scope for accretive asset management initiatives
· 25 new lease events completed during the year, with 16.4% like-for-like rental increases
Outlook: Strategically Positioned for Growth
· Well capitalised and on track to be fully deployed following the December fundraise in the first half of the financial year, at a blended NIY in excess of 5%
· Well balanced portfolio which allows for future growth in rents and values through asset management initiatives
· Targeting an LTV at the lower end of our 30-40% LTV range, and anticipating a year of modest improvement in earnings, with the dividend expected to be at least maintained
· Continued strong sector supply/demand dynamics providing inflation beating continued upward momentum on rents
· Strong tenant base which is focused on key areas of the supply chain and likely to be less susceptible to broader economic headwinds
Nigel Rich, Chairman, added:
"The business is well capitalised and continues to benefit from the structural tailwinds in our sector. With further acquisitions in progress and significant opportunities for asset management within the existing portfolio, the business is well placed in the current inflationary environment and we are confident in its continued long term growth prospects."
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31 Mar 22 |
31 Mar 21 |
Change |
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Summary Data |
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(%) |
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Income Statement |
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Net rental income (£m) |
36.5 |
22.9 |
+59.8 |
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Adjusted earnings per share (p) |
6.71 |
6.76 |
-0.7 |
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IFRS profit before tax (£m) |
171.8 |
47.6 |
+260.9 |
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Balance Sheet |
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Portfolio valuation (£m) |
1,014.7 |
507.6 |
+99.9 |
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EPRA NTA per share (p) |
188.78 |
152.33 |
+23.9 |
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IFRS net assets (£m) |
892.6 |
387.5 |
+130.4 |
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LTV (%) |
11.3 |
27.9 |
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Portfolio like-for-like growth in value (%) |
25.4 |
13.2 |
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Total Accounting Return (%) |
28.9 |
15.6 |
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WAULT |
7.7 years |
7.4 years |
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Dividends |
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Total dividend per share paid or declared in respect of the financial year |
7.60p |
7.60p |
0.0 |
Chairman's Statement
Overview
We started our financial year in the depths of Covid, and are ending it with war in Ukraine and inflation levels not seen for decades dominating the news cycle. Through it all, the Company has raised a total of £358 million of new equity, and moved from being an AIM-listed company to a constituent of the FTSE 250, while the property portfolio has nearly doubled from £508 million at 31 March 2021 to £1,015 million at 31 March 2022. During the year the market for the type of assets in which we invest has strengthened considerably, driven by a continued lack of supply in the market, coupled with increased demand from companies building resilience into their supply chains. Following significant asset management and rental growth, we have seen a like-for-like increase in valuations of 25.4% (31 March 2021: 13.2%). This has driven up EPRA NTA per share from 152.33 pence to 188.78 pence per share.
Fundraising
We raised £108 million of new equity in July 2021, and a further £250 million in December, at the same time as completing our Main Market move. The majority of this equity has now been invested in line with our investment policy at the year end and the expectations set out at the time of the December raise. These assets have been acquired at a net initial yield of 5.3%, against our portfolio valuation net initial yield of 4.3%, and we are confident that our Manager will be able to actively manage these assets in the coming year to unlock further value.
ESG
As we move onto the Main Market, and the Company grows in size, we are committing to do more to promote transparency in our ESG efforts, and continue to improve. Last year we received our first ESG ratings and signed our first debt financing agreement with sustainability-linked metrics. In the current year we are presenting our first Sustainability Report with our ESG targets, including a commitment to net zero. We look forward to updating the investment community and our wider stakeholders about our plans later in the year.
Results and financing
We saw a significant increase in net rental income in the year from £23 million to £37 million, driven by acquisitions and rent increases arising from 25 lease events. At the year end we had an LTV of 11.3% with total drawn debt of £239m at an average cost of 2.6% and weighted average maturity of 3.7 years. The debt is 74% hedged until maturity.
As we draw down debt to fund further asset purchases we will aim to keep our LTV at the lower end of the target range of 30-40%.
Dividends
A first interim dividend of 3.25 pence per share was paid in December 2021 to shareholders prior to the issuance of new shares in the same month. A second interim dividend of 4.35 pence per share will be paid on 22 July 2022 to shareholders on the register at the close of business on 1 July 2022. The total dividends declared amount to 7.60 pence per share, which is the same as in the previous year, however in respect of the second interim dividend this will be paid on a much higher number of shares.
Board and management
Following our move to the Main Market we have embarked on the search for a new Non-Executive Director. We believe the Board would benefit from further diversification, and we are also seeking to add complementary skills to the Board as we grow. A search firm has been appointed and a number of candidates have been interviewed.
The management team has been considerably increased in the past twelve months following the capital raises and the consequent acquisition of assets. The increase in personnel dedicated to Urban Logistics includes both property and administrative functions. The team sources the pipeline, executes the property transactions and then implements asset management plans. We also place considerable reliance on the Manager's very capable finance team.
The current management contract runs to April 2024, and we will shortly start discussions with the manager about future arrangements. We will consult with shareholders at the appropriate time.
Outlook
The current macro economic conditions are uncertain, and your Board will manage the Company's affairs accordingly.
Despite the uncertainty the occupational demand for the kind of assets we invest in remains strong, and the supply of suitable properties remains tight, with resulting upward pressure on rental rates. In recent months we have slowed the pace of investment, believing that a patient deployment allows us to take advantages of opportunities in the market which were not there a year ago. Whilst we will continue to acquire new assets in the short term using our borrowing capacity, we will target the lower end of our LTV range, at least until the macro-economic climate becomes more certain. In the round therefore we anticipate that 2023 will be a year of modest improvement in earnings, and we intend to at least maintain the dividend at the current level.
With the benefit of the momentum we have built in the business today, and with the continued strong market for logistics real estate, we look to the medium term with some confidence. Whilst the political and economic uncertainty persists, we are optimistic and vigilant in equal measure.
Nigel Rich CBE
Chairman
22 June 2022
Investment Manager's Report
Overview
This has been a truly transformational year for Urban Logistics, with two capital raises totalling £358 million, the portfolio value rising from £508 million to £1,015 million, our move from AIM to the Main Market of the London Stock Exchange in December, all culminating in our inclusion in the FTSE 250 in March 2022.
The first half of the year was dominated by COVID-19, as the previous 18 months had been. The supply chain issues associated with the pandemic, and the rise and rise of e-commerce, need no further elaboration, but as we have learned to "live with COVID-19", pent-up demand has met those continuing supply chain issues, resulting in inflation. It is in this environment that our focus on strong tenant covenants becomes important, as demonstrated by our 99.9% rent collection rate in the year.
Towards the end of our financial year Russia attracted the attention and condemnation of the world through its invasion of Ukraine. Aside from dreadful human cost to the citizens of Ukraine, the war and subsequent sanctions have led to the effective decoupling of Russia from the western economy. Thanks to Russia's role as a major supplier of oil, gas and grain to the European markets, this has quickly fed through into higher energy and food prices, throwing further fuel on the inflationary fires.
At Urban Logistics we feel we are well positioned for an inflationary world. As an active asset manager, with strong tenant engagement, we are able to capture inflationary uplifts in rental incomes quickly. With our focus on strong covenants, and occupiers delivering essential goods, we believe our tenants will be in a good position to pass along inflationary price increases. In terms of our exposure to interest rate increases, we are 74% hedged with a 3.7-year weighted average maturity date, and post year end entered into a ten-year fixed rate term loan with Aviva Investors, further extending our debt to 5.1 years and increasing our overall fixed or hedged position to 95%. Towards the end of the year we took a decision to slow the pace of investment to allow us to take advantage of opportunities in the market in a time of economic turbulence.
The market
Investment volumes in the warehousing market have been exceptionally high in the calendar year 2021, at £18.4 billion, almost double 2020's record of £10.2 billion1.
Despite this, we have continued to source assets off market, allowing us to generate attractive pricing, even as the yields for logistics assets continue to tighten, as we have seen in our own portfolio, now valued at a blended yield (before any portfolio premium) of 4.3%.
The reason for this, of course, is the continued supply and demand imbalance we see in the marketplace.
A few years ago, the idea that the UK's supply chain might feature in a news report would have seemed far-fetched. Over the last twelve months front page appearances have been a regular feature. Whether it is COVID-19, Brexit, Suez Canal blockages, petrol shortages, HGV driver shortages, or the war in Ukraine, we have been constantly reminded of the effects of supply chain shocks on our daily lives.
Building resilient supply chains which can deal with these shocks means holding greater stock levels, and hence greater warehousing space. This has been a key driver of demand for warehousing space across the country, and shows no sign of slowing down: take-up of warehouse space in the first quarter of 2022 was 10.4 million sq ft, double what it was in the first quarter of 2021 (CBRE Research). In a new development for the market, for the first time the majority of this take-up was from our sector - the mid-box units between 100k-300k sq ft[1].
This demand-side pressure has led to a response on the supply side, as more project starts have been recorded in 2021 as compared to 2020. Nevertheless, the constraints on supply are not easy to surmount as planning for this use class is not easy to come by. In addition, build costs have been rising sharply, as has the cost of suitable land, leading new space coming to the market at well over £150 psf - which is exceptionally high when considered as a replacement value for our stock which is currently valued at £122 psf.
We predict these issues will cause speculative development opportunities to be more constrained in the future.
The inevitable effect of these pressures is an upward pressure on rental levels, and a downward pressure on vacancy rates. Savills estimate vacancies at just 2.9%, down from 5.6% at the same point twelve months earlier.
We have seen this upward pressure on rentals in our own portfolio, with a like-for-like increase in rental rates of 16.4%, and it is these pressures which lead Tasos Vezyridis, the Executive Director of UK and EMEA Logistics Research at CBRE, to predict that "Despite yields being at low levels and therefore forecasting a more constrained capital value growth, the industrial and logistics sector is still expected to outperform all other sectors during the next five years" - a sentiment we agree with.
ESG
Our ESG agenda and governance has moved on considerably this year, the first full year with a Board-level ESG Committee in place, chaired by Heather Hancock. Working with the Committee we have set targets for the coming years, and we're proud to publish our Sustainability Report for the first time, where we also aim to report against EPRA sBPRs, TCFD and SECR guidelines.
We believe that the greatest impact we can have on the environment is not by acquiring and holding assets with strong environmental performance, but by acquiring assets with standard performance, and improving them. We have seen significant improvement in the portfolio, with the percentage of our property rated EPC A-B moving from 21% to 31% on a like-for-like basis.
We have also continued with the green financing we trialled in 2021, with all new financing in the year containing sustainability-linked KPIs.
The team
As the portfolio we manage has grown, so has the team, and we have added experience and depth to the property and finance teams at both senior and junior levels. This depth gives sustainability to the team, and is also key to our ability to further scale the portfolio and carry out asset management priorities. We target a ratio of 10-15 assets per member of the property team.
We are particularly proud that in a male-dominated industry we have a fairly even gender split in the team, with 53% male to 47% female. We support our team with significant training and development opportunities, paid charity days, as well as coaching and support programmes. Together with competitive pay and bonus programs linked to share price to align all staff with the REIT performance, these measures help us recruit and retain the highest quality team members - which is key to our success.
Outlook
The last few years have taught us that trying to predict the short-term political or macro-economic future is a fool's game. However, we do firmly believe that in the medium term the country and the economy will not go back to "the way things were". An emphasis on resilient supply chains will continue as global trade rules are rewritten. E-commerce remains a fundamental part of the economy. Land prices are unlikely to fall.
All of this provides tailwinds to our business model of last-touch, mid-sized logistics assets, let to financially resilient tenants.
As an active asset manager, we don't rely on yield compression for our portfolio valuation, instead we focus on moving rental rates and covenants forward. Given our long experience in this sector, we are still able to source assets off market at attractive yields. These are important differentiators in a world where rising inflation and interest rates will make yield compression harder to find.
We are very proud of what we have achieved in the last twelve months. We have welcomed new tenants, assets, shareholders and team members. Despite rising interest rates weighing on earnings in the coming financial year, we see significant economic upside in the portfolio, and look to the future with ambition and excitement.
THE MANAGER
22 June 2022
Detailed Information
Urban Logistics REIT PLC's annual report and accounts for the year ended 31 March 2022 is available at https://www.urbanlogisticsreit.com/investors/results-reports-presentations/ and will be available today, along with the notice of meeting for the Company's AGM on https://www.urbanlogisticsreit.com/investors .
It has also been submitted in full unedited text to the Financial Conduct Authority's National Storage Mechanism and is available for inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism in accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.
About Urban Logistics REIT
Urban Logistics REIT plc (LON: SHED) is a FTSE 250 property investment company. The Company is the only London-listed REIT to focus on specialist last mile / last touch logistics assets, with a tenant base which delivers essential goods within the UK. The Company's strategy is to invest in mid-sized logistics properties with the objective of generating attractive dividends and capital returns through active asset management.
Urban Logistics' investment management team, led by Richard Moffitt, has many years' experience in investing in the logistics market within the broader real estate market. The team's ability to source vital and strategically located mid-sized single let properties, with high-quality tenants, off-market at favourable terms, creates considerable value for shareholders. Tenants include Amazon, XPO, DHL, Hermes, DPD, Boots, Unipart (for NHS), Royal Mail and J Sainsbury Plc.
Buying well and pursuing additional value enhancing asset management initiatives has driven the Company's growth, enabling Urban Logistics to grow from a £10m market cap company at IPO in April 2016 to c. £800m at present.
- ENDS -
For further information please contact:
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Urban Logistics REIT plc |
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Richard Moffitt |
+44 (0)20 7591 1600 |
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Buchanan |
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Helen Tarbet |
+44 (0) 7872 604453 |
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Simon Compton |
+44 (0) 7979 497324 |
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George Beale |
+44 (0)745 0295099 |
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Singer Capital Markets - Joint Broker |
+44 (0)20 7496 3000 |
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James Maxwell / Alaina Wong / Oliver Platts (Banking) |
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Alan Geeves / James Waterlow / Sam Greatrex (Markets) |
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Panmure Gordon (UK) Limited - Joint Broker |
+44 (0)20 7886 2500 |
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Chloe Ponsonby (Corporate Broking) |
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Emma Earl (Corporate Finance) |
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[1] Savills UK Logistics: Big Shed Briefing
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