REG - Warehouse REIT PLC - Half-year Report
15/11/2023 07:00
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RNS Number : 4601T Warehouse REIT PLC 15 November 2023
15 November 2023
Warehouse REIT plc
(the "Company" or "Warehouse REIT", together with its subsidiaries, the
"Group")
Resilient occupier market and active asset management supports leasing
momentum and valuation uplift, providing a strong platform to drive rents and
earnings
Neil Kirton, Chairman of Warehouse REIT commented:
"In June we set out a plan to drive earnings by capturing portfolio reversion,
selling non-core assets to reduce expensive debt and progressing Radway Green.
We have made good progress. Our focus on multi-let industrials where demand is
resilient and supply is tight has supported further leasing momentum; we have
delivered asset sales significantly ahead of book value and strengthened the
balance sheet with 88% of our debt now hedged.
"A consensus is emerging that interest rates will remain 'higher for longer'
and we are managing our business accordingly. Key to this is delivering value
for shareholders at Radway Green, which is a highly attractive development but
not one we will undertake alone. We have therefore launched a process for a
sale of the whole, or a majority, of the asset, which will enable the business
to focus on what it does well - active asset management. This is also the most
effective way to deliver sustainable earnings growth over the long term."
Portfolio valuation increase driven by ERV growth, with valuation yields
stable
· Like-for-like portfolio valuation increased 1.0% to £811.3 million
(31 March 2023: £828.8 million)
o Yields broadly flat, with like-for-like growth in estimated rental values
of 2.8% benefitting from our leasing activity;expect ERV growth for the year
of 5-6%
· EPRA NTA per share up 0.9% to 123.7p (31 March 2023: 122.6p) with a
total accounting return of 3.5%
Leasing activity capturing reversion, driving rents 31.8% ahead of previous
rents
· 48 lease events over 0.5 million sq ft securing £3.4 million in
contracted rent, including:
o £0.7 million from 23 new lettings, 21.5% ahead of previous contracted
rent;
o £0.9 million from 15 renewals, 36.7% ahead of previous contracted rent;
and
o £1.8 million from 10 rent reviews, 32.4% ahead of previous contracted
rent
· 1.7% like-for-like growth in contracted rents, with 11.7% portfolio
reversion as at 30 September 2023
· Occupancy stable at 96.0% with c.98.0% of HY24 rent already
collected
· Post period-end, a further 14 lease events over 0.7 million sq ft,
20.5% ahead of previous contracted rent taking like-for-like growth in
contracted rents to 3.4% for the first seven months
Targeted disposal plan well progressed, capitalising on pockets of demand with
sales ahead of book
· £39.6 million of non-core asset sales completed, 20.1% ahead of
March 2023 book value; generating £5.4 million of profit
· Total sales of £94.3 million since disposal plan announced in
November 2022
· Evaluating options to deliver value at Radway Green, Crewe to
further reduce debt
· £21.0 million of debt repaid during the period and £7.8 million
allocated to value-enhancing capital expenditure initiatives
Robust financial performance and sound financial management
· Operating profit up 1.5% to £17.3 million (30 Sept 2022: £17.0
million), reflecting leasing momentum and reduction in total cost ratio of 440
basis points to 23.2%
· Adjusted earnings of £9.8 million (30 Sept 2022: £11.1 million),
primarily reflecting increased debt costs
· Adjusted EPS of 2.3p (30 Sept 2022: 2.6p)
· Dividend maintained at 3.2p; dividend cover expected to improve as
ongoing asset management initiatives conclude; fully cash covered when profits
on disposals included
· £320.0 million of debt refinanced with more favourable covenants and
additional interest rate caps of £50.0 million acquired; 87.7% of debt hedged
against interest rate volatility with no major refinancing until 2028
· LTV at 34.0%, with significant headroom of £35.0 million in cash
and available facilities
Progressing our sustainability strategy
· 64.1% of the portfolio now EPC A-C rated (31 March 2023: 60.2%)
Financial highlights
Six months to 30 September 2023 2022
Gross property income £23.3m £24.1m
Operating profit before change in value of investment properties £17.3m £17.0m
IFRS profit/(loss) before tax £22.0m (£46.4m)
IFRS earnings per share 5.2p (10.9p)
EPRA earnings per share 1.0p 2.6p
Adjusted earnings per share 2.3p 2.6p
Dividends per share 3.2p 3.2p
Total accounting return 3.5% (9.9%)
Gross to net rental income ratio 95.1% 94.1%
Total cost ratio 23.2% 27.6%
As at 30 September 2023 31 March 2023
Portfolio valuation £811.3m £828.8m
IFRS net asset value £536.8m £528.5m
IFRS net asset value per share 126.4p 124.4p
EPRA net tangible assets ("NTA") per share 123.7p 122.6p
Loan to value ("LTV") ratio 34.0% 33.9%
Investment portfolio statistics
As at 30 September 2023 31 March 2023
Contracted rent £43.8m £45.3m
ERV £52.0m £53.3m
Passing rent £41.3m £41.2m
WAULT to expiry 5.2 years 5.5 years
WAULT to first break 4.4 years 4.5 years
EPRA topped up yield 5.5% 5.5%
Equivalent yield 6.3% 6.5%
Occupancy 96.0% 95.8%
Meeting
A meeting for professional investors and analysts will be held at 9.00am on 15
November 2023 at the offices of FTI Consulting, 200 Aldersgate, London EC1A
4HD. Registration is required for this event, please email FTI Consulting at
warehousereit@fticonsulting.com (mailto:warehousereit@fticonsulting.com)
should you wish to attend.
The results presentation will also be available in the Investor Centre section
of the Group's website.
Enquiries
Warehouse REIT plc
via FTI Consulting
Tilstone Partners Limited
Simon Hope, Peter Greenslade, Paul Makin, Jo Waddingham
+44 (0) 1244 470 090
G10 Capital Limited (part of the IQEQ Group, AIFM)
Maria Baldwin
+44 (0) 207 397 5450
FTI Consulting (Financial PR & IR Adviser to the Company)
Dido Laurimore, Richard Gotla
+44 (0) 7904 122207 / WarehouseReit@fticonsulting.com
(mailto:WarehouseReit@fticonsulting.com)
Further information on Warehouse REIT is available on its website:
warehousereit.co.uk
(https://tilstone.sharepoint.com/whreit/corp/finance/annacc/2024/H1/warehousereit.co.uk)
Notes
Warehouse REIT is a UK Real Estate Investment Trust that invests in UK
warehouses, focused on multi-let assets in industrial hubs across the UK.
We provide a range of warehouse accommodation in key locations which meets the
needs of a broad range of occupiers. Our focus on multi-let assets means we
provide occupiers with greater flexibility so we can continue to match their
requirements as their businesses evolve, encouraging them to stay with us for
longer.
We invest in our business by selectively acquiring assets with potential and
by delivering opportunities we have created. Through pro-active asset
management we unlock the value inherent in our portfolio, helping to capture
rising rents and driving an increase in capital values to deliver strong
returns for our investors over the long term.
Sustainability is embedded throughout our business, helping us meet the
expectations of our stakeholders today and futureproofing our business for
tomorrow.
The Company is an alternative investment fund ("AIF") for the purposes of the
AIFM Directive and as such is required to have an investment manager who is
duly authorised to undertake the role of an alternative investment fund
manager ("AIFM"). The AIFM and the Investment Manager is currently G10 Capital
Limited (Part of the IQEQ Group).
Forward-looking statements
Certain information contained in these half-year results may constitute
forward-looking information. This information relates to future events or
occurrences or the Company's future performance. All information other than
information of historical fact is forward-looking information. The use of any
of the words "anticipate", "plan", "continue", "estimate", "expect", "may",
"will", "project", "should", "believe", "predict" and "potential" and similar
expressions are intended to identify forward-looking information. This
information involves known and unknown risks, uncertainties and other factors
that may cause actual results or events to differ materially from those
anticipated in such forward-looking information. No assurance can be given
that this information will prove to be correct, and such forward looking
information included in this announcement should not be relied upon.
Forward-looking information speaks only as of the date of this announcement.
The forward-looking information included in this announcement is expressly
qualified by this cautionary statement and is made as of the date of this
announcement. The Company and its Group do not undertake any obligation to
publicly update or revise any forward-looking information except as required
by applicable securities laws.
Chairman's statement
When we announced our full-year results in June, we reiterated our focus on
driving earnings through capturing the reversion in our portfolio, reducing
the variable rate element of our debt and delivering value at our Radway Green
development in Crewe. We are pleased to be reporting good progress against
these targets with 0.5 million sq ft of leasing activity, £39.6 million of
asset sales completed, and a £320 million debt refinancing, extending the
term and improving the covenants on our debt. Radway Green is an outstanding
development opportunity but in the current environment, our focus is on
extracting value from it in the near term.
Our leasing activity over the six months has generated an additional £1.2
million in rent, bringing contracted rent to £43.8 million as at 30 September
2023 with a like-for-like increase of 1.7% for the six-month period. New
lettings have been achieved on average 21.5% ahead of previous rent while
renewals and rent reviews were 36.7% and 32.4% ahead respectively. This is a
good performance and reflects both the expertise of the Tilstone team as well
as our focus on multi-let industrial space. Ours is a scarce asset class with
new development constrained by a strict planning environment and with average
capital values of £92.4 per sq ft well below rebuild cost, new development is
rarely economic. At the same time, it appeals to a broad spectrum of occupier,
from light industrial, to technology, warehousing and e-commerce. This is
reflected in our occupier base which comprises businesses across a range of
industries and is a key advantage from a risk diversification perspective.
We have been particularly pleased with the performance of Bradwell Abbey,
Milton Keynes which we acquired 15 months ago. An undermanaged estate in an
emerging economic hub, it is an excellent case study of what we do well.
Following a partial refurbishment, we are now achieving top rents of c. £10
psf on the largest units ranging up to £19 psf on the smaller units; this
compares to average rents of £7.89 per sq ft on acquisition. Our improvements
have also increased EPC A-C rated space to 71% from 38% at acquisition.
The context for the half year has been an uncertain economic environment with
perhaps some greater clarity over peak interest rates tempered by the growing
'higher for longer' perspective. Against this backdrop, we have prioritised
optimising the balance sheet to enable the business to focus on its
competitive advantage in asset management and with that in mind, we are
evaluating our options with respect to Radway Green. With potential for over
1.8 million sq ft, this is an exceptionally well-located logistics development
opportunity, just 1.5 miles from Junction 16 of the M6. We assembled the site
through a series of acquisitions starting in 2017 and we achieved full
planning consent during the period, making this a highly attractive
opportunity for asset owners or developers with a low cost of capital. In the
current environment, it would not be prudent to progress this development
using our own balance sheet. In addition, the pre-let we were close to
signing at the start of the period has now fallen away as the proposed
occupier required the space sooner than originally envisaged. While
disappointing not to be progressing this development as planned, we consider a
sale of the whole or a majority of the scheme to be in the best interests of
shareholders and have therefore launched a formal process to deliver this.
We will update the market as appropriate.
The Board is alert to all opportunities to deleverage, but not at any price.
We have completed on the sale of £39.6 million of properties since 1 April
2023, all of which are non-core or where we have successfully delivered on our
asset management initiatives. Sales were on average 20.1% ahead of book value,
demonstrating that there are pockets of demand for well-let and well-located
industrial assets. This continuing programme of disposals not only strengthens
our balance sheet, but also progresses the reshaping of our portfolio,
increasing our weighting towards multi-let assets in leading industrial hubs.
Financial performance
We reported a 1.5% increase in operating profits before interest, reflecting
the impact of disposals, offset by our successful leasing activity and a fall
in overall operating expenditure. However, with SONIA increasing 300 basis
points since 1 October 2022, adjusted earnings per share fell 11.5% to 2.3
pence (H1 FY22: 2.6 pence).
Yields have continued to stabilise and were broadly flat in the period. ERV
growth across the portfolio was 2.8%, demonstrating the continuing attraction
of our assets and driving an increase of 1.0% in the like-for-like value of
our portfolio to £811.3 million. EPRA NTA per share increased 0.9% to 123.7
pence (31 March 2023: 122.6 pence), contributing to a total accounting return
of 3.5%. Reflecting our very strong performance in the years following IPO,
our average total accounting return is 7.8% per annum.
We took further steps to optimise our capital structure in June 2023 by
refinancing our previous £320 million facility and extending the tenure from
January 2025 to June 2028. The new facility comprises a £220 million term
loan and a £100 million revolving credit facility with a club of four
lenders; HSBC, Bank of Ireland, NatWest and Santander. It was agreed with more
favourable covenants, reflecting the strength of our banking relationships as
well as the quality of our portfolio.
Last year, we acquired £200 million of interest rate caps, fixing SONIA at
1.5% and in November this year, we are replacing the £30 million of caps
expiring this month with £50 million of caps, fixing SONIA at 2.0% and
effectively hedging 87.7% of our debt.
These measures significantly reduce the risk that earnings are impacted by
changes in the cost of finance, providing greater confidence in our earnings
trajectory.
As at 30 September 2023, the Group's loan to value remains within our target
range of 30% to 40%, at 34.0%, with £35.0 million of headroom within our new
facilities.
Environmental, social and governance
ESG considerations are now firmly embedded in the way we do business. Last
year, we set out an annual commitment to reduce our Scope 1 and 2 emissions by
4.2%, but we also recognise that we have a key role to play in helping our
occupiers to reduce their emissions. Accurately measuring Scope 3 emissions is
an important first step and one we are focused on this year. Our close
engagement with occupiers and the steps we have taken to introduce green
leases encouraging data sharing wherever possible are already having a
positive impact in this regard. We have delivered good progress on EPCs with
64% of the portfolio now rated EPC A - C by sq ft, up from 60% at the start of
the period.
As previously announced, Martin Meech stepped down from the Board at the
Annual General Meeting ('AGM') in September 2023. He has made a very
significant contribution to our development as a listed company, and we wish
him well for the future. Following a comprehensive search, Dominic O'Rourke
joined the Board as a Non-Executive Director, also in September. He is
currently Group Property Director for FTSE 100 retailer Next plc, a role he
has held since 2014. His customer-facing experience in a sector that is key
for our business will be a highly positive and complementary addition to the
Board's expertise.
Outlook
Since I last wrote to you, interest rate expectations have shifted. While peak
rates may be in sight, the expectation is that they will remain higher for
longer, which inevitably has implications for how we, and our peers, run our
businesses. Successfully restructuring our debt was the key balance sheet
event in the first half of the year and positions us well for the second half,
where our focus is on rebuilding dividend coverage. We have a clear plan to
achieve this, which includes capturing the reversion in our portfolio,
actively seeking a majority partner for or sale of our Radway Green
development and further reducing our finance costs through asset sales and
active financial management. We have real conviction in this plan and that
underpins our recommendation to pay a second interim dividend of 1.6 pence,
taking the total dividend for the period to 3.2 pence, in line with last year.
The Board also believes that our focus on multi-let space in key industrial
hubs in the UK is one of the best places to be in real estate. We benefit from
supportive long-term trends, including online retail and supply chain
resilience but we also cater for a broad range of other industries, reflecting
our presence in economically relevant centres in the UK. This diversity helps
protect our income and with a 'higher for longer' environment also posing
challenges for our occupiers, is a key benefit of our business model. While we
recognise there is an elevated risk around tenant default, we are managing
that appropriately, and we do expect attractive levels of rental growth to
continue across our markets albeit at a lower, more sustainable level than in
prior years. Based on our recent trading, we would expect ERV growth for the
year to be in the region of 5-6%.
In conclusion, we firmly believe in the quality of our assets and their
potential to deliver an attractive total return over the long-term but are
also examining more immediate opportunities to drive returns for shareholders.
We set these priorities both as a Board and significant shareholders
ourselves.
Neil Kirton
Chairman
14 November 2023
Investment Advisor's report
Overview
This was a good period for the Group from an operational perspective, with
positive leasing momentum and low vacancy contributing to a solid trading
performance and uplift in valuation. However, increased interest costs due to
the 300 basis point increase in SONIA since 1 October 2022 resulted in an
11.5% reduction in adjusted earnings per share to 2.3p.
FY'24 priorities
At the start of the financial year, we set ourselves four priorities. These
were to:
· continue to capture the reversionary potential of the portfolio,
· dispose of further assets, to pay down the Group's floating rate
debt, strengthening the balance sheet and supporting earnings;
· progress the Radway Green development scheme; and
· increase dividend cover by driving earnings through these actions.
We made good progress against the first two objectives in the period which
position the Group well for improving dividend cover, our fourth objective.
We are evaluating a range of options with regards to Radway Green which will
enable us to make further progress on this in the coming period. More
information can be found in the relevant sections below.
Market overview
The long-term trends underpinning the wider industrial market, including the
dominance of e-commerce and focus on supply chain resilience continue to play
out albeit demand was more muted at the big box end of the market, with take
up back to pre-Covid averages at 12.5 million sq ft for the six months to June
(source: Savills). Multi-let assets increasingly attract a broad range of uses
including innovation / technology, trade counters, retail, quasi-office and
business storage meaning the occupier pool is more diverse and demand more
resilient.
Void rates across the multi-let space have ticked up marginally over the
period to 8.2% for London and the South-east and 8.7% for the rest of the UK
(source: Gerald Eve) but remain well below historic averages of 9.3% and 10.8%
respectively. In London and the South-east, where there is more reversion to
capture and occupier covenants are strong, landlords appear happy to hold out
for the right occupier rather than compromising on rents, explaining part of
the increase in vacancy. Vacancy is also notably lower in the North-west, West
and East Midlands at 6% or less.
For multi-let assets, where build cost per sq ft is typically above capital
value, new development is uneconomic in many regions. Gerald Eve estimates
that there is only 3.2 million sq ft of multi-let space under construction
with at most only 0.5 million sq ft in any one region, having relatively
limited impact on supply. The higher cost of finance makes profitable
development highly challenging for all but those with the lowest cost of
capital and Savills report that in the big box space, there have been just 22
speculative announcements in the first half of the year compared to 39 over
the comparable period last year. These dynamics are supportive for long-term
rental growth; multi-let ERVs are estimated to be growing at an annualised
rate of 7.0% in London and the Southeast and 7.8% across the rest of the UK as
at Q1 2023.
Having adjusted rapidly in the prior reporting period, industrial yields have
now effectively stabilised. This has been driven by increased confidence in
the prime end of the market and supported by the weight of global equity which
continues to target the industrial space reflecting relatively attractive
forward total return prospects at 5.8% annualised for 2023-5, ahead of retail
and offices.
Actively managing the investment portfolio
The Group is highly focused on multi-let estates, which offer more asset
management opportunities than single-let assets, creating more opportunities
to raise the rental tone and therefore more quickly capture the reversion
created, while reducing risk by having a more diverse range of occupiers.
Multi-let assets are also more flexible for occupiers, allowing them to scale
up or down by taking different units on the site. At 30 September 2023,
multi-let estates made up 70.4% of the portfolio by value (excluding
development land). The portfolio is spread across key economic hubs such as
the North-west, Midlands and Oxford-Cambridge Arc, in gateway locations with
access to major arterial routes and a plentiful local labour force.
We keep the portfolio under constant review, to identify mature or non-core
assets that are candidates for disposal. This allows the Group to pay down
debt or redeploy the capital and better focuses the portfolio on its most
attractive opportunities. During the first half, the Group disposed of five
assets for £39.6 million, overall 20.1% ahead of book value. This brings
total disposals since our disposal plan was announced in November 2022 to
£94.3 million.
Disposals during in the period included Dales Manor Business Park, Cambridge
for £27.0 million, and smaller assets in Ipswich, Ellesmere Port, the Isle of
Wight and Cardiff. The disposals were at a blended NIY of 5.3% and
crystallised a profit of £5.4 million above 31 March 2023 valuations. We
continue to be focused on capital recycling and expect to make further
progress in the second half.
Following these disposals, the investment portfolio comprised 647 units across
8.0 million sq ft of space at the period end (31 March 2023: 693 units across
8.2 million sq ft). The table below analyses the portfolio as at 30 September
2023:
Value Occupancy NIY (%) NEY (%) Average rent ERV Capital value
(£m)
by ERV
(£ per sq ft)
(£ per sq ft)
(£ per sq ft)
(%)
Multi-let more than 100k sq ft 367.1 94.8 5.6 6.3 5.77 6.55 89.43
Multi-let less than 100k sq ft 150.4 96.1 6.1 6.7 6.68 7.33 97.79
Single-let regional distribution 129.6 100.0 5.2 5.8 5.22 5.95 93.86
Single-let last mile 87.6 95.1 5.2 6.5 5.97 7.37 94.21
Total 734.7 96.0 5.6 6.3 5.87 6.69 92.37
Development land 76.6
Total portfolio 811.3
At the period-end, the contracted rent roll for the investment portfolio
(excluding developments) was £43.8 million. The estimated rental value (ERV)
was £52.0 million, with the difference reflecting £6.1 million of portfolio
reversion and £2.1 million of potential rent on vacant space. The structure
of the Group's leases supports capturing reversion, with less than 9% of
leases index linked. During the period we captured £0.4 million of reversion
and £0.5 million from letting vacant space with a further £0.5 million of
reversion captured since 30 September 2023. More information can be found in
the Leasing Activity section below. Contracted rent from development property
was £0.2 million as at 30 September 2023. Total contracted rents increased by
1.7% on a like-for-like basis during the period or 4.7% in the past 12 months.
The NIY of the Investment portfolio was 5.6% at 30 September 2023, with a
reversionary yield of 6.6%. The WAULT for the investment portfolio stood at
5.2 years (31 March 2023: 5.5 years).
Occupancy across the investment portfolio remained high at 96.0% at the
period-end (31 March 2023: 95.8%). Effective occupancy, which excludes units
under offer or undergoing refurbishment was 98.0% (31 March 2023: 98.4%), with
1.0% of the investment portfolio under offer and a further 1.0% undergoing
refurbishment at that date.
Working with occupiers
The Group has a diverse occupier base of over 440 businesses, with the top 15
accounting for 36.2% of the contracted rent roll from the investment
portfolio, and the top 100 generating 77.7%. The spread of the Group's
occupiers across industries and business sizes means it is not reliant on any
one occupier or industry. This increases the Group's resilience and helps to
mitigate financial and leasing risks.
We monitor the strength of the occupier'' covenants using credit software such
as Dun & Bradstreet, keeping us informed of what impact evolving
macro-economic conditions are having on their business. During the period, we
also ran a formal occupier survey, with responses from around 50% of major
occupiers. This showed that trading conditions were the same, or better, for
most respondents, although they identified rising costs as an issue. Informal
discussions with occupiers also suggest that the very smallest businesses may
be finding it harder to adapt to higher costs, due to lower pricing power in
their markets.
Overall, the Group's occupiers appear well placed in the current environment,
and we have not yet seen a rise in corporate failures or issues with rent
collection escalate. As at 14 November 2023, we had collected c.98.0% of the
rent due in respect of the period and we expect this to increase as we work
with occupiers to collect the outstanding amounts.
Leasing activity
The robust occupier demand described above has helped us to continue to
capture reversion in the portfolio through lease renewals and new lettings.
New leases were in line with ERVs, while lease renewals and rent reviews are
achieving strong average uplifts against previous rental levels.
New leases
The Group completed 23 new leases on 0.1 million sq ft of space during the
period, which will generate annual rent of £0.7 million, 21.5% ahead of the
previous contracted rent and in-line with 31 March 2023 ERV. The level of
incentives remained steady over the period compared to the prior period.
Highlights included new leases for:
· 20,700 sq ft at Delta Court Industrial Estate, Doncaster, to a
building and DIY supplier, on a five-year lease, at a rent of £138,700 per
annum, 15.7% ahead of previous contracted rent and 12.0% ahead of 31 March
2023 ERV. The letting is also the third expansion by the occupier on the
estate; and
· 6,800 sq ft at Granby Industrial Estate, Milton Keynes, to an event
management company, on a ten-year term at a rent of £57,400, 42.2% ahead of
previous contracted rent and 6.3% above the 31 March 2023 ERV.
Lease renewals
The Group continues to retain the majority of its occupiers, with 79.0%
remaining in occupation at lease expiry and 94.1% with a break arising in the
period.
There were 15 lease renewals on 0.1 million sq ft of space during the period,
generating an additional £0.2 million per annum, 36.7% above the previous
passing rent, and 7.8% above the ERV.
Highlights included:
· 21,100 sq ft at South Fort Street Edinburgh, across three units,
securing £200,200 of contracted rent at an average of 30.1% ahead of previous
contracted rent and 5.5% ahead of 31 March 2023 ERV; and
· 12,400 sq ft at Bradwell Abbey, Milton Keynes, across four units,
securing £120,000 of contracted rent at an average of 35.6% ahead of previous
contracted rent and in-line with 31 March 2023 ERV.
Rent reviews
During the period, ten rent reviews were completed, generating an additional
£0.4 million per annum, 32.4% ahead of previous rent and 12.1% ahead of the
March 2023 ERV.
Highlights included:
· two leases at Chittening Industrial Estate, Bristol, which were
settled at £390,000, 51.0% ahead of the previous contracted rent, and 3.2%
ahead of 31 March 2023 ERV; and
· one lease at Howley Park Industrial Estate, Morley, settled at
£304,500, 31.5% ahead of the previous contracted rent and 15.0% ahead of the
31 March 2022 ERV.
Development activity
Radway Green is the Group's key logistics development opportunity, in a
premier location just 1.5 miles from Junction 16 of the M6 near Crewe.
Targeting BREEAM Excellent, it will provide state-of-the-art, sustainable
warehouse space suitable for a diverse range of occupiers.
The development has the potential to deliver 1.8 million sq ft of space,
across two phases. During the period, we discharged the pre-commencement
planning conditions on the 0.8 million sq ft Phase 1, allowing the contractor
to start enabling and site clearance works, to create a levelled and serviced
plot. The Group also achieved full planning permission on the remaining 1.0
million sq ft Phase 2 having executed the s106 requirements during the first
half.
In June 2023, the Group announced that it was in discussions for a pre-let on
part of Phase 1; the proposed occupier is trading very well and since that
time has seen an acceleration in its timetable which cannot be accommodated at
Radway Green. As a result, the pre-let has fallen away. The Group is
currently evaluating a number of options to deliver value for shareholders
from this scheme which include a sale of the whole, or a majority, of the
asset but in any event will not progress the development alone.
Capital expenditure
On average, the Group aims to invest around 0.75% of its gross asset value
("GAV") in capital expenditure each year. This excludes development projects
and is therefore based on GAV excluding developments. Total capital
expenditure in the period was £2.2 million, equivalent to 0.3% of GAV
excluding developments. At the period-end, approximately 1.0% of the
portfolio's ERV was under refurbishment (31 March 2023: 1.3%). The Group's
priorities when investing in the portfolio are to drive rental growth, improve
EPC ratings and deliver other ESG improvements; approximately 20.0% of capex
spend is typically directed towards EPC-related improvements and satisfies a
minimum return of 10.0% from new capital deployed.
Sustainability
The Group's sustainability strategy focuses on creating a resilient portfolio,
reducing the Group's carbon footprint, supporting the Group's occupiers, and
ensuring we have responsible business foundations. We made good progress
against each part of the strategy during the first half of the financial year.
Creating a resilient portfolio
For FY24, the Group's targets include a 25% reduction in properties with
Energy Performance Certificate ("EPC") ratings of D or E. During the first
half, we reduced the number of D and E ratings across the portfolio by c.10%
both by number of units and by square footage (on a like-for-like basis). By
the period-end, the proportion of units with A to C ratings had risen from
60.2% to 64.1%. Examples of progress include nine units at Bradwell Abbey
improving to B or C ratings. In total, we completed EPC assessments on 85
units in the portfolio.
Reducing our footprint
In the prior year, we introduced Environmental Refurbishment and Development
Standards as part of our pathway to net zero. In the first half of this year,
we implemented a system to track compliance with these standards.
We aim for all new utility contracts to be renewables-based and the Group's
property managers have continued to implement this requirement.
Supporting our occupiers
We continue to engage with occupiers on sustainability matters, to understand
their issues and identify how we can work together to address them. We ran an
in-depth occupier survey at Bradwell Abbey, Milton Keynes, which highlighted
reducing energy use, LED lighting, recycling and employee wellbeing as among
their key issues. In response to this, we are prioritising energy efficient
initiatives as part of the Group's refurbishment programme as set out above,
and we have plans for a café on the site, expected to open by Christmas. We
are rolling out similar surveys at the Group's largest assets in the second
half.
Ensuring responsible business foundations
Activities during the period included a data protection audit, which confirmed
that the Group is low risk as it does not hold or process any sensitive data,
as well as identifying some areas for improvement.
We have also updated the Group's Modern Slavery statement and created a
supplier appointment checklist, which we are integrating into the business.
The checklist helps us to understand suppliers' ESG credentials and ensure
they are taking appropriate measures in areas such as Modern Slavery.
We were also delighted to achieve an EPRA sBPR gold award for the third year
running, confirming our continuing dedication to best practice sustainability
reporting.
Financial review
Performance
Rental income for the period was £22.2 million (six months ended 30 September
2022: £22.9 million), reflecting asset disposals in the period and in the
prior year, partially offset by EPRA like-for-like rental growth of 1.3% and a
full period of ownership of Bradwell Abbey, which the Group acquired halfway
through the comparator period.
The Group's operating costs include its running costs (primarily the
management, audit, company secretarial, other professional, and Directors'
fees), and property-related costs (including legal expenses, void costs and
repairs). Total operating costs for the six months were £8.7 million (six
months ended 30 September 2022: £10.0 million), with the cost base benefiting
from a reduction in the Investment Advisor's fee of £1.0 million and lower
vacancy costs. The net increase in the expected credit loss allowance was low
at £0.2 million (six months ended 30 September 2022: £0.1 million).
The total cost ratio, which is the adjusted cost ratio including direct
vacancy costs, was 23.2% (six months ended 30 September 2022: 27.6%). The
ongoing charges ratio, representing the costs of running the REIT as a
percentage of NAV, was 1.4% (six months ended 30 September 2022: 1.3%).
The Group disposed of five assets in the period, resulting in a net profit on
disposal of £5.4 million.
At 30 September 2023, the Group recognised a gain of £6.8 million on the
revaluation of its investment properties (six months ended 30 September 2022:
loss of £73.4 million), reflecting the stabilisation of yields in the period
and an increase in the portfolio ERV of 2.8%.
Financing income in the period was £5.5 million (six months ended 30
September 2022: £16.0 million), including £3.7 million (six months ended 30
September 2022: £0.1 million) of interest receipts from interest rate
derivatives and a £1.6 million change in the fair value of interest rate
derivatives (six months ended 30 September 2022: £16.0 million).
Financing costs include the interest and fees on the Group's revolving credit
facility ("RCF") and term loan (see debt financing and hedging). Total finance
expenses were £13.0 million (six months ended 30 September 2022: £5.9
million). The increase primarily reflects the higher weighted average cost of
debt, with the SONIA reference rate having increased by 300 basis points
between the two periods. While the impact has been partly mitigated by the
interest rate caps taken out in the previous financial year (see below), the
all-in cost of debt for the period was 4.7% (six months ended 30 September
2022: 2.8%). We aim to continue to reduce the Group's variable-rate debt
through further asset disposals. Finance expenses in the period also included
£1.7 million relating to the accelerated amortisation of loan issue costs as
a result of the debt refinancing in the period (see below).
The statutory profit before tax was £22.0 million (six months ended 30
September 2022: £46.4 million loss).
The Group has continued to comply with its obligations as a REIT and the
profits and capital gains from its property investment business are,
therefore, exempt from corporation tax. The corporation tax charge for the
period was therefore £nil (six months ended 30 September 2022: £nil).
Earnings per share ("EPS") under IFRS was 5.2 pence (six months ended 30
September 2022: 10.9 pence loss per share). EPRA EPS was 1.0 pence (six months
ended 30 September 2022: 2.6 pence). Adjusted earnings per share was 2.3 pence
(six months ended 30 September 2022 (restated): 2.6 pence).
Dividends
The Company has declared the following interim dividends in respect of the
period:
Quarter to Declared Paid/to be paid Amount (pence)
30 June 2023 31 August 2023 6 October 2023 1.6
30 September 2023 15 November 2023 29 December 2023 1.6
Total 3.2
The total dividend of 3.2 pence per share for the interim period is in line
with the Group's target for the year of 6.4 pence and was 71.9% covered by
adjusted EPS. Both interim dividends were property income distributions. The
cash cost of the total dividend for the period will be £13.6 million (six
months ended 30 September 2022: £14.0 million).
Valuation and net asset value
The portfolio was independently valued by CBRE as at 30 September 2023, in
accordance with the internationally accepted RICS Valuation - Global Standards
2020 (incorporating the International Valuation Standards) (the "Red Book"),
and the RICS Valuation - Global Standards 2021 - UK national supplement.
The portfolio valuation was £811.3 million (31 March 2023: £828.8 million),
representing a 1.0% like-for-like valuation increase or 1.3% valuation
increase on the investment portfolio, after taking account of capital
expenditure of £7.8 million. The EPRA NIY was 5.2% (31 March 2023: 5.0%) and
the EPRA topped up NIY was 5.5% (31 March 2023: 5.5%).
The valuation uplift contributed to an increase of 0.9% in the EPRA NTA to
123.7 pence per share at the period-end (31 March 2023: 122.6 pence per
share).
Debt financing and hedging
During the period, the Group refinanced its debt facilities, extending the
term and improving the covenants. The new £320.0 million facility comprises a
£220.0 million term loan and a £100.0 million RCF. It replaces the Company's
previous £320.0 million debt facility and extends the tenure from January
2025 to June 2028. The facility is provided by a club of four lenders: HSBC,
Bank of Ireland, NatWest and Santander. The minimum interest cover is 1.5
times, compared to 2.0 times under the previous facility, and the maximum LTV
has been extended from 55% to 60%. Both the term loan and the RCF attract a
margin of 2.2% plus SONIA for an LTV below 40% or 2.5% if the LTV is above
40%.
At 30 September 2023, £65.0 million was drawn against the RCF and £220.0
million against the term loan. This gave total debt of £285.0 million (31
March 2023: £306.0 million), with the Group also holding cash balances of
£9.5 million (31 March 2023: £25.1 million). The LTV ratio at 30 September
2023 was therefore 34.0% (31 March 2023: 33.9%). Interest cover for the period
was 3.1 times, meaning the Group was substantially within the covenants in the
debt facility.
At the period end, the Group had £230.0 million of interest rate caps in
place, of which £200.0 million fixed SONIA at 1.5% and £30.0 million fixed
SONIA at 1.75%. The £30.0 million interest rate cap is due to expire in
November 2023 and has been replaced since the period end by a further cap of
£50.0 million, which fixes SONIA at 2.0% until November 2026.
We continue to explore opportunities to diversify the Group's sources of debt
funding, extend the average maturity of its debt and further reduce the
average cost of debt.
Post period-end activity
The Group completed a further 14 lease events over 0.7 million sq ft, securing
£4.1 million, 20.5% ahead of previous contracted rent. Driven by a lease
renewal of 71,000 sq ft at Kingsland Grange, 42.3% ahead of prior rent, and a
500,000 sq ft rent review, settled at £2.8m, 12.0% ahead of prior rent.
Principal risks and uncertainties
The principal risks facing the Group are documented on pages 60 to 64 of the
Annual Report for the year ended 31 March 2023. Since then, the Board has
continued its regular review of risks and emerging risks, including detailed
consideration of those risks that are most material to the Group and are
recorded as its principal risks.
During the period the Board has agreed an additional principal risk, relating
to the potential impact of a general economic downturn on the warehouse
market. This was already recognised as one of the Group's business risks,
but the Board considers that changing economic conditions make it appropriate
to now consider this as one of the Group's principal risks.
Financial risks
· Changes in interest rates could directly impact our cost of capital,
and indirectly may impact market stability.
· It may become more difficult to raise funding through equity, debt, or
asset disposals, which may impact the Group's ability to finance its
activities and deliver growth.
Business risks
· Returns may not be in line with our plans and forecasts, for example
because of an inappropriate investment strategy, poor delivery of the
strategy, or reduced capital valuations or rental income.
· The Group depends on the performance of its third-party service
providers, in particular the Investment Advisor, and poor delivery by these
providers could impact on the REIT's performance.
· Climate change may have an increasing impact across the business,
including adverse weather events, increasing utility costs, and the potential
for property values to be impacted.
· A general economic downturn may have an impact on the warehouse
market, as current occupiers may struggle to cover costs if business
contracts; and potential occupiers may be less likely to seek additional space
or higher quality buildings.
Operational risks
· A substantial increase in bad debts, arrears or slow payment could
have a direct impact on cash flow and profitability. It could also negatively
impact average lease lengths, void levels and costs, resulting in reducing
portfolio returns.
· Inappropriate acquisitions could also increase risk in relation to
portfolio returns, as properties may be harder to let, may not generate
appropriate revenues, or may require additional costs to support.
Compliance risks
· Loss of REIT status, through failing to meet regulatory requirements
or the Listing Rules, would have a significant impact on the Group's
reputation and the financial returns for investors.
· Breaching the conditions of the Group's loan funding could result in
restrictions to funding and activities going forward. In addition, the Board
has approved and communicated the Group's borrowing policy and breaching it
may risk financial and reputation damage.
Going concern
In preparing the financial statements, we, and the Company's Board are
required to assess whether the Group remains a going concern. During the
period, the Group generated gross property income of £23.3 million and
operating profits of £17.3 million, showing that rents would have to fall by
approximately 34.7% before the business became loss-making. This is considered
highly unlikely given the high occupational demand for warehouse assets, the
Group's strong relationships with the broad range of occupiers across the
portfolio, the level of rent collection, and the fact that the portfolio ERV
exceeds the period-end contracted rent roll by 15.7%.
At the same time, the Group has a strong balance sheet, with substantial cash
and headroom within its facilities at the period-end of £35.0 million. The
Group has refinanced its debt facilities, extending the term by more than
three years to June 2028, and at the date of this report has interest rate
caps on £250.0 million of debt.
We and the Company's Board have also carefully reviewed the risk landscape and
do not believe that the risks facing the Group have materially increased. As a
result, we are confident that the Group remains a going concern.
Investment Manager
The Company is an alternative investment fund for the purposes of the
Alternative Investment Fund Managers Directive ("AIFMD") and, as such, is
required to have an Investment Manager who is duly authorised to undertake
that role. G10 Capital Limited ("G10") is the Company's AIFM and Investment
Manager and is authorised and regulated by the Financial Conduct Authority.
Investment Advisor
Tilstone Partners Limited is Investment Advisor to the Company and the
Investment Manager.
Tilstone Partners Limited
14 November 2023
Directors' responsibilities statement
The Directors confirm to the best of our knowledge:
· the condensed set of financial statements have been prepared in
accordance with IAS 34 'Interim Financial Reporting', and give a true and fair
view of the assets, liabilities, financial position and profit of the Group,
as required by DTR 4.2.4R;
· the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events during the
first six months and description of principal risks and uncertainties for the
remaining six months of the financial year); and
· the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related party transactions
and changes therein).
The directors of Warehouse REIT plc are listed on the company website
warehousereit.co.uk
By order of the Board.
Neil Kirton
Director
14 November 2023
Results for the six months ended 30 September 2023
Condensed consolidated statement of comprehensive income (unaudited)
For the six months ended 30 September 2023
Notes Six months ended Six months ended
30 September 2023
30 September 2022
Continuing operations £'000 £'000
Gross property income 3 23,291 24,140
Service charge income 3 2,669 2,901
Service charge expense 4 (2,785) (3,123)
Net property income 23,175 23,918
Property operating expenses 4 (2,031) (2,341)
Gross profit 21,144 21,577
Administration expenses 4 (3,857) (4,550)
Operating profit before gains on investment properties 17,287 17,027
Profit/(loss) on disposal of investment properties 11 5,419 (84)
Fair value gain/(loss) on revaluation of investment properties 11 6,778 (73,362)
Operating profit/(loss) 29,484 (56,419)
Finance income 5 5,471 16,038
Finance expenses 6 (12,986) (5,974)
Profit/(loss) before tax 21,969 (46,355)
Taxation 7 - -
Total comprehensive income/(loss) for the period 21,969 (46,355)
EPS (basic and diluted) (pence) 10 5.2 (10.9)
The accompanying notes form an integral part of these financial statements.
Condensed consolidated statement of financial position (unaudited)
As at 30 September 2023
30 September 31 March
2023 2023
Notes £'000 £'000
Assets
Non-current assets
Investment property 11 822,410 842,269
Interest rate derivatives 15 11,064 7,387
833,474 849,656
Current assets
Investment property held for sale 12 2,750 625
Cash and cash equivalents 13 9,542 25,053
Trade and other receivables 14 15,135 9,258
Interest rate derivatives 15 150 -
27,577 34,936
Total assets 861,051 884,592
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 16 (281,015) (304,093)
Head lease liability 17 (13,871) (14,320)
Other payables and accrued expenses 18 - (11,300)
(294,886) (329,713)
Current liabilities
Other payables and accrued expenses 18 (20,781) (18,584)
Deferred income 18 (7,546) (7,115)
Head lease liability 17 (990) (705)
(29,317) (26,404)
Total liabilities (324,203) (356,117)
Net assets 536,848 528,475
Equity
Share capital 19 4,249 4,249
Share premium 275,648 275,648
Retained earnings 256,951 248,578
Total equity 536,848 528,475
Number of shares in issue (thousands) 424,862 424,862
NAV per share (basic and diluted) (pence) 20 126.4 124.4
The accompanying notes form an integral part of these financial statements.
Condensed consolidated statement of changes in equity (unaudited)
For the six months ended 30 September 2023
Share Share Retained
capital premium earnings Total
Notes £'000 £'000 £'000 £'000
Balance at 1 April 2022 4,249 275,648 459,057 738,954
Total comprehensive loss - - (46,355) (46,355)
Dividends paid 9 - - (14,021) (14,021)
Balance at 30 September 2022 4,249 275,648 398,681 678,578
Balance at 1 April 2023 4,249 275,648 248,578 528,475
Total comprehensive income - - 21,969 21,969
Dividends paid 9 - - (13,596) (13,596)
Balance at 30 September 2023 4,249 275,648 256,951 536,848
The accompanying notes form an integral part of these financial statements.
Condensed consolidated statement of cash flows (unaudited)
For the six months ended 30 September 2023
Notes Six months ended 30 Six months ended
30 September (Restated)
September
2022
2023
£'000
£'000
Cash flows from operating activities
Operating profit/(loss) 29,484 (56,419)
Adjustments to reconcile profit/(loss) for the period to net cash flows:
(Profit)/loss from change in fair value of investment properties (6,778) 73,362
Realised (profit)/loss on disposal of investment properties (5,419) 84
Head lease asset depreciation 217 91
Operating cash flows before movements in working capital 17,504 17,118
Increase in other receivables and prepayments (6,155) (4,980)
(Decrease)/increase in other payables and accrued expenses (2,596) 2,086
Net cash flows generated from operating activities 8,753 14,224
Cash flows from investing activities
Acquisition of investment properties (5,560) (66,375)
Capital expenditure (3,710) (1,582)
Development expenditure (5,012) (2,847)
Purchase of interest rate caps (2,181) -
Interest received 3,188 1
Disposal of investment properties 38,458 4,603
Net cash generated from/(used in) investing activities 25,183 (66,200)
Cash flows from financing activities
Bank loans drawn down 306,000 65,000
Bank loans repaid (327,000) -
Loan interest and other finance expenses paid (10,000) (3,968)
Other finance expenses paid (99) -
Loan issuance fees (4,223) -
Head lease payments (529) (526)
Dividends paid in the period (13,596) (14,020)
Net cash flows (used in)/generated from financing activities (49,447) 46,486
Net decrease in cash and cash equivalents (15,511) (5,490)
Cash and cash equivalents at the start of the period 25,053 16,706
Cash and cash equivalents at the end of the period 13 9,542 11,216
The accompanying notes form an integral part of these financial statements.
Notes to the condensed consolidated financial statements (unaudited)
For the six months ended 30 September 2023
1. General information
Warehouse REIT plc (the "Company") is a closed-ended Real Estate Investment
Trust ("REIT") incorporated in England and Wales on 24 July 2017. The Company
began trading on 20 September 2017. The registered office of the Company is 65
Gresham Street, London EC2V 7NQ. The Company is admitted to trading on the
Premium Listing Segment of the Main Market, a market operated by the London
Stock Exchange.
2. Basis of preparation
These interim condensed consolidated unaudited financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting and
International Financial Reporting Standards ("IFRS") and interpretations
issued by the International Accounting Standards Board ("IASB") as adopted by
the United Kingdom.
These interim condensed consolidated unaudited financial statements should be
read in conjunction with the Company's last financial statements for the year
ended 31 March 2023. These interim condensed consolidated unaudited financial
statements do not include all of the information required for a complete set
of annual financial statements prepared in accordance with IFRS as adopted by
the UK; however, they have been prepared using the accounting policies adopted
in the audited financial statements for the year ended 31 March 2023 and
selected explanatory notes have been included to explain events and
transactions that are significant in understanding changes in the Company's
financial position and performance since the last financial statements.
The financial statements have been prepared under the historical cost
convention, except for investment property and interest rate derivatives,
which have been measured at fair value. The interim financial statements are
presented in Pound Sterling and all values are rounded to the nearest thousand
pounds (£'000), except when otherwise indicated.
The financial information contained within these interim results does not
constitute full statutory accounts as defined in section 434 of the Companies
Act 2006. The financial statements for the six months ended 30 September 2023
have not been either audited or reviewed by the Company's Auditor. The
information for the year ended 31 March 2023 has been extracted from the
latest published Annual Report and Financial Statements, which has been filed
with the Registrar of Companies. The Auditor reported on those accounts; its
report was unqualified and did not contain a statement under sections 498(2)
or (3) of the Companies Act 2006.
The Directors have made an assessment of the Group's ability to continue as a
going concern and are satisfied that the Group has the resources to continue
in business for the foreseeable future, for a period of not less than 12
months from the date of this report. Furthermore, the Directors are not aware
of any material uncertainties that may cast significant doubt upon the Group's
ability to continue as a going concern.
2.1 Changes to accounting standards and interpretations
There were several new standards and amendments to existing standards, which
are required for the Group's accounting period beginning on 1 April 2023,
which have been considered and applied as follows:
· amendments to IAS 1 Presentation of Financial Statements; and
· amendments to IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors.
There was no material effect from the adoption of the above-mentioned
amendments to IFRS effective in the period. They have no significant impact to
the Group as they are either not relevant to the Group's activities or require
accounting, which is already consistent with the Group's current accounting
policies.
2.2 Significant accounting judgements and estimates
The preparation of these financial statements in accordance with IAS 34
requires the Directors of the Company to make judgements, estimates and
assumptions that affect the reported amounts recognised in the financial
statements. However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the carrying amount
of an asset or liability in the future.
Judgements
In the course of preparing the financial statements, no judgements have been
made in the process of applying the Group's accounting policies, other than
those involving estimations, that have had a significant effect on the amounts
recognised in the financial statements.
Estimates
In the process of applying the Group's accounting policies, management has
made the following estimate, which has the most significant risk of material
change to the carrying value of assets recognised in the consolidated
financial statements:
Valuation of property
The valuations of the Group's investment property are at fair value as
determined by the external valuer on the basis of market value in accordance
with the internationally accepted RICS Valuation - Professional Standards 2020
(incorporating the International Valuation Standards), in accordance with IFRS
13. The key estimates made by the valuer are the ERV and equivalent yields of
each investment property and the land values per acre for development
properties. The valuers have considered the impact of climate change and that
this has not had a material impact on the valuation at the current time. See
notes 11 and 21 for further details.
2.3 Restatement of financial statements
Following a review of the gross service charge income recognised for the six
months ended 30 September, it was noted that there was an inconsistency in the
methodology prescribed in the previous year's annual financial statements. The
comparative service charge income and expenditure have been updated to reflect
this, with no change to net property income previously recognised.
In addition, during the six months ended 31 March 2023, the licence fee
previously levied over the land at Radway Green, Crewe was renegotiated to
commence upon construction of the site. The comparative adjusted earnings have
been updated to reflect the change in negotiations.
2.4 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
financial statements are consistent with those applied within the Company's
Annual Report and Financial Statements for the year ended 31 March 2023.
Basis of consolidation
The Company does not meet the definition of an investment entity and,
therefore, does not qualify for the consolidation exemption under IFRS 10. The
consolidated financial statements comprise the financial statements of the
Group and its subsidiaries as at 30 September 2023. Subsidiaries are
consolidated from the date of acquisition, being the date on which the Group
obtained control, and will continue to be consolidated until the date that
such control ceases. An investor controls an investee when the investor is
exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power over
the investee. In preparing these financial statements, intra‑group balances,
transactions and unrealised gains or losses have been eliminated in full. All
subsidiaries have the same year-end as the Company. Uniform accounting
policies are adopted in the financial statements for like transactions and
events in similar circumstances.
Functional and presentation currency
The objective of the Group is to generate returns in Pound Sterling and the
Group's performance is evaluated in Pound Sterling. Therefore, the Directors
consider Pound Sterling as the currency that most faithfully represents the
economic effects of the underlying transactions, events and conditions and
have, therefore, adopted it as the functional and presentation currency.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business, being the investment in and provision of UK urban warehouses.
Derivative financial instruments
Derivative financial instruments, comprising interest rate derivatives for
mitigating interest rate risks, are initially recognised at fair value, and
are subsequently measured at fair value, being the estimated amount that the
Group would receive or pay to terminate the agreement at the period-end date,
taking into account current interest rate expectations and the current credit
rating of the Group and its counterparties. Premiums payable under such
arrangements are initially capitalised into the statement of financial
position.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data is available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable
inputs significant to the fair value measurement as a whole. Changes in fair
value of interest rate derivatives are recognised within finance expenses in
profit or loss in the period in which they occur.
3. Property income
Six months Six months
ended ended
30 September 30 September 2022
2023 (Restated)
£'000 £'000
Rental income 22,245 22,941
Insurance recharged 854 827
Dilapidation income 192 372
Gross property income 23,291 24,140
Service charge income 2,669 2,901
Total property income 25,960 27,041
4. Property operating and administration expenses
Six months ended Six months ended
30 September 30 September 2022
2023 (Restated)
£'000 £'000
Service charge expenses 2,785 3,123
Premises expenses 922 953
Insurance 829 926
Rates 70 228
Utilities 35 103
Loss allowance on trade receivables 175 131
Property operating expenses 2,031 2,341
Investment Advisor's fees 2,820 3,804
Head lease asset depreciation 120 91
Directors' remuneration (including social security costs) 86 87
Other administration expenses 831 568
Administration expenses 3,857 4,550
Total 8,673 10,014
5. Finance income
Six months Six months
ended ended
30 September 30
September
2023 2022
£'000 £'000
Interest receivable on derivatives 3,697 74
Change in fair value of interest rate derivatives 1,646 15,963
Income from cash and short-term deposits 128 1
Total 5,471 16,038
6. Finance expenses
Six months Six months
ended ended
30 September 30
September
2023 2022
£'000 £'000
Loan interest 10,857 4,850
Accelerated loan arrangement fees 1,688 -
Head lease interest 473 515
Loan arrangement fees amortised 457 527
Other finance costs 99 80
Bank charges 3 2
13,577 5,974
Less: amounts capitalised on the development of properties (591) -
Total 12,986 5,974
The interest capitalisation rate for the six months ended 30 September 2023
was 4.7%.
7. Taxation
Corporation tax has arisen as follows:
Six months Six months
ended ended
30 September 30
September
2023 2022
£'000 £'000
Corporation tax on residual income for current period - -
Total - -
Reconciliation of tax charge to profit before tax:
Six months Six months
ended ended
30 September 30
September
2023 2022
£'000 £'000
Profit/(loss) before tax 21,969 (46,355)
Corporation tax at 25.0% (2022: 19.0%) 5,492 (8,807)
Change in value of investment properties (including gain/(loss) on disposal) (3,049) 13,939
Change in value of interest rate derivatives (412) (3,033)
Tax-exempt property rental business (2,031) (2,099)
Total - -
8. Operating leases
Operating lease commitments - as lessor
The Group has entered into commercial property leases on its investment
property portfolio. These non-cancellable leases have a remaining term of up
to 4.4 years.
Future minimum rentals receivable under non-cancellable operating leases as at
30 September 2023 are as follows:
30 September 31
March
2023 2023
£'000 £'000
Within one year 40,218 42,033
Between one and two years 33,818 33,340
Between two and three years 27,222 26,998
Between three and four years 22,362 22,360
Between four and five years 18,907 18,457
Between five and ten years 29,164 34,394
More than ten years 21,979 19,607
Total 193,670 197,189
9. Dividends
Pence per
Six months ended 30 September 2023 share £'000
Third interim dividend for year ended 31 March 2023 paid on 3 April 2023 1.60 6,798
Fourth interim dividend for year ended 31 March 2023 paid on 7 July 2023 1.60 6,798
Total dividends paid during the period 3.20 13,596
Paid as:
Property income distributions 3.20 13,596
Ordinary dividends - -
Total 3.20 13,596
Pence per
Six months ended 30 September 2022 share £'000
Third interim dividend for year ended 31 March 2022 paid on 1 April 2022 1.55 6,585
Fourth interim dividend for year ended 31 March 2022 paid on 30 June 2022 1.75 7,436
Total dividends paid during the period 3.30 14,021
Paid as:
Property income distributions 3.30 14,021
Ordinary dividends - -
Total 3.30 14,021
As a REIT, the Company is required to pay PIDs equal to at least 90% of the
property rental business profits of the Group.
The Company declared a first interim dividend for the year ending 31 March
2023 of 1.60 pence per share on 31 August 2023, which was paid on 6 October
2023. The dividend was paid in full as a property income distribution.
10. Earnings per share
Basic EPS is calculated by dividing profit for the period attributable to
ordinary shareholders of the Company by the weighted average number of
ordinary shares during the period. As there are no dilutive instruments in
issue, basic and diluted EPS are identical.
Six months Six months
ended ended
30 September 30
September
2023 2022
(Restated)
£'000 £'000
IFRS earnings/(loss) 21,969 (46,355)
EPRA earnings adjustments:
Interest from derivatives (3,697) (74)
(Gain)/loss on disposal of investment properties (5,419) 84
Fair value (gains)/losses on investment properties (6,778) 73,362
Changes in fair value of interest rate derivatives (1,646) (15,963)
EPRA earnings 4,429 11,054
Interest from derivatives 3,697 74
Accelerated amortisation of loan issue costs 1,688 -
Adjusted earnings 9,814 11,128
The adjusted earnings per share reflects our ability to generate earnings from
our portfolio.
The Company has also included an additional earnings measure called 'Adjusted
Earnings' and 'Adjusted EPS'. Adjusted Earnings and Adjusted EPS is based on
EPRA's Best Practices Recommendations and recognises finance income earned
from derivatives held at fair value through profit and loss used to hedge the
Company's floating interest rate exposure.
The Board deems this a more relevant indicator of core earnings as it reflects
our ability to generate earnings from our portfolio.
The comparative adjusted earnings have been restated due to the renegotiation
of the licence fee previously levied over Radway Green, Crewe.
Six months Six months
ended ended
30 September 30
September
2023 2022
Pence Pence
Basic IFRS EPS 5.2 (10.9)
Diluted IFRS EPS 5.2 (10.9)
EPRA EPS 1.0 2.6
Adjusted EPS (restated) 2.3 2.6
30 September 30
September
2023 2022
Number of shares Number of shares
Weighted average number of shares in issue (thousands) 424,862 424,862
Please see table 2 of the supplementary notes for details on the calculation
of adjusted earnings.
11. UK investment property
Completed Development Total
investment property and investment
property land property
£'000 £'000 £'000
Investment property valuation brought forward as at 1 April 2023 752,485 75,660 828,145
Acquisition of properties - - -
Capital expenditure 2,170 5,602 7,772
Disposal of properties (29,289) (3,125) (32,414)
Assets transferred to held for sale (2,750) - (2,750)
Movement in rent incentives 974 - 974
Fair value gains/(loss) on revaluation of investment property 8,330 (1,552) 6,778
Total portfolio valuation per valuer's report 731,920 76,585 808,505
Adjustment for head lease obligations 13,905 - 13,905
Carrying value at 30 September 2023 745,825 76,585 822,410
Completed Development Total
investment property and investment
property land property
£'000 £'000 £'000
Investment property valuation brought forward as at 1 April 2022 913,035 98,950 1,011,985
Transferred in the period 5,449 (5,449) -
Acquisition of properties 64,512 2,216 66,728
Capital expenditure 5,035 8,295 13,330
Disposal of properties (71,206) - (71,206)
Assets transferred to held for sale (625) - (625)
Movement in rent incentives 1,272 28 1,300
Fair value gains on revaluation of investment property (164,987) (28,380) (193,367)
Total portfolio valuation per valuer's report 752,485 75,660 828,145
Adjustment for head lease obligations 14,124 - 14,124
Carrying value at 31 March 2023 766,609 75,660 842,269
Realised loss on disposal of investment property
30 September 30
September
2023 2022
£'000 £'000
Net proceeds from disposals of investment property during the period 38,458 4,603
Carrying value of disposals (33,039) (4,687)
Realised loss on disposal of investment property 5,419 (84)
12. Investment properties held for sale
Completed Development Total
Investment property Investment
property and land property
£'000 £'000 £'000
Investment property held for sale
Carrying value at 31 March 2023 625 - 625
Disposal of properties (625) - (625)
Assets transferred in 2,750 - 2750
Carrying value at 30 September 2023 2,750 - 2,750
13. Cash and cash equivalents
30 31
September March
2023 2023
£'000 £'000
Unrestricted cash and cash equivalents 9,542 18,990
Restricted cash and cash equivalents - 6,063
Total 9,542 25,053
14. Trade and other receivables
30 September 31
March
2023 2023
£'000 £'000
Rent and insurance receivables 7,819 3,952
Payments in advance of property completion 2,139 2,080
Interest receivable on derivatives 1,687 1,050
Prepayments 1,057 191
Occupier deposits 643 698
Other receivables 1,790 1,287
Total 15,135 9,258
The rent and insurance receivables balance represent gross receivables of
£8.1 million (31 March 2023: £4.2 million), net of a provision for doubtful
debts of £0.3 million (31 March 2023: £0.2 million).
15. Interest rate derivatives
30 September 31
March
2023 2023
£'000 £'000
At the start of the period 7,387 337
Additional premiums paid and accrued 2,181 10,926
Changes in fair value of interest rate derivatives 1,646 4,850
Interest rate derivative premium payable - (8,726)
Balance at the end of the period 11,214 7,387
Current asset 150 -
Non-current asset 11,064 7,387
Balance at the end of the period 11,214 7,387
To mitigate the interest rate risk that arises as a result of entering into
variable rate linked loans, the Group entered into interest rate derivatives
against movements in SONIA. The instruments have a combined notional value of
£230.0 million with £200.0 million at a strike rate of 1.50% and the
remaining £30 million at a strike rate of 1.75%. The £30.0 million
instrument has a termination date of 20 November 2023, £100.0 million has a
termination date of 20 July 2025 and £100.0 million has a termination date of
20 July 2027.
16. Interest-bearing loans and borrowings
30 September 31
March
2023 2023
£'000 £'000
At the beginning of the period 306,000 271,000
Drawn in the period 306,000 65,000
Repaid in the period (327,000) (30,000)
Interest-bearing loans and borrowings 285,000 306,000
Unamortised fees at the beginning of the period (1,907) (2,784)
Loan arrangement fees paid in the period (4,223) (175)
Amortisation charge for the period 2,145 1,052
Unamortised loan arrangement fees (3,985) (1,907)
Loan balance less unamortised loan arrangement fees 281,015 304,093
On 2 June 2023, the Company entered into a new £320.0 million facility,
replacing the Company's previous £320.0 million debt facility and extends the
tenure from January 2025 to June 2028. It comprises a £220.0 million term
loan and a £100.0 million revolving credit facility ("RCF") with a club of
four lenders; HSBC, Bank of Ireland, NatWest, and Santander. The minimum
interest cover is 1.5 times compared to 2.0 times under the previous facility
and the maximum LTV has been extended to 60% from 55%. Both the term loan and
the RCF attract a margin of 2.2% plus SONIA for an LTV below 40% or 2.5% if
above. The Company has £230.0 million of interest rate caps in place, of
which £200.0 million fixes SONIA at 1.5% and the remaining £30.0 million
fixes SONIA at 1.75%. The facilities are secured on all properties within the
portfolio.
As at 30 September 2023, there is £35.0 million (31 March 2023: £14.0
million) available to draw.
The debt facility includes interest cover and market value covenants that are
measured at a Group level. The Group has complied with all covenants
throughout the financial period.
17. Head lease obligations
The following table analyses the minimum lease payments under non-cancellable
finance leases using an average discount rate of 6.91%:
30 September 31
March
2023 2023
£'000 £'000
Current liabilities
Within one year 990 705
Non-current liabilities
After one year but not more than five years 2,975 2,975
Later than five years 10,896 11,345
Non-current head lease obligations 13,871 14,320
Total 14,861 15,025
18. Other liabilities - other payables and accrued expenses, provisions and
deferred income
30 September 31
March
2023 2023
£'000 £'000
Loan interest payable 4,547 3,691
Administration expenses payable 2,571 2,170
Capital expenses payable 12,623 3,864
Other expenses payable 683 3,504
Property operating expenses payable 357 855
Deferred consideration payable - 4,500
Other payables and accrued expenses - current 20,781 18,584
30 September 31
March
2023 2023
£'000 £'000
Capital expenses payable - 11,300
Other payables and accrued expenses - non-current - 11,300
30 September 31
March
2023 2023
£'000 £'000
Deferred income 7,546 7,115
Deferred income 7,546 7,115
During the year ended 31 March 2021, the Group exchanged contracts to acquire
land for £15.0 million. The first three instalments were paid for a total of
£2.5 million to the year ended 31 March 2022 with an additional £1.5 million
paid during the year ended 31 March 2023 and £1.0 million in the period ended
30 September 2023. The final instalment of £10.3 million is due to be paid on
1 September 2024.
19. Share capital
Share capital is the nominal amount of the Company's ordinary shares in issue.
30 September 31
March
2023 2023
Ordinary shares of £0.01 each Number £'000 Number £'000
Authorised, issued, and fully paid:
At the start of the period 424,861,650 4,249 424,861,650 4,249
Balance at the end of the period 424,861,650 4,249 424,861,650 4,249
The share capital comprises one class of ordinary shares. At general meetings
of the Company, ordinary shareholders are entitled to one vote on a show of
hands and, on a poll, to one vote for every share held. There are no
restrictions on the size of a shareholding or the transfer of shares, except
for the UK REIT restrictions.
20. Net asset value per share
Basic NAV per share is calculated by dividing net assets attributable to
ordinary equity holders of the Company in the statement of financial position
by the number of ordinary shares outstanding at the end of the period. As
there are no dilutive instruments in issue, basic and diluted NAV per share
are identical.
30 September 2023 31
March
2023
£'000 £'000
IFRS net assets attributable to ordinary shareholders 536,848 528,475
IFRS net assets for calculation of NAV 536,848 528,475
Adjustment to net assets:
Fair value of interest rate derivatives (see note 15) (11,214) (7,387)
EPRA NTA 525,634 521,088
30 September 31
March
2023 2023
£'000 £'000
IFRS basic and diluted NAV per share (pence) 126.4 124.4
EPRA NTA per share (pence) 123.7 122.6
30 September 31
March
2023 2023
Number of shares Number of shares
Number of shares in issue (thousands) 424,862 424,862
21. Fair value
IFRS 13 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The following methods and assumptions
were used to estimate the fair values.
The fair value of cash and short-term deposits, trade receivables, trade
payables, and other current liabilities approximate their carrying amounts due
to the short-term maturities of these instruments. Interest-bearing loans and
borrowings are disclosed at amortised cost. The carrying value of the loans
and borrowings approximate their fair value due to the contractual terms and
conditions of the loan. The loans are at variable interest rates of between
2.2% and 2.5% above SONIA.
Interest rate derivatives
The fair value of the interest rate cap contracts is recorded in the statement
of financial position and is revalued quarterly by an independent valuations
specialist, Chatham Financial. The fair value is determined by forming an
expectation that interest rates will exceed strike rates and discounting these
future cash flows at the prevailing market rates as at the year-end.
Investment properties
Six-monthly valuations of the investment properties are performed by CBRE, an
accredited independent external valuer with recognised and relevant
professional qualifications and recent experience of the location and category
of the investment property being valued. The valuations are the ultimate
responsibility of the Directors, who appraise these every six months.
The valuation of the Group's investment property at fair value is determined
by the external valuer on the basis of market value in accordance with the
internationally accepted RICS Valuation - Professional Standards January 2020
(incorporating the International Valuation Standards).
Completed investment properties are valued by adopting the 'income
capitalisation' method of valuation. This approach involves applying
capitalisation yields to current and future rental streams, net of income
voids arising from vacancies or rent-free periods and associated running
costs. These capitalisation yields and future rental values are based on
comparable property and leasing transactions in the market using the valuer's
professional judgement and market observations. Other factors taken into
account in the valuations include the tenure of the property, tenancy details
and ground and structural conditions.
Development property and land has been valued by adopting the 'comparable
method' of valuation and where appropriate supported by a 'residual
development appraisal'. The comparable method involves applying a sales rate
per acre to relevant sites supported by comparable land sales. Residual
development appraisals have been completed where there is sufficient clarity
regarding planning and an identified or indicative scheme. In a similar manner
to 'income capitalisation', development inputs include the capitalisation of
future rental streams with an appropriate yield to ascertain a gross
development value. The costs associated with bringing a scheme to the market
are then deducted, including construction costs, professional fees, finance,
and developer's profit, to provide a residual site value.
The following tables show an analysis of the fair values of investment
properties recognised in the statement of financial position by level of the
fair value hierarchy
30 September 2023
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at fair value £'000 £'000 £'000 £'000
Investment properties and assets held for sale - - 811,255 811,255
Interest rate derivatives - 11,214 - 11,214
Total - 11,214 811,255 822,469
31 March 2023
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at fair value £'000 £'000 £'000 £'000
Investment properties - - 828,770 828,770
Interest rate derivatives - 7,387 - 7,387
Total - 7,387 828,770 836,157
Explanation of the fair value hierarchy:
• Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities that the entity can access at the measurement
date;
• Level 2 - use of a model with inputs (other than quoted prices
included in Level 1) that are directly or indirectly observable market data;
and
• Level 3 - use of a model with inputs that are not based on
observable market data.
Sensitivity analysis to significant changes in unobservable inputs within the
valuation of investment properties
The following table analyses:
• the fair value measurements at the end of the reporting period;
• a description of the valuation techniques applied;
• the inputs used in the fair value measurement, including the ranges
of rent charged to different units within the same building; and
• for Level 3 fair value measurements, quantitative information about
significant unobservable inputs used in the fair value measurement.
30 September 2023
Fair value £'000 Valuation technique Key
Unobservable inputs Range
Completed investment property 734,428 Income ERV £2.38 per sq ft-£12.71 per sq ft
capitalisation
Equivalent yield 5.1%-20.7%
Development property and land 76,827 Comparable method/ Sales rate per acre £200,000-£700,000
residual method
811,255
31 March 2023
Fair Value Valuation Key
£'000 technique unobservable inputs Range
Completed investment property 753,110 Income ERV £2.38 per sq ft-£17.50 per sq ft
capitalisation
Equivalent yield 5.03%-19.77%
Development property and land 75,660 Comparable Sales rate per acre £200,000-£925,000
method/
residual method
828,770
Significant increases/decreases in the ERV (per sq ft per annum) and rental
growth per annum in isolation would result in a significantly higher/lower
fair value measurement. Significant increases/decreases in the long-term
vacancy rate and discount rate (and exit yield) in isolation would result in a
significantly higher/lower fair value measurement.
Generally, a change in the assumption made for the ERV (per sq ft per annum)
is accompanied by:
· a similar change in the rent growth per annum and discount rate
(and exit yield); and
· an opposite change in the long-term vacancy rate.
Gains and losses recorded in profit or loss for recurring fair value
measurements categorised within Level 3 of the fair value hierarchy amount to
a gain of £6,778,000 (six months to 30 September 2022: loss of £73,362,000)
and are presented in the condensed consolidated statement of comprehensive
income in line item 'fair value gains on investment properties'.
All gains and losses recorded in profit or loss for recurring fair value
measurements categorised within Level 3 of the fair value hierarchy are
attributable to changes in unrealised gains or losses relating to investment
property held at the end of the reporting period.
The carrying amount of the Group's assets and liabilities is considered the
same as their fair value.
22. Related party transactions
Directors
The Directors (all Non-Executive Directors) of the Company and its
subsidiaries are considered to be the key management personnel of the Group.
Directors' remuneration for the period totalled £86,360 (six months to 30
September 2022: £87,280) and as at 30 September 2023, a balance of £nil (31
March 2023: £nil) was outstanding. The Directors who served during the period
received £0.8 million in dividend payments (30 September 2022: £0.8
million).
Investment Advisor
The Company is party to an Investment Management Agreement with the Investment
Manager, pursuant to which the Investment Manager has appointed the Investment
Advisor to provide investment advisory services relating to the respective
assets on a day-to-day basis in accordance with their respective investment
objectives and policies, subject to the overall supervision and direction by
the Investment Manager and the Board of Directors.
For its services to the Group, the Investment Advisor receives an annual fee
at the rate of 1.1% of the NAV of the Company up to £500 million, then at a
lower rate of 0.9% thereafter.
During the period, the Group incurred £2,819,726 (30 September 2022:
£3,803,682) in respect of the Investment Advisor's fees. £1,436,000 (31
March 2023: £1,529,000) was outstanding as at the period-end date.
Subsidiaries
As at 30 September 2023, the Company owned directly or indirectly a 100%
controlling stake in Tilstone Holdings Limited, Tilstone Warehouse Holdco
Limited, Tilstone Industrial Warehouse Limited, Tilstone Retail Warehouse
Limited, Tilstone Industrial Limited, Tilstone Retail Limited, Tilstone Trade
Limited, Tilstone Basingstoke Limited, Tilstone Glasgow Limited, Tilstone
Radway Limited, Tilstone Chesterfield Limited, Tilstone Liverpool Limited,
Warehouse 1234 Limited, Tilstone Property Holdings Limited, and Tilstone
Oxford Limited.
Tilstone Property Holdings Limited has applied to the Registrar of Companies
to be voluntary struck off and dissolved, it is expected that this process
will complete on 19 November 2023.
23. Ultimate controlling party
It is the view of the Directors that there is no ultimate controlling party.
24. Post balance sheet events
A second interim dividend of 1.6 pence per share in respect of the year ended
31 March 2024 will be paid full PID on 29 December 2023 to shareholders on the
register on 1 December 2023.
Supplementary notes
For the six months ended 30 September 2023
The Group is a member of the European Public Real Estate Association ("EPRA").
EPRA has developed and defined the following performance measures to give
transparency, comparability, and relevance of financial reporting across
entities that may use different accounting standards. The following measures
are calculated in accordance with EPRA guidance.
Table 1: EPRA performance measures summary
Six months Six months
ended ended
30 September 30
September
Notes 2023 2022
EPRA EPS (pence) Table 2 1.0 2.6
EPRA cost ratio (including direct vacancy cost) Table 6 23.2% 27.6%
EPRA cost ratio (excluding direct vacancy cost) Table 6 22.2% 24.5%
30 September 31
March
Notes 2023 2023
EPRA NDV per share (pence) Table 3 126.4 124.4
EPRA NRV per share (pence) Table 3 136.7 135.9
EPRA NTA per share (pence) Table 3 123.7 122.6
EPRA NIY Table 4 5.2% 5.0%
EPRA 'topped-up' net initial yield Table 4 5.5% 5.5%
EPRA vacancy rate Table 5 4.0% 5.0%
EPRA LTV Table 10 33.6% 36.5%
Table 2: EPRA income statement and earnings performance measures
Six months Six months
ended ended
30 September 30
September
2023 2022
(Restated)
£'000 £'000
Total property income 25,960 27,041
Less: service charge income (2,669) (2,901)
Less: dilapidation income (192) (372)
Less: insurance recharged (854) (827)
Rental income (A) 22,245 22,941
Property operating expenses (2,031) (2,341)
Service charge expenses (2,785) (3,123)
Add back: service charge income 2,669 2,901
Add back: dilapidation income 192 372
Add back: insurance recharged 854 827
Adjusted gross profit (B) 21,144 21,577
Administration expenses (3,857) (4,550)
Adjusted operating profit before interest and tax 17,287 17,027
Finance income 5,471 16,038
Finance expenses (12,986) (5,974)
Add back: accelerated amortisation of loan issue costs 1,688 -
Less change in fair value of interest rate derivatives (1,646) (15,963)
Adjusted profit before tax 9,814 11,128
Tax on adjusted profit - -
Adjusted earnings 9,814 11,128
Less: interest from derivatives (3,697) (74)
Less: accelerated amortisation of loan issue costs (1,688) -
EPRA earnings 4,429 11,054
Weighted average number of shares in issue (thousands) 424,862 424,862
Adjusted EPS (pence) 2.3 2.6
Weighted average number of shares in issue (thousands) 424,862 424,862
EPRA EPS (pence) 1.0 2.6
Gross to net rental income ratio (B/A) 95.1% 94.1%
The adjusted earnings per share reflects our ability to generate earnings from
our portfolio.
The Company has also included an additional earnings measure called 'Adjusted
Earnings' and 'Adjusted EPS'. Adjusted Earnings and Adjusted EPS is based on
EPRA's Best Practices Recommendations and recognises finance income earned
from derivatives held at fair value through profit and loss used to hedge the
Company's floating interest rate exposure.
The Board deems this a more relevant indicator of core earnings as it reflects
our ability to generate earnings from our portfolio.
The comparative adjusted earnings have been restated due to the renegotiation
of the licence fee previously levied over Radway Green, Crewe.
Table 3: EPRA balance sheet and net asset value performance measures
EPRA publishes Best Practices Recommendations ("BPR") for financial
disclosures by public real estate companies. EPRA net disposal value ("NDV"),
EPRA net reinvestment value ("NRV") and EPRA net tangible assets ("NTA").
EPRA NTA is considered to be the most relevant measure for Warehouse REIT's
operating activities. A reconciliation of the three EPRA NAV metrics from IFRS
NAV is shown in the table below.
EPRA NDV EPRA EPRA
NRV NTA
As at 30 September 2023 £'000 £'000 £'000
Total properties(1) 811,255 811,255 811,255
Net borrowings(2) (275,458) (275,458) (275,458)
Other net liabilities 1,051 1,051 1,051
IFRS NAV 536,848 536,848 536,848
Exclude: fair value of interest rate derivatives - (11,214) (11,214)
Include: real estate transfer tax(3) - 55,165 -
NAV used in per share calculations 536,848 580,799 525,634
Number of shares in issue (thousands) 424,862 424,862 424,862
NAV per share (pence) 126.4 136.7 123.7
EPRA NDV EPRA NRV EPRA NTA
As at 31 March 2023 £'000 £'000 £'000
Total properties(1) 828,770 828,770 828,770
Net borrowings(2) (280,947) (280,947) (280,947)
Other net liabilities (19,348) (19,348) (19,348)
IFRS NAV 528,475 528,475 528,475
Exclude: fair value of interest rate derivatives - (7,387) (7,387)
Include: real estate transfer tax(3) - 56,356 -
NAV used in per share calculations 528,475 577,444 521,088
Number of shares in issue (thousands) 424,862 424,862 424,862
NAV per share (pence) 124.4 135.9 122.6
(1. Professional valuation of investment property.)
(2. Comprising interest-bearing loans and borrowings (excluding unamortised
loan arrangement fees) of £285,000,000 (31 March 2023: £306,000,000) net of
cash of £9,542,000 (31 March 2023: £25,053,000).)
(3. EPRA NTA and EPRA NDV reflect IFRS values that are net of real estate
transfer tax. Real estate transfer tax is added back when calculating EPRA
NRV. )
EPRA NDV details the full extent of liabilities and resulting shareholder
value if Company assets are sold and/or if liabilities are not held until
maturity. Deferred tax and financial instruments are calculated as to the full
extent of their liability, including tax exposure not reflected in the
statement of financial position, net of any resulting tax.
EPRA NTA assumes entities buy and sell assets, thereby crystallising certain
levels of deferred tax liability.
EPRA NRV highlights the value of net assets on a long-term basis and reflects
what would be needed to recreate the Company through the investment markets
based on its current capital and financing structure. Assets and liabilities
that are not expected to crystallise in normal circumstances, such as the fair
value movements on financial derivatives and deferred taxes on property
valuation surpluses, are excluded. Costs such as purchasers' costs are
included.
Table 4: EPRA net initial yield
30 September 31 March
2023 2023
£'000 £'000
Total properties per external valuer's report 811,255 828,770
Less development property and land (76,585) (75,660)
Net valuation of completed properties 734,670 753,110
Add estimated purchasers' costs(1) 49,574 51,211
Gross valuation of completed properties including estimated purchasers' costs 784,244 804,321
(A)
Gross passing rents(2) (annualised) 41,328 41,241
Less irrecoverable property costs(2) (680) (1,279)
Net annualised rents (B) 40,648 39,962
Add notional rent on expiry of rent-free periods or other lease incentives(3) 2,511 4,068
'Topped-up' net annualised rents (C) 43,159 44,030
EPRA NIY (B/A) 5.2% 5.0%
EPRA 'topped-up' net initial yield (C/A) 5.5% 5.5%
(1. Estimated purchasers' costs at 6.8%.)
(2. Gross passing rents and irrecoverable property costs assessed as at the
balance sheet date for completed investment properties excluding development
property and land.)
(3. Adjustment for unexpired lease incentives such as rent-free periods,
discounted rent period and step rents. The adjustment includes the annualised
cash rent that will apply at the expiry of the lease incentive. Rent-frees
expire over a weighted average period of three months.)
EPRA NIY represents annualised rental income based on the cash rents passing
at the balance sheet date, less non-recoverable property operating expenses,
divided by the market value of the property, increased with (estimated)
purchasers' costs. It is a comparable measure for portfolio valuations
designed to make it easier for investors to judge themselves how the valuation
of portfolio X compares with portfolio Y.
EPRA 'topped-up' NIY incorporates an adjustment to the EPRA NIY in respect of
the expiration of rent-free periods (or other unexpired lease incentives such
as discounted rent periods and step rents).
NIY as stated in the Investment Advisor's report calculates net initial yield
on topped-up annualised rents but does not deduct non-irrecoverable property
costs.
Table 5: EPRA vacancy rate
30 September 31
March
2023 2023
£'000 £'000
Annualised ERV of vacant premises (D) 2,103 2,537
Annualised ERV for the investment portfolio (E) 52,015 50,736
EPRA vacancy rate (D/E) 4.0% 5.0%
EPRA vacancy rate represents ERV of vacant space divided by ERV of the
completed investment portfolio, excluding development property and land. It is
a pure measure of investment property space that is vacant, based on ERV.
Table 6: Total cost ratio/EPRA cost ratio
Six months Six months
ended ended
30 September 30
September
2023 2022
£'000 £'000
Property operating expenses 2,031 2,341
Service charge expenses 2,785 3,123
Add back: service charge income (2,669) (2,901)
Add back insurance recharged (854) (827)
Net property operating expenses 1,293 1,736
Administration expenses 3,857 4,550
Less ground rents(1) (120) (91)
Total cost including direct vacancy cost (F) 5,030 6,195
Direct vacancy cost (219) (693)
Total cost excluding direct vacancy cost (G) 4,811 5,502
Rental income 22,245 22,941
Less ground rents paid (529) (526)
Gross rental income (H) 21,716 22,415
Less direct vacancy cost (219) (693)
Net rental income 21,497 21,722
Total cost ratio including direct vacancy cost (F/H) 23.2% 27.6%
Total cost ratio excluding direct vacancy cost (G/H) 22.2% 24.5%
Six months Six months
ended ended
30 September 30
September
2023 2022
£'000 £'000
Total cost including direct vacancy cost (F) 5,030 6,195
EPRA total cost including direct vacancy cost (I) 5,030 6,195
Direct vacancy cost (219) (693)
EPRA total cost excluding direct vacancy cost (J) 4,811 5,502
EPRA cost ratio including direct vacancy cost (I/H) 23.2% 27.6%
EPRA cost ratio excluding direct vacancy cost (J/H) 22.2% 24.5%
(1. Ground rent expenses included within administration expenses such
as depreciation of head lease assets.)
EPRA cost ratios represent administrative and operating costs (including and
excluding costs of direct vacancy) divided by gross rental income. They are a
key measure to enable meaningful measurement of the changes in the Group's
operating costs.
It is the Group's policy not to capitalise overheads or operating expenses and
no such costs were capitalised in either the six months ended 30 September
2023 or six months to 30 September 2022.
Table 7: Lease data
Head rents
Year 1 Year 2 Years 3 to 10 Year 10+ payable Total
As at 30 September 2023 £'000 £'000 £'000 £'000 £'000 £'000
Passing rent of leases expiring in: 5,768 5,060 26,073 5,624 (1,197) 41,328
ERV of leases expiring in: 9,225 5,902 31,293 6,802 (1,206) 52,016
Passing rent subject to review in: 16,819 8,283 16,690 733 (1,197) 41,328
ERV subject to review in: 22,712 9,650 20,125 735 (1,206) 52,016
WAULT to expiry is 5.2 years and to break is 4.4 years.
Head rents
Year 1 Year 2 Years 3 to 10 Year 10+ payable Total
As at 31 March 2023 £'000 £'000 £'000 £'000 £'000 £'000
Passing rent of leases expiring in: 5,812 4,327 27,533 4,773 (1,204) 41,241
ERV of leases expiring in: 9,239 5,062 33,716 6,460 (1,204) 53,273
Passing rent subject to review in: 15,782 8,522 18,139 2 (1,204) 41,241
ERV subject to review in: 21,055 10,280 23,140 2 (1,204) 53,273
WAULT to expiry is 5.6 years and to break is 4.5 years.
Table 8: Capital expenditure
Six months Year
ended ended
30 September 31
March
2023 2023
£'000 £'000
Acquisitions(1) - 66,728
Development spend(2) 5,602 8,295
Completed investment properties:(3)
No incremental lettable space - like-for-like portfolio 2,170 5,035
No incremental lettable space - other - -
Occupier incentives - -
Total capital expenditure 7,772 80,058
Conversion from accruals to cash basis 950 (1,082)
Total capital expenditure on a cash basis 8722 78,976
(1. Acquisitions include £nil completed investment property and £nil
development property and land (31 March 2023: £64,512,000 and £2,216,000
respectively).)
(2. Expenditure on development property and land.)
(3. Expenditure on completed investment properties.)
Table 9: Like-for-like rental income
Six months ended 30 September Six months ended 30
2023 September
£'000 2022 £ Change
£'000 £'000 % Change
Like-for-like rental income(1) 19,893 19,632 261 1.3%
Other adjustments 252 - 252 100.0%
Adjusted like-for-like rental income 20,145 19,632 513 2.6%
Development lettings 257 169 88 52.1%
Properties acquired 1,097 571 526 92.1%
Properties sold 746 2,569 (1,823) (71.0%)
Rental income 22,245 22,941 (696) (3.0%)
Dilapidation income 192 372 (180) (48.4%)
Insurance recharge 854 827 27 3.3%
Service charge income 2,669 2,901 232 8.0%
Total property income 25,960 27,041 1,081 (4.0%)
(1. Like-for-like portfolio valuation as at 30 September 2023:
£811.3 million (30 September 2022: £826.8 million).)
Table 10: Loan to value ("LTV") ratio and EPRA LTV
Gross debt less cash, short-term deposits, and liquid investments, divided by
the aggregate value of properties and investments.
As at As at
30 September 2023 31 March 2023
£'000 £'000
Interest-bearing loans and borrowings 285,000 306,000
Cash ( ) (9,542) (25,053)
Net borrowings (A) 275,458 280,947
Total portfolio valuation per valuer's report (B) 811,255 828,770
LTV ratio (A/B) 34.0% 33.9%
EPRA LTV
As at As at
30 September 2023 31 March 2023
£000 £000
Interest-bearing loans and borrowings 285,000 306,000
Net payables 5,646 29,352
Cash (9,542) (25,053)
Net borrowings (A) 281,104 310,299
Investment properties at fair value 811,255 828,770
Interest rate derivatives 11,214 7,387
Head Lease Obligation 13,905 14,124
Total property value (B) 836,374 850,281
EPRA LTV (A/B) 33.6% 36.5%
Table 11: Total accounting return
The movement in EPRA NTA over a period plus dividends paid in the period,
expressed as a percentage of the EPRA NTA at the start of the period.
Six months Year
ended ended
30 September 2023 31 March 2023
Pence per share Pence per share
Opening EPRA NTA (A) 122.6 173.8
Movement (B) 1.1 (51.2)
Closing EPRA NTA 123.7 122.6
Dividends per share (C) ( ) 3.2 6.5
Total accounting return (B+C)/A 3.5% (25.7%)
Table 12: Ongoing charges ratio
Ongoing charges ratio represents the costs of running the REIT as a percentage
of NAV as prescribed by the Association of Investment Companies.
Six months ended Six months ended
30 September 2023 30 September 2022
£'000 £'000
Administration expenses 3,856 4,550
Less: head lease asset depreciation (120) (91)
Ongoing charges 3,736 4,459
Annualised ongoing charges (A) 7,472 8,918
Opening NAV as at 1 April 528,475 738,954
NAV as at 30 September 536,848 678,578
Average undiluted NAV during the period (B) 532,662 708,766
Ongoing charges ratio (A/B) 1.4% 1.3%
Glossary
Adjusted earnings per share ("Adjusted EPS")
Reflects our ability to generate earnings from our portfolio and is based on
IFRS earnings excluding unrealised fair value gains on investment properties
and derivatives, profit on disposal of investment properties, one off costs,
divided by the weighted average number of shares in issue during the period.
Admission
The admission of Warehouse REIT plc onto the premium segment of the main
market of the London Stock Exchange on 12 July 2022.
AGM
Annual General Meeting.
AIC
The Association of Investment Companies.
AIFM
Alternative Investment Fund Manager.
AIFMD
The Alternative Investment Fund Managers Regulations 2013 (as amended by The
Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations
2019) and the Investment Funds Sourcebook forming part of the FCA Handbook.
APM
An Alternative Performance Measure is a numerical measure of the Company's
current, historical or future financial performance, financial position, or
cash flows, other than a financial measure defined or specified in the
applicable financial framework. In selecting these APMs, the Directors
considered the key objectives and expectations of typical investors.
Company
Warehouse REIT plc.
Contracted rent
Gross annual rental income currently receivable on a property plus rent
contracted from expiry of rent-free periods and uplifts agreed at the balance
sheet date less any ground rents payable under head leases.
Development property and land
Whole or a material part of an estate identified as having potential for
development. Such assets are classified as development property and land until
development is completed and they have the potential to be fully income
generating.
Effective occupancy
Total open market rental value of the units leased (including assets under
development, units undergoing refurbishment and units under offer to let)
divided by total open market rental value.
EPRA
The European Public Real Estate Association, the industry body for European
REITs.
EPRA cost ratio
The sum of property expenses and administration expenses as a percentage of
gross rental income, less ground rents calculated both including and excluding
direct vacancy cost.
EPRA earnings
IFRS profit after tax excluding movements relating to changes in fair value of
investment properties, gains/losses on property disposals, changes in fair
value of financial instruments and the related tax effects.
EPRA earnings per share ("EPRA EPS")
A measure of EPS on EPRA earnings designed to present underlying earnings from
core operating activities based on the weighted average number of shares in
issue during the period.
EPRA guidelines
The EPRA Best Practices Recommendations Guidelines October 2019 and the EPRA
Sustainability Best Practices Recommendations Guidelines September 2017.
EPRA like-for-like rental income growth
The growth in rental income on properties owned throughout the current and
previous period under review. This growth rate includes revenue recognition
and lease accounting adjustments but excludes development property and land in
either year and properties acquired or disposed of in either year.
EPRA LTV
The EPRA LTV's aim is to assess the gearing of the shareholder equity within a
real estate company.
EPRA NDV/EPRA NRV/EPRA NTA per share
The EPRA net asset value measures figures divided by the number of shares
outstanding at the balance sheet date.
EPRA net disposal value ("EPRA NDV")
The net asset value measure detailing the full extent of liabilities and
resulting shareholder value if company assets are sold and/or if liabilities
are not held until maturity. Deferred tax and financial instruments are
calculated as to the full extent of their liability, including tax exposure
not reflected in the statement of financial position, net of any resulting
tax.
EPRA net initial yield ("EPRA NIY")
The annualised passing rent generated by the portfolio, less estimated
non-recoverable property operating expenses, expressed as a percentage of the
portfolio valuation (adding notional purchasers' costs), excluding development
property and land.
EPRA net reinstatement value ("EPRA NRV")
The net asset value measure to highlight the value of net assets on a
long-term basis and reflect what would be needed to recreate the Company
through the investment markets based on its current capital and financing
structure. Assets and liabilities that are not expected to crystallise in
normal circumstances, such as the fair value movements on financial
derivatives and deferred taxes on property valuation surpluses, are excluded.
Costs such as purchasers' costs are included.
EPRA net tangible assets ("EPRA NTA")
The net asset value measure assuming entities buy and sell assets, thereby
crystallising certain levels of deferred tax liability.
EPRA 'topped-up' net initial yield
The annualised passing rent generated by the portfolio, topped up for
contracted uplifts, less estimated non-recoverable property operating
expenses, expressed as a percentage of the portfolio valuation (adding
notional purchasers' costs), excluding development property and land.
EPRA vacancy rate
Total open market rental value of vacant units divided by total open market
rental value of the portfolio excluding development property and land.
EPS
Earnings per share.
Equivalent yield
The weighted average rental income return expressed as a percentage of the
investment property valuation, plus purchasers' costs, excluding development
property and land.
ERV
The estimated annual open market rental value of lettable space as assessed by
the external valuer.
FCA
Financial Conduct Authority.
FTSE 250
Capitalisation-weighted index consisting of the 101st to the 350th largest
companies listed on the London Stock Exchange.
FTSE All share
Capitalisation-weighted index, comprising around 600 of more than 2,000
companies traded on the London Stock Exchange.
FTSE EPRA/NAREIT Global Real Estate Index Series
Free-float adjusted, market capitalisation-weighted index designed to track
the performance of listed real estate companies in both developed and emerging
countries worldwide. Constituents of the Index are screened on liquidity,
size, and revenue.
GAV
Gross asset value.
Gross rental income
Rental income, less ground rents paid.
Group
Warehouse REIT plc and its subsidiaries.
Gross to net rental income ratio
Represents the net income received from the portfolio after deducting
non-recoverable property costs incurred during the period.
IASB
International Accounting Standards Board.
IFRS
International Financial Reporting Standards adopted by the United Kingdom.
IFRS earnings per share ("EPS")
IFRS earnings after tax for the period divided by the weighted average number
of shares in issue during the period.
IFRS NAV per share
IFRS net asset value divided by the number of shares outstanding at the
balance sheet date.
Interest cover
Adjusted operating profit before gains on investment properties, interest, and
tax divided by the underlying net interest expense.
Investment portfolio
Completed buildings and excluding development property and land.
IPO
Initial public offering.
Like-for-like rental income growth
The increase in contracted rent of properties owned throughout the period
under review, expressed as a percentage of the contracted rent at the start of
the period, excluding development property.
Like-for-like valuation increase
The increase in the valuation of properties owned throughout the period under
review, expressed as a percentage of the valuation at the start of the period,
net of capital expenditure.
Loan to value ratio ("LTV")
Gross debt less cash, short-term deposits, and liquid investments, divided by
the aggregate value of properties and investments.
Main Market
The premium listing segment of the London Stock Exchange's Main Market.
NAV
Net asset value.
Net initial yield ("NIY")
Contracted rent at the balance sheet date, expressed as a percentage of the
investment property valuation, plus purchasers' costs, excluding development
property and land.
Net rental income
Gross annual rental income receivable after deduction of ground rents and
other net property outgoings including void costs and net service charge
expenses.
Net reversionary yield ("NRY")
The anticipated yield to which the net initial yield will rise (or fall) once
the rent reaches the ERV.
Occupancy
Total open market rental value of the units leased divided by total open
market rental value excluding development property and land, equivalent to one
minus the EPRA vacancy rate.
Ongoing charges ratio
Ongoing charges ratio represents the costs of running the REIT as a percentage
of NAV as prescribed by the Association of Investment Companies.
Passing rent
Gross annual rental income currently receivable on a property as at the
balance sheet date, less any ground rents payable under head leases.
Property income distribution ("PID")
Profits distributed to shareholders, which are subject to tax in the hands of
the shareholders as property income. PIDs are usually paid net of withholding
tax (except for certain types of tax-exempt shareholders). REITs also pay out
normal dividends called non-PIDs.
RCF
Revolving credit facility.
Real Estate Investment Trust ("REIT")
A listed property company that qualifies for, and has elected into, a tax
regime which is exempt from corporation tax on profits from property rental
income and UK capital gains on the sale of investment properties.
RPI
Retail price index.
SONIA
Sterling Overnight Index Average.
Total accounting return
The movement in EPRA NTA over a period, plus dividends paid in the period,
expressed as a percentage of the EPRA NTA at the start of the period.
Total cost ratio
EPRA cost ratio excluding one-off costs calculated both including and
excluding vacant property costs.
Weighted average unexpired lease term ("WAULT")
Average unexpired lease term to first break or expiry weighted by contracted
rent across the portfolio, excluding development property and land.
The full half-yearly report can be accessed via the Company's website at
warehousereit.co.uk (http://www.warehousereit.co.uk/) .
Neither the contents of Warehouse REIT plc's website, nor the contents of any
website accessible from hyperlinks on the website (or any website) is
incorporated into, or forms part of this announcement.
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