Preliminary results for year ended 31 March 2022
10/06/2022 07:00
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RNS Number : 3978O Industrials REIT Limited 10 June 2022
INDUSTRIALS REIT LIMITED
(Formerly Stenprop Limited)
(Registered in Guernsey with registration number 64865)
LSE share code: MLI JSE share code: MLI
ISIN: GG00BFWMR296
10 June 2022
DEMAND DRIVEN RENTAL GROWTH DRIVES STRONG FULL YEAR RESULTS
Industrials REIT Limited ('Industrials REIT' or the 'Company' and, together
with its subsidiaries, the 'Group'), the specialist UK multi-let industrial
('MLI') business, announces results for the full year to 31 March 2022, which
show continued robust rental growth driven by occupier demand.
Commenting on the results Paul Arenson, CEO of Industrials REIT, said: "This
financial year marks the end of our four-year transition strategy to a
specialist MLI business. We now own and operate a portfolio of over seven
million square feet of high-quality MLI assets, situated in and around towns
and cities across the UK. The Company also benefits from a class leading
digital-first operating platform, branded as Industrials Hive. With these two
fundamental building blocks in place, we are pushing forward with delivering a
differentiated customer experience, driven by operational excellence and
efficiency.
"We are pleased to have delivered another strong operating performance,
achieving like-for-like rental growth of 4.4% and like-for-like valuation
growth of 20.8% across our MLI portfolio, resulting in a total accounting
return for the year of 25.0%.
"A combination of land scarcity in urban areas and high build costs, even
before the impact of the current high inflationary environment, continues to
constrain the supply of new units. At a time when technology and e-commerce,
coupled with a focus on supply chains and onshoring manufacturing, have
increased the demand for flexible, quality MLI space, we have been able to
grow and diversify our overall occupier base. This ongoing expansion and
diversification of our customer base demonstrates the widespread appeal of our
well-managed, affordable and high quality MLI space to companies across a
multitude of traditional and new sectors. We believe that this will provide
future income resilience through our lack of reliance on any one specific
business sector; we currently have over 1,500 customers occupying our units
who are very diversified in their business activities. Our largest single
tenant exposure comprises less than 2% of our total rent roll.
"Despite the economic and geopolitical uncertainty at present, we remain
confident that the strong fundamentals of the MLI sector should see us
continue to achieve our 4% to 5% per annum rental growth rate target and our
10%+ total accounting return target over the coming years. We also continue
to have ambitions to grow our business through further MLI acquisitions,
allowing us to leverage the economies of scale and other efficiencies and
benefits our technology-enabled platform affords."
Operational highlights: Strong demand continues to drive rental growth
- Like-for-like passing rent increased 4.4% (2021: 5.6%)
- 265 new leases agreed, with Smart Lease transactions accounting for
53% of all new lettings and renewals, shortening void periods and reducing
costs
- Portfolio ERV increased 4.3% on a like-for-like basis (2021: 5.1%),
creating a 12.6% premium to current passing rent on occupied units which is
highly supportive of future rental growth
- Occupancy across MLI portfolio steady at 93.6% (2021: 93.7%)
- £97.6 million aggregate purchase price of 18 MLI assets (2021:
£91.5 million across 14 assets) which grew the portfolio to 104 properties
and helped increase MLI net rental income by 42% to £32.8 million over the
year (2021: £23.1 million)
- Sales of the final three wholly owned non-MLI assets completed in
the year generating aggregate net sales proceeds of £46 million. Our share
of the joint venture holding the German care homes portfolio is in a sales
process
- Rent collection levels are now nearing pre-Covid levels with 93% of
invoices billed in FY22 paid, resulting in a reduction in the bad debt expense
to £1.3 million (2021: £2.0 million)
Financial highlights: Profit doubled
- Record total accounting return of 25.0% (2021: 11.4%) driven by a
20.4% increase in EPRA NTA per share to £1.77 (2021: £1.47)
- Declared 6.85 pence per share covered total dividend for the year
(2021: 6.75 pence)
- IFRS profit before tax doubled to £107.5 million (2021: £53.0
million), driven by MLI valuation uplifts of £89.5 million compared with
£26.9 million in the prior year
- 20.8% like-for-like valuation growth along with new acquisitions
helped increase total MLI portfolio valuation to £653.5 million. Including
the share of the jointly owned care homes portfolio, the total portfolio
valuation was £685.8 million at year end (2021: £582.3 million)
- 96.7% increase in diluted IFRS EPS to 36.68 pence (2021: 18.57
pence) with adjusted EPS increasing to 6.88 pence per share (31 March 2021:
6.78 pence)
- 20.3% increase in diluted IFRS net asset value per share to £1.78
(2021: £1.48)
- Low loan-to-value of 25.6% (2021: 28.1%) with total debt of £196.2
million, including the share of joint venture debt, and unrestricted cash
balances of £20.7 million at year end
Financial Highlights FY22 FY21 Change
Total dividend per share 6.85p 6.75p +1.5%
Diluted IFRS earnings per share 36.68p 18.57p +97.5%
Adjusted earnings per share(1) 6.88p 6.78p +1.5%
Diluted EPRA earnings per share(2) 6.30p 6.62p -4.8%
Total accounting return 25.0% 11.4% +13.6 pts
Diluted IFRS NAV per share £1.78 £1.48 +20.3%
EPRA NTA per share(3) £1.77 £1.47 +20.4%
Portfolio valuation (including share of care home joint venture) £685.8m £582.3m +17.8%
Like-for-like portfolio valuation(4) increase in year +19.4% +6.3% +13.1 pts
Loan-to-value(5) 25.6% 28.1% -2.5 pts
1. See note 14 to the financial statements for reconciliation to IFRS earnings
per share (and for all subsequent references in this report to IFRS/EPRA
earnings).
2. Reduction in year driven by one-off listing costs of £1.0 million (0.33
pence per share) relating to the step-up to the Premium Segment of London
Stock Exchange.
3. See note 15 to the financial statements for reconciliation to IFRS NAV per
share (and for all subsequent references in this report to IFRS/EPRA NTA).
4. Adjusted for sales and acquisitions in the year. Includes share of the care
homes joint venture.
5. Loan-to-value (LTV) ratio is the ratio of total borrowings, less
unrestricted cash, to the Group's aggregate value of properties.
A webcast will be held for investors and analysts this morning at 9am and can
be accessed here:
https://bit.ly/3aCZshH
(https://gbr01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fbit.ly%2F3aCZshH&data=05%7C01%7Cjames.beaumont%40industrials.co.uk%7C0c1d75eeaba04fa0940d08da48b4a6d4%7C6fb781f2ad03404abb480cfecbc14518%7C0%7C0%7C637902237968792371%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=2fl1n8ZLcKyGm9s%2BfT0JNCQJnLNtcIgjrC%2BnJbJMcxg%3D&reserved=0)
For further information:
Industrials REIT Limited
+44 (0)20 3918 6600
Paul Arenson (CEO) paul.arenson@industrials.co.uk
Julian Carey (Managing Director) julian.carey@industrials.co.uk
(mailto:julian.carey@industrials.co.uk)
James Beaumont (CFO) james.beaumont@industrials.co.uk
(mailto: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 (mailto:industrialsreit@fticonsulting.com)
Java Capital (JSE sponsor)
+27 (0)11 722 3050
About Industrials REIT:
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
(http://www.industrialsreit.com) .
Chief Executive's statement
I am pleased to be reporting another strong year of progress for Industrials
REIT. This year marks the end of our four-year transition strategy into a
fully-fledged multi-let industrial (MLI) owning and operating business. Going
forward, investors will experience the full impact of owning and operating a
portfolio of £653.5million (7.3 million sq ft) of purpose-built MLI, situated
in and around numerous towns and cities across the UK.
During this year, our MLI portfolio continued to perform strongly delivering
like-for-like rental growth of 4.4% for the year.
We remain confident our underlying rental growth rate of between 4% and 5% per
annum is likely to continue for a number of years, particularly as we have
delivered over 5% rental growth in each of the previous two years. Our
confidence is based on the following factors:
• Demand for MLI space remains strong and is increasingly diverse.
More importantly, the demand is coming from a large variety of non-industrial
businesses which have never previously occupied MLI space. This is as a direct
result of the advances in communications technology and the resulting
e-commerce revolution, which has enabled many businesses to operate from MLI
units and use the internet to access suppliers and customers in a way that
could not be done before. Traditional industrial occupiers are simultaneously
experiencing a revival, with less inclination for businesses to outsource
manufacturing offshore due to increased transport costs and less reliable
security of supply resulting in more local production and increased stock
levels. We believe the trends of e-commerce and deglobalisation are both
likely to continue for the foreseeable future.
• Supply of new MLI units remains constrained. MLI units need to be
situated in and around densely populated towns and cities and what little land
is currently available in those locations tends to be developed for
residential. Furthermore, even where industrial is the most viable use, it
tends to be for single-let distribution units leased to strong tenants on long
leases. An additional supply constraint is the fact that in all but very few
locations, were a developer minded to build small MLI units speculatively, the
level of current MLI rents and yields achievable relative to build costs would
likely result in development losses. We estimate MLI build costs (excluding
land) to be around £120 per sq ft compared to the current independent
valuation of our portfolio of £90 per sq ft. For the foreseeable future, we
continue to be able to buy MLI estates at around 70% of replacement cost.
• Our average rents of £5.72 per sq ft are extremely affordable. It
means our average unit of 3,500 sq ft costs approximately £20,000 in annual
rent which in relative terms is roughly the same amount most of our customers
would pay some of their junior employees. Our research estimates the rent
typically represents between just 1 and 3% of customer turnover and, in our
view, occupiers can comfortably absorb rental growth.
• MLI does not suffer from design or functional obsolescence. There is
little extra utility for an occupier between a new unit and an old one, with
those having been built thirty years ago being virtually the same as those
that would be built today. This makes the buildings highly sustainable with
long economic lives, reducing the need and benefit of redevelopment and
benefiting the investors, who can enjoy attractive returns over a long period
with low levels of additional capital expenditure.
These factors have been driving rental growth of approximately 4-5% per annum
on our MLI portfolio for the last four years. We believe this growth rate will
continue for so long as supply remains constrained and demand continues. We
estimate that at current yields and current build costs, development of new
MLI units is only feasible if rents are at or above £10 per sq ft. Our
current average rent is £5.72 per sq ft. At the current 5% rental growth, we
estimate it will take between five to ten years for meaningful development to
be feasible, assuming the unlikely eventualities of there being no future
increases in build costs, no land becoming available or adverse shifts in
investment yields/multiples and/or a significant reversal in demand.
As a result of these fundamentals, we are confident we will be able to deliver
on our total accounting return (TAR) target of a minimum of 10% per annum for
the foreseeable future. TAR is the aggregate of the dividend paid plus the
increase in net asset value we expect to achieve, as a percentage of the NAV
at the start of the year. This year, we have delivered a TAR of 25% made up of
dividends paid of 6.75p plus an increase in NAV per share of 30p.
Our current EPRA cost ratio is 40.9%. This reflects the intensely operational
nature of the MLI asset class. It also reflects the fact that we are
internally managed and could potentially manage significantly more MLI assets
with the platform we have in place. The MLI asset class is very
management-intensive, as it comprises a large number of diverse individual
occupiers on relatively short leases spread over a wide geographic area.
We have in excess of 1,500 different tenants in our portfolio, none of whom
represent more than 2% of our annual rent roll, which gives the business
fantastic income diversification but also makes management more onerous. Our
average lease is approximately four years in duration and we turn over
approximately 25% of all our leases each year. It is clear that risk and
efficiency needs to be managed through scale.
It is also clear that scale cannot be achieved efficiently without a
technology-enabled management platform, an asset which we have been steadily
building over the past four years as we transitioned from being a passive
allocator of capital to being an MLI operating company. We believe that by
utilising this platform (assuming all other aspects remain constant) every
additional MLI unit that we acquire, will come in at an EPRA cost ratio of
approximately 20%, meaning that as the business grows in size, the EPRA cost
ratio will fall.
The next phase of our strategy is to seek to enlarge our portfolio with
further MLI acquisitions of approximately £100 million to £125 million per
annum, enabling us to approximately double its size over the next four years.
On this basis, all other things being equal, we estimate that our blended cost
ratio should reduce from 40.9% to 30% with scope for further reductions as we
increase the size of the portfolio further. We are well-positioned to achieve
this, having built our management platform and having demonstrated an ability
to buy approximately £100 million of additional MLI per annum, while
remaining disciplined in our investment criteria and only purchasing
properties which are accretive investments in their own right (see our
property report for more details).
Over the last four years, acquisitions have been funded through the sale of
non-MLI assets and from debt. Going forward, the funds will need to come from
a combination of new equity issuance and debt. Any future equity raises will
be dependent on securing a suitable pipeline of acquisition opportunities
which meet our criteria. More importantly, we are not in a position where we
need to make acquisitions to deliver returns. We are confident we can still
deliver a TAR in excess of 10% per annum based on the fundamental growth
inherent in our existing portfolio without any new acquisitions. The
additional acquisitions are more about enhancing earnings through the
efficiency of a lower overall cost ratio by defraying many central costs over
a larger asset base.
We expect further benefits to flow from our management platform through
overall efficiency savings and increases in revenue by streamlining the
leasing process through our digital and smart leasing activities and enhancing
our customer service offering. These improvements will help cut the structural
vacancy in the portfolio, which is created by the gaps between customers
vacating and new customers taking occupation. It also cuts the costs of each
lease by reducing the transaction fees paid to agents and lawyers. In a
business which renews or relets 25% of all leases each year and relatively
short lease terms, these friction cost savings are critical and can only be
achieved with a scalable operating platform.
A further anticipated revenue stream, which also demonstrates the power of an
MLI operating platform, is the ability to show that the MLI asset class can be
efficiently managed for third-party capital providers. At present, there is
almost no ability for investors to access specialist MLI operating platforms,
and as such the MLI asset class remains the highest yielding in the industrial
sector, as it is perceived to have high leakage costs and is cumbersome to
manage. We anticipate that once operating platforms become available in the
MLI sector, the sector itself will re-rate just as other management-intensive
sectors like student accommodation and self-storage have in the past. Listed
operating companies in these sectors with proven management platforms and an
ability to scale typically trade on significant premiums to NAV, while the
underlying assets also trade on significantly lower yields than before the
advent of the management platforms.
As our portfolio grows, so will the diversification of our rental income which
will further stabilise cash flows in much the same way as self-storage or
residential operators, where cash flows are valued based upon their
consistency rather than the underlying lease terms and covenant strengths.
There is great strength in income granularity and occupier diversity, which
coupled with strong demand for space relative to supply, should deliver secure
and consistent revenue growth over the long term. An added benefit is that
such cash flows are evergreen in the sense that there is never a cliff edge of
lease expiries, as the operational nature of frequent lease churn ensures a
consistent unexpired lease length.
We recognise the critical role that "ESG" factors play in delivering
operational and financial performance. In this respect, we also understand
that monitoring and disclosing the performance of our portfolio is fundamental
to delivering value to our stakeholders and meeting their expectations around
ESG. As you will see later in this report, during 2021, we continued to
enhance the way sustainability is incorporated into business activities, with
a strong emphasis on the social, wellness and diversity aspects. We also spent
time gaining a better understanding of our carbon footprint, what can be done
to improve the energy efficiency of our buildings and how climate change is
likely to impact our business going forward. Our people are passionate about
Industrials REIT being a force for positive change, and we are excited about
the potential for the business to make a positive difference to the 1,500+ SME
companies that call our buildings their home. There is still a lot of work to
be done in this rapidly evolving landscape, and we are working hard to both
enhance our reporting and implement practical initiatives across our business.
Despite the positive long-term trends we are seeing in MLI, as we move into
the financial year ending 31 March 2023 we are cognisant of several challenges
that are emerging which will require us to be vigilant.
The first of these is the cost inflation being seen across the entire economy,
to which we are not immune. From our perspective, operating costs are
increasing primarily because of wage inflation, which is significant across
all disciplines but especially within the industrial property and technology
skillsets. As an internally managed entity, this can impact overall EPRA cost
ratios. Similarly, the cost of maintaining or building MLI units is also going
up. We have very limited development exposure but estimate that the cost of
building a new MLI unit has increased by over 20% in the last 18 months. This
further reduces the likelihood of any new supply coming on stream and should
therefore be positive for future rental growth, which over time we also expect
to occur in any case as a result of inflation.
The second challenge is central banks' response to these inflationary
pressures through increasing interest rates and withdrawing quantitative
easing. This is having a material impact on borrowing costs. Eighteen months
ago, we were able to borrow at an all-in fixed rate for seven years at 1.66%.
Now, five-year all-in fixed rate borrowings are costing approximately 3.75%.
This means interest costs are now getting close to net initial yields (after
operating leakage) and are no longer enhancing cash flow at the time of
acquisition. Leveraged returns are becoming dependent on future rental growth
and/or yield compression to provide enhanced returns. In this environment, we
need to be more prudent on debt and LTV levels and are likely to target lower
overall debt levels of around 30% rather than 40%. We would also seek lower
levels of leverage on new acquisitions.
If top line revenue growth is unable to keep up, these increases in operating
costs are likely to dampen earnings. However, we believe the potential for
revenue growth remains strong due to the demand/supply imbalances and other
factors in the MLI market referred to above. These give us the potential of
passing on increased costs through higher rents and mitigating cost increases
through future scale savings from our platform.
In this changing economic environment, there is a risk of a fall in GDP and a
possible recessionary environment for a period. Under such conditions, we do
not anticipate that vacancy levels will rise to levels experienced in previous
severe economic downturns such as in 2008 and in the early 90s. Our thesis is
that the structural change in the nature of demand from e-commerce related
businesses has created a whole new class of businesses, who now need MLI space
compared to the past where it was only the industrial manufacturing and
service businesses. This growth in the universe and type of occupiers has
taken place at a time of no new supply due to cost and land availability
constraints. In our view, the existence of this additional new group of
occupiers will go a significant way to offsetting the impact of vacancies due
to a downturn. We saw this in the downturn caused by the pandemic, although we
appreciate that the specifics of that downturn caused an acceleration of the
growth in demand for online solutions.
Notwithstanding these challenges, I remain excited and passionate about the
prospects for Industrials REIT and its stakeholders. MLI is an asset class
which offers significant potential and is a big beneficiary of several
important structural and societal changes taking place in the world around us.
It is an asset class where we believe our operational platform-based approach
to management provides us with a clear competitive advantage. We benefit from
the combination of an aligned internalised management team with significant
skin in the game and a long-term approach through our permanent capital
structure. This enables us to invest in the technology, systems and staff
required to deliver the platform. It also needs a team with vision to do
things differently and be passionate about changing the way an industry
operates with a focus on delivering the customer service and systems this
requires. We have all of these in place and are building on our brand and
vision. In executing our strategy, I am confident we will deliver superior
returns with low risk over a long duration and growth opportunities and value
for all of our stakeholders.
I take this opportunity to thank all of our stakeholders and our Board for
their support. In particular, I wish to thank our people who have been so
instrumental in executing on our vision and in managing the relationships with
our customers and our suppliers throughout the year.
Paul Arenson
Chief Executive Officer
9 June 2022
Property report and investment
MLI performance overview
Performance of the MLI portfolio over the 12 months to 31 March 2022 was
strong and in-line with expectations, driven by constrained supply and growing
demand for multi-let industrial units across the UK.
Occupancy across the portfolio was stable (93.6% vs. 93.7% in March 2021),
maintaining upward pressure on rents for available units and giving existing
customers limited options upon lease renewal. Consequently, we have witnessed
strong rental growth, rental incentives remaining at historically low levels
and competitive tension for new lettings, as new entrants into the MLI market
compete for limited available space. During the year we signed 265 new
leases on over 1 million sq ft of space, delivering an average uplift in rent
of 22% when compared to the previous passing rent.
During the year, we continued with our strategy of reducing transaction times
and introducing fixed pricing into leases with our Smart Lease, which will
help reduce overall vacancy levels and deliver guaranteed growth of c. 3% per
annum in rents during the lease term. This strategy will deliver contractual
uplifts of 5.5% from current passing rents during the remainder of existing
leases. Furthermore, the average passing rent remains 13% below the estimated
rental value of currently leased units, giving plenty of baked in future rent
growth when leases come to expiry if occupancy levels remain stable.
Overall, passing rents grew 4.4% during the year and remain highly affordable
at £5.72 per sq ft. The overall ERV of the portfolio grew by a similar 4.3%
over the year, and again remains affordable at £6.41 per sq ft providing
plenty of potential for further rental growth in the future.
Portfolio Overview
Over the 12 months ended March 2022, the total income from the MLI portfolio
increased by £7.9 million, of which approximately £4.7 million was from new
acquisitions. The total occupancy of the portfolio remained broadly stable
over the year, finishing the year at 93.6%, peaking in the June 2021 quarter
at 94.9%.
During the year, we let or renewed 265 leases, one of which resulted in the
reletting of space previously occupied by our largest tenant to multiple
smaller occupiers. As a result, the portfolio is now even more diversified,
with no single tenant accounting for more than 2% of total revenue and the top
ten tenants accounting for just 11% of total revenue. This diversification
also extends to the geographies where the properties are located and the types
of occupiers within the portfolio, where again there is no significant
reliance on any one area, industry or customer type. We continue to see
further diversification within the customer base as traditional occupiers are
displaced by new entrants into the market, largely trading via successful and
growing e-commerce platforms.
Rents
Like-for-like rental growth was 4.4% for the year, despite a small reduction
in occupancy of 0.3%. Much of this growth was captured in the first and last
quarters of the year which saw strong take up of units and high levels of
leasing activity. The majority of leases signed during the year included 3%
annual uplifts in rent, which is now translating into average contractual
uplifts within all leases of 5.5% during the remainder of the lease term.
ERVs grew by 4.3% during the year resulting in a 12.6% premium between the
passing rent and the ERV on currently occupied units, providing baked-in
future revenue growth so long as rents remain at the current levels. The total
ERV on the portfolio offers a further 6.5% growth from this level, which would
be captured through the leasing up of space currently held vacant.
Demand and Leasing Activity
Overall demand for space in financial year ended 31 March 2022 was up
approximately 50% on the previous year as the positive impacts of the pandemic
on customer demand took hold. In addition, we made significant improvements to
the quality of the enquiries generated through Industrials Hive resulting in
greater efficiency through the leasing process.
On completed new lettings and renewals, we saw rents rise on average by 21.9%
from the previous passing level. Increasingly strong new lettings drove this
performance with an average uplift of 26.1% vs. 18% for renewals, a sign of
the high levels of competitive tension in the market from new occupiers who
are often able to pay higher rents than incumbent businesses. Strong new
lettings of vacant units on an estate also set a new rental tone which can
then be rolled out across the remaining units at lease renewal, illustrating
how important a controlled level of structural vacancy is for driving rental
growth.
Lease terms remained consistent through the year at c. 4.5 years with a break
after 3.5 years, while rent incentives remain very low at one month rent free
(normally taken as two months half rent) for signing a new lease. Smart Lease
transactions accounted for 53% of all new lettings and renewals and continue
to transact significantly quicker than traditional leases thereby shortening
void periods and cutting costs.
Despite the impacts of COVID-19, tenant retention remained flat at 79% for the
year illustrating how resilient MLI has been to the economic challenges
created by the pandemic. After a strong first six months of the year, tenant
retention fell marginally in the second half of the year to 76%, but this was
counteracted by strong leasing activity to new occupiers on vacant space,
which took the overall retained or re-let percentage to a normal level of 89%.
Some of the tenants leaving over this period were victims of the pandemic as
it became clear that their businesses were no longer viable in the
post-COVID-19 economy, but the speed that these same units were relet to
counteract their departure illustrates the depth of demand for MLI space from
new entrants with more modern and profitable business models.
Unlocking The Power of Space:
Enhancing the sustainability and quality of our space - Brasenose Industrial
Estate, Bootle
Our customers want to source space online, view and move in, often within very
short time frames. To enable this we take the friction out of the leasing
process and deliver high-quality space that is ready to move into, straight
away.
Our digital marketing platform at industrials.co.uk provides rich and
high-quality content and an immersive experience for prospective customers
when browsing for suitable space online.
Our Smart Lease is tried and tested in its effectiveness to enable our
customers to sign up to lease space without fuss or hassle.
To deliver best-in-class product, our team of experienced Asset Managers
identify opportunities to enhance both quality and the utility of our space.
By delivering best-in-class product, we are able to obtain the best price for
that space.
We identified an extensive capital improvement scheme at Brasenose Industrial
Estate in Bootle, a strategic location less than three miles from Liverpool
city centre.
The income profile reflected a discount to the market rate for better quality
space. This was the result of an historic lack of investment prior to our
ownership - an issue that was compounded by many occupiers seldom
understanding or adhering to their repairing obligations.
As the original leases approached their natural expiry, it unlocked an
opportunity to grow rents significantly by investing in the fabric of the
asset via a capital investment programme. The scheme covered c. 42,000 sq ft
of space across 15 units and comprised of an upgrade to cladding on the roofs
and elevations as well as the replacement of a number of roller shutter doors
and windows.
The new cladding improved thermal performance of the space, while new GRP roof
lights provided increased levels of natural light into the space. To further
enhance energy efficiency, any units that became vacant benefitted from a full
internal refurbishment including the installation of more efficient LED
lighting.
Demand for the newly refurbished space has been significant and competitive
tension has helped us secure further growth in rents. As the scheme draws
nearer to completion, seven new letting or lease renewal transactions have
already concluded at levels in line with, or in excess of, ERV. This has
secured almost 50% of the additional revenue stream initially targeted, all in
advance of taking practical completion of the works.
Moreover, the upgrade to the external cladding is delivered with a 15-year
insurance backed guarantee. With each new lease agreed being on an internal
repairing and insuring basis, our customers will contribute to maintenance and
repair via our fixed maintenance charge, but we will retain ultimate control
to ensure it remains operationally effective and in good condition via a
planned repair and maintenance regime. This removes the repairing burden for
our customers so they can focus on running their business, while giving us
control to care for our property directly.
The drive to offer better quality space has also meant that we have seen the
customer base gentrify, as new demand seeks well-presented and functional
space to call home for their business.
We have since let space to specialists in bespoke furniture and e-commerce. In
addition, a last-mile grocery delivery business decided to let a space from us
due to the site's close proximity to Liverpool city centre and the significant
residential catchment in the immediate vicinity.
Converting risk to opportunity
Industrials REIT's portfolio is diverse by nature. We have over 1,500
customers occupying 2,011 units with no single customer contributing to more
2% of annual rent.
In March 2022, a lease expired to our largest customer by square feet let and
annual rent payable. This lease was held at Dana Trading Estate, Paddock Wood
in Kent.
Dana Trading Estate is strategically located close to London's orbital M25
Motorway. The property comprises of over 198,000 sq ft of industrial
accommodation spread over 14 units. The property also features a further
11,000 sq ft of office space arranged in two self-contained units and several
small office suites.
The entire property was held on a single lease which commenced in 2002 and
followed a sale and leaseback arrangement where our customer continued to
lease the property as a manufacturing facility.
During the lease term, the property became surplus to requirements and was
sublet in its entirety to a range of different occupiers and users of the
space, each on contracts which had been due to expire in line with the main
lease.
This presented a complex challenge, with one single lease expiring on a
significant floor area to the largest single contributor to annual income
across our MLI portfolio.
This required a suitable strategy that sought to address two key issues:
1. Repair risk - The return of the property in the condition required
2. Income risk - The income risk due to the single lease expiry event.
Our strategy sought to ensure that the property was returned to us in the
condition required under the lease. It sought to hedge the income risk through
the early implementation of our digital marketing campaign to capture new
demand, leads and opportunities, while also engaging with each subtenant to
ascertain who wished to continue to lease space on site.
To manage the repair risk, a series of repair notices were issued specifying
the works that were required to be remedied prior to lease expiry. This was an
alternative approach to dilapidations by using landlord self-help rights
enforceable under the lease. This approach allowed us to enforce physical
improvements across the property prior to lease expiry.
To manage the income risk, we engaged with each sub-tenant to audit their
business, their need for the space and their wider lease requirements. This
enabled us to be selective, and review how our space would be used in future
by continuing to partner with businesses who use our buildings in ways that we
find acceptable.
This strategic approach meant that we could enforce certain repairing
requirements to safeguard and enhance the quality of the asset but ultimately
position us to agree to an early surrender in return for a suitable financial
settlement to offset outstanding liabilities for breach of repair. It was also
agreed that a future dated option to acquire the freehold title would be
brought forward and was successfully executed.
We have since re-let or agreed terms on 98% of the property by floor area,
while capturing over 24% of rent reversion when compared to previous passing
rent.
Our selective approach to customer engagement yielded just one vacant unit.
This empowered us to test the market and work with the existing occupiers to
generate a waitlist of demand and use competitive tension to drive best price
on the open market. Crucially, it aligns this asset to our business model -
diversified income delivered by a varied customer base.
Transactions: acquisitions
During the financial year to 31 March 2022, we completed £97.6 million of
acquisitions across 14 separate transactions. We continue to be disciplined in
our approach to investment, and all acquisitions meet our strict investment
criteria of only buying purpose built MLI estates in densely populated urban
areas. It is common in the market to find portfolios trading at a 10% premium
to individual asset values, so we have concentrated on acquiring single assets
to maximise returns utilising a wide network of regional and London-based
agents. One third of our acquisitions were acquired "off market", where we did
not need to enter into a competitive bidding situation. We acquired £27.2
million of assets without an agent advising us.
ESG is an important aspect of our acquisition due diligence process. We
undertake environmental and flooding surveys and assess for ESG risks
including building age and year of construction, asbestos, EPCs (age and
rating), proximity to social infrastructure and greenfield / brownfield land.
The leases are also scrutinised for unfair or restrictive covenants or clauses
and tenant 'Blacklist Activities'.
Transactions: sales
We completed the sale of Trafalgar Court, Guernsey in September 2021, for a
consideration which valued the property at £55 million by way of the sale of
all of the issued share capital of an SPV. This was an important transaction
and represented the last major sale in our transition of properties where we
have a 100% stake. This sale increased the proportion of our portfolio that
was MLI by 9%, and we have subsequently re-invested the proceeds in-line with
our investment strategy.
Non-MLI: joint venture
We continue to be in negotiations for the sale of the Group's interest in the
joint venture holding of a care homes portfolio in Germany. In the meantime,
the independent valuation of the Care Homes Portfolio has increased from
€38.9 million at 31 March 2021 to €39.1 million at 31 March 2022. For so
long as we continue to hold our share of this portfolio, we earn a 10%
preferred return on our investment.
The value in this investment represents approximately 4.7% of the Group's
total asset value at 31 March 2022.
Summary of MLI acquisitions made over last four years
Purchase Price GIA Cap Val NIY (inclusive of guarantees) Rent (inclusive of guarantees)
assuming at acquisition
6.5% costs £ per sq ft
FY18/19 £103,519,650 1,689,498 £61.27 6.90% £4.75
FY19/20 £38,181,770 503,691 £75.80 6.85% £5.98
FY20/21 £91,535,000 1,087,625 £84.16 6.64% £6.21
FY21/22 £97,620,000 1,268,676 £76.95 6.44% £5.50
Total/Average £330,856,420 4,549,490 £72,72 6.67% £5.44
Acquisition of Bradley Hall
We acquired Bradley Hall, Wigan in July 2021 for £20.6 million, reflecting a
NIY of 6.4% and a capital value of £67 per sq ft. This estate had a very
granular income profile, with 120 leases at acquisition. The site had a number
of complex issues to deal with and that, combined with the volume of leases,
meant that there were significant barriers to entry for interested parties.
Our efficient, scalable and sustainable operating platform made this type and
nature of acquisition viable and we anticipate that our Industrials Hive
operating platform and smart leases will capitalise on a business model which
generates customer value and long-term growth over short-term gains. The
estate also presented a number of short, medium and long-term development
opportunities, to further enhance returns and the energy efficiency of the
buildings. We have employed an experienced Senior Development Manager who is
focusing on opportunities like this across the portfolio and we have designed
the first phase of development at this estate, a 16,500 sq ft, seven unit MLI
scheme on an underutilised car park area.
Since acquisition, we have seen strong performance and high occupancy levels,
with less than 1% currently vacant. At the most recent valuation, the asset
was valued at £24.15 million, representing an increase in value of £3.55
million and 17.2% since acquisition date.
Financial review
Overview
We are pleased to be reporting strong results notwithstanding the continued
headwinds of COVID-19. We delivered like-for-like rental growth of 4.4% and
like-for-like uplifts in our MLI portfolio of 20.8%. We declared a final
dividend of 3.475 pence per share, taking the covered full year dividend to
6.85 pence per share. Dividends paid in the year were 6.75 pence per share,
which, together with a 20.4% increase in EPRA NTA, resulted in a record total
accounting return of 25.0%, up from 11.4% a year ago.
Rent collections and speed of payments have continued to improve during the
financial year and we are confident that the impact of the pandemic on
collections is all but behind us. We continued to see strong demand for our
space with like-for-like annual MLI rental growth of 4.4% (2021: 5.6%)
achieving our target of 4%-5%, and occupancy of 93.6% (2021: 93.7%).
Information on our leasing strategy can be found in our property report.
We are also pleased to report that in March 2022 we completed the
implementation of a significant upgrade to our finance and operations
technology within the Industrials Hive operating platform. We look forward to
unlocking the efficiencies that this will bring as both it, and the business,
evolves and grows from here. This achievement signifies the formal
commencement of in-housing of all property accounting, billing and credit
control and allows us to build stronger relationships with our customers. We
aim to have concluded the in-housing of property and facilities management
later this year so all key operational roles will be controlled and managed by
Industrials REIT.
Presentation of financial information
The consolidated financial statements are prepared in accordance with IFRS.
The Group's subsidiaries are consolidated at 100% and its interests in joint
ventures are consolidated using the equity method of accounting. In addition
to information contained in the Group financial statements, Alternative
Performance Measures ("APMs"), being financial measures, which are not
specified under IFRS, are also used by management to assess the Group's
performance. Definitions for APMs are included in the glossary to our annual
report, with further descriptions and the most directly comparable IFRS
measure identified.
Industrials REIT discloses APMs based on EPRA Best Practice Recommendations,
in line with our peers in the real estate sector. These include earnings and
NAV metrics which are referred to throughout this announcement.
Industrials REIT presents adjusted earnings per share as an APM to assess the
Group's dividend distributions. The metric is based on EPRA earnings, adjusted
for significant non-recurring items, such as the listing costs incurred in the
current year.
2022 2021
Statement of comprehensive income
Dividend per share 6.85p 6.75p
Diluted IFRS earnings per share 36.68p 18.57p
Adjusted earnings per share(1) 6.88p 6.78p
EPRA earnings per share(2) 6.30p 6.62p
(1 ) See note 14 for reconciliation to IFRS earnings per share.
Adjusted earnings per share was previously named "Diluted adjusted EPRA
earnings per share"
(2 ) Reduction in year due to one-off listing costs of £1.0
million (0.33 pence per share) relating to step-up to Premium Segment of
London Stock Exchange.
2022 2021
Statement of financial position
Portfolio valuation (incl. JV) £685.8m £582.3m
Like-for-Like portfolio valuation increase in year +19.4% +6.3%
Diluted IFRS NAV per share £1.78 £1.48
EPRA NTA per share(3) £1.77 £1.47
Loan-to-value ratio 25.6% 28.1%
(3 ) See note 15 for reconciliation to IFRS NAV per share (and
for all future references in this report to IFRS/EPRA NTA).
FX rates in period
Average foreign exchange rates in the year: £1.00:€1.1758; £1.00:CHF1.2552
(2021: £1.00:€1.1202; £1.00:CHF1.2057)
Year-end foreign exchange rates: £1.00:€1.1816; £1.00:CHF1.2129 (2021:
£1.00:€1.1738; £1.00:CHF1.2985)
Income statement
Profit for the year doubled to £107.5 million (2021: £53.0 million), driven
by MLI valuation uplifts of £89.5 million compared with £26.9 million in the
prior year. The increase was primarily driven by yield compression as
investors continue to rate the strength of the MLI market, but also included
the impact of sustained rental growth across our MLI portfolio where we have
seen annual like-for-like rental growth of 4.4% (2021: 5.6%). Diluted IFRS EPS
was 36.68 pence (2021: 18.57 pence). After EPRA adjustments and specific
adjustments associated with the finance and operating system implementation,
and the one-off costs associated with transferring our listing to the Premium
Segment of the Main Market of the LSE, adjusted earnings were 6.88 pence per
share (2021: 6.78 pence). A reconciliation of IFRS profit to EPRA earnings and
adjusted earnings for the year is shown in note 14 to the financial
statements.
Net rental income for the year from continuing operations was £32.8 million
(2021: £23.1 million) reflecting the impact of acquisitions in the current
and prior year and the enlargement of our MLI portfolio. Our continued focus
on rent collections resulted in a reduction in the bad debt expense to £1.3
million (2021: 2.0 million). We expect normalised bad debts to trend towards
pre-pandemic levels of c. 2% as we progress through the remainder of 2022.
Management fee income was less than £0.1 million (2021: £0.7 million) and is
expected to fall away completely in the coming year.
Operating expenses for the year, after adjusting for the one-off £1.0 million
cost of transferring our listing to the Premium Segment of the Main Market of
the LSE, were £12.4 million (2021: £9.7 million). The increase to prior year
includes £1.8 million related to the staff remuneration costs. Half of this
figure reflects a provision recognising future employer's national insurance,
due on exercise on all previously vested share-based payments awards. The
other half is linked directly to the increase in staff. The average number of
employees during the year was 46 (2021: 33), with office-based staff numbers
now split equally between our London and Stockport offices. The coming year
will see the in-housing of all property and facility management functions, the
costs of which will largely be recharged to customers as part of normal
service charge procedures. This final phase of our resourcing plan will
signify an important evolution in Industrials REIT with all major and customer
facing operational roles fully in-sourced. The finance and operating ERP
project expense associated with testing and training increased by £0.3
million to £0.7 million as we completed the final stages of the project prior
to our formal go-live on 1 April 2022.
The EPRA cost ratio (including direct vacancy costs) was 40.9% for the year
ended 31 March 2022 (2021: 41.6%). Operational gearing associated with
managing MLI is inherently high and reflects the granular operational nature
of our MLI business. Our Industrials Hive platform allows us to manage a
high number of customers efficiently, while also delivering quality customer
service and well-presented MLI units to lease. We are confident that our
platform, together with the nature of our central cost base which has been
positioned for scale, will allow us to add additional estates to our portfolio
at a reduced EPRA cost ratio of approximately 20%. This is based on analysis
of the direct and indirect costs required for managing additional estates and
we expect to see a gradual reduction in the Group EPRA cost ratio as the
portfolio grows.
Finance costs for the year were £3.9 million (2021: £4.5 million). The
reduction of £0.6 million reflects the impact of the two refinancing events
that were concluded in December 2020, most notably the seven-year £66.5
million fixed rate facility with ReAssure with an all-in rate of 1.66%
compared to 3.2% on the previous facility. We are now seeing big changes in
the interest rate environment and with the Bank of England increasing rates to
1.0% in May 2022, and further increases anticipated, the cost of debt is
becoming more expensive. Industrials REIT has maintained its conservative
policy of fixing or hedging against interest rate exposure in relation to at
least 75% of its debt. Notwithstanding this, all future refinancing activities
will inevitably be at higher all-in rates of interest and an increase in
finance costs is to be expected.
Dividends
The total dividend for the year was 6.85 pence per share, comprised of a final
dividend of 3.475 pence per share for the six months ended 31 March 2022 and
an interim dividend of 3.375 pence per share. The dividend is fully covered by
adjusted earnings per share of 6.88 pence (2021: 6.78 pence) and can be taken
as a cash payment or scrip share alternative. A further announcement informing
shareholders of the salient dates and tax treatment of the dividend will be
released in due course.
The dividend of 6.85 pence per share represents a dividend yield of 3.8% on
the share price at 6 June 2022 of £1.80, and a yield of 3.9% on the EPRA NTA
per share at 31 March 2022 of £1.77.
Net asset value
The IFRS basic and diluted net asset value per share at 31 March 2022 was
£1.79 and £1.78 respectively (2021: basic £1.49; diluted £1.48) (see note
15). The increase in the year was driven by like-for-like valuation increases
of our MLI portfolio of £94.7 million, offset by £6.0 million acquisition
costs of purchasing £97.6 million of new MLI in the year. At year end,
Industrials REIT owned 104 MLI properties valued at £653.5 million.
The EPRA NTA per share at 31 March 2022 was £1.77 (2021: £1.47). A
reconciliation of this against IFRS NAV is shown in note 15 to the accounts.
The EPRA NTA excludes £3.5 million of intangible assets related to the
development of our Industrials Hive operating platform, £1.9 million in
relation to the fair value of derivative financial instruments and the
deferred tax liability of £1.6 million in respect of the care homes joint
venture.
Portfolio valuation
As at 31 March 2022, the Group's investment properties were valued at £685.8
million (31 March 2021: £582.3 million). On a like-for-like basis, excluding
the impact of additions and disposals in the year, the valuation of the
portfolio since 31 March 2021 increased by 19.4%.
Combined Portfolio Market value Portfolio Properties (number) Area Annualised Net initial Voids
(including share of joint ventures)
31 March
by market
(sq ft)
contracted gross rental
yield
by
2022
value
income
(Weighted
area
(£'000)
(%)
(£'000)
average)
(%)
(%)
UK multi-let industrial 647,460 94.4 103 7,120,135 37,530 5.5 6.4
UK multi-let industrial - Held for sale 6,015 0.9 1 30,176 718 11.2 -
Total - wholly owned 653,475 95.3 104 7,150,311 38,248 5.5 6.4
Share of joint ventures 32,285 4.7 4 208,066 2,477 7.2 -
Market value total 685,760 100 108 7,358,377 40,725 5.6 6.2
United Kingdom MLI portfolio
We acquired a further 18 assets during the year for a total consideration of
£97.6 million and at year end, the MLI portfolio, comprising 104 industrial
estates and approximately 7.3 million square feet of lettable space, was
independently valued at £653.5 million. On a like-for-like basis, the
valuation of the portfolio increased by £94.7 million, or 20.8%, on the
valuation at 31 March 2021. We calculate that yield compression is driving
approximately 80% of this change, with the residual 20% being due to the
capitalisation of continued rental growth achieved in the portfolio.
Like-for-like rental growth was 4.4% (2021: 5.6%) following another strong
year of leasing transactions and associated average uplifts in passing rent.
Joint venture
The Care Homes portfolio in Germany, comprising four care homes, was
independently valued at €39.1 million, an increase of €0.3m compared with
the 31 March 2021 valuation.
Debt
Total borrowings at 31 March 2022 were £196.2 million with an LTV ratio of
25.6% compared with 28.1% at 31 March 2021. The reduction in LTV was driven by
the valuation gains recorded in the year together with the effects of
disposals in the year, offset by a reduction in unrestricted cash held at year
end. In the current economic climate, the Group is likely to target a level of
borrowings at around 30% of its gross asset value rather than 40%.
Group debt metrics 31 March 31 March
(including share of joint ventures) 2022 2021
£m £m
Nominal value of debt (196.2) (214.5)
Unrestricted cash 20.7 50.7
Net debt (175.5) (163.8)
Market value of investment property 685.8 582.3
LTV (%) 25.6 28.1
Weighted average debt maturity (years) 4.0 3.9
Weighted average interest rate (%) 2.16 1.93
Loan facilities hedged / fixed (%) 76 76
At the start of the year, Industrials REIT held approximately £50 million of
unrestricted cash, the majority of which was earmarked for deployment in
acquiring MLI property. We acquired £36.5 million of MLI in the first half of
the year, while also banking proceeds of approximately £42 million from the
sale of our Guernsey office asset and Hermann retail centre in Berlin. These
sale proceeds allowed us to continue purchasing MLI without drawing on the
NatWest debt refinancing which completed in September 2021. The NatWest
tranche of £29.0 million, subsequently drawn in January 2022 resulted in an
all-in interest rate of 2.66% across the whole facility at year end. The
facility matures in November 2025. At the end of the financial year,
Industrials REIT held £20.7 million of unrestricted cash.
Subsequent to year end, on 13 May 2022, we completed two further loans with
NatWest as follows:
• A new £27 million tranche was concluded at a margin of 175 bps and
loan maturity in November 2025. An interest rate swap coterminous with loan
expiry was purchased in relation to this loan at a rate of 2.206%.
• The revolving credit facility ("RCF") provided by Investec Bank was
not used in the year and expired in May 2022. The facility was replaced with a
new NatWest £25 million RCF on 13 May 2022, with expiry in November 2025. The
NatWest RCF has a commitment fee of 1.13% and a margin of 2.25%.
When considered in isolation, our MLI portfolio has a weighted average debt
maturity of 4.2 years, with the next maturity occurring in February 2025. We
will continue to proactively manage our debt maturity profile as well as
reviewing and diversifying our lender base as we grow the UK MLI portfolio.
Our MLI all-in contracted weighted average cost of debt was 2.19% at 31 March
2022, compared with 1.97% at the previous year end. This reflects the increase
in interest costs on our floating interest rate debt and is expected to move
further out as we progress through the financial year ending 31 March 2023.
As part of our debt finance strategy, we actively discuss our ESG programme
with our lenders and keep under review the opportunity to incorporate green
frameworks into our facility agreements.
Industrials REIT has been in full compliance with its lending covenants
throughout the year.
Cash flow
Industrials REIT acquired £102.7 million of assets in the year inclusive of
acquisition costs and received net sales proceeds of £46 million from the
disposal of the final three wholly owned non-MLI assets. The balance required
to complete these acquisitions came from opening unrestricted cash balances of
£50 million and debt drawn in the year of £29 million.
At year end Industrials REIT held unrestricted cash balances of £20.7 million
and on 13 May 2022 concluded the drawdown of a further £27 million tranche of
debt. It remains our strategy to deploy cash as swiftly as possible on new MLI
assets, while also maintaining our disciplined underwriting criteria on
acquisitions.
Conclusion
We have reported another set of strong financial results for the year ended 31
March 2022, demonstrated by a record total accounting return of 25.0%. We have
also largely completed our repositioning into a fully focused MLI operating
business. Demand for our space remains strong and further evolution of
Industrials Hive will allow us to capitalise on efficiencies and initiatives.
We are seeking to deliver similar levels of MLI rental growth in the coming
year assuming the supply/demand fundamentals remain favourable. These
sustained fundamentals are due to supply constraints with build costs not
justified by current MLI rent levels, and high demand from the increasingly
diverse customer base who are competing to occupy our flexible space. However,
the UK economy is experiencing inflationary pressures and increasing interest
rates look set to continue for some time which will impact consumers and
businesses. We remain confident that the structural switch of occupiers to MLI
as a result of e-commerce trends is likely to be a strong counterbalance to
these headwinds as the universe of occupiers expands. We remain confident that
our existing MLI portfolio will continue to perform well and still deliver on
our targeted total accounting return hurdle of at least 10% for the coming
year.
We commence the new financial year with enthusiasm as we aim to build on our
achievements in transitioning into an MLI operating business. We are
particularly focused on capitalising on our operating platform and look
forward to our next four-year goal of doubling our MLI portfolio such that we
can benefit from scaling our operation, reducing our cost ratio, and growing
our dividend for investors.
James Beaumont
Chief Financial Officer
9 June 2022
Responsibility statement
To the best of the Directors' knowledge, the financial statements, prepared in
accordance with IFRS; give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole.
The Annual Report and Accounts includes a fair review of the development and
performance of the business and the position of the Group and Company,
together with a description of the principal risks and uncertainties that the
Group faces.
The Directors consider that the annual report and accounts, taken as a whole,
is fair, balanced and understandable, and provides the information necessary
for shareholders to access the Company's position, performance, business
model, and strategy.
Approval of annual financial statements
The consolidated annual financial statements of Industrials REIT Limited were
approved by the Board of Directors on 9 June 2022 and are signed on their
behalf by:
Paul Arenson
Chief Executive Officer
James Beaumont
Chief Financial Officer
Consolidated statement of comprehensive income
For the year ended 31 March 2022
Note 31 March 31 March
2022 2021
£'000 £'000
Continued operations
Revenue 44,186 32,018
Expected credit losses (1,328) (2,042)
Property expenses (10,071) (6,916)
Net rental income 6 32,787 23,060
Management fee income 44 747
Operating costs 7 (13,441) (9,729)
Net operating income 19,390 14,078
Fair value gain on investment properties 89,509 26,891
Loss on disposal of property (85) (9)
Income from joint ventures 18 1,707 61
Net foreign exchange gain/(loss) 17 (65)
Profit from operations 110,538 40,956
Net gain from fair value of derivative financial instruments 1,948 1,815
Interest income 129 48
Finance costs 9 (3,899) (4,510)
Profit for the year before taxation 108,716 38,309
Tax credit 10 13 42
Profit for the year from continuing operations 108,729 38,351
Discontinued operations
(Loss)/gain for the year from discontinued operations 19 (1,265) 14,664
Profit for the year 107,464 53,015
Profit attributable to:
Equity holders 107,464 53,045
Non-controlling interest derived from continuing operations - (30)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation reserve (2,148) (3,663)
Total comprehensive income for the year 105,316 49,352
Total comprehensive income attributable to:
Equity holders 105,316 49,382
Non-controlling interest - (30)
Earnings per share Pence Pence
From continuing operations:
EPS 14 37.27 13.54
Diluted EPS 14 37.12 13.43
From continuing and discontinued operations:
EPS 14 36.83 18.71
Diluted EPS 14 36.68 18.57
The comparatives have been restated to reflect the change in classification of
current year discontinued operations to enable an effective like-for-like
comparison.
Consolidated statement of financial position
For the year ended 31 March 2022
Note 31 March 31 March
2022 2021
£'000 £'000
ASSETS
Non-current assets
Investment properties 16 645,082 511,220
Investment in joint ventures 18 - 143
Investment in joint venture bond 18 - 14,119
Intangible assets 3,542 1,784
Derivative financial instruments 24 1,864 138
Other debtors 20 6,543 8,670
Right-of-use asset 35 314
Total non-current assets 657,066 536,388
Current assets
Cash and cash equivalents 21 31,526 53,781
Trade and other receivables 20 12,159 8,723
Investment in joint ventures 18 385 -
Investment in joint venture bond 18 14,883 -
Other investments - 1,000
Derivative financial instruments 24 - 2,024
Assets classified as held for sale 19 6,015 39,208
Total current assets 64,968 104,736
Total assets 722,034 641,124
LIABILITIES
Current liabilities
Bank loans 23 - 4,489
Taxes payable 1,844 1,706
Accounts payable and accruals 22 19,549 16,516
Provisions 947 -
Lease liability 28 316
Liabilities directly associated with assets classified as held for sale 19 - 15,166
Total current liabilities 22,368 38,193
Non-current liabilities
Bank loans 23 177,823 176,655
Derivative financial instruments 24 - 430
Lease liability 7 26
Total non-current liabilities 177,830 177,111
Total liabilities 200,198 215,304
Net assets 521,836 425,820
EQUITY
Capital and reserves
Share capital and share premium 12 322,765 322,776
Equity reserve 189 (10,058)
Retained earnings 179,575 91,647
Foreign currency translation reserve 19,307 21,455
Total equity 521,836 425,820
£ £
Net asset value per share 15 1.79 1.49
Diluted net asset value per share 15 1.78 1.48
The consolidated financial statements were approved by the Board of Directors
on 9 June 2022 and signed on its behalf by
James Beaumont
Chief Financial Officer
Consolidated statement of changes in equity
For the year ended 31 March 2022
Note Share capital and share premium Equity reserve Retained earnings Foreign currency translation reserve Attributable to equity shareholders Non-controlling interest Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 April 2021 322,776 (10,058) 91,647 21,455 425,820 - 425,820
Profit for the year - - 107,464 - 107,464 - 107,464
Foreign currency exchange gain 19 - - - (2,291) (2,291) - (2,291)
Other comprehensive income for the year - - - 143 143 - 143
Total comprehensive income for the year - - 107,464 (2,148) 105,316 - 105,316
Equity-settled share-based payments 13 (11) 3,876 - - 3,865 - 3,865
Ordinary dividends 11 - 6,371 (19,536) - (13,165) - (13,165)
Total contributions and distribution recognised directly in equity (11) 10,247 (19,536) - (9,300) - (9,300)
Balance at 31 March 2022 322,765 189 179,575 19,307 521,836 - 521,836
Balance at 1 April 2020 322,993 (14,360) 57,490 25,118 391,241 95 391,336
Profit for the year - - 53,045 - 53,045 (95) 52,950
Other comprehensive income for the year - - - (3,663) (3,663) - (3,663)
Total comprehensive income for the year - - 53,045 (3,663) 49,382 (95) 49,287
Equity-settled share-based payments 13 (217) 1,219 213 - 1,215 - 1,215
Repurchase of own shares - (4,110) - - (4,110) - (4,110)
Ordinary dividends 11 - 7,193 (19,101) - (11,908) - (11,908)
Total contributions and distribution recognised directly in equity (217) 4,302 (18,888) - (14,803) - (14,803)
Balance at 31 March 2021 322,776 (10,058) 91,647 21,455 425,820 - 425,820
Consolidated statement of cash flows
For the year ended 31 March 2022
Note 31 March 2022 31 March 2021
£'000 £'000
Operating activities
Profit from operations from continuing operations 110,538 40,955
Profit from operations from discontinued operations 19 (968) 17,808
109,570 58,763
Depreciation 7 294 274
Increase in fair value of investment property 16 (87,022) (35,109)
Loss/(gain) on disposal of property 763 (495)
Income from joint ventures 18 (1,707) (61)
Loss on disposal of joint venture 1 -
Management fee expenses - (1)
Share-based payments 7 1,126 937
Foreign currency exchange gain previously recognised in other comprehensive 25 (2,291) -
income
Loss/(profit) on disposal of subsidiaries 25 2,375 (468)
Exchange rate (gain)/loss (176) 44
Increase in trade and other receivables (800) (274)
Increase/(decrease) in trade and other payables 4,371 (3,327)
Cash generated by operations 26,504 20,283
Interest paid (3,647) (4,749)
Interest received 729 1,707
Net tax paid 732 (96)
Net cash from operating activities 24,318 17,145
Contributed by: Continuing operations 22,475 6,842
Discontinued operations 1,843 10,303
Investing activities
Purchase of investment property 16 (102,705) (96,363)
Capital expenditure - property 16 (3,898) (1,617)
Capital expenditure - ERP (2,004) (1,377)
Proceeds on disposal of investment property, net of selling costs 35,894 52,849
Tax paid on disposal of property (1,186) (9,174)
Receipt of loans advanced under the Share Purchase Plan - 6,643
Other investment - Cash and short-maturity bonds on call 1,000 (1,000)
Repayment of third-party loans 25 (1) 4,543
Disposal of subsidiary 25 25,223 7,738
Net cash disposed of in subsidiary 25 (434) (348)
Net cash used in investing activities (48,111) (38,106)
Contributed by: Continuing operations (107,607) (93,612)
Discontinued operations 59,496 55,506
Financing activities
New bank loans raised 23 29,121 89,558
Repayment of borrowings 23 (18,714) (77,926)
Amortisation of loans 23 (33) (123)
Dividends paid (10,011) (10,665)
Withholding tax on dividends paid (2,320) (1,305)
Lease payments (331) (281)
Repurchase of shares - (4,110)
SWAP break fee - (1,895)
Proceeds from issues of share options 2,738 106
Financing fees paid (891) (2,072)
Net cash used in financing activities (441) (8,713)
Contributed by: Continuing operations 13,906 7,958
Discontinued operations (14,347) (16,671)
Net decrease in cash and cash equivalents (24,234) (29,673)
Effect of foreign exchange losses (1,778) (1,933)
Cash and cash equivalents at beginning of the period 53,982 85,588
Cash and cash equivalents at end of the period 31,526 53,982
Contributed by: Continuing operations 29,813 32,372
Discontinued operations and assets held for sale 1,713 21,610
Funds totalling £11.2 million were restricted at 31 March 2022 (2021: £4.4
million), see note 21.
The comparatives have been restated to reflect the change in classification of
current year discontinued operations to enable an effective like-for-like
comparison.
Notes to the consolidated financial statements
1 General Information
Industrials REIT Limited (the 'Company' and together with its subsidiaries the
'Group') is registered in Guernsey (Registration number 64865). The registered
address of the Company is Kingsway House, Havilland Street, St Peter Port, GY1
2QE, Guernsey. With effect from 1 May 2018, the Company converted to a UK real
estate investment trust ('REIT').
2 Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS's) as issued by the IASB,
the Disclosure and Transparency Rules of the UK's FCA and applicable Guernsey
law. The consolidated financial statements have been prepared on the
historical cost basis, except for the revaluation of investment properties and
financial instruments that are measured at fair values at the end of each
reporting period, as explained in the accounting policies below. Historical
cost is generally based on the fair value of the consideration given in
exchange for goods and services. The principal accounting policies, which are
consistent with those applied in the previous annual financial statements,
except for the adoption of new and revised standards (described below), are
set out below. The consolidated financial statements are presented in GBP
(Pounds Sterling).
The financial information set out in these preliminary summarised audited
financial statements does not constitute the Group's statutory accounts for
the years ended 2022 and 2021 but is derived from those accounts. The auditors
have reported on those accounts and provided an unqualified opinion, including
key audit matters within their audit report. It did not draw attention to any
matters by way of emphasis without qualifying their report and did not contain
statements under The Companies (Guernsey) Law, 2008. A copy is available upon
written request from the Company's registered office. The auditors' reports do
not necessarily report on all of the information contained in these financial
results. Shareholders are therefore advised that in order to obtain a full
understanding of the nature of the auditors' engagement they should obtain a
copy of the auditors' reports together with the accompanying financial
information from the issuer's registered office.
Going concern
At the date of signing these consolidated financial statements, the Group has
positive operating cash flows and positive net assets. Management have
carefully considered the impact of the significant risks and uncertainties
within the context of the Group's viability and prospects, with specific
emphasis placed on the uncertainties posed to the business and the Group's
occupiers as a result of the potential microeconomic impact of the COVID-19
pandemic and political events, including Brexit, and the economic sanctions
imposed on Russia following the war in Ukraine.
Management subjected the Group's cash flow forecast for the period to 30
September 2023 to appropriate scenarios. The forecast model was subjected to
appropriate scenarios to consider the impact of the significant risks and
uncertainties facing the business, taking into account likely effectiveness of
mitigating actions that the Group would have at its disposal. The
significant risks and uncertainties identified as relevant to the forecast and
its ability to continue to meet its obligations as they fall due, relate to
the financing of acquisitions and the interest-rate environment, debt
compliance, rental growth rates, rental collections, void periods,
inflationary costs, and REIT obligations.
The Group has unrestricted cash reserves of £20.7 million at the start of the
look forward period which is a key factor in assessing the validity of the
going concern assumption for the Group. The Group has no refinancing
requirements until 2025 and have utilised swaps (or fixed rate borrowing
loans) to fix 75% of borrowing costs, lowering the exposure to the volatile
interest-rate environment.
Sensitivities to loan covenants were assessed in detail, as well as the
Group's REIT obligations. Despite the disruption in the economy caused by
COVID-19, and the uncertain economic outlook with higher inflation rates and
interest rate movements, we do not expect the risk of default under our debt
facilities to have increased and no breach cures have been assumed in the
forecast model. This is considered appropriate in light of the significant
headroom which exists for all interest cover ratios and for loan-to-value
ratio covenants at the time of publishing this report and during the forecast
period based on projections.
In light of this review, the significant liquid assets at year end and the
£72.5 million (2021: £27.0 million) of unencumbered property at reporting
date, management are satisfied that the Group has access to adequate resources
to meet its obligations as they fall due and will continue in operational
existence for a period of at least twelve months from the date of these
financial statements. The directors believe that it is therefore appropriate
to prepare the accounts on a going concern basis and no material uncertainty
exists in reaching this conclusion.
Note 27 to the consolidated financial statements includes the Group's
objectives, policies, and procedures for managing its capital, market, credit,
and liquidity risks.
Adoption of new and revised standards
In the current period no new or revised Standards and Interpretations have
been adopted. At the date of approval of these consolidated financial
statements, the Group has not applied the following new standards that have
been issued but are not yet effective:
Amendments to IAS 1 Classification of liabilities as current or non-current
Impact assessment of adopting new accounting standards
The Directors are in the process of assessing this standard and does not
expect that the adoption of the standard listed above will have a material
impact on the financial statements of the Group in future periods.
New standards in issue but not yet effective
Amendments to IAS 1 Classification of liabilities as current or non-current.
In January 2020, the IASB issued amendments to IAS 1, which are intended to
clarify the requirements that an entity applies in determining whether a
liability is classified as current or non-current. The amendments are intended
to be narrow in scope and nature and are meant to clarify the requirements in
IAS 1 rather than modify the underlying principles. The amendments include
clarifications relating to how events after the end of the reporting period
affect liability classification, what the rights of an entity must be to
classify a liability as non-current, how an entity assesses compliance with
conditions of a liability (e.g., bank covenants), and how conversion features
in liabilities affect their classification. The amendments are applied
prospectively for annual reporting periods beginning on or after 1 January
2023, with early application permitted. However, they are yet to be endorsed
for application in the United Kingdom. The IASB has proposed further
amendments to the classification of liabilities under IAS 1 in a new exposure
draft issued in November 2021 for non-current liabilities with covenants and
the effective date is proposed to be deferred to 1 January 2024.
3 Significant accounting policies
Basis of consolidation
Consolidation of a subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the subsidiary.
Specifically, the results of the subsidiaries acquired or disposed of during
the period are included in the consolidated statement of comprehensive income
from the date the Company gains control until the date when the Company ceases
to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed
to the owners of the Company and to the non-controlling interests. Total
comprehensive income of the subsidiaries is attributed to the owners of the
Company and to the non-controlling interests, even if this results in the
non-controlling interests having a deficit balance.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used in line with the Group's
accounting policies.
All intragroup assets and liabilities, equity, income, expenses, and cash
flows relating to transactions between the members of the Group are eliminated
on consolidation.
When the Group loses control of a subsidiary, the gain or loss on disposal
recognised in profit or loss is calculated as the difference between (i) the
aggregate of the fair value of the consideration received and the fair value
of any retained interest, and (ii) the previous carrying amount of the assets
(including goodwill), less liabilities of the subsidiary and any
non-controlling interests.
All amounts previously recognised in other comprehensive income in relation to
that subsidiary are accounted for as if the Group had directly disposed of the
related assets or liabilities of the subsidiary (i.e., reclassified to profit
or loss or transferred to another category of equity as specified/permitted by
applicable IFRS). The fair value of any investment retained in the former
subsidiary at the date when control is lost is regarded as the fair value on
initial recognition for subsequent accounting under IFRS 9 Financial
Instruments or, when applicable, the costs on initial recognition of an
investment in an associate or jointly controlled entity.
Joint ventures
The Group's investment properties are typically held in property-specific
separate legal entities, which may be legally structured as joint ventures. In
assessing whether a particular legal entity is accounted for as a subsidiary
or joint venture, the Group considers all of the contractual terms of the
arrangement, including the extent to which the responsibilities and parameters
of the venture are determined in advance of the joint venture agreement being
agreed between the two parties. The Group will then consider whether it has
the power to govern the financial and operating policies of the legal entity,
to obtain benefits from its activities, and the existence of any legal
disputes or challenges to this control in order to conclude on the
classification of the legal entity as a joint venture or subsidiary
undertaking. In applying this policy and as detailed in note 18, the Group's
investment in Elysion S.A. is classified as a joint venture because the share
of beneficial ownership and management of the portfolio being conducted by the
joint venture partner.
The consolidated financial statements account for interests in joint ventures
using the equity method of accounting per IFRS 11 Joint Arrangements.
Loans to joint ventures are separately presented from equity interests in the
Group's consolidated statement of financial position. The Group eliminates
upstream and downstream transactions with its joint ventures, including
interest and any other costs, to the extent of the Group's interest in the
relevant joint venture. The classification and measurement of loans to joint
ventures is determined in accordance with the Group's accounting policies for
financial assets.
Business combinations and asset acquisitions
Business combinations are accounted for using the acquisition method and any
excess of the purchase consideration over the fair value of the net assets
acquired is initially recognised as goodwill and subsequently reviewed for
impairment. Any discount received and/or acquisition costs are recognised in
the consolidated statement of comprehensive income.
The Group acquires subsidiaries that own real estate. At the time of
acquisition, the Group considers whether the acquisition represents the
acquisition of a business. The Group accounts for an acquisition as a business
combination where an integrated set of activities is acquired in addition to
the property. More specifically, the following criteria are considered:
• The number of items of land and buildings owned by the subsidiary;
• The extent to which significant processes are acquired and in
particular the extent of ancillary services provided by the subsidiary; and
• Whether the subsidiary has allocated its own staff to manage the
property and/or to deploy any processes, including provision of all relevant
administration and information to the entity's owners.
When the acquisition of subsidiaries does not represent a business, it is
accounted for as an acquisition of a group of assets and liabilities.
There were no business combinations acquired during the 12 months to 31 March
2022 (2021: nil).
Revenue recognition
The Group earns returns from investments in direct property assets and
management fees. Revenue is recognised when it is probable that the economic
benefits associated with the transaction will flow to the Group and the amount
of revenue can be measured reliably.
Rental income
Rental income and lease incentives are recognised in accordance with IFRS 16
Leases. Rental income from investment property is recognised as revenue on a
straight-line basis over the lease term. Lease incentives and costs associated
with entering into tenant leases are amortised over the lease term, or if the
probability that a break option will be exercised is considered high, over the
period to the first break option. Rent reviews are recognised when such
reviews have been agreed with tenants.
Rental income from operating leases is recognised on an accruals basis. A rent
adjustment based on open market estimated rental value is recognised from the
rent review date in relation to unsettled rent reviews. Where a significant
rent-free period is included in a lease, the rental income forgone is
allocated evenly over the period from the date of lease commencement to the
expiry date of the lease.
Rental income from fixed and minimum guaranteed rent reviews is recognised on
a straight-line basis over the entire lease term. Where such rental income is
recognised ahead of the related cash flow, an adjustment is made to ensure the
carrying value of the investment property, including the accrued rent, does
not exceed the external valuation. Initial significant direct costs incurred
in negotiating and arranging a new lease are amortised on a straight-line
basis over the period from the date of lease commencement to the expiry date
of the lease.
Where a lease incentive payment, or surrender premium is paid to enhance the
value of a property, it is amortised on a straight-line basis over the period
from the date of lease commencement to the expiry date of the lease. Upon
receipt of a surrender premium for the early determination of a lease, the
profit, net of dilapidations and non-recoverable outgoings relating to the
lease concerned, is immediately reflected in income.
Lease modifications are a change in the scope of a lease, or the consideration
for a lease, which was not part of the original terms and conditions of the
lease (for example, adding or terminating the right to use one or more
underlying assets, or extending or shortening the contractual lease term).
Lease modifications are accounted for under IFRS 16 Leases. Modifications to a
lease is recognised as a new lease from the effective date of the
modification, considering any prepaid or accrued lease payments relating to
the original lease as part of the lease payments for the new lease.
Deferred income relates to rental income that has been collected in advance of
it being recognised as revenue.
Contingent rents, such as turnover rents, rent reviews and indexation, are
recorded as income in the periods in which they are earned.
Tenant recharges
Service charge income, property fee income and joint venture and associate
management fees are recognised in accordance with IFRS 15 Revenue from
contracts with customers, which prescribes the use of a five-step model for
the recognition of revenue. These income streams are recognised as revenue in
the period in which they are earned.
Service charge income is recognised in the accounting period in which the
services are rendered, and the related property expenses are recognised in the
period in which they are incurred.
Other income
Other income mainly consists of solar power income and asset management fee
income from the care homes joint venture. These revenue streams are accounted
for under IFRS 15 Revenue from contracts with customers and are recognised as
revenue in the period in which they are earned.
Foreign currencies
The individual financial statements of each Group company are presented in the
currency of the primary economic environment in which it operates (its
functional currency). For the purpose of the consolidated financial
statements, the results and financial position are expressed in GBP Sterling,
which is the functional currency of the Company and the presentational
currency for the Group.
In preparing the financial statements of the individual companies,
transactions in currencies other than the entity's functional currency
(foreign currencies) are recognised at the rates of exchange prevailing on the
dates of the transactions. At each statement of financial position date,
monetary assets and liabilities that are denominated in foreign currencies are
translated at the rates prevailing at that date. Non-monetary items carried at
fair value that are denominated in foreign currencies are translated at the
rates prevailing at the date when the fair value was determined. Non-monetary
items that are measured in terms of historical cost in a foreign currency are
not retranslated. Exchange differences are recognised in profit or loss for
the period in which they arise.
For the purpose of presenting consolidated financial statements, the assets
and liabilities of the Group's foreign operations are translated at exchange
rates prevailing on the reporting date. Income and expense items are
translated at the average exchange rates for the period. Exchange differences
arising are recognised in other comprehensive income and accumulated in equity
(attributed to non-controlling interests as appropriate).
Borrowing costs
Interest costs are recognised in the consolidated statement of comprehensive
income using the effective interest rate method.
Borrowing costs directly attributable to arranging finance are amortised over
the facility term in the consolidated statement of comprehensive income.
Current tax
The Group is a UK REIT, where profits arising in respect of the property
rental business are not subject to UK corporation tax. Taxation in respect of
profits and losses outside of the property rental business comprises current
and deferred taxes. Taxation is recognised in the consolidated statement of
comprehensive income except to the extent that it relates to items recognised
as a direct movement in equity, in which case it is also recognised as a
direct movement in equity.
Current tax is the total of the expected corporation tax payable in respect of
any non-REIT taxable income for the year and any adjustment in respect of
previous periods, based on tax rates applicable to the respective periods.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying
amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit.
Deferred tax assets are generally recognised for all deductible temporary
differences to the extent that it is probable that taxable profits will be
available against which those deductible temporary differences can be
utilised. Such deferred tax assets and liabilities are not recognised if the
temporary difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a
transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
associated with investments in subsidiaries and associates, and interests in
joint ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with such investments and interests are only
recognised to the extent that it is probable that there will be sufficient
taxable profits against which to utilise the benefits of the temporary
differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each
reporting period and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset
to be recovered. Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the period in which the liability is
settled or the asset realised, based on tax rates (and tax laws) that have
been enacted or substantively enacted by the end of the reporting period. The
measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the Group expects, at
the end of the reporting period, to recover or settle the carrying amount of
its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and
liabilities on a net basis.
Non-controlling interests
Non-controlling interests in the net assets (excluding goodwill) of
consolidated subsidiaries are identified separately from the Group's equity
therein. Non-controlling interests consist of the amount of those interests at
the date of the original business combination and the non-controlling
interests' share of the changes in equity since the date of the combination.
Total comprehensive income is attributed to non-controlling interests even if
this results in the non-controlling interests having a deficit balance.
Investment properties
Properties held to earn rental income and/or capital appreciation are
classified as investment properties. Investment properties comprise both
freehold and long leasehold land and buildings.
Investment properties are recognised as assets when:
• it is probable that the future economic benefits that are associated
with the investment property will flow to the Group;
• there are no material conditions precedent which could prevent
completion; and
• the cost of the investment property can be measured reliably.
Investment properties are measured initially at cost, including related
transaction costs. After initial recognition, investment properties are
carried at fair value, determined by the Directors and/or based on independent
external appraisals performed by JLL, twice a year.
The Group uses the valuations prepared by its independent valuers as the fair
value of its investment properties. These valuations are undertaken in
accordance with the appropriate sections of the current Practice Statements
contained in the Royal Institution of Chartered Surveyors Valuation -
Professional Standards ('Red Book'). This is an internationally accepted basis
of valuation. The valuations are based upon assumptions including contractual
and estimated rental values, future rental income, anticipated maintenance
costs, future development costs and appropriate discount rates. The valuers
also refer to market evidence of transaction prices for similar properties.
The valuation techniques used are consistent with
IFRS 13 Fair Value Measurement.
The difference between the fair value of a property at the reporting date and
its carrying amount prior to remeasurement is included in the consolidated
statement of comprehensive income as a valuation surplus or deficit in the
fair value gain/(loss) on investment properties account.
Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash
at banks with an original maturity of three months or less. Cash balances are
recorded net of tenant deposits. Restricted cash represents service charge
monies held by managing agents as well as rent held in bank accounts which are
secured by lenders, for the purposes of debt repayments.
Expenditure
Expenses are accounted for on an accrual basis. Property expenses include the
costs of professional fees on lettings and other non-recoverable costs.
Operating costs include all professional fees incurred in operating the
business in the best interests of the shareholders.
Financial instruments
A financial instrument is a contract that gives rise to a financial asset to
one entity and a financial liability or equity instrument to another. The
classification of financial assets and financial liabilities depends on the
nature and purpose of the instrument and is determined at the time of initial
recognition.
Financial assets and financial liabilities are initially measured at fair
value. Transaction costs that are directly attributable to the acquisition or
issue of financial assets and financial liabilities (other than financial
assets at fair value through profit or loss ('FVTPL')) are added to or
deducted from the fair value of the financial assets or financial liabilities,
as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets
or financial liabilities at FVTPL are recognised immediately in the statement
of comprehensive income.
In addition, for financial reporting purposes, fair value measurements are
categorised into Level 1, 2 or 3 based on the degree to which the inputs to
the fair value measurements are observable and the significance of the inputs
to the fair value measurement in its entirety, which are described as follows:
Level 1 - Inputs are quoted prices (unadjusted) in active markets for
identical assets or liabilities that the entity 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 or indirectly.
Level 3 - Inputs are unobservable inputs for the asset or liability.
Financial assets
The Group classifies its financial assets as either at fair value through
profit and loss or amortised cost. The Group classifies its financial assets
based on both the Group's business model for managing those financial assets
and the contractual cash flow characteristics of the financial assets.
The Group's financial assets classified at amortised cost are non-derivative
financial assets with fixed or determinable payments that are not quoted in an
active market. They include current assets with maturities or terms less than
12 months after the reporting date, as well as financial assets with
maturities greater than 12 months after the reporting date, which are
classified as non-current assets. These assets meet the condition of being
held within a business model whose objective is to hold the financial assets
in order to collect contractual cash flows and the terms of which give rise,
on specified dates, to cash flows that are solely payments of principal and
interest.
Financial assets, including those relating to the purchase of Industrials REIT
Limited shares (note 20), are measured at amortised cost using the effective
interest method, less any loss allowance for expected credit losses (ECL)
which are recognised in the statement of comprehensive income. The amount of
expected credit loss is updated at each reporting date to reflect changes in
credit risk since initial recognition of the respective financial instrument.
The effective interest rate is the rate that exactly discounts estimated
future cash receipts excluding expected credit losses, through the expected
life of the financial instrument, or, where appropriate, as shorter period, to
the gross carrying amount of the financial instrument on initial recognition.
In the case of short-term trade receivables and other debtors the Group
recognises lifetime ECL in accordance with the simplified approach under IFRS
9 Financial Instruments. The expected credit losses on these financial assets
are estimated based on the Group's historical credit loss experience, adjusted
for factors that are specific to the debtors, general economic conditions, and
an assessment of both the current and forecast direction of conditions at the
reporting date.
The carrying amount of the financial asset is reduced by the ECL directly for
all financial assets. When a trade receivable is considered uncollectable, it
is written off against the ECL provision account. Changes in the ECL are
recognised in the statement of comprehensive income in the period.
The Group classifies its financial assets at fair value through profit or loss
where it has determined that the business model for managing the financial
assets and the related contractual cash flow characteristics is not consistent
with the policy for classification at amortised cost or fair value through
other comprehensive income (OCI). The Group has determined the bond investment
in the Elysion S.A. joint venture meets the criteria disclosed in note 4.
There are no financial assets measured at fair value through OCI, which would
be classified as such where they are held within a business model whose
objective is achieved by both collecting contractual cash flows and selling
the financial assets; and cash flows relate solely to payments of principal
and interest.
The Group derecognises a financial asset when the contractual rights to the
cash flows from the asset have expired or have been transferred and the Group
has transferred substantially all risk and rewards of ownership of the asset
to another entity.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or
as equity in accordance with the substance of the contractual agreement.
An equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all its liabilities. Ordinary shares are
classed as equity. Equity instruments issued by the Group are recorded at the
proceeds received, net of direct issue costs.
The Group's financial liabilities comprise interest-bearing borrowings, loans
and payables and trade payables. Financial liabilities are recognised when the
Group becomes party to the contractual provisions of the instrument. Financial
liabilities are measured at amortised cost using the effective interest
method. Trade and other payables are valued at their nominal value as the time
value of money is immaterial for these current liabilities.
The Group derecognises financial liabilities when the Group's obligations are
discharged, cancelled or they expire.
Interest rate swaps have been initially recognised at fair value, and
subsequently remeasured at fair value through profit and loss in accordance
with IFRS 9, Financial Instruments. They have been entered into to hedge
against the exposure to variable interest rate loans as described in note 27.
They have been valued by an independent valuer in line with internationally
accepted practice.
A derivative with a positive fair value is recognised as a financial asset
whereas a derivative with a negative fair value is recognised as a financial
liability. A derivative is presented as a non-current asset or non-current
liability if the remaining maturity of the instrument is more than 12 months,
and it is not expected to be realised or settled within 12 months. It is Group
policy not to hedge account. Other derivatives are presented as current assets
or current liabilities.
Intangible assets
Intangible assets comprise computer software developed for our Industrials
Hive operating platform which will allow Industrials REIT to grow its MLI
business. The expenditure capitalised includes the cost of platform
development as well as contractor and service provider costs. At 31 March
2022, the ERP operating platform has been built, but is not in operation.
Amortisation will begin when Industrials Hive is first used on 1 April 2022.
Accordingly, no amortisation or impairment has been recognised in the
reporting period ending 31 March 2022.
Non-current assets and disposal groups held for sale
A non-current asset or a disposal group (comprising assets and liabilities) is
classified as held for sale if their carrying amount is expected to be
recovered or settled principally through sale rather than through continuing
use. The asset or disposal group must be available for immediate sale, have
the appropriate level of management commitment and the sale must be highly
probable within one year of the reporting date. Investment properties included
in the held for sale category continue to be measured in accordance with the
accounting policy for investment properties.
Note, disclosures in these financial statements are recognised net of assets
classified as held for sale and discontinued operations.
Segmental reporting
An operating segment is a component of the Group that engages in business
activities from which it may earn revenues and in respect of which it may
incur expenses. An operating segment's operating results are reviewed
regularly by the chief operating decision makers (the Executive Directors) to
inform decisions about resources to be allocated to the segment and to assess
its performance. Segmental financial information is available as disclosed in
note 5.
Dividends
Dividends to the Group's ordinary shareholders are recognised when they are
declared. This is when they are approved by the Board.
Industrials REIT offers shareholders the option to receive in respect of all
or a part of their Industrials REIT shareholding either a scrip dividend, by
way of an issue of new Industrials REIT shares (of the same class as existing
shares) credited as fully paid up (the 'scrip dividend'), or a cash dividend
(the 'cash dividend'). The cash dividend will be paid to shareholders unless
shareholders elect to receive the scrip dividend. Scrip dividends are paid out
of Industrials REIT's treasury share account.
Earnings per share
Earnings per share is calculated on the weighted average number of shares in
issue in respect of the current period and is based on the profit attributable
to the ordinary shareholders.
Net asset value per share
Net asset value per share is calculated on the number of shares in issue
(excluding treasury shares) at the end of the current period and is based on
the total equity attributable to equity shareholders.
Share-based payments
Save As You Earn Share Plan, Deferred Share Bonus Plan and Long-Term Incentive
Plan
The cost of equity-settled transactions is measured with reference to the fair
value at the date at which they were granted. The Company accounts for the
fair value of these options on a straight-line basis over the vesting period
in the statement of comprehensive income, with a corresponding increase to the
share-based payment reserve in equity. The cost to the Company is based on the
Company's best estimate of the number of equity instruments that will
ultimately vest. Readers are referred to note 13: Share-based payments, where
share-based payments are disclosed further.
Share Purchase Plan
As part of the Group's previous remuneration policy, the Company awarded
shares to qualifying participants, funded through the advance of loans to the
participants. Loans advanced under the share purchase plan are
interest-bearing at a rate equal to the average interest rate incurred by the
Group from time to time. Interest is payable six monthly in arrears. Loans are
repayable within 30 days of cessation of employment or loss of office (unless
the participant ceases employment in circumstances beyond his or her control,
in which case the loan is repayable within 12 months) and must in all
circumstances be repaid in ten years. All dividends received by such employees
(or his or her nominee), by virtue of their shareholding, must first be
utilised to discharge any interest outstanding from the loan advanced on the
Share Purchase Plan.
The loans have full recourse to the participants and as such fall outside of
the scope of IFRS 2 and are accounted for as financial instruments under IFRS
9. The participants must charge their shares by way of security for the loan
and are required to waive all rights to compensation for any loss in relation
to the plan. No further awards will be made under the Share Purchase Plan.
Repurchase of share capital (own shares)
Where share capital recognised as equity is repurchased, the amount of the
consideration paid, including directly attributable costs, is recognised as a
deduction from equity. Such shares may either be held as own shares (treasury
shares) or cancelled. Where own shares are subsequently re-sold from treasury,
the amount received is recognised as an increase in equity.
4 Critical accounting judgements and key sources of estimation uncertainty
The preparation of the 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 year,
which have a risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year, 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 appraisal. 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, as well as the key sensitivity variables, can be found in note 16.
The Group currently has four continental European investment properties held
in a joint venture. Further information these assets held for sale can be
found in note 18 - investment in joint ventures.
Critical judgements
Assets held for sale and discontinued operations
The Directors have disclosed one (2021: two) property which meets the criteria
defined in IFRS 5: Non-current Assets Held for Sale and Discontinued
Operations. The Directors have classified the Guernsey, Germany (retail
properties) and Switzerland operating segments as discontinued operations. The
Guernsey and Switzerland operating segments no longer hold any investment
property and as such the Directors have classified these segments as
discontinued operations.
One UK MLI property known as Rose Kiln Court in Reading is classified as held
for sale. This asset's fair value has been determined by the Directors based
on an offer for sale that was received on the open market, less transaction
costs.
Industrials REIT is actively trying to sell its joint venture holding of the
four German care homes properties and is committed to exit the German market
as soon as possible. The German care homes were first classified as held for
sale at 30 September 2021. However, this investment is not classified as held
for sale at 31 March 2022 because the Directors no longer consider the
requirements of IFRS 5 to be met. Whilst the Directors are actively trying
to find a buyer and negotiations are ongoing with several prospective buyers
the Directors do not consider the imminent sale of the investment to be highly
probable. Accordingly, the Directors have classified the German (care homes)
segment as a continuing operation. The Directors remain committed to the
plan to sell the care homes and are confident a buyer will emerge to acquire
Industrial REIT's share of the care homes joint venture on equitable terms
within the period to 31 March 2023.
Classification of investment in joint venture bond
Classification and measurement of financial assets under IFRS 9 are driven by
the entity's business model for managing financial assets and the contractual
cash flow characteristics of those financial assets. The Directors have
determined that the contractual cash flow characteristics for bond investments
into Elysion S.A. ('JV') (a joint venture) are not solely payments of
principal and interest. The Group instead receives the return for each
underlying loan net of additional fees and expenses in the JV and so it is not
considered to be a basic lending arrangement under the standard. Further
details on the structure are included in note 18. As such, these bond
investments are required to be measured at fair value through profit or loss.
In making this judgement, the Directors have considered the power the Group
has to influence the investment decisions of the JV housing the underlying
loans, which are managed at the discretion of the JV partner and were the
Group to hold the majority interest it has been determined that the
contractual cash flow characteristics for a basic lending arrangement would
have been met and therefore accounted for at amortised cost.
5 Operating segments
The Group has specialised 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 year ended 31 March 2022 UK multi-let industrial Germany^ Group Guernsey Germany^ Switzerland Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Net rental income 32,704 - 83 - - - 32,787
Net management fee income - - 44 - - - 44
Fair value movement on investment properties 89,509 - - - - - 89,509
Net gain/(loss) from fair value of financial liabilities 2,139 - (191) - - - 1,948
Loss on disposal of property (85) - - - - - (85)
Income from joint venture - 1,707 - - - - 1,707
Net finance costs (3,738) - (32) - - - (3,770)
Tax, legal and professional fees (545) - (1,401) - - - (1,946)
Audit fees - - (272) - - - (272)
Administration fees (42) - (377) - - - (419)
Non-Executive Directors' costs - - (279) - - - (279)
Staff remuneration costs - - (5,945) - - - (5,945)
Operating costs (2) - (4,578) - - - (4,580)
Net foreign exchange gain - - 17 - - - 17
(Loss)/gain from discontinued operations (see note 19) - - - (686) (855) 276 (1,265)
Tax credit 13 - - - - - 13
Total profit/(loss) per reportable segment 119,953 1,707 (12,931) (686) (855) 276 107,464
As at 31 March 2022
Investment properties 645,082 - - - - - 645,082
Investment in joint ventures - 15,268 - - - - 15,268
Cash and cash equivalents 26,927 - 2,885 7 888 819 31,526
Other 17,446 - 4,235 - 2,396 66 24,143
Assets classified as held for sale 6,015 - - - - - 6,015
Total assets 695,470 15,268 7,120 7 3,284 885 722,034
Borrowings - bank loans 177,823 - - - - - 177,823
Other 17,629 - 3,962 1 745 38 22,375
Total liabilities 195,452 - 3,962 1 745 38 200,198
Continuing operations Discontinued operations
For the year ended 31 March 2021 UK multi-let industrial* Germany ^ Group Guernsey Germany ^ Switzerland Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Net rental income 22,984 - 75 - - - 23,059
Net management fee income - - 747 - - - 747
Fair value movement on investment properties 26,892 - - - - - 26,892
Net (loss)/gain from fair value of financial liabilities (209) - 2,024 - - - 1,815
Loss on disposal of property (9) - - - - - (9)
Income/(expense) from joint ventures - 62 (1) - - - 61
Net finance (costs)/income (4,498) - 36 - - - (4,462)
Tax, legal and professional fees (404) - (831) - - - (1,235)
Audit fees - - (265) - - - (265)
Administration fees (26) - (251) - - - (277)
Investment advisory fees - - - - - - -
Non-Executive Directors' costs - - (416) - - - (416)
Staff remuneration costs - - (4,100) - - - (4,100)
Operating costs (2) - (3,434) - - - (3,436)
Net foreign exchange loss - - (65) - - - (65)
Gain/(loss) from discontinued operations (see note 19) - - - 2,544 13,011 (891) 14,664
Tax credit (7) - 49 - - - 42
Total profit/(loss) per reportable segment 44,721 62 (6,432) 2,544 13,011 (891) 53,015
As at 31 March 2021
Investment properties 455,070 - - 56,150 - - 511,220
Investment in joint ventures - 14,261 1 - - - 14,262
Cash and cash equivalents 12,497 - 19,875 1,174 20,235 - 53,781
Other 13,729 - 5,820 772 2,332 - 22,653
Assets classified as held for sale - - - - 26,592 12,616 39,208
Total assets 481,296 14,261 25,696 58,096 49,159 12,616 641,124
Borrowings - bank loans 153,215 - - 27,929 - - 181,144
Other 11,940 - 3,662 2,062 1,330 - 18,994
Liabilities directly associated with assets classified as held for sale - - - - 9,766 5,400 15,166
Total liabilities 165,155 - 3,662 29,991 11,096 5,400 215,304
* The comparatives have been restated and now reports the previously
stated UK urban logistics segment in the UK multi-let industrial segment from
1 April 2021.
^ The German operating segment has been split between continuing and
discontinued operations. Due to the potential protracted time-frame it is
expected to 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 classified as discontinued
operations. This classification does not change the Group's strategy to
dispose its ownership interest in the care home's joint venture and the sales
process is progressing well.
The comparative operating segments have also been restated to reflect the
change in classification of current year discontinued operations to enable an
effective like-for-like comparison.
6 Net rental income
31 March 31 March
2022 2021
£'000 £'000
Rental income 35,260 27,341
Tenant recharges 8,625 3,602
Other income 301 1,075
Revenue 44,186 32,018
Direct property costs (10,071) (6,916)
Expected credit losses (1,328) (2,042)
Property expenses (11,399) (8,958)
Total net rental income 32,787 23,060
The comparatives have been restated to reflect the change in classification of
current year discontinued operations to enable an effective like-for-like
comparison.
7 Operating costs
31 March 31 March
2022 2021
£'000 £'000
Tax, legal and professional fees 1,946 1,235
Audit fees 234 229
Interim review fees 38 36
Administration fees 419 277
Non-Executive Directors' remuneration costs 279 416
Staff remuneration costs 5,945 4,100
Share-based payments 1,126 937
ERP project expenses 718 463
Depreciation 294 274
Corporate costs 762 623
IT costs 904 678
Other operating costs 776 461
Total operating costs 13,441 9,729
Share-based payments of £1.1 million (2021: £937,000) relate to the
equity-settled incentive schemes operated by the Group. As at 31 March 2022
the Group's equity reserve held £3.6 million (2021: £2.6 million) in
relation to the schemes after the exercise of options at fair value of
£343,000 (2021: £748,000) during the period.
The comparatives have been restated to reflect the change in classification of
current year discontinued operations to enable an effective like-for-like
comparison.
8 Employees' and Directors' emoluments
The average number of the Group's employees was 46 during the current
financial year (2021: 33). At 31 March 2022, the Group employed 52 people
(2021: 43). The aggregate remuneration paid to employees during the period,
including that to Executive Directors, was:
31 March 31 March
2022 2021
£'000 £'000
Wages and salaries 4,267 3,510
Social security costs 1,500 449
Pension costs 178 141
Share-based payments 1,126 937
Total employee costs 7,071 5,037
As at 31 March 2022, the Group had nine Directors (2021: nine). The Directors
of the Group during the financial year and at the date of this report were as
follows:
Non-Executive Directors Appointed
Paul Miller 14 Sep 2016
Richard Grant (Chair of the Board) 1 May 2018
Philip Holland 1 May 2018
Patsy Watson 5 Jun 2019
Louisa Bell 4 Nov 2020
Richard Smith 4 Nov 2020
Executive Directors Appointed
Paul Arenson (Chief Executive Officer) 2 Oct 2014
Julian Carey (Managing Director) 1 May 2018
James Beaumont (Chief Financial Officer) 5 Jun 2019
Emoluments paid to Executive Directors are disclosed in the remuneration
report in our annual report. Emoluments paid to Non-Executive Directors are
summarised below:
Non-Executive Directors 31 March 31 March
2022 2021
£'000 £'000
Richard Grant 58 58
Philip Holland 43 43
Patsy Watson 35 35
Paul Miller 40 40
Louisa Bell 40 16
Richard Smith 40 16
Warren Lawlor - paid to Ferryman Capital Partners (Pty) Limited - 18
Total 256 226
The above Non-Executive fees include all management, consulting, technical or
other fees paid for such services rendered, including payments to management
companies.
The Group's share-based payments comprise the Save As You Earn share plan
("SAYE"), the Deferred Share Bonus Plan ("STIP"), and the Long-Term Incentive
Plan ("LTIP") for Executive Directors and Senior Management, and various share
option schemes.
The Company measures the fair value of the equity-based share options at grant
date and accounts for the cost over the vesting period in the statement of
comprehensive income, with a corresponding increase to the share-based payment
reserve. The cost is based on the quantity of shares that are likely to vest,
taking into account expected performance against the relevant performance
targets where applicable, and service periods. Share-based awards and the
respective vesting dates are further detailed in note 13.
On 8 June 2022, the Board of Directors, on the recommendation of the
Remuneration Committee, approved the following:
Bonuses in respect of the year ended 31 March 2022
Executive Directors Cash bonus Deferred share bonus plan Number of share options LTIP for Executive Directors Number of share options
£'000 £'000 (estimated) £'000 (estimated)
Paul Arenson 171 149 82,800 657 365,000
Julian Carey 165 143 79,400 632 351,200
James Beaumont 82 43 23,900 191 106,100
Total 418 335 186,100 1,480 822,300
On 9 June 2021, the Board of Directors, on the recommendation of the
Remuneration Committee, approved the following:
Bonuses in respect of the year ended 31 March 2021
Executive Directors Cash bonus Deferred share bonus plan Number of share options LTIP for Executive Directors Number of share options
£'000 £'000 £'000
Paul Arenson 169 253 162,248 572 366,058
Julian Carey 162 243 155,908 549 351,713
James Beaumont 81 40 25,850 182 116,619
Total 412 536 344,006 1,303 834,390
Directors' interests - beneficial direct and indirect holdings in the Company
As at 31 March 2022:(1) Direct number of shares % of Indirect number of shares % of Number of share options held % of
shares in issue shares in issue shares in issue
Paul Arenson (CEO) 481,236 0.16 % 15,810,572(2) 5.29 % 2,979,246 1.00 %
Patsy Watson - - % 1,129,442 0.38 % 52,346 0.02 %
Julian Carey (MD) 3,344,697 1.12 % 33,705 0.01 % 2,113,000 0.71 %
James Beaumont (CFO) 57,616 0.02 % - - % 495,947 0.17 %
Paul Miller 21,898 0.01 % - - % - - %
Richard Grant (Chair of the Board) - - % 100,000 0.03 % - - %
Philip Holland 24,999 0.01 % - - % - - %
Louisa Bell - - % - - % - - %
Richard Smith 15,000 0.01 % - - % - - %
(1 ) In addition, the Directors' beneficial direct and indirect
holding in the Company remain unchanged as at 8 June 2022, being the last
practical date before publication of this report.
(2 ) 5,392,536 shares are subject to security by way of a
shareholder loan (see note 13).
There were no further changes in the above Directors' interests from 31 March
2022 to the date of the signing of these financial statements.
As at 31 March 2021: Direct number of shares % of Indirect number of shares % of Number of share options held % of
shares in issue shares in issue shares in issue
Paul Arenson (CEO) 472,215 0.16 % 15,311,788(1) 5.12 % 2,562,856 0.86 %
Patsy Watson - - % 1,106,602 0.37 % 50,646 0.02 %
Julian Carey (MD) 3,344,740 1.12 % 32,543 0.01 % 1,738,875 0.58 %
James Beaumont (CFO) 57,756 0.02 % - - % 380,847 0.13 %
Paul Miller 21,898 0.01 % - - % - - %
Richard Grant (Chair of the Board) - - % 100,000 0.03 % - - %
Philip Holland 24,999 0.01 % - - % - - %
Louisa Bell - - % - - % - - %
Richard Smith - - % - - % - - %
(1 ) 5,392,536 shares are subject to security by way of a
shareholder loan (see note 13).
9 Finance costs
31 March 31 March
2022 2021
£'000 £'000
Interest on loans and borrowings 3,015 3,724
Amortisation of facility costs 884 786
Net finance costs 3,899 4,510
The comparatives have been restated to reflect the change in classification of
current year discontinued operations to enable an effective like-for-like
comparison.
10 Taxation
Real Estate Investment Trust regime (REIT regime)
The Company converted to UK REIT status on 1 May 2018. As a member of the REIT
regime, profits from its UK property rental business are tax exempt. The REIT
regime only applies to certain property-related profits and has several
criteria which have to be met. The main criteria are:
• the assets of the property rental business must be at least 75% of
the Group's assets;
• the profit from the tax-exempt property rental business must exceed
75% of the Group's total profit; and
• at least 90% of the Group's profit from the UK property rental
business must be paid as dividends.
The Company continues to meet these conditions and management intends that
Industrials REIT should continue as a REIT for the foreseeable future.
(i) Tax recognised in statement of comprehensive income
31 March 31 March
2022 2021
£'000 £'000
Current tax - UK
On net income for the year - -
Current tax - Foreign
On net income for the year (13) (42)
Total current tax credit (13) (42)
Deferred tax - -
Total tax credit (13) (42)
No tax was recognised on other comprehensive income during the period (2021:
nil). The United Kingdom tax rate is 19%.
(ii) Reconciliation of tax charge for the year
31 March 31 March
2022 2021
£'000 £'000
Profit before taxation on continuing operations 108,716 38,309
Expected tax charge on ordinary activities at the standard rate of taxation of 20,656 7,279
19% (2021: 19%)
Fair value of derivative financial instrument losses/(gains) not taxable 36 (385)
Property rental business profits exempt from tax in the REIT Group (22,791) (8,497)
Effect of tax rates in other jurisdictions (315) 55
Effect of tax losses 2,414 1,548
Tax provisions relating to prior periods (13) (42)
Total income tax credit (13) (42)
The comparatives have been restated to reflect the change in classification of
current year discontinued operations to enable an effective like-for-like
comparison.
11 Dividends
For the year ended
31 March 2022
Pence £'000
per share
Amounts recognised as dividends to equity holders in the period:
Final dividend for the year ended 31 March 2021 paid on 13 August 2021 3.375 9,721
Interim dividend for the year ended 31 March 2022 paid on 11 February 2022 3.375 9,815
Total dividends distributed 6.75 19,536
Scrip dividends issued during the period:
Final scrip dividend for the year ended 31 March 2021 paid on 13 August 2021 3.375 (3,573)
Interim scrip dividend for the year ended 31 March 2022 paid on 11 February 3.375 (2,798)
2022
Total scrip dividends issued 6.75 (6,371)
Withholding tax liability opening balance 576
Withholding tax liability closing balance (1,410)
Dividends paid as reported in the consolidated statement of cash flows 12,331
For the year ended
31 March 2021
Pence £'000
per share
Amounts recognised as dividends to equity holders in the period:
Final dividend for the year ended 31 March 2020 paid on 14 August 2020 3.375 9,550
Interim dividend for the year ended 31 March 2021 paid on 12 February 2021 3.375 9,551
Total dividends distributed 6.75 19,101
Scrip dividends issued during the period:
Final scrip dividend for the year ended 31 March 2020 issued on 14 August 2020 3.375 (4,074)
Interim scrip dividend for the year ended 31 March 2021 issued on 12 February 3.375 (3,119)
2021
Total scrip dividends issued 6.75 (7,193)
Withholding tax liability opening balance 638
Withholding tax liability closing balance (576)
Dividends paid as reported in the consolidated statement of cash flows 11,970
The Directors declared a final dividend on 9 June 2022, for the year ended 31
March 2022, of 3.475 pence per share, which is detailed in note 30.
12 Share capital
Authorised
1,000,000,000 ordinary shares with a par value of €0.000001258 each:
Issued share capital 31 March 31 March
2022 2021
(no. shares) (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 322,764 322,775
Total share capital and share premium 322,765 322,776
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 (2020: 298,775,175) ordinary shares in issue at
the reporting date, including treasury shares.
On 11 June 2021, the Company announced a final dividend of 3.375 pence per
share in respect of the six months to 31 March 2021. On 12 August 2021, the
Company announced a take-up of the scrip dividend representing 0.92% of the
issued share capital and 2,749,876 shares were subsequently issued from
treasury shares on 13 August 2021.
On 3 December 2021, the Company announced an interim dividend of 3.375 pence
per share in respect of the six months to 30 September 2021. On 10 February
2022, the Company announced a take-up of the scrip dividend representing 0.48%
of the issued share capital and 1,428,082 shares were subsequently issued from
treasury shares on 11 February 2022.
As at 31 March 2022, the Company held 6,520,962 treasury shares (2021:
12,866,950). 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 (see note 13). At 31 March 2022, the
carrying value of the Company's treasury shares was £3,370,000 (2021:
£12,851,000) and the equity-settled share-based payments reserve reduced this
account by £3,559,000 (2021: £2,793,000)
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.
Treasury shares 31 March 31 March
2022 2021
(no. shares) (no. shares)
Opening balance 12,866,950 15,830,040
Issue of scrip dividend shares (4,177,958) (5,436,781)
Market buy-back of shares for the period to 31 March 2021 was at an average - 3,476,265
price of £1.18 per share
Exercised shares from the Deferred Share Bonus Plan (55,287) (797,797)
Exercised shares from the Long-Term Incentive Plan (112,743) (204,777)
Exercised shares from the Other Share Purchase Plan (2,000,000) -
Closing number of treasury shares 6,520,962 12,866,950
13 Share-based payments
The Group operates share incentive plans which are used to attract and retain
high-calibre employees to help grow the business. All awards are considered by
the Remuneration Committee and are subject to Board approval.
The Group recognised a total share-based expense of £1,126,000 in the year
(2021: £937,000) in relation to the share option schemes. As at
31 March 2022, the equity reserve held £3,558,000 in relation to share-based
payment transactions (2021: £2,636,000).
The incentive plans are discussed in more detail below.
Save As You Earn (SAYE) share scheme
The Board gave all employees an opportunity to purchase Industrials REIT
Limited's shares in three years' time at a discount. Such share options vest
in three years. Share options may be exercised three years after grant or
employees may have all their savings returned to them in cash. Employees
choose how much they want to contribute to the scheme each month, from £5 up
to a maximum of £500 per month.
The fair value of this nil-cost option is determined using the Black-Scholes
model. The key inputs used in determining the award granted on 15 March 2022
are shown below:
Share price at date of grant 188.00p
Expected option life in years 3
Option price discount 20.00%
Value per option 50.00p
Movement in options granted in terms of this plan are detailed below:
Date of grant At Granted Dividend Exercised/ Outstanding at Exercisable at Fair value at
1 April 2021 equivalents Other 31 March 2022 31 March 2022 grant date
in GBP
Exercise dates
From To
15 March 2022 - 140,897 - - 140,897 - £0.50 1 May 2025 1 November 2025
Weighted average exercise price of Save As You Earn share options At At
31 March 2022 31 March 2021
Exercisable - N/A
Non-exercisable £1.55 N/A
Weighted average remaining contracted life of Save As You Earn share options At At
31 March 2022 31 March 2021
Exercisable - N/A
Non-exercisable 3.6 years N/A
Deferred share bonus plan
The Board may grant an award to an eligible employee following a
recommendation from the Remuneration Committee over such number of shares that
have an aggregate value equal to the deferred bonus. Such share options vest
in three equal tranches; the first tranche vests on the date of grant with
subsequent tranches vesting at the first and second anniversaries of the
relevant year end. Share options may be exercised until the tenth anniversary
of the grant date, after which time they will lapse.
The fair value of this nil-cost option is determined using the Black-Scholes
model. The key inputs used in determining the award granted on 11 June 2021
are shown below:
Share price at date of grant 159.00p
Expected option life in years 2
Value per option 159.00p
Movement in options granted in terms of this plan are detailed below:
Date of grant At Granted Dividend Exercised/ Outstanding at Exercisable at Fair value at
1 April 2021 equivalents Other 31 March 2022 31 March 2022 grant date
in GBP
Exercise dates
From To
10 June 2015 247,093 - 6,700 - 253,793 253,793 £1.08 10 June 2015 10 June 2025
8 June 2016 163,010 - 4,608 - 167,618 167,618 £1.05 8 June 2016 8 June 2026
7 June 2017 14,322 - 428 - 14,750 14,750 £1.08 7 June 2017 7 June 2027
7 June 2018 188,560 - 5,988 - 194,548 194,548 £1.13 7 June 2018 7 June 2028
6 June 2019 417,732 - 14,106 (25,669) 406,169 406,169 £1.12 6 June 2019 6 June 2029
12 June 2020 124,956 - 4,984 (40,702) 89,238 89,238 £1.17 12 June 2020 12 June 2030
11 June 2021 - 414,880 15,471 (14,816) 415,535 272,085 £1.59 11 June 2021 11 June 2031
Weighted average exercise price of deferred share bonus plan share options At At
31 March 2022 31 March 2021
Exercisable £1.20 £1.10
Non-exercisable £1.59 £1.17
Weighted average remaining contracted life of deferred share bonus plan share At At
options
31 March 2022 31 March 2021
Exercisable 6.4 years 6.7 years
Non-exercisable 9.2 years 9.2 years
LTIP for Senior Management
Such share options vest in three equal tranches; the first tranche vests on
the first anniversary of year end, with subsequent tranches vesting at the
second and third anniversaries of the relevant year ends. Share options may be
exercised until the tenth anniversary of the grant date, after which time they
will lapse. The fair value of this award is determined using the Black-Scholes
model. The key inputs used in determining the award granted on 11 June 2021
are shown below:
Share price at date of grant 159.00p
Exercise price at grant date 156.15p
Expected option life in years 10
Risk-free rate 0.11%
Expected volatility 33.00%
Value per option 50.00p
The volatility assumption is based on a statistical analysis of daily share
prices of comparator companies over the three years prior to the 11 June 2021
grant date.
Date of grant At Granted Dividend Exercised/ Outstanding at Exercisable at Fair value at
1 April 2021 equivalents Other 31 March 2022 31 March 2022 grant date
in GBP
Exercise dates
From To
24 January 2018 98,944 - 3,142 - 102,086 102,086 £0.47 31 March 2018 24 January 2028
7 June 2018 483,925 - 11,788 (112,741) 382,972 382,972 £0.27 31 March 2019 7 June 2028
6 June 2019 436,105 - 29,311 (14,656) 450,760 450,760 £0.26 31 March 2020 6 June 2029
12 June 2020 432,848 - 15,372 448,220 298,813 £0.37 31 March 2021 12 June 2030
11 June 2021 - 373,295 13,950 - 387,245 129,082 £0.50 31 March 2022 11 June 2031
Weighted average exercise price of LTIP for senior management share options At At
31 March 2022 31 March 2021
Exercisable £1.14 £1.12
Non-exercisable £1.37 £1.12
Weighted average remaining contracted life of LTIP for senior management share At At
options
31 March 2022 31 March 2021
Exercisable 7.2 years 7.7 years
Non-exercisable 8.8 years 8.9 years
LTIP for Executive Directors
Such share options vest on the third anniversary of grant date subject to
predetermined vesting conditions being met. All options not vesting on the
vesting date will automatically lapse. All vested options and shares received
upon the exercise of vested options are subject to a further two-year lock-in
period during which they cannot be sold. The fair value of these nil-cost
options is determined by external valuers using the Black-Scholes model and
the Monte Carlo model. The key inputs used in determining the award granted on
11 June 2021 are shown below:
Share price 159.00p
Exercise price at grant date £0.00
Expected option life in years 3+2
Risk-free rate 0.12%
Expected volatility 33.00%
Value per option - non-market awards 159.00p
Value per option - market awards 91.00p
The volatility assumption is based on a statistical analysis of daily share
prices of comparator companies over the three years prior to the 11 June 2021
grant date.
Date of grant At Granted Dividend Exercised/ Outstanding at Exercisable at Fair value at
1 April 2021 equivalents Other 31 March 2022 31 March 2022 grant date
in GBP
Exercise dates
From To
24 January 2018 243,813 - 7,293 - 251,106 - £0.68 8 June 2020* 8 June 2027
7 June 2018 1,124,038 - 19,812 (500,206) 643,644 - £0.52 7 June 2021* 7 June 2028
6 June 2019 1,072,297 - 36,031 - 1,108,328 - £0.52 6 June 2022* 6 June 2029
12 June 2020 1,107,497 - 39,322 - 1,146,819 - £0.75 12 June 2023* 12 June 2030
12 June 2020 - 834,390 31,180 - 865,570 - £0.91 11 June 2024* 11 June 2031
* Lock-in period of two years applies after vesting.
Weighted average exercise price of LTIP for Executive Directors' share options At At
31 March 2022 31 March 2021
Exercisable - -
Non-exercisable - -
Weighted average remaining contracted life of LTIP for Executive Directors' At At
share options
31 March 2022 31 March 2021
Exercisable - -
Non-exercisable 7.6 years 8.1 years
Other share options
On 30 March 2017, the Company agreed to grant to Ferryman Capital Partners
Limited, a company in which Warren Lawlor, a former Non-Executive Director,
has a one-third beneficial interest, an option to subscribe for 2,000,000
Industrials REIT shares. The exercise price was £1.32. The full cost of this
option was recognised in the year ended 31 March 2018. The option was
exercised in full between 18 June 2021 and 9 July 2021.
The fair value of this award was determined using the Black-Scholes model. The
key inputs used in determining the award granted on
30 March 2017 are shown below:
Share price £1.08
Exercise price at grant date £1.31
Expected option life in years 5
Risk-free rate 1.50%
Expected volatility 31.31%
Expected dividend yield 5.00%
Value per option £0.13
The volatility assumption is based on a statistical analysis of daily share
prices of Industrials REIT Limited over the two years prior to the 30 March
2017 grant date.
Date of grant At Granted Exercised Outstanding at Exercisable at Fair value
1 April 2021 31 March 2022 31 March 2022 at grant
date in GBP
Exercise dates
From To
30 March 2017 2,000,000 - 2,000,000 - - £0.13 30 December 2017 31 March 2022
Share purchase plan
Loans advanced under the share purchase plan are interest-bearing at a rate
equal to the average interest rate incurred by the Group from time to time.
Interest is payable six-monthly in arrears. Loans are repayable within 30 days
of cessation of employment or loss of office (unless the participant ceases
employment in circumstances beyond his or her control, in which case the loan
is repayable within 12 months), and must in all circumstances be repaid in ten
years. All dividends received by such employees (or his or her nominee) by
virtue of their shareholding must first be utilised to discharge any interest
outstanding in terms of the loan advanced in terms of the Share Purchase Plan.
The loans have full recourse to the participants who must charge their shares
by way of security for the loans.
The table below summarises the position at year end in terms of loans advanced
and the number of shares to which they relate. No further awards will be made
under the Share Purchase Plan.
31 March 2022 31 March 2021
Brought forward at start of year (number of shares) 5,392,536 10,037,162
Share Purchase Plan shares issued in year (number of shares) - -
Share Purchase Plan shares redeemed (number of shares) - (4,644,626)
Carried forward at end of year (number of shares) 5,392,536 5,392,536
Stock price at advancement (€) N/A N/A
Share Purchase Plan loans advanced (including accrued interest) (see note 20) (£'000) 6,543 6,540
14 Earnings per ordinary share
31 March 31 March
2022 2021
£'000 £'000
Reconciliation of profit for the period to adjusted EPRA(1) earnings
Earnings per IFRS statement of comprehensive income attributable to 107,464 53,045
shareholders
Adjustment to exclude gain from discontinued operations 1,265 (14,664)
Earnings per IFRS statement of comprehensive income from continuing operations 108,729 38,381
attributable to shareholders
Earnings per IFRS statement of comprehensive income attributable to 107,464 53,045
shareholders
Adjustments to calculate EPRA earnings, exclude:
Gain on fair value of investment properties (87,107) (35,109)
Gain on fair value of financial instruments, debt and associated close-out (1,948) (1,784)
costs
Deferred tax in respect of EPRA adjustments (1,719) (1,618)
Loss/(gain) on disposal of properties 776 (639)
Tax expense on disposal of properties 1,093 3,470
Loss on disposal of subsidiaries 84 172
Adjustments above in respect of joint ventures:
(Gain)/loss on fair value of investment properties (75) 1,466
Gain on fair value of financial instruments (210) (41)
Deferred tax in respect of EPRA adjustments 88 (51)
EPRA earnings attributable to shareholders 18,446 18,911
Further adjustments to arrive at adjusted earnings:
Costs associated with the transfer to the Premium Segment of the Main Market 989 -
of the London Stock Exchange
Costs associated with ERP implementation 711 463
Adjusted earnings attributable to shareholders(2) 20,146 19,374
Weighted average number of shares in issue (excluding treasury shares) 291,769,203 283,549,160
Share-based payment award 1,181,961 2,167,213
Diluted weighted average number of shares in issue 292,951,164 285,716,373
Earnings per share from continuing operations Pence Pence
IFRS EPS 37.27 13.54
Diluted IFRS EPS 37.12 13.43
Earnings per share from continuing and discontinued operations Pence Pence
IFRS EPS 36.83 18.71
Diluted IFRS EPS 36.68 18.57
EPRA EPS 6.32 6.67
Diluted EPRA EPS 6.30 6.62
Adjusted EPS 6.88 6.78
(1 ) The European Public Real Estate Association (EPRA) issued
the Best Practices Recommendations policy in October 2019, which 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 the EPRA Best Practice Recommendations
policy issued in October 2019, should companies wish to make other adjustments
to arrive at an underlying performance measure, they should do that below
'EPRA earnings' and 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.
The comparatives have been restated to reflect the change in classification of
current year discontinued operations to enable an effective like-for-like
comparison.
As at 31 March 2022, the Company held 6,520,962 treasury shares (2021:
12,866,950).
Costs associated with the transfer to the Premium Segment of the Main Market
of the London Stock Exchange
On 15 December 2021, Industrials REIT transferred the trading of its ordinary
shares from the Specialist Fund Segment of the Main Market of the London Stock
Exchange to the Premium Segment of the Main Market of the London Stock
Exchange. The costs associated with the transfer will not be reoccurring and
have been adjusted for as a "company-specific adjustment".
Costs associated with ERP implementation
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. It has been adjusted for as a
"company-specific adjustment".
Headline earnings per share
The JSE listings conditions require the calculation of headline earnings
(calculated in accordance with Circular 1/2021 - Headline Earnings as issued
by the South African Institute of Chartered Accountants) 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.
Reconciliation of profit for the period to headline earnings 31 March 31 March
2022 2021
£'000 £'000
Earnings per statement of comprehensive income attributable to shareholders 107,464 53,045
Adjustments to calculate headline earnings, exclude:
Gain on fair value of investment properties (87,107) (35,109)
Deferred tax in respect of headline earnings adjustments (1,719) (1,640)
Loss/(gain) on disposal of properties 776 (639)
Tax expense on disposal of properties 1,093 3,470
Loss on disposal of subsidiaries 84 172
Adjustments above in respect of joint ventures:
(Gain)/loss on fair value of investment properties (75) 1,466
Deferred tax 55 (57)
Headline earnings attributable to shareholders 20,571 20,708
Earnings per share pence pence
Headline EPS 7.05 7.30
Diluted headline EPS 7.02 7.25
15 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 that standardised reporting offers. The real
estate sector as a whole benefits from the use of these guidelines as
consistency increases clarity across the industry.
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.
As at 31 March 2022 NAV EPRA NAV measures
IFRS EPRA NRV EPRA NTA EPRA NDV
£'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 ventures - 1,557 1,557 -
Intangible assets - - (3,542) -
Purchaser's costs(1) - 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)(2) 292,254,213 292,254,213 292,254,213 292,254,213
Share-based payment award 1,181,961 1,181,961 1,181,961 1,181,961
Diluted number of shares in issue 293,436,174 293,436,174 293,436,174 293,436,174
Net asset value per share IFRS EPRA NRV EPRA NTA EPRA NDV
£ £ £ £
Net asset value per share 1.79 - - -
Diluted net asset value per share 1.78 1.93 1.77 1.78
(1 ) 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.
(2 ) As at 31 March 2022, the Company held 6,520,962 treasury
shares.
NAV EPRA NAV measures
As at 31 March 2021 IFRS EPRA NRV EPRA NTA EPRA NDV
£'000 £'000 £'000 £'000
Net assets attributable to equity shareholders 425,820 425,820 425,820 425,820
Adjustments:
Derivative financial instruments - (1,732) (1,732) -
Deferred tax in relation to fair value of investment property and financial - 1,712 - -
instruments(1)
Adjustments above in respect of joint ventures - 714 714 -
Intangible assets - - (1,784) -
Purchaser's costs(2) - 37,798 - -
Net assets used in per share calculation 425,820 464,312 423,018 425,820
Number of shares in issue (excluding treasury shares)(3) 285,908,225 285,908,225 285,908,225 285,908,225
Share-based payment award 2,167,213 2,167,213 2,167,213 2,167,213
Diluted number of shares in issue 288,075,438 288,075,438 288,075,438 288,075,438
NAV New measures
Net assets per share IFRS EPRA NRV EPRA NTA EPRA NDV
£ £ £ £
Net asset value per share 1.49 - - -
Diluted net asset value per share 1.48 1.61 1.47 1.48
(1 ) In the prior year, the Group's deferred tax in relation to
the fair value of investment properties and financial instruments related
solely to those properties in the German portfolio included in assets held for
sale which comprised 4.5% of the portfolio, with a fair value of £26.2
million. No deferred tax was excluded from EPRA NTA as the deferred tax will
be crystallised on sale of these properties in the short term.
(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 31 March 2021, the Company held 12,866,950 treasury
shares.
16 Investment property
The consolidated market value of investment properties at 31 March 2022 was
£653.5 million (2021: £511.2 million). This now comprises only MLI
properties. Apart from one MLI asset that is held for sale, the carrying
amount of the investment properties are stated at estimated fair value,
determined by the Directors, based on an independent external appraisal. The
value of the MLI asset held for sale is based on an offer for sale that was
received on the open market, less transaction costs. The registered
independent appraisers have an appropriate recognised professional
qualification and recent experience in the location and category of the
property being valued ('valuers').
Apart from one MLI asset that is held for sale, the fair value of each of the
properties for the period ended 31 March 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 ten (2021: five) recently acquired MLI properties and
the MLI property held for sale, all investment properties are mortgaged,
details of which can be seen in note 23. 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.
31 March 2022 31 March 2021
Investment Assets held Total - Investment Assets held Total -
property for sale wholly property for sale wholly
£'000 £'000 owned £'000 £'000 owned
£'000 £'000
Opening balance 511,220 38,206 549,426 387,761 109,076 496,837
Acquisitions 102,705 - 102,705 96,363 - 96,363
Capitalised expenditure 3,796 102 3,898 1,514 103 1,617
Transfers to assets held for sale (62,148) 62,148 - - - -
Disposals - (92,807) (92,807) - (76,220) (76,220)
Net fair value gain/(loss) on investment properties 89,509 (2,487) 87,022 25,582 9,527 35,109
Foreign exchange movement in foreign operations - 853 853 - (4,280) (4,280)
Net carrying value 645,082 6,015 651,097 511,220 38,206 549,426
Included in the disposals amount of £92.8 million, is £56.2 million from the
disposal of LPE Limited detailed in note 25. The difference of
£36.6 million relates to the disposal of German and Swiss properties. The
consolidated statement of cash flows figure of £35.9 million included in
proceeds on disposal of investment property, net of selling costs, is the loss
on the disposal of property of £0.7 million.
16 Investment property continued
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 joint ventures the Group does not
own. The following table reconciles the net book value of the investment
properties to the market value.
31 March 2022 31 March 2021
Group Joint ventures Combined portfolio Group Joint ventures Combined portfolio
(excl. joint ventures)
(excl. joint ventures)
£'000 £'000
£'000 £'000
£'000 £'000
Market value 653,475 33,099 686,574 549,426 33,165 582,591
Less: share of joint ventures not owned - (814) (814) - (326) (326)
Portfolio Market value 653,475 32,285 685,760 549,426 32,839 582,265
Less: tenant lease incentives (2,378) - (2,378) - - -
Net carrying value total 651,097 32,285 683,382 549,426 32,839 582,265
The key unobservable inputs used in the valuation of the Group's investment
properties at 31 March 2022 are detailed in the table below:
Combined portfolio Market value Portfolio Valuer's ERV Valuer's ERV Net initial Net initial
(including share of jointly controlled entities) 31 March by market (range) (average) Yield Yield
2022 value (£/sq ft) (£/sq ft) (range) (average)
(£'000) (%) (%) (%)
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 ventures 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 %
Combined portfolio Market value Portfolio Valuer's ERV Valuer's ERV Net initial Net initial
(including share of jointly controlled entities) 31 March by market (range) (average) Yield Yield
2021 value (£/sq ft) (£/sq ft) (range) (average)
(£'000) (%) (%) (%)
Investment properties
Guernsey 56,150 9.7 % 38.9 38.9 7.3 % 7.3 %
UK multi-let industrial 432,910 74.3 % 2.8-9.7 5.4 1.5-8.3 % 6.2 %
UK urban logistics 22,160 3.8 % 3.4-23.7 11.7 5.5-9.2 % 7.4 %
Subtotal 511,220 87.8 % - 9.3 - 6.4 %
Assets held for sale
Germany 26,239 4.5 % 14.5 14.5 4.9 % 4.9 %
Switzerland 11,967 2.1 % 12.7 12.7 3.4 % 3.4 %
Total - wholly owned 549,426 94.4 % - 9.6 - 6.2 %
Share of joint ventures 32,839 5.6 % 8.2-14.9 12.3 5.2-8.7 % 6.1 %
Market value total 582,265 100.0 % - 9.8 - 6.2 %
Future revenue streams comprise contracted rent and estimated rental value
('ERV') after the contract period. In calculating ERV, the potential impact of
future lease incentives to be granted to secure new contracts is taken into
consideration. An increase/decrease in ERV will increase/decrease valuations.
The table below sets out the indicative fair value impact when applying the
sensitivity of the unobservable inputs (Level 3) valuations to a 5% (2021:
10%) change in ERV.
Investment property Fair value at Impact on valuations Fair value at Impact on valuations
31 March 31 March
2022 2021
£'000 £'000
+5% ERV -5% ERV +10% ERV -10% ERV
£'000 £'000 £'000 £'000
UK multi-let industrial 653,475 27,591 (27,591) 432,910 1,980 (2,065)
Joint ventures 32,285 825 (825) 32,839 1,400 (853)
Guernsey - - - 56,150 4,991 (3,916)
UK urban logistics - - - 22,160 2,120 (2,116)
Germany - - - 26,239 n/a n/a
Switzerland - - - 11,967 470 (469)
Group property portfolio valuation 685,760 28,416 (28,416) 582,265 10,961 (9,419)
Net initial yield ('NIY') is the contracted rent on investment properties at
the statement of financial position date, expressed as a percentage of the
investment property valuation, plus purchaser's costs. An increase/decrease in
NIY will decrease/increase valuations. The table below sets out the indicative
fair value impact when applying the sensitivity of the unobservable inputs
(Level 3) valuations to a 25 (2021: 50) basis point change in yield.
Investment property Fair value at Impact on valuations Fair value at Impact on valuations
31 March 31 March
2022 2021
£'000 £'000
+25 bps -25 bps +50 bps -50 bps
£'000 £'000 £'000 £'000
UK multi-let industrial 653,475 (25,182) 27,094 432,910 (32,196) 37,822
Joint ventures 32,285 (1,288) 1,313 32,839 (2,598) 3,037
Guernsey - - - 56,150 (3,568) 4,086
UK urban logistics - - - 22,160 (1,409) 1,614
Germany - - - 26,239 n/a n/a
Switzerland - - - 11,967 (708) 802
Group property portfolio valuation 685,760 (26,470) 28,407 582,265 (40,479) 47,361
The impact the pandemic had on our valuations in prior periods justified using
sensitivities at higher rates. The countries the Group operates in have
emerged from the pandemic where trading restrictions have returned to normal.
The Directors are of the opinion the valuation sensitivities should reflect
what is reasonably possible in the current economic climate. Therefore, the
sensitivities used in this report have reduced from +/-10% ERV to +/-5% ERV
and +/-50 bps to +/-25 bps.
17 Group companies
Details of the Group's subsidiaries as at 31 March 2022 are as follows:
Name Principal place Principal activity % equity owned by Subsidiary
of business Company
BVI incorporated entities with registered address:
Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, VG1110, British Virgin
Islands
Davemount Properties Limited England Property Investment 100.00%
Ruby Red Holdings Limited Guernsey Management 100.00%
SP Corporate Services Limited Guernsey Management 100.00%
SP Nominees Limited Guernsey Management 100.00%
Stenprop Management Holdings Limited Guernsey Holding Company 100.00%
Stenprop Hermann Limited Guernsey Property Investment 100.00%
Stenprop Victoria Limited Guernsey Property Investment 100.00%
Stenprop Industrials 1 Limited Guernsey Holding Company 100.00%
Stenprop Industrials 5 Limited Guernsey Dormant 100.00%
Stenprop (UK) Limited England Holding Company 100.00%
Curaçao incorporated entities with registered address:
Wilhelminalaan 13, Curaçao
Anarosa Holdings N.V. England Holding Company 94.90%
C.S. Property Holding N.V. England Holding Company 94.90%
Lakewood International N.V. England Holding Company 89.00%
T.B. Property Holdings N.V. England Holding Company 100.00%
England incorporated entities with registered address:
180 Great Portland Street, London, W1W 5QZ
Industrials Management Limited England Management 100.00%
Industrials REIT Limited England Dormant 100.00%
Industrials UK Management Limited England Dormant 100.00%
Guernsey incorporated entities with registered address:
Kingsway House, Havilland Street, St Peter Port, Guernsey GY1 2QE
Bernina Property Holdings Limited England Holding Company 100.00%
GGP1 Limited England Property Investment 100.00%
Industrials UK 4 Limited England Property Investment 100.00%
Kantone Holdings Limited Guernsey Property Investment 100.00%
Stenprop Advisers Limited Guernsey Management 10.00% 90.00%
Stenprop Industrials Holdings Limited England Holding Company 100.00%
Stenprop Industrials 6 Limited England Property Investment 100.00%
Stenprop Trafalgar Limited Guernsey Holding Company 100.00%
Stenprop (Germany) Limited England Holding Company 100.00%
Stenprop (Swiss) Limited Guernsey Holding Company 100.00%
Netherlands incorporated entities with registered address:
Fascinatio Boulevard 764, 2909 VA Capelle aan den IJssel, Netherlands
Isabel Properties B.V. Netherlands Non-trading 94.90%
Mindel Properties B.V. Netherlands Holding Company 94.50%
United States incorporated entities with registered address:
1209 Orange Street, Wilmington, Delaware 19801, USA
Industrials UK GP LLC England Holding Company 100.00%
Industrials UK LP England Property Investment 100.00%
Details of the Group's investments in joint ventures are disclosed in note 18.
18 Investment in joint ventures
In the current reporting period, the Directors have classified 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 ventures are 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 ventures at the end of the reporting period are
as follows:
Name Place of incorporation Principal activity % equity owned 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%
On 19 August 2021, Ardale Industrials Limited was dissolved from the Companies
Registration Office in Ireland.
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 Homes 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 16.
Summarised consolidated financial information in respect of the Group's joint
ventures is set out below. Where applicable, these represent the consolidated
results of the respective holding companies.
31 March
2022
£'000
Assets
Investment property 33,099
Fixed assets 30
Cash and cash equivalents 382
Current assets 52
Total assets 33,563
Liabilities
Bank loans (16,183)
Bond (14,883)
Deferred tax (1,489)
Financial liability (63)
Current liabilities (175)
Total liabilities (32,793)
Net assets of joint ventures 770
Group's investment in joint venture bond 14,883
Group's share of joint venture's net assets 385
Profit and total comprehensive income from continuing operations
Revenue 2,470
Finance costs (1,769)
Net fair value loss (100)
Tax expense (316)
Profit and total comprehensive income 285
Group income from joint ventures represented by:
Share of joint venture profit 142
Interest income on joint venture bond 1,465
Net profit on joint venture bond 100
Income from joint ventures 1,707
Elysion Other Total
S.A. £'000 31 March
£'000 2021
£'000
Assets
Investment property 33,164 - 33,164
Fixed assets 31 - 31
Cash and cash equivalents 82 1 83
Current assets 9 - 9
Total assets 33,286 1 33,287
Liabilities
Bank loans (16,947) - (16,947)
Bond (14,119) - (14,119)
Deferred tax (1,326) - (1,326)
Financial liability (488) - (488)
Current liabilities (122) - (122)
Total liabilities (33,002) - (33,002)
Net assets of joint ventures 284 1 285
Group's investment in joint venture bond 14,119 - 14,119
Group's share of joint ventures' net assets 142 1 143
Loss and total comprehensive income from continuing operations
Revenue 2,518 - 2,518
Finance costs (1,821) - (1,821)
Net fair value loss (1,819) (2) (1,821)
Tax expense (159) - (159)
Loss and total comprehensive income (1,281) (2) (1,283)
Group income from joint ventures represented by:
Share of joint venture loss (641) (1) (642)
Interest income on joint venture bond 1,481 - 1,481
Net loss on joint venture bond (778) - (778)
Income from joint ventures 62 (1) 61
Reconciliation of the above summarised financial information to the carrying
amount of the interest recognised in the consolidated financial statements:
31 March 2022 Bond Investment in joint ventures
Elysion
S.A.
£'000
Elysion Other Total
S.A. £'000 £'000
£'000
Opening balance 14,119 142 1 143
Income/(loss) from joint ventures - 242 (1) 241
Gain on fair value movement 1,465 - - -
Investment receipts (604) - - -
Foreign exchange movement in foreign operations (96) - - -
Closing balance 14,884 384 - 384
31 March 2021 Bond Investment in joint ventures
Elysion
S.A.
£'000
Elysion Other Total
S.A. £'000 £'000
£'000
Opening balance 15,336 780 1 781
Income/(loss) from joint ventures 1,481 (642) - (642)
Loss on fair value movement (780) - - -
Investment receipts (1,290) - - -
Foreign exchange movement in foreign operations (628) 4 - 4
Closing balance 14,119 142 1 143
19 Assets held for sale and discontinued operations
Management considers the property known as Rose Kiln Court in Reading, UK
(2021: one property) 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 is expected to be disposed of during the next 12 months.
Non-current assets classified as held for sale are disclosed at their fair
value.
The fair value of this property, and its comparative value, is disclosed in
the table below along with associated assets and liabilities:
Note 31 March 31 March
2022 2021
£'000 £'000
Investment properties 16 6,015 38,206
Cash and cash equivalents - 201
Trade and other receivables - 801
Assets classified as held for sale 6,015 39,208
Bank loans 23 - 13,883
Deferred tax 26 - 1,190
Tax credit - (603)
Accounts payables - 151
Accruals - 545
Liabilities directly associated with assets classified as held for sale - 15,166
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:
31 March 31 March
2022 2021
£'000 £'000
Rental income 1,819 10,804
Tenant recharges 738 2,798
Other income 15 338
Property expenses (261) (4,602)
Net rental income 2,311 9,338
Operating costs (273) (902)
Net operating income 2,038 8,436
Fair value (loss)/gain on investment properties (2,402) 8,217
(Loss)/profit on disposal of properties (678) 664
(Loss)/profit on disposal of subsidiaries (2,375) 468
Foreign currency exchange gain from the disposal of subsidiaries, previously 2,291 -
recognised in other comprehensive income
Net foreign exchange gain 158 22
(Loss)/profit from operations (968) 17,869
Net gain from fair value of derivative financial instruments - 124
Interest receivable - 309
Finance costs (375) (1,419)
(Loss)/profit for the year before taxation (1,343) 16,883
Current tax (1,117) (3,655)
Deferred tax 1,195 1,498
(Loss)/profit for the year from discontinued operations (1,265) 14,726
The comparatives have been restated to reflect the change in classification of
current year discontinued operations, in addition to previously reported
discontinued operations, to enable an effective like-for-like comparison.
On 31 March 2022, accumulated foreign currency exchange gains of £2.3 million
have been reclassified to net income from the translation of foreign
subsidiaries that have been disposed of. These items were previously
recognised in other comprehensive income.
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.
On 2 December 2021, the Group disposed the Switzerland property, known as
Lugano, for CHF12.5 million. The property, which was a health and leisure club
asset, was held in Kantone Limited.
Prior year disposals
On 30 September 2020, the Group disposed of its property, Neucölln Carrée
retail park, in Berlin, Germany, held in Isabel Properties B.V., for €27.0
million.
On 31 March 2021, the Group disposed of its property, Victoria-Center retail
park, in Berlin, Germany, held in Stenprop Victoria Limited, for €37.45
million.
On 31 March 2021, the Group disposed of five properties located in Frankfurt,
Kassel, Ludwigsburg, Marburg and Sindelfingen, Germany, held in Century B.V.
and Century 2 B.V. at a valuation of €27.0 million. The properties were
disposed of as subsidiaries and are further discussed in note 25.
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.
20 Trade and other receivables
Non-current receivables 31 March 31 March
2022 2021
£'000 £'000
Other debtors 6,543 8,670
Total non-current receivables 6,543 8,670
The non-current other debtors value of £6.54 million (2021: £6.51 million)
comprises a loan advanced under the Share Purchase Plan (see note 13:
Share-based payments). This loan advanced under the Share Purchase Plan
remains outstanding at 31 March 2022.
The remaining loan has been assessed for an expected credit loss under IFRS 9.
The analysis shows that due to the full recourse nature of the loan, secured
against the shares issued and underlying assets of the borrower, loss-given
default is currently estimated at nil. There has been no perceived significant
increase in credit risk and we have not recognised an 12-month expected credit
loss on this loan. Refer to note 28 (i) to understand how the Group manages
credit risk.
Current receivables 31 March 31 March
2022 2021
£'000 £'000
Accounts receivable 8,761 6,009
Loss allowance on accounts receivables (3,229) (2,311)
Net receivables 5,532 3,698
Lease incentives 2,378 1,769
Loss allowance on lease incentives (280) (261)
Net lease incentives 2,098 1,508
Other receivables 3,854 2,406
Prepayments 675 1,111
Total current receivables 12,159 8,723
Other receivables includes £2.11 million (2021: £2.13 million was recognised
in non-current other debtors) from part of the proceeds from the sale of the
Victoria retail centre in Germany. A retention of €2.5 million from the
purchase price is held in an escrow account in respect of claims against, and
for certain liabilities of the seller under the disposal agreement for a
period of up to 13 months from the completion date of 31 March 2021.
31 March 2022 31 March 2021
Accounts Rate * Loss Net Accounts Rate * Loss Net
receivables % allowance receivables receivables % Allowance receivables
£'000 £'000 £'000 £'000 £'000 £'000
Not yet due - - - - - - - -
1-30 days overdue 3,596 20 % (476) 3,120 1,361 10 % (37) 1,324
31-60 days overdue 702 38 % (180) 522 1,784 50 % (109) 1,675
61-90 days overdue 462 50 % (121) 342 247 80 % (99) 148
91-120 days overdue 864 59 % (339) 525 340 90 % (323) 17
More than 120 days overdue 3,138 80 % (2,113) 1,025 2,277 100 % (1,743) 534
Closing balance 8,761 - (3,229) 5,535 6,009 - (2,311) 3,698
* 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 the shared credit risk characteristics of business status,
collection history 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 year was as follows:
Loss allowance reconciliation 31 March 31 March
2022 2021
£'000 £'000
Opening balance 2,311 541
Remeasurement of loss allowance 1,328 1,956
Bad debts written off (130) (186)
Closing balance 3,509 2,311
21 Cash and cash equivalents
31 March 31 March
2022 2021
£'000 £'000
Cash at bank 31,526 53,781
Total cash and cash equivalents 31,526 53,781
Restricted cash
At the reporting date funds totalling £11.2 million (2021: £4.4 million)
were classified as restricted. These funds are readily available on demand and
comprise service charge monies held by managing agents amounting to £5.2
million (2021: £4.1 million), £4.8 million (2021: nil) relating to tenant
deposits, £0.9 million (2021: £0.3 million) relating to rent held in bank
accounts which are secured by the lenders, for the purposes of debt repayments
and £0.2 million (2021: nil) of funds refundable for a tenant overpayment.
As the Group is in compliance with all the terms and conditions of its loans
as at the date of signing these financial statements, there are no further
restrictions, and any surplus will flow to the Group.
22 Accounts payable and accruals
31 March 31 March
2022 2021
£'000 £'000
Trade payable 107 2,149
Accruals 7,088 4,200
Rental income received in advance 6,843 6,811
Other payables 5,551 3,356
Total accounts payables and accruals 19,549 16,516
Tenant deposits held by the Group at 31 March 2022, total £4.8 million (2021:
£2.8 million). In the current year tenant deposits are included in the other
payables balance of £5.5 million. In the prior year tenant deposits were
netted off against the corresponding cash balance and are therefore shown as
nil.
Accounts payable and accruals balances are recognised at amortised cost and
approximates their fair value.
At 31 March 2022, the Group has committed to £1.8 million (2021: £1.3
million) in capital expenditure works that have not been provided for in these
financial statements.
23 Borrowings
31 March 2022 31 March 2021
Borrowings Assets held for sale Total - wholly Borrowings Assets held for sale Total - wholly
£'000 £'000 owned £'000 £'000 owned
£'000 £'000
Opening balance 181,144 13,883 195,027 154,171 43,177 197,348
New loans 29,121 - 29,121 89,558 - 89,558
Repayment of borrowings (4,496) (14,218) (18,714) (61,484) (16,442) (77,926)
Bank loans associated with the disposal of subsidiaries - (27,959) (27,959) - (10,734) (10,734)
Transfer of borrowings to assets held for sale (27,929) 27,929 - - - -
Amortisation of loans - (33) (33) - (123) (123)
Capitalised borrowing costs (791) - (791) (1,965) (12) (1,977)
Amortisation of transaction fees 774 37 811 864 84 948
Foreign exchange movement in foreign operations - 361 361 - (2,067) (2,067)
Total borrowings 177,823 - 177,823 181,144 13,883 195,027
Of the movement in borrowings in the year ending 31 March 2022, £29.12
million (2021: £89.56 million) relates to cash received from new bank loans
raised and £18.71 million (2021: £77.93 million) relates to repayments of
bank loans. £14.22 million (2021: £16.44 million) of bank loan repayments
are included in the adjustment for liabilities directly associated with assets
held for sale and £27.96 million (2021: £10.73 million) was included in bank
loans associated with the disposal of subsidiaries.
31 March 31 March
2022 2021
£'000 £'000
Amount due for settlement within 12 months - 4,489
Amount due for settlement between one to three years 49,318 77,032
Amount due for settlement between three to five years 63,052 34,375
Amount due for settlement after five years 65,453 65,248
Total borrowings 177,823 181,144
Non-current liabilities
Bank loans 177,823 176,655
Total non-current loans and borrowings 177,823 176,655
Current liabilities
Bank loans - 4,489
Total current loans and borrowings - 4,489
Total loans and borrowings 177,823 181,144
The facilities amounting to £180.4 million are secured by legal charges over
the properties to which they correspond with a market value of £522.2
million. There is no cross-collateralisation of the facilities. The terms and
conditions of outstanding loans are as follows:
Entity Note Amortising Loan Currency Maturity Nominal value Carrying value*
interest date
rate
31 March 31 March 31 March 31 March
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Continuing operations
United Kingdom - MLI
Industrials UK LP No 1.66% fixed GBP 03/12/2027 66,500 66,500 65,453 65,248
Industrials UK 4 Limited No SONIA + 1.92% GBP 14/11/2025 64,000 34,879 63,052 34,375
Stenprop Industrials 6 Limited No SONIA + 1.75% GBP 03/02//2025 49,898 49,898 49,318 49,104
GGP1 Limited No SONIA + 2.25% GBP 26/05/2021 - 4,500 - 4,496
Stenprop Industrials Holdings Limited 1 Yes N/A GBP 21/05/2022 - - - (8)
Guernsey
LPE Limited No LIBOR + 2.00% GBP 30/09/2022 - 28,000 - 27,929
Total borrowings attributable to continuing operations 180,398 183,777 177,823 181,144
Discontinued operations
Switzerland
Kantone Holdings Limited Yes 1.15% CHF 3-month rolling facility - 5,853 - 5,853
Germany
Stenprop Hermann Ltd No Euribor + 1.13% EUR 30/06/2021 - 8,033 - 8,030
Total borrowings attributable to discontinued operations and assets classified - 13,886 - 13,883
as held for sale (note 19)
Total borrowings 180,398 197,663 177,823 195,027
* The difference between the nominal and the carrying value represents
unamortised facility costs.
(1 ) Net carrying value of the amortised facility costs on the
Investec Bank Plc revolving credit facility.
Loans are subject to loan-to-value ratios (see note 27) and interest coverage
ratios. All loans are assessed quarterly for their covenant compliance and
forecast headroom. No loan was in breach of its borrowing covenants during the
period or at period end.
31 March 2022 31 March 2021
Continuing operations Weighted covenant Weighted actual Weighted covenant Weighted actual
Loan to value 57.2% 31.2% 57.5% 38.8%
Interest cover 2.3 5.4 2.3 9.5
31 March 2022 31 March 2021
Discontinued operations Weighted covenant Weighted actual Weighted covenant Weighted actual
Loan to value 80.0% 51.5% 50.0% 48.9%
Debt service 1.5 2.6 n/a n/a
24 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 £1,948,000 (2021: £1,850,000) and nil (2021:
£124,000) respectively.
The following table sets out the interest rate swap agreements at 31 March
2022 and 31 March 2021.
Entity Effective Maturity Swap Notional value Fair value Notional value Fair value
date date rate % 31 March 31 March 31 March 31 March
2022 2022 2021 2021
£'000 £'000 £'000 £'000
Continuing operations
UK - MLI
Industrials UK 4 Limited 07/02/2020 14/11/2024 0.89% 24,000 727 24,000 (430)
Stenprop Industrials 6 Limited 22/12/2020 01/02/2024 0.50% 42,413 1,137 42,413 138
Total swaps 66,413 1,864 66,413 (292)
EUR forward contracts
Industrials REIT Limited - - - 2,024
Total forwards - - - 2,024
Assets maturing within 12 months - - - 2,024
Liabilities maturing within 12 months - - - -
Assets maturing after 12 months - 1,864 - 138
Liabilities maturing after 12 months - - - (430)
Derivative financial instruments - on the statement of financial position - 1,864 - 1,732
Swaps included in investment in joint ventures
Elysion Braunschweig S.à r.l. 29/03/2018 29/12/2023 0.52% 4,952 (13) 4,984 (122)
Elysion Dessau S.à r.l. 29/03/2018 29/12/2023 0.52% 4,899 (12) 4,932 (121)
Elysion Kappeln S.à r.l. 31/12/2018 29/12/2023 0.63% 5,306 (23) 5,341 (150)
Elysion Winzlar S.à r.l. 31/12/2018 29/12/2023 0.63% 3,395 (15) 3,418 (96)
Derivative financial instruments - joint ventures 18,552 (63) 18,675 (489)
25 Disposal of subsidiaries
31 March 31 March
2022 2021
£'000 £'000
Carrying value of net assets at disposal date
Investment property 56,150 23,001
Trade and other receivables 301 1,126
Cash and cash equivalents 434 505
Borrowings (27,959) (10,729)
Trade and other payables (1,329) (2,286)
Group loans converted to third party loans on disposal 1 (4,543)
Net assets disposed 27,598 7,074
Net disposal proceeds 25,223 7,738
Foreign exchange movement in foreign operations - (196)
Net assets disposed (27,598) (7,074)
(Loss)/profit on disposal of subsidiaries (2,375) 468
Foreign currency exchange gain previously recognised in other comprehensive 2,291 -
income
Total (loss)/profit on disposal of subsidiaries (84) 468
Current year disposals
All current year disposals were from discontinued operations.
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.
On 19 May 2021, the Group disposed of its 100% shareholding in Bleichenhof
Grundstücksverwaltung GmbH & Co. On disposal, this entity held no
investment property, as it had previously disposed of its ownership in a
mixed-use asset in Hamburg, known as Bleichenhof, on 28 February 2020.
The impact of these disposals on the Group is shown above.
Prior year disposals
All prior year disposals were from discontinued operations.
On 31 March 2021, the Group disposed of its 94.90% shareholding in Century
B.V. and Century 2 B.V. for a net consideration of £12.3 million. Century
B.V. owned three properties located in Frankfurt, Ludwigsburg and Marburg, and
Century 2 B.V. owned two properties located in Kassel and Sindelfingen,
Germany. The impact of these disposals on the Group is shown above. Upon
completion of the sale the Group loan of £4.5 million was repaid to
Industrials REIT.
26 Deferred tax
The following is the movement in deferred tax assets and liabilities
recognised by the Group during the current and prior reporting periods. All of
the Group's deferred tax is attributable to liabilities directly associated
with assets classified as held for sale.
Liabilities directly associated with assets classified as held for sale 31 March 31 March
2022 2021
£'000 £'000
Deferred tax liability opening balance 1,190 3,782
Deferred tax recognised on investment properties 1 (2,638)
Deferred tax recognised on revaluation of financial liabilities - 22
Deferred tax on tax losses - 121
Withholding tax on disposal of property (1,196) -
Other movements - 25
Exchange movements 5 (122)
Movement in deferred tax (1,190) (2,592)
Deferred tax liability closing balance - 1,190
27 Financial risk management
The Group is exposed to a variety of financial risks including capital risk
management, credit risk, liquidity risk and market risk. The overall risk
management strategy seeks to minimise the potential adverse effects on the
Group's financial performance. Certain risk exposures are hedged via the use
of financial derivatives.
This note presents information about the Group's exposure to each of the above
risks, the Group's objectives, policies and processes for measuring and
managing these risks, and the Group's management of capital. Further
quantitative disclosures are included throughout these audited financial
statements where relevant. The Group's board has overall responsibility for
the establishment and oversight of the Group's risk management framework.
The Audit and Risk Committee participates in management's process of
formulating and implementing the risk management plan and it reports on the
plan adopted by management to the Board.
The objective of risk management is to identify, assess, manage and monitor
the risks to which the business is exposed, including, but not limited to,
information technology risk. The Board is responsible for ensuring the
adoption of appropriate risk management policies by management. The Group's
risk management policies are established to identify and analyse the risks
faced by the Group, to set appropriate risk limits and controls and to monitor
risks and adherence to limits. Risk management policies are reviewed regularly
to reflect changes in market conditions and the Group's activities. The Board
will also ensure that there are processes in place between itself and
management enabling complete, timely, relevant, accurate and accessible risk
disclosure to shareholders.
To enable the Audit and Risk Committee to meet its responsibilities, terms of
reference were adopted by the Board. These include appropriate standards, the
implementation of systems of internal control and an effective risk-based
internal audit which comprises policies, procedures, systems and information
to assist in:
• safeguarding assets and reducing the risk of loss, error, fraud and
other irregularities;
• ensuring the accuracy and completeness of accounting records and
reporting;
• preparing timely, reliable financial statements and information in
compliance with relevant legislation and generally accepted accounting
policies and practices; and
• increasing the probability of anticipating unpredictable risk.
The Committee oversees how management monitors compliance with the Group's
risk management policies and procedures and reviews the adequacy of the risk
management framework in relation to risks faced by the Group.
Capital risk management
The capital structure of the Group consists of debt, which includes the
borrowings disclosed in note 23, cash and cash equivalents and equity
attributable to ordinary shareholders of the Company, comprising issued
capital, reserves and retained earnings as disclosed in the statement of
changes in equity. Industrials REIT Limited's weighted average loan-to-value
('LTV') ratio at 31 March 2022 was 25.6% (2021: 28.1%), including joint
ventures and the Group is not subject to any external capital requirements.
The Group strategy is to maintain a debt-to-equity ratio and LTV ratio to
ensure that property performance is translated into an enhanced return for
shareholders while at the same time ensuring that it will be able to continue
as a going concern through changing market conditions. The Directors are of
the opinion that an LTV of approximately 30% in respect of secured external
borrowings is a likely target for the Group, given the current market
conditions. Debt covenants are disclosed further in note 23.
The financial statements of the Group have been prepared on a going concern
basis. At the date of signing these accounts, the Group has positive operating
cash flow forecasts and positive net assets. Management have reviewed the
Group's cash flow forecasts for the 18 months to 30 September 2023 and,
considering this review and the current financial position, they are satisfied
that the Company and the Group have access to adequate resources to meet their
obligations and continue in operational existence for the foreseeable future,
and specifically the 12 months subsequent to the signing of these financial
statements. Further details are set out in note 2 to the financial statements.
Credit risk
The Group's principal financial assets are cash and cash equivalents as well
as trade and other receivables. The credit risk arising from deposits with
banks is managed through a policy of utilising only independently rated banks
with acceptable credit ratings.
The credit quality of cash and cash equivalents can be assessed by reference
to external credit ratings of the counterparty where the account or deposit is
placed. The credit rating summary below represents the four (2021: seven)
European financial institutions that hold more than £1 million (or GBP
equivalent) of the Group's cash at 31 March 2022. Together these banks hold
94% (2021: 99%) of the Group's total cash at bank.
31 March 31 March 31 March 31 March
2022 2022 2021 2021
S&P Global Ratings Fitch Ratings S&P Global Ratings Fitch Ratings
Barclays Bank UK Plc BBB A BBB A-
Black Rock nil nil AA- N/A
The Bank of N. T. Butterfield & Son Limited BBB+ N/A A- Withdrawn
Deutsche Bank AG < £1m < £1m BBB+ N/A
Lloyds Bank plc BBB+ A BBB+ A+
Royal Bank of Scotland Group plc (NatWest Group) A- A+ BBB A
Royal Bank of Scotland International Limited(1) < £1m < £1m BBB A
(1 ) The financial institution is a private company. The credit
rating of its parent company has been disclosed.
The Directors are satisfied as to the creditworthiness of the banks where the
remaining cash is held.
The majority of tenant leases are long-term contracts with rents payable
quarterly in advance. Rent deposits and personal or corporate guarantees are
held in respect of some leases. Taking these factors into account, the risk to
the Group of individual tenant default and the credit risk of trade
receivables are considered low. The concentration of credit risk is limited
due to the large and diverse occupier base. Accordingly, the Directors believe
that there is no further expected credit loss required in excess of that
provided. Trade receivables are presented after deducting a loss allowance
provision, as set out in note 20.
At the time of acquisition of a property, and from time to time thereafter,
the Group reviews the quality of the contracted tenants to ensure that the
tenants meet acceptable covenants. Trade receivables are presented in the
statement of financial position net of allowances for doubtful receivables. An
allowance for impairment is made where there is an indefinable loss event,
which based on previous experience, may give risk to a non-recovery of a
receivable.
Non-current other debtors are long-term loans secured against shares issued by
the Group to the related parties referenced in note 20. In order to manage
credit risk, the contractual terms include full recourse to assets of the
borrower which are monitored alongside the aggregate value of the shares.
Furthermore, in respect of the Share Purchase Plan, the terms allow recovery
of amounts due through a deduction from salary or other amounts paid to the
beneficiary.
The carrying amount of financial assets represents the maximum credit exposure
at the reporting date.
At 31 March 2022, trade and other receivables and cash and cash equivalents
amounts to £43.7 million (2021: £62.5 million) as shown in the statement of
financial position. Further details on what makes up this balance can be found
in notes 20 and 21.
Liquidity risk
Prudent liquidity risk management requires maintaining sufficient cash
resources, appropriate and adequate funding, via lines of credit, as well as
managing the ability of tenants to settle their lease obligations. Through the
forecasting and budgeting of cash requirements, the Group ensures that
adequate committed resources are available.
By its nature, the market for investment property is not immediately liquid.
Therefore, the Group's ability to vary its portfolio in a timely fashion and
to receive a fair price in response to changes in economic and other
conditions may be limited. Furthermore, where the Group acquires investment
properties for which there is not a readily available market, the Group's
ability to deal in any such investment or obtain reliable information about
the value of such investment or risks to which such property investment is
exposed may be limited. The Group's short-term liquidity risk is secured by
the existence of cash balances, through the fact that rental income exceeds
the Group's cost structures and through ensuring that facilities are managed
within debt covenants.
The following table details the contractual maturity date of the Group's
financial liabilities. The table has been compiled based on the undiscounted
contractual maturities of the financial liabilities, including interest that
will accrue to those liabilities, except where the Group is entitled and
intends to repay the liability before its maturity. The discount column
represents the possible future cash flows included in the maturity analysis,
such as future interest or potential payments that have not been included in
the carrying amount of the financial liability. The table also includes a
reconciliation to the carrying value in the statement of financial position.
Group operations Less than one One to three Three to 12 One to five Over five Discount Total
month months months years years £'000 £'000
£'000 £'000 £'000 £'000 £'000
Interest-bearing loans - - - 112,370 65,453 - 177,823
Loan interest - 1,570 2,957 13,805 1,842 (19,589) 585
Other payables - 674 - 4,836 - - 5,510
Accruals - 1,130 5,481 - - - 6,611
Lease obligations 2 2 24 7 - - 35
As at 31 March 2022 2 3,376 8,462 131,018 67,295 (19,589) 190,564
Group operations Less than one One to three Three to 12 One to five Over five Discount Total
month months months years years £'000 £'000
£'000 £'000 £'000 £'000 £'000
Interest-bearing loans - 4,489 - 111,407 65,248 - 181,144
Loan interest 109 1,680 2,625 11,501 2,781 (17,808) 888
Financial liabilities - - - 430 - - 430
Other payables - 1,226 3,391 - - - 4,617
Accruals - - 4,200 - - - 4,200
Lease obligations 2 74 242 24 - - 342
As at 31 March 2021 111 7,469 10,458 123,362 68,029 (17,808) 191,621
Market risk
Market risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market prices.
Market risk comprises three types of risk: foreign currency risk, interest
rate risk and price risk (see fair value hierarchy section). The objective of
market risk management is to manage and control market risk exposures within
acceptable parameters, while optimising returns to shareholders.
Investment in property is subject to varying degrees of risk. The main factors
which affect the value of the investment in property include:
• changes in the general economic climate;
• local conditions in respective markets, such as oversupply, or a
reduction in demand, for commercial space in a specific area;
• competition from other available properties; and
• government regulations, including planning, environmental and tax
laws.
While a large number of these factors are outside the control of the
management, market and property-specific factors relevant to maintain a
sustainable income stream within the Group's yield parameters are considered
as part of the initial due diligence. Properties and tenant leases are
actively managed.
Fair value hierarchy
The table below analyses the Group's financial instruments carried at fair
value, by valuation method. 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).
Level 3: inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
31 March 2022 Total financial instruments
recognised at fair value
£'000
Des
ign
ate
d
at
fai
r
val
ue
Level 1 Level 2 Level 3
£'000 £'000 £'000
Assets
Investment in joint venture bond 14,883 - - 14,883
Derivative financial instruments 1,864 - 1,864 -
Total assets 16,747 - 1,864 14,883
31 March 2021 Total financial instruments
recognised at fair value
£'000
Des
ign
ate
d
at
fai
r
val
ue
Level 1 Level 2 Level 3
£'000 £'000 £'000
Assets
Investment in joint venture bond 14,119 - - 14,119
Derivative financial instruments 2,162 - 2,162 -
Total assets 16,281 - 2,162 14,119
Liabilities
Derivative financial instruments 430 - 430 -
Total liabilities 430 - 430 -
Details of changes in valuation techniques
There have been no significant changes in valuation techniques during the
period under review. Derivative financial instruments are measured using the
midpoint of the yield curve prevailing on the reporting date. The valuations
do not include accrued interest from the previous settlement date to the
reporting date. The fair value represents the net present value of the
difference between the contracted rate and the valuation rate when applied to
the projected balances for the period from the reporting date to the
contracted expiry dates.
Significant transfers between Level 1, Level 2 and Level 3
There have been no significant transfers between Level 1, Level 2 and Level 3
during the period under review.
Unobservable inputs
Unobservable inputs for investment properties classified as Level 3 are
disclosed in note 16.
The unobservable inputs used to determine the value of the bonds in the
Elysion S.A. joint venture are based on the unadjusted net assets of the joint
venture structure and are subject to the assumptions applied to the valuation
methodology of the underlying investment property.
Fair value of financial instruments
The following table summarises the Group's financial assets and liabilities
into categories required by IFRS 7 Financial Instruments: Disclosures. The
carrying values approximates their fair value.
Held at fair value through profit or loss Held at Total carrying amount
£'000 amortised cost 31 March 2022
£'000 £'000
Financial assets
Cash and cash equivalents - 31,526 31,526
Derivative financial instruments 1,864 - 1,864
Trade and other receivables - 12,159 12,159
Investment in joint venture bond 14,883 - 14,883
Other debtors - 6,543 6,543
Total financial assets 16,747 50,228 66,975
Financial liabilities
Bank loans - 177,823 177,823
Accounts payable and accruals - 19,549 19,549
Total financial liabilities - 197,375 197,372
Held at fair value through profit or loss Held at Total carrying amount
£'000 amortised cost 31 March 2021
£'000 £'000
Financial assets
Cash and cash equivalents - 53,781 53,781
Derivative financial instruments 2,162 - 2,162
Trade and other receivables - 8,723 8,723
Investment in joint venture bond 14,119 - 14,119
Other investments - 1,000 1,000
Other debtors - 8,670 8,670
Total financial assets 16,281 72,174 88,455
Financial liabilities
Bank loans - 181,144 181,144
Derivative financial instruments 430 - 430
Accounts payable and accruals - 16,516 16,516
Total financial liabilities 430 197,660 198,090
Foreign currency risk
The Group's presentation currency is Sterling. Foreign currency risk is the
risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in foreign currency or exchange rates. At the
reporting date, the following table summarises the Group's exposure to foreign
currency risk in respect of assets and liabilities held in EUR (Germany) and
CHF (Switzerland).
Assets 31 March 31 March
2022 2021
£'000 £'000
CHF 885 12,616
EUR 18,552 63,419
Liabilities
CHF 38 5,400
EUR 26 11,096
Foreign currency sensitivity analysis
The sensitivity analysis measures the impact on the Group's exposure in
Sterling (based on a change in the reporting date spot rate) and the impact on
the Group's Sterling profitability, given a simultaneous change in the foreign
currencies to which the Group is exposed at the reporting date.
A 10% strengthening in the Sterling exchange rate against the following
currencies at year end would have decreased equity and losses by the amounts
shown below. The 10% threshold was selected as a reasonable, worst-case
scenario and is considered a prudent threshold. This analysis assumes that all
other variables remain constant. For a 10% weakening of Sterling, there would
be an equal but opposite impact on the profit and equity and the balance would
be positive.
Impact of Sterling strengthening by 10% Equity Profit or loss
£'000 £'000
CHF (85) 230
EUR (1,853) (184)
Total (1,938) 46
The exchange rates against GBP during the reporting periods were:
Average rate As at Average rate As at
for year to 31 March for year to 31 March
31 March 2022 31 March 2021
2022 2021
CHF 0.8071 0.8245 0.8294 0.7701
EUR 0.8364 0.8463 0.8927 0.8519
Interest rate risk
The Group's interest rate risk is associated with cash and cash equivalents,
on the one hand, and interest-bearing borrowings, on the other. If the
interest is variable, it presents the Group with a cash flow interest rate
risk. Interest rate risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in market interest
rates. As stated in note 24, borrowings from credit institutions are protected
against movements in interest rates. The Group uses interest rate swaps to
manage its interest rate exposure and to establish more certainty over cash
flows. As a result, the Group has not disclosed additional sensitivity
analysis to changes in interest rates.
28 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.
Directors' remuneration and interests in the ordinary shares of the Company
are set out in note 8, 'Employees' and Directors' emoluments'.
Loans provided to a Director to purchase Industrials REIT Limited shares under
the Share Purchase Plan can be found in note 20.
Transactions and balances with joint venture parties can be found in note 18.
There are no other related party transactions that occurred during the year.
Ultimate controlling party
The Directors do not consider there to be an ultimate controlling party.
29 Minimum lease payments
The Group earns rental income by leasing its investment properties to tenants
under non-cancellable operating leases.
At the reporting date, the Group had contracted with tenants the following
future minimum lease payments on its investment properties:
31 March 31 March
2022 2021
£'000 £'000
Continuing operations
Within one year 31,708 25,851
Between one and two years 24,033 16,058
Between two and five years 35,057 20,636
After five years 19,126 7,794
Total 109,924 70,340
31 March 31 March
2022 2021
£'000 £'000
Discontinued operations
Within one year - 6,636
Between one and two years - 6,548
Between two and five years - 14,939
After five years - 19,584
Total - 47,706
The comparatives have been restated to reflect the change in classification of
current year discontinued operations to enable an effective like-for-like
comparison.
At the reporting date the Group had the following future minimum lease
payments as a lessee:
31 March 31 March
2022 2021
£'000 £'000
Continuing operations
Within one year 29 324
Between one and two years 6 20
Between two and five years - 6
After five years - -
Total 35 350
At 31 March 2022, Industrials REIT had no (2021: nil) lessee leases in its
discontinued operations.
30 Events after the reporting period
(i) Declaration of dividend
On 9 June 2022, the Board declared a final dividend of 3.475 pence per share.
The final dividend will be payable in cash or as a scrip dividend. An
announcement containing details of the dividend, the timetable and the scrip
dividend terms is anticipated to be made on 1 July 2022. It is expected that
shares will commence trading ex-dividend on 20 July 2022 on the JSE and on 21
July 2022 on the LSE. The record date for the dividend is expected to be 22
July 2022, the last day for shareholders to submit an election to receive the
scrip dividend is expected to be 29 July 2022, and the dividend payment date
is expected to be 12 August 2022.
(ii) Share incentive awards
On 8 June 2022, the Board, on the recommendation of the Remuneration
Committee, approved share-based awards in relation to the Long Term Incentive
Plan, the Deferred Share Bonus Plan, and the Save As You Earn Plan. Details of
awards made to Executive Directors can be seen in note 8.
(iii) Adjusting events
Industrials REIT has identified no adjusting events at the date of signing
these consolidated financial statements.
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