Warehouse REIT buys retail park and reports resilient results

Warehouse REIT has announced the acquisition of a retail park for £38.6m, and also reported an uplift in NAV in annual results.

The company, which specialises in multi-let warehousing, has ventured away from its core investment strategy with the purchase of phase 2 of Ventura Retail Park, a 13-unit scheme in Tamworth, close to Birmingham. The acquisition price represents a net initial yield of 7.4%. 

The company said that the retail park was “a highly complementary addition to the portfolio”, adding that the manager, Tilstone, has “deep experience” in the retail park sector and the acquisition “plays to our strengths in multi-let asset management”.

The acquisition should support earnings and help rebuild dividend cover, the company added.

Built in two phases, Ventura is one of the top 20 shopping parks in the UK by size. Phase 2 covers 120,000 sq ft and is fully let to retailers including Boots, Sports Direct and H&M. Contracted rent across the scheme is £3.1m and the WAULT is 6.4 years. 

Resilient results

The company also released annual results to 31 March 2024, in which EPRA net tangible assets (NTA) was up 1.5% to 124.4p per share (31 March 2023: 122.6p). The portfolio value was up 2.0% on a like-for-like basis to £810.2m.

The valuation uplift was driven by growth in estimated rental values (ERV) of 7.7% with equivalent yields broadly flat over the year.

The company posted 5.1% like-for-like growth in contracted rents, with portfolio reversion increased to 13.1%. The company completed 103 lease events during the year at an average 28.6% uplift on previous rents.

Adjusted earnings per share were 4.8p (2023: 4.7p), which provided 75% cover of its 6.4p dividend.

The company sold £110.5m of assets during the year, bringing its disposal programme (started in November 2022) to £165m. The company said that with disposal profits dividend cover was 95%.

Negotiations are well advanced to release capital from its Radway Green development, in Crewe, which will complete its disposal plan.

The company has net debt of £320.0m of debt refinanced with more favourable covenants and additional interest rate caps of £50.0 million acquired

Debt financing

The group refinanced its debt facilities in the first half of the financial year, extending the term and improving the covenants. The new £320.0m facility comprises a £220.0m term loan and a £100.0m RCF. It replaced the company’s previous £320.0m debt facility and extended the tenure from January 2025 to June 2028. The facility is provided by a club of four lenders: HSBC, Bank of Ireland, NatWest and Santander.

The minimum interest cover is 1.5 times, compared to 2.0 times under the previous facility, and the maximum LTV has been extended from 55% to 60%. Both the term loan and the RCF attract a margin of 2.2% plus SONIA for an LTV below 40% or 2.5% if the LTV is above 40%.

At 31 March 2024, £64.0m was drawn against the RCF and £220.0m against the term loan. This gave total debt of £284.0m (2023: £306.0m), with the group also holding cash balances of £16.0m.

The LTV ratio at 31 March 2024 was 33.1% (31 March 2023: 33.9%). Interest cover for the period was 3.1 times, meaning the group was substantially within the covenants in the debt facility.

At the year end, the group had £250.0m of interest rate caps in place, of which £200.0m fixed SONIA at 1.5% and £50.0m fixed SONIA at 2.0%.

Chairman comments

Neil Kirton, chairman of Warehouse REIT commented: “The standout feature of this year has been the resilience of the industrial occupational markets, reinforcing our conviction in the multi-let asset class and driving a 5.1% increase in like-for-like rental growth.  This part of the market remains structurally under-supplied in terms of well-located, quality assets, supporting an increase in our valuation and enabling us to capture an uplift on previous rents of nearly 30%.

“We have continued to execute on our disposal strategy, with £165.2 million of non-core assets sold since our disposal plan was announced in November 2022.  This includes Barlborough Links, Chesterfield, a single-let asset which sold for £46.0 million in June.  Releasing capital from Radway Green in Crewe will complete that plan and negotiations are well advanced.

“This strong progress provides us with the flexibility to undertake selective value accretive acquisitions, and today we are pleased to announce the acquisition of part of the Ventura Retail Park in Tamworth for £38.6 million, a retail warehousing asset which is highly complementary to our business and our skill set.”