First annual report from Warehouse REIT
Warehouse REIT (WHR), which listed on the London Alternative Investment Market (AIM) on 20 September 2017, has released preliminary annual results for the period from IPO to 31 March 2018.
The IPO, which was oversubscribed, raised net proceeds of £146.8 million. On admission to AIM, the company completed the acquisition of the seed portfolio of 27 freehold and long-leasehold assets for £108.9 million. Since then, the company has invested a further £170.1 million in 65 UK warehouse estates, totalling 2.7 million sq ft and let to a diverse range of occupiers.
Financial results:
The NAV per share at 31 March 2018 was 102.1 pence, reflecting a 4.3% uplift in the value of the portfolio against acquisition cost and the expenses incurred in the IPO.
The Group’s annual rent roll at the period end was £21.3 million and the portfolio’s estimated rental value (ERV) was £23.8 million.
At the period end, the Group had £124.5 million of debt and a LTV ratio of 40.5%. This is ahead of the company’s longer-term target of 30-40% but below the limit in their investment policy of 50% and the covenant of 55%. The Group’s facilities total £135.0 million and comprise a £105.0 million RCF (extended during the period from £35.0 million, on reduced terms), and a £30.0 million term loan.
Key highlights:
IPO proceeds deployed at net initial yield ahead of business plan target of 7.0%
· Oversubscribed IPO on 20 September 2017 raised net proceeds of £146.8 million
· Co-investment by management of Investment Manager, Tilstone Partners Limited (“TPL”), of £16.0 million resulted in net assets at IPO of £162.1 million
· On Admission to AIM, completed the acquisition of the seed portfolio of 27 freehold and long-leasehold assets for £108.9 million, reflecting a 7.0% net initial yield
· Increased five-year loan facilities of £135.0 million on reduced terms
· Since IPO, invested a further £170.1 million in 65 UK warehouse estates, totalling 2.7 million sq ft and let to a diverse range of occupiers
· Seed portfolio valuation up 8.5% to £118.1 million and ERV up 3.4% to £9.7 million
· Capital expenditure committed in the period since IPO totalled £1.3m
· Target dividend for year ending 31 March 2019 increased from 5.5 pence per share to 6.0 pence per share**
Letting activity driving total return outperformance
27 new lettings completed since IPO, generating annual rent of £0.8 million, 7.3% ahead of March 2018 estimated rental value (“ERV”)
- of the above, 17 were new lettings of vacant space in the seed portfolio, generating annual rent of £0.6 million, 15.6% ahead of ERV at IPO
- eight lease renewals achieved in the seed portfolio, securing a continuation of £0.6 million of income, representing a 10.7% increase in headline rent for these units
- four new lettings across 54,790 sq ft of vacant space currently under offer on the seed portfolio, for a combined rent of £0.3 million per annum, 2.1% ahead of March 2018 ERVs
- notice received to exercise a lease break from four tenants in the seed portfolio, representing combined passing rents of £0.1 million per annum, allowing the ability to increase rents by 14.0%
Portfolio occupancy of 93.1% and WAULT of 4.1 years (2.8 years to break) at 31 March 2018, after acquiring the Industrial Multi Property Trust (IMPT) portfolio for £116.0 million on 26 March 2018, which had occupancy of 92.3% and a WAULT to expiry of 3.9 years
Of the 18 lease renewals outstanding as at acquisition of the seed portfolio, 67% of tenants renewed at rents 8.2% higher than ERV. Of the units which became vacant, 67% were immediately re-let at rents 13% higher than ERV
Diverse occupier demand, favourable demand supply dynamics and structural shifts towards e-commerce underpinning sector strength
- Limited market supply, as capital values in the sector remain well below replacement cost, making it uneconomic to develop new space
- Market forecasts for industrial rental growth predicted to average 3.5% per annum to 2022, significantly ahead of other real estate sectors
Chairman’s outlook
Neil Kirton, Chairman
“The warehouse sector continues to perform strongly and we believe the growth drivers are structural rather than cyclical. Market expectations are for rents to rise by 3.5% per annum, for all industrial assets between 2018 and 2022, according to RealFor, but our expectation is that rental growth will be stronger still in the part of the market we are focused on, driven by a significant supply demand imbalance and there are good prospects to outperform market expectation through active asset management. We see no sign of any change in these favourable dynamics but remain alert to the potential for geopolitical or financial events to affect sentiment.
Our priorities for the coming year are to integrate the acquisitions, complete lease renewals with tenants in the IMPT portfolio who were holding over, and continue to increase occupancy across the entire portfolio. Whilst we expect further yield compression across the sector, there remain opportunities to invest at attractive yields. We are confident in our investment case and our ability to achieve our target returns.
The Directors all own shares in the Company and together the Board and TPL management team hold around 11% of the equity. This means we are fully aligned with the interests of our fellow shareholders. I have been delighted with the entrepreneurial spirit and openness, and with the intensity of effort displayed by everyone involved with the Company during such a busy and successful first period. We are ambitious and excited about the future and I look forward to reporting on our progress.”
WHR : First annual report from Warehouse REIT