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Valuation gains help Industrials REIT post 25% NAV total return

Industrials REIT has reported a 25% NAV total return for the year to 31 March 2022, as the value of its portfolio rose by more than 20%.

EPRA net tangible assets (NTA) was up 20.4% to £1.77 per share, helped by 20.8% like-for-like valuation growth in the value of its portfolio of multi-let industrial (MLI) properties (which with new acquisitions in the year now totals £653.5m).

The group declared dividends for the year of 6.85p, up on the 6.75p in 2021, which was fully covered by adjusted earnings per share of 6.88p (2021: 6.78p).

IFRS profit before tax doubled to £107.5m (2021: £53.0m), driven by the valuation uplifts in its MLI portfolio of £89.5m (compared with £26.9m in the prior year).

On the debt side, the group’s loan-to-value fell slightly to 25.6% (2021: 28.1%) with total debt of £196.2m and unrestricted cash balances of £20.7m at year end.

Operational highlights

Industrials REIT acquired 18 MLI assets during the year for a total of £97.6m, which grew the portfolio to 104 properties and increased net rental income by 42% to £32.8m over the year. The group completed the sale of the final three wholly owned non-MLI assets in the year, generating aggregate net sales proceeds of £46m. It is currently in the process of selling its share of a joint venture holding in a German care homes portfolio.

It signed 265 new leases during the year, with its Smart Lease platform (which eases the process of signing a lease compared to the traditional method – shortening void periods and reducing costs) accounting for 53% of all new lettings and renewals.

Like-for-like passing rent increased 4.4% in the year, while the portfolio estimated rental value (ERV) increased 4.3% on a like-for-like basis, creating a 12.6% premium to current passing rent on occupied units.

Occupancy across the group’s MLI portfolio was stable at 93.6% (2021: 93.7%). The group said rent collection levels were now nearing pre-Covid levels, with 93% of invoices billed in the year paid, resulting in a reduction in the bad debt expense to £1.3m (2021: £2.0m).

Paul Arenson, chief executive, said: “This financial year marks the end of our four-year transition strategy to a specialist MLI business. We now own and operate a portfolio of over seven million square feet of high-quality MLI assets, situated in and around towns and cities across the UK. The company also benefits from a class leading digital-first operating platform, branded as Industrials Hive. With these two fundamental building blocks in place, we are pushing forward with delivering a differentiated customer experience, driven by operational excellence and efficiency.

“We are pleased to have delivered another strong operating performance, achieving like-for-like rental growth of 4.4% and like-for-like valuation growth of 20.8% across our MLI portfolio, resulting in a total accounting return for the year of 25.0%.

“A combination of land scarcity in urban areas and high build costs, even before the impact of the current high inflationary environment, continues to constrain the supply of new units. At a time when technology and e-commerce, coupled with a focus on supply chains and onshoring manufacturing, have increased the demand for flexible, quality MLI space, we have been able to grow and diversify our overall occupier base. This ongoing expansion and diversification of our customer base demonstrates the widespread appeal of our well-managed, affordable and high quality MLI space to companies across a multitude of traditional and new sectors. We believe that this will provide future income resilience through our lack of reliance on any one specific business sector; we currently have over 1,500 customers occupying our units who are very diversified in their business activities. Our largest single tenant exposure comprises less than 2% of our total rent roll.

“Despite the economic and geopolitical uncertainty at present, we remain confident that the strong fundamentals of the MLI sector should see us continue to achieve our 4% to 5% per annum rental growth rate target and our 10%+ total accounting return target over the coming years. We also continue to have ambitions to grow our business through further MLI acquisitions, allowing us to leverage the economies of scale and other efficiencies and benefits our technology-enabled platform affords.”

MLI : Valuation gains helps Industrials REIT post 25% NAV total return

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