Urban Logistics REIT has reported a strong operational performance in annual results to 31 March 2023, with net rental income up 45%.
However, EPRA net tangible assets (NTA) was down 14.0% to 162.44p, reflecting the outward movement in investment yields in the real estate sector in the high interest rate environment. The group’s portfolio was down 9.8% on a like for like basis to £1,107m.
Net rental income was up 45% to £53.0m (2022: £36.5m), while adjusted earnings was up 39% to £32.7m (2022 £23.6m). Adjusted earnings per share also rose 3.3% to 6.93p and the company paid dividends of 7.6p per share (uncovered by earnings due to delays in investing its 2021 fund raise as the economy weakened).
The fundamental mismatch in supply and demand in the occupational market continued to push rents higher, generating an additional £6.1m in rental income via lease events during the year. It was a record year for leasing activity for the company, with 42 new lease events completed generating £6.1m in new rental income, with 34% like-for-like rental increases.
The company’s balance sheet is strong, with debt of £351m with a weighted average cost of debt in the period of 3.21%. Debt is 85% hedged and a weighted average maturity of 5.4 years and no refinancing required until 2025. LTV was 29.0%.
Other operational highlights
- Acquired £160m of assets during the year at a blended net initial yield of 5.2%
- Completed three forward funding developments that have been fully let post period end with £43.7m gross development cost, generating a yield on cost of 7.1%
- Two ongoing developments with £17.4m committed, generating a target yield on cost of 7.4%
- Total portfolio of 130 mid-box urban logistics assets covering 9.7 million sq ft with a valuation £1,107m (2022: 113 assets covering 8.3 million sq ft with a value of £1,015m)
- Average rent per sq ft of £6.02; EPRA vacancy rate of 7.4% (2022: £5.59 and 6.9%)
- Gross to net rental income ratio 96.3% (2022: 97.2%)
- High rent collection of 99.9% (2022: 99.9%)
- WAULT of 8.2 years (2022: 7.7 years)
- EPC of portfolio rated A-B 52% (2022: 27%)
Post period end, the company has sold two assets for a sales price of £15m, representing a 3.4% premium to March 2023 valuations. The manager says this proves that asset pricing has been rebased in the sector. The new pricing level has created new acquisition opportunities, which the manager says will be capitalised on via an asset recycling strategy.
Richard Moffitt, fund manager, said:
“The portfolio has proved to be resilient against a backdrop of challenging market conditions, with persistently high inflation and rising interest rates leading to repricing of assets across commercial real estate. Despite these challenges, our active asset management strategy of moving rents on, improving tenant covenants and increasing lease lengths has allowed us to add value to the assets and shield the Company against the impact of a negative yield shift. This is demonstrated by the portfolio’s like-for-like downward revaluations which is below that of the wider sector and above most expectations. Post period end we made two disposals as part of our asset recycling strategy, selling for 3.4% above the valuations.”
Chairman Nigel Rich added:
“Challenges continue to confront the UK Economy, but despite this Urban Logistics’ portfolio has continued to perform well. Market driven declines in asset valuations were somewhat offset by our active asset management, while earnings per share rose marginally. Our conservative balance sheet, with a high proportion of our debt fixed or hedged and a low LTV, reduces our exposure to interest rate fluctuations. We have retained the management team for a further term until 2027, giving us stability and security. At time of writing we trade at a significant discount to NAV and therefore are restricted in our ability to raise money through a share offer, however there is significant potential within our own portfolio to drive growth through asset management, recycling and more efficient use of the land we already own. We are cautious, but believe we are very well positioned, and have everything we need in place to perform in an uncertain future.”
SHED : Urban Logistics REIT posts strong operational results despite valuation fall