Results for the Year Ended 31 March 2024

Urban Logistics REIT PLC

20 June 2024

 

20 June 2024

Urban Logistics REIT plc

("Urban Logistics", the "Company" or the "Group")

Results for the Year Ended 31 March 2024

Robust operational and financial performance; well positioned to deliver rent and earnings growth

Urban Logistics (LSE: SHED; FTSE 250), the only London listed REIT offering a focussed exposure to single-let, last mile/last touch logistics real estate, is pleased to report its results for the year ended 31 March 2024.

Richard Moffitt, CEO of the Investment Adviser, commented:

"The two halves of the period under review were characterised by markedly different conditions. In the first half, uncertainty levels remained high with a lack of clarity on the likely trajectory for both interest rates and inflation. Towards the end of the second half of the year, confidence improved thanks to strengthening macro-economic conditions.

Throughout the period, the strength of Urban Logistics' business model was evident with a stable portfolio valuation, increasing rents and low vacancy levels. The robust performance, both operationally and financially, positions the business well, as we expect investment flow levels into logistics to pick up in the coming twelve months.

The key priority for the Company is to drive earnings growth and build dividend cover. We are focussed on reducing vacancy and capturing upside at rent reviews to drive the significant revisionary potential within the portfolio, with one new letting over a vacant asset in the final stages of legals, which will provide £1.0m of annual rental income, and reduce vacancy to 4.5%. As market conditions continue to improve, the investment adviser believes that now is the right time to deploy additional capital, aiming to enhance earnings per share and rebalance the portfolio from core assets to asset management opportunities."

Key Highlights

Robust earnings performance

·     Net rental income up 8.4% to £57.4m (FY23: £53.0m)

·     Adjusted EPS of 6.89p (FY23: 6.93p)

·     Total dividend per share for FY24 of 7.60p (FY23: 7.60p)

·     Total Property Return of 4.8% (FY23: -5.0%)

·     Total Accounting Return of 3.3% for the period (FY23 -9.9%) and 11.4% p.a. since IPO to 31 March 2024

Strong Balance Sheet

·     IFRS Net Assets £758.6m (FY23: £769.8m)

·     EPRA NTA per share of 160.27p (FY23: 162.44p)

·     Debt of £354m with a weighted average cost of debt in the period of 4.02% (FY23: £351m, 3.21%)

·     Debt is 97% hedged and a weighted average maturity of 5.4 years (FY23: 85% hedged and 5.4 years)

·     First debt refinance in August 2025, with lender negotiations well advanced

·     Conservative LTV of 29.3%, below stated target range of 30 - 40%

Solid portfolio and asset management performance

·     Total portfolio of 128 mid box urban logistics assets covering 9.7 million sq ft with a valuation £1,100m (FY23: 130 assets covering 9.7 million sq ft with a value of £1,107m)

·     Portfolio valuation stable, with valuations on a like-for-like basis down just 0.3%.(FY23: 9.8%)

·     EPRA vacancy rate of 5.8% (FY23: 7.4%)

·     35 lease events completed at a like-for-like rental uplift of 19%, generating an additional contracted rental income of £3.0m.

·     One further new letting in legals over a vacant unit, which will generate £1.0m in additional rental income

·     Gross to net rental income ratio 96.4% (FY23: 96.3%)

·     WAULT of 7.5 years (FY23: 8.2 years) - balanced portfolio split between core assets with secure, long‑term income as well as an active asset management pool where we can drive better shareholder returns

Continued ESG performance

·     EPC of portfolio rated A-B 60% (FY23: 52%)

·     Commitment made to SBTi aligned scope three net zero target

·     1,199 kWp installed capacity of PV panels installed on portfolio

Summary Data		31 Mar 24	31 Mar 23
Income Statement
Net rental income (£m)		57.4	53.0
Adjusted earnings per share (p)		6.89	6.93
IFRS profit before tax (£m)		24.7	-82.7
Balance Sheet
Portfolio valuation (£m)		1,100	1,107
EPRA NTA per share (p)		160.27	162.44
IFRS net assets (£m)		758.6	769.8
LTV (%)		29.3	29.0
Portfolio like-for-like growth in value (%)		-0.3	-9.8
Total Accounting Return (%)		3.3%	-9.9
WAULT		7.5 years	8.2 years
Dividends
Total dividend per share paid or declared in respect of the financial year		7.60p	7.60p

CHAIRMAN'S STATEMENT

AN OPERATIONALLY STRONG YEAR SETS US UP WELL FOR THE FUTURE.

Nigel Rich CBE

Chairman

Overview

2023 was characterised by geopolitical conflicts, high inflation and interest rates at higher relative levels. These factors led to UK property shares across the sector trading at substantial discounts. This made it almost impossible to raise money in the market. The presumption was that income could be affected by tenant failures and rising costs, in particular rising interest rates, resulting in potentially uncovered dividends. The industrial sector, and in particular a company like Urban Logistics associated with logistics providers as tenants, was largely unaffected by these issues. Vacancy has remained low, and asset management initiatives, including improving the environmental ratings of our properties, have led to improved lease terms. The valuation of the portfolio is only marginally down on last year. Through hedging and fixing our interest, costs have remained at a manageable level. This means we have been able to maintain our dividend, albeit it is marginally uncovered.

Financials

Our net rental income grew to £57.4 million, up from £53.0 million last year, driven primarily by a full year of income from assets acquired in the previous year, as well as our significant asset management activity. Adjusted earnings remained broadly flat at £32.5 million, marginally down from the previous period of £32.7 million, despite higher interest costs from a full year of interest from debt drawn in the prior period, as well as higher interest rates. On a per share basis, this translates to EPRA adjusted earnings of 6.89 pence, down from 6.93 pence in the prior year.

A resilient portfolio valuation has led to a stable EPRA NTA per share at 31 March 2024 of 160.27 pence, as compared to 162.44 pence twelve months earlier, and our LTV is below our target range of 30-40%, sitting as it is at 29.3%.

Growth and consolidation

Since incorporation, we have always seen the benefit of growing the Company, to allow us to apply our asset management expertise to an increasing portfolio of assets, and drive returns for shareholders. While we have done this traditionally through equity raises, in the current market conditions this has not been possible or in the best interest of shareholders. For that reason, in September 2023, we performed a review of potential M&A targets, and subsequently made an indicative offer to abrdn Property Income Trust ("API") in February 2024, with the intention of acquiring its portfolio of logistics assets for their asset management potential. Our intention was to leave the non-core assets to be wound up by the API management team, and only take assets that fit our investment criteria. We engaged with the API Board and advisers, as well as our own shareholders, but in March the API shareholders chose to pursue a managed wind down of the entire fund. Throughout the process we focused on the interests of our shareholders, and were very clear there was no intention of overpaying for these assets.

Dividends

A first interim dividend of 3.25 pence per share was paid to shareholders in December 2023. A second interim dividend of 4.35 pence per share will be paid on 19 July 2024 to shareholders on the register at the close of business on 28 June 2024. Total dividends declared amount to 7.60 pence per share, against adjusted earnings of 6.89 pence per share. The dividends are not covered by earnings in the year; however, the total shortfall, of 0.71 pence per share, amounts to £3.4 million, an amount we are comfortable to cover from ample reserves, given our prospects for future earnings growth.

Management

The agreement appointing Logistics Asset Management LLP as the Investment Adviser was signed with effect from 12 May 2023, as discussed in last year's report. The notice and period for the original agreement finally expired in May 2024, from when the new improved terms with the Investment Adviser take effect. The Pacific Investments Group ("Pacific") has played no part in our affairs since May of last year and their beneficial interest in the advisory contract has now ended.

During the year, the Investment Adviser's management team has been strengthened with some new appointments in operations and finance. The Board is confident that the Investment Adviser, led by Richard Moffitt, will continue to drive the Company forward in the best interest of shareholders.

Board

In May 2023, Mark Johnson resigned as a Director, following the withdrawal of Pacific from the management contract. Jonathan Gray also resigned on appointment as Chairman of the Investment Adviser, and Heather Hancock replaced Jonathan as Senior Independent Director.

On 1 May 2023, Lynda Heywood joined the Board and will take over as Chairman of the Audit and Risk Committee from Bruce Anderson, following the release of the half-year results in November 2024. Bruce will remain on the Board for a period thereafter, to provide some continuity given other changes taking place. On 1 July 2024, Cherine Aboulzelof will join the Board. Cherine brings significant expertise to the Board, having managed real estate funds, assets and portfolios for several large real estate investment managers.

I am grateful to all our Directors, past and present, for their commitment to the Company.

Outlook for the year ahead

With inflation falling and interest rates very likely to reduce through the current year, opportunities for Urban Logistics should emerge once again, and we are well placed to take advantage of them. We are considering increasing our LTV towards the lower end of our stated range in order to acquire properties with suitable asset management opportunities. At the same time, we will proactively recycle those assets where we have maximised returns.

The portfolio has performed well through the property cycle, and we are well set to grow earnings, allowing us to maintain and ultimately grow the dividend. We continue to believe that our shares trade at a value which does not reflect either the demand for the underlying real estate or the operational performance of the Company, and believe there is significant upside to be captured in the years ahead.

Nigel Rich CBE

Chairman

19 June 2024

INVESTMENT ADVISER'S REPORT

CHIEF EXECUTIVE OFFICER REVIEW

Overview

The year to 31 March 2024 reinforces our core thesis: to deliver returns to shareholders you need to add value through active asset management, rather than relying on the macro-economic conditions to provide yield compression.

At the start of the year, many in the market anticipated rate cuts in the year; instead, under the Bank of England's 'higher for longer' philosophy, rates end the year at 5.25%, up from 4.25% on 31 March 2023. Our own valuation has remained remarkably stable, with a reduction in the portfolio on a like-for-like basis of just 0.3%.

Performance has been driven by two principal factors. The first is asset selection - ensuring the Company invests in properties that are at the right price, in the right location, and that meet the needs of occupiers. The second is our asset management expertise - increasing rental rates, lengthening leases and improving tenant covenants; all actions which add value to properties at any point in the macro cycle.

Performance

The year has been a year of two halves in terms of performance.

The first half of the year was characterised by uncertainty, as occupiers adopted a 'wait and see' approach, making asset management harder. This changed by the end of the second half of the year as tenants and potential tenants could see a route through to 'business as usual'. This shift can be seen in the asset management performance. Deals signed in the first half of the year had a 10% like-for-like increase, as opposed to a 27% increase for those signed in the second half of the year.

This activity, weighted as it was to the second half of the year, has yet to fully flow into to the Financial Statements, but sets us up well for the coming financial year. Net rental income is up 8.4% to £57.4 million, while EPS is largely flat at 6.89 pence due to higher interest expense.

Our vacancy rate fell from 7.4% down to 5.8%. The majority of our remaining vacancy is a single asset which was acquired with less than twelve months on the lease.

Future earnings

Throughout the year we have put in place the necessary work to ensure that we are well placed for growth in earnings in the subsequent financial year. In particular, a letting at Andover at the end of March, provide £0.9 million additional rental income, equating to circa 0.2 pence per share on an annual basis, much of which will be reflected in the financial year ending 31 March 2025.

In addition, we now believe the time is right for a measured and cautious approach to putting the balance sheet to work. Throughout this interest rate cycle, we have maintained an LTV below the stated range of 30-40%, a cautious approach which has served us well. We see an arbitrage opening between debt rates and asset prices, and will increase gearing to take advantage of asset buying opportunities. LTV will remain at the lower end of the targeted 30-40% range, but limited debt draws, combined with asset recycling, offers us an opportunity to deploy capital in an EPS accretive way.

This careful deployment of capital, combined with our lettings activity, supports our objective to cover our dividend and grow them thereafter.

Growth

Since IPO in 2016, Urban Logistics has grown significantly, via equity raises. We have never espoused growth for the sake of growth, but we believe that now is a good time in the cycle to be acquiring properties where we can apply our asset management expertise. The discount that we and our peer group have traded at over the year has made it unattractive to raise equity.

With the Board we have therefore reviewed a range of options, and in early 2024 we approached abrdn Property Income Trust ("API") about a potential share-for-share acquisition, with our desired structure consisting of a scheme of arrangement whereby we would acquire a significant portfolio of logistics and retail warehousing, while leaving in situ a smaller portfolio of retail and office assets, for API to wind down and return cash to shareholders.

We believed that this option was attractive to the API shareholders, giving them exposure to a high-performing portfolio of logistics assets in Urban Logistics, and more importantly provided a way for us to add value for our own shareholders, via a portfolio of well-located, single-let properties with asset management opportunities.

We were not prepared to overpay however, and so following due diligence and conversations with the API Board, we withdrew from the process, and API are now exploring a wind down of the company.

Team

The key to our success is the team we have built here at the Adviser. My senior team of Justin Upton as CIO, Jamie Waldegrave as CFO/COO, John Barker heading up new lettings and Christopher Turner leading on Asset Management is well established, but it is our in-house property and finance teams that allows us to manage all properties ourselves, collect our own rents and stay close to our tenants, visiting each property three times a year.

It is the depth of these tenant relationships which allows us to identify opportunities or issues early, and contributes to our record eighth year in a row of collecting more than 99% of our rents.

ESG

In recent years we have made significant progress in terms of our ESG credentials, and we are proud to have committed to a Science Based Targets initiative ("SBTi") aligned Scope 3 net zero target, and retain our MSCI ESG "A" rating.

Alongside this we have made significant progress against our core targets of installing additional solar capacity at our sites, improving our EPC ratings and engaging with our tenants on their own decarbonisation plans.

Looking ahead

The macro-economic conditions are never possible to predict with any accuracy; however, the consensus among economists would suggest that the year to March 2025 would see reductions in interest rates, which all other things being equal, would be positive for asset values and the listed real estate space.

We remain ambitious to grow, and will continue to work with our Board and advisers to evaluate all opportunities to do so, if we feel it will add value to shareholders.

Our portfolio is, we believe, well set up to perform well. In particular, our lack of tenant concentration protects us from the inevitable stresses that a period of high interest rates and low growth puts on our tenants. The occupational market is looking stronger at the end of the year, as evidenced by our post balance sheet lettings activity, and it is this activity which gives us confidence in our ability to drive value for our shareholders, whatever the economic climate.

Detailed Information

Urban Logistics REIT PLC's annual report and accounts for the year ended 31 March 2024 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 will also be submitted shortly 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 advisory 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 a FTSE 250 constituent with a portfolio valued at over £1bn.

- ENDS -

For further information please contact:

Urban Logistics REIT plc
Richard Moffitt Justin Upton Jamie Waldegrave	[phone]
Buchanan
Helen Tarbet	[phone]
Simon Compton	[phone]
George Beale	[phone]
G10 Capital Limited (part of IQ-EQ) - AIFM
Graham Fletcher	[phone]

LEI: 213800P6ODJW2UFNDC37

 

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