Half Year Results
02/12/2022 07:00
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RNS Number : 3526I Industrials REIT Limited 02 December 2022
INDUSTRIALS REIT LIMITED
(Registered in Guernsey with registration number 64865)
LSE share code: MLI JSE share code: MLI
ISIN: GG00BFWMR296
2 December 2022
SOLID HALF YEAR RESULTS UNDERPINNED BY STRONG rental demand
Industrials REIT Limited ('Industrials REIT' or the 'Company' and together
with its subsidiaries, the 'Group'), the specialist UK multi-let industrial
('MLI') property company, announces results for the six months to
30 September 2022.
Commenting on the results Paul Arenson, CEO of Industrials REIT, said: "Strong
occupier demand has continued to drive substantial rental uplifts across our
UK MLI portfolio over the first half of the year. Our assets remain highly
affordable and continue to attract an increasingly diverse range of businesses
and now comprise over 1,500 separate occupiers. In this period, the average
passing rent increased by a record 29% on new lettings and lease renewals. Our
Industrials Hive platform continues to deliver efficiencies. The Group is well
positioned to weather pressure on valuations and rising debt costs, given that
our group LTV remains low at 26.5% and Group debt is 90% hedged. We anticipate
that the current macroeconomic headwinds will see the investment market go
through a period of repricing and we look forward to being able to capitalise
on opportunities once the operating environment stabilises."
MLI Operational Highlights: Strong demand delivers record rental
growth/uplifts
- Demand for MLI space outstripping supply with the average passing
rent increasing by 29% on new lettings and lease renewals in the period, the
highest growth rate achieved to date
- Eight consecutive quarters of 20%+ average growth in rent at
lease renewal or upon new letting now recorded
- Industrials Hive, our operating platform, delivered operational
efficiencies across leasing, invoicing, and asset management and is a critical
tool which will enable scale opportunities
- 4.0% growth in like-for-like annual passing rent after adjusting
for one particular rent-free which expired in November 2022 (2021: 5.0%)
- 12.3% increase in like-for-like annual ERV (2021: 5.1%)
demonstrating the further potential for future rental growth
- Industrials.co.uk website users up 9.0% on a 12-month rolling
basis
- 197 letting transactions completed (2021: 119), with average
lease incentives given now less than 1 month rent-free on an average
4.5 year lease
- Further 49 leasing transactions on 187,627 sq ft of space
completed in October and November 2022, demonstrating the depth of demand for
MLI space (2021: 43 transactions)
- Occupancy of 92.8% reduced marginally (31 March 2022: 93.6%) as
a result of proactive steps taken to forfeit and replace non-performing
Covid-era tenancies
Financial Highlights: Solid results and a robust balance sheet
- Declared a covered interim dividend of 3.50 pence per share, up
3.7% on the prior year interim dividend of 3.375p per share
- Diluted IFRS loss per share of 7.18 pence (2021: 13.34 pence
profit) driven by like-for-like portfolio valuation decline of 4.5% (2021:
9.8% increase)
- 2.6% growth in adjusted EPS to 3.54 pence (2021: 3.45 pence)
- Diluted IFRS net asset value per share of £1.66 (31 March 2022:
£1.76(3)) and a 7.4% decrease in EPRA NTA per share to £1.62 (31 March 2022:
£1.75(3))
- Portfolio value decreased 4.3% to £656.5 million (31 March
2022: £685.8 million), reflecting yield softening in the period
- Low LTV of 26.5% with no refinancing until 2025
- 90% of Group debt at fixed rates or hedged against rising
interest rates until November 2024 (excluding the care homes joint venture
which is in a sale process)
- Total accounting return of -5.4% for the six-month period (2021:
+9.8%)
Statement of comprehensive income Six months ended Six months ended
30 September 2022 30 September 2021
Dividend per share 3.50p 3.375p
Diluted IFRS earnings per share(1) (7.18)p 13.34p
Adjusted earnings per share(1) 3.54p 3.45p
Diluted EPRA earnings per share(1) 3.38p 3.32p
Net rental income £18.7m £15.1m
Statement of financial position As at As at
30 September 2022 31 March 2022
Portfolio valuation (including share of care home joint venture) £656.5m £685.8m
Like-for-Like(2) portfolio valuation movement for period (4.5)% 19.4%
(6 months) (12 months)
Diluted IFRS NAV per share(3) £1.66 £1.76
EPRA NTA per share(3) £1.62 £1.75
Group Loan-to-value(4) 26.5% 25.6%
Total Accounting Return(5) (5.4)% 9.8% / 23.6%
(6 months) (6 months September 2021
/ 12 months to March 2022)
(1.) See note 5 for reconciliation to IFRS earnings per share.
(2.) Adjusted for sales and acquisitions in period.
(3.) See note 6 for reconciliation to IFRS NAV per share. The IFRS NAV per
share and EPRA NTA per share at 31 March 2022 were reported as £1.78 and
£1.77 respectively. As a result of a correction to the number of dilutive
shares, these metrics were amended to
£1.76 and £1.75 per share respectively and disclosed in an RNS statement
issued on 16 August 2022. Accordingly, although the financial statements have
not been restated due to materiality, all future reference to 31 March 2022
NAV metrics in this report will reflect the amended amounts.
(4.) Loan-to-value is the ratio of total borrowings, less unrestricted cash,
to the Group's aggregate market value of properties.
(5.) Total Accounting Return is the change in EPRA NTA per share plus
dividends paid, expressed as a percentage of EPRA NTA per share at the
beginning of the period. As disclosed in an RNS statement issued on 16
August 2022 this metric has been amended from 25.0% reported at year end.
For further information:
Industrials REIT Limited: +44(0)20 3918 6600
Paul Arenson (paul.arenson@industrials.co.uk)
Julian Carey (julian.carey@industrials.co.uk)
James Beaumont (james.beaumont@industrials.co.uk)
Numis Securities Limited (Financial Adviser): +44(0)20 7260 1000
Hugh Jonathan
Vicki Paine
FTI Consulting (PR Adviser): +44(0)20 3727 1000
Richard Sunderland
Richard Gotla
Neel Bose
Industrialsreit@fticonsulting.com
Java Capital (JSE sponsor): +27(0)11 722 3050
About Industrials REIT Limited:
Industrials REIT is a UK REIT with a primary listing on the London Stock
Exchange and a secondary listing on the Johannesburg Stock Exchange. The
objective of the Company is to deliver a combination of sustainable growing
income and growth in value to its investors. Industrials REIT focuses on
owning and operating a diversified portfolio of UK purpose built multi-let
industrial (MLI) estates across the UK. The Company aspires to be the leading
MLI business in the UK. For further information, go to
www.industrialsreit.com.
Operating and financial review
Overview
During the first half of the year the Company delivered adjusted earnings of
3.54p per share and we declared a covered interim dividend of 3.50p per share,
an increase of 0.7% on the final dividend of 3.475p per share declared in June
2022. We experienced record levels of letting activity over the first six
months of the year with strong demand from a depth of occupiers delivering
continued rental growth throughout the period and into the second half.
This income growth helped mitigate the impact of softening yields on
property valuations, which decreased by 4.5% on a like-for-like basis to
£656.5 million (31 March 2022: £685.8 million). Against the economic
turbulence which has continued to emerge over the period, our balance sheet
remains strong and our proactive and prudent approach to debt management is
evidenced by a low LTV of 26.5% and a low average cost of borrowing of 2.52%.
Furthermore, 90% of debt is hedged against rising interest rates until
November 2024 (excluding the care homes joint venture which is in a sale
process).
Record lettings and increasing rental levels
Despite the economic backdrop, we continued to experience strong demand from
an increasingly diverse range of occupiers during the first half. This led
to a period of record letting activity with an increase in the average passing
rent of 29% on the aggregate of all new lettings and lease renewals. We have
now experienced eight successive quarters of 20%+ uplift in this measure, a
level that is important as it allows us to deliver on our target annual rental
growth of 4%-5%, given our average lease length of approximately 4.5 years.
The six-month period saw us complete 64 new lettings and 133 lease renewals
across a total of 690,930 sq ft generating £4.7 million of new rental
income. This high level of operational activity has been supported by
efficiencies driven through the Industrials Hive platform ('the Hive') which
is discussed in more detail below. The average rental incentive given is now
below one month, with 65% of leases contracted through our short-form digital
'Smart Lease' and just under 80% of leases signed including at least a 3%
annual uplift in rent through the term of the lease. This inclusion results
in ratchets in revenue throughout the lease, rather than just at lease expiry
or rent review.
During the past six months, we have let or renewed a number of our biggest
units, meaning that on 30 September 2022 we had several large units enjoying
rent free periods. Like-for-like annual passing rents were up 4.0% when
adjusted for our largest rent-free period, in Ashby-de-la-Zouch, which expired
in November 2022. The like-for-like rental growth metric was reduced by a
small decrease in occupancy to 92.8%, down from the year end level of 93.6%.
This followed a strategic decision to actively forfeit and replace
non-performing tenancies from the Covid-era, with strong demand captured via
the Hive allowing us to replace these occupiers with new customers with more
sustainable business models, whilst also benefitting from reletting at higher
rents.
Rent collection rates are returning to normalised levels of c.98%, with 91% of
rents due for the period ended 30 September 2022 collected by 28 November 2022
and 97% of rents due for the financial year ended 31 March 2022. With rent
typically accounting for 1% and 3% of customer turnover, we believe that rents
remain affordable and rental growth can sustainably be absorbed by our
customers.
Industrials Hive driving future efficiency
The Hive has advanced considerably over the period with our new finance and
operations system (Microsoft Dynamics) going live at the start of the
financial year. This was followed in October by the conclusion of the
in-housing of facilities management so that all key operational roles are now
internally resourced. As a result, we are now vertically integrated across
leasing, transaction management, billing, facilities management, banking and
credit control, which brings opportunities for enhanced operational efficiency
and complete control of the customer relationship.
Our most longstanding internalised feature of the Hive has been within our
leasing function, where we have seen continued improvements in
efficiency. As at 30 September 2022, Industrials.co.uk website users were up
9.0% on a 12-month rolling basis as a result of continuous improvements to
advertising via social media, optimised search terms, and enhanced user
experience when navigating the site. As a result, our enquiry-to-lead
qualification conversion rates improved further to 12% on a rolling 12-month
basis, with 83% of qualified leads going on to take a viewing of which 26%
resulted in a new letting.
The Hive also delivers the people and processes to create 'the Industrials
way' of doing things. This differentiates how Industrials manages its MLI
estates and how we interact with and service our customers. We pride
ourselves on being responsive and communicative and consider a customer first
approach critical to success. We maintain a firm but fair approach to all
customer interactions and our decision making is data led, allowing us to be
both nimble and systematic. Each customer also has a dedicated customer
engagement manager who acts as a proactive link for resolving issues and
capturing opportunities.
The Hive is a critical tool which will enable us to scale our business. When
market conditions allow, we believe that we will be well placed to absorb and
manage additional properties/portfolios at a reducing cost, whether these be
our own or on behalf of 3(rd) parties in a joint venture arrangement.
A resilient business well positioned for future growth
The six-month period has seen further significant changes in the
macro-economic environment with increasing interest rates, high inflation, and
economic and political uncertainty. Against this backdrop, the occupational
market in the industrial sector has remained resilient, but the investment
market has come under pressure with yields beginning to move out.
Accordingly, we took an active decision to pause investment activity and over
the reporting period we acquired only £9 million of MLI assets, lower than
our previous target of £25 million per quarter on average.
The weakening investment market, combined with higher interest rates, led us
to take the strategic decision not to draw down on the £27 million loan
facility which we signed in May 2022. Asset pricing has not yet found its
projected level, which, combined with high interest costs, means that debt
does not enhance returns as it has done previously. Drawing expensive debt
speculatively whilst the market settles was deemed unnecessary when we already
benefit from an undrawn £25 million revolving credit facility, although
refinancing existing facilities to include currently unsecured assets remains
an option in the future.
Investment valuation yields are expected to continue to rise resulting in
further reductions in valuations. However, we carry confidence into the
second half of the year due to the quality of our estates, continued rental
growth driven by a strong occupier market, a low group LTV of 26.5%, and
unrestricted cash balances at 30 September 2022 of £21.7 million.
This hiatus in investment activity also provides an unexpected period in which
we can focus on consolidating operational efficiencies in the platform.
Accordingly, when we do re-enter the investment market, we expect that we will
have greater operational strength to capitalise on opportunities.
Making a difference to ESG
We are committed to our environmental, social and governance
responsibilities. As well as being important sources of employment and
wealth creation in their local communities, MLI assets are inherently geared
towards sustainability with long lifespans. This is because of their low
levels of obsolescence and ongoing capital expenditure, which materially
reduce their lifetime embodied carbon emissions. We continue to focus on
improvement works to enhance EPC compliance where regulations are tightening
over the coming years. By April 2023, all buildings in England and Wales
must have a minimum of an E EPC rating and by 2027 units will need to have a
minimum EPC rating of C to be relet. We are very much on target to reach the
2023 requirement with approximately 99.4% of our portfolio achieving a rating
of E or better.
We have various refurbishment options available to continue to improve the
portfolio's EPC ratings. One of the most effective methods is to install LED
lighting and remove old and inefficient heating equipment, which is both cost
efficient and likely to improve the EPC rating by two grades. Furthermore,
our portfolio benefits from only limited amounts of solar energy
installations, but we see this as a significant future revenue stream and
impactful method for improving the energy performance certification of the
entire portfolio. As a result, we remain confident that meeting future
energy performance requirements and our own aspirations for reducing our
carbon emissions is highly achievable across the portfolio.
We have recently completed an exercise to identify our carbon footprint
together with its constituent parts in terms of scope 1, 2 and 3 GHG
(Greenhouse Gas) emissions. As would be expected, 99.3% of emissions come
from downstream scope 3 activities, namely from our suppliers and customer
related activity on our estates. We are working proactively with our
sustainability partner to create a carbon reduction target under the SBTi
(Science Based Targets initiative) framework and identify pathways for
achieving this. We continue to incorporate sustainable business practises
into our operations, taking advantage of the opportunities that arise whilst
managing emerging risks. We look forward to providing an update on this
important area when we report our annual results in June 2023.
We held our first employee engagement sessions for the current financial year
under the direction of our designated non-executive director for employee
engagement, Patsy Watson. We chose to consult with employees on wellbeing. We
asked for feedback on our current employment practices and discussed various
proposed initiatives, formal and informal, put forward by employees and aimed
at improving their work/life balance and reducing stress and anxiety. We were
pleased to hear that all employees felt supported by their managers and that
they generally appreciated the culture of openness and transparency promoted
by the Board. We look forward to introducing some of the proposed initiatives
discussed in the new calendar year and will report further on these in our
2023 annual report.
We have also been busy supporting our charity partner of the year, The
Wellspring. The Wellspring helps the people of Stockport (where one of our
offices is located) who are homeless or at risk of losing their home and aims
to tackle the complex and individual challenges that face them. In October,
several of our Stockport team took part in the Wellspring's annual sponsored
sleepout and raised over £3,000, which the Company will match under our
matched-giving policy. We will continue our fundraising activities, which in
these challenging times are ever more important, and look forward to raising
more funds and raising the profile of this worthwhile charity.
Financial review
Earnings
For the six months to 30 September 2022, the basic loss attributable to
ordinary shareholders was £21.3 million (2021: £38.8 million profit),
equating to a loss of 7.18 pence per share on a diluted IFRS EPS basis (2021:
13.34 pence profit). This was driven by the fair value decrease on investment
properties of £36.4 million (2021: £30.6 million increase). The valuation
decrease reflects 33bps of outward yield shift, although the impact of this
was lessened by the continued income growth experienced by the MLI portfolio,
as shown by average rental uplifts on lease renewal or new letting rising to
new highs of 29% in the period. The IFRS result also includes a significant
fair value gain from interest rate hedges of £5.8 million (2021: £0.3
million) highlighting the increase in interest rates and volatility in
interest rate forward curves over the period.
Net rental income was £18.7 million, an increase of 24% on the comparative
period of £15.1 million. The increase was driven by a 21% rise in rental
income to £20.0 million (2021: £16.6 million), due mainly to the larger MLI
portfolio but also reflecting like-for-like rental growth of 4.0%, when
adjusted for our largest rent free, in Ashby-de-la-Zouch, which expired in
November 2022 (2021: 5.0%). Net provision for bad debts of £1.1 million was
made in the period reflecting a prudent approach to current provisioning due
to continued macro-economic pressures and uncertainty. This compares with just
£0.3 million for the same period last year, when the Group released
provisions made through the worst of the COVID trading period. The total
provision at 30 September 2022 for expected credit losses stood at £4.3
million (31 March 2022: £3.5 million).
Operating expenses for the half year were £6.6 million (2021: £5.6 million).
The additional £1.0 million was driven by a £0.4 million increase in staff
remuneration costs as employee numbers rose to 59 at 30 September 2022 (2021:
44) mostly due to the insourcing of our facilities management function; the
commencement of the amortisation charge associated with our finance and
operating platform of £0.4 million (the £3.9 million intangible asset will
be amortised over five years); and an increase in IT costs of £0.3 million as
product licences and managed service and support contracts commenced following
the go-live of our platform at the start of April 2022.
Finance costs were £2.7 million for the half year, increasing from £2.0
million a year earlier. The increase was driven by higher average debt in the
period, together with higher interest rates and the commitment fee associated
with the £25 million revolving credit facility, which was undrawn at 30
September 2022. The Group all-in contracted weighted average cost of debt
was 2.52% at the period end (31 March 2022: 2.16%), reflecting increased
interest rates over the full period and the purchase of an interest rate swap
in May 2022. Debt and hedging are discussed later in this report.
Adjusted earnings, after adding back costs and amortisation associated with
the finance and operating platform implementation, were
£10.5 million (2021: £10.0 million), reflecting an adjusted EPS of 3.54
pence (2021: 3.45 pence). EPRA earnings per share were 3.39 pence (2021:
3.33 pence). A reconciliation of the IFRS loss to EPRA earnings and adjusted
earnings can be seen in note 5 to the financial statements.
The EPRA cost ratio (including direct vacancy costs) includes all
administrative and operating expenses in the IFRS statements (including share
of joint ventures) and for the period ended 30 September 2022 was 39.2% (2021:
38.7%).
Dividends
The Company declared an interim dividend of 3.50 pence per share (2021: 3.375
pence per share), an increase on the final dividend declared in June 2022 of
3.475 pence per share. The dividend is fully covered by adjusted earnings of
3.54 pence per share. The directors intend to offer shareholders the option to
receive all or part of their dividend entitlement by way of a scrip issue of
Industrials REIT ordinary shares or in cash. A further announcement informing
shareholders of the salient dates and tax treatment will be released in due
course.
In respect of this dividend, given the Company's share price which stands at a
discount relative to net asset value, the directors will consider matching any
scrip scheme take up through the buyback of shares to mitigate the dilutive
effect that would otherwise occur from the issuance of Industrials REIT
treasury shares.
Net asset value
The IFRS diluted NAV per share was £1.66 at 30 September 2022 (31 March 2022:
£1.76). The decrease of 5.7% is driven by the like-for-like property
valuation decrease of 4.5%, or £30.5 million. At period end, the portfolio of
103 MLI properties was valued at £623.4 million (31 March 2022: £653.5
million), representing 95.0% of the total portfolio.
EPRA NTA per share at 30 September 2022 was £1.62, representing a 7.4%
decrease on the EPRA NTA per share of £1.75 at 31 March 2022. A
reconciliation of this change is shown in note 6 to the accounts. The decrease
in NTA since 31 March 2022, combined with the dividend paid of 3.475 pence,
resulted in a total accounting return for the six-month period of -5.4% (2021:
+9.8%).
Portfolio valuation
Including the Group's share of joint ventures, Industrials REIT's investment
properties were valued at £656.5 million at 30 September 2022
(31 March 2022: £685.8 million). On a like-for-like basis, excluding the
impact of additions and disposals in the period, the valuation of the
portfolio since 31 March 2022 decreased by 4.5%.
Combined portfolio Market value Portfolio by market value Property Area Annualised contracted gross rental income Net initial yield Voids by area
(including share of joint venture)
30 September 2022
(%)
(number)
(sq ft)
(£'000)
(weighted average)
(%)
(£'000)
(%)
Investment properties
UK multi-let industrials 623,431 95.0 103 7,114,607 41,004 5.8 7.2
Share of joint venture
German care homes 33,043 5.0 4 206,066 2,654 7.5 0.0
Total 656,474 100.0 107 7,322,673 43,658 5.9 7.0
United Kingdom MLI portfolio
The UK MLI portfolio was independently valued at £623.4 million. On a
like-for-like basis valuations decreased by £30.4 million, or -4.7%, over the
valuation at 31 March 2022. We calculate that yield softening over the period
accounts for -5.4% of like-for-like change with income growth in the period
offsetting this by 0.7%. Whilst cap rates are broadly expected to move out
further in the immediate future, we expect the MLI asset class to demonstrate
its resilience. Demand for MLI space continues to outstrip supply and we
anticipate continued rental growth will have a dampening effect on further
yield shift, and hence valuations.
In terms of investment activity, in July 2022 we disposed of Rose Kiln Court
in Reading for £5.9 million. The Reading property was a non-core asset
comprising 31,000 sq ft of hybrid office/industrial accommodation and the
disposal proceeds were recycled into MLI opportunities. Accordingly, we
acquired a further £8.5 million of MLI (net of purchase costs). All of the
completed acquisitions were additional terraces/units on or adjacent to
existing holdings.
Share of joint venture
The final non-MLI assets held in our portfolio, four German care homes held in
joint venture, were independently valued at €37.6 million. This reflects a
decrease of €1.5 million, or 3.8%, from the 31 March 2022 valuation.
However, due to weaker Sterling at the period end when compared with 31 March
2022, the Sterling valuation remained broadly unchanged at £33.0 million (31
March 2022: £33.1 million). In line with the Directors' objective to
dispose of the care home investment as soon as is practicable, the interest in
the joint venture is disclosed as a current asset in the statement of
financial position.
Debt and hedging
Total Group borrowings at 30 September 2022 were £196.9 million against
£196.2 million as at 31 March 2022. There were no new borrowings in the
period and the slight variance relates to amortisation and foreign exchange
movements on the joint venture debt. The Group loan to value ratio at 30
September 2022 was 26.5% (31 March 2022: 25.6%). The small increase reflects
the valuation decrease seen in the period, offset marginally by a small
increase in unrestricted cash to £23.0 million (31 March 2022: £20.7
million).
The £25 million revolving credit facility provided by NatWest and signed in
May 2022 was not utilised in the period and remains undrawn. The facility
expires in November 2025 and has a commitment fee of 1.13% and a margin of
2.25%.
Looking at the MLI debt of £180.4 million which is across three separate
facilities, the weighted average debt maturity stood at 3.7 years at 30
September 2022 compared with 4.2 years at 31 March 2022. The first contractual
loan maturity is not until February 2025 and comprises £49.9 million of debt
with Lloyds with whom we are in discussions to agree a two-year extension
option. The second facility of £64.0 million is with NatWest and has an
initial maturity in November 2025 with two additional one-year extension
options available to the Group. Our longest dated debt of £66.5 million
with Reassure matures in December 2027. Accordingly, we are looking to
mitigate all refinance risk until 2027, taking weighted average debt maturity
to approximately 5 years. Incorporating extensions is cost effective and
will provide both flexibility and further stability in the current uncertain
economic environment. The MLI all-in contracted weighted average cost of
debt was 2.58% (based on SONIA at 2.19%) compared with 2.19% at 31 March 2022,
reflecting the changing interest rate environment over the period.
As at 30 September 2022, 90% (31 March 2022: 76%) of total Group borrowings
were subject to fixed interest rates or protected by interest rate derivatives
in the form of caps or swaps. The increase in our hedged position reflects
the purchase of an interest rate swap in May 2022 on £27 million of debt at a
rate of 2.206%, expiring in November 2025. With our Group interest
commitments hedged at 90%, we are well protected against further rises in
interest rates and a 1% rise in rates would increase the weighted average cost
of debt by 0.10%.
Industrials REIT continues to enjoy strong covenant headroom. Across the
three MLI loan facilities, our LTV covenant requirements allow for a reduction
in values of approximately 50% and interest cover ratio covenants have
sufficient cover to cope with an average reduction in net rents of 67%.
Against a backdrop of increasing interest rates, recessionary pressures and
softening yields, our prudent debt management leaves us well placed to weather
the headwinds.
Subsequent events
Since the period end, a further 49 leasing transactions completed over 187,627
sq ft of space (2021: 43 transactions). The transactions included 79,401 sq
ft of lettings on previously vacant space, with 108,226 sq ft of lease
renewals. Demand for MLI space remains strong, with the number of qualified
leads registered in November 2022 at an all-time high.
Prospects
We have had a successful first half with solid earnings, continued occupier
demand and rental growth. Our balance sheet remains strong with low Group
leverage of 26.5%, no refinancings until 2025, and 90% of our interest rate
exposure hedged. Our platform is bedding down nicely, and now that we are
fully vertically integrated, we are starting to realise the efficiencies that
the Hive will deliver. We continue to proactively manage our estate and the
platform on which it is managed.
Whilst there are undoubtedly challenges to face in the immediate future, we
are well placed from both an operational and financial perspective. Against
this backdrop, we expect to deliver a total full year dividend of not less
than that declared last year.
The future continues to hold significant opportunities for our business. We
believe that the investment market will go through a period of repricing and
look forward to being able to capitalise on opportunities once the operating
environment stabilises. We are also exploring joint venture and third-party
management opportunities where we can add value from both our direct
experience and our platform. We are focused on maximising rental growth,
enhancing operational excellence, scaling the portfolio when the time is
right, and look forward to delivering value and growth opportunities for all
our stakeholders.
Principal risks and uncertainties
The principal risks and uncertainties facing the Company are described in the
2022 Annual Report on pages 52 to 57. The Board has continued its regular
review of risks during the period, including robust assessments of those risks
deemed most material to the Company and its business which are recorded as
principal risks, and the consideration of any emerging risks. The Board
considers that the principal risks detailed in the 2022 Annual Report remain
largely unchanged, although some have evolved as a result of economic
uncertainty in the UK. Certain risks have also evolved as a result of the
continuous development of the Hive and the in-housing of the facilities
management function. The Board's views on these risks are summarised below.
Economic outlook and political risk
High inflation, rising interest rates, the cost-of-living crisis and the
threat of a prolonged recession directly impact asset yields and valuations,
our cost-base and ability to raise capital and grow our portfolio. They may
also indirectly impact the Company via its customers. The Board is
continuously reviewing the risk environment, and, with this in mind, the
Company has paused its investment activities (although will consider
opportunities as they arise), taken steps to maintain a low LTV ratio, reduced
interest rate exposure by increasing hedging, not drawn down on an available
loan facility, and maintained appropriate cash balances.
Availability and cost of funding
Directly linked to the above risk, this is closely monitored by the Board. The
inability to raise adequate funding in the form of equity or debt finance
impacts the ability of the Company to deliver on its MLI acquisition targets
and scale its business. This risk has increased over the period; however, the
Board considers that it should not materially impact the Company's business in
the medium to long term. The Board is also actively investigating other growth
options as explained in the Prospects section of this report.
Poor performance of the Hive and excessive reliance on the technology platform
The Hive presents multiple opportunities and has already shown its ability to
increase efficiencies and operational performance. However, it is accompanied
by an increased risk to operations if it does not perform and has resulted in
increased reliance on technology partners. It is also crucial that our new ERP
system, including enhancements made to support the newly in-housed facilities
management team, delivers on its objectives. The Board is confident that
adequate controls exist to mitigate these risks and is closely monitoring
implementation and performance in these areas.
Information security and cyber threat
This risk increases as our reliance on, and use of, technology increases.
Significant emphasis is being placed on this risk by the Board with
appropriate investment made by our technology team in continuously improving
our controls and resilience to the ever-increasing external threats.
Major health and safety incident at an MLI site
The Board is closely monitoring compliance with health and safety requirements
following the in-housing of the facilities management function and is
confident that the Company is taking all relevant steps to mitigate the risks
of incidents.
All other principal risks included in the 2022 Annual Report have remained
stable in the period under review.
Statement of directors' responsibilities
Statement of going concern
At the date of approving these condensed consolidated interim financial
statements, the Group has positive operating cash flow forecasts and positive
net assets. Management have carefully assessed the impact of the market
uncertainties on the Group's net assets, liquidity and ability to continue as
a going concern for the foreseeable future.
A look-forward period of 18 months to March 2024 was used by management to
assess the going concern basis. Management tested the base-case forecast by
considering the downward impact of the macroeconomic environment on collection
rates, vacancy rate, inflation, interest rates and loan covenant sensitivity
assumptions on the cashflow model. Further disclosure is provided in note 1 of
the condensed consolidated interim financial statements. The test concluded
that even in this scenario the Group would have positive liquid assets and be
able to meet its obligations as they fall due.
In light of this review and the liquid assets held by the Group, management
are satisfied that the Group has access to adequate resources to continue in
operational existence for a period of at least 12 months from the date of
approval of these condensed consolidated financial statements.
The directors believe that it is therefore appropriate to prepare the accounts
on a going concern basis.
Statement of directors' responsibilities in respect of the interim report
The directors confirm that to the best of their knowledge:
i. the condensed set of consolidated financial statements has been
prepared in accordance with IAS 34 'Interim Financial Reporting';
ii. the operating and financial review together with the statement of
principal risks and uncertainties above include a fair review of the
information required by the Disclosure Guidance and Transparency Rules ('DTR')
4.2.7R, being an indication of important events that have occurred during the
first six months of the financial year, a description of principal risks and
uncertainties for the remaining six months of the year, and their impact on
the condensed set of consolidated interim financial statements; and
iii. the operating and financial review together with the condensed set of
consolidated interim financial statements include a fair review of the
information required by DTR 4.2.8R, being related party transactions that have
taken place in the first six months of the current financial year and that
have materially affected the financial position or performance of the Group
during that period, and any changes in the related party transactions
described in the last annual report that could do so.
The financial statements are published on the Company's website,
www.industrialsreit.com. A list of the current directors of Industrials REIT
can be found on the Company's website. Legislation in Guernsey governing the
preparation and dissemination of the interim financial statements may differ
from legislation in other jurisdictions.
Approved by the board on 1 December 2022:
Paul Arenson
Chief Executive Officer
James Beaumont
Chief Financial Officer
Independent review report to Industrials REIT Limited
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2022 is not prepared,
in all material respects, in accordance with International Accounting Standard
34, the Johannesburg Stock Exchange Listing Requirements and the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2022 which comprises the condensed consolidated statement of
comprehensive income, the condensed consolidated statement of financial
position, the condensed consolidated statement of changes in equity, the
condensed consolidated statement of cash flows and the related explanatory
notes.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with International Financial Reporting Standards
(IFRSs) as issued by the International Accounting Standards Board (IASB). The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34, "Interim Financial Reporting", the Johannesburg Stock Exchange Listing
Requirements, the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority and the Johannesburg Stock
Exchange Listing Requirements.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the Group
or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority and the
Johannesburg Stock Exchange Listings Requirements and for no other purpose.
No person is entitled to rely on this report unless such a person is a person
entitled to rely upon this report by virtue of and for the purpose of our
terms of engagement or has been expressly authorised to do so by our prior
written consent. Save as above, we do not accept responsibility for this
report to any other person or for any other purpose and we hereby expressly
disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
1 December 2022
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Condensed consolidated statement of
comprehensive income
For the 6 months to 30 September 2022
Note 30 September 30 September
2022 2021
(unaudited) (unaudited)
£'000 £'000
Continuing operations
Revenue 24,754 20,028
Expected credit losses (1,143) (294)
Property expenses (4,933) (4,601)
Net rental income 3 18,678 15,133
Management fee income - 18
Operating costs 4 (6,604) (5,589)
Net operating income 12,074 9,562
Fair value (loss)/gain on investment properties 8 (36,357) 32,999
Loss on disposal of property (230) -
Income from joint venture 9 326 784
Net foreign exchange (loss)/gain (50) 42
(Loss)/profit from operations (24,237) 43,387
Net gain from fair value of financial liabilities 5,800 304
Interest income 57 63
Finance costs (2,697) (1,975)
(Loss)/profit for the period before taxation (21,077) 41,779
Taxation - 32
(Loss)/profit for the period from continuing operations (21,077) 41,811
Discontinued operations
Loss for the period from discontinued operations 10 (182) (3,037)
(Loss)/profit for the period (21,259) 38,774
(Loss)/profit attributable to:
Equity holders (21,259) 38,774
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation reserve 784 421
Total comprehensive (loss)/income for the period (20,475) 39,195
Earnings per share Pence Pence
From continuing operations:
EPS 5 (7.12) 14.42
Diluted EPS 5 (7.12) 14.38
From continuing and discontinued operations:
EPS 5 (7.18) 13.37
Diluted EPS 5 (7.18) 13.34
The comparatives have been restated to reflect the change in classification of
current year discontinued operations to enable an effective like-for-like
comparison.
Condensed consolidated statement of
financial position
As at 30 September 2022
Note 30 September 31 March
2022 2022
(unaudited) (audited)
£'000 £'000
ASSETS
Non-current assets
Investment properties 8 620,564 645,082
Intangible assets 3,927 3,542
Leasehold improvements and equipment 295 -
Derivative financial instruments 13 7,763 1,864
Other debtors 12 - 6,543
Right of use assets 2,379 35
Total non-current assets 634,928 657,066
Current assets
Cash and cash equivalents 33,877 31,526
Trade and other receivables 12 15,364 12,159
Investment in joint venture 9 - 385
Investment in joint venture bond 9 15,829 14,883
Taxes receivable 70 -
Assets classified as held for sale 10 - 6,015
Total current assets 65,140 64,968
Total assets 700,068 722,034
LIABILITIES
Current liabilities
Taxes payable - 1,844
Accounts payable and accruals 24,443 19,549
Provisions 605 947
Lease liability 2,295 28
Total current liabilities 27,343 22,368
Non-current liabilities
Bank loans 11 177,558 177,823
Lease liability 163 7
Total non-current liabilities 177,721 177,830
Total liabilities 205,064 200,198
Net assets 495,004 521,836
EQUITY
Capital and reserves
Share capital and share premium 7 327,860 327,061
Equity Reserve (728) (3,784)
Retained earnings 147,781 179,252
Foreign currency translation reserve 20,091 19,307
Total equity 495,004 521,836
£ £
Net asset value per share 6 1.68 1.79
Diluted net asset value per share 6 1.66 1.78
Condensed consolidated statement of
changes in equity
For the 6 months to 30 September 2022
Foreign currency translation
Share capital and share premium reserve
£'000 Equity reserve Retained earnings £'000 Total equity
Note £'000 £'000 £'000
Balance at 31 March 2022 322,765 189 179,575 19,307 521,836
Treasury shares accounting policy change 1 4,296 (3,973) (323) - -
Adjusted equity at 1 April 2022 327,061 (3,784) 179,252 19.307 521,836
Profit for the period - - (21,259) - (21,259)
Foreign currency exchange loss - - - 784 784
Other comprehensive income for the - - - - -
period
Total comprehensive income for the - - (21,259) 784 (20,475)
period
Equity-settled share-based payments 48 906 - - 954
Repurchase of own shares - (254) - - (254)
Ordinary dividends 751 2,404 (10,212) - (7,057)
Total contributions and distribution recognised directly in equity 799 3,056 (10,212) - (6,357)
Balance at 30 September 2022 327,860 (728) 147,781 20,091 495,004
Balance at 1 April 2021 322,776 (10,058) 91,647 21,455 425,820
Treasury shares accounting policy change 1 1,718 (1,638) (80) - -
Adjusted equity at 1 April 2021 324,492 (11,696) 91,567 21,455 425,820
Profit for the period - - 38,774 - 38,774
Other comprehensive income for the - - - 421 421
period
Total comprehensive income for the year - - 38,774 421 39,195
Equity-settled share-based payments (227) 3,714 (15) - 3,472
Ordinary dividends 1,377 3,098 (9,722) - (5,247)
Total contributions and distribution recognised directly in equity 1,150 6,812 (9,737) - (1,775)
Balance at 30 September 2021 325,644 (4,884) 120,604 21,876 463,240
Consolidated statement of cash flows
For the 6 months to 30 September 2022
30 September 30 September
2022 2021
Note (unaudited) (unaudited)
£'000 £'000
Operating activities
(Loss)/profit from operations from continuing operations Loss from operations (24,237) 43,387
from discontinued operations
(216) (2,638)
(24,453) 40,749
Depreciation 4 116 145
Amortisation of intangibles 4 432 -
Decrease/(increase) in fair value of investment property 8 36,357 (30,579)
Loss on disposal of property 350 2
Income from joint venture 9 (326) (784)
Share based payments 4 697 734
(Profit)/loss on disposal of subsidiaries 10 (63) 2,350
Exchange rate loss/(gain) 55 (42)
Increase in trade and other receivables (3,123) (1,308)
Increase in trade and other payables 2,150 2,574
Cash generated by operations 12,192 13,841
Interest paid (2,125) (2,084)
Interest received 457 252
Net tax paid (468) (577)
Net cash from operating activities 10,056 11,432
Contributed by: Continuing operations 10,517 10,584
Discontinued operations (461) 848
Investing activities
Purchase of investment property 8 (8,986) (38,884)
Capital expenditure - Investment property 8 (2,853) (914)
Capital expenditure - ERP (273) (640)
Capital expenditure - Leasehold improvements and equipment (309) -
Proceeds on disposal of investment property, net of selling costs 5,665 26,520
Proceeds from Share Purchase Plan loan repaid 6,530 -
Tax paid on disposal of property - (1,186)
Other investment - Cash and short-maturity bonds on call - 1,000
Disposal of subsidiary - 24,790
Net cash disposed of in subsidiary - (433)
Net cash (used in)/from investing activities (226) 10,253
Contributed by: Continuing operations (226) (39,439)
Discontinued operations - 49,692
Financing activities
Repayment of borrowings 11 - (12,620)
Repayment of lease liabilities - capital (36) (175)
Amortisation of loans 11 - (32)
Dividends paid (5,414) (5,247)
Withholding tax on dividends paid (1,409) (576)
Repurchase of shares (254) -
Proceeds from issues of employee share options 209 2,738
Financing fees paid 11 (656) (174)
Net cash used in financing activities (7,560) (16,086)
Contributed by: Continuing operations (7,560) (7,934)
Discontinued operations - (8,152)
Net increase in cash and cash equivalents 2,270 5,599
Effect of foreign exchange gains 81 1,866
Cash and cash equivalents at beginning of the period 31,526 53,982
Cash and cash equivalents at end of the period 33,877 61,447
Contributed by: Continuing operations 23,606 53,395
Discontinued operations and assets held for sale 1,271 8,052
Funds totalling £10.9 million were restricted at 30 September 2022 (2021:
£5.1 million).
1 Basis of preparation
The annual financial statements of the Group are prepared in accordance with
International Financial Reporting Standards ('IFRS') as issued by the
International Accounting Standards Board ('IASB'). These unaudited condensed
consolidated interim financial statements for the six months ended 30
September 2022 have been prepared in accordance with IAS 34 'Interim Financial
Reporting', the JSE Listings Requirements, the Disclosure and Transparency
Rules of the UK's FCA, applicable Guernsey law and the financial reporting
pronouncements issued by the Financial Reporting Standards Council of South
Africa (the 'FRSC Pronouncements').
These condensed consolidated interim financial statements have been reviewed,
not audited. The auditor's review opinion is included in this report.
These condensed consolidated financial statements have been prepared by, and
are the responsibility of, the Directors of Industrials REIT.
The condensed consolidated financial statements are presented in GBP (Pounds
Sterling).
With the exception of the equity adjustments below, the accounting policies
and methods of computation are consistent with those applied in the
preparation of the annual financial statements for the year ended 31 March
2022, which were audited and reported on by the Group's external auditor. The
consolidated annual financial statements for the year ended 31 March 2022 are
available on the Company's website: Industrialsreit.com.
These condensed consolidated interim financial statements reflect the same
operating segments at 31 March 2022. The Directors have classified the
Guernsey, Germany (retail properties) and Switzerland operating segments as
discontinued operations in these condensed consolidated interim financial
statements in accordance with IFRS 5: Non-Current Assets Held for Sale and
Discontinued Operations. At 30 September 2021, the German (care homes) segment
was reported as a discontinued operation. In the current period this segment
is being reported as a continuing operation. Accordingly, prior periods in the
statement of comprehensive income, statement of cash flows and operating
segments note (note 2) have been restated to show the German (care homes)
segment as continuing operations. Further details can be found in note 10 -
Assets held for sale and discontinued operations.
Treasury shares
The equity reserve account combines the activities of the Company's treasury
shares, including the issue of scrip dividend shares, repurchase of share
capital, and equity-settled share-based payments. Where share capital is
repurchased into Treasury, the amount of the consideration paid, including
directly attributable costs, is recognised as a debit in the Equity Reserve.
Previously, distributions out of Treasury were recorded at the scrip dividend
reference price, for scrip dividends, or the grant date fair value for
equity-settled share-based payments. Under the prior treatment, the Treasury
account balance would never clear to nil once all treasury shares are
distributed. IFRS and Guernsey company law are silent on the treatment of
treasury share accounting, the Company has therefore developed its own
accounting policy based upon UK company law.
The new accounting policy states, where the proceeds from scrip dividends
settled from Treasury exceed the purchase price paid by the Company the excess
is treated as capital and transferred to the share premium account. Where
proceeds are less than the purchase price paid by the Company, the balance
will be transferred to retained earnings.
All treasury share distributions will be determined on a weighted average
price basis.
This change in accounting policy change has been enacted in the current
financial period with retrospective effect from 1 April 2021 and has had the
following effect on the financial statements:
Depreciation and amortisation
Depreciation and amortisation are charges to the statement of comprehensive
income that allocate an assets' cost across its expected useful life. The
Company uses the straight-line method to record depreciation and amortisation.
Depreciation and amortisation are recognised from when the asset is first
installed and ready for use. In the case of the Industrials Hive intangible
asset, amortisation began on 1 April 2022 over a five-year useful life.
Leasehold improvements and equipment are stated at historical cost less
accumulated depreciation and any accumulated impairment
losses. Historical cost is the original purchase price, plus costs to bring
the asset to a working condition for its intended use.
Going concern
At the date of signing these condensed consolidated financial statements, the
Group has positive operating cash flow forecasts and positive net assets.
Management have carefully assessed the impact of market uncertainties on the
Group's net assets, liquidity and ability to continue as a going concern for
the foreseeable future.
A look-forward period of 18 months to March 2024 has been used to assess the
going concern basis. Management stress tested the Company's ability to
continue as a going concern by considering the downward impact of the
macroeconomic environment on collection rates, vacancy rate, inflation,
interest rates and loan covenant sensitivity assumptions on the cashflow
model. In this scenario analysis:
· An 80% collection rate across the portfolio was considered for the
look forward period, due to the uncertainties of the macroeconomic environment
on the tenant base.
· 10% increase in direct property and management company costs, for
the look forward period (on top of 5% compounded inflation), resulting from
increased vacancies and/or rising costs.
· An assumed average 5 year rolling swap rate of 7.1% for the look
forward period.
The test concluded that even in this scenario the Group would have positive
liquid assets and be able to meet its obligations as they fall due.
Debt refinancing and sensitivities to loan covenants were assessed in detail,
as well as the Company's REIT obligations. Despite the
disruption to the economy, management do not expect the risk of default to
have increased. The projections indicate that the Group will remain within the
limits and not breach covenants. In addition, the Group maintains strong
relationships with its facility providers and currently has significant
headroom for both interest cover and LTV loan covenants. Notwithstanding this
assumption, the Group would have cash resources available, even after
considering the respective downside scenarios above, to be utilised to cure
covenant breaches if they crystallise and should the lenders take a hard
stance. It is further worth noting that the loans are not cross-
collateralised and accordingly if certain banks do act aggressively, the Group
would continue to operate with the remaining portfolio of assets if any
foreclosure events were to arise.
In light of this review and the significant liquid assets, management are
satisfied that the Group has access to adequate resources to continue in
operational existence for a period of at least 12 months from the date of
approval of these condensed consolidated financial statements.
The directors believe that it is therefore appropriate to prepare the accounts
on a going concern basis.
Adoption of new and revised standards
In the current period, no new or revised standards and interpretations have
been adopted. No other standards or interpretations not yet effective are
expected to have a material impact on these condensed consolidated financial
statements of the Group.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of condensed consolidated financial statements, in accordance
with IFRS, requires the use of certain critical accounting estimates. It also
requires management to exercise judgement in the process of applying the
Group's accounting policies. Although the estimates are based on management's
best knowledge of the amount, events or actions, actual results may ultimately
differ from those estimates. The key assumptions concerning the future, and
other key sources of estimation uncertainty at the end of the reporting
period, that have a risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next reporting period, are
discussed below.
Key sources of estimation uncertainty Valuation of the property portfolio
The Group's investment properties are stated at estimated fair value,
determined by directors, based on an independent external real
estate valuation expert. The valuation of the Group's property portfolio is
inherently subjective due to several factors including the individual nature
of each property, its location, expectation of future rentals and the discount
yield applied to those cash flows.
As a result, the valuations placed on the property portfolio are subject to a
degree of uncertainty and are made based on assumptions that may not prove to
be accurate, particularly in years of volatility or low transaction flow in
the market. The estimated market value may differ from the price at which the
Group's assets could be sold at a particular time, since actual selling prices
are negotiated between willing buyers and sellers. As a result, if the
assumptions prove to be different, actual results of operations and
realisation of net assets could differ from the estimates set forth in these
financial statements, and the difference could be significant. Further details
can be found in note 8.
2 Operating segments
The Group specialises in the ownership and operation of UK multi-let
industrial property. Historically the investment portfolio was geographically
distributed across the United Kingdom, Germany, Guernsey and Switzerland.
Apart from the Group segment, each segment derives its revenue from the rental
of investment properties in their respective geographical regions.
Continuing operations Discontinued operations
For the period ended 30 September 2022 (unaudited)
Total
£'000
UK
multi-let industrial
£'000 Germany ^ Group Guernsey Germany ^ Switzerland
£'000 £'000 £'000 £'000 £'000
Net rental income 18,631 - - - - - 18,631
Net rental income (other income) - - 47 - - - 47
Fair value movement on investment (36,357) - - - - - (36,357)
properties
Net gain from fair value of financial 5,800 - - - - - 5,800
liabilities
Loss on disposal of properties (230) - - - - - (230)
Income from joint venture - 326 - - - - 326
Net finance costs (2,745) - 105 - - - (2,640)
Tax, legal & professional fees (142) - (294) - - - (436)
Audit fees - - (179) - - - (179)
Administration fees (24) - (131) - - - (155)
Non-Executive Directors' costs - - (168) - - - (168)
Staff remuneration costs - - (2,857) - - - (2,857)
Operating costs (11) - (2,798) - - - (2,809)
Net foreign exchange loss - - (50) - - - (50)
Loss from discontinued operations - - - - (119) (63) (182)
Total (loss)/profit per reportable (15,078) 326 (6,325) - (119) (63) (21,259)
segment
As at 30 September 2022 (unaudited)
Investment properties 620,564 - - - - - 620,564
Investment in joint venture bond - 15,829 - - - - 15,829
Cash and cash equivalents 25,245 35 7,326 - 1,074 197 33,877
Other 22,374 - 7,045 - 329 50 29,798
Total assets 668,183 15,864 14,371 - 1,403 247 700,068
Borrowings - bank loans 177,558 - - - - - 177,558
Other 12,797 4 14,526 - 121 58 27,506
Total liabilities 190,355 4 14,526 - 121 58 205,064
Continuing operations Discontinued operations
For the period ended 30 September 2021 (unaudited)
Total
£'000
UK multi-let industrial
£'000 Germany ^ Group Guernsey Germany ^ Switzerland
£'000 £'000 £'000 £'000 £'000
Net rental income 15,097 - - - - - 15,097
Net rental income (other income) - - 36 - - - 36
Net management fee income - - 18 - - - 18
Fair value movement on investment 32,999 - - - - - 32,999
properties
Net gain/(loss) from fair value of financial 394 - (90) - - - 304
liabilities
Income from joint venture - 784 - - - - 784
Net finance costs (1,909) - (3) - - - (1,912)
Tax, legal and professional fees (252) - (26) - - - (278)
Audit fees - - (150) - - - (150)
Administration fees (17) - (177) - - - (194)
Non-Executive Directors' costs - - (140) - - - (140)
Staff remuneration costs - - (2,462) - - - (2,462)
Operating costs (1) - (2,364) - - - (2,365)
Net foreign exchange gain - - 42 - - - 42
Loss from discontinued operations - - - (666) (35) (2,336) (3,037)
Tax credit 32 - - - - - 32
Total profit/(loss) per reportable segment 46,343 784 (5,316) (666) (35) (2,336) 38,774
As at 30 September 2021 (unaudited)
Investment properties 529,027 - - - - - 529,027
Investment in joint venture - 195 - - - - 195
Investment in joint venture bonds - 14,818 - - - - 14,818
Cash and cash equivalents 46,443 195 6,757 5,563 2,300 - 61,258
Other 15,738 - 3,241 - 2,458 - 21,437
Assets classified as held for sale - - - - - 10,679 10,679
Total assets 591,208 15,208 9,998 5,563 4,758 10,679 637,414
Borrowings - bank loans 149,007 - - - - - 149,007
Other 15,636 3 3,346 395 189 - 19,569
Liabilities directly associated with assets
classified as held for sale - - - - - 5,598 5,598
(note 10)
Total liabilities 164,643 3 3,346 395 189 5,598 174,174
^ The German operating segment has been split between continuing and
discontinued operations. Due to the expected timeframe it will take to dispose
of the care homes joint venture, this cash generating operation is being
disclosed as a continuing operation. All other historic German property
operations have been listed as discontinued. This classification does not
change the Group's strategy to dispose of its ownership interest in the care
home's joint venture and will endeavour to complete the transaction as soon as
is practicable.
3 Net rental income
30 September 30 September
2022 2021
(unaudited) (unaudited)
£'000 £'000
Rental income 20,011 16,581
Tenant recharges 4,583 2,313
Other income 160 1,134
Revenue 24,754 20,028
Direct property costs (4,933) (4,601)
Expected credit losses (1,143) (294)
Property expenses (6,076) (4,895)
Total net rental income 18,678 15,133
4 Operating costs
30 September 30 September
2022 2021
(unaudited) (unaudited)
£'000 £'000
Tax, legal and professional fees 436 278
Audit fees 135 112
Interim review fees 44 38
Administration fees 155 194
Non-Executive Directors' costs 168 140
Staff remuneration costs 2,857 2,462
Share-based payments 697 734
ERP project expenses 47 385
Amortisation of ERP intangibles 432 -
Depreciation 116 145
Corporate costs 557 422
IT costs 759 429
Other operating costs 201 250
Total operating costs 6,604 5,589
Share-based payments of £697,000 (2021: £734,000) relate to the
equity-settled incentive schemes operated by the Group. As at
30 September 2022, the Group's equity reserve held £4.2 million (31 March
2022: £3.6 million) in relation to the schemes after the exercise of options
at fair value of £330,000 (2021: £156,000) during the period.
5 Earnings per ordinary share
30 September 30 September
2022 2021
(unaudited) (unaudited)
£'000 £'000
Reconciliation of profit for the period to adjusted EPRA(1) earnings
Earnings per IFRS statement of comprehensive income attributable to (21,259) 38,774
shareholders
Adjustment to exclude loss from discontinued operations 182 3,037
Earnings per IFRS statement of comprehensive income from continuing operations (21,077) 41,811
attributable to shareholders
Earnings per IFRS statement of comprehensive income attributable to (21,259) 38,774
shareholders
Adjustments to calculate EPRA earnings, exclude:
Loss/(gain) on fair value of investment properties 36,357 (30,597)
Gain on fair value of financial instruments, debt and associated close out (5,800) (304)
costs
Deferred tax in respect of EPRA adjustments - (1,719)
Loss/(gain) on disposal of properties 413 (22)
Tax expense on disposal of properties - 1,178
(Gain)/loss on disposal of subsidiaries (63) 2,350
Adjustments above in respect of the joint venture:
Loss on fair value of investment properties 668 30
Gain on fair value of financial instruments (221) (60)
Deferred tax in respect of EPRA adjustments (71) 14
EPRA earnings attributable to shareholders 10,024 9,644
Further adjustments to arrive at adjusted earnings:
Costs associated with ERP implementation and amortisation 478 385
Adjusted earnings attributable to shareholders(2) 10,502 10,029
Basic - weighted average number of shares in issue (excluding treasury shares) 295,895,259 290,002,149
Dilutive - potential ordinary shares (share-based payment awards) 589,652 689,549
Diluted number of shares 296,484,911 290,691,698
Earnings per share from continuing operations pence pence
IFRS EPS (7.12) 14.42
Diluted IFRS EPS(3) (7.12) 14.38
Earnings per share from continuing and discontinued operations pence pence
IFRS EPS (7.18) 13.37
Diluted IFRS EPS(3) (7.18) 13.34
EPRA EPS 3.39 3.33
Diluted EPRA EPS 3.38 3.32
Adjusted EPS 3.54 3.45
(1) The European Public Real Estate Association Best Practices Recommendations
guidelines, February 2022 ('EPRA BPR') provides guidelines for performance
measures relevant to real estate companies. Their recommended reporting
standards are widely applied across this market, aiming to bring consistency
and transparency to the sector. The EPRA earnings measure is intended to show
the level of recurring earnings from core operational activities with the
purpose of highlighting the Group's underlying operating results from its
property rental business and an indication of the extent to which current
dividend payments are supported by earnings. The measure excludes unrealised
changes in the value of investment properties, gains or losses on the disposal
of properties and other items to provide additional information on the Group's
underlying operational performance. The measure is considered to accurately
capture the long-term strategy of the Group and is an indication of the
sustainability of dividend payments.
(2) As described in EPRA BPR, companies wishing to make other adjustments to
arrive at an underlying performance measure appropriate to their business
model, should do that below 'EPRA earnings' and should use a different name
for that measure. 'Adjusted EPS' is a measure that excludes items considered
not to be in the ordinary course of business or other exceptional items that
do not necessarily provide an accurate picture of the Group's underlying
operational performance.
(3) In the current period, diluted IFRS EPS' are stated at their respective
IFRS EPS values due to the anti-dilutive effect an IFRS loss has on the
diluted number of shares.
As at 30 September 2022, the Company held 4,258,406 treasury shares (2021:
7,989,348 and 31 March 2022: 6,520,962).
Costs associated with ERP implementation and amortisation
Industrials REIT Limited has implemented a new enterprise resource planning
(ERP) platform encompassing finance and operations, and customer engagement
components to help streamline and grow the business. Significant non-recurring
costs were incurred, and the ERP implementation expense related to this
one-off project which went live on 1 April 2022. The costs of implementing
this project, as well as the associated amortisation expense, have been
adjusted for as a "company-specific adjustment".
Headline earnings per share
The JSE listings conditions require the calculation of headline earnings and
disclosure of a detailed reconciliation of headline earnings to the earnings
numbers used in the calculation of basic earnings per share in accordance with
the requirements of IAS 33 - Earnings per Share. Disclosure of headline
earnings is not a requirement of IFRS.
30 September 30 September
2022 2021
Reconciliation of profit for the period to headline earnings (unaudited) (unaudited)
£'000 £'000
Earnings per statement of comprehensive income attributable to shareholders (21,259) 38,774
Adjustments to calculate headline earnings, exclude:
Loss/(gain) on fair value of investment properties 36,357 (30,597)
Deferred tax in respect of headline earnings adjustments - (1,719)
Loss/(gain) on disposal of properties 413 (22)
Tax expense on disposal of properties - 1,178
(Gain)/loss on disposal of subsidiaries (63) 2,350
Adjustments above in respect of joint venture:
Loss on fair value of investment properties 668 30
Deferred tax (98) 4
Headline earnings attributable to shareholders 16,018 9,998
Earnings per share pence pence
Headline EPS 5.41 3.45
Diluted headline EPS 5.40 3.44
6 Net asset value metrics per share - reconciliations and bridge
EPRA's best practice recommendations are a set of guidelines for public real
estate companies which enable investors and other users of annual reports to
benefit from the transparency and consistency offered by standardised
reporting. EPRA recommends disclosing three measures of net asset value,
namely: EPRA net tangible assets (NTA), EPRA net reinvestment value (NRV) and
EPRA net disposal value (NDV).
Industrials REIT considers EPRA NTA to be the most relevant measure of the
three EPRA NAVs to report on and will act as the key net asset value measure.
The EPRA NTA metric is aligned with IFRS NAV in that it includes deferred tax
liabilities with regard to properties classified as held for sale. A
reconciliation of the three EPRA NAV metrics from IFRS NAV is shown in the
table below.
NAV EPRA NAV measures
IFRS EPRA NRV EPRA NTA EPRA NDV
As at 30 September 2022 (unaudited) £'000 £'000 £'000 £'000
Net assets attributable to equity shareholders 495,004 495,004 495,004 495,004
Adjustments:
Derivative financial instruments - (7,763) (7,763) -
Adjustments in respect of joint venture relating to - 1,317 1,317 -
derivative financial instruments and deferred tax(1)
Intangible assets - - (3,927) -
Purchaser's costs(2) - 42,384 - -
Fair value of fixed interest rate debt - - - 7,586
Net assets used in per share calculation 495,004 530,942 484,631 502,590
Number of shares in issue (excluding treasury shares)(3) 294,516,769 294,516,769 294,516,769 294,516,769
Share-based payment awards 3,778,881 3,778,881 3,778,881 3,778,881
Diluted number of shares 298,295,650 298,295,650 298,295,650 298,295,650
Net assets per share £ £ £ £
Net asset value per share 1.68 - - -
Diluted net asset value per share 1.66 1.78 1.62 1.68
NAV EPRA NAV measures
IFRS EPRA NRV EPRA NTA EPRA NDV
As at 31 March 2022 £'000 £'000 £'000 £'000
Net assets attributable to equity shareholders 521,836 521,836 521,836 521,836
Adjustments:
Derivative financial instruments - (1,864) (1,864) -
Adjustments above in respect of joint venture(1) - 1,557 1,557 -
Intangible assets - - (3,542) -
Purchaser's costs(2) - 44,125 - -
Net assets used in per share calculation 521,836 565,654 517,987 521,836
Number of shares in issue (excluding treasury shares)(3) 292,254,213 292,254,213 292,254,213 292,254,213
Share-based payment awards 1,181,961 1,181,961 1,181,961 1,181,961
Diluted number of shares 293,436,174 293,436,174 293,436,174 293,436,174
Net assets per share £ £ £ £
Net asset value per share 1.79 - - -
Diluted net asset value per share 1.78 1.93 1.77 1.78
(1) The fair value of the group's share of the joint venture's financial
instruments, as well as the deferred tax which has arisen from the revaluation
of the joint venture's investment properties and financial instruments, have
been excluded from EPRA NRV and EPRA NTA. The deferred tax was excluded on the
basis that the deferred tax will only crystallise on sale of the joint venture
(for NTA, this will be reassessed when the Company specifically recognises the
joint venture as held for sale).
2 EPRA NTA and EPRA NDV reflect IFRS values which are net of purchaser's
costs. Purchaser's costs include legal fees, stamp duty and land tax, and
other local taxes. Any purchaser's costs deducted from the market value, are
added back when calculating EPRA NRV.
(3) As at 30 September 2022, the Company held 4,258,406 treasury shares (31
March 2022: 6,520,962).
7 Share capital
Authorised
1,000,000,000 ordinary shares with a par value of €0.000001258 each:
30 September 31 March
2022 2022
Issued share capital (unaudited) (no. shares) (audited) (no. shares)
Opening balance 298,775,175 298,775,175
Closing number of shares in issue 298,775,175 298,775,175
Authorised share capital £'000 £'000
Share capital 1 1
Share premium 327,859 327,060
Total share capital and share premium 327,860 327,061
There were no changes made to the number of authorised shares of the Company
during the period under review. Industrials REIT Limited has one class of
share. All shares rank equally and are fully paid.
The Company has 298,775,175 (31 March 2022: 298,775,175) ordinary shares in
issue at the reporting date, including treasury shares.
On 10 June 2022, the Company announced a final dividend of 3.475 pence per
share in respect of the six months to 31 March 2022. On 11 August 2022, the
Company announced a take-up of the scrip dividend representing 0.71% of the
issued share capital and 2,134,779 shares were subsequently issued from
treasury shares on 12 August 2022.
As at 30 September 2022, the Company held 4,258,406 treasury shares (31 March
2022: 6,520,962). During the period, the shareholders were offered the option
to receive either a scrip dividend by way of an issue of Industrials REIT's
treasury shares, or a cash dividend.
The equity reserve account within equity combines the activities of the
Company's treasury shares, including the issue of scrip dividend shares
(detailed in the below table) as well as the equity-settled share-based
payments that are credited to equity. At
30 September 2022, the carrying value of the Company's treasury shares was
£4,880,000 (2021: £5,588,000) and the equity-settled share-based payments
reserve reduced this account by £4,152,000 (2021: £3,483,000).
Retained earnings is the cumulative net profit of the Group. Retained earnings
can either be paid out to shareholders as a dividend or be reinvested in the
Group as working capital.
30 September 31 March
2022 2022
Treasury shares (unaudited) (no. shares) (audited) (no. shares)
Opening balance 6,520,962 12,866,950
Issue of scrip dividend shares (2,134,779) (4,177,958)
Market buy-back of shares for the period (at an average price of £1.69 per 150,000 -
share)
Exercised shares from the Deferred Share Bonus Plan (52,346) (55,287)
Exercised shares from the Long-Term Incentive Plan (225,431) (112,743)
Exercised shares from the Other Share Purchase Plan - (2,000,000)
Closing number of treasury shares 4,258,406 6,520,962
8 Investment property
The consolidated market value of investment properties at 30 September 2022
was £623.4 million (31 March 2022: £653.5 million). This now comprises only
MLI properties. The carrying amount of the investment properties are stated at
estimated fair value, determined by the Directors, based on an independent
external appraisal. The registered independent appraisers have an appropriate
recognised professional qualification and recent experience in the location
and category of the property being valued ('valuers').
The fair value of each of the properties for the period ended 30 September
2022, was assessed by the valuers in accordance with the Royal Institution of
Chartered Surveyors ('RICS') standards and IFRS 13. Valuers are qualified for
purposes of providing valuations in accordance with the 'Appraisal and
Valuation Manual' published by RICS.
The valuation of the Group's property portfolio is inherently subjective due
to several factors including the individual nature of each property, its
location, expectation of future rentals and the discount yield applied to
those cash flows. As a result, the valuations placed on the property portfolio
are subject to a degree of uncertainty and are made based on assumptions that
may not prove to be accurate, particularly in years of volatility or low
transaction flow in the market. The estimated market value may differ from the
price at which the Group's assets could be sold at a particular time, since
actual selling prices are negotiated between willing buyers and sellers. As a
result, if the assumptions prove to be different, actual results of operations
and realisation of net assets could differ from the estimates set forth in
these financial statements, and the difference could be significant.
The valuations performed by the independent valuers are reviewed internally by
senior management. This includes discussions of the assumptions used by the
external valuers, as well as a review of the resulting valuations.
Discussions of the valuations process and results are held between the senior
management and the external valuers on a biannual basis. The Audit and Risk
Committee reviews the valuation results and, provided the Committee is
satisfied with the results, recommends them to the Board for approval.
The valuation techniques used are consistent with IFRS 13 and use significant
'unobservable' inputs. Investment properties are all at level 3 in the fair
value hierarchy and valuations represent the highest and best use of the
properties. There have been no changes in valuation techniques since the prior
year and no transfers between the fair value hierarchy levels in the current
or prior year.
There are interrelationships between all these unobservable inputs as they are
determined by market conditions. An increase in more than one unobservable
input would magnify the impact on the valuation. The impact on the valuation
would be mitigated by the interrelationship of two unobservable inputs moving
in opposite directions e.g. an increase in rent may be offset by an increase
in yield, resulting in no net impact on the valuation. Expected vacancy rates
may impact the yield with higher vacancy rates resulting in higher yield. All
revenue is derived from the underlying tenancies given on the investment
properties.
With the exception of five (31 March 2022: ten) recently acquired MLI
properties, all investment properties are mortgaged, details of which can be
seen in note 11. As at the date of signing this report, there are no
restrictions on the realisability of any of the underlying investment
properties, nor on the remittance of income and disposal proceeds.
The key unobservable inputs used in the valuation of the Group's investment
properties at reporting date are detailed in the table below:
30 September 2022 (unaudited) 31 March 2022 (audited)
Assets Total - Assets Total -
Investment held wholly Investment held wholly
property for sale owned property for sale owned
£'000 £'000 £'000 £'000 £'000 £'000
Opening balance 645,082 6,015 651,097 511,220 38,206 549,426
Acquisitions 8,986 - 8,986 102,705 - 102,705
Capitalised expenditure 2,844 9 2,853 3,796 102 3,898
Transfers to assets held for sale - - - (62,148) 62,148 -
Disposals - (6,015) (6,015) - (92,807) (92,807)
Net fair value (loss)/gain on investment properties (36,348) (9) (36,357) 89,509 (2,487) 87,022
Foreign exchange movement in foreign operations - - - - 853 853
Net carrying value 620,564 - 620,564 645,082 6,015 651,097
The market value of the Group's investment properties, as determined by the
Group's external valuer, differs from the carrying value presented in the
statement of financial position due to the Group presenting tenant lease
incentives separately and the portion of the joint venture the Group does not
own. The following table reconciles the net book value of the investment
properties to the market value.
30 September 2022 (unaudited) 31 March 2022 (audited)
Group (excl. joint venture) Group (excl. joint venture)
£'000 Joint venture Combined portfolio £'000 Joint venture Combined portfolio
£'000 £'000 £'000 £'000
Market value 623,431 33,043 656,474 653,475 33,099 686,574
Less: share of joint venture not owned (1) - - - - (814) (814)
Portfolio market value 623,431 33,043 656,474 653,475 32,285 685,760
Less: tenant lease incentives (2,867) - (2,867) (2,378) - (2,378)
Net carrying value total 620,564 33,043 653,607 651,097 32,285 683,382
(1) At 30 September 2022, the Group owns 100% (31 March 2022: 97.5%) of the
economic interest in its joint venture due to its 100% ownership in the bond
and negative net asset position of its 50% equity interest in the joint
venture. See note 9 for further information.
Market
value at Portfolio by Valuer's Valuer's Valuer's Valuer's
Combined portfolio 30 September market value ERV ERV net initial yield net initial yield (weighted average)
(including share of jointly controlled entities) 2022 (%) (range) (£/sq ft) (weighted average) (£/sq ft) (range) (%)
(£'000) (%)
Investment properties
UK multi-let industrial 623,431 95.0 % 2.75-11.51 6.12 (0.2)-8.0 % 5.6 %
Share of joint venture 33,043 5.0 % 9.05-17.69 12.71 5.6-10.3 % 6.9 %
Market value total 656,474 100.0 % - 6.29 - 5.6 %
Market value at Portfolio by Valuer's ERV (range) Valuer's Valuer's Valuer's
Combined portfolio 31 March 2022 market value (£/sq ft) ERV net initial yield net initial yield (weighted average)
(including share of jointly controlled entities) (£'000) (%) (weighted average) (£/sq ft) (range) (%)
(%)
Investment properties
UK multi-let industrial 647,460 94.4 % 2.7-11.5 6.4 1.4-8.0 % 5.3 %
Assets held for sale
Rose Kiln Court - Reading 6,015 0.9 % 22.3 22.3 9.3 % 9.3 %
Total - wholly owned 653,475 95.3 % - 6.5 - 5.3 %
Share of joint venture 32,285 4.7 % 8.1-15.7 12.3 5.3-9.4 % 6.4 %
Market value total 685,760 100.0 % - 6.9 - 5.4 %
9 Investment in joint venture
The Directors have held the investments in the care homes joint venture as a
current asset. In line with the Directors' desire to dispose of the care home
investments as soon as possible, the joint venture is disclosed as a current
asset as the Group expects to receive the proceeds on sale within the next 12
months. However, this investment is not classified as held for sale because it
is not highly probable that the sale of these assets is imminent.
Details of the Group's joint venture at the end of the reporting period are as
follows:
Place of % equity owned
Name incorporation Principal activity by subsidiary
Luxembourg incorporated entities with registered address:
231, Val des Bons Malades, L-2121 Luxembourg
Elysion S.A. Luxembourg Holding company 50.00%
Elysion Braunschweig S.a.r.l Luxembourg Property company 50.00%
Elysion Dessau S.a.r.l Luxembourg Property company 50.00%
Elysion Kappeln S.a.r.l Luxembourg Property company 50.00%
Elysion Winzlar S.a.r.l Luxembourg Property company 50.00%
Elysion S.A.
Industrials REIT Limited owns 100% of the shares and shareholder loans in
Bernina Property Holdings Limited ('Bernina'), the results and financial
position of which is included within these consolidated financial statements.
Bernina in turn owns 50% of the issued share capital and 100% of the bonds of
Elysion S.A., a company incorporated in Luxembourg which is the beneficial
owner of the Care Home portfolio. The remaining 50% of Elysion S.A. is owned
by a joint venture partner who manages the portfolio.
The acquired bonds have attracted, and continue to attract, a 10% compounded
interest rate since inception in 2007 and have limited recourse to compartment
assets within Elysion S.A., with the proceeds made available to subsidiaries
in the joint venture for real estate investment in Care Homes. All costs and
expenses incurred by the Elysion S.A. compartment are deducted or withheld
from any payment of principal or interest. The fair value has been determined
based on the net assets of the compartment which would be available to settle
the outstanding bond and which is intrinsically linked to the fair value of
the investment property. Further details on the estimates and assumptions used
in determining the fair value of investment property can be found in note 8.
Summarised consolidated financial information in respect of the Group's joint
venture is set out below. Where applicable, these represent the consolidated
results of the respective holding companies.
30 September 31 March
2022 2022
(unaudited) (audited)
£'000 £'000
Assets
Investment property 33,044 33,099
Fixed assets 30 30
Financial asset 390 -
Cash and cash equivalents 549 382
Current assets 14 52
Total assets 34,027 33,563
Liabilities
Bank loans (16,490) (16,183)
Bond (15,867) (14,883)
Deferred tax (1,512) (1,489)
Financial liability - (63)
Current liabilities (234) (175)
Total liabilities (34,103) (32,793)
Net assets of joint venture (76) 770
Group's investment in joint venture bond * 15,829 14,883
Group's share of joint venture's net assets * - 385
*The Group's share of losses in excess of the investment reduces the joint
venture bond.
30 September 31 March
2022 2022
(unaudited) (audited)
£'000 £'000
(Loss)/profit and total comprehensive (loss)/income from continuing operations
Revenue 1,285 2,470
Finance costs (904) (1,769)
Net fair value loss (1,150) (100)
Tax expense (88) (316)
(Loss)/profit and total comprehensive (loss)/income (857) 285
Group income from the joint venture represented by:
Share of joint venture (loss)/profit (428) 142
Interest income on joint venture bond 754 1,465
Net profit on joint venture bond - 100
Income from the joint venture 326 1,707
Reconciliation of the above summarised financial information to the carrying
amount of the interest recognised in the consolidated financial statements:
Investment in joint
venture
Bond Elysion S.A.
£'000
30 September 2022 (unaudited)
Elysion S.A.
£'000
Opening balance 14,884 384
Loss from joint venture - (428)
Interest income on bond 754 -
Investment receipts (387) -
Foreign exchange movement in foreign operations 617 5
Transfer of the Group's share of losses in excess of the investment (39) 39
Closing balance 15,829 -
Investment in joint ventures
Bond
Elysion S.A.
31 March 2022 (audited) £'000
Elysion S.A. Other Total
£'000 £'000 £'000
Opening balance 14,119 142 1 143
Income/(loss) from joint ventures - 242 (1) 241
Interest income on bond 1,465 - - -
Investment receipts (604) - - -
Foreign exchange movement in foreign operations (96) - - -
Closing balance 14,884 384 - 384
10 Assets held for sale and discontinued operations
At 30 September 2022, management consider no properties to meet the conditions
relating to assets held for sale, as per IFRS 5: Non- current Assets Held for
Sale and Discontinued Operations. At 31 March 2022, management considered the
property known as Rose Kiln Court in Reading, UK to meet the conditions
relating to assets held for sale, as per IFRS 5: Non-current Assets Held for
Sale and Discontinued Operations. The property was disposed of on 8 July 2022.
Non-current assets classified as held for sale are disclosed at their fair
value.
The fair value of the assets held for sale are disclosed in the table below:
30 September 31 March
2022 2022
Note (unaudited) (audited)
£'000 £'000
Investment properties 8 - 6,015
Assets classified as held for sale - 6,015
The Guernsey, German (retail) and Switzerland operating segments are
recognised as discontinued operations by the Group. The results of the
discontinued operations were as follows:
30 September 30 September
2022 2021
(unaudited) (unaudited)
£'000 £'000
Rental (loss)/income (14) 2,846
Tenant recharges 21 699
Other income - 15
Expected credit losses 1 (386)
Property expenses (1) (880)
Net rental income 7 2,294
Operating costs (161) (178)
Net operating (loss)/income (154) 2,116
Fair value loss on investment properties - (2,402)
Loss on disposal of properties (120) (2)
Profit/(loss) on disposal of subsidiaries 63 (2,350)
Net foreign exchange loss (5) -
Loss from operations (216) (2,638)
Finance costs - (362)
Loss for the year before taxation (216) (3,000)
Current tax 34 (1,232)
Deferred tax - 1,195
Loss for the year from discontinued operations (182) (3,037)
Disposals
On 8 July 2022, the Group disposed of its property, Rose Kiln Court, in
Reading, UK, held in GGP1 Limited for £5.88 million.
Prior year disposals
On 6 August 2021, the Group disposed of its property, Hermann Quartier
shopping centre, in Berlin, Germany, held in Stenprop Hermann Limited for
€30.8 million.
On 2 September 2021, the Group disposed of its 100% shareholding in LPE
Limited for a consideration which valued the property at
£55.0 million. LPE Limited owned the Guernsey property known as Trafalgar
Court. The property was disposed of as a subsidiary and is further disclosed
in note 25 in the 31 March 2022 annual report.
On 19 July 2018, the Group disposed of seven properties in Switzerland. As
part of the agreements entered into for the sale of these Swiss properties,
all of which were sold to the same buyer, Industrials REIT provided a
guarantee for obligations and liabilities of each of the selling entities. The
maximum amount of the guarantee is CHF6.0 million, which lasts until all
obligations under the sale agreements have been fulfilled, with a backstop
date of 31 July 2028. As at the date of signing these accounts, there had not
been any claim under the guarantee.
11 Borrowings
30 September 2022 (unaudited) 31 March 2022 (audited)
Assets held Total - wholly Assets held Total- wholly owned
Borrowings for sale owned Borrowings for sale £'000
£'000 £'000 £'000 £'000 £'000
Opening balance 177,823 - 177,823 181,144 13,883 195,027
New loans - - - 29,121 - 29,121
Repayment of borrowings - - - (4,496) (14,218) (18,714)
Bank loans associated with the disposal - - - - (27,959) (27,959)
of subsidiaries
Transfer of borrowings to assets held for - - - (27,929) 27,929 -
sale
Amortisation of loans - - - - (33) (33)
Capitalised borrowing costs (656) - (656) (791) - (791)
Amortisation of transaction fees 391 - 391 774 37 811
Foreign exchange movement in foreign - - - - 361 361
operations
Total borrowings 177,558 - 177,558 177,823 - 177,823
30 September 31 March
2022 2022
(unaudited) (audited)
£'000 £'000
Amount due for settlement within 12 months - -
Amount due for settlement between one to three years 49,420 49,318
Amount due for settlement between three to five years 62,597 63,052
Amount due for settlement after five years 65,541 65,453
Total borrowings 177,558 177,823
Non-current liabilities
Bank loans 177,558 177,823
Total non-current loans and borrowings 177,558 177,823
The terms and conditions of outstanding loans are as follows:
Nominal value Carrying value*
Amortising 30 September 31 March 30 September 31 March
Loan interest Maturity 2022 2022 2022 2022
Entity rate Currency date (unaudited) (audited) (unaudited) (audited)
£'000 £'000 £'000 £'000
United Kingdom - MLI
Industrials UK LP No 1.66 % GBP 3/12/2027 66,500 66,500 65,541 65,453
fixed
Industrials UK 4 Limited No SONIA + GBP 14/11/2025 64,000 64,000 62,797 63,052
1.92 %
Stenprop Industrials 6 Limited No SONIA + 1.75% GBP 3/02/2025 49,898 49,898 49,420 49,318
Industrials UK 4 Limited No SONIA + 2.25%
GBP 14/11/2025 - - (200) -
Total borrowings 180,398 180,398 177,558 177,823
* The difference between the nominal and the carrying value represents
unamortised facility costs.
The facilities amounting to £180.4 million are secured by legal charges over
the properties to which they correspond with a market value of £600.7
million. There is no cross-collateralisation of the facilities.
12 Trade and other receivables
30 September 31 March
2022 2022
Non-current receivables (unaudited) (audited)
£'000 £'000
Other debtors - 6,543
Total non-current receivables - 6,543
The non-current other debtors balance of £6.54 million at 31 March 2022
comprised a loan advanced under the Share Purchase Plan. This loan advanced
under the Share Purchase Plan was repaid in full during the period under
review.
30 September 31 March
2022 2022
(unaudited) (audited)
Current receivables £'000 £'000
Accounts receivable 13,525 8,761
Loss allowance on accounts receivables (3,924) (3,229)
Net receivables 9,601 5,532
Lease incentives 2,867 2,378
Loss allowance on lease incentives (375) (280)
Net lease incentives 2,492 2,098
Other receivables 2,126 3,854
Prepayments 1,145 675
Total current receivables 15,364 12,159
30 September 2022 (unaudited) 31 March 2022 (audited)
Accounts Loss Net Accounts Loss Net
Receivables Rate* Allowance Receivables Receivables Rate* Allowance Receivables
£'000 % £'000 £'000 £'000 % £'000 £'000
Not yet due - - % - - - - % - -
1-30 days overdue 7,072 12 % (425) 6,647 3,596 20 % (476) 3,120
31-60 days overdue 1,592 24 % (244) 1,348 702 38 % (180) 522
61-90 days overdue 212 31 % (65) 147 462 50 % (121) 342
91-120 days overdue 660 37 % (179) 481 864 59 % (339) 525
More than 120 days 3,989 89 % (3,011) 978 3,138 80 % (2,113) 1,025
overdue
Closing balance 13,525 - (3,924) 9,601 8,761 - (3,229) 5,535
*The actual loss allowance is based on the individual rates shown multiplied
by the net receivables, then reduced by tenant deposits. The Group applies the
IFRS 9 simplified approach to measuring expected credit losses using a
lifetime expected credit loss provision for trade receivables. To measure
expected credit losses on a collective basis, trade receivables are grouped
based on shared credit risk characteristics and the days overdue.
The expected loss rates on accounts receivables and lease incentives are based
on the Group's historical credit losses experienced over the current period.
The historical loss rates are then adjusted for current and forward-looking
information on macroeconomic factors affecting the Group's customers.
Book value approximates fair value.
The movement in loss allowances in respect of trade receivables and lease
incentives during the period was as follows:
30 September 31 March
2022 2022
Loss allowance reconciliation (unaudited) (audited)
£'000 £'000
Opening balance 3,509 2,311
Remeasurement of loss allowance 1,142 1,328
Bad debts written off (352) (130)
Closing balance 4,299 3,509
13 Derivative financial instruments
In accordance with the terms of the borrowing arrangements and Group policy,
the Group has entered into interest rate swap agreements which are entered
into by the borrowing entities to convert the borrowings from floating to
fixed interest rates and are used to manage the interest rate profile of
financial liabilities and eliminate future exposure to interest rate
fluctuations. It is the Group's policy that no economic trading in derivatives
is undertaken by the Group. The Group uses forward foreign exchange contracts
to mitigate exchange rate exposure arising from forecast sales in euros (EUR).
The Group's policy is to hedge 100% of net foreign exchange exposure when a
disposal contract has been signed. In the current year, the Group recognised a
total net gain in fair value of financial instruments from continuing and
discontinuing operations of £5,800,000 (2021: £304,000) and nil (2022: nil)
respectively.
The following table sets out the interest rate swap agreements at 30 September
2022 and 31 March 2022.
Notional Notional
value 30 September Fair value 30 September value 31 March Fair value 31 March
Effective Maturity Swap rate % 2022 2022 2022 2022
Entity date date £'000 £'000 £'000 £'000
Continuing operations
UK - MLI
Industrials UK 4 Limited 29/09/2021 14/11/2024 0.81% 24,000 2,144 24,000 727
Industrials UK 4 Limited 19/05/2022 14/11/2025 2.21% 27,000 2,269 - -
Stenprop Industrials 6 Limited 22/12/2020 01/02/2024 0.50% 42,413 2,583 42,413 1,137
Stenprop Industrials 6 Limited 01/02/2024 31/01/2025 3.45% 42,413 767 - -
Total swaps 135,826 7,763 66,413 1,864
Assets maturing within 12 months - -
Liabilities maturing within 12 months - -
Assets maturing after 12 months 7,763 1,864
Liabilities maturing after 12 months - -
Derivative financial instruments - on the statement of financial position 7,763 1,864
Swaps included in investment in joint ventures
Elysion Braunschweig S.à r.l. 29/03/2018 29/12/2023 0.52% 5,149 105 4,952 (13)
Elysion Dessau S.à r.l. 29/03/2018 29/12/2023 0.52% 5,094 105 4,899 (12)
Elysion Kappeln S.à r.l. 31/12/2018 29/12/2023 0.63% 5,517 110 5,306 (23)
Elysion Winzlar S.à r.l. 31/12/2018 29/12/2023 0.63% 3,531 70 3,395 (15)
Derivative financial instruments - joint ventures 19,291 390 18,552 (63)
14 Contingent Liability
Share Purchase Plan
The Share Purchase Plan (SPP) was a Long-Term Incentive Plan operated by the
Company between 2015 and 2017, pursuant to which loans were issued to certain
participants (including associates of directors) for the purpose of acquiring
shares at market value in the Company. All the SPP loans have been repaid in
full by all participants. HMRC considers that a liability arose under Part 7A
of ITEPA and has issued protective determinations under Regulation 80 of the
Income Tax Regulations 2003 and claims to protect Class 1 NICs in respect of
the tax years 2015/16, 2016/17 and 2017/18 in the total amount of £6.2
million. The Company has filed protective appeals against these determinations
and claims as the directors, having taken advice from the Company's specialist
tax advisers and leading tax Counsel consider that no liability should arise
under Part 7A. Accordingly, no provision has been made in the interim
accounts. The Company and its advisers are seeking to resolve the matter
with HMRC.
15 Financial risk management
The fair value measurement for the Group's financial assets and financial
liabilities are categorised into different levels in the fair value hierarchy.
The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Group can access at the measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e., as prices) or
indirectly (i.e. derived from prices). The fair values of the Group's secured
loan facilities and derivative financial instruments are included in Level 2.
Level 3: unobservable inputs for the asset or liability. The fair value of the
Group's investment properties is included in Level 3. Valuations represent the
highest and best use of the properties.
The Group recognises transfers between levels of the fair value hierarchy as
of the end of the reporting period during which the transfer has occurred.
There were no transfers between levels for the period ended 30 September 2022.
With the exemption of the fixed interest rate debt, disclosed under the EPRA
NDV calculation in note 6, the fair value of all other financial assets and
liabilities is not materially different from their carrying value in the
financial statements.
The Group's financial risk management objectives and policies are consistent
with those disclosed in the audited consolidated financial statements for the
year ended 31 March 2022.
16 Related party transactions
Parties are considered related if one party has control, joint control or
significant influence over the other party in making financial and operating
decisions. Transactions with related parties are made on terms equivalent to
those that prevail in an arm's-length transaction. There have been no material
changes in the related party transactions described in the Annual Report for
the year ended 31 March 2022. Transactions with key management personnel are
materially consistent with those described in note 8 of the 2022 Annual
Report, including details of the bonuses approved on 8 June 2022 in respect of
the year ended 31 March 2022.
During the period under review the loan provided to an associate of a director
to purchase Industrials REIT shares under the Share Purchase Plan was repaid
in full. Further details of this plan can be found in note 12.
Information regarding the transactions and balances with joint venture parties
can be found in note 18 of the 2022 Annual Report. There are no other related
party transactions that occurred during the period under review.
Ultimate controlling party
The directors do not consider there to be an ultimate controlling party.
17 Events after the reporting period
(i) Declaration of dividend
On 1 December 2022, the directors declared an interim dividend of 3.50 pence
per share (2021: 3.375 pence per share). The directors intend to offer
shareholders the option to receive all or part of their dividend entitlement
by way of a scrip issue of Industrials REIT treasury shares or in cash. An
announcement containing details of the dividend, the timetable and the scrip
dividend terms is anticipated to be made on 15 December 2022. It is expected
that shares will commence trading ex-dividend on 18 January 2023 on the JSE
and on 19 January 2023 on the LSE. The record date for the dividend is
expected to be 20 January 2023 and the dividend payment date,
10 February 2023.
(ii) Adjusting events
Industrials REIT has identified no adjusting events at the date of signing
these consolidated financial statements.
Alternative performance measures - unaudited
Industrial REIT's financial statements are prepared under IFRS. Management
considers several alternative performance measures ('APMs') important to
improve the transparency and relevance of our published results, as well as
the comparability of our results with other listed real estate companies. APMs
do not have a standardised meaning under IFRS and therefore may not be
comparable to similar measures presented by other companies. These additional
disclosures do not fall into scope of the auditor's review.
EPRA performance measures
Alternative Performance Measures used by Industrial REIT include those defined
by The European Public Real Estate Association ('EPRA'). EPRA provides
guidelines and recommended reporting standards which aim to bring consistency
and transparency to the European real estate sector, and which are widely
applied across this market. In February 2022, EPRA issued updated best
practice guidelines which are effective for accounting periods starting on or
after 1 January 2022, introducing the EPRA LTV ('loan-to-value') to
standardise the way real estate companies report their LTV.
The EPRA earnings measure is intended to show the level of recurring earnings
from core operational activities with the purpose of highlighting the Group's
underlying operating results from its property rental business and provide an
indication of the extent to which current dividend payments are supported by
earnings. The measure excludes unrealised changes in the value of investment
properties, gains, or losses on the disposal of properties and other items to
provide additional information on the Group's underlying operational
performance. The measure is considered to accurately capture the long-term
strategy of the Group and is an indication of the sustainability of dividend
payments.
The table below summarises the Group's EPRA performance indicators, as well as
the nearest IFRS measure where applicable, and a reference to where in these
results further explanation and/or reconciliation can be found.
Nearest IFRS measure Reference in document 30 September 31 March
EPRA performance measure 2022 2022
(unaudited) (unaudited)
EPRA cost ratio (excluding direct vacancy costs) N/A N/A 33.3% 35.7%
(34.2% at
30 September
2021)
EPRA cost ratio (including direct vacancy costs) N/A Operating and 39.2% 40.9%
Key measure to enable meaningful measurement of the changes financial review (38.7% at
in a company's operating costs. 30 September
2021)
EPRA earnings Earnings Note 5 £10.02 million £18.45 million
A key measure of a company's underlying operating results and (£9.64 million
an indication of the extent to which current dividend payments at
are supported by earnings. 30 September
2021)
EPRA earnings per share IFRS EPS Note 5 3.39p 6.32p
(3.33p at 30 September
2021)
EPRA earnings per share (diluted) Diluted IFRS EPS Operating and financial review and note 5 3.38p 6.30p
(3.32p at
30 September
2021)
EPRA net disposal value per share Diluted net assets per share Note 6 £1.68 £1.78
NAV measure that assumes assets are sold and/or liabilities are not held until
maturity. Deferred tax, financial instruments and certain other adjustments
are calculated as to the full extent of their liability, including tax
exposure not reflected in the statement of financial position.
EPRA net reinstatement value per share Diluted net assets per share Note 6 £1.78 £1.93
NAV measure to highlight the value of net assets on a long-term basis. Fair
value movements on financial derivatives and deferred taxes are excluded.
EPRA net tangible assets per share Diluted net assets per share Operating and financial review and note 6 £1.62 £1.77
NAV measure that assumes entities buy and sell assets, thereby crystallising
certain levels of deferred tax liability, which is included.
EPRA NIY N/A N/A 5.6% 5.0%
Annualised rental income based on the cash rents passing at the reporting (5.7% at
date, less non-recoverable property operating expenses, expressed as a
percentage of the market value of property. 30 September
2021)
EPRA "topped up" NIY N/A N/A 6.0% 5.3%
(5.9% at
30 September
2021)
EPRA Like-for-like rental income growth N/A N/A 6.0% 6.0%
This measure illustrates the change in comparable income (4.9% at
values. 30 September
2021)
EPRA LTV N/A N/A 24.9% 24.7%
Loan-to-value ratio expressed as a proportion of net debt over total property
value in accordance with EPRA guidelines.
EPRA vacancy rate N/A N/A 7.3% 5.8%
A 'pure' (%) measure of investment property space that is (5.5% at
vacant, based on estimated market rental value (ERV). 30 September
2021)
Like-for-like valuation (loss)/growth N/A Operating and (4.5)% 19.4%
This measure illustrates the change in comparable property financial review (7.5% at
market values. 30 September
2021)
Reversion - UK MLI N/A N/A 19.7% 13.2%
The difference between passing rent and ERV. The increase or (11.1% at
decrease of rent arises on rent reviews and letting of vacant 30 September
space or re-letting of expiries. Only figures relating to the UK MLI 2021)
business are available for this reporting period. In future periods
this should increase to the whole Group.
Supplementary calculations not included elsewhere in the unaudited financial statements
EPRA cost ratio
30 September 30 September
2022 2021
EPRA cost ratio (unaudited) (unaudited)
£'000 £'000
Operating costs per IFRS statement of comprehensive income (including 6,765 5,767
discontinued operations)
Property expenses net of tenant recharges 1,472 3,149
Other income (159) (1,149)
Above items in respect of share of joint venture 258 217
Costs (including direct vacancy costs) (A) 8,336 7,984
Direct vacancy costs (1,253) (914)
Costs (excluding direct vacancy costs) (B) 7,083 7,070
Gross rental income - per IFRS (including discontinued operations) 19,997 19,427
Add: share of joint venture (gross rental income) 1,285 1,220
Gross rental income (C) 21,282 20,647
EPRA cost ratio (including direct vacancy costs) (A/C) 39.2% 38.7%
EPRA cost ratio (excluding direct vacancy costs) (B/C) 33.3% 34.2%
Property related capital expenditure (capex)
No costs directly attributable to overhead and operations that would normally
be classified as overhead or administrative costs were capitalised by the
Group during the year (2022: nil). The Group does not typically have
significant assets under development and does not have a policy of
capitalising any overhead and operating expenses.
Group (excl. Joint venture) £'000 Joint venture Total Group
30 September 2022 (unaudited) (pro-rated) £'000
£'000
Acquisitions(1) 8,986 - 8,986
Development(2) 815 - 815
Investment properties(3)
Incremental lettable space - - -
No incremental lettable space 2,038 - 2,038
Tenant incentives - - -
Other material non-allocated types of expenditure - - -
Capitalised interest - - -
Total capital expenditure 11,839 - 11,839
Conversion from accrual to cash basis - - -
Total capital expenditure on cash basis 11,839 - 11,839
(1) Amounts spent on the purchase of investment properties (including any
capitalised transaction costs).
(2) Amounts spent on investment properties under construction and related
development projects (including any internal costs capitalised).
(3) Amounts spent on the operational investment property portfolio.
Group (excl. Joint venture
30 September 2021 (unaudited) Joint venture) (pro-rated) Total Group
£'000 £'000 £'000
Acquisitions(1) 38,884 - 38,884
Development(2) - - -
Investment properties(3)
Incremental lettable space - - -
No incremental lettable space 2,074 - 2,074
Tenant incentives - - -
Other material non-allocated types of expenditure - - -
Capitalised interest - - -
Total capital expenditure 40,958 - 40,958
Conversion from accrual to cash basis (1,160) - (1,160)
Total capital expenditure on cash basis 39,798 - 39,798
(1) Amounts spent on the purchase of investment properties (including any
capitalised transaction costs).
(2) Amounts spent on investment properties under construction and related
development projects (including any internal costs capitalised).
(3) Amounts spent on the operational investment property portfolio.
EPRA Like-for-like rental income growth (%)
30 September 30 September
2022 2021
Annualised gross rental income(1) (unaudited) (unaudited) Change Change
(£m) (£m) (£m) (%)
UK multi-let industrial(2) 36.5 34.4 2.1 6.1%
Share of joint venture(3) 2.7 2.5 0.1 5.2%
Total like-for-like 39.2 36.9 2.2 6.0%
Disposals - 0.7
Acquisitions 4.6 -
Total 43.8 37.6
(1) Gross annual rental income generated by properties that were held by the
Group for the year. There is one property undergoing significant development
at 30 September 2022. The size of the portfolio, in value, on which the change
in comparable income values is based is detailed in note 8.
(2) Like-for-like rental growth for the UK multi-let industrial portfolio,
based on passing rent is 2.7% (2021: 5.0%) with the difference being due to
rent free periods and fixed uplifts.
(3) A standardised rate has been used to translate the portfolio and remove
any foreign exchange impact.
EPRA vacancy rate by ERV
30 September 31 March
2022 2022
(unaudited) (unaudited)
(£m) (£m)
Estimated rental value of vacant space (A) 3.6 2.8
Estimated rental value of the whole portfolio (B) 49.4 48.1
EPRA vacancy rate by ERV (A/B) 7.3% 5.8%
EPRA NIY and "topped-up" NIY disclosure
UK multi-let
30 September 2022 (unaudited) industrial Joint venture Total (£m)
(£m) (£m)
Market value 623.4 33.0 656.5
Less: developments (1.6) - (1.6)
Add: estimated purchaser's costs 42.4 2.6 45.0
Gross up completed property portfolio valuation (B) 664.2 35.7 699.8
Annualised current passing rental income 38.2 2.7 40.9
Non-recoverable property operating expenses (1.8) (0.1) (2.0)
Annualised net rents (A) 36.4 2.5 38.9
EPRA NIY (A/B) 5.5% 7.1% 5.6%
Add: rent free periods and fixed uplifts 2.8 - 2.8
Topped-up net annualised rent (C) 39.2 2.5 41.7
EPRA "topped-up" NIY (C/B) 5.9% 7.1% 6.0%
UK multi-let
31 March 2022 (audited) industrial Joint venture Total (£m)
(£m) (£m)
Market value 653.5 32.3 685.8
Estimated purchaser's costs 44.0 2.6 46.6
Gross up completed property portfolio valuation (B) 697.5 34.9 732.3
Annualised current passing rental income 38.2 2.5 40.7
Non-recoverable property operating expenses (3.9) (0.1) (4.1)
Annualised net rents (A) 34.3 2.4 36.6
EPRA NIY (A/B) 4.9% 6.7% 5.0%
Add: rent free periods and fixed uplifts 2.1 - 2.1
Topped-up net annualised rent (C) 36.4 2.4 38.7
EPRA "topped-up" NIY (C/B) 5.2% 6.7% 5.3%
EPRA LTV
Group
operations Joint venture
30 September 2022 (unaudited) ex. JVs (£m) (£m) Total (£m)
Borrowings from financial institutions 180.4 8.2 188.6
Bond loans - 7.9 7.9
Foreign currency derivatives (7.8) - (7.8)
Net payables 9.7 (0.1) 9.6
Less: cash and cash equivalents (33.9) (0.3) (34.2)
Net debt (a) 148.4 15.7 164.1
Investment properties at fair value 621.8 16.5 638.3
Properties under development 1.6 - 1.6
Intangibles 3.9 - 3.9
Financial assets 15.8 - 15.8
Total property value (b) 643.1 16.5 659.6
LTV (a/b) 23.1% 94.8% 24.9%
Group
operations Joint venture Total (£m)
31 March 2022 (unaudited) ex. JVs (£m) (£m)
Borrowings from financial institutions 180.4 8.1 188.5
Bond loans - 7.4 7.4
Foreign currency derivatives (1.9) - (1.9)
Net payables 7.4 0.1 7.5
Less: cash and cash equivalents (31.5) (0.2) (31.7)
Net debt (a) 154.4 15.4 169.8
Investment properties at fair value 653.5 - 653.5
Properties held for sale - 16.4 16.4
Intangibles 3.5 - 3.5
Financial assets 14.9 - 14.9
Total property value (b) 671.9 16.4 688.3
LTV (a/b) 23.0% 93.9% 24.7%
Other alternative performance measures
Management use certain financial performance measures to assess the financial
and operational performance of the Group. These alternative performance
measures are not defined or specified under IFRS or EPRA. However, management
believe they provide useful information to readers. These non-IFRS measures
may not be comparable to similar measures presented by other companies. The
table below summarises the additional alternative performance measures
included in these results.
Nearest 30 September 31 March
IFRS 2022 2022
Other alternative performance measure measure Reference in document (unaudited) (unaudited)
Adjusted earnings Earnings Operating and financial review £10.5 million £20.0 million
and note 5 (£10.0 million
at
30 September
2021)
Adjusted earnings per share Earnings Operating and financial review 3.54p 6.88p
per share and note 5 (3.45p at
30 September
2021)
Cost of debt N/A Operating and financial review 2.52% 2.16%
Debt maturity N/A Operating and financial review 3.5 years 4.0 years
Distribution per share N/A Operating and financial review 3.50p 6.85p
and note 17
Headline earnings per share Earnings Note 5 5.41p 7.05p
per share (3.45p at
30 September
2021)
Headline earnings per share - diluted Diluted Note 5 5.40p 7.02p
earnings (3.44p at
per share 30 September
2021)
Loan-to-value ratio (LTV) N/A Operating and financial review 26.5% 25.6%
Total accounting return N/A Operating and financial review (5.4)% 23.6% (1)
(1) The total accounting return of 23.6% at 31 March 2022 has been amended
from its reported value of 25% in the 31 March 2022 annual report, as per the
RNS announcement date 16 August 2022.
FX rates in period
Average foreign exchange rates in the period: £1.00:€1.1740;
£1.00:CHF1.1746 (2021: £1.00:€1.1647; £1.00:CHF1.2696). Period end
foreign exchange rates: £1.00:€1.1364; £1.00:CHF1.0918 (31 March 2022:
£1.00:€1.1816; £1.00:CHF1.2129).
Corporate information
Industrials REIT Limited
Registered in Guernsey Registration number: 64865 LSE share code: MLI
JSE share code: MLI
ISIN: GG00BFWMR296
Company secretary
Sarah Bellilchi
United Kingdom Guernsey South Africa
Postal address of the Company Registered office of the Company JSE sponsor
180 Great Portland Street Industrials REIT Limited Java Capital Trustees and Sponsors
London Kingsway House Proprietary Limited
W1W 5QZ Havilland Street (Registration number 2006/005780/07)
United Kingdom St Peter Port 6th Floor, 1 Park Lane
GY1 2QE Weirda Valley
Guernsey Sandton, 2196
Johannesburg
South Africa
(PO Box 522606, Saxonwold, 2132)
Broker and financial adviser Guernsey registrars South African corporate adviser
Numis Securities Limited Computershare Investor Services Java Capital Proprietary Limited
45 Gresham Street (Guernsey) Limited ('Computershare') (Registration number 2012/089864/07)
London 1st Floor 6th Floor, 1 Park Lane
EC2V 7BF Tudor House Weirda Valley
United Kingdom Le Bordage Sandton, 2196
St Peter Port Johannesburg
GY1 1DB South Africa
Guernsey (PO Box 522606, Saxonwold, 2132)
Independent auditor Computershare correspondence address: SA transfer secretaries
BDO LLP 13 Castle Street Computershare Investor Services
55 Baker Street St Helier Proprietary Limited
London JE1 1ES (Registration number 2004/003647/07)
W1U 7EU Jersey Rosebank Towers
United Kingdom Channel Islands 15 Biermann Avenue
Rosebank, 2196
Johannesburg
South Africa
(PO Box 61051, Marshalltown, 2107)
Glossary
Adjusted earnings Adjusted earnings per share
Utilises EPRA earnings and applies further company-specific adjustments to Adjusted earnings per share after considering dilutive share options.
earnings to exclude items considered not to be in the ordinary course of
business or other exceptional items that do not necessarily provide an
accurate picture of the Group's underlying operational performance.
Contractual rent Cost of debt
Rent receivable including rent contracted from expiry of rent-free periods and This represents the all-in interest rate after including the reference rate,
fixed uplifts (rent from long leaseholds are excluded). the margin and interest rate derivative, if applicable. The Group weighted
average cost of debt is the all-in interest rate of
the Group weighted by loan size.
Debt maturity Dividend per share
Measured in years, the debt maturity is calculated by comparing the reference Total dividend per share that Industrials REIT makes to
date (e.g. period-end) to the maturity date of the
shareholders in respect of the financial year. Dividends are paid twice
debt referred to. yearly.
EPRA EPRA "topped up" NIY
The European Public Real Estate Association. EPRA NIY adjusted for the expiration of rent-free periods (or other unexpired
lease incentives such as discounted rent periods and
stepped rents).
EPRA cost ratio (excluding direct vacancy costs) EPRA cost ratio (including direct vacancy costs)
Administrative and operating costs (adjusted to exclude vacancy costs) Administrative and operating costs expressed as a percentage of gross rental
expressed as a percentage of gross rental income. income.
EPRA earnings EPRA earnings per share
Earnings from operational activities. A key measure of the Group's underlying Earnings from operational activities per share after considering dilutive
operating results and an indication of the extent to share options.
which current dividend payments are supported by earnings.
EPRA like-for-like rental income growth EPRA LTV
The change in gross contractual rental income at reporting date, generated by Loan-to-value ratio expressed as a proportion of net debt over total property
properties that were held by the Group for the year, excluding properties value in accordance with EPRA guidelines.
undergoing significant development. This
measure illustrates the change in comparable income values.
EPRA NDV per share EPRA net disposal value (NDV)
EPRA net disposal value per share after considering dilutive share options. An EPRA NAV measure that represents the shareholders' value
under a disposal scenario, where deferred tax, financial instruments and
certain other adjustments are calculated to the full extent of their
liability, net of any resulting tax.
EPRA net initial yield (EPRA NIY) EPRA net reinstatement value (NRV)
Passing rent less non-recoverable property expenses such as empty rates, A NAV measure that aims to represent the value required to rebuild the entity.
divided by the property valuation plus notional purchasers' costs. This is in The NAV per the IFRS financial statements is adjusted to assume that the
accordance with EPRA's Best entity never sells assets.
Practices Recommendations.
EPRA net tangible assets (NTA) EPRA NRV per share
The NAV per the IFRS financial statements is adjusted to assume EPRA net reinstatement value per share after considering dilutive share
options.
that the entity buys and sells assets, thereby crystallising certain levels of
unavoidable deferred tax.
EPRA NTA per share EPRA vacancy rate
EPRA net tangible assets per share after considering dilutive Estimated rental value of vacant space divided by estimated rental
share options. value of the portfolio as a whole.
EPS Equivalent yield
Earnings per share based on the weighted average number of shares in issue. A weighted average of the net initial yield and reversionary yield. It
represents the return a property will produce based upon the
timing of the income received.
Estimated rental value (ERV) EURIBOR
Industrials REIT's opinion of the open market rent which, on the date of EURO Interbank Offered Rate; daily reference rate, published by the European
valuation, could reasonably be expected to be obtained on Money Markets Institute, based on the average
a new letting or rent review of a property. interest rates at which Eurozone banks offer to lend funds.
Gross rental income Group
Rental income is as reported in the income statement, on an accruals basis, Industrials REIT, the Company, its subsidiaries and its share of its joint
and adjusted for the spreading of lease incentives over the term of the lease. venture.
It is stated gross, prior to the deduction
of property operating expenses.
Headline earnings IFRS
A method of reporting corporate earnings, as required by the JSE listings International Financial Reporting Standards issued by the International
requirements. The measure is based entirely on operational, trading, and Accounting Standards Board.
capital investment activities achieved during the period. Excluded from the
headline earnings figure are profits or losses associated with the sale or
termination of discontinued operations, fixed assets or related businesses, or
from any permanent devaluation or write-off of their values.
Interest cover LIBOR
Represents the number of times net interest payable is covered by underlying London Interbank Offered Rate, the interest rate charged by one bank to
rental income (or net rental income, as appropriate). another for lending money.
Like-for-like basis Loan-to-value (LTV)
This represents the change in a measure (such as passing rent or property Loan to value (LTV) is the ratio of principal value of gross debt, less
valuation) for reference data that applies throughout the unrestricted cash, to the Group's aggregate value of
current and previous periods under review. properties.
NAV Net assets per share
Net asset value. NAV divided by the number of shares in issue at the period end
(less treasury shares).
Net initial yield ("NIY") Net rental income
The passing rent expressed as a percentage of the market value, Gross rental income, less ground rents paid, net service charge
after adding notional purchaser's costs. expenses and property operating expenses.
Occupancy rate Passing rent
Estimated market rental value (ERV) of occupied space divided by ERV of the Rental income receivable on a property as at the reporting date. Excludes
portfolio as a whole (the inverse of EPRA vacancy rental income where a rent-free period is in operation.
rate).
Property income distribution (PID) Real estate investment trust (REIT)
As a REIT, the Group is obliged to distribute 90% of its UK property REITs are property companies that allow people and organisations to invest in
tax-exempt profits. PIDs are profits distributed to shareholders, which are commercial property and receive benefits as if they directly owned the
subject to tax in the hands of the shareholders as property income. PIDs are properties themselves. The effect is that taxation is moved from the corporate
normally paid net of withholding tax currently at 20%, which the REIT pays to level to the investor level as investors are liable for tax as if they owned
the tax authorities on behalf of the shareholder. Certain types of the property directly. Industrials REIT became a UK REIT in May 2018.
shareholders (e.g., pension funds) are tax exempt and receive PIDs without
deduction of withholding tax. REITs also pay out normal dividends, which are
taxed in the same way as dividends received from non-REIT companies and are
not subject to withholding tax.
Restricted cash Reversion
Represents restricted cash balances, including tenant deposits, service charge The difference between passing rent and ERV. The increase or decrease of rent
monies held by managing agents and monies held in bank accounts secured by arises at rent reviews, the letting of vacant space or the reletting of
lenders, for the purposes of debt existing leases.
repayments.
SMEs SONIA
Small and Medium-sized Enterprises. Sterling Overnight Index Average.
Square meters (sq m) Total accounting return
The area of buildings' measurement used in the emissions Growth in EPRA NTA per share plus dividends paid, expressed as a percentage of
EPRA NTA per share at the beginning of the
reporting analysis. The conversion factor used, where appropriate, is one sq m
= 10.7639 sq ft. period.
Total shareholder return Treasury shares
The growth in value of a shareholding over a specified period, Shares repurchased by the Company, reducing the amount of outstanding stock on
the open market.
assuming dividends are reinvested to purchase additional units of stock.
Unrestricted cash Valuer's ERV
Cash, cash equivalents and liquid investments after deducting restricted cash. The annualised estimated market rental value of lettable space as determined
by Industrials REIT's external valuers.
Valuer's net initial yield Voids
The net initial yield as determined by Industrials REIT's external valuers. Unlet space as a percentage of area, including voids where refurbishment work
is being carried out unless specifically
mentioned.
WAULT
Weighted average unexpired lease term, indicating the average
remaining life of the leases within our portfolio.
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