TIDMSHED
RNS Number : 1024F
Urban Logistics REIT PLC
12 November 2020
Urban Logistics REIT plc
("Urban Logistics", the "Company" or the "Group")
Interim results for the six months ended 30 September 2020
Significant growth in urban logistics portfolio with strong
underlying results
Unique position in dynamic sub-sector
Urban Logistics, (AIM: SHED) the specialist UK logistics REIT,
issues its interim financial results for the half year ended 30
September 2020.
Highlights 30 Sep 30 Sep Change
20 19 (%)
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Income Statement
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Net rental income (GBPm) 9.4 5.8 +62.0
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Operating profit before revaluation
gain (GBPm) 7.6 4.7 +60.9
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EPRA earnings per share (p)(1) 3.19 3.92 -18.6
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Interim dividend (p)(2) 3.25 3.75 -13.3
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Balance Sheet
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EPRA NTA per share (p)(3) 141.57 145.17 -2.5
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Gross borrowings (GBPm) 122.4 75.7 +61.7
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LTV (%) 19.7 34.1
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Total Accounting Return (%) (NTA
+ dividends) 5.5 8.2
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(1) Decrease in earnings primarily due to equity issuance and
ongoing investment programme.
(2) Paid on 23 October 2020.
(3) EPRA has introduced new best practice recommendations for
the reporting of net asset value. The Group considers EPRA Net
Tangible Assets (NTA) to be the most relevant measure for its
operating activities and this has been adopted as the Group's
primary measure of net asset value.
Financial Highlights
-- Total Shareholder Return of 21.8% (H1 2020: 12.1%)
-- Total Property Return of 8.0% (H1 2020: 6.6%)
-- GBP345.9 million portfolio valuation with a 5.0%
like-for-like increase since 31 March 2020
-- EPRA net tangible assets ("NTA") of 141.57 pence per share
(+2.7% since 31 March 2020)
-- Debt refinancing with new GBP151 million facility
Operational Highlights
-- More than 99% of rent demanded has been collected on time in
2020
-- Eighteen logistics properties and two development sites
acquired for GBP140.2 million at a 6.0% NIY
-- EPRA vacancy rate 3.0% (of which 0.9% is undergoing
refurbishment)
-- Gross to net rental income ratio 98.4%
-- WAULT of 5.5 years
-- EPC rating of A-C across 73% portfolio (H1 2020: 70%)
Post period end
-- GBP92 million equity capital raised in October (GBP228
million raised in total in 2020)
-- GBP67 million of logistics properties purchased (67% in South
East of UK)
-- Approximately GBP115 million of identified acquisitions to be
made in coming months
-- Tenants continue to trade well and all remain operational
Richard Moffitt, CEO, summarises the results:
"A rapid increase in e-commerce has tested supply chains this
year due to the unexpected surge in demand. As a result, the
logistics market continues to break all records, with the quarter
to June 2020 seeing the largest take-up ever recorded.
"We expect that behavioural changes formed during lockdown are
here to stay. At the same time, the supply of mid-sized logistics
assets close to cities remains severely constrained.
"Urban Logistics is extremely well placed to benefit from this
market backdrop. We have a unique investment strategy based on
management's considerable industrial and logistics experience. Over
90% of our assets are purchased off-market and we take a stringent
approach to tenant selection. We have collected over 99% of rent
demanded for the March, June and September quarters in 2020.
"Urban Logistics is now focussed on the deployment of the
capital we have raised this year to continue to drive strong growth
and deliver attractive returns to our shareholders."
For further information contact:
Urban Logistics REIT plc
Richard Moffitt +44 (0)20 7591 1600
Buchanan - Financial PR
Helen Tarbet +44 (0)7872 604453
Henry Wilson +44 (0)7788 528143
George Beale +44 (0)7450 295099
N+1 Singer - Nominated Adviser and
Broker
James Maxwell / James Moat (Corporate
Finance)
Alan Geeves / James Waterlow / Sam
Greatrex (Sales) +44 (0)20 7496 3000
Panmure Gordon (UK) Limited - Joint
Broker
Chloe Ponsonby (Corporate Broking)
Emma Earl (Corporate Finance) +44 (0)20 7886 2500
About Urban Logistics REIT
Urban Logistics REIT plc is a property investment company,
delivering income and capital growth by focussing on the selective
acquisition and active management of mid-sized, single-let, 'last
touch' logistics properties (AIM: SHED; mkt cap c GBP360m).
The Company has been established to invest in UK-based logistics
properties with the objective of generating attractive dividends
and capital returns for its shareholders. Its investment strategy
focuses on strategically located smaller single-let properties
servicing high-quality tenants. Investment returns are generated by
an experienced management team focusing on quality stock selection
and active asset management.
A number of structural and commercial factors currently support
the attractive opportunity in the last mile/logistics real estate
sub-sector targeted by the Company, including: strong occupier
demand, (driven by the growth of e-commerce and investment by
retailers in their associated supply chain) and a decline in the
supply of quality smaller sized available space in logistics real
estate across the UK.
Chairman's Statement
The long-term effect of Covid-19 on our society and way of
living is hard to determine but one has to believe solutions,
whether vaccines or remedial medicines, will be fully rolled out in
the foreseeable future.
Despite Covid-19, Urban Logistics has made significant progress
over the last six months. The equity capital from the successful
March fundraising, and associated leverage, has now been invested
into GBP213 million of new assets since that raise at an average
net initial yield of 6.0%. Progress has also been made in managing
the existing assets to improve rents resulting in a valuation
increase on the historical portfolio of 5.0%. Vacancies have been
minimal, 3.0% at period end, and 99% or more of rents demanded have
been collected on time in 2020. This reflects the Company's
strategy of purchasing well located properties near city centres
with tenants focussed on the distribution of domestic UK
products.
Our Manager continues to look for new assets to acquire and by
August had built up an extensive pipeline of acquisitions. We
decided to once again go to the equity market to fund these
purchases and on 15 October 2020 we announced a successful raise of
GBP92 million. This, together with banking facilities, will enable
the purchase of approximately a further GBP115 million of
identified properties over the next few months.
Financial results
Turning to our results for the interim period ended 30 September
2020, our property portfolio increased in value from GBP207 million
to GBP346 million. On a like-for-like basis, properties held
throughout the period increased in value by 5.0% (3.8% to September
2019). The capitalisation rates for industrial properties within
our sub-sector have remained flat in 2020 and the increase in value
is therefore due principally to the Manager's active asset
management initiatives.
Revenue increased from GBP5.9 million to GBP9.8 million,
reflecting rent received from new properties acquired earlier in
the year. EPRA earnings per share decreased from 3.92 pence to 3.19
pence due to the issue of new shares and the timing of the ongoing
investment programme. At the period end, the Company had GBP54
million of cash which together with the proceeds from our recent
equity issue will be used to fund the purchase of further
properties in line with our strategy.
In August, the Company entered into a new GBP151 million loan
facility with Barclays, Santander and Lloyds, to replace the
existing loan facility totalling GBP76 million, which was due to
expire in 2022. This new facility provides a three-year term and
includes an option to extend for a further two years. At the period
end, the portfolio LTV was 19.7% reflecting cash held and will
initially fall further following receipt of proceeds from the new
issue but will rise again once the current investment programme has
been completed. We continue to target an LTV range of between 30
and 40%.
Dividend
On 25 September 2020, the Company declared an interim dividend
for the first half of the financial year ended 31 March 2021 of
3.25 pence per share prior to the closing of the October capital
raise, payable to existing shareholders. This was paid on 23
October 2020. The Company intends to declare the next dividend
following the release of its final results for the financial year
ending 31 March 2021.
On 8 August 2020, the Company, by way of a Special Resolution,
cancelled the then value of its share premium, by an Order of the
High Court of Justice, Chancery Division. As a result, GBP228.8
million has been transferred from the share premium reserve to the
capital reduction reserve. The capital reduction reserve is
classified as a distributable reserve.
At 30 September 2020, the Company had distributable reserves of
GBP230.5 million providing substantial cover for future dividend
payments.
Outlook
With England now under lockdown until at least early December,
many parts of the economy, especially the retail and hospitality
sector, will be badly affected as will many people's livelihoods,
finances and wellbeing.
Despite this, the last eight months have been eventful for Urban
Logistics. We have raised over GBP228 million of new equity,
refinanced our debt and acquired over GBP213 million of new
properties. With the proceeds of the recent equity issue and the
funds available from banking facilities, we will be able to acquire
approximately a further GBP115 million of identified properties
over the next few months.
We continue to believe in our investment strategy, which remains
resilient in the current environment, and will seek further assets
to acquire in key regions of the country with proximity to cities
with tenants supplying essential needs to consumers. Active asset
management of the assets acquired will be essential in delivering
future returns to our shareholders.
Nigel Rich CBE, Chairman
Manager's Report
Overview
"Same day" delivery to households and "just in time" delivery to
manufacturing processes were deemed to be the ultimate goal for
logistics operators historically. Having broadly reached that
seemingly unattainable position, supply chains were tested severely
during the Covid-19 lockdown earlier this year.
The shortage of essential items such as food, pharmaceuticals
and PPE, was common. This also amplified some weaknesses as global
supply chains were found to be lacking in sufficient levels of
stock in the event of unexpected demand. The rapid increase in
e-commerce further compounded the problem.
In January, e-commerce accounted for 19% of all retail sales in
the UK; by June this had reached 31% (previous ONS estimates had
suggested the UK would reach 25% by the end of 2023). Throughout
all of this, the central thesis behind our investment strategy has
proven itself to be robust. Our commitment is to acquire well
located warehouses with the correct specification for occupiers.
Our focus on tenant covenants, in sectors which have been less
volatile historically, has served us well.
We are pleased to report that despite our investment strategy
being tested in the most unwelcome and unexpected circumstances, we
have collected over 99% of rent demanded for the March, June and
September quarters in 2020. We immediately implemented a management
strategy back in March that, despite our team working remotely,
kept us in regular contact with occupiers; we knew that 61 of our
64 buildings were open and operational during lockdown and this
quickly increased back to the entire 64 buildings by late
April.
We remain focused on building our business through working
closely with our tenants, acquiring assets that provide solid
medium-term income from strong covenants and which are aided by
asset management initiatives to enhance our total return. More than
two thirds of our financial performance since IPO has come from
asset management, not market movement.
The longer-term strategy of having tenants focused on the
distribution of domestic UK products, such as food and
pharmaceuticals, and avoiding the fashion sector, has provided
resilience at a challenging time. Our tenants are typically
third-party logistics companies and UK businesses who move staple
domestic products around the country to homes and businesses
requiring last mile or e-fulfilment services, such as Boots, NHS,
Travis Perkins, Booker, DHL, XPO and Sainsbury's.
Environment
Our increasing focus on the environment, as part of our ESG
agenda, is proving to be extremely important in terms of investor
relations and with our tenant relationships. This issue is high on
the agenda of our occupiers, some of whom are the largest logistics
operators globally, and our focus in this area is helping our
landlord / tenant relationship providing another reason for
constructive dialogue and investment into buildings. I am pleased
to report that our EPCs are 73% A-C at period end and our
investment process involves, amongst other considerations,
assessment of energy efficiency ratings to ensure properties are
sustainable in the long-term. We aim to improve sustainability in
conjunction with our tenants.
Another key focus is to modernise and alter built space as
opposed to developing new facilities in the UK greenbelt; this has
been a silent part of our strategy but now it has increasing
significance.
The Market
Covid-19 has accelerated the e-commerce revolution, but
expansion of the industrial and logistics sector is not a new
concept. The share of the UK real estate portfolio accounted for by
retail has plummeted from approximately 50% to 30% in a decade
(source: CBRE); in the same period industrial's share has almost
doubled, to 23%.
Over a 40-year history, capital value growth has been slightly
higher for industrial versus retail. Due to the positive re-rating
of industrial since the 2008/09 global financial crisis trough, we
have seen 82% capital growth in 10 years for industrial versus 2%
for retail. Retail rents increased more than fourfold from
1980-2007 but have fallen by 10% from their 2008 peak; industrial
rents meanwhile have risen 28% from their 2012 low point (source:
CBRE).
For about six weeks in Q2 2020, at the start of lockdown, the
investment market adopted a 'wait and see' approach. As measures
eased over the summer, investors shifted their focus towards the
resilient logistics sector, with H1 2020 volumes to June ending
down just 7.2% on H1 2019 (source: CBRE). Fierce competition
emerged for all sales with institutions looking to increase their
exposure to this sector. September also saw the sales launch of
some larger portfolios from established logistics investors,
looking to cash-in on private equity and sovereign wealth fund
interest, and reminding us of the premiums available for specialist
platforms.
We still remain able to acquire assets in "off market" trades
where vendors sometimes prefer the certainty that we bring through
a strong equity position. The vast majority of our acquisitions
since IPO have been "off market" which is testament to our
connections within the logistics sector and our reputation for
swift deal execution.
Warehouse Supply at Low Levels
Since the start of 2020, supply has risen very slightly and now
stands at 36.2m sq ft according to CBRE, reflecting a vacancy rate
of 6.6%. We have seen a fall in the level of 'Grade A' supply, from
20.4m sq ft to 18.8m sq ft, now accounting for 52% of total supply
in this space. It is likely that supply will continue to decline as
just 0.9m sq ft of speculative build was announced in Q2, the
lowest level since the first quarter of 2017.
This lack of supply is compounded by a variety of factors:
-- High barriers to entry as a result of a high percentage of
warehouse development land being taken for Big Box units (those
above 300,000 sq ft); plus a time lag of 3-5 years for sites to
obtain planning and then be built.
-- Costs of construction rising (100,000 sq ft building at
GBP30-35 per sq ft in 2015 and now at GBP60-65 per sq ft in the
Midlands).
-- Development land costs doubling in 5 years (Northampton for
example; GBP400,000 an acre in 2015 and now at more than GBP900,000
an acre).
-- 35% of all industrial land in the South East of the UK has
been lost to higher value uses in last 10 years.
Source: Savills, CBRE, Management information
Supply is already responding to a surge in demand; however, most
of the incoming logistics schemes will not help ease market
pressure in the urban logistics space in the short term. Also,
approximately 82% of space under construction at the end of Q2 2020
was committed through pre-lettings. This trend, which is shared
across Europe, follows a shift in occupier preferences; who tend to
plan their expansion strategies and secure units that suit their
needs. However, this planning process requires years of
anticipation and, when supply adapts and focuses on providing sites
for build to suit opportunities rather than building speculatively,
it diminishes the ability of the market to absorb surges in demand
for ready-to-occupy space.
Demand at record levels
Despite the ongoing turmoil, and in some cases because of it, Q2
2020 broke all records for quarterly logistics take-up. Lack of
new, ready-to-occupy units has also pushed occupiers towards the
second-hand market, which saw its busiest quarter since 2012. The
supply side has responded to such overwhelming demand by pressing
on with projects that were put on hold during lockdown, trying to
get them back on schedule. Third quarter demand in 2020 is expected
to show a continuation of this strong take-up.
Total retail sales recovered over the summer as high street
stores reopened. However, some behavioural changes formed during
lockdown will have a lasting effect. Online retail penetration
increased markedly. The unstoppable growth of e-commerce has
concentrated five years of growth into just six months. Similarly,
online penetration for food stores remains above 10% according to
ONS, almost doubling the pre-pandemic share and steering investment
from all UK supermarkets to improving their online channels. The
majority of retailers are exploring ways to adapt their platforms
to provide greater online sales capability.
Investment Activity
In March, the Group successfully raised GBP136.2 million of
equity capital against a pipeline of properties. In the six-months
to 30 September 2020, the Company has been very focused on the
investment front and deployed GBP140.2 million, excluding purchaser
costs, into logistics assets across the UK, consisting of two
portfolios (14 properties at a total GBP79.1 million), four single
let properties (GBP35.7 million) and two development sites (GBP25.4
million). Aside from the development sites, these properties have a
WAULT of 6.7 years as at 30 September 2020.
Paloma Portfolio
On 7 April 2020, the Company acquired a portfolio of seven
single-let regional distribution warehouses, the Paloma Portfolio,
for a total consideration of GBP31.9 million, representing a 6.8%
NIY. The portfolio comprises 482,012 sq ft of warehousing with a
low capital value of GBP66 per sq ft, low average passing rent of
GBP4.86 per sq ft and presents opportunities for asset management.
The sites are all in close proximity to established regional
transport networks, have good labour availability and are located
in well-populated areas where there is strong occupier demand.
Crown Portfolio
On 29 April 2020, the Company acquired the Crown Portfolio as
part of a corporate acquisition, which comprises seven properties,
for a total consideration of GBP47.2 million, a 7.0% NIY. Tenants
include Giant Booker (three sites), Anglian Water, Hermes Parcelnet
and Pegler plc. Included within the portfolio is a site in Aberdeen
which is multi-let and subject to a 12-month rental guarantee on
its two vacant units. Average warehouse size is 84,105 sq ft and
the portfolio has a low passing rent of GBP4.96 per sq ft. With a
weighted average unexpired lease term of eight years the portfolio
offers asset management opportunities as well as secure income from
high-quality tenants.
Single let assets
In the financial period the Company also acquired four single
let properties which are let to a variety of tenants, providing the
distribution of essential products around the UK, including;
Unipart (who operate an NHS contract), Iron Mountain and Health
Stores. These were purchased off market at an average net initial
yield of 5.4%. They are well located near main arterial routes and
are well suited to local distribution requirements.
Paloma Crown Single
Portfolio Portfolio assets
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Purchase price GBP31.9m GBP47.2m GBP35.7m
Net initial yield 6.8% 7.0% 5.4%
Area (sq ft) 482,013 567,271 452,487
Contracted rent GBP2.3m GBP3.3m GBP2.0m
Rent per sq ft GBP4.81 GBP4.96 GBP4.53
Capital value per sq ft GBP66.18 GBP83.16 GBP78.67
Development sites
Peterborough : a commitment was made to acquire a three-acre
land site and forward fund a 46,500 sq ft facility on the
well-established Peterborough Gateway Logistics Park at a total
development cost to the Company of GBP5.8 million. The project is
part pre-let to DPD.
Exeter : a commitment was made to acquire a 6-acre development
site at Exeter Gateway near junction 29 of the M5 motorway. The
development is pre-let to Amazon at completion and is an expansion
to the tenant's existing parcel distribution facility. The Company
will fund the project to a total cost of GBP8.5 million.
The Company has also acquired an adjoining site, also of 6
acres, which is conditionally pre-let to DHL and will be its local
parcel sorting centre with a low site cover and dual service yards.
This GBP11.2 million development site is due for practical
completion by February 2022. It is envisaged DHL will sign a
15-year lease with five-yearly upward only rent reviews. This
opportunity came about as a result of the developer losing a Local
Authority funding partner due to Covid-19. The forward funding
represents a discounted entry point at a 5.3% NIY in a location
known for its constrained supply of logistics facilities. It will
create a prime urban logistics park with the potential to own
further warehouses developed on the remaining adjacent land.
Pipeline
The management team have been living and breathing logistics for
over 25 years, building strong relationships with the vendors,
developers and occupiers of Urban Logistics assets. In short, we
are uniquely placed to hear of opportunities, which is why over 90%
of our acquisitions have been acquired off market since our IPO in
April 2016. Our pipeline is constantly evolving through daily
interaction with our market contacts.
We can provide a "funding source" to developers which, in turn
gives them an exit, similarly we can provide a sale and leaseback
option to an occupier or a guaranteed sale execution to an
investor. Urban Logistics prides itself on deal execution; doing
what it says it will do with expedience.
Off the back of developing a pipeline of opportunities, we
initiated a fundraising in September 2020 and succeeded in raising
GBP92 million. Together with banking facilities, this will enable
the purchase of approximately a further GBP115 million of
identified logistics properties.
Financial Review
Net rental income
In the interim period, the portfolio generated net rental income
of GBP9.4 million, an increase of GBP3.6 million or 62% compared to
the prior period. The increase was driven largely from acquisitions
made in the period following the March 2020 equity raise. On a
like-for-like basis, net rental income remained broadly flat.
However, there are a number of asset management initiatives ongoing
which we expect to crystallise in the second half of the year.
Property costs have increased by GBP0.3 million, but our gross
to net rental income ratio remains high at 98.4% (Sep 19: 99.2%),
illustrating the strength of our business model.
Administrative costs
Administrative costs, which include all operational costs of
running the business increased by GBP0.8 million to GBP1.8 million.
This is primarily due to the growth in the investment management
fee following the March 2020 equity raise, and the corresponding
increase in EPRA Net Tangible Assets.
The Investment Management Agreement was reviewed and amended by
the Board in conjunction with the March 2020 equity raise. The
incentive terms were adjusted such that there is now a ratchet in
place for the management fee;
- 0.95 per cent. per annum of the Group's EPRA NTA up to, and including, GBP250 million;
- 0.90 per cent. per annum of the Group's EPRA NTA in excess of
GBP250 million and up to and including GBP500 million; and
- 0.85 per cent. per annum of the Group's EPRA NTA in excess of GBP500 million.
EPRA cost ratio
We continue to monitor the operational efficiency of the Group
through the EPRA cost ratio, which increased to 20.7% from 18.6% in
the prior period. This increase is short-term in nature and as we
undertake our investment programme is expected to reduce in future
periods which will benefit from the full effect of rental income
from acquisitions made in the period.
Net finance costs
On 7 August 2020, the Company entered into a new GBP151 million
loan facility with Barclays, Santander and Lloyds, to replace the
existing loan facility, totalling GBP76 million, which was due to
expire in 2022. This new facility provides a three-year term and
includes an option to extend for a further two years.
The weighted average cost of debt for the period was 20 bps
lower than the previous period at 2.9% and the Group reported an
interest cover ratio of 5.7x.
The net finance costs for the interim period were GBP1.5
million, an increase of GBP0.3 million from the prior period. This
is explained by gross drawn debt increasing by GBP46.7 million to
GBP122.4 million in August 2020 following the completion of the new
loan facility.
IFRS profit and EPRA earnings
IFRS profit after tax for the interim period was GBP9.8 million
(Sep 19: GBP9.0 million), representing a basic and diluted earnings
per share of 5.20 pence, compared with 10.31 pence for the prior
period. This is primarily due to the level of investment activity
in the period, where the Group acquired GBP120.8 million of
industrial and logistics properties (excluding funds advanced on
our forward funding sites). In aggregate, the Group incurred GBP6.1
million of purchaser costs with respect to these property
acquisitions, which due to the short ownership period, had only
been partially recovered in the half year portfolio valuation. This
revaluation deficit in properties acquired in the period was offset
by a GBP9.8 million surplus across our existing portfolio,
resulting in an overall surplus reported for the interim period of
GBP4.3 million compared with GBP5.6 million in the prior
period.
EPRA earnings for the interim period increased by GBP2.6 million
to GBP6.0 million, however, on a per share basis this reduced by
0.73 pence to 3.19 pence per share. This is primarily due to the
pace of investment being affected by the impact of Covid-19 and
consequent lockdown. EPRA earnings in the second half of this year
will benefit from the full effect of the acquisitions made during
this interim period.
A full reconciliation between IFRS profit and EPRA earnings can
be found in note 7 of the Notes.
Statement of Financial Position
At 30 September 2020, IFRS net assets attributable to ordinary
shareholders were GBP265.2 million (Sep 19: GBP126.1 million),
representing a basic and diluted net asset value per share of
140.60 pence (Sep 19: 143.71 pence).
The Group considers EPRA Net Tangible Assets ("EPRA NTA") a key
measure of overall performance. At 30 September 2020, EPRA NTA were
GBP267.0 million (Sep 19: GBP127.4 million), representing an EPRA
NTA per share of 141.57 pence (Sep 19: 145.17 pence).
On a per share basis both IFRS and EPRA net assets decreased in
the twelve-months from 30 September 2019. The decrease is primarily
due to the acquisition, and associated costs, of investment
properties over this interim period. The value created through our
asset management initiatives is expected to come through in future
financial periods.
A full reconciliation between IFRS and EPRA net assets can be
found in note 18 of the Notes.
Cash and net debt
At 30 September 2020, the Group's cash balance was GBP54.4
million, of which GBP52.9 million was readily available. A
significant proportion of the cash available to the Group at the
period end will be deployed partly into new acquisitions and also
to finance the remaining capital commitments of our development
properties.
Over the interim period, net debt increased by GBP1.4 million,
to GBP68.0 million, representing a loan to value ("LTV") of 19.7%,
which is below our medium-term target of 30-40%. As we continue to
deploy capital into new assets, we expect our LTV to increase to
the lower end of our medium-term target.
Portfolio valuation
The value of the portfolio, which includes forward funded
developments, was GBP345.9 million. In the period, the Group
invested GBP120.8 million in industrial and logistics properties
and advanced GBP13.6 million of funding across five forward funded
developments.
The Group recognised a valuation surplus of GBP4.3 million upon
revaluation of the portfolio. On a like-for-like basis, the
portfolio generated a valuation surplus of GBP9.8 million, or 5.0%
(Sep 19: 3.8%).
The portfolio delivered a total property return ("TPR") of 8.0%
for the interim period (Sep 19: 6.6%).
Outlook
The logistics market remains in focus with property investors
due to its resilience at the current time and the forecast for the
next few years shows a continuation of its outperformance. We
remain committed to our strategy, based on our experience of the
sector and believe we can continue to acquire assets that meet our
criteria and allow our assets to outperform.
The UK continues to be one of the fastest growing adopters of
online retail sales and there is a requirement for all tenants to
develop their e-fulfilment capability accordingly. As such, key
geographic regions across the UK are seeing buoyant leasing
activity. Alongside our investment programme, we will also focus on
maintaining and building existing tenant relationships with a view
to securing the Group's reputation as the leader in the smaller
size urban logistics market.
The GBP115 million of assets we expect to acquire in the coming
months will continue to add to the income and returns of the
company.
Richard Moffitt
Independent Review Report to Urban Logistics REIT plc
1. Introduction
We have been engaged by Urban Logistics REIT plc (the "Company")
to review the condensed set of financial statements in the interim
report for the six months ended 30 September 2020 which comprise
the Condensed Consolidated Statement of Comprehensive Income, the
Condensed Consolidated Statement of Financial Position, the
Condensed Consolidated Cash Flow Statement and the Condensed
Consolidated Statement of Changes in Equity and notes to the
interim financial statements.
We have read the other information contained in the interim
report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial
information in the condensed set of financial statements.
2. Directors' responsibility
The interim report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the interim report in accordance with AIM Rule 18.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRS as adopted by the
European Union. It is the responsibility of the Directors to ensure
that the condensed set of financial statements included in this
interim report have been prepared on a basis consistent with that
which will be adopted in the Group's annual financial
statements.
3. Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim report
based on our review.
4. Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom.
A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
5. Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim report for the six months ended 30 September 2020 is
not prepared, in all material respects, in accordance with the
requirements of the AIM rules.
6. Use of our report
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the AIM Rule 18. Our review has been undertaken so
that we might state to the Company those matters we are required to
state to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company for our review work, for this
report or the conclusions we have reached.
Nexia Smith & Williamson
Statutory Auditor
Chartered Accountants
25 Moorgate
London
EC2R 6AY
Condensed Consolidated Statement of Comprehensive Income
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
------------------------------------------------------------------ ----- -------------- -------------- -----------
Revenue 5 9,795 5,853 12,601
Property operating expenses (385) (46) (437)
Net rental income 9,410 5,807 12,164
Administrative and other expenses (1,835) (1,045) (2,142)
Long-term incentive plan charge 8 (11) (60) (3,557)
------------------------------------------------------------------ ----- -------------- -------------- -----------
Operating profit before changes in fair value of
investment properties and interest rate derivatives 7,564 4,702 6,465
Changes in fair value of investment property 10 4,289 5,636 5,691
Profit on disposal of investment property - 582 575
------------------------------------------------------------------ ----- -------------- -------------- -----------
Operating profit 11,853 10,920 12,731
Finance income 62 7 7
Finance expense 6 (1,605) (1,272) (2,721)
Changes in fair value of interest rate derivatives 13 (510) (612) (657)
------------------------------------------------------------------ ----- -------------- -------------- -----------
Profit before taxation 9,800 9,043 9,360
------------------------------------------------------------------ ----- -------------- -------------- -----------
Tax credit/(charge) for the period - - -
------------------------------------------------------------------ ----- -------------- -------------- -----------
Profit and total comprehensive income (attributable to the
shareholders) 9,800 9,043 9,360
------------------------------------------------------------------ ----- -------------- -------------- -----------
Earnings per share - basic 7 5.20p 10.31p 9.95p
Earnings per share - diluted 7 5.20p 10.31p 9.95p
EPRA earnings per share - diluted 7 3.19p 3.92p 3.99p
Condensed Consolidated Statement of Financial Position
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
----------------------------------- ----- ------------ ------------ ----------
Non-current assets
Investment property 10 348,610 196,900 209,179
Intangible assets 15 20 17
----------------------------------- ----- ------------ ------------ ----------
Total non-current assets 348,625 196,920 209,196
Current assets
Trade and other receivables 3,171 4,189 1,816
Cash and cash equivalents 54,409 9,103 132,280
----------------------------------- ----- ------------ ------------ ----------
Total current assets 57,580 13,292 134,096
----------------------------------- ----- ------------ ------------ ----------
Total assets 406,205 210,212 343,292
----------------------------------- ----- ------------ ------------ ----------
Current liabilities
Trade and other payables (8,559) (2,762) (2,956)
Deferred rental income (4,219) (2,698) (2,728)
----------------------------------- ----- ------------ ------------ ----------
Total current liabilities (12,778) (5,460) (5,684)
Non-current liabilities
Long term rental deposits (1,486) (953) (1,029)
Lease liability 4 (1,977) (1,865) (1,774)
Interest rate derivatives 13 (1,857) (1,302) (1,347)
Other borrowings (2,797) - -
Bank borrowings 12 (120,119) (74,522) (74,696)
----------------------------------- ----- ------------ ------------ ----------
Total non-current liabilities (128,236) (78,642) (78,846)
----------------------------------- ----- ------------ ------------ ----------
Total liabilities (141,014) (84,102) (84,530)
----------------------------------- ----- ------------ ------------ ----------
Total net assets 265,191 126,110 258,762
----------------------------------- ----- ------------ ------------ ----------
Equity
Share capital 14 1,886 878 1,886
Share premium 15 - 93,937 228,764
Capital reduction reserve 16 228,760 - -
Other reserves 67 254 56
Retained earnings 34,478 31,041 28,056
----------------------------------- -----
Total equity 265,191 126,110 258,762
----------------------------------- ----- ------------ ------------ ----------
Net Asset Value per share basic 18 140.60p 143.71p 137.19p
Net Asset Value per share diluted 18 140.60p 143.71p 137.19p
EPRA NTA per share 18 141.57p 145.17p 137.89p
Condensed Consolidated Cash Flow Statement
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
------------------------------------------------------------- ----- -------------- -------------- -----------
Cash flows from operating activities
Profit for the period (attributable to equity shareholders) 9,800 9,043 9,360
Add: amortisation and depreciation 10 3 13
Less: changes in fair value of investment property 10 (4,289) (5,636) (5,691)
Add: changes in fair value of interest rate derivatives 13 510 612 657
Less: profit on disposal of investment property - (582) (575)
Less: finance income (62) (7) (7)
Add: finance expense 6 1,605 1,272 2,721
Long-term investment plan 8 11 60 2,454
Increase in trade and other receivables (1,856) (2,658) (625)
Increase in trade and other payables 7,557 1,265 1,454
------------------------------------------------------------- ----- -------------- -----------
Cash generated from operations 13,286 3,372 9,761
Net cash flow generated from operating activities 13,286 3,372 9,761
------------------------------------------------------------- ----- -------------- -------------- -----------
Investing activities
Purchase of investment properties 10 (85,591) (20,488) (32,378)
Disposal of investment properties - 18,091 18,085
Acquisition of a subsidiary, net of cash acquired 11 (48,861) - -
Net cash flow used in investing activities (134,452) (2,397) (14,293)
------------------------------------------------------------- ----- -------------- -------------- -----------
Financing activities
Proceeds from issue of ordinary share capital - - 136,200
Proceeds from issue of warrant shares - 59 59
Cost of share issue (4) - (2,951)
Bank borrowings drawn 12 122,389 10,771 10,775
Bank borrowings repaid 12 (75,702) (7,667) (7,667)
Loan arrangement fees paid 12 (1,474) (165) (179)
Other borrowings drawn 2,797 - -
Interest paid 6 (1,395) (1,109) (2,374)
Interest received 62 7 7
Dividends paid to equity holders 9 (3,378) (3,528) (6,818)
------------------------------------------------------------- ----- -------------- -------------- -----------
Net cash flow generated from financing activities 43,295 (1,632) 127,052
------------------------------------------------------------- ----- -------------- -------------- -----------
Net increase in cash and cash equivalents for the period (77,871) (657) 122,520
------------------------------------------------------------- ----- -------------- -------------- -----------
Cash and cash equivalents at start of period 132,280 9,760 9,760
------------------------------------------------------------- ----- -------------- -------------- -----------
Cash and cash equivalents at end of period 54,409 9,103 132,280
------------------------------------------------------------- ----- -------------- -------------- -----------
Condensed Consolidated Statement of Changes in Equity
Share Share Share warrant Capital Other Retained
reduction
capital premium reserves reserve reserves earnings Total
Six months ended 30 September GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2020 (unaudited)
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
1 April 2020 1,886 228,764 - - 56 28,056 258,762
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
Profit for the period - - - - - 9,800 9,800
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
Total comprehensive income - - - - - 9,800 9,800
Dividends to shareholders - - - - - (3,378) (3,378)
Long-term incentive plan - - - - 11 - 11
Issue of Ordinary Shares - (4) - - - - (4)
Transfer to capital reduction
reserve - (228,760) - 228,760 - - -
30 September 2020 1,886 - - 228,760 67 34,478 265,191
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
Six months ended 30 September
2019 (unaudited)
1 April 2019 877 93,877 14 - 194 25,514 120,476
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
Profit for the period - - - - - 9,043 9,043
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
Total comprehensive income - - - - - 9,043 9,043
Dividends to shareholders - - - - - (3,528) (3,528)
Long-term incentive plan - - - - 60 - 60
Exercise of warrant shares 1 60 (2) - - - 59
Expiry of warrant shares - - (12) - - 12 -
30 September 2019 878 93,937 - - 254 31,041 126,110
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
Share Share Share warrant Capital Other Retained
reduction
capital premium reserves reserve reserves earnings Total
Year ended 31 March 2020 (audited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- -------- -------------- ----------- --------- --------- --------
1 April 2019 877 93,877 14 - 194 25,514 120,476
------------------------------------- -------- -------- -------------- ----------- --------- --------- --------
Profit for the period - - - - - 9,360 9,360
------------------------------------- -------- -------- -------------- ----------- --------- --------- --------
Total comprehensive income - - - - - 9,360 9,360
Dividends to shareholders - - - - - (6,818) (6,818)
Long-term incentive plan - - - - 2,436 - 2,436
Crystallisation of long-term
incentive plan 18 2,556 - - (2,574) - -
Issue of Ordinary Shares 990 132,259 - - - - 133,249
Redemption of Warrant Shares 1 60 (2) - - - 59
Warrant Shares expired - 12 (12) - - - -
31 March 2020 1,886 228,764 - - 56 28,056 258,762
------------------------------------- -------- -------- -------------- ----------- --------- --------- --------
Notes to the Interim Financial Statements
1. Corporate information
Urban Logistics REIT plc (the "Company") and its subsidiaries
(the "Group") carry on the business of property lettings throughout
the United Kingdom. The Company is a public limited company
incorporated and domiciled in England and Wales and listed on AIM,
part of the London Stock Exchange. The registered office address is
124 Sloane Street, London, SW1X 9BW.
2. Basis of preparation
The interim financial information in this report has been
prepared using accounting policies consistent with IFRS as adopted
by the European Union. IFRS is subject to amendment and
interpretation by the International Accounting Standards Board
(IASB) and the IFRS Interpretations Committee and there is an
ongoing process of review and endorsement by the European
Commission. The financial information has been prepared on the
basis of IFRS that the Directors expect to be adopted by the
European Union and applicable as at 31 March 2021. The Group has
chosen not to adopt IAS 34 "Interim Financial Statements" in
preparing the interim financial information.
The Group's financial information has been prepared on a
historical cost basis, except for investment property and
derivative interest rate caps which have been measured at fair
value.
The functional currency of the Group is considered to be pounds
sterling as this is the currency of the primary environment in
which the Group operates.
Non-statutory financial statements
Financial information contained in this document does not
constitute statutory accounts within the meaning of Section 434 of
the Companies Act 2006. The statutory accounts for the year ending
31 March 2020 have been delivered to the Registrar of Companies.
The audit report was unqualified and did not contain a statement
under Section 498 of the Companies Act 2006 however it did include
references to two emphasis of matter, which comprised to the
following points:
-- Valuation of investment properties
We draw your attention to CBRE Limited's 31 March 2020
independent valuer's report which included a material valuation
uncertainty as per VPS 3 and VPGA 10 of the RICS Red Book in
relation to the valuation of investment properties. Our opinion is
not modified in this respect.
-- Impact of COVID-19
We draw your attention to the going concern statement in the
notes to the financial statements, which describes the impact of
COVID-19 on the Group. Our opinion is not modified in respect of
this matter.
Going concern
The Directors have reviewed the current and projected financial
position of the Group, making reasonable assumptions about future
trading performance. As part of the review, the Group has
considered its cash balances, its debt maturity profile, including
undrawn facilities, and the long-term nature of the tenant
leases.
On the basis of this review, and after making due enquiries, the
Directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence
for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the Interim Report and financial
statements.
3. Significant accounting judgements, estimates and assumptions
The preparation of the financial statements in conformity with
the generally accepted accounting practices requires management to
make estimates and judgements that affect the reported amounts of
assets and liabilities as well as the disclosure of contingent
assets and liabilities at the statement of financial position date
and the reported amounts of revenue and expenses during the
reporting period.
Business combinations
The Group has acquired companies that own real estate. At the
time of acquisition, the Group considers whether each acquisition
represents the acquisition of a business or the acquisition of an
asset. The Group accounts for an acquisition as a business
combination where an integrated set of activities is acquired in
addition to the property.
Where such acquisitions are not judged to be the acquisition of
a business, they are not treated as business combinations. Rather
the cost to acquire the corporate entity is allocated between
identifiable assets and liabilities of the entity based upon their
relative fair values at the acquisition date. Accordingly, no
goodwill or additional deferred tax arises.
Fair value of investment property
The fair value of investment property is market value as
determined on a half-yearly basis, to be the estimated amount for
which a property should exchange on the date of the valuation in an
arm's length transaction. Each property has been valued on an
individual basis. The valuers use recognised valuation techniques
and the principles of IFRS 13. The valuations have been prepared in
accordance with RICS Valuation - Global Standards January 2020 (the
"Red Book"). Factors reflected include current market conditions,
annual rentals, lease lengths and location. The significant methods
and assumptions used by the valuers in estimating the fair value of
investment property are set out in note 10.
4. Principal 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 2020.
Leases
At inception, the Group assesses whether a contract is or
contains a lease. This assessment involves the exercise of
judgement about whether the Group obtains substantially all the
economic benefits from the use of that asset, and whether the Group
has the right to direct the use of the asset.
The Group recognises a right-of-use ("ROU") asset and a
corresponding lease liability at the commencement date of the
lease. The ROU asset is initially measured based on the present
value of lease payments, plus initial direct costs and the cost of
obligations to refurbish the asset, less any incentives
received.
Lease payments generally include fixed payments and variable
payments that depend on an index (such as an inflation index). When
the lease contains an extension or purchase option that the Group
considers reasonably certain to be exercised, the cost of the
option is included in the lease payments.
Each lease payment is allocated between the liability and
finance cost. The lease payments are discounted using the interest
rate implicit in the lease if that rate can be readily determined
or if not, the incremental borrowing rate is used. The finance cost
is charged to profit or loss over the lease period so as to produce
a constant rate of interest on the remaining balance of the
liability for each period.
As the head leases meet the definition of investment property,
it is initially recognised in accordance with IFRS 16, and then
subsequently accounted for as investment property in accordance the
Group's accounting policy. After initial recognition the ROU head
lease asset is subsequently carried at fair value and the valuation
gains and losses recognised within 'Changes in fair value of
investment property' in the Statement of Comprehensive Income.
ROU assets are included in the heading Non-current assets, and
the lease liability included in the heading Non-current liabilities
on the Statement of Financial Position.
Where the ROU asset relates to land or property that meets the
definition of investment property under IAS 40, the ROU assets are
included in the heading Investment properties, and the lease
liability in the heading Non-current liabilities on the Statement
of Financial Position.
Revenue recognition
Rental income and service charge income from operating leases on
properties owned by the Group is accounted for on a straight-line
basis over the term of the lease. Rental income excludes service
charges and other costs directly recoverable from tenants.
Lease incentives are amortised on a straight-line basis over the
term of the lease.
Dividends
Dividends on equity shares are recognised when they become
legally payable. In the case of interim dividends, this is when
paid. In the event of a final dividend this will need approval by
the shareholders at the Annual General Meeting.
5. Revenue
The Group is involved in UK property ownership and letting and
is considered to operate in a single geographical and business
segment. The total revenue of the Group for the year was derived
from its principal activity, being that of property lettings. No
single tenant accounted for more than 10% of the Group's gross
rental income.
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
----------------------- ---------------------- ----------------------- ----------------------
Rental income 9,257 5,853 12,158
Service charge income 235 - 238
Licence fee 303 - 205
Total revenue 9,795 5,853 12,601
-------------------------- ---------------------- ----------------------- ----------------------
6. Finance Expense
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
--------------------------------------- ------------ ------------ ----------
Interest on bank borrowings 1,096 1,004 2,101
Swap interest paid 229 105 242
Amortisation of loan arrangement fees 210 163 347
Other interest payable 38 - -
Interest on lease liabilities 32 - 31
---------------------------------------- ------------ ----------
Total 1,605 1,272 2,721
---------------------------------------- ------------ ------------ ----------
7. Earnings per share
The calculation of the basic earnings per share ("EPS") was
based on the profit attributable to Ordinary Shareholders divided
by the weighted average number of Ordinary Shares outstanding
during the period, in accordance with IAS 33.
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------------------------------------------- -------------- -------------- -----------
Profit attributable to Ordinary Shareholders
Total comprehensive income (GBP'000) 9,800 9,043 9,360
------------------------------------------------------------------- -------------- -------------- -----------
Weighted average number of Ordinary Shares in issue 188,616,023 87,738,937 94,083,745
Basic earnings per share (pence) 5.20p 10.31p 9.95p
------------------------------------------------------------------- -------------- -------------- -----------
Number of diluted shares under option/warrant - - -
Weighted average number of Ordinary Shares for the purpose of
dilutive earnings per share 188,616,023 87,738,937 94,083,745
------------------------------------------------------------------- -------------- -------------- -----------
Diluted earnings per share (pence) 5.20p 10.31p 9.95p
------------------------------------------------------------------- -------------- -------------- -----------
Adjustments to remove:
Changes in fair value of investment property (4,289) (5,636) (5,691)
Changes in fair value of interest rate derivatives 510 612 657
(Loss)/profit on disposal of investment properties - (582) (575)
------------------------------------------------------------------- -------------- -------------- -----------
EPRA earnings (GBP'000) 6,021 3,437 3,751
EPRA diluted earnings per share 3.19p 3.92p 3.99p
------------------------------------------------------------------- -------------- -------------- -----------
Adjustments to add back:
LTIP crystallisation - - 3,452
------------------------------------------------------------------- -------------- -------------- -----------
Adjusted earnings (GBP'000) 6,021 3,437 7,203
Adjusted earnings per share 3.19p 3.92p 7.66p
------------------------------------------------------------------- -------------- -------------- -----------
8. Long-term incentive plan
The Company has a LTIP, accounted for as an equity settled
share-based payment. At 30 September 2020, Pacific Industrial LLP,
an affiliate of Pacific Capital Partners Limited, held 1,000 C
Ordinary Shares of GBP0.01 each issued in Urban Logistics Holdings
Limited, a subsidiary of the Company.
Fair value at grant Charge for the period
Date granted Class of share GBP'000 GBP'000
-------------- ---------------- -------------------- ----------------------
August 2017 C Ordinary 131 11
An independent valuation of the fair value of these shares was
carried out at the grant date. The valuation was prepared in
accordance with International Financial Reporting Standard 2 ("IFRS
2") - Share Based Payments. These shares were subsequently revalued
at the modification date, in March 2020, with no material
change.
Following the completion of the equity issue, in March 2020, the
Company and the Manager agreed to amend how the LTIP is assessed
for the period from the Revised First Calculation Date to 30
September 2023 (the "Second Calculation Date").
As a result of the changes:
-- The EPRA NAV element will be 5 per cent. of the amount by
which the Company's EPRA NAV at the Second Calculation Date exceeds
the Company's EPRA NAV as at the Revised First Calculation Date and
an annualised 10 per cent. hurdle thereon (adjusted for any new
issue of shares; all distributions including inter alia dividends,
and any returns of capital).
-- The share price element will be 5 per cent. of the amount by
which the market capitalisation of the Company at the Second
Calculation Date exceeds the market capitalisation of the Company
as at the Revised First Calculation Date and an annualised 10 per
cent. hurdle thereon (adjusted for any new issue of shares, all
distribution including inter alia dividends, and any returns of
capital).
The LTIP payment shall be capped at three times the average
annual management fees paid from 7 February 2020 to the Second
Calculation Date.
If there is a change of control, the LTIP will continue to be
assessed by applying the relevant offer price of the EPRA NAV
element and the share price element calculations at the date of the
change of control.
The LTIP will be paid in shares of Urban Logistics REIT plc or,
at the Board's discretion, in cash.
9. Dividends
30 Sep 20 30 Sep 19 31 Mar 20
GBP'000 GBP'000 GBP'000
------------------------------------------------ ---------- ---------- ----------
Ordinary dividends paid
2019: Second interim dividend: 4.02p per share - 3,528 3,528
2020: First interim dividend: 3.75p per share - - 3,290
2020: Interim dividend: 3.85p per share 3,378 - -
Total dividends paid in the period (GBP000's) 3,378 3,528 6,818
--------------------------------------------------- ---------- ---------- ----------
Total dividends paid in the period 3.85p 4.02p 7.77p
On 14 February 2020, the Company declared an interim dividend of
3.85 pence per Ordinary Share in respect of the financial year
ended 31 March 2020. The dividend was paid as a property income
distribution ("PID") on 21 April 2020, taking total dividends paid
with respect to the financial year ended 31 March 2020 to 7.60
pence per share.
On 25 September 2020, the Company declared an interim dividend
for the first half of the financial year ended 31 March 2021 of
3.25 pence per Ordinary Share. The dividend was paid as a property
income distribution on 23 October 2020 to Shareholders on the
register on 9 October 2020.
10. Investment properties
In accordance with IAS 40 "Investment Property", investment
property is carried at its fair value as determined by an external
valuer. This valuation has been conducted by CBRE and has been
prepared as at 30 September 2020, in accordance with the RICS
valuation - Professional Standards UK January 2020 (the "Red
Book").
The valuations have been prepared in accordance with those
recommended by the International Valuation Standards Committee and
are consistent with the principles in IFRS 13.
Investment Investment
properties properties Development
freehold leasehold Properties Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------------------------- ----------- ----------- ------------ --------
At 1 April 2020 151,560 46,020 9,400 206,980
Property additions through acquisitions 102,403 18,362 13,639 134,404
Capital expenditure 72 196 - 268
Transfer from development properties 15,240 - (15,240) -
Revaluation surplus in year 3,136 3,522 (2,369) 4,289
-------------------------------------------------------------------- ----------- ----------- ------------ --------
At 30 September 2020 272,411 68,100 5,430 345,941
Add: tenant lease incentives 367 236 - 603
-------------------------------------------------------------------- ----------- ----------- ------------ --------
Investment properties excluding head lease ROU assets at 30
September 2020 272,778 68,336 5,430 346,544
Add: right of use asset - 2,066 - 2,066
-------------------------------------------------------------------- ----------- ----------- ------------ --------
Total investment properties at 30 September 2020 272,778 70,402 5,430 348,610
-------------------------------------------------------------------- ----------- ----------- ------------ --------
Total rental income for the interim period recognised in the
Condensed Consolidated Statement of Comprehensive Income amounted
to GBP9.8 million (Sep 19: GBP5.9 million).
Upon application of IFRS 16, tenant lease incentives have been
reclassified from Other debtors to Investment properties. Tenant
lease incentives at 30 September 2020 totalled GBP0.60 million (Sep
19: GBP0.74 million). The financial information relating to the
six-months ended 30 September 2019 has not been restated given the
immaterial amounts involved.
11. Acquisition of subsidiaries
On 29 April 2020, the Group obtained sole control of EOS
Property Unit Trust, a property investment company incorporated in
Jersey, through the acquisition of the entire units in the
Trust.
This acquisition was not judged to be the acquisition of a
business and, therefore, is not treated as a business combination.
Rather, the cost to acquire the Trust is allocated between
identifiable assets and liabilities of the Trust based upon its
relative fair value at the acquisition date. Accordingly, no
goodwill or additional deferred tax arises.
The table below sets out the initial fair values to the Group in
respect of this acquisition.
Book Redemption Fair Value
Value of Liabilities Adjustments Total
GBP'000 GBP'000 GBP'000 GBP'000
Investment properties 47,174 - 1,913 49,087
Cash 695 - - 695
Other receivables 1 - (3) (2)
Finance liabilities (28,141) 28,115 - (26)
Other liabilities (870) - (23) (894)
---------------------------------------------- --------- --------------- ------------ --------
Total 18,859 28,115 1,887 48,861
---------------------------------------------- --------- --------------- ------------ --------
Net cash outflow arising on acquisition
Total consideration 49,556
Cash and cash equivalents acquired 695
------------------------------------------- --------- --------------- ------------ --------
Cash consideration net of cash acquired 48,861
------------------------------------------- --------- --------------- ------------ --------
12. Bank borrowings and reconciliation of liabilities to cash
flows from financing activities
Bank Borrowings
GBP'000
-------------------------------------------------------------------------------------- ----------------
Balance at 1 April 2020 74,696
Bank borrowings drawn in the year 122,389
Bank borrowings repaid in the year (75,702)
Loan arrangement fees paid (1,474)
Non-cash movements:
Amortisation of loan arrangement fees 210
--------------------------------------------------------------------------------------- ----------------
Total bank borrowings per the Condensed Consolidated
Statement of Financial Position 120,119
--------------------------------------------------------------------------------------- ----------------
Being:
Drawn debt 122,389
Unamortised loan arrangement fees (2,270)
--------------------------------------------------------------------------------------- ----------------
Total bank borrowings per the Condensed Consolidated Statement of Financial Position 120,119
--------------------------------------------------------------------------------------- ----------------
On 7 August, the Group entered into a new GBP151 million loan
facility with Barclays, Santander and Lloyds, to replace the
existing loan facility totalling GBP76 million. This new facility
provides a three-year term and includes an option to extend for a
further two-years. At 30 September 2020, GBP28.6 million of this
new facility was undrawn.
13. Interest rate derivatives
The Group has used interest rate swaps to mitigate exposure to
interest rate risk. The total fair value of these contracts is
recorded in the Statement of Financial Position. The interest rate
derivatives are marked to market by the relevant counterparty banks
on a quarterly basis in accordance with IFRS 9. Any movement in the
fair value of the interest rate derivatives are taken to finance
costs in the Statement of Comprehensive Income.
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
GBP'000 GBP'000 GBP'000
---------------------------------------------------------- -------------- -------------- -----------
Non-current liabilities: derivative interest rate swaps:
At beginning of period (1,347) (690) (690)
Change in fair value in the period (510) (612) (657)
------------------------------------------------------------- -------------- -------------- -----------
Total (1,857) (1,302) (1,347)
------------------------------------------------------------- -------------- -------------- -----------
14. Share capital
30 Sep 20 30 Sep 20
(unaudited) (unaudited)
Number GBP'000
------------------------------------- ---------------- ---------------------
Issued and fully paid up at 1p each 188,616,023 1,886
----------------------------------------- ---------------- ---------------------
At beginning of period 188,616,023 1,886
At 30 September 2020 188,616,023 1,886
----------------------------------------- ---------------- ---------------------
15. Share premium
Share premium relates to amounts subscribed for share capital in
excess of nominal value less any associated issue costs that have
been capitalised.
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
----------------------------------------------- ------------ ------------ ----------
Balance brought forward 228,764 93,877 93,877
Share premium on the issue of ordinary shares - 60 135,270
Expiry of warrant shares - - 12
Share issue costs (4) - (2,951)
Crystallisation of LTIP - - 2,556
Transfer to capital reduction reserve (228,760) - -
----------------------------------------------- ------------ ------------ ----------
At 30 September 2020 - 93,937 228,764
-------------------------------------------------- ------------ ------------ ----------
16. Capital reduction reserve
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------- ------------ ------------ ----------
Balance brought forward - - -
Transfer from share premium 228,760 - -
---------------------------- ------------ ------------ ----------
At 30 September 2020 228,760 - -
---------------------------- ------------ ------------ ----------
On 8 August 2020, the Company, by way of a Special Resolution,
cancelled the then value of its share premium, by an Order of the
High Court of Justice, Chancery Division. As a result, GBP228.8
million has been transferred from the share premium reserve. The
capital reduction reserve is classified as a distributable
reserve.
17. Related party transactions
The terms and conditions of the Investment Management Agreement
are described in the Management Engagement Committee Report. During
the interim period, the amount paid for services provided by
Pacific Capital Partners Limited (the "Manager") totalled
GBP1,246,722 (Sep 19: GBP587,568).
Long-term incentive plan
Under the terms of the Company's long-term incentive plan, at 30
September 2020 Pacific Industrial LLP, an affiliate of Pacific
Capital Partners Limited, has subscribed for shares in Urban
Logistics Holdings Limited, a subsidiary of Urban Logistics REIT
plc. Further details have been provided in note 8.
Acquisition of investment properties
During the interim period, the Group incurred fees totalling
GBP542,795 (Sep 19: GBP315,570) from M1 Agency LLP, a partnership
in which Richard Moffitt is a member. These fees were incurred in
the acquisition and sale of investment properties.
For the transactions listed above, Richard Moffitt's benefit is
derived from the profit allocation he receives from M1 Agency LLP
as a member and not from the transaction.
The Board, with the assistance of the Manager, and excluding
Richard Moffitt, reviews and approves each fee payable to M1 Agency
LLP, and ensures the fees are in line with market rates and on
standard commercial property terms.
18. Net asset value per share
Basic NAV per share is calculated by dividing net assets in the
Condensed Consolidated Statement of Financial Position attributable
to Ordinary Shareholders by the number of Ordinary shares at the
end of the period.
Net assets have been calculated as follows:
30 Sep 20 30 Sep 19 31 Mar 20
Net assets per Condensed Consolidated Statement of Financial Position
(GBP'000) 265,191 126,110 258,762
Adjustments for:
Fair value of intertest rate derivatives (GBP'000) 1,857 1,302 1,347
Intangible assets (GBP'000) (15) (20) (17)
EPRA Net Tangible Assets (GBP'000) 267,033 127,392 260,092
Ordinary shares in issue at period end (basic and diluted) 188,616,023 87,751,604 188,616,023
------------------------------------------------------------------------- ------------ ----------- ------------
IFRS NAV per share (basic and diluted) 140.60p 143.71p 137.19p
EPRA NTA per share 141.57p 145.17p 137.89p
In October 2019, the European Public Real Estate Association
("EPRA") published new best practice recommendations (BPR) for
financial disclosures by public real estate companies. The BPR
introduced three new measures for reporting net asset value: EPRA
net reinstatement value (NRV), EPRA net tangible assets (NTA) and
EPRA net disposal value (NDV). These new measures being effective
for accounting periods starting on 1 January 2020 and have been
adopted by the Group in reporting the financial position as at 30
September 2020.
The Group considers EPRA NTA to be the most relevant measure for
its operating activities, therefore, will be adopted as the Group's
primary measure of net asset value, replacing previously reported
EPRA NAV.
A reconciliation of the three new net asset value measurements
is provided in Supplementary Information.
19. Post balance sheet events
On 5 October 2020, the Group acquired a 43,881 sq ft
distribution unit for GBP2.9 million, representing a NIY of
6.25%.
On 19 October 2020, the Company raised GBP92.3 million through
the issue of 66,429,798 Ordinary Shares at an issue price of 139.0
pence per share.
On 30 October 2020, the Group acquired a distribution warehouse
in Braintree for GBP11.2 million, representing a NIY of 5.25%.
On 4 November 2020, the Group acquired a 71,384 sq ft
distribution warehouse for GBP9.1 million, representing a NIY of
6.6%.
On 6 November 2020, the Group acquired a site in Exeter for a
total consideration of GBP5.1 million, representing a NIY of
8.0%.
On 6 November 2020, the Group acquired a warehouse in Warrington
for a total consideration of GBP4.8 million, representing a NIY of
7.4%.
On 9 November 2020, the Group completed the acquisition of a
logistics site in Hoddesdon for a total consideration of GBP34.3
million, representing a NIY of 5.4%.
Supplementary Information
i. EPRA performance measures summary
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
--------------------------------------------------- -------------- -------------- -----------
EPRA EPS (diluted) 3.19p 3.92p 3.99p
EPRA net tangible asset value 141.57p 145.17p 137.89p
EPRA net reinstatement value 153.87p 160.09p 145.26p
EPRA net disposal value 140.60p 143.71p 137.19p
---------------------------------------------------- -------------- -------------- -----------
EPRA net initial yield 5.5% 6.2% 5.6%
EPRA "topped up" net initial yield 5.8% 6.2% 5.6%
EPRA vacancy rate 3.0% 0.0% 2.4%
EPRA cost ratio (including vacant property costs) 20.7% 18.6% 46.9%
EPRA cost ratio (excluding vacant property costs) 20.4% 18.5% 46.8%
---------------------------------------------------- -------------- -------------- -----------
ii. Income statement
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------------------------- -------------- -------------- -----------
Gross rental income 9,795 5,853 12,601
Property operating costs (385) (46) (437)
--------------------------------------------- -------------- -------------- -----------
Net rental income 9,410 5,807 12,164
Administrative expenses (1,835) (1,045) (2,142)
Long-term incentive plan charge (11) (60) (3,557)
--------------------------------------------- -------------- -------------- -----------
Operating profit before interest and tax 7,564 4,702 6,465
Net finance costs (1,543) (1,265) (2,714)
--------------------------------------------- -------------- -------------- -----------
Profit before tax 6,021 3,437 3,751
Tax on EPRA earnings - - -
-------------------------------------------- -------------- -------------- -----------
EPRA earnings 6,021 3,437 3,751
--------------------------------------------- -------------- -------------- -----------
Weighted average number of Ordinary Shares 188,616,023 87,738,937 94,083,745
--------------------------------------------- -------------- -------------- -----------
EPRA earnings per share 3.19p 3.92p 3.99p
--------------------------------------------- -------------- -------------- -----------
iii. Balance sheet
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
GBP'000 GBP'000 GBP'000
---------------------------------------- --------------- --------------- ------------
Investment properties 348,610 196,900 209,179
Other net assets 36,700 3,732 124,279
Net borrowings (120,119) (74,522) (74,696)
Total shareholders' equity 265,191 126,110 258,762
Adjustments to calculate EPRA NTA:
Fair value of interest rate derivative 1,857 1,302 1,347
Intangible assets (15) (20) (17)
EPRA net assets 267,033 127,392 260,092
------------------------------------------ --------------- --------------- ------------
Ordinary Shares in issue at year end
(basic and diluted) 188,616,023 87,751,604 188,616,023
EPRA NTA per share 141.57p 145.17p 137.89p
------------------------------------------ --------------- --------------- ------------
In October 2019, the European Public Real Estate Association
("EPRA") published new best practice recommendations (BPR) for
financial disclosures by public real estate companies. The BPR
introduced three new measures for reporting net asset value: EPRA
net reinstatement value (NRV), EPRA net tangible assets (NTA) and
EPRA net disposal value (NDV). These new measures being effective
for accounting periods starting on 1 January 2020 and have been
adopted by the Group in reporting the financial position as at 30
September 2020.
The Group considers EPRA NTA to be the most relevant measure for
its operating activities, therefore, will be adopted as the Group's
primary measure of net asset value, replacing previously reported
EPRA NAV.
A reconciliation of the three new net asset value measurements
is provided in the table below.
Current Measures
----------------------------------------
EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
30 September 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
IFRS equity attributable to shareholders 265,191 265,191 265,191 265,191 265,191
Fair value of interest rate derivatives 1,857 1,857 - 1,857 -
Intangible assets (15) - - - -
Real estate transfer tax - 23,178 - - -
EPRA net asset value 267,033 290,226 265,191 267,048 265,191
Diluted shares (number) 188,616,023 188,616,023 188,616,023 188,616,023 188,616,023
EPRA net asset value per share 141.57p 153.87p 140.60p 141.58p 140.60p
------------------------------------------ ------------ ------------ ------------ ------------ ------------
Current Measures
----------------------------------------
EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
30 September 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
IFRS equity attributable to
shareholders 126,110 126,110 126,110 126,110 126,110
Fair value of interest rate derivatives 1,302 1,302 - 1,302 -
Intangible assets (20) - - - -
Real estate transfer tax - 13,067 - - -
EPRA net asset value 127,392 140,479 126,110 127,412 126,110
Diluted shares (number) 87,751,604 87,751,604 87,751,604 87,751,604 87,751,604
EPRA net asset value per share 145.17p 160.09p 143.71p 145.20p 143.71p
Current Measures
----------------------------------------
EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
31 March 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
IFRS equity attributable to
shareholders 258,762 258,762 258,762 258,762 258,762
Fair value of interest rate derivatives 1,347 1,347 - 1,347 -
Intangible assets (17) - - - -
Real estate transfer tax - 13,868 - - -
EPRA net asset value 260,092 273,977 258,762 260,109 258,762
Diluted shares (number) 188,616,023 188,616,023 188,616,023 188,616,023 188,616,023
EPRA net asset value per share 137.89p 145.26p 137.19p 137.90p 137.19p
iv. EPRA net initial yield and 'topped up' net initial yield
30 Sep 20 30 Sep 19 31 Mar 20
GBP'000 GBP'000 GBP'000
----------------------------------------------------- ---------- ---------- ----------
Total properties per financial statements 348,610 196,900 209,179
Less head lease right of use asset (2,066) (1,865) (1,858)
Less development properties (5,430) (4,300) (9,400)
Completed property portfolio 341,114 190,735 197,921
Add notional purchasers' costs 22,514 12,919 13,342
Gross up completed property portfolio valuation (A) 363,628 203,654 211,263
Annualised passing rent 20,319 12,737 11,989
Less irrecoverable property outgoings (182) (63) (63)
------------------------------------------------------- ---------- ---------- ----------
Annualised net rents (B) 20,137 12,674 11,926
------------------------------------------------------- ---------- ---------- ----------
Contractual rental increases for rent free period 1,019 - -
'Topped up' annualised net rent ('C) 21,156 12,674 11,926
------------------------------------------------------- ---------- ---------- ----------
EPRA net initial yield (B/A) 5.5% 6.2% 5.6%
------------------------------------------------------- ---------- ---------- ----------
EPRA 'topped up' net initial yield (C/A) 5.8% 6.2% 5.6%
------------------------------------------------------- ---------- ---------- ----------
v. EPRA vacancy rate
30 Sep 20 30 Sep 19 31 Mar 20
GBP'000 GBP'000 GBP'000
------------------------------------------------------------------------ ---------- ---------- ----------
Annualised potential rental value of vacant properties 666 - 317
Annualised potential rental value for the completed property portfolio 22,159 12,942 13,286
EPRA vacancy rate 3.0% 0.0% 2.4%
-------------------------------------------------------------------------- ---------- ---------- ----------
vi. EPRA cost ratio
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
Total cost ratio GBP'000 GBP'000 GBP'000
------------------------------------------------------------------- -------------- -------------- -----------
Costs
Property operating expenses(1) 385 46 437
Administrative expenses 1,835 1,045 2,142
Less: service charge income (68) - (116)
Less: service charge costs recovered through rents but not
separately invoiced (167) - (122)
Less: ground rents (8) (1) (8)
Total costs including vacant property costs (A) 1,977 1,090 2,333
--------------------------------------------------------------------- -------------- -------------- -----------
Group vacant property costs (32) (9) (8)
Total costs excluding vacant property costs (B) 1,945 1,081 2,325
--------------------------------------------------------------------- -------------- -------------- -----------
Gross rental income
Gross rental income 9,795 5,853 12,601
Less: ground rents paid (32) (1) (31)
Less: service charge income (68) - (116)
Less: service charge costs recovered through rents but not
separately invoiced (167) - (122)
Total gross rental income (C) 9,528 5,852 12,332
--------------------------------------------------------------------- -------------- -------------- -----------
Total cost including vacant property costs (A/C) 20.7% 18.6% 18.9%
Total cost excluding vacant property costs (B/C) 20.4% 18.5% 18.9%
--------------------------------------------------------------------- -------------- -------------- -----------
EPRA cost ratio
Total costs (A) 1,977 1,090 2,333
Long-term incentive plan crystallisation - - 3,452
EPRA total costs including vacant property costs (D) 1,977 1,090 5,785
Vacant property costs (32) (9) (8)
EPRA total costs excluding vacant property costs (E) 1,945 1,081 5,777
EPRA cost ratio (including vacant property costs (D/C) 20.7% 18.6% 46.9%
EPRA cost ratio (excluding vacant property costs (E/C) 20.4% 18.5% 46.8%
(1) Property operating expenses are cost of sales. These
typically include Utilities, Business rates, Letting fees, and
other direct costs.
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