Warehouse REIT has reported a 29.5% drop in EPRA NTA to 122.6p per share in annual results to the end of March 2023, reflecting the outward movement in yields in line with the rise in interest rates.
The group’s portfolio valuation fell 18.5% to £828.8m (2022: £1,012.0m) on a like-for-like basis following a 131 basis points (1.31%) expansion in the equivalent yield. This was partially offset by strong like-for-like growth in rental values of 6.2%, reflecting a robust occupier market.
Other financial highlights included:
- Adjusted earnings of £19.8m (2022: £27.2m), primarily reflecting increased debt costs
- Adjusted EPS of 4.7p (2022: 6.4p), with the dividend maintained at 6.4p
- Two interest rate caps of £100m acquired; 75.2% of debt hedged against interest rate volatility
- £320.0m of debt refinanced
- LTV at 33.9%, with further £14.0m in available resources; pro forma LTV at 30.5% adjusting for post balance sheet sales
Operational highlights
- Contracted rent totalled £45.3m per annum, including:
- £3.0m from 40 new lettings, 29.1% ahead of previous contracted rent
- £1.0m from renewals, 15.8% ahead of previous contracted rent
- £2.0m from rent reviews, 21.5% ahead of previous contracted rent
- 5.3% like-for-like rental growth, with 17.6% portfolio reversion as at 31 March 2023
- Occupancy up 3.1% from 30 September 2022 to 95.8%
- 99.0% of FY23 rent collected
- In advanced negotiations for a 350,000 sq ft pre let at the first phase of Radway 16, Crewe
- £59.6m of asset disposals, an ungeared IRR of 8.0%
- further £29.9m completing post period end
- £64.0m of acquisitions
Strength of leasing market
The investment manager said: “We continue to actively monitor the strength of the occupiers’ covenants using credit software such as Dun & Bradstreet, enabling us to keep abreast of the impact of the current economic environment on the group’s occupiers, in particular those where energy is a high proportion of their costs. However, we have not identified an increase in corporate failures, as reflected in the group’s rent collection performance and bad debts. As at 2 June 2023, we had collected c.99.0% of the rent due in respect of the year and we expect this to increase as we work with occupiers to collect the outstanding amounts.
“The UK occupational market remains robust and strong occupier demand has helped us to continue to capture the inbuilt reversion in the portfolio through lease renewals and new lettings. New leases continue to exceed ERVs, while lease renewals and rent reviews are achieving strong average uplifts against previous rental levels. As a result, like-for-like contracted rent increased by 5.3% year on year and ERVs by 6.2%, providing significant opportunities to capture the portfolio reversion in future periods.”
Neil Kirton, chairman, commented:
“This financial year saw a marked divergence between equity market valuations and the continued strength of the occupier market. Operationally, our performance has been strong; our focus on multi-let assets in key industrial hubs where demand remains firm but supply is constrained is paying off with like-for-like growth in contracted rents of 5.3%. We were not immune from the rapid rise in interest costs, which impacted both our valuation and our earnings, but we acted decisively, with £90 million of non-core disposals in line with our plan, supporting the balance sheet and further focusing the business on its core assets.
“Since year end, there are clearer signs that investors are returning to the market, evidenced by activity across the sector and our most recent sales, which are ahead of book. At Radway, our flagship scheme in Crewe, we are now in advanced negotiations for a significant pre let, a major milestone which validates our ambitious but highly disciplined approach to development. This opportunity, coupled with an improved financial position and our 71% weighting towards multi-let assets, the strongest part of our market, leaves us well positioned for the future.”
WHR : Warehouse REIT results reflect impact of market yield expansion