Final Results for Year Ended 31 March 2020

RNS Number : 6077O

Warehouse REIT PLC

02 June 2020

 

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EC No. 596/2014).

2 June 2020

Warehouse REIT plc

(the "Company" or "Warehouse REIT")

PRELIMINARY RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 MARCH 2020

A YEAR OF STRATEGIC PROGRESS REINFORCING THE RESILIENCE

OF THE BUSINESS

Warehouse REIT, the AIM-listed specialist warehouse investor, today announces its audited preliminary results for the year ended 31 March 2020.

Neil Kirton, Chairman of Warehouse REIT, commented:

"The Group continued to perform well during the period and made further strategic progress. We added high-quality assets to the portfolio and extracted value from the existing assets through active asset management. We are confident that we have built a resilient business, with around 560 tenants across numerous industry sectors and a portfolio of assets that are attractive to a wide range of potential occupiers. The Board is therefore confident that we are well placed to navigate the short-term disruption caused by COVID-19 and that we are in a strong position to resume our growth."

RESULTS OVERVIEW

· A positive year for the Group with further strategic progress and robust operational and financial performance, despite the outbreak of the COVID-19 pandemic in the final weeks of the period

· The UK occupational market remains strong as a result of structural trends underpinning the growth in internet shopping and 'last-mile' delivery. COVID-19 has meant a change in people's behaviour which is accelerating these trends, contributing to ongoing demand for warehouse space for logistics and distribution

· Rapid response to COVID-19 has enabled us to work flexibly with tenants on the required health and safety measures, supporting their operations and strengthening tenant relationships. The Board continues to have regular and more frequent discussions and oversight of current issues during the pandemic

· Key performance highlights for the year

o  Declared a fourth interim dividend of 1.6 pence per share for the quarter to 31 March 2020, thereby meeting our revised dividend target. This dividend will be paid in full as a property income distribution ("PID") on 3 July 2020, to shareholders on the register at 12 June 2020. Paid or declared dividends of 6.2 pence per share, in line with our increased target for the year

o  Portfolio valued at £450.5 million at 31 March 2020, a like-for-like increase of 2.5% on the valuation at 31 March 2019. The valuation of the same portfolio at 31 January 2020 was £454.9 million, a like-for-like increase of 4.1% on 31 March 2019. The decrease in value since January reflects the uncertainty caused by COVID-19

o  EPRA net asset value ("NAV") per share of 109.5 pence (31 March 2019: 109.7 pence), reflecting positive unrealised valuation surplus less the costs of acquisitions and the dilutive impact of the April 2019 share issue (which together totalled 6.8 pence per share), as well as capital expenditure on asset improvements and the impact of COVID-19 on the year-end portfolio valuation

o  Total accounting return of 5.4% for the year was below our 10% target, as a result of the flat NAV over the year, having absorbed the impact of the April 2019 share issue and costs associated with deploying the capital

· Current trading and outlook

o  Good progress with collection of March 2020 contracted rents, with payments made or agreed for 94.0% of contracted rent as at 27 May 2020. We continue to work with the remaining tenants to secure payment as soon as possible

o  The business is resilient and well placed to continue to navigate short-term market disruption. As we progress through the quarter to June 2020, we continue to review the quarterly earnings available for distribution, in line with the REIT obligations to pay 90% of earnings as dividends. We continue to target a total dividend per share of 6.2 pence for the year ending 31 March 2021 and will monitor this as the impact of COVID-19 is better understood. We intend to declare the dividend for the first quarter of the year ending 31 March 2021 in August 2020, as usual

o  We have a strong focus on preserving our balance sheet strength over the coming months. At 31 March 2020, we had available cash of £5.5 million and £33.5 million headroom in our undrawn facilities, and were operating well within our banking covenants

o  Looking further ahead, we see potential for further market rental growth, continued value creation through asset management and an attractive acquisition pipeline. Prior to the onset of COVID-19, we had identified a significant pipeline of attractive acquisitions. We still see good opportunities to continue with our investment strategy, with much of this pipeline still in place, and a proportion of it now at potentially more attractive values, as well as several new opportunities emerging in recent months. The pipeline, which has an increased focus on e-commerce opportunities, amounts to approximately £350.0 million, of which over £100.0 million are in exclusive or final negotiations or have solicitors instructed and approximately a further £250.0 million are in detailed negotiations

o  We are focused on continuing to increase our exposure to the digital economy through the assets we acquire and the tenants we work with as well as further lengthening the WAULT on our portfolio. The Company is again considering an equity fundraising to enable it to capitalise on its pipeline and is commencing a period of engagement with existing and potential new investors

FINANCIAL HIGHLIGHTS¹

Year to 31 March	2020	2019
Revenue	£30.1m	£22.0m
Operating profit before gains on investment properties	£21.1m	£13.0m
IFRS profit before tax	£20.7m	£22.8m
IFRS earnings per share	8.6p	13.7p
EPRA earnings per share	6.3p	5.1p
Adjusted earnings per share2	6.5p	6.4p
Dividends per share3	6.2p	6.0p
Total accounting return4	5.4%	13.3%
Total cost ratio5	27.1%	29.4%

As at 31 March	2020	2019
Portfolio valuation	£450.5m	£307.4m
IFRS net asset value	£263.1m	£182.3m
IFRS net asset value per share	109.5p	109.8p
EPRA net asset value per share	109.5p	109.7p
Loan to value ratio	40.2%	39.7%

· Successfully raised gross proceeds of £76.5 million through an equity raise in April 2019, with strong support from existing and new shareholders. A second equity raise in March 2020 was postponed as a result of the impact of COVID-19 on global equity markets. The Company is again considering an equity fundraising to enable it to capitalise on its pipeline and is commencing a period of engagement with existing and potential new investors

· Acquisitions totalling £149.7 million completed during the year, adding 1.8 million sq ft to the portfolio at a net initial yield ("NIY") of 6.6%

· Portfolio valuation at 31 March 2020 comprised £433.5 million in relation to the investment portfolio of completed assets and £17.0 million of development property and land (31 March 2019: £304.2 million of completed assets and £3.2 million of development property and land)

· Bank debt of £186.5 million at the year end, resulting in a loan to value ratio ("LTV") of 40.2% (31 March 2019: 39.7%), at the upper end of our target range. This will be managed below 40% through the further disposal of a small number of non-core assets

· The Group entered into a new five-year £220.0 million debt facility with a club of four banks in January 2020, reducing the cost of debt and extending maturity to January 2025

OPERATIONAL HIGHLIGHTS

As at 31 March6	2020	2019
Contracted rent	£29.7m	£21.6m
Passing rent	£27.8m	£20.6m
WAULT7 to expiry	5.2 years	4.6 years
WAULT to first break	4.0 years	3.1 years
EPRA net initial yield	5.9%	6.1%
Occupancy	93.4%	92.0%

· Continued progress unlocking value from the portfolio through active asset management:

o  Completed 75 lettings of vacant space, generating rent of £1.8 million per annum, 8.1% ahead of 31 March 2019 estimated rental value ("ERV"). ERV across the portfolio has grown by 2.1%, on a like-for-like basis

o  Renewed 98 leases, securing income of £3.1 million, a 19.7% increase over previously contracted rents, including a major renewal with Alliance Healthcare (Boots)

o  Capital expenditure on enhancements to the investment portfolio of £3.5 million spent or committed in the year (year ended 31 March 2019: £2.1 million), with rents responding well to this investment

o  Occupancy increased to 93.4% (31 March 2019: 92.0%), reflecting successful asset management activity. Effective occupancy, which excludes units under offer and units undergoing refurbishment, was 96.5% (31 March 2019: 94.9%)

o  Continued to progress opportunities to generate value from surplus or adjacent land

· Successfully invested the proceeds of the April 2019 equity raise, acquiring 15 assets at a net initial yield of 6.6%

o  Further enhanced the quality of the tenant mix, adding strong e-commerce focused covenants such as John Lewis Partnership and Direct Wines, as well as increasing exposure to existing major tenants such as Amazon

· Extended WAULT to 5.2 years at 31 March 2020 (31 March 2019: 4.6 years), reflecting the benefits of the acquisitions in the year and asset management initiatives

· Completed the disposal of 12 smaller or non-core assets for a combined consideration of £16.7 million, reflecting a NIY of 6.6%, an 8.3% premium to 31 March 2019 book values and a 10.7% premium to cost

Post year end highlights

· In April 2020, the Group acquired Knowsley Business Park, a 116,900 sq ft multi-let warehouse investment opposite the Group's Nexus, Knowsley asset, for £7.9 million, reflecting a net initial yield of 7.1%. The business park comprises five units and is fully let to two strong covenants, with a WAULT of 6.4 years on acquisition

· Since 31 March 2020 the Group has completed the disposal of two warehouses for a combined consideration of £1.0 million, in line with their 31 March 2020 book values

Andrew Bird, Managing Director of the Investment Advisor, Tilstone Partners Limited, added:

"The occupational market for urban warehouses remains strong, with occupiers seeking logistics and distribution space as consumers increasingly shop online during the COVID-19 pandemic. This may well accelerate the structural trends in the market, which are underpinned by the growth in internet shopping and last-mile delivery. In the short term, we are working closely with the Group's tenants to support them where necessary, while remaining rigorously focused on cash collection."

Notes

1. The Group presents adjusted earnings per share ("EPS"), dividends per share, total accounting return, total cost ratio, LTV and EPRA Best Practice Recommendations as Alternative Performance Measures ("APMs") to assist stakeholders in assessing performance alongside the Group's statutory results reported under IFRS. APMs are among the key performance indicators used by the Board to assess the Group's performance and are used by research analysts covering the Group. EPRA Best Practice Recommendations have been disclosed to facilitate comparison with the Group's peers through consistent reporting of key real estate specific performance measures. Certain other APMs may not be directly comparable with other companies' adjusted measures and are not intended to be a substitute for, or superior to, any IFRS measures of performance. EPRA EPS is set out in note 12. EPRA NAV is set out in note 23. A glossary of terms is shown at the end of this report.

2. Adjusted earnings per share is based on IFRS earnings excluding unrealised fair value gains on investment properties, profit on disposal of investment properties and one-off costs, which were a property and acquisition provision in the year to 31 March 2019, as set out in note 19 and accelerated amortisation of loan issue costs following the debt refinance and the costs of the postponed equity raise in the year to 31 March 2020, as set out in note 12.

3. Dividends paid and declared in relation to the year including the fourth interim dividend to be paid on 3 July 2020. Dividends paid during the year totalled 6.1 pence per share (year ended 31 March 2019: 6.0 pence per share).

4. Total accounting return based on decrease in EPRA NAV per share of 0.2 pence plus dividends paid per share of 6.1 pence, as a percentage of the opening EPRA NAV of 109.7 pence per share.

5. Total cost ratio represents the EPRA cost ratio including direct vacancy cost but excluding one-off costs.

6. All references to contracted rent, passing rent, ERV, WAULT, NIY, net reversionary yield and occupancy in this report relate only to the investment portfolio of completed assets and exclude development property and land. Development property and land is where the whole or a material part of an estate is identified as having potential for development. Such assets are classified as development property and land until development is completed and they have the potential to be fully income generating.

7. Weighted average unexpired lease term.

Meeting and audio webcast

A meeting for investors and analysts will be held at 9:30 today

The conference call dial-in for the meeting is: [phone] (Room Number: 183405; Participant Passcode: 9311)

For the live webcast see: https://webcasting.brrmedia.co.uk/broadcast/5ec6543131da814c9fc75b12  

Enquiries:

Warehouse REIT plc  via FTI Consulting

Tilstone Partners Limited Andrew Bird		[phone]
	G10 Capital Limited (part of the Lawson Conner Group), acting as AIFM Maria Glew, Gerhard Grueter		[phone]
	Peel Hunt (Financial Adviser, Nominated Adviser and Broker) Capel Irwin, Harry Nicholas, Carl Gough		[phone]
	FTI Consulting (Financial PR & IR Adviser to the Company) Dido Laurimore, Ellie Sweeney, Richard Gotla		[phone]

Further information on Warehouse REIT is available on its website:

http://www.warehousereitplc.co.uk

Notes to editors: 

Warehouse REIT plc is an AIM-listed specialist warehouse investor.

Our purpose is to own and manage warehouses in economically vibrant urban areas across the UK, providing the space our tenants need for their businesses to thrive.

As we grow, our vision is to become the UK's warehouse provider of choice.

The Company is an alternative investment fund ("AIF") for the purposes of the Alternative Investment Fund Managers Directive (2011/61/EU) ("AIFMD") and as such is required to have an investment manager who is duly authorised to undertake the role of an alternative investment fund manager ("AIFM"). The Investment Manager is currently G10 Capital Limited.

Forward-looking Statements

Certain information contained in these preliminary results may constitute forward looking information. This information relates to future events or occurrences or the Company's future performance. All information other than information of historical fact is forward looking information. The use of any of the words "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "should", "believe", "predict" and "potential" and similar expressions are intended to identify forward looking information. This information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. No assurance can be given that this information will prove to be correct and such forward looking information included in this announcement should not be relied upon. Forward-looking information speaks only as of the date of this announcement.

The forward-looking information included in this announcement is expressly qualified by this cautionary statement and is made as of the date of this announcement. The Company and its Group does not undertake any obligation to publicly update or revise any forward-looking information except as required by applicable securities laws.

 

CHAIRMAN'S STATEMENT

This has been a positive year for the Group, as we continued to successfully implement our strategy and deliver robust financial performance. Since the COVID-19 pandemic took hold towards the end of the financial year, our priority has been to protect the health and wellbeing of our stakeholders. The Board believes the business is resilient and well placed to navigate any ongoing market disruption, and that the long-term structural trends in our market mean our investment case remains compelling.

Overview

The financial year started with the conclusion of a successful equity raise, which generated net proceeds of £74.8 million. We deployed the new equity and associated debt before the end of September, three months faster than assumed in our business plan. The capital raise was well timed, during a period when open-ended funds were selling assets to satisfy redemptions.

In total, we invested £149.7 million, acquiring 15 assets during the year. These high-quality properties are located in economically active areas across the UK, where we expect to continue to outperform market rental growth. The acquisitions have enhanced both our tenant base and our income stream, and have near-term asset management potential. The purchase price of assets generally remains well below replacement cost and the blended NIY of our acquisitions was accretive at 6.6%.

Across the portfolio, we continue to focus on multi-let estates, which offer diversification of risk and present more value-creation opportunities than single-let properties. Approximately 80% of our assets by ERV are multi-let. These are complemented by the quality of our single-let assets, which are leased to some of our strongest tenant covenants, such as Direct Wines, John Lewis Partnership and Amazon.

Tilstone's pro-active approach and 'space intelligence', which underpins our strong tenant relationships and deep understanding of their needs, have enabled us to extract further asset management gains from the portfolio. Capital expenditure continues to support new lettings and lease renewals and to drive rental growth. Among nearly 100 lease renewals in the year, a highlight was re‑letting our unit in Basingstoke to Alliance Healthcare (Boots) on a new ten-year lease without a break, at a 42.3% uplift to the previous rent. We completed 75 new lettings, at rental levels more than 8% above ERV. Like-for-like rental growth across the portfolio was 2.0% in the year and, pleasingly, our WAULT to expiry is now 5.2 years compared with 4.6 years at the time of our last Annual Report. We also continued to progress our development plans on some of the underutilised land in the portfolio, notably at Queenslie in Glasgow and Nexus in Knowsley.

In my previous reports, I have discussed our vigilant monitoring of tenant risk. During the year, we further enhanced our understanding of our 560 tenants by commissioning expert analysis by Income Analytics that assigned the equivalent of a bond rating to each one. In aggregate, our tenants generate a rating equivalent to BAA3, which is strong investment grade. Unlike a bond, this high-quality income stream is backed by the assets we own, which can be re-let should an individual tenant fail. We therefore believe our highly diversified income stream is defensive and compares favourably with other sectors of the real estate market. Tilstone's knowledge of our tenants is also helping us to engage with them on a case-by-case basis during the COVID-19 pandemic, so we can provide constructive support where necessary.

Sustainability is an important theme for the Group and we have worked hard this year to define our approach and begin to capture the data that will allow us to measure our performance.

Dividends and total accounting return

At the start of the year ended 31 March 2020, our dividend target was to pay at least 6.0 pence per share for the financial year. As a result, we paid two quarterly dividends of 1.5 pence per share each in respect of the first half of the year. Having rapidly invested our available capital by September, we were able to raise our dividend target for the year to 6.2 pence per share. We therefore paid a covered dividend of 1.6 pence per share in respect of the quarter to 31 December 2019 and have today declared a fourth interim dividend of 1.6 pence per share, for the quarter to 31 March 2020, thereby meeting our revised dividend target. This dividend will be paid in full as a property income distribution ("PID") on 3 July 2020, to shareholders on the register at 12 June 2020.

The total dividend is an important element of our total accounting return, which was 5.4% for the year. This was less than our target of 10% per annum, as a result of the EPRA NAV being flat year on year, as described below.

Financial results

The EPRA NAV per share at 31 March 2020 was 109.5 pence (31 March 2019: 109.7 pence). The dilutive effect of the April 2019 share issue and the costs associated with making the acquisitions together reduced the NAV by 6.8 pence per share. The year-end asset valuation was also affected by the economic uncertainty caused by COVID-19, which reduced the valuation of the assets by £5.1 million between 31 January and 31 March 2020. Had the 31 January 2020 valuation been rolled forward to the year end, the NAV at 31 March 2020 would have been 2.1 pence per share higher.

Financing

In light of the pandemic, we have been even more focused on financial discipline and maintaining a strong balance sheet. At the year end, net debt stood at £181.0 million, giving an LTV of 40.2% (31 March 2019: net debt of £122.1 million and LTV of 39.7%). At the same date, we had approximately £5.5 million of cash and £33.5 million of headroom in our debt facilities, providing substantial operational flexibility. Our asset management programme contributed to our robust balance sheet, with the disposal of non-core assets raising £16.7 million of proceeds in the second half of the year.

In January 2020, we agreed new debt facilities totalling £220.0 million with a club of four lenders. This increased the size of our facilities by £10 million, lengthened their maturity to at least 2025 and reduced our cost of debt. The facilities give us significant headroom on both an LTV and interest cover basis. Valuations would need to fall by 24.7% or rents by 57.0%, when compared with 31 March 2020, before these covenants would be breached.

On 5 March 2020, we announced our intention to raise £100 million, and potentially up to £250 million, through an equity raise, enabling us to acquire an attractive pipeline of investment opportunities. Our meetings with investors showed strong appetite for the proposed issue. However, as a result of the rapid onset of the COVID-19 pandemic, we made the prudent decision to adjourn the general meeting to approve the share issue. In the meantime, we are rigorously focused on preserving the Group's balance sheet strength and maintaining the availability of cash and headroom within our banking facilities.

Governance

There were no changes to Board membership during the year. I am pleased to report that the latest evaluation of the Board's performance has shown that the Directors continued to work well as a team and particularly well with Tilstone and specifically in the last few weeks they have given significantly increased time to fulfil their stewardship responsibilities during the COVID-19 pandemic.

Strong governance is fundamental to successful delivery of our strategy. The Board is responsible for setting the Group's strategy and overseeing its implementation, and we have ensured the Directors have an appropriate combination of skills, expertise and experience to contribute effectively. We look to understand and take account of our stakeholders' needs, and ensure they are reflected in both our strategy and the way the Group operates.

During the year, we undertook our second strategy day since the IPO, to retest the proposition we set out at that time. The day was chaired by Non‑Executive Director Aimée Pitman and attended by all the Board members and a number of Tilstone's senior staff. The topics we reviewed included the sector dynamics, the deployment of capital, acquisitions and asset management, the Group's financial outlook, the management of investor relations and our longer-term ambition for the Group. We concluded that the strategy, which Tilstone is successfully implementing, continues to be the right one for our business.

Outlook

Demand for warehouse space has remained positive since the start of the pandemic, as companies seek additional space for logistics and distribution. We have continued to see interest in the remaining vacant space in the portfolio. Since the year end, we have been rigorously focused on collecting the rent that became due at the end of March. We have made good progress and as at 27 May 2020, we had received or agreed payment of 94.0% of the contracted rent. We continue to talk to the remaining tenants about arrangements for collecting the outstanding income.

The Group's wide range of tenants, across different industries, means that we are not significantly exposed to any one tenant or business sector. The properties we own are also flexible and adaptable to the needs of different occupiers, which will support our ability to re-let any space that does become vacant.

Looking further ahead, we do not believe the pandemic will materially alter the structural changes that are driving demand for warehouse space. Indeed, with many more people discovering the convenience of buying online, COVID-19 may accelerate the shift from high street retail to the internet. In addition, businesses who have previously relied on just-in-time deliveries may look to increase their resilience by holding more stock or switching to UK-based suppliers, with a corresponding requirement for warehouse space. The continued imbalance of demand and supply of warehouse space means we see the potential for further rental growth and we are well placed to capitalise on this, with the average rent across the portfolio being £5.45 per sq ft.

Prior to the onset of COVID-19, we had identified a significant pipeline of attractive acquisitions. We still see good opportunities to continue with our investment strategy, with much of this pipeline still in place, and a proportion of it now at potentially more attractive values, as well as several new opportunities emerging in recent months. We are focused on continuing to increase our exposure to the digital economy through the assets we acquire and the tenants we work with as well as further lengthening the WAULT on our portfolio. The Company is again considering an equity fundraising to enable it to capitalise on its pipeline and is commencing a period of engagement with existing and potential new investors. We also have more value to extract from the existing portfolio, through our active asset management. In summary, we are confident of a positive future for the Group and further value creation for shareholders, tenants and other stakeholders in the years ahead.

Neil Kirton
Chairman

1 June 2020

OUR OBJECTIVES AND STRATEGY

We aim to create value through a top‑down approach to investment, supported by an appropriate mix of financing, followed by hands‑on asset management with best‑in-class processes.

Our objectives

We aim to provide shareholders with an attractive level of income, together with the potential for income and capital growth.

Dividends
6.2 pence	Our initial target was a total dividend of 6.0 pence per share for the year ended 31 March 2020, which we increased to 6.2 pence in January 2020.	Outcome in 2019/20 Achieved We declared total dividends of 6.2 pence per share.	Plan for 2020/21 We continue to target a total dividend per share of 6.2 pence for the year ending 31 March 2021 and will monitor this as the impact of COVID-19 is better understood.
Total accounting return
10% per annum	At least 10% per annum, through a combination of dividends and growth in NAV.	Outcome in 2019/20 Not achieved The total accounting return for the year was 5.4%.	Plan for 2020/21 We continue to target a return of at least 10% per annum.

Our strategy

To achieve our objectives, we follow the strategy set out below:

Investment strategy Location We look for attractive sites, close to major transport links and large conurbations, with a high level of occupier demand and suitable local workforce. Optionality We look for buildings with a range of different uses which offer long‑term flexibility, such as the ability to sub-divide larger units, and which have the potential to change permitted use. Buildings We look through the lens of the occupier, to ensure the buildings match their current and future needs. Multi‑let warehouse estates spread risk and offer more asset management opportunities than single-let assets. Rental increases can also be reflected across the rest of the estate. We generally target buildings of less than 100,000 sq ft, with a typical unit size of 5,000 to 25,000 sq ft.	During the year we: · acquired 15 assets for £149.7 million, at a NIY of 6.6%; · added 1.8 million sq ft to the portfolio; and · further enhanced the quality of the tenant mix, adding strong new covenants and increasing exposure to existing major tenants.	Post year end we: · acquired a 116,900 sq ft multi-let warehouse investment opposite the Group's Nexus, Knowsley asset, for £7.9 million, fully let to two strong covenants, with a WAULT of 6.4 years on acquisition.	Measured by Like-for-like valuation increase EPRA NAV Dividend per share Principal risks Poor performance of the Investment Advisor Poor returns on portfolio Acquisition of inappropriate assets or unrecognised liabilities, or a breach of investment strategy
Asset management strategy We budget to spend 0.75% of our gross asset value ("GAV") on capital expenditure each year, with a target return of at least 10%. We also target a vacancy level of 5-7%, since vacant properties allow us to carry out asset management activities. Improving the sustainability performance of our assets, for example by improving their energy efficiency, is an important part of maintaining property values and occupier appeal.	During the year we: · invested £3.5 million, or 0.82% of GAV, in capital expenditure, in line with the long-term target of 0.75% per year; · completed 75 new lettings, at rents 8.1% ahead of ERV; · completed 98 lease renewals, with a 19.8% increase in headline rents; · improved occupancy from 92.0% at 31 March 2019 to 93.4%; · disposed of 12 assets for a total of £16.7 million, reflecting an 8.3% premium to 31 March 2019 book values; and · progressed our development projects at Queenslie, Glasgow, and Nexus, Knowsley.	Post year end we: · completed the disposal of two warehouses for a combined consideration of £1.0 million, in line with their 31 March 2020 book values.	Measured by Occupancy Like-for-like rental income growth Rental increases agreed versus valuer's ERV Principal risks Poor performance of the Investment Advisor
Financial strategy We fund the business through shareholders' equity, bank debt and any disposal proceeds we generate. We look to raise equity at times when we can make investments that are accretive to shareholders. Our strategy for debt financing is to maintain a prudent level of debt, with a target LTV of 30-40% in the longer term. We look to hedge the interest on a proportion of our debt, to provide certainty over our financing costs.	During the year we: · raised £76.5 million of new equity in April 2019; · entered into a new five-year £220.0 million debt facility with a syndicate of four banks, extending the term, reducing the margin and increasing the total facility size; and · raised disposal proceeds of £16.7 million.	Post year end we: · raised further disposal proceeds of £1.0 million.	Measured by Loan to value ratio Principal risks Significant volatility in interest rates Inability to attract investors Breach of borrowing policy or loan covenants

KEY PERFORMANCE INDICATORS

We use the following key performance indicators to monitor our performance and strategic progress.

Occupancy

2018: 93.1%

2019: 92.0%

2020: 93.4%

Description

Total open market rental value of the units leased divided by total open market rental value, excluding development property and land, equivalent to one minus the ERPA vacancy rate. 

Why is this important?

Shows our ability to retain tenants at renewal and to let vacant space, which in turn underpins our income and dividend payments.

How we performed

Occupancy increased from 92.0% at 31 March 2019 to 93.4% at 31 March 2020, reflecting the success of our asset management initiatives.

Like-for-like rental income growth

2019: 2.1%

2020: 2.0%

Description

The increase in contracted rent of units owned throughout the period under review, expressed as a percentage of the contracted rent at the start of the period, excluding development property and land and units undergoing refurbishment.

Why is this important?

Shows our ability to identify and acquire attractive properties and grow average rents over time.

How we performed

We continued to deliver good rental growth from the portfolio, with 2.0% like-for-like growth, showing the benefits of asset management and the underlying rental growth in the market.

Rental increases agreed versus valuer's ERV

2018: 7.3%

2019: 10.0%

2020: 5.1%

Description

The difference between the contracted rent achieved on new lettings and renewals and the ERV assessed by the external valuer, expressed as a percentage above the ERV at the start of the period.

Why is this important?

Shows our ability to achieve superior rental growth through asset management and the attractiveness of our assets to potential tenants.

How we performed

We maintained our track record of achieving rental levels ahead of ERV.

Like-for-like valuation increase

2019: 4.3%

2020: 2.5%

Description

The increase in the valuation of properties owned throughout the period under review, expressed as a percentage of the valuation at the start of the period, net of capital expenditure.

Why is this important?

Shows our ability to acquire the right quality of assets at attractive valuations, add value through asset management and drive increased capital values by capturing rental growth.

How we performed

The valuation of the portfolio continued to increase during the year, although the year-end valuation was held back by the outbreak of COVID-19.

Total cost ratio

2018: 34.5%

2019: 29.4%

2020: 27.1%

Description

EPRA cost ratio including direct vacancy cost but excluding one-off costs. The EPRA cost ratio is the sum of property expenses and administration expenses as a percentage of gross rental income.

Why is this important?

Shows our ability to effectively control our cost base, which in turn supports dividend payments to shareholders.

How we performed

The total cost ratio declined further during the year, demonstrating the benefits of scale.  The reduction reflects our cost control and the operational gearing in the business.

EPRA NAV per share

2018: 102.1p

2019: 109.7p

2020: 109.5p

Description

The value of net assets, adjusted to include properties and other investment interests at fair value and to exclude items not expected to be realised in a long‑term property business, such as the fair value of any financial derivatives and deferred taxes on property valuation surpluses, divided by the number of shares outstanding at the balance sheet date.

Why is this important?

Shows our ability to acquire well and to increase capital values through active asset management.

How we performed

The EPRA NAV per share declined by 0.2 pence during the year, largely due to the increase in the portfolio's valuation being offset by the dilutive effects of the share issue and the costs of acquisitions during the year.

Dividends per share

2018: 2.5p

2019: 6.0p

2020: 6.2p

Description

The total amount of dividends paid or declared in respect of the financial year divided by the number of shares in issue in the period.

Why is this important?

Shows our ability to construct a portfolio that delivers a secure and growing income, which underpins progressive dividend payments to shareholders.

How we performed

We achieved our increased dividend target for the year of 6.2 pence per share.

Loan to value ratio

2018: 40.5%

2019: 39.7%

2020: 40.2%

Description

Gross debt less cash, short-term deposits and liquid investments, divided by the aggregate value of properties and investments.

Why is this important?

Shows our ability to balance the additional portfolio diversification and returns that come from using debt, with the need to manage risk through prudent financing.

How we performed

We continue to maintain a prudent level of debt, which is largely in line with our target and well within our covenant limits.

INVESTMENT ADVISOR'S REPORT

This was a good year for the Group, which saw strong progress both strategically and operationally. The Company fully invested the proceeds of the April 2019 equity raise, along with associated gearing, three months ahead of the business plan. We continued to create value through active asset management, including success with renewals and new lettings, targeted capital expenditure to drive rental growth and advised upon further disposals of non-core assets, which generated funds for reinvestment.

This section of the report provides further details of the Group's strategic, operational and financial performance. In addition, the section towards the end of this document sets out the Group's performance using a range of EPRA measures.

Acquisitions

The Group acquired 42 warehouse units during the year, adding 1.8 million sq ft of space to the portfolio. The assets acquired included a number of larger units, whose purchase was made possible by the Group's increasing scale. The aggregate purchase price was £140.0 million, excluding the associated transaction costs of £9.7 million.

The acquisitions added more than 37 tenants, further enhancing the tenant covenant profile and increasing the WAULT at point of purchase. This in turn improved the quality of the income stream that underpins dividends to shareholders.

First quarter acquisitions

Industrial unit in Wakefield

The Group acquired a 53,000 sq ft single-let industrial unit in Wakefield for £4.2 million, reflecting a NIY of 6.3%. The unit is let to Stapleton's Tyre Services Limited, one of the UK's largest distributors of car and van tyres. On acquisition, the tenant agreed a new 15-year lease at £5.25 per sq ft, with CPI-linked rent reviews and tenant-only break options at years five and ten. Wakefield is widely considered to be Yorkshire's premier distribution location.

Distribution units in Northampton and an Aberdeen industrial estate

In Northampton, the Group acquired the freehold of two John Lewis distribution units, totalling 336,000 sq ft. John Lewis has the highest available 5A1 covenant rating and has been in occupation for over 25 years, using the premises to serve their online deliveries. It signed new five-year leases, with a headline rent of £1,836,000 per annum across both units. The units are within the 'Golden Triangle' on the Brackmills Industrial Estate, one of the UK's premier distribution locations, with excellent access to the M1 motorway.

In Aberdeen, the Group acquired the long-leasehold Murcar Industrial Estate. On acquisition, the 125,000 sq ft estate was 100% let to a range of occupiers, with a WAULT of 8.0 years (5.2 years to break) and total net passing rent of £776,000 per annum. The 8.5-acre site is within the Bridge of Don Industrial Estate, a major industrial and business area, which fronts the A90 dual carriageway and is four miles from Aberdeen city centre.

These acquisitions had a combined cost of £37.0 million and a blended NIY of 6.6%.

Three warehouse units in Tewkesbury

The Group purchased a further three units, providing an additional 54,600 sq ft next to its existing holding at Tewkesbury Business Park. The purchase price of £3.8 million reflected a NIY of 6.9% and is comfortably below replacement cost at less than £70 per sq ft. The WAULT on acquisition was 7.0 years.

Second quarter acquisitions

Warehouse assets in Chorley and Doncaster

In Chorley, Lancashire, the Group acquired a 47,500 sq ft modern, purpose-built warehouse for £3.6 million. The property had recently undergone a complete refurbishment and is let to an established manufacturing business as its distribution centre, generating a net passing rent of approximately £260,000 per annum. The lease had 4.5 years remaining on acquisition.

The Group also increased its holding on the popular Sky Business Park in Doncaster, acquiring units 1 and 2 which total 20,700 sq ft of space, to add to the 36,000 sq ft already owned across six units. The tenant signed a new ten-year lease with a break at year five, with a passing rent of £5.81 per sq ft, which compares favourably with lettings the Group has recently achieved on the estate. The purchase price was £1.7 million.

The blended NIY of the two purchases was 6.8%.

1 million sq ft portfolio

In September 2019, the Group acquired a portfolio of one multi-let and seven single-let warehouses, totalling 995,100 sq ft. The purchase price was £70.0 million, with a further payment of up to £5.0 million due on or before September 2023, and reflected a NIY of 6.7%. The assets were fully let on acquisition and were generating annual rent of £5.38 million. In the six months since acquisition, the portfolio has increased in value by 7.4%.

The assets in the portfolio range in size from approximately 50,000 sq ft to 217,000 sq ft and are all close to major conurbations and on or near arterial routes. All the income is secured against D&B-rated 'minimum risk' covenants, with occupiers including Amazon, Direct Wines, Iron Mountain and Sytner Group. The portfolio had a WAULT of 5.3 years on acquisition and a low average rent of £5.40 per sq ft. A number of short leases and below-market rents offer scope to unlock value through active asset management.

Third quarter acquisitions

In October 2019, the Group acquired the Midpoint Estate, a multi-let estate of 20 high-quality individual warehouse units. The purchase price was £15.5 million, reflecting a NIY of 6.6%. The estate totals 182,500 sq ft, with units ranging from 2,300 sq ft to 31,600 sq ft. It is strategically located off the M6 motorway in Middlewich, Cheshire, and offers a number of opportunities to grow rents and the WAULT through pro-active lease regears and renewals.

Future acquisitions

The acquisitions made in the first three quarters of the financial year, plus the purchase of Knowsley Business Park (see post year end activity below) meant that the Group had fully invested the April 2019 equity raise, the associated additional gearing and the proceeds of disposals made during the year (see asset management below). With the March 2020 equity raise being postponed due to equity market conditions after the outbreak of COVID-19, the Group is now focused on preserving liquidity and maintaining its balance sheet strength, with further acquisitions only likely once conditions enable the postponed equity raise to proceed.

Asset management

The Group continued to undertake a wide range of asset management activities during the year, contributing to rental growth and supporting capital values.

To support this work, we have further expanded our asset management team. We recruited an additional asset manager during the year, with a senior asset manager starting work on 1 April 2020. This recruitment is in anticipation of growth in the business and will ensure we continue to have the capacity required to effectively manage the Group's tenant relationships and its assets.

Disposals

The Group's asset management strategy includes disposing of mature, lower-yielding or non-core assets, so it can redeploy the capital to generate further income growth and higher total returns.

During the second half of the year, the Group completed the disposal of 12 smaller or non-core properties for a combined price of £16.7 million. The assets sold included office and retail space, smaller workshops and vacant warehouse space, including assets where we had completed the business plan. The aggregate sales proceeds were 8.3% ahead of the March 2019 book values and 10.7% ahead of cost, reflecting a blended net initial yield of 6.6%.

Capital expenditure

Carefully targeted capital expenditure is key to enhancing the quality of the Group's assets. It enables us to attract occupiers, increase rental levels and capital values, and support occupiers' growth plans, through value-enhancing improvements or extensions to units, in exchange for higher rents or extended leases. The Group therefore aims to invest around 0.75% of its GAV in capital expenditure each year. This excludes investment in development projects and is calculated based on GAV excluding developments. During the year, the Group spent or committed £3.5 million, or 0.82% of GAV, on capital expenditure (year ended 31 March 2019: £2.1 million, or 0.69% of GAV) on enhancements to the investment portfolio. Significant elements of this spend included:

· the full refurbishment of vacant units at the Group's multi-let asset in Witney, Oxfordshire. As part of this, the Group received a surrender premium and dilapidations payment of £0.8 million, providing effective income cover until early 2020 and a contribution to the refurbishment works;

· re-roofing a number of units at Nexus, Knowsley;

· the full refurbishment of vacant units at Farthing Road, Ipswich; and

· refurbishment and improvement works at Stadium Industrial Estate, Luton.

At the year end, approximately 2.1% of the portfolio's ERV was under refurbishment. The COVID-19 pandemic means new capital expenditure projects are generally on hold at present, although the Group may fund investment for occupiers with good covenants and who are willing to extend their leases sufficiently.

Leasing activity

The Group continued to successfully let vacant space and renew leases during the year, supported by the capital expenditure described above. Our 'space intelligence' is fundamental to the Group's leasing activity, enabling us to understand occupiers' space requirements by building strong relationships with them.

The activity during the year maintained the Group's track record of leasing outperformance, which has seen it achieve new lettings on average around 8% ahead of ERV since IPO, along with substantial rental growth at lease renewal.

In total, the Group completed 173 new leases or lease renewals during the year.

 New leases

The Group secured 75 new leases on 296,900 sq ft of space during the year ended 31 March 2020. These will generate annual rent of £1.8 million, which is 8.1% ahead of the 31 March 2019 ERV. On average, new leases continue to lengthen, with 16 leases of ten years or more signed in the period. The level of incentives is broadly steady.

Key examples of new lettings in the year included:

· a ten-year lease with no break, to a building materials manufacturer and distributor, on a 20,300 sq ft unit at Gawsworth Court, Warrington. The rent of £137,000 per annum represents a 21.9% premium to the 31 March 2019 ERV;

· a ten-year lease, without a break, on a unit at Vantage Point, Leeds, at a rental level 22.9% ahead of ERV;

· a ten-year lease with no break at the Midpoint Industrial Estate, at a rent of £161,500 per annum, in line with ERV;

· a ten-year lease with a break at year six on a 5,600 sq ft letting to a sports charity at Yale Business Park, Ipswich, at £43,000 per annum, 28.4% ahead of the 31 March 2019 ERV;

· a ten-year lease, with a break at year five, on a unit at Kingsditch Trading Estate, Cheltenham, at a rental level 13.2% ahead of ERV;

· a ten-year lease, with a break at year five, on a unit at New England Industrial Estate, Hoddesdon, at a rent of £150,000 per annum, in line with ERV;

· a nine-year lease, with a break at year six, on a unit at Shieling Court, Corby, at a rental level 11.1% ahead of ERV; and

· a five-year lease, with a break at year three, on a unit at Kingsditch Trading Estate, at a rental level 17.4% ahead of ERV.

Lease renewals

The Group continues to retain the majority of its occupiers, with 76.4% remaining in occupation at lease expiry and 68.1% with a break arising in the period. Of the 31.9% that did exercise breaks, 73.3% were re-let within the period at rents 16.5% ahead of previous rents.

In total, there were 98 lease renewals on 533,000 sq ft of space during the year. The renewals resulted in average rental growth of 19.7% above the previous passing rent and 3.5% above the ERV.

Examples of notable lease renewals in the period included:

· a major renewal with Alliance Healthcare (Distribution) Limited, the distribution arm of Walgreens Boots Alliance Inc., at Daneshill Industrial Estate in Basingstoke. The ten-year lease renewal, with no breaks, in return for market standard incentives, was agreed at a 42.3% uplift to the previous rent, with a headline rent of £925,000 per annum or £8.19 per sq ft. Boots has occupied the 113,300 sq ft unit since 1989;

· a ten-year lease, without a break, on a unit at Kingsditch Trading Estate, Cheltenham at a rental level 19.1% ahead of the previous rent;

· a ten-year lease, without a break, on units at Queenslie Industrial Estate, Glasgow, at a rental level 8.8% ahead of the previous rent;

· a ten-year lease, with a break at year five, on a unit at Witan Park, Witney, at a rental level 24.6% ahead of the previous rent;

· a six-year lease, with a break at year three, on a unit at Yale Business Park, Ipswich, at a rental level 37.8% ahead of the previous rent;

· a seven-year lease on a 2,500 sq ft unit at Smeed Dean Centre, Sittingbourne, with the average rent over the lease term representing a 63.6% premium to the previous rent;

· a four-year lease to a fluid technology company on an 11,700 sq ft unit at Goodridge Business Park, Gloucester, at 18.9% ahead of the previous rent; and

· a lease extension of over ten years on 41,600 sq ft agreed with Tristel PLC, a manufacturer of infection prevention, contamination control and hygiene products, at Lynx Business Park, Newmarket, Cambridgeshire.

Development activity

The Group looks to extract value from unused or underutilised land either on or adjacent to its estates. It will not build new accommodation without first achieving a pre-let on at least some of the proposed new space.

At Queenslie Industrial Estate, Glasgow, the Group received outline planning permission during the prior year for up to 250,000 sq ft of employment-led space. The plans for the site continued to progress during the year ended 31 March 2020, including starting to clear the planning conditions and obtaining a number of offers on a portion of the land from a petrol filling station and other roadside users. Securing pre-lets will enable the Group to seek detailed planning consent for the occupiers' specific requirements. Occupancy in the existing estate at Queenslie remains high.

At Nexus, Knowsley, the Group secured planning consent in October 2019 on 4.2 acres of surplus land. The proposed development will comprise up to 35,000 sq ft of warehouse space, a petrol station with ancillary uses of 5,000 sq ft and a 2,200 sq ft drive-through. Discussions with potential occupiers are progressing well.

At Radway Green Business Park, Crewe, the Group owns an estate occupying a site area of 25 acres, most of which has development potential, and is working in conjunction with the owner of the neighbouring site to submit a planning application to develop the combined ownerships. Radway Green makes up the majority of the Group's development property and land by value. The Group also owns land with development potential at Tramway Industrial Estate, Banbury. The Group's plans at both Radway Green and Tramway are in their early stages and little expenditure has been incurred to date in progressing these plans.

Portfolio analysis

The acquisitions and asset management activity during the year contributed to the portfolio valuation of £450.5 million at the year end, across a total of 6.2 million sq ft of space. The table below analyses the portfolio as at 31 March 2020:

Warehouse sector	Occupancy	Valuation £m	Net initial yield	Reversionary yield	WAULT to expiry Years	WAULT to break Years	Average rent £per sq ft	Average capital value £per sq ft
Warehouse - storage and distribution use	94.6%	355.8	6.2%	6.9%	5.3	4.0	5.35	74.7
Warehouse - light manufacture and assembly use	87.8%	51.7	7.0%	8.2%	4.9	3.9	4.76	58.5
Warehouse - trade use	96.8%	11.7	7.4%	7.7%	6.4	5.2	7.27	87.4
Warehouse - retail use	89.0%	8.7	9.3%	10.4%	4.1	4.1	12.58	112.6
Workspace and office use	84.0%	5.6	7.8%	9.9%	3.5	2.4	12.18	108.7
Total investment portfolio	93.4%	433.5	6.4%	7.2%	5.2	4.0	5.45	73.4
Development property and land	80.9%	17.0	3.8%	1.2%	1.9	1.3	6.80	70.2
Total portfolio	93.3%	450.5	6.3%	6.9%	5.1	3.9	5.47	73.2

At the year end, the contracted rent roll for the Group's investment portfolio, which comprises the completed buildings and excludes development property and land, was £29.7 million, compared with the ERV of £33.1 million. In addition, the Group had contracted rent of £0.7 million from development property. Contracted rents increased by 2.0% on a like-for-like basis, showing the benefits of asset management and the underlying rental growth in the market. EPRA like-for-like rental income growth was £1.4 million increasing rental income from £17.8 million to £19.2 million on the like-for-like portfolio, excluding development property and land, of £303.0 million. This represented an 8.0% increase, ahead of the 2.0% above, largely due to surrender premiums received and back dated rent reviews settled during the year. Excluding surrender premiums received the increase would have been 5.2%.

The NIY of the investment portfolio was 6.4% at 31 March 2020, with a reversionary yield of 7.2%. The ERV typically assumes that a unit is re-let in its current condition and does not take account of the potential to increase rents through refurbishment, repositioning or change in permitted planning use. As noted above, the Group's asset management programme is unlocking the portfolio's reversionary potential.

The WAULT for the investment portfolio stood at 5.2 years at 31 March 2020, against 4.6 years at the start of the year. This reflects the benefits of the acquisitions and asset management in the year, partially offset by the natural reduction in the WAULT over time.

Occupancy across the investment portfolio increased from 92.0% at 31 March 2019 to 93.4% at the year end, reflecting the successful letting activity described above. Effective occupancy across the investment portfolio, which excludes units under offer to let or undergoing refurbishment, was 96.5% at the year end (31 March 2019: 94.9%). At 31 March 2020, 1.0% of the investment portfolio was under offer to let, with a further 2.1% undergoing refurbishment.

Financial review

Performance

Rental income rose from £20.6 million in the year ended 31 March 2019 to £28.5 million in the year ended 31 March 2020, an increase of 38.2%. This primarily reflected asset acquisitions in the year and a full year of revenue from assets purchased during the year ended 31 March 2019, as well as the benefits of the Group's ongoing asset management activities.

Total revenue, which includes insurance recharges, dilapidation income and any surrender premiums, was £30.1 million for the year (year ended 31 March 2019: £22.0 million). Total revenue in the year ended 31 March 2020 included the £0.8 million surrender premium and dilapidations payment in respect of the units taken back at Witney.

The Group's operating costs include its running costs (primarily the management, audit, company secretarial, other professional and Directors' fees), and property-related costs (including legal expenses, void costs and repairs). Total operating costs for the year were £9.0 million (year ended 31 March 2019: £9.0 million). Bad debts in the year ended 31 March 2020 remained low at £0.2 million, reflecting the quality and diversity of the Group's tenant base. Operating costs for the year included one-off costs totalling £0.4 million, associated with the planned equity raise that was subsequently postponed (see equity financing below). Operating costs in 2018/19 included one-off costs of £2.2 million associated with a terminated acquisition and the default of the tenant at Deeside, who entered into administration.

The Group continues to exercise tight cost control and to benefit from the fixed or semi-fixed nature of a number of its costs. The total cost ratio, being the EPRA cost ratio including direct vacancy cost but excluding one-off costs, which is calculated as a percentage of revenue, was 27.1% for the period (year ended 31 March 2019: 29.4%). The ongoing charges ratio, excluding one-off costs, representing the costs of running the REIT as a percentage of NAV, was 1.9% (2018/19: 1.9%).

As noted in the asset management section, the Group completed the sale of 12 assets during the year, generating proceeds of £16.7 million and a profit on disposal of £0.9 million. In the year ended 31 March 2019, the Group recorded a profit of £3.5 million on the sale of four investment properties.

At 31 March 2020, the Group recognised a gain of £5.1 million on the revaluation of its investment properties (year ended 31 March 2019: gain of £11.2 million), reflecting a revaluation uplift of £14.8 million less the one-off costs associated with the acquisitions in the year of £9.7 million.

Net financing costs, which are primarily the interest costs associated with the Group's revolving credit facility ("RCF") and term loan (see debt financing and hedging), totalled £6.5 million (year ended 31 March 2019: £5.0 million). The charge for the year included a one-off cost of £0.4 million, relating to the accelerated amortisation of loan issue costs following the refinancing of the Group's debt facilities.

Statutory profit before tax for the year was £20.7 million (year ended 31 March 2019: £22.8 million).

As a REIT, the Group's profits and gains from its property investment business are exempt from corporation tax. The corporation tax charge for the period was therefore £nil (year ended 31 March 2019: £5,000).

Earnings per share ("EPS") under IFRS was 8.6 pence (year ended 31 March 2019: 13.7 pence). EPRA EPS was 6.3 pence, or 6.5 pence excluding one-off costs (year ended 31 March 2019: 5.1 pence, or 6.4 pence excluding one-off costs).

Dividends

The table below sets out the interim dividends declared in respect of the year ended 31 March 2020:

Quarter to	Declared	Paid	Amount (pence)
30 Jun 2019	1 Aug 2019	27 Sep 2019	1.5
30 Sep 2019	4 Nov 2019	27 Dec 2019	1.5
31 Dec 2019	20 Jan 2020	31 Mar 2020	1.6
31 Mar 2020	1 June 2020	3 July 2020	1.6
Total			6.2

As noted in the Chairman's statement, on 20 January 2020, the Company increased its dividend target for the year from a total of at least 6.0 pence per share to 6.2 pence per share. The total dividend paid and declared in relation to the year of 6.2 pence per share was in line with this increased target and represented growth of 3.3% over the 6.0 pence per share paid and declared in respect of the year ended 31 March 2019. The total dividend was 105% covered by adjusted EPS. All four interim dividends were declared in full as PIDs. We continue to target a total dividend per share of 6.2 pence for the year ending 31 March 2021 and will monitor this as the impact of COVID-19 is better understood.

The cash cost of the total dividend during the year was £14.7 million (year ended 31 March 2019: £10.0 million).

At 31 March 2020, the Company had distributable reserves of £166.1 million (31 March 2019: £165.1 million). 

Valuation and net asset value

The portfolio was independently valued by CBRE as at 31 March 2020, in accordance with the internationally accepted RICS Valuation - Professional Standards January 2020 (incorporating the International Valuation Standards).

The portfolio valuation of £450.5 million (31 March 2019: £307.4 million) represented a 2.5% like-for-like increase on the valuation at 31 March 2019, after taking into account capital expenditure in the period of £3.8 million. The like-for-like valuation increase was primarily driven by income growth. The EPRA NIY was 5.9% (31 March 2019: 6.1%).While all property valuations necessarily incorporate some uncertainty, the COVID-19 pandemic is unprecedented and its full impact is not yet clear. In line with market practice since the outbreak, the valuer's report noted this material uncertainty relating to property valuations in the current environment. This uncertainty can arise from difficulties with inspecting properties due to the outbreak or reduced access to evidential data, such as comparable transactions.

The impact of the COVID-19 pandemic on the year-end valuation is reflected in the reduction of £5.1 million against the valuation at 31 January 2020, which was carried out ahead of the planned equity raise (see equity financing below). The 31 January 2020 valuation showed a like-for-like valuation increase of £12.1 million since the start of the financial year, or 5.0 pence per share. The reduction in the valuation between 31 January and 31 March primarily related to lower values for office buildings and retail warehouses.

The year-end valuation resulted in an EPRA NAV of 109.5 pence per share at 31 March 2020 (31 March 2019: 109.7 pence per share). The movement reflects the dilutive effect of the April 2019 share issue (see below), the impact on the year-end valuation of COVID-19 and the costs associated with acquisitions in the year, which totalled £9.7 million, or 4.0 pence per share, and largely comprised stamp duty land tax and agents' fees.

 Equity financing

On 2 April 2019, the Company raised gross proceeds of £76.5 million through a placing, open offer and offer for subscription. In total, the Company issued 74,254,043 new ordinary shares at 103.0 pence each. The net proceeds raised, after associated costs, were £74.8 million.

On 5 March 2020, the Company announced its intention to raise gross proceeds of approximately £100 million through a placing, open offer, offer for subscription and intermediaries offer. On 18 March 2020, the Company adjourned the planned general meeting for shareholders to approve the share issue, as a result of the market uncertainty caused by the global spread of COVID-19. The Company is now again considering an equity fundraising to enable it to capitalise on its pipeline and is commencing a period of engagement with existing and potential new investors.

Debt financing and hedging

At the start of the financial year, the Group had a total debt facility of £135.0 million, comprising a £30.0 million term loan and a £105.0 million RCF, both with HSBC. During the first half, the Group extended its debt facilities twice to support its acquisition programme. The first extension increased the RCF by £45.0 million to £150.0 million, with the second extension being a short-term increase to the term loan of £30.0 million to £60.0 million, giving total facilities of £210.0 million.

The HSBC facility was due to expire in part in March 2020, with the remainder expiring in November 2022. In January 2020, the Company entered into a new five-year debt facility totalling £220.0 million, replacing the full HSBC facility. The refinancing comprises a £157.0 million term loan and a £63.0 million RCF, with a club of lenders consisting of HSBC, Barclays, Bank of Ireland and Royal Bank of Canada.

The new facility both reduces the cost and extends the term of the Group's debt. The facility is at a margin of 2.0% per annum above LIBOR, representing a 14 basis points saving compared to the previous blended rate, and includes an option to extend the duration by a further two years beyond the initial five-year term, subject to lender consent.

In addition to increasing the Group's total debt facility by £10.0 million, the new facility includes an accordion of a further £80.0 million. The debt therefore provides the Group with extended firepower over current drawings to support operational flexibility, deliver further portfolio initiatives and give wider scope for new investments.

At the year end, the term loan was fully drawn and £29.5 million had been drawn against the RCF. Total debt was therefore £186.5 million (31 March 2019: £127.0 million). The Group had £5.5 million of cash at 31 March 2020 and headroom within the facilities of £33.5 million. At 31 March 2020, the Group's LTV ratio was 40.2% (31 March 2019: 39.7%), and interest cover for the year was 477% (year ended 31 March 2019: 355%). Based on the 31 January 2020 valuation, the LTV ratio at the year end would have been 39.8%. The LTV will be managed below 40% through the further disposal of a small number of non-core assets.

The covenants in the Group's new facility relate to LTV, interest cover and the aggregate market value of the portfolio. To breach the LTV or market value covenants, valuations would need to fall by 24.7% or 33.4% respectively, compared to 31 March 2020. To breach the interest cover covenant, the Group's annual rental income would need to fall by 57.0%. The Group is therefore operating well within its covenants.

The primary movements relate to the net proceeds of £74.8 million from the April 2019 share issue and net asset disposal proceeds of £16.4 million, which part-funded the investment of £144.7 million in property purchases in the year. Recurring cash flow of £13.0 million was used to meet dividend payments totalling £14.7 million.

 There were no changes to the Group's interest rate hedging arrangements during the year. The Group therefore continues to have two interest rate caps of £30.0 million each, which run until November 2022 and November 2023 and have respective rates of 1.50% and 1.75%, excluding lending margin. At the year end, the Group had therefore hedged the interest costs on 27.3% of its debt.

Post year end activity

On 14 April 2020, the Group acquired Knowsley Business Park, which is located opposite its existing Nexus estate. The asset comprises five units totalling 116,900 sq ft, which are fully let to two strong covenants. The purchase price was £7.9 million, reflecting a net initial yield of 7.1%. The business park presents asset management opportunities, including the potential for lease extensions.

Since 31 March 2020, the Group has completed the disposal of two warehouses for a combined consideration of £1.0 million, in line with their 31 March 2020 book values.

The Group's priority since the year end has been to work with tenants to support them where practicable during the COVID-19 pandemic, while maximising the receipt of rent due and preserving the Group's cash and facility headroom. The Board will continue to review each quarter the earnings available for distribution as dividends, while ensuring compliance with the Company's obligations as a REIT to pay out at least 90% of its earnings.

Compliance with the investment policy

The Group's investment policy is summarised below. The Group continued to comply in full with this policy throughout the year.

Investment policy	Status	Performance
The Group will only invest in warehouse assets in the UK.	ü	All of the Group's assets are UK-based and the majority are urban warehouses.
No individual warehouse will represent more than 20% of the Group's last published GAV, at the time it invests.	ü	The largest individual warehouse represents 6.8% of GAV.
The Group will target a portfolio with no one tenant accounting for more than 10% of its gross contracted rents at the time of purchase. No more than 20% of its gross assets will be exposed to the creditworthiness of a single tenant at the time of purchase.	ü	The largest tenant accounts for 6.0% of gross contracted rents and 6.8% of gross assets.
The Group will diversify the portfolio across the UK, with a focus on areas with strong underlying investment fundamentals.	ü	The portfolio is well balanced across the UK.
The Group can invest no more than 10% of gross assets in other listed closed-ended investment funds.	ü	The Group held no investments in other funds during the year.
The Group will not speculatively develop properties, except for refurbishing or extending existing assets. Speculative developments are those which have not been at least partially leased, pre-leased or de-risked in a similar way.	ü	Other than refurbishing vacant units, the Group did not undertake any speculative development in the period.
The Group may invest directly, or through forward-funding agreements or commitments, in developments (including pre-developed land), where: · the structure provides us with investment risk rather than development risk; · the development is at least partially pre-let, sold or de-risked in a similar way; and · we intend to hold the completed development as an investment asset. The Group's exposure to these developments cannot exceed 15% of gross assets at the time of purchase.	ü	The Group made no investments or financial commitments to pure developments in the period.
The Group views an LTV of between 30% and 40% as optimal over the longer term but can temporarily increase gearing up to a maximum LTV of 50% at the time of an arrangement, to finance value-enhancing opportunities.	ü	The LTV at 31 March 2020 was 40.2%.

Investment Manager

The Company is an alternative investment fund for the purposes of the Alternative Investment Fund Managers Directive ("AIFMD") and, as such, is required to have an Investment Manager who is duly authorised to undertake that role. G10 is the Company's AIFM, with Tilstone providing advisory services to both G10 and the Company.

Tilstone Partners Limited
Investment Advisor

1 June 2020

RISK MANAGEMENT AND PRINCIPAL RISKS

Risk management framework

Effective risk management is essential for the successful delivery of our ambitions.

To ensure that risks are recognised and appropriately managed, the Board has agreed a formal risk management framework. This framework sets out the mechanisms through which the Board identifies, evaluates and monitors its principal risks and the effectiveness of the controls in place to mitigate them. This includes:

· the Board's review and approval of a detailed corporate risk register, which records and evaluates significant business, financial, operational, compliance and reputational risks;

· determination of those risks considered to be principal risks to the business; and

· receipt and consideration of information about the management of risks, from both contracted service providers and independent sources.

The Board determines the level of risk it will accept in achieving our business objectives, and this has not changed during the year. We have no appetite for risk in relation to regulatory compliance or the health, safety and welfare of our tenants, the staff of our contractors and service providers, and the wider community in which we work. We continue to have a moderate appetite for risk in relation to activities which drive revenues and increase financial returns for our investors.

The Audit Committee has considered the effectiveness of the risk management process, and reviewed the corporate risks and those risks which are considered to be principal risks. The Committee has also reviewed information relating to actions taken and the effectiveness of mitigating controls, prior to advising the Board. The Board has carried out its own robust assessment and approved the list of principal risks.

The Investment Manager and Investment Advisor have primary roles alongside the Board and Audit Committee, assisting with the understanding of the risk framework, its translation into operational risk management and measurement activities, and compliance with those activities to enable that risks remain within a level which is acceptable to the Board.

The Management Engagement Committee is responsible for reviewing the performance of third parties, including the Investment Manager and Investment Advisor, and includes the effectiveness of their risk management processes within its performance evaluation.

Emerging risks

The risk management process includes the Board's identification, consideration and assessment of those emerging risks which may impact the Group. Emerging risks are specifically covered in the risk framework, with assessments made both during the regular quarterly risk review and as potentially significant risks arise during the year.

The quarterly assessment includes input from the Investment Advisor and review of information by the Investment Manager, prior to consideration by the Audit Committee. Key emerging risks considered during the year include:

· uncertainty around the impact of the Brexit transitional arrangements - this is not currently considered to be a significant risk for the REIT, as assets and the majority of tenants are based in the UK and there is considerable diversity of tenants and assets. The Board and Audit Committee receive and consider information relating to the risk profile of the portfolio throughout the year.

· the impact of the COVID-19 pandemic - this has been evaluated as a significant risk, and has been included within the summary of principal risks and mitigations.

The identification and evaluation of emerging risks is effective, through the strength and experience of the Board, the experience of the Investment Manager, and the depth and breadth of experience and market knowledge of the Investment Advisor. The process includes a forward look at planned activities and the associated risks, and the assessment of external risk factors and their likelihood and impact.

Our risk categories

We categorise our risks into the following groups, although we recognise that they are often inextricably linked.

Business risks which relate to the delivery of our business as a whole, including strategy, market, systems and processes and stakeholders.

Operational risks which focus on the REIT's core business, such as portfolio composition and management, developments, valuation and tenancy management.

Compliance risks which relate to the regulatory environment in which we operate, including the requirements of the FCA, AIM, and general business regulations.

Financial risks arising from our strategy for the funding of business operations, including investors, joint ventures, debt and cash management, and which include market, credit and liquidity risk.

Reputational risks, which are those risks which could damage the business's reputation with stakeholders or in the wider marketplace.

Principal risks

A principal risk is a risk that is considered material to the Group's development, performance, position or future prospects.

The principal risks are captured in the corporate risk register and are reviewed by the Board and Audit Committee during their regular meetings. This includes considering:

· any substantial changes to principal risks, including new or emerging risks;

· material changes to control frameworks;

· changes in risk scores;

· changes in tolerance to risk;

· any significant risk incidents arising; and

· progress with any additional mitigating actions which have been agreed.

The Board, through the Audit Committee, has undertaken a robust assessment and review of the principal risks facing the Group, together with a review of any new risks which may have arisen during the period, including those that would threaten our business model, future performance, solvency or liquidity.
 

Changes to principal risks

The Board has regularly reviewed the principal risks during the year, each time reflecting on external and commercial pressures and any risk changes arising from business activities in the delivery of our ambitions. In some cases the evaluation of the business's exposure to a risk has changed during the year, but in most cases the principal risks themselves remain consistent. One new principal risk, relating to the impact of the COVID-19 pandemic, has been added.

This COVID-19 pandemic risk may have a significant impact on all aspects of the business and in addition to evaluating exposure as an individual risk, the assessment of exposure for each of the other principal risks has been reconsidered. It is difficult for the Board to assess the best or worst case outcomes, as the likely duration of the pandemic suppression measures are not known. A number of additional controls and monitoring routines have been put in place by the Investment Advisor to support tenants and provide clear visibility of the position and trends over time.

Overall, the pandemic may affect delivery of our ambitions, as commercial, liquidity and funding challenges may restrict our ability to grow the business, and slow our ability to deliver on our business strategy.

Business risks
Risk				Potential impact		Mitigation
1 Impact of the COVID-19 pandemic				In addition to the immediate health and social care risks, the potential impact of the pandemic is significant, including: - commercial - potential loss of tenants, increase in bad debts, and increase in void rates and costs - financial - impact on banking covenants, asset values, returns and potentially dividend - reduced quality of services and support from professional advisors and service providers		The underlying strength of the business is the diverse tenant base, with 560 tenants across the portfolio at 31 March 2020. We do not rely on any one organisation or sector for significant proportions of our business. However, it is likely that the pandemic will have an impact across all commercial and business activities. A range of enhanced controls and mitigations have been put in place, including initially daily calls with the Investment Advisor and weekly debtors and issue monitoring. Different working arrangements have been implemented for both the Investment Advisor's asset managers and the outsourced Property Managers, which are designed to maintain safe, regular contact and dialogue with tenants, to provide the Board with clear visibility of significant issues and risks arising. The outsourced operating model offers additional resilience, as staff resource absences are more easily covered, and in most cases those providing services to the REIT were already operating with remote working arrangements. The Board is constantly assessing the position, with additional mitigations possible. For example, there is the ability to flex expenditure, such as capital expenditure, refurbishments and some discretionary costs.
Change in year: NEW
2 Poor performance of the Investment Advisor				If the Investment Advisor does not perform as anticipated, there is potentially a significant risk to our success.		A formal, detailed contract is in place between the REIT and the Investment Advisor, setting out the requirements and expectations of each party. The Board and the Investment Advisor frequently liaise, supporting the regular Board meetings and comprehensive formal reporting that has been put in place. Individuals within the Investment Advisor have significant shareholdings in the Company, which significantly reduces the risk that the Investment Advisor will not fulfil its responsibilities. The activities of the Investment Advisor are also subject to the oversight of the Investment Manager, G10, which reviews and approves transactions, including the acquisition and disposal of assets. The Investment Advisor further invested in its compliance framework during the year, with enhanced tools and records put in place. The Management Engagement Committee carries out an annual formal service review of the Investment Advisor.
Change in year:↔
3 Poor returns on portfolio				If our strategy is not delivered effectively, it would be challenging to produce the target returns set out in the Company's prospectus. We consider the exposure here has increased primarily because of the potential impact of the COVID-19 pandemic.		The Board uses its expertise and experience to set our investment strategy and seeks external advice to underpin its decisions, for example independent asset valuations. There are complex controls and detailed due diligence arrangements in place around the acquisition of assets, designed to ensure that investments will produce the expected results. Significant changes to the portfolio, both acquisitions and disposals, require specific Board approval. The Board regularly reviews performance statistics against forecasts and targets.
Change in year:↑
4 Significant volatility in interest rates				Changes in interest rates could affect our ability to fund and deliver our strategy. Interest rate changes may also affect overall market stability.		We actively manage our debt position and during the year have entered into a new funding arrangement with a consortium, which has enabled the REIT to benefit from improved margin. In addition, the arrangement provides a five-year facility, with significant headroom, at commercially attractive rates.
Change in year:↓
Operational risks
Risk					Potential impact	Mitigation
5 Acquisition of inappropriate assets or unrecognised liabilities, or a breach of investment policy					Inappropriate acquisitions could reduce our returns and increase risk.	We have a clearly defined investment policy, with processes and controls designed to ensure that acquisitions are made only if they comply with it. Our acquisition and disposal protocols set out robust, documented due diligence processes for all key areas of consideration, including portfolio mix, property type and quality, legal issues, environmental requirements, sector, and quality of tenant. Where appropriate, external expertise is sought, for example on environmental issues and property valuations. The protocols specifically exclude assets with some high-risk category tenants (such as waste or recycling) from consideration. All potential acquisitions are measured against our agreed investment strategy by the Investment Advisor and approved by G10, the Investment Manager. Significant acquisition decisions must also be approved by the Board.
Change in year:↔
6 Inability to attract investors					If we cannot attract additional investors, there would be a potential impact on the share price and on our ability to raise funds and deliver the strategy. The investor base increased during the year, following the fundraise in April 2019, but we have, in common with other businesses, been affected by the market impact of the COVID-19 pandemic.	The quality of our performance is inherent to our ability to attract additional investment. Portfolio performance and results are subject to regular and detailed review by the Board. The Board also regularly reviews the Investment Advisor's performance, both formally and informally. We have regular investor communications exercises, setting out our activities, forecasts, performance and plans.
Change in year:↑
Compliance risks
Risk					Potential impact	Mitigation
7 Loss of REIT status					If we breach REIT or AIM rules, there would be a significant impact on investors.	We have a comprehensive governance framework, including the Board and Audit Committee, and clearly allocated responsibilities, set out through the matters reserved for the Board, terms of reference for Board committees, and contracts with the Investment Advisor and other key service providers. We seek external advice on governance and compliance with rules. Peel Hunt is our Nominated Advisor and is responsible for advising and guiding us on our responsibilities under the AIM rules. The position against key requirements of the REIT legislation is reviewed by the Investment Advisor each month and by Link quarterly, and is reported to the Board. Similarly, cash and earnings cover for dividends is continuously monitored.
Change in year:↔
Financial risks
Risk			Potential impact			Mitigation
8 Breach of borrowing policy or loan covenants			Breaching borrowing policies and/or loan covenants may affect our ability to obtain additional funding, either through investment or financing. The increase in exposure is driven by the COVID-19 pandemic as, although borrowing can to a great extent be controlled, in the unlikely event of a significant drop in portfolio values, compliance with the borrowing policy or loan covenants could be put at risk.			The Investment Advisor continually monitors our debt covenants and reports on them to the Board. Performance and forecasts are reported to the Board on a quarterly basis and considered against the approved treasury strategy. We prepare a quarterly compliance letter for our lenders, which confirms our position over the period. LTVs are reviewed regularly and investment decisions take these into account.
Change in year:↑
9 Significant rent arrears and irrecoverable debt			A significant loss of rental income through bad debts could have a material impact on our ability to meet our financial forecasts. The increase in potential exposure is again driven by our consideration of the impact of the COVID-19 pandemic on the general economy.			We have a large and diverse tenant portfolio, which means we do not have a high level of exposure to any specific sector or organisation. We undertake robust due diligence on tenants, which is subsequently supported by effective credit control processes. The Investment Advisor continually monitors our exposure to larger tenants, and the Board receives analysis of portfolio risk by sector and customer. We also take rent deposits and rent guarantees, where appropriate, and rents are predominantly paid in advance. Additional weekly debtors monitoring arrangements have been implemented, to ensure that we have the most up-to-date view of the position, and the Investment Advisor's Asset and Property Managers maintain regular contact and relationships with tenants.
Change in year:↑

GOING CONCERN AND VIABILITY STATEMENT

Going concern

The Board monitors the Group's ability to continue as a going concern. Specifically, at quarterly Board meetings, the Board reviews summaries of the Group's liquidity position and compliance with loan covenants, as well as forecast financial performance and cash flows.  More recently, the Board has been meeting on a weekly basis, in conjunction with the Investment Advisor, to review the current uncertainties created by the COVID-19 pandemic, specifically rent collection, cash resources, loan facility headroom and covenant compliance, acquisitions and disposals of investment properties, discretionary and committed capital expenditure and dividend distributions.

The Group ended the year with £5.5 million of cash and £33.5 million of headroom readily available under the RCF facility. The Group is operating comfortably within its covenants and sensitivity analysis has been performed to identify the decrease in valuations and rental income that would result in a breach of the LTV, market value covenants or interest cover covenants. Valuations would need to fall by 24.7% or rents by 57.0%, when compared with 31 March 2020, before these covenants would be breached, which, based on available market data, is considered highly unlikely.

As at 27 May 2020, 89.9% of rents invoiced in March in relation to the quarter to June were received or 94.0% including rents contracted to be received monthly.

As part of the going concern assessment, and taking the above into consideration, the Directors reviewed a number of scenarios which included extreme downside sensitivities in relation to rental cash collection, making no acquisitions or discretionary capital expenditure and minimum dividend distributions under the REIT rules.

Based on this information, and in light of mitigating actions available, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in business for a period of at least 12 months from the date of approval of the Annual Report and Financial Statements. The Directors are also not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern.  They therefore have adopted the going concern basis in the preparation of the Annual Report and Financial Statements.

Assessment of viability

In accordance with the AIC Code of Corporate Governance, the Directors have assessed the Group's prospects over a period greater than the 12 months considered by the going concern provision.

The Directors have conducted their assessment over a three-year period to May 2023, allowing a reasonable level of accuracy given typical lease terms and the cyclical nature of the UK property market.

The principal risks detailed above summarise the matters that could prevent the Group from delivering its strategy. The Board seeks to ensure that risks are kept to a minimum at all times and, where appropriate, the potential impact of such risks is modelled within its viability assessment.

The nature of the Group's business as the owner of a diverse portfolio of UK warehouses, principally located close to urban centres or major highways and let to a wide variety of tenants, reduces the impact of adverse changes in the general economic environment or market conditions, particularly as the properties are typically flexible spaces, adaptable to changes in occupational demands.

The Directors' assessment takes into account forecast cash flows, debt maturity and renewal prospects, forecast covenant compliance, dividend cover and REIT compliance. The model is then stress tested for severe but plausible scenarios, individually and in aggregate, along with consideration for potential mitigating factors. The key sensitivities applied to the model are a downturn in economic outlook and restricted availability of finance, specifically:

· increased tenant churn;

· increased void periods following break or expiry;

· decreased rental income; and

· increased interest rates.

Given the unpredictable nature of the COVID-19 outbreak, how rapidly responses to the outbreak are changing and the uncertainty as to the extent and impact of social distancing measures, the Board is unable to predict the full extent of the impact. The key sensitivities applied have been more extreme than in previous reviews, including a loss of 50% of rental income, significantly in excess of the Investment Advisor's assessment of tenants with an adequate or poor expectation of recovery of 16%, over a period of six months, on the basis that the UK Government's actions and the flexibility of warehouse space to respond to changes in occupational demands should see the current economic turbulence normalise over that time period.

Current debt and associated covenants are summarised in note 17, with no covenant breaches during the period. The sensitivity analysis identifies the decrease in valuations and rental income that would result in a breach of the LTV, market value covenants or interest cover covenants.

Taking into account mitigating actions, the results of the sensitivity analysis and stress testing demonstrated that the Group would have sufficient liquidity to meet its ongoing liabilities as they fall due, maintain compliance with banking covenants and maintain compliance with the REIT regime over the period of the assessment.

Furthermore, the Board, in conjunction with the Audit Committee, carried out a robust assessment of the principal risks and uncertainties facing the Group, including those that would threaten its business model, strategy, future performance, solvency or liquidity over the three-year period. The risk review process provided the Board with assurance that the mitigations and management systems are operating as intended. The Board believes that the Group is well positioned to manage its principal risks and uncertainties successfully, taking into account the current COVID-19 risk and the economic and political environment.

The Board's expectation is further supported by regular briefings provided by the Investment Advisor. These briefings consider market conditions, opportunities, changes in the regulatory landscape and the current economic and political risks and uncertainties. Additionally, the trend for increased warehouse space driven by online sales and the shortage of supply nationally is seen as mitigation. These risks, and other potential risks which may arise, continue to be closely monitored by the Board.

Viability statement

Having considered the forecast cash flows, covenant compliance and the impact of sensitivities in combination, the Directors confirm that, taking account of the Group's current position, the principal risks set out in the strategic report and in light of the current economic turbulence resulting from the impact of COVID-19, they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment.

On behalf of the Board

Neil Kirton

Chairman

1 June 2020

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable UK law and International Financial Reporting Standards ("IFRS") as adopted by the European Union.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with IFRS. Under company law, the Directors must not approve the financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the Group for that year.

In preparing the financial statements, the Directors are required to:

· select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and apply them consistently;

· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance;

· state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and

· make judgements and estimates that are reasonable and prudent.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a strategic report, Directors' report, Directors' remuneration report and corporate governance statement that comply with that law and those regulations, and for ensuring that the Annual Report includes information required by the AIM Rules and (where applicable) the Disclosure Guidance and Transparency Rules of the UKLA.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the UK covering the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction.

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company (and Group as a whole); and

· the Chairman's Statement and the Investment Advisor's Report include a fair review of the development and performance of the business and the position of the Company (and Group as a whole), together with a description of the principal risks and uncertainties that it faces.

The Directors consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

Neil Kirton

Chairman

1 June 2020

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2020

Continuing operations	Notes	Year ended	Year ended
		31 March	31 March
		2020	2019
		£'000	£'000
Revenue	3	30,053	21,985
Property operating expenses	4	(3,930)	(3,407)
Gross profit		26,123	18,578
Administration expenses	4	(5,032)	(3,398)
Property and acquisition provision	19	-	(2,164)
Operating profit before gains on investment properties		21,091	13,016
Fair value gains on investment properties	13	5,104	11,229
Realised gain on disposal of investment properties	13	934	3,494
Operating profit		27,129	27,739
Finance income	7	30	11
Finance expenses	8	(6,483)	(4,972)
Profit before tax		20,676	22,778
Taxation	9	-	(5)
Total comprehensive income for the period		20,676	22,773
Earnings per share (basic and diluted) (pence)	12	8.6	13.7

All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.

There is no other comprehensive income and therefore the profit for the year after tax is also the total comprehensive income.

The accompanying notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2020

		31 March	31 March
		2020	2019
	Notes	£'000	£'000
Assets
Non-current assets
Investment property	13	459,088	311,791
Interest rate derivatives	16	22	249
		459,110	312,040
Current assets
Cash and cash equivalents	14	5,483	4,866
Trade and other receivables	15	6,408	4,400
		11,891	9,266
Total assets		471,001	321,306
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings	17	(183,190)	(125,510)
Other payables and accrued expenses	19	(4,500)	-
Head lease liability	18	(8,319)	(4,170)
		(196,009)	(129,680)
Current liabilities
Other payables and accrued expenses	19	(6,497)	(3,996)
Property and acquisition provision	19	-	(1,434)
Deferred income	19	(4,888)	(3,585)
Head lease liability	18	(488)	(284)
		(11,873)	(9,299)
Total liabilities		(207,882)	(138,979)
Net assets		263,119	182,327
Equity
Share capital	20	2,403	1,660
Share premium	21	74,028	-
Capital reduction reserve	22	161,149	161,149
Retained earnings	22	25,539	19,518
Total equity		263,119	182,327
Number of shares in issue (thousands)		240,254	166,000
Net asset value per share (basic and diluted) (pence)	23	109.5	109.8

These financial statements were approved by the Board of Directors of Warehouse REIT plc on 1 June 2020 and signed on its behalf by:

Neil Kirton
Company number: 10880317

The accompanying notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2020

					Capital
		Share	Share	Retained	reduction
		capital	premium	earnings	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000
Balance at 31 March 2018		1,660	-	6,705	161,149	169,514
Total comprehensive income		-	-	22,773	-	22,773
Dividends paid	11	-	-	(9,960)	-	(9,960)
Balance at 31 March 2019		1,660	-	19,518	161,149	182,327
Total comprehensive income		-	-	20,676	-	20,676
Ordinary shares issued	20, 21	743	75,739	-	-	76,482
Share issue costs	21	-	(1,711)	-	-	(1,711)
Dividends paid	11	-	-	(14,655)	-	(14,655)
Balance at 31 March 2020		2,403	74,028	25,539	161,149	263,119

The accompanying notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 March 2020

		Year ended	Year ended
		31 March	31 March
		2020	2019
	Notes	£'000	£'000
Cash flows from operating activities
Operating profit		27,129	27,739
Adjustments to reconcile profit for the period to net cash flows:
Gains from change in fair value of investment properties	13	(5,104)	(11,229)
Realised gains on disposal of investment properties	13	(934)	(3,494)
Head lease asset depreciation	4	110	50
Property and acquisition provision	19	-	2,164
Operating cash flows before movements in working capital		21,201	15,230
(Increase)/decrease in other receivables and prepayments		(2,410)	491
Increase in other payables and accrued expenses		3,365	200
Movement in property and acquisition provision		(1,434)	(730)
Tax paid		-	(5)
Net cash flow generated from operating activities		20,722	15,186
Cash flows from investing activities
Acquisition of investment properties		(144,700)	(21,057)
Capital expenditure		(3,378)	(1,740)
Development expenditure		(236)	(297)
Disposal of investment properties		16,355	18,654
Net cash used in investing activities		(131,959)	(4,440)
Cash flows from financing activities
Proceeds from issue of ordinary shares	21	76,482	-
Share issuance costs paid	21	(1,711)	-
Bank loans drawn down	17	320,000	21,550
Bank loans repaid	17	(260,500)	(19,000)
Interest received	7	30	11
Interest rate derivative premium		-	(595)
Loan interest and other finance expenses paid		(4,524)	(3,557)
Loan issue costs paid		(2,761)	(599)
Head lease payments		(507)	(302)
Dividends paid in the period	11	(14,655)	(9,960)
Net cash flow generated/(used) from financing activities		111,854	(12,452)
Net increase/(decrease) in cash and cash equivalents		617	(1,706)
Cash and cash equivalents at start of the period		4,866	6,572
Cash and cash equivalents at end of the period	14	5,483	4,866

The accompanying notes form an integral part of these financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 March 2020

1. General information

Warehouse REIT plc is a closed-ended Real Estate Investment Trust ("REIT") incorporated in England and Wales on 24 July 2017. The Company began trading on 20 September 2017. The registered office of the Company is located at Beaufort House, 51 New North Road, Exeter EX4 4EP. The Company's shares are admitted to trading on AIM, a market operated by the London Stock Exchange.

The Group's consolidated financial statements for the year ended 31 March 2020 comprise the results of the Company and its subsidiaries (together constituting the "Group") and were approved by the Board and authorised for issue on 1 June 2020. The nature of the Group's operations and its principal activities are set out above.

2. Basis of preparation

The financial information set out in these financial statements does not constitute the Company's statutory accounts for the year ended 31 March 2020, but is derived from those accounts. Statutory accounts for 2020 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on those accounts; their report was unqualified, did not draw to attention any matters by way of emphasis of matter without qualifying their report and did not contain statements under s498(2) or (3) of the Companies Act 2006. The text of the Auditors' Report can be found in the full Annual Report.

These financial statements are prepared in accordance with IFRS issued by the International Accounting Standards Board ("IASB") as adopted by the European Union. The financial statements have been prepared under the historical cost convention, except for investment property, which has been measured at fair value. The financial statements are presented in Pound Sterling and all values are rounded to the nearest thousand pounds (£'000), except when otherwise indicated.

The Directors have made an assessment of the Group's ability to continue as a going concern. They carefully considered areas of potential financial risk and reviewed cash flow forecasts, evaluating a number of scenarios which included extreme downside sensitivities in relation to rental cash collection, making no acquisitions or discretionary capital expenditure and minimum dividend distributions under the REIT rules. A range of scenarios have been applied, including a loss of 50% of rental income for a period of six months and taking into account mitigating management actions. Further effects of the post year end COVID-19 outbreak are documented in the risk management and principal risks section above. The Directors are satisfied that the Group has the resources to continue in business for the foreseeable future, for a period of not less than 12 months from the date of this report. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern. Therefore, the financial statements have been prepared on the going concern basis.

2.1 Changes to accounting standards and interpretations

There were a number of new standards and amendments to existing standards which are required for the Group's accounting period beginning on 1 April 2019, which have been considered and applied as follows:

· IFRS 16 Leases. In January 2016, the IASB published the final version of IFRS 16 Leases. IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leasing arrangements. The new standard results in almost all leases held as lessee being recognised on the balance sheet, as the distinction between operating and finance leases is removed.

However, IFRS 16 has not impacted operating leases held by the Group where the Group is lessor.

Under IFRS 16, where the Group is lessee, it recognises the right-to-use asset in the consolidated statement of financial position at fair value and this is amortised over the life of the lease. Amortisation is recognised in the consolidated statement of comprehensive income. In addition, a financial liability is recognised in the consolidated statement of financial position which is valued at the present value of future lease payments using the discount rate implicit in the lease, if readily determinable, or, if not, the Group's incremental borrowing rate. Previously, under IAS 17, finance lease liabilities were measured at fair value which is not materially different to the present value of the future lease payments using an appropriate discount rate. 

Therefore, the adoption of IFRS 16 has an immaterial impact on net assets and an immaterial impact on underlying profit/(loss) before tax. Accordingly, comparative amounts have not been restated and adjustments in opening retained earnings have not been recognised.

The following have been considered, but have had no impact on the Group for the reporting period:

· Amendments to IFRS 9;

· IFRIC 23, Uncertainty over Income Tax Treatments;

· Amendments to IAS 28 Long Term Interests in Associates and Joint Ventures; and

· Amendments to IAS 19 Plan Amendment, Curtailment or Settlement.

There are a number of new standards and amendments to existing standards which have been published and are mandatory for the Group's accounting periods beginning on or after 1 April 2020 or later. The Group is not adopting these standards early. The following are the most relevant to the Group:

· Definition of Material - amendments to IAS 1 and IAS 8;

· Annual improvements to IFRS 2015-2017 Cycle: amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs;

· IFRS 17 - Insurance Contracts; and

· Revised Conceptual Framework for financial reporting: The IASB has issued a revised Conceptual Framework for future standard setting decisions. No changes will be made to any of the current standards.

The Group does not expect the adoption of new accounting standards issued but not yet effective to have a significant impact on its financial statements.

2.2 Significant accounting judgements and estimates

The preparation of these financial statements in accordance with IFRS requires the Directors of the Company to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future.

Judgements

In the course of preparing the financial statements, no judgements have been made in the process of applying the Group's accounting policies, other than those involving estimations, that have had a significant effect on the amounts recognised in the financial statements.

Estimates

In the process of applying the Group's accounting policies, the Investment Advisor has made the following estimates which have the most significant risk of material change to the carrying value of assets recognised in the consolidated financial statements:

Valuation of property

The valuations of the Group's investment property are at fair value as determined by the external valuer on the basis of market value in accordance with the internationally accepted RICS Valuation - Professional Standards January 2020 (incorporating the International Valuation Standards) and in accordance with IFRS 13. The key estimates made by the valuer are the ERV and equivalent yields of each investment property. See notes 13 and 24 for further details.

2.3 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are stated in the notes to the financial statements.

a) Basis of consolidation

The Company does not meet the definition of an investment entity and therefore does not qualify for the consolidation exemption under IFRS 10. The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 March 2020. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtained control, and will continue to be consolidated until the date that such control ceases. An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In preparing these financial statements, intra-group balances, transactions and unrealised gains or losses have been eliminated in full. All subsidiaries have the same year end as the Company. Uniform accounting policies are adopted in the financial statements for like transactions and events in similar circumstances.

b) Functional and presentation currency

The overall objective of the Group is to generate returns in Pound Sterling and the Group's performance is evaluated in Pound Sterling. Therefore, the Directors consider Pound Sterling as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions and have therefore adopted it as the functional and presentation currency.

c) Segmental reporting

The Directors are of the opinion that the Group is engaged in a single segment of business, being the investment and provision of UK urban warehouses.

3. Revenue

	Year ended 31 March	Year ended 31 March
	2020	2019
	£'000	£'000
Rental income	28,513	20,656
Insurance recharged	663	548
Dilapidation income	877	781
Total	30,053	21,985

Accounting policy

Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease term and is included in gross rental income in the Group statement of comprehensive income. Initial direct costs incurred in negotiating and arranging an operating lease are recognised as an expense over the lease term on the same basis as the lease income. Rental income is invoiced in advance and for all rental income that relates to a future period, this is deferred and appears with current liabilities on the Group statement of financial position.

For leases which contain fixed or minimum uplifts, the rental income arising from such uplifts is recognised on a straight-line basis over the lease term.

Tenant lease incentives are recognised as an adjustment of rental revenue on a straight-line basis over the term of the lease. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option.

Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the Group statement of comprehensive income when the right to receive them arises.

4. Property operating and administration expenses

	Year ended 31 March	Year ended 31 March
	2020	2019
	£'000	£'000
Premises expenses	2,446	2,468
Insurance	818	600
Rates	376	44
Utilities	170	50
Loss allowance	120	245
Property operating expenses	3,930	3,407
Investment management fees	2,812	1,888
Directors' remuneration	150	110
Head lease asset depreciation	110	50
Other administration expenses	1,584	1,350
Costs of postponed equity raise	376	-
Administration expenses	5,032	3,398
Total	8,962	6,805

Accounting policy

All property operating expenses and administration expenses are charged to the consolidated statement of comprehensive income and are accounted for on an accruals basis.

5. Directors' remuneration

	Year ended 31 March	Year ended 31 March
	2020	2019
	£'000	£'000
Neil Kirton	45	37
Lynette Lackey	35	13
Martin Meech	35	30
Aimée Pitman	35	30
Total	150	110

A summary of the Directors' emoluments, including the disclosures required by the Companies Act 2006, is set out in the full annual report. The Group had no employees in either period.

6. Auditor's remuneration

	Year ended 31 March	Year ended 31 March
	2020	2019
	£'000	£'000
Audit fee	135	120
Total	135	120

The Group reviews the scope and nature of all proposed non-audit services before engagement, to ensure that the independence and objectivity of the Auditor are safeguarded. Audit fees are comprised of the following items:

	Year ended 31 March	Year ended 31 March
	2020	2019
	£'000	£'000
Period-end Annual Report and Financial Statements	105	92
Subsidiary accounts	30	28
Total	135	120

Non-audit fees are comprised of the following:

	Year ended 31 March	Year ended 31 March
	2020	2019
	£'000	£'000
Services in respect of an acquisition	60	-
Services in respect of a terminated acquisition	-	50
Tax advice	231	-
Services provided as reporting accountant on equity raise	95	-
Services provided as reporting accountant on postponed equity raise	83	-
Total	469	50

7. Finance income

	Year ended 31 March	Year ended 31 March
	2020	2019
	£'000	£'000
Income from cash and short-term deposits	30	11
Total	30	11

Accounting policy

Interest income is recognised on an effective interest rate basis and shown within the Group statement of comprehensive income as finance income.

8. Finance expenses

	Year ended 31 March	Year ended 31 March
	2020	2019
	£'000	£'000
Loan interest	4,717	3,822
Head lease interest	597	302
Loan arrangement fees amortised*	941	491
Bank charges	1	11
	6,256	4,626
Change in fair value of interest rate derivatives	227	346
Total	6,483	4,972

*This includes accelerated amortisation of £375,000 given the substantial modification to the term loan following the refinance that took place in January 2020. Refer to note 17 for details of the refinancing.

Accounting policy

Any finance costs that are separately identifiable and directly attributable to a liability which takes a period of time to complete are amortised as part of the cost of the liability. All other finance costs are expensed in the period in which they occur. Finance costs consist of interest and other costs that an entity incurs in connection with bank and other borrowings. Fair value movements on derivatives are recorded in finance expenses.

9. Taxation

Corporation tax has arisen as follows:

	Year ended 31 March	Year ended 31 March
	2020	2019
	£'000	£'000
Corporation tax on residual income for prior period	-	5
Total	-	5

Reconciliation of tax charge to profit before tax:

	Year ended 31 March	Year ended 31 March
	2020	2019
	£'000	£'000
Profit before tax	20,676	22,778
Corporation tax at 19.0% (2019: 19.0%)	3,928	4,328
Change in value of investment properties	(1,147)	(2,797)
Tax exempt property rental business	(2,781)	(1,531)
Corporation tax on residual income for prior period	-	5
Total	-	5

Accounting policy

Corporation tax is recognised in the consolidated statement of comprehensive income except where in certain circumstances corporation tax may be recognised in other comprehensive income.

As a REIT, the Group is exempt from corporation tax on the profits and gains from its property rental business, provided it continues to meet certain conditions as per REIT regulations.

Non-qualifying profits and gains of the Group continue to be subject to corporation tax. Therefore, current tax is the expected tax payable on the non-qualifying taxable income for the period, if applicable, using tax rates enacted or substantively enacted at the balance sheet date.

10. Operating leases

Operating lease commitments - as lessor

The Group has entered into commercial property leases on its investment property portfolio. These non-cancellable leases have a remaining term of up to 15 years.

Future minimum rentals receivable under non-cancellable operating leases as at 31 March 2020 are as follows:

	31 March 2020	31 March 2019
	£'000	£'000
Within one year	27,868	17,198
Between one and five years	63,500	47,068
More than five years	31,528	22,585
Total	122,896	86,851

11. Dividends 

	Pence
For the year ended 31 March 2020	per share	£'000
Fourth interim dividend for year ended 31 March 2019 paid on 28 June 2019	1.50	3,604
First interim dividend for year ended 31 March 2020 paid on 27 September 2019	1.50	3,604
Second interim dividend for year ended 31 March 2020 paid on 27 December 2019	1.50	3,604
Third interim dividend for year ended 31 March 2020 paid on 31 March 2020	1.60	3,843
Total dividends paid during the year	6.10	14,655
Paid as:
Property income distributions	6.10	14,655
Non-property income distributions	-	-
Total	6.10	14,655

	Pence
For the year ended 31 March 2019	per share	£'000
Interim dividend for period ended 31 March 2018 paid on 6 July 2018	1.50	2,490
First interim dividend for year ended 31 March 2019 paid on 28 September 2018	1.50	2,490
Second interim dividend for year ended 31 March 2019 paid on 28 December 2018	1.50	2,490
Third interim dividend for year ended 31 March 2019 paid on 29 March 2019	1.50	2,490
Total dividends paid during the year	6.00	9,960
Paid as:
Property income distributions	5.65	9,379
Non-property income distributions	0.35	581
Total	6.00	9,960

As a REIT, the Group is required to pay PIDs equal to at least 90% of the property rental business profits of the Group.

Accounting policy

Dividends due to the Company's shareholders are recognised when they become payable.

12. Earnings per share

Basic EPS is calculated by dividing profit for the period attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares during the period. As there are no dilutive instruments in issue, basic and diluted EPS are identical.

	Year ended 31 March 2020	Year ended 31 March 2019
	£'000	£'000
IFRS earnings	20,676	22,773
EPRA earnings adjustments:
Profit on disposal of investment properties	(934)	(3,494)
Fair value gains on investment properties	(5,104)	(11,229)
Changes in fair value of interest rate derivatives	227	346
Accelerated amortisation of loan issue costs	375	-
EPRA earnings	15,240	8,396
Group-specific earnings adjustments:
Costs of postponed equity raise	376	-
Property and acquisition provision	-	2,164
Adjusted earnings	15,616	10,560

	31 March 2020	31 March 2019
	Pence	Pence
Basic IFRS EPS	8.6	13.7
Diluted IFRS EPS	8.6	13.7
EPRA EPS	6.3	5.1
Adjusted EPS	6.5	6.4

	31 March 2020	31 March 2019
	Number	Number
	of shares	of shares
Weighted average number of shares in issue (thousands)	240,051	166,000

13. UK investment property

		Completed investment property	Development property and land	Total investment property
		£'000	£'000	£'000
Investment property valuation brought forward as at 1 April 2019	304,185		3,200	307,385
Transfer to development property and land	(11,700)		11,700	-
Acquisition of properties	149,665		-	149,665
Capital expenditure	3,549		238	3,787
Disposal of properties	(15,421)		-	(15,421)
Fair value gains on revaluation of investment property	3,272		1,832	5,104
Total portfolio valuation per valuer's report	433,550		16,970	450,520
Adjustment for head lease obligations	8,568		-	8,568
Carrying value at 31 March 2020	442,118		16,970	459,088

	Completed investment property	Development property and land	Total investment property
	£'000	£'000	£'000
Investment property valuation brought forward as at 1 April 2018	287,800	3,200	291,000
Acquisition of properties	18,199	-	18,199
Capital expenditure	1,820	297	2,117
Disposal of properties	(15,160)	-	(15,160)
Fair value gains on revaluation of investment property	11,526	(297)	11,229
Total portfolio valuation per valuer's report	304,185	3,200	307,385
Adjustment for head lease obligations	4,406	-	4,406
Carrying value at 31 March 2019	308,591	3,200	311,791

All investment properties are charged as collateral on the Group's borrowings. One asset is also subject to a second ranking charge in relation to deferred consideration outstanding. See note 19 for further details.

Gains realised on disposal of investment property
	31 March	31 March
	2020	2019
	£'000	£'000
Net proceeds from disposals of investment property during the year	16,355	18,654
Carrying value of disposals	(15,421)	(15,160)
Gains realised on disposal of investment property	934	3,494

Accounting policy

Investment property comprises property held to earn rental income or for capital appreciation, or both. Investment property is measured initially at cost including transaction costs. Transaction costs include transfer taxes and professional fees to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred, if the recognition criteria are met.

Development property and land is where the whole or a material part of an estate is identified as having potential for development. Assets are classified as such until development is completed and they have the potential to be fully income generating. Development property and land is measured at fair value if the fair value is considered to be reliably determinable. Where the fair value cannot be determined reliably but where we expect that the fair value of the property will be reliably determined when construction is completed, the property is measured at cost less any impairment until the fair value becomes reliably determinable or construction is completed, whichever is earlier. It is the Group's policy not to capitalise overheads or operating expenses and no such costs were capitalised in either the year ended 31 March 2020 or the year ended 31 March 2019.

Subsequent to initial recognition, investment property is stated at fair value (see note 24). Gains or losses arising from changes in the fair values are included in the consolidated statement of comprehensive income in the period in which they arise under IAS 40 Investment Property.

Investment properties cease to be recognised when they have been disposed of or withdrawn permanently from use and no future economic benefit is expected. Gains or losses on the disposal of investment property are determined as the difference between net disposal proceeds and the carrying value of the asset.

14. Cash and cash equivalents

	31 March 2020	31 March 2019
	£'000	£'000
Cash and cash equivalents	5,483	4,866
Total	5,483	4,866

Accounting policy

Cash and cash equivalents comprise cash at bank and short-term deposits with banks and other financial institutions, with an initial maturity of three months or less.

15. Trade and other receivables

	31 March 2020	31 March 2019
	£'000	£'000
Rent and insurance receivables	3,075	2,358
Prepayments	229	69
Other receivables	3,104	1,973
Total	6,408	4,400

The rent and insurance receivables balance represents gross receivables of £3,650,000 (31 March 2019: £2,623,000), net of a provision of £575,000 (31 March 2019: £265,000). £190,000 (31 March 2019: £nil) of the provision is in relation to rents invoiced in advance and therefore netted off the deferred income balance.

Accounting policy

Rent and other receivables are recognised at their original invoiced value and become due based on the terms of the underlying lease or at the date of invoice.

The Group carries out an assessment of expected credit losses at each period end, using the simplified approach, where a lifetime expected loss allowance is recognised over the expected life of the financial instrument. Adjustments are recognised in the income statement as an impairment gain or loss.

16. Interest rate derivatives

	31 March 2020	31 March 2019
	£'000	£'000
At the start of the period	249	-
Interest rate cap premium paid	-	595
Changes in fair value of interest rate derivatives	(227)	(346)
Balance at the end of the period	22	249

To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the Group entered into interest rate derivatives. The instruments have a combined notional value of £60.0 million with £30.0 million at a strike rate of 1.50% and a termination date of 21 November 2022 and £30.0 million at a strike rate of 1.75% and a termination date of 21 November 2023.

Accounting policy

Derivative financial instruments, comprising interest rate derivatives for mitigating interest rate risks, are initially recognised at fair value 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. Premiums payable under such arrangements are initially capitalised into the statement of financial position.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to the fair value measurement as a whole. Changes in fair value of interest rate derivatives are recognised within finance expenses in profit or loss in the period in which they occur.

17. Interest-bearing loans and borrowings

	31 March 2020	31 March 2019
	£'000	£'000
At the beginning of the year	127,000	124,450
Drawn in the year	320,000	21,550
Repaid in the year	(260,500)	(19,000)
Interest-bearing loans and borrowings	186,500	127,000
Unamortised fees at the beginning of the year	(1,490)	(1,398)
Loan arrangement fees paid in the year	(2,761)	(583)
Amortisation charge for the year	941	491
Unamortised loan arrangement fees	(3,310)	(1,490)
Loan balance less unamortised loan arrangement fees	183,190	125,510

As at 31 March 2019, the Group had a five-year RCF of £105.0 million at a coupon of 2.25% above LIBOR and a £30.0 million fixed-term loan on the same terms; both facilities were due to expire on 30 November 2020.

On 22 January 2020, the Group entered into a new five-year £220.0 million loan facility, to replace the existing HSBC facility totalling £210.0 million. The facility comprises a £157.0 million term loan and a £63.0 million RCF and has been agreed with a club of lenders consisting of HSBC Bank plc, Barclays Bank plc, Bank of Ireland and Royal Bank of Canada. The facility is at a margin of 2.0% per annum above LIBOR and will expire on 22 January 2025 with an option to extend the duration by a further two years, subject to lender consent. The facility is secured on all properties within the portfolio. As at 31 March 2020, there is £33.5 million (31 March 2019: £8.0 million) available to draw on the RCF.

The debt facility includes LTV, interest cover and market value covenants that are measured at a Group level. The Group has complied with all covenants throughout the financial period.

Accounting policy

Loans and borrowings are initially recognised at the proceeds received net of directly attributable transaction costs. Loans and borrowings are subsequently measured at amortised cost with interest charged to the consolidated statement of comprehensive income at the effective interest rate, and shown within finance costs. Transaction costs are spread over the term of loan.

18. Head lease obligations

The following table analyses the present value of minimum lease payments under non-cancellable head leases using an average discount rate of 6.91% for each of the following periods:

	31 March 2020	31 March 2019
	£'000	£'000
Current liabilities
Within one year	488	284
Non-current liabilities
After one year but not more than five years	1,892	1,034
Later than five years	6,427	3,136
Total	8,807	4,454

	Year ended 31 March 2020 £'000	Year ended 31 March 2019 £'000
Head lease liability - opening balance	4,454	4,068
Cash flows Non-cash movements	(507)	(302)
Interest	597	281
Additions	4,274	407
Head lease accrual	(11)	-
Head lease obligations - closing balance	8,807	4,454

The following table analyses the minimum lease payments under non-cancellable head leases for each of the following periods:

	31 March 2020	31 March 2019
	£'000	£'000
Current liabilities
Within one year	634	326
Non-current liabilities
After one year but not more than five years	2,534	1,303
Later than five years	52,523	26,945
Total	55,691	28,574

The fair value of the Group's lease obligations is estimated to be equal to its carrying value.

Accounting policy

At the commencement date, head lease obligations are recognised at the present value of future lease payments using the discount rate implicit in the lease, if determinable, or, if not, the Group's incremental borrowing rate.

19. Other liabilities - other payables and accrued expenses, provisions and deferred income

	31 March 2020	31 March 2019
	£'000	£'000
Property operating expenses payable	1,500	514
Administration expenses payable	2,404	1,467
Loan interest payable	980	784
Capital expenses payable	377	80
Other expenses payable	1,236	1,151
Total other payables and accrued expenses - current	6,497	3,996

	31 March 2020	31 March 2019
	£'000	£'000
Capital expenses payable	4,500	-
Total other payables and accrued expenses - non-current	4,500	-

Capital expenses payable includes deferred consideration of £4,500,000 in relation to a property acquired during the year ended 31 March 2020.  The deferred consideration is due in September 2023, or earlier if the property is sold before that date. The consideration is secured on a second ranking charge over the asset.

	31 March	31 March
	2020	2019
	£'000	£'000
Property and acquisition provision brought forward	1,434	-
Provision recognised in the period	-	2,164
Costs incurred in the period	(1,434)	(730)
Property and acquisition provision carried forward	-	1,434

The property and acquisition provision comprises costs associated with a terminated acquisition and one-off costs associated with the default of a tenant at Deeside who entered into administration.

	31 March	31 March
	2020	2019
	£'000	£'000
Total deferred income	4,888	3,585

The deferred income balance is stated net of bad debt provision in relation to rents invoiced in advance of £190,000 (31 March 2019: £nil).

Accounting policy

Other payables and accrued expenses are initially recognised at fair value and subsequently held at amortised cost.

Deferred income is rental income received in advance during the accounting period. The income is deferred and is unwound to revenue on a straight-line basis over the period in which it is earned.

20. Share capital

Share capital is the nominal amount of the Company's ordinary shares in issue.

		31 March		31 March
		2020		2019
Ordinary shares of £0.01 each	Number	£'000	Number	£'000
Authorised, issued and fully paid:
At the start of the period	166,000,000	1,660	166,000,000	1,660
Shares issued	74,254,043	743	-	-
Balance at the end of the period	240,254,043	2,403	166,000,000	1,660

The share capital comprises one class of ordinary shares. At general meetings of the Company, ordinary shareholders are entitled to one vote on a show of hands and on a poll, to one vote for every share held. There are no restrictions on the size of a shareholding or the transfer of shares, except for the UK REIT restrictions.

On 2 April 2019, the Company raised gross proceeds of £76.5 million through a placing, open offer and offer for subscription.

In total, the Company issued 74,254,043 new ordinary shares at 103.0 pence each.

21. Share premium

Share premium comprises the following amounts:

	31 March 2020	31 March 2019
	£'000	£'000
At the start of the period	-	-
Shares issued	75,739	-
Share issue costs	(1,711)	-
Share premium	74,028	-

Share premium represents the excess over nominal value of the fair value of the consideration received for equity shares net of direct issue costs.

22. Other capital and reserves

Capital reduction reserve

Capital reduction reserve comprises the following amounts:

	31 March 2020	31 March 2019
	£'000	£'000
At the start of the period	161,149	161,149
Movement in the period	-	-
Capital reduction reserve	161,149	161,149

The capital reduction reserve is a distributable reserve established upon cancellation of the share premium.

Retained earnings

Retained earnings comprise the following cumulative amounts:

	31 March 2020	31 March 2019
	£'000	£'000
Total unrealised gains on investment properties	20,671	15,892
Total unrealised loss on interest rate caps	(119)	(346)
Total realised profits	31,262	15,592
Dividends paid from revenue profits	(26,275)	(11,620)
Retained earnings	25,539	19,518

Retained earnings represent the profits of the Group less dividends paid from revenue profits to date. Unrealised gains on the revaluation of investment properties contained within this reserve are not distributable until any gains crystallise on the sale of the investment property.

As at 31 March 2020, the Company had distributable reserves available of £166,136,000 (31 March 2019: £165,121,000).

23. Net asset value per share

Basic NAV per share amounts are calculated by dividing net assets attributable to ordinary equity holders of the Company in the statement of financial position by the number of ordinary shares outstanding at the end of the period. As there are no dilutive instruments in issue, basic and diluted NAV per share are identical.  

	31 March 2020	31 March 2019
	£'000	£'000
IFRS net assets attributable to ordinary shareholders	263,119	182,327
IFRS net assets for calculation of NAV	263,119	182,327
Adjustment to net assets:
Fair value of interest rate derivatives (see note 16)	(22)	(249)
EPRA net assets	263,097	182,078

	31 March 2020	31 March 2019
	Pence	Pence
IFRS basic and diluted NAV per share (pence)	109.5	109.8
EPRA NAV per share (pence)	109.5	109.7

	31 March 2020	31 March 2019
	Number	Number
	of shares	of shares
Number of shares in issue (thousands)	240,254	166,000

24. Fair value

IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair values.

The fair value of cash and short-term deposits, trade receivables, trade payables and other current liabilities approximate their carrying amounts due to the short-term maturities of these instruments.

Interest-bearing loans and borrowings are disclosed at amortised cost. The carrying value of the loans and borrowings approximate their fair value due to the contractual terms and conditions of the loan. The loans are at a variable interest rate of 2.0% above LIBOR.

Six-monthly valuations of investment property are performed by CBRE, accredited external valuers with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued, on a fixed fee basis. The valuations are the ultimate responsibility of the Directors, however, who appraise these every six months.

The valuation of the Group's investment property at fair value is determined by the external valuer on the basis of market value in accordance with the internationally accepted RICS Valuation - Professional Standards January 2020 (incorporating the International Valuation Standards).

In line with market practice since the COVID-19 outbreak, the valuer's report notes a material uncertainty relating to property valuations in the current environment. This uncertainty can arise from difficulties with inspecting properties due to the outbreak or reduced access to evidential data, such as comparable transactions. At any time, property valuations are inherently subjective as they are made on the basis of assumptions by the valuer which may not prove to be accurate.  For these reasons, consistent with EPRA's guidance, we have classified the valuations of the property portfolio as Level 3 as defined by IFRS 13; see table below for further details.

Completed investment properties are valued by adopting the 'income capitalisation' method of valuation. This approach involves applying capitalisation yields to current and future rental streams, net of income voids arising from vacancies or rent-free periods and associated running costs. These capitalisation yields and future rental values are based on comparable property and leasing transactions in the market using the valuer's professional judgement and market observations. Other factors taken into account in the valuations include the tenure of the property, tenancy details and ground and structural conditions.

Development property and land has been valued by adopting the 'comparable method' of valuation and where appropriate supported by a 'residual development appraisal'. The comparable method involves applying a sales rate per acre to relevant sites supported by comparable land sales. Residual development appraisals have been completed where there is sufficient clarity regarding planning and an identified or indicative scheme. In a similar manner to 'income capitalisation', development inputs include the capitalisation of future rental streams with an appropriate yield to ascertain a gross development value. The costs associated with bringing a scheme to the market are then deducted, including construction costs, professional fees, finance and developer's profit, to provide a residual site value.

The fair value of the interest rate contracts is recorded in the statement of financial position and is determined by forming an expectation that interest rates will exceed strike rates and discounting these future cash flows at the prevailing market rates as at the year end.

The following tables show an analysis of the fair values of investment properties and interest rate derivatives recognised in the statement of financial position by level of the fair value hierarchy¹:

	31 March 2020
	Level 1	Level 2	Level 3	Total
Assets and liabilities measured at fair value	£'000	£'000	£'000	£'000
Investment properties	-	-	450,520	450,520
Interest rate derivatives	-	22	-	22
Total	-	22	450,520	452,542

	31 March 2019
	Level 1	Level 2	Level 3	Total
Assets and liabilities measured at fair value	£'000	£'000	£'000	£'000
Investment properties	-	-	307,385	307,385
Interest rate derivatives	-	249	-	249
Total	-	249	307,385	307,634

1. 

Explanation of the fair value hierarchy:

· Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

· Level 2 - use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable market data; and

· Level 3 - use of a model with inputs that are not based on observable market data.

Sensitivity analysis to significant changes in unobservable inputs within the valuation of investment properties

The following table analyses:

· the fair value measurements at the end of the reporting period;

· a description of the valuation techniques applied;

· the inputs used in the fair value measurement, including the ranges of rent charged to different units within the same building; and

· for Level 3 fair value measurements, quantitative information about significant unobservable inputs used in the fair value measurement.

				Key
			Valuation	unobservable
	Fair value £'000	technique		inputs	Range
31 March 2020
Completed	£433,550	Income capitalisation		ERV	£22,000 - £1,880,000 per annum
investment property				Equivalent yield	5.1% - 12.9%
Development property and land	£16,970	Comparable method/ residual method		Various
	£450,520
31 March 2019
Completed	£304,185	Income capitalisation		ERV	£25,000-£1,490,000 per annum
investment property				Equivalent yield	5.2% - 13.1%
Development property	£3,200	Comparable method/		Various
and land		residual method
	£307,385

Significant increases/decreases in the ERV (per sq ft per annum) and rental growth per annum in isolation would result in a significantly higher/lower fair value measurement. Significant increases/decreases in the long-term vacancy rate and discount rate (and exit yield) in isolation would result in a significantly higher/lower fair value measurement.

Generally, a change in the assumption made for the ERV (per sq ft per annum) is accompanied by:

· a similar change in the rent growth per annum and discount rate (and exit yield); and

· an opposite change in the long-term vacancy rate.

The table below sets out a sensitivity analysis for each of the key sources of estimation uncertainty with the resulting increase/(decrease) in the fair value of completed investment property:

As at 31 March 2020

	Increase in sensitivity	Decrease in sensitivity
	£'000	£'000
Change in ERV of 5%	21,668	(21,668)
Change in net equivalent yields of 25 basis points	(15,093)	16,260

As at 31 March 2019

	Increase in sensitivity	Decrease in sensitivity
	£'000	£'000
Change in ERV of 5%	15,369	(15,369)
Change in net equivalent yields of 25 basis points	(10,036)	10,757

Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy amount to £5,104,000 (31 March 2019: £11,229,000) and are presented in the consolidated statement of comprehensive income in line item 'fair value gains on investment properties'.

All gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property held at the end of the reporting period.

The carrying amount of the Group's assets and liabilities is considered to be the same as their fair value.

25. Financial risk management objectives and policies

The Group's principal financial liabilities are loans and borrowings. The main purpose of the Group's loans and borrowings is to finance the acquisition of the Group's property portfolio. The Group has trade and other receivables, trade and other payables and cash and short-term deposits that arise directly from its operations.

The Group is exposed to market risk, interest rate risk, credit risk and liquidity risk. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below.

Market risk

Market risk is the risk that future values of investments in property and related investments will fluctuate due to changes in market prices. The total exposure at the statement of financial position date is £450,520,000 and to manage this risk, the Group diversifies its portfolio across a number of assets. The Group's investment policy is to invest in UK-located warehouse assets. The Group will invest and manage its portfolio with an objective of spreading risk and, in doing so, will maintain the following investment restrictions:

· the Group will only invest, directly or indirectly, in warehouse assets located in the UK;

· no individual warehouse property will represent more than 20% of the last published GAV of the Group at the time of investment;

· the Group will target a portfolio with no one tenant accounting for more than 10% of the gross contracted rents of the Group at the time of purchase. In any event, no more than 20% of the gross assets of the Group will be exposed to the creditworthiness of any one tenant at the time of purchase;

· the portfolio will be diversified by location across the UK with a focus on areas with strong underlying investment fundamentals; and

· the Group will not invest more than 10% of its gross assets in other listed closed-ended investment funds.

Interest rate risk

Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates to its variable rate bank loans. In order to address interest rate risk, the Group has entered into interest rate cap instruments, details of which are set out in note 16.

Credit risk

Credit risk is the risk that a counterparty or tenant will cause a financial loss to the Group by failing to meet a commitment it has entered into with the Group.

All cash deposits are placed with approved counterparties, currently HSBC Bank plc. In respect of property investments, in the event of a default by a tenant, the Group will suffer a shortfall and additional costs concerning re-letting of the property. The Investment Manager monitors the tenant arrears in order to anticipate and minimise the impact of defaults by occupational tenants.

The following table analyses the Group's exposure to credit risk:

	31 March 2020	31 March 2019
	£'000	£'000
Cash and cash equivalents	5,483	4,866
Trade and other receivables¹	3,910	3,389
Total	9,393	8,255

¹Excludes lease incentive debtor and prepayments

Liquidity risk

Liquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Exposure to liquidity risk arises because of the possibility that the Group could be required to pay its liabilities earlier than expected. The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank deposits and loans.

Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial instruments that are carried in the financial statements:

				2020			2019
			Fair value hierarchy	Carrying value	Fair value		Carrying value	Fair value
				£'000	£'000		£'000	£'000
Held at amortised cost
Cash and cash equivalents			n/a	5,483	5,483		4,866	4,866
Trade and other receivables¹			n/a	3,910	3,910		4,400	4,400
Other payables and accrued expenses²			n/a	(10,157)	(10,157)		(3,285)	(3,285)
Head lease liabilities			n/a	(8,807)	(8,807)		(4,454)	(4,454)
Interest-bearing loans and borrowings			n/a	(183,190)	(183,190)		(125,510)	(125,510)
Held at fair value
Interest rate derivatives (assets)			2	22	22		249	249

¹Excludes lease incentive debtor and prepayments

²Excludes VAT liability

The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments:

	Less	Three
	than three	to 12	One to	Two to	More than
	months	months	two years	five years	five years	Total
Year ended 31 March 2020	£'000	£'000	£'000	£'000	£'000	£'000
Interest-bearing loans and borrowings	-	3,777	5,013	201,538	-	210,328
Other payables and accrued expenses	5,758	739	-	4,500	-	10,997
Head lease obligations	-	532	1,012	915	6,348	8,807
Total	5,758	5,048	6,025	206,953	6,348	230,132

	Less	Three
	than three	to 12	One to	Two to	More than
	months	months	two years	five years	five years	Total
Year ended 31 March 2019	£'000	£'000	£'000	£'000	£'000	£'000
Interest-bearing loans and borrowings	-	2,886	3,842	138,525	-	145,253
Other payables and accrued expenses	2,477	1,519	-	-	-	3,996
Head lease obligations	-	284	552	482	3,136	4,454
Total	2,477	4,689	4,394	139,007	3,136	153,703

26. Subsidiaries

			Country of	Number and class
			incorporation	of share held	Group
Company			and operation	by the Group	holding
Tilstone Holdings Limited2			UK	63,872 ordinary shares	100%
Tilstone Warehouse Holdco Limited2			UK	94,400 ordinary shares	100%
Tilstone Industrial Warehouse Limited1,2			UK	23,600 ordinary shares	100%
Tilstone Retail Warehouse Limited1,2			UK	20,000 ordinary shares	100%
Tilstone Industrial Limited1,2			UK	20,000 ordinary shares	100%
Tilstone Retail Limited1,2			UK	200 ordinary shares	100%
Tilstone Trade Limited1,2			UK	20,004 ordinary shares	100%
Tilstone Basingstoke Limited1,2			UK	1,000 ordinary shares	100%
Tilstone Glasgow Limited1,2			UK	1 ordinary share	100%
Tilstone Radway Limited (previously Quantum North Limited)1,2			UK	100 ordinary shares	100%
Warehouse 18 Limited1,2			UK	100 ordinary shares	100%
Warehouse 1234 Limited1,2			UK	100 ordinary shares	100%
Chip (One) Limited3			IOM	7,545,347 ordinary shares	100%
Chip (Two) Limited3,5			IOM	1,250,780 ordinary shares	100%
Chip (Three) Limited3,5			IOM	755,045 ordinary shares	100%
Chip (Four) Limited3			IOM	10 ordinary shares	100%
Chip (Five) Limited3			IOM	8,461,919 ordinary shares	100%
Chip (Ipswich) One Limited3			IOM	2 ordinary shares	100%
Chip (Ipswich) Two Limited3			IOM	2 ordinary shares	100%
Glashen Services Limited4			IOM	1,780,801 ordinary shares	100%

1.  Indirect subsidiaries.

2.  Registered office: Beaufort House, 51 New North Road, Exeter EX4 4EP.

3.  Registered office: IOMA House, Hope Street, Douglas, Isle of Man IM1 1AP.

4.  Registered office: Merchants House, 24 North Quay, Douglas, Isle of Man IM1 4LE.

5.  Dissolved post year end on 28 April 2020.

The principal activity of all the subsidiaries relates to property investment.

Accounting policy

Where property is acquired, via corporate acquisitions or otherwise, management considers the substance of the assets and activities of the acquired entity in determining whether the acquisition represents the acquisition of a business.

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

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree.

For each business combination, the acquirer measures the non-controlling interest in the acquiree at fair value of the proportionate share of the acquiree's identifiable net assets. Acquisition costs (except for costs of issue of debt or equity) are expensed in accordance with IFRS 3 Business Combinations.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

Contingent consideration is deemed to be equity or a liability in accordance with IAS 32. If the contingent consideration is classified as equity, it is not re-measured and its subsequent settlement shall be accounted for within equity. If the contingent consideration is classified as a liability, subsequent changes to the fair value are recognised either in profit or loss or as a change to other comprehensive income.

27. Capital management

The Group's capital is represented by share capital, reserves and borrowings.

The primary objective of the Group's capital management is to ensure that it remains within its quantitative banking covenants and maintains a strong credit rating. The Group's capital policies are as follows:

· the Group will keep sufficient cash for working capital purposes with excess cash, should there be any, deposited at the best interest rate available whilst maintaining flexibility to fund the Group's investment programme;

· borrowings will be managed in accordance with the loan agreements and covenants will be tested quarterly and reported to the Directors. Additionally, quarterly lender reporting will be undertaken in line with the loan agreement; and

· new borrowings are subject to Director approval. Such borrowings will support the Group's investment programme but be subject to a maximum 50% LTV. The intention is to maintain borrowings at a LTV of between 30% and 40%.

During the period, the Group did not breach any of its loan covenants, nor did it default on any other of its obligations under its loan agreement.

28. Related party transactions

Directors

The Directors (all Non-Executive Directors) of the Company and its subsidiaries are considered to be the key management personnel of the Group. Directors' remuneration for the period totalled £150,000 (31 March 2019: £110,000) and at 31 March 2020, a balance of £nil (31 March 2019: £nil) was outstanding.

Investment Advisor

The Company is party to an Investment Management Agreement with the Investment Manager, pursuant to which the Investment Manager has appointed the Investment Advisor to provide investment advisory services relating to the respective assets on a day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction by the Investment Manager and the Board of Directors.

For its services to the Company, the Investment Advisor receives an annual fee at the rate of 1.1% of the NAV of the Company. 

During the year, the Group incurred £2,812,000 (31 March 2019: £1,888,000) in respect of investment management fees. As at 31 March 2020, £810,230 (31 March 2019: £465,000) was outstanding.

Subsidiaries

As at 31 March 2020, the Company owned a 100% controlling stake in Tilstone Holdings Limited, Tilstone Warehouse Holdco Limited, Tilstone Industrial Warehouse Limited, Tilstone Retail Warehouse Limited, Tilstone Industrial Limited, Tilstone Retail Limited, Tilstone Trade Limited, Tilstone Basingstoke Limited, Tilstone Glasgow Limited, Tilstone Radway Limited (previously Quantum North Limited), CHIP (One) Limited, Warehouse 18 Limited, Warehouse 1234 Limited, CHIP (Two) Limited, CHIP (Three) Limited, CHIP (Four) Limited, CHIP (Five) Limited, CHIP (Ipswich) One Limited, CHIP (Ipswich) Two Limited, and Glashen Services Limited.

29. Ultimate controlling party

It is the view of the Directors that there is no ultimate controlling party.

30. Post balance sheet event

A fourth interim dividend in respect of the year ended 31 March 2020 of 1.6 pence per share will be payable on 3 July 2020 to shareholders on the register on 12 June 2020. The ex-dividend date will be 11 June 2020.

UNAUDITED SUPPLEMENTARY NOTES NOT PART OF THE CONSOLIDATED FINANCIAL INFORMATION

For the year ended 31 March 2020

The Group is a member of the European Public Real Estate Association ("EPRA"). EPRA has developed and defined the following performance measures to give transparency, comparability and relevance of financial reporting across entities which may use different accounting standards. The following measures are calculated in accordance with EPRA guidance.

Table 1: EPRA performance measures summary
	Notes		2020	2019
EPRA EPS (pence)	Table 2		6.3	5.1
EPRA NAV per share (pence)	Table 3		109.5	109.7
EPRA NNNAV per share (pence)	Table 3		109.5	109.8
EPRA NIY	Table 4		5.9%	6.1%
EPRA 'topped-up' net initial yield	Table 4		6.3%	6.4%
EPRA vacancy rate	Table 5		6.6%	8.0%
EPRA cost ratio (including direct vacancy cost)	Table 6		28.4%	39.6%
EPRA cost ratio (excluding direct vacancy cost)	Table 6		23.8%	36.6%
Table 2: EPRA income statement
			Year ended 31 March 2020	Year ended 31 March 2019
			£'000	£'000
Revenue			30,053	21,985
Less insurance recharged			(663)	(548)
Rental income			29,390	21,437
Property operating expenses			(3,930)	(3,407)
Add back insurance recharged			663	548
Gross profit			26,123	18,578
Administration expenses			(5,032)	(3,398)
Add back costs of postponed equity raise			376	-
Adjusted operating profit before interest and tax			21,467	15,180
Finance income			30	11
Finance expenses			(6,483)	(4,972)
Less change in fair value of interest rate derivatives			227	346
Less accelerated amortisation of loan issue costs			375	-
Adjusted profit before tax			15,616	10,565
Tax on adjusted profit			-	(5)
Adjusted earnings			15,616	10,560
Weighted average number of shares in issue (thousands)			240,051	166,000
Adjusted EPS (pence)			6.5	6.4
			Year ended 31 March 2020	Year ended 31 March 2019
			£'000	£'000
Adjusted earnings			15,616	10,560
Property and acquisition provision			-	(2,164)
Costs of postponed equity raise			(376)	-
EPRA earnings			15,240	8,396
Weighted average number of shares in issue (thousands)			240,051	166,000
EPRA EPS (pence)			6.3	5.1
EPRA earnings represents earnings from operational activities.  It is a key measure of the Group's underlying operating results and an indication of the extent to which current dividend payments are supported by earnings.
Table 3: EPRA balance sheet
			31 March 2020	31 March 2019
			£'000	£'000
Total properties1			450,520	307,385
Net borrowings2			(181,017)	(122,134)
Other net liabilities			(6,384)	(2,924)
IFRS NAV			263,119	182,327
Exclude: fair value of interest rate derivatives			(22)	(249)
EPRA net assets			263,097	182,078
Include: fair value of interest rate derivatives			22	249
EPRA triple net assets			263,119	182,327
Number of shares in issue (thousands)			240,254	166,000
IFRS NAV per share (pence)			109.5	109.8
EPRA NAV per share (pence)			109.5	109.7
EPRA NNNAV per share (pence)			109.5	109.8
Loan to value ratio3			40.2%	39.7%
1Professional valuation of investment property.
2Comprising interest-bearing loans and borrowings (excluding unamortised loan arrangement fees) of £186,500,000 (2019: £127,000,000) net of cash of £5,483,000 (2019: £4,866,000).
3Net borrowings divided by the aggregate fair value of properties.
EPRA NAV represents IFRS adjusted to exclude certain items not expected to crystallise in a long-term investment property business model. It provides stakeholders with the most relevant information on the fair value of the assets and liabilities within the Group given its long-term investment strategy. EPRA NNNAV is derived from EPRA NAV adjusted to include the fair values of (i) financial instruments, (ii) debt and (iii) deferred taxes where relevant. It makes adjustments to EPRA NAV to provide stakeholders with the most relevant information on the current fair value of all the assets and liabilities within the Group.
Table 4: EPRA net initial yield
			31 March 2020	31 March 2019
			£'000	£'000
Total properties per external valuers' report			450,520	307,385
Less development property and land			(16,970)	(3,200)
Net valuation of completed properties			433,550	304,185
Add estimated purchasers' costs4			29,481	20,685
Gross valuation of completed properties including estimated purchasers' costs (A)			463,031	324,870
Gross passing rents5 (annualised)			27,829	20,634
Less irrecoverable property costs5			(742)	(926)
Net annualised rents (B)			27,087	19,708
Add notional rent on expiry of rent-free periods or other lease incentives6			1,875	934
'Topped-up' net annualised rents (C)			28,962	20,642
EPRA NIY (B/A)			5.9%	6.1%
EPRA 'topped-up' net initial yield (C/A)			6.3%	6.4%
4Estimated purchasers' costs estimated at 6.8%.
5Gross passing rents and irrecoverable property costs assessed as at the balance sheet date for completed investment properties excluding development property and land.
6 Adjustment for unexpired lease incentives such as rent-free periods, discounted rent period and step rents. The adjustment includes the annualised cash rent that will apply at the expiry of the lease incentive. Rent-frees expire over a weighted average period of nine months.
EPRA NIY represents annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property, increased with (estimated) purchasers' costs. It is a comparable measure for portfolio valuations designed to make it easier for investors to judge themselves, how the valuation of portfolio X compares with portfolio Y. EPRA NNNIY incorporates an adjustment to the EPRA NIY in respect of the expiration of rent-free periods (or other unexpired lease incentives such as discounted rent periods and step rents). NIY as stated in the Investment Advisor's report calculates net initial yield on topped-up annualised rents but does not deduct non-irrecoverable property costs.
Table 5: EPRA vacancy rate
			31 March 2020	31 March 2019
			£'000	£'000
Annualised ERV of vacant premises (D)			2,201	2,004
Annualised ERV for the investment portfolio (E)			33,141	24,920
EPRA vacancy rate (D/E)			6.6%	8.0%
EPRA vacancy rate represents ERV of vacant space divided by ERV of the completed investment portfolio, excluding development property and land. It is a pure measure of investment property space that is vacant, based on ERV.
Table 6: Total cost ratio/EPRA cost ratio
			Year ended 31 March 2020	Year ended 31 March 2019
			£'000	£'000
Property operating expenses			3,930	3,407
Add back insurance recharged			(663)	(548)
Net property operating expenses			3,267	2,859
Administration expenses			5,032	3,398
Less cost of postponed equity raise			(376)	-
Less ground rents7			(110)	(50)
Total cost including direct vacancy cost (F)			7,813	6,207
Direct vacancy cost			(1,320)	(636)
Total cost excluding direct vacancy cost (G)			6,493	5,571
Rental income			29,390	21,437
Less ground rents paid			(507)	(302)
Gross rental income (H)			28,883	21,135
Less direct vacancy cost			(1,320)	(636)
Net rental income			27,563	20,499
Total cost including direct vacancy cost (F/H)			27.1%	29.4%
Total cost excluding direct vacancy cost (G/H)			22.5%	26.4%
			Year ended 31 March 2020	Year ended 31 March 2019
			£'000	£'000
Total cost including direct vacancy cost (F)			7,813	6,207
Cost of postponed equity raise			376	-
Property and acquisition provision			-	2,164
EPRA total cost (I)			8,189	8,371
Direct vacancy cost			(1,320)	(636)
EPRA total cost excluding direct vacancy cost (J)			6,869	7,735
EPRA cost ratio including direct vacancy cost (I/H)			28.4%	39.6%
EPRA cost ratio excluding direct vacancy cost (J/H)			23.8%	36.6%

⁷Ground rent expenses included within administration expenses such as depreciation of head lease assets

EPRA cost ratios represent administrative and operating costs (including and excluding costs of direct vacancy) divided by gross rental income. They are a key measure to enable meaningful measurement of the changes in the Group's operating costs.

It is the Group's policy not to capitalise overheads or operating expenses and no such costs were capitalised in either the year ended 31 March 2020 or the year ended 31 March 2019.

Table 7: Lease data
		Year 1	Year 2	Years 3-5	Year 5+			Head rents payable		Total
		£'000	£'000	£'000	£'000			£'000		£'000
Passing rent of leases expiring in:		2,876	3,098	11,127	11,310			(582)		27,829
ERV of leases expiring in:		5,662	3,135	12,173	12,833			(662)		33,141
Passing rent subject to review in:		9,820	5,619	11,797	1,175			(582)		27,829
ERV subject to review in:		13,178	5,660	13,754	1,211			(662)		33,141

WAULT to expiry is 5.2 years and to break is 4.0 years.

Table 8: Capital expenditure

			Year ended 31 March 2020	Year ended 31 March 2019
			£'000	£'000
Acquisitions			149,665	18,199
Development spend			238	297
Completed investment properties:
No incremental lettable space - like-for-like portfolio			2,942	1,546
No incremental lettable space - other			107	24
Tenant incentives			500	250
Total capital expenditure			153,452	20,316
Conversion from accruals to cash basis			(5,138)	2,778
Total capital expenditure on a cash basis			148,314	23,094

GLOSSARY

Adjusted earnings per share ("Adjusted EPS")

EPRA EPS adjusted to exclude one-off costs, divided by the weighted average number of shares in issue during the year

Admission

The admission of Warehouse REIT plc onto the London Stock Exchange on 20 September 2017

AGM

Annual General Meeting

AIC

The Association of Investment Companies

AIFM

Alternative Investment Fund Manager

AIFMD

Alternative Investment Fund Managers Directive

AIM

A market operated by the London Stock Exchange

Contracted rent

Gross annual rental income currently receivable on a property plus rent contracted from expiry of rent-free periods and uplifts agreed at the balance sheet date less any ground rents payable under head leases

Development property and land

Whole or a material part of an estate identified as having potential for development. Such assets are classified as development property and land until development is completed and they have the potential to be fully income generating

Effective occupancy

Total open market rental value of the units leased divided by total open market rental value excluding assets under development, units undergoing refurbishment and units under offer to let

EPRA

The European Public Real Estate Association, the industry body for European REITs

EPRA cost ratio

The sum of property expenses and administration expenses as a percentage of gross rental income calculated both including and excluding direct vacancy cost

EPRA earnings

IFRS profit after tax excluding movements relating to changes in fair value of investment properties, gains/losses on property disposals, changes in fair value of financial instruments and the related tax effects

EPRA earnings per share ("EPRA EPS")

A measure of EPS on EPRA earnings designed to present underlying earnings from core operating activities based on the weighted average number of shares in issue during the year

EPRA guidelines

The EPRA Best Practices Recommendations Guidelines October 2019

EPRA like-for-like rental income growth

The growth in rental income on properties owned throughout the current and previous year under review. This growth rate includes revenue recognition and lease accounting adjustments but excludes development property and land in either year and properties acquired or disposed of in either year

EPRA NAV

The value of net assets, adjusted to include properties and other investment interests at fair value and to exclude items not expected to be realised in a long-term property business, such as the fair value of any financial derivatives and deferred taxes on property valuation surpluses

EPRA net asset value per share ("EPRA NAV per share")

The NAV per share figure based on EPRA NAV divided by the number of shares outstanding at the balance sheet date

EPRA net initial yield ("EPRA NIY")

The annualised passing rent generated by the portfolio, less estimated non‑recoverable property operating expenses, expressed as a percentage of the portfolio valuation (adding notional purchasers' costs), excluding development property and land

EPRA 'topped-up' net initial yield

The annualised passing rent generated by the portfolio, topped up for contracted uplifts, less estimated non‑recoverable property operating expenses, expressed as a percentage of the portfolio valuation (adding notional purchasers' costs), excluding development property and land

EPRA vacancy rate

Total open market rental value of vacant units divided by total open market rental value of the portfolio excluding development property and land

EPS

Earnings per share

Equivalent yield

The weighted average rental income return expressed as a percentage of the investment property valuation, plus purchasers' costs, excluding development property and land

ERV

The estimated annual open market rental value of lettable space as assessed by the external valuer

FCA

Financial Conduct Authority

GAV

Gross asset value

Group

Warehouse REIT plc and its subsidiaries

IASB

International Accounting Standards Board

IFRS

International Financial Reporting Standards adopted by the European Union

IFRS earnings per share ("EPS")

IFRS earnings after tax for the year divided by the weighted average number of shares in issue during the year

IFRS NAV per share

IFRS net asset value divided by the number of shares outstanding at the balance sheet date

Investment portfolio

Completed buildings and excluding development property and land

IPO

Initial public offering

LIBOR

The basic rate of interest used in lending between banks on the London interbank market and also used as a reference for setting the interest rate on other loans

Like-for-like rental income growth

The increase in contracted rent of properties owned throughout the period under review, expressed as a percentage of the contracted rent at the start of the period, excluding development property and land and units undergoing refurbishment

Like-for-like valuation increase

The increase in the valuation of properties owned throughout the period under review, expressed as a percentage of the valuation at the start of the period, net of capital expenditure

Loan to value ratio ("LTV")

Gross debt less cash, short-term deposits and liquid investments, divided by the aggregate value of properties and investments

NAV

Net asset value

Net initial yield ("NIY")

Contracted rent at the balance sheet date, expressed as a percentage of the investment property valuation, plus purchasers' costs, excluding development property and land

Net rental income

Gross annual rental income receivable after deduction of ground rents and other net property outgoings including void costs and net service charge expenses

Net reversionary yield ("NRY")

The anticipated yield to which the net initial yield will rise (or fall) once the rent reaches the ERV

Occupancy

Total open market rental value of the units leased divided by total open market rental value excluding development property and land, equivalent to one minus the ERPA vacancy rate

Passing rent

Gross annual rental income currently receivable on a property as at the balance sheet date less any ground rents payable under head leases

Property income distribution ("PID")

Profits distributed to shareholders which are subject to tax in the hands of the shareholders as property income. PIDs are usually paid net of withholding tax (except for certain types of tax-exempt shareholders). REITs also pay out normal dividends called non-PIDs

RCF

Revolving credit facility

Real Estate Investment Trust ("REIT")

A listed property company which qualifies for, and has elected into, a tax regime which is exempt from corporation tax on profits from property rental income and UK capital gains on the sale of investment properties

RPI

Retail price index

Total accounting return

The movement in EPRA NAV over a period plus dividends paid in the period, expressed as a percentage of the EPRA NAV at the start of the period

Total cost ratio

EPRA cost ratio excluding one-off costs calculated both including and excluding vacant property costs

Weighted average unexpired lease term ("WAULT")

Average unexpired lease term to first break or expiry weighted by contracted rent across the portfolio, excluding development property and land

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

 

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