Urban Logistics REIT focused on dividend cover after posting solid results

Urban Logistics REIT reported a slight drop in EPRA net tangible assets (NTA) of 1.3% to 160.27p in annual results to 31 March 2024.

The value of the company’s portfolio of mid-box urban logistics assets was stable over the 12 months falling just 0.3% on a like-for-like basis to £1.1bn.

Net rental income was up 8.4% to £57.4m, however adjusted earnings per share was down slightly to 6.89p (2023: 6.93p), due to higher interest costs on its debt.

That means its dividend of 7.6p was just 90.6% covered by earnings. The management team said that dividend cover was a priority for the company and is confident it can be achieved through the leasing up of vacant space.

The company has total debt of £354m (equating to a conservative LTV of 29.3%),with a weighted average cost of debt in the period of 4.02% (2023: £351m, 3.21%). The debt is 97% hedged and a weighted average maturity of 5.4 years. The first debt refinancing is due in August 2025, and the manager said that negotiations with the lender were well advanced.

Portfolio highlights

• Total portfolio of 128 mid box urban logistics assets covering 9.7m sq ft with a valuation £1,100m (2023: 130 assets covering 9.7m sq ft with a value of £1,107m)
• EPRA vacancy rate of 5.8% (2023: 7.4%)
• 35 lease events completed at a like-for-like rental uplift of 19%, generating an additional contracted rental income of £3.0m
• One further new letting in legals over a vacant unit, which will generate £1.0m in additional rental income
• Gross to net rental income ratio 96.4% (2023: 96.3%)
• WAULT of 7.5 years (FY23: 8.2 years)
• Portfolio split between core assets with secure, long‑term income as well as an active asset management pool where rent and values can be driven upwards

Richard Moffitt, chief executive of the investment adviser, commented:

“The two halves of the period under review were characterised by markedly different conditions. In the first half, uncertainty levels remained high with a lack of clarity on the likely trajectory for both interest rates and inflation. Towards the end of the second half of the year, confidence improved thanks to strengthening macro-economic conditions.

“Throughout the period, the strength of Urban Logistics’ business model was evident with a stable portfolio valuation, increasing rents and low vacancy levels. The robust performance, both operationally and financially, positions the business well, as we expect investment flow levels into logistics to pick up in the coming 12 months.

“The key priority for the company is to drive earnings growth and build dividend cover. We are focussed on reducing vacancy and capturing upside at rent reviews to drive the significant revisionary potential within the portfolio, with one new letting over a vacant asset in the final stages of legals, which will provide £1.0m of annual rental income, and reduce vacancy to 4.5%. As market conditions continue to improve, the investment adviser believes that now is the right time to deploy additional capital, aiming to enhance earnings per share and rebalance the portfolio from core assets to asset management opportunities.”