We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register for streaming realtime charts, analysis tools, and prices.
| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Industrials Reit Limited | LSE:MLI | London | Ordinary Share | GG00BFWMR296 | ORD EUR0.000001258 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 168.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2022 to Apr 2024
TIDMMLI
RNS Number : 3526I
Industrials REIT Limited
02 December 2022
INDUSTRIALS REIT LIMITED
(Registered in Guernsey with registration number 64865)
LSE share code: MLI JSE share code: MLI
ISIN: GG00BFWMR296
2 December 2022
SOLID HALF YEAR RESULTS UNDERPINNED BY STRONG rental demand
Industrials REIT Limited ('Industrials REIT' or the 'Company' and together with its subsidiaries, the 'Group'), the specialist UK multi-let industrial ('MLI') property company, announces results for the six months to 30 September 2022.
Commenting on the results Paul Arenson, CEO of Industrials REIT, said: "Strong occupier demand has continued to drive substantial rental uplifts across our UK MLI portfolio over the first half of the year. Our assets remain highly affordable and continue to attract an increasingly diverse range of businesses and now comprise over 1,500 separate occupiers. In this period, the average passing rent increased by a record 29% on new lettings and lease renewals. Our Industrials Hive platform continues to deliver efficiencies. The Group is well positioned to weather pressure on valuations and rising debt costs, given that our group LTV remains low at 26.5% and Group debt is 90% hedged. We anticipate that the current macroeconomic headwinds will see the investment market go through a period of repricing and we look forward to being able to capitalise on opportunities once the operating environment stabilises."
MLI Operational Highlights: Strong demand delivers record rental growth/uplifts
- Demand for MLI space outstripping supply with the average passing rent increasing by 29% on new lettings and lease renewals in the period, the highest growth rate achieved to date
- Eight consecutive quarters of 20%+ average growth in rent at lease renewal or upon new letting now recorded
- Industrials Hive, our operating platform, delivered operational efficiencies across leasing, invoicing, and asset management and is a critical tool which will enable scale opportunities
- 4.0% growth in like-for-like annual passing rent after adjusting for one particular rent-free which expired in November 2022 (2021: 5.0%)
- 12.3% increase in like-for-like annual ERV (2021: 5.1%) demonstrating the further potential for future rental growth
- Industrials.co.uk website users up 9.0% on a 12-month rolling basis
- 197 letting transactions completed (2021: 119), with average lease incentives given now less than 1 month rent-free on an average
4.5 year lease
- Further 49 leasing transactions on 187,627 sq ft of space completed in October and November 2022, demonstrating the depth of demand for MLI space (2021: 43 transactions)
- Occupancy of 92.8% reduced marginally (31 March 2022: 93.6%) as a result of proactive steps taken to forfeit and replace non-performing Covid-era tenancies
Financial Highlights: Solid results and a robust balance sheet
- Declared a covered interim dividend of 3.50 pence per share, up 3.7% on the prior year interim dividend of 3.375p per share
- Diluted IFRS loss per share of 7.18 pence (2021: 13.34 pence profit) driven by like-for-like portfolio valuation decline of 4.5% (2021: 9.8% increase)
- 2.6% growth in adjusted EPS to 3.54 pence (2021: 3.45 pence)
- Diluted IFRS net asset value per share of GBP1.66 (31 March 2022: GBP1.76(3) ) and a 7.4% decrease in EPRA NTA per share to GBP1.62 (31 March 2022: GBP1.75(3) )
- Portfolio value decreased 4.3% to GBP656.5 million (31 March 2022: GBP685.8 million), reflecting yield softening in the period
- Low LTV of 26.5% with no refinancing until 2025
- 90% of Group debt at fixed rates or hedged against rising interest rates until November 2024 (excluding the care homes joint venture which is in a sale process)
Hot Features
Premium
- Total accounting return of -5.4% for the six-month period (2021: +9.8%)
Six months
ended
30 September Six months ended
Statement of comprehensive income 2022 30 September 2021
----------------------------------- ------------- -------------------
Dividend per share 3.50p 3.375p
Diluted IFRS earnings per share(1) (7.18)p 13.34p
Adjusted earnings per share(1) 3.54p 3.45p
Diluted EPRA earnings per share(1) 3.38p 3.32p
Net rental income GBP18.7m GBP15.1m
----------------------------------- ------------- -------------------
As at
30 September As at
Statement of financial position 2022 31 March 2022
---------------------------------------------- ------------- ---------------------
Portfolio valuation (including share of GBP656.5m GBP685.8m
care home joint venture)
Like-for-Like(2) portfolio valuation movement (4.5)% 19.4%
for period
(6 months) (12 months)
Diluted IFRS NAV per share(3) GBP1.66 GBP1.76
EPRA NTA per share(3) GBP1.62 GBP1.75
Group Loan-to-value(4) 26.5% 25.6%
Total Accounting Return(5) (5.4)% 9.8% / 23.6%
(6 months) (6 months September
2021
/ 12 months to March
2022)
---------------------------------------------- ------------- ---------------------
(1.) See note 5 for reconciliation to IFRS earnings per share.
(2.) Adjusted for sales and acquisitions in period.
(3.) See note 6 for reconciliation to IFRS NAV per share. The IFRS NAV per share and EPRA NTA per share at 31 March 2022 were reported as GBP1.78 and GBP1.77 respectively. As a result of a correction to the number of dilutive shares, these metrics were amended to
GBP1.76 and GBP1.75 per share respectively and disclosed in an RNS statement issued on 16 August 2022. Accordingly, although the financial statements have not been restated due to materiality, all future reference to 31 March 2022 NAV metrics in this report will reflect the amended amounts.
(4.) Loan-to-value is the ratio of total borrowings, less unrestricted cash, to the Group's aggregate market value of properties.
(5.) Total Accounting Return is the change in EPRA NTA per share plus dividends paid, expressed as a percentage of EPRA NTA per share at the beginning of the period. As disclosed in an RNS statement issued on 16 August 2022 this metric has been amended from 25.0% reported at year end.
For further information:
Industrials
REIT Limited: +44(0)20 3918 6600
Paul Arenson ( paul.arenson@industrials.co.uk
)
Julian Carey ( julian.carey@industrials.co.uk
)
James Beaumont ( james.beaumont@industrials.co.uk
)
Numis Securities Limited (Financial Adviser): +44(0)20 7260 1000
Hugh Jonathan
Vicki Paine
FTI Consulting (PR Adviser): + 44(0)20 3727 1000
Richard Sunderland
Richard Gotla
Neel Bose
Industrialsreit@fticonsulting.com
Java Capital (JSE sponsor): + 27(0)11 722 3050
About Industrials REIT Limited:
Industrials REIT is a UK REIT with a primary listing on the London Stock Exchange and a secondary listing on the Johannesburg Stock Exchange. The objective of the Company is to deliver a combination of sustainable growing income and growth in value to its investors. Industrials REIT focuses on owning and operating a diversified portfolio of UK purpose built multi-let industrial (MLI) estates across the UK. The Company aspires to be the leading MLI business in the UK. For further information, go to www.industrialsreit.com .
Operating and financial review
Overview
During the first half of the year the Company delivered adjusted earnings of 3.54p per share and we declared a covered interim dividend of 3.50p per share, an increase of 0.7% on the final dividend of 3.475p per share declared in June 2022. We experienced record levels of letting activity over the first six months of the year with strong demand from a depth of occupiers delivering continued rental growth throughout the period and into the second half. This income growth helped mitigate the impact of softening yields on property valuations, which decreased by 4.5% on a like-for-like basis to GBP656.5 million (31 March 2022: GBP685.8 million). Against the economic turbulence which has continued to emerge over the period, our balance sheet remains strong and our proactive and prudent approach to debt management is evidenced by a low LTV of 26.5% and a low average cost of borrowing of 2.52%. Furthermore, 90% of debt is hedged against rising interest rates until November 2024 (excluding the care homes joint venture which is in a sale process).
Record lettings and increasing rental levels
Despite the economic backdrop, we continued to experience strong demand from an increasingly diverse range of occupiers during the first half. This led to a period of record letting activity with an increase in the average passing rent of 29% on the aggregate of all new lettings and lease renewals. We have now experienced eight successive quarters of 20%+ uplift in this measure, a level that is important as it allows us to deliver on our target annual rental growth of 4%-5%, given our average lease length of approximately 4.5 years.
The six-month period saw us complete 64 new lettings and 133 lease renewals across a total of 690,930 sq ft generating GBP4.7 million of new rental income. This high level of operational activity has been supported by efficiencies driven through the Industrials Hive platform ('the Hive') which is discussed in more detail below. The average rental incentive given is now below one month, with 65% of leases contracted through our short-form digital 'Smart Lease' and just under 80% of leases signed including at least a 3% annual uplift in rent through the term of the lease. This inclusion results in ratchets in revenue throughout the lease, rather than just at lease expiry or rent review.
During the past six months, we have let or renewed a number of our biggest units, meaning that on 30 September 2022 we had several large units enjoying rent free periods. Like-for-like annual passing rents were up 4.0% when adjusted for our largest rent-free period, in Ashby-de-la-Zouch, which expired in November 2022. The like-for-like rental growth metric was reduced by a small decrease in occupancy to 92.8%, down from the year end level of 93.6%. This followed a strategic decision to actively forfeit and replace non-performing tenancies from the Covid-era, with strong demand captured via the Hive allowing us to replace these occupiers with new customers with more sustainable business models, whilst also benefitting from reletting at higher rents.
Rent collection rates are returning to normalised levels of c.98%, with 91% of rents due for the period ended 30 September 2022 collected by 28 November 2022 and 97% of rents due for the financial year ended 31 March 2022. With rent typically accounting for 1% and 3% of customer turnover, we believe that rents remain affordable and rental growth can sustainably be absorbed by our customers.
Industrials Hive driving future efficiency
The Hive has advanced considerably over the period with our new finance and operations system (Microsoft Dynamics) going live at the start of the financial year. This was followed in October by the conclusion of the in-housing of facilities management so that all key operational roles are now internally resourced. As a result, we are now vertically integrated across leasing, transaction management, billing, facilities management, banking and credit control, which brings opportunities for enhanced operational efficiency and complete control of the customer relationship.
Our most longstanding internalised feature of the Hive has been within our leasing function, where we have seen continued improvements in
efficiency. As at 30 September 2022, Industrials.co.uk website users were up 9.0% on a 12-month rolling basis as a result of continuous improvements to advertising via social media, optimised search terms, and enhanced user experience when navigating the site. As a result, our enquiry-to-lead qualification conversion rates improved further to 12% on a rolling 12-month basis, with 83% of qualified leads going on to take a viewing of which 26% resulted in a new letting.
The Hive also delivers the people and processes to create 'the Industrials way' of doing things. This differentiates how Industrials manages its MLI estates and how we interact with and service our customers. We pride ourselves on being responsive and communicative and consider a customer first approach critical to success. We maintain a firm but fair approach to all customer interactions and our decision making is data led, allowing us to be both nimble and systematic. Each customer also has a dedicated customer engagement manager who acts as a proactive link for resolving issues and capturing opportunities.
The Hive is a critical tool which will enable us to scale our business. When market conditions allow, we believe that we will be well placed to absorb and manage additional properties/portfolios at a reducing cost, whether these be our own or on behalf of 3(rd) parties in a joint venture arrangement.
A resilient business well positioned for future growth
The six-month period has seen further significant changes in the macro-economic environment with increasing interest rates, high inflation, and economic and political uncertainty. Against this backdrop, the occupational market in the industrial sector has remained resilient, but the investment market has come under pressure with yields beginning to move out. Accordingly, we took an active decision to pause investment activity and over the reporting period we acquired only GBP9 million of MLI assets, lower than our previous target of GBP25 million per quarter on average.
The weakening investment market, combined with higher interest rates, led us to take the strategic decision not to draw down on the GBP27 million loan facility which we signed in May 2022. Asset pricing has not yet found its projected level, which, combined with high interest costs, means that debt does not enhance returns as it has done previously. Drawing expensive debt speculatively whilst the market settles was deemed unnecessary when we already benefit from an undrawn GBP25 million revolving credit facility, although refinancing existing facilities to include currently unsecured assets remains an option in the future.
Investment valuation yields are expected to continue to rise resulting in further reductions in valuations. However, we carry confidence into the second half of the year due to the quality of our estates, continued rental growth driven by a strong occupier market, a low group LTV of 26.5%, and unrestricted cash balances at 30 September 2022 of GBP21.7 million.
This hiatus in investment activity also provides an unexpected period in which we can focus on consolidating operational efficiencies in the platform. Accordingly, when we do re-enter the investment market, we expect that we will have greater operational strength to capitalise on opportunities.
Making a difference to ESG
We are committed to our environmental, social and governance responsibilities. As well as being important sources of employment and wealth creation in their local communities, MLI assets are inherently geared towards sustainability with long lifespans. This is because of their low levels of obsolescence and ongoing capital expenditure, which materially reduce their lifetime embodied carbon emissions. We continue to focus on improvement works to enhance EPC compliance where regulations are tightening over the coming years. By April 2023, all buildings in England and Wales must have a minimum of an E EPC rating and by 2027 units will need to have a minimum EPC rating of C to be relet. We are very much on target to reach the 2023 requirement with approximately 99.4% of our portfolio achieving a rating of E or better.
We have various refurbishment options available to continue to improve the portfolio's EPC ratings. One of the most effective methods is to install LED lighting and remove old and inefficient heating equipment, which is both cost efficient and likely to improve the EPC rating by two grades. Furthermore, our portfolio benefits from only limited amounts of solar energy installations, but we see this as a significant future revenue stream and impactful method for improving the energy performance certification of the entire portfolio. As a result, we remain confident that meeting future energy performance requirements and our own aspirations for reducing our carbon emissions is highly achievable across the portfolio.
We have recently completed an exercise to identify our carbon footprint together with its constituent parts in terms of scope 1, 2 and 3 GHG (Greenhouse Gas) emissions. As would be expected, 99.3% of emissions come from downstream scope 3 activities, namely from our suppliers and customer related activity on our estates. We are working proactively with our sustainability partner to create a carbon reduction target under the SBTi (Science Based Targets initiative) framework and identify pathways for achieving this. We continue to incorporate sustainable business practises into our operations, taking advantage of the opportunities that arise whilst managing emerging risks. We look forward to providing an update on this important area when we report our annual results in June 2023.
We held our first employee engagement sessions for the current financial year under the direction of our designated non-executive director for employee engagement, Patsy Watson. We chose to consult with employees on wellbeing. We asked for feedback on our current employment practices and discussed various proposed initiatives, formal and informal, put forward by employees and aimed at improving their work/life balance and reducing stress and anxiety. We were pleased to hear that all employees felt supported by their managers and that they generally appreciated the culture of openness and transparency promoted by the Board. We look forward to introducing some of the proposed initiatives discussed in the new calendar year and will report further on these in our 2023 annual report.
We have also been busy supporting our charity partner of the year, The Wellspring. The Wellspring helps the people of Stockport (where one of our offices is located) who are homeless or at risk of losing their home and aims to tackle the complex and individual challenges that face them. In October, several of our Stockport team took part in the Wellspring's annual sponsored sleepout and raised over GBP3,000, which the Company will match under our matched-giving policy. We will continue our fundraising activities, which in these challenging times are ever more important, and look forward to raising more funds and raising the profile of this worthwhile charity.
Financial review
Earnings
For the six months to 30 September 2022, the basic loss attributable to ordinary shareholders was GBP21.3 million (2021: GBP38.8 million profit), equating to a loss of 7.18 pence per share on a diluted IFRS EPS basis (2021: 13.34 pence profit). This was driven by the fair value decrease on investment properties of GBP36.4 million (2021: GBP30.6 million increase). The valuation decrease reflects 33bps of outward yield shift, although the impact of this was lessened by the continued income growth experienced by the MLI portfolio, as shown by average rental uplifts on lease renewal or new letting rising to new highs of 29% in the period. The IFRS result also includes a significant fair value gain from interest rate hedges of GBP5.8 million (2021: GBP0.3 million) highlighting the increase in interest rates and volatility in interest rate forward curves over the period.
Net rental income was GBP18.7 million, an increase of 24% on the comparative period of GBP15.1 million. The increase was driven by a 21% rise in rental income to GBP20.0 million (2021: GBP16.6 million), due mainly to the larger MLI portfolio but also reflecting like-for-like rental growth of 4.0%, when adjusted for our largest rent free, in Ashby-de-la-Zouch, which expired in November 2022 (2021: 5.0%). Net provision for bad debts of GBP1.1 million was made in the period reflecting a prudent approach to current provisioning due to continued macro-economic pressures and uncertainty. This compares with just GBP0.3 million for the same period last year, when the Group released provisions made through the worst of the COVID trading period. The total provision at 30 September 2022 for expected credit losses stood at GBP4.3 million (31 March 2022: GBP3.5 million).
Operating expenses for the half year were GBP6.6 million (2021: GBP5.6 million). The additional GBP1.0 million was driven by a GBP0.4 million increase in staff remuneration costs as employee numbers rose to 59 at 30 September 2022 (2021: 44) mostly due to the insourcing of our facilities management function; the commencement of the amortisation charge associated with our finance and operating platform of GBP0.4 million (the GBP3.9 million intangible asset will be amortised over five years); and an increase in IT costs of GBP0.3 million as product licences and managed service and support contracts commenced following the go-live of our platform at the start of April 2022.
Finance costs were GBP2.7 million for the half year, increasing from GBP2.0 million a year earlier. The increase was driven by higher average debt in the period, together with higher interest rates and the commitment fee associated with the GBP25 million revolving credit facility, which was undrawn at 30 September 2022. The Group all-in contracted weighted average cost of debt was 2.52% at the period end (31 March 2022: 2.16%), reflecting increased interest rates over the full period and the purchase of an interest rate swap in May 2022. Debt and hedging are discussed later in this report.
Adjusted earnings, after adding back costs and amortisation associated with the finance and operating platform implementation, were
GBP10.5 million (2021: GBP10.0 million), reflecting an adjusted EPS of 3.54 pence (2021: 3.45 pence). EPRA earnings per share were 3.39 pence (2021: 3.33 pence). A reconciliation of the IFRS loss to EPRA earnings and adjusted earnings can be seen in note 5 to the financial statements.
The EPRA cost ratio (including direct vacancy costs) includes all administrative and operating expenses in the IFRS statements (including share of joint ventures) and for the period ended 30 September 2022 was 39.2% (2021: 38.7%).
Dividends
The Company declared an interim dividend of 3.50 pence per share (2021: 3.375 pence per share), an increase on the final dividend declared in June 2022 of 3.475 pence per share. The dividend is fully covered by adjusted earnings of 3.54 pence per share. The directors intend to offer shareholders the option to receive all or part of their dividend entitlement by way of a scrip issue of Industrials REIT ordinary shares or in cash. A further announcement informing shareholders of the salient dates and tax treatment will be released in due course.
In respect of this dividend, given the Company's share price which stands at a discount relative to net asset value, the directors will consider matching any scrip scheme take up through the buyback of shares to mitigate the dilutive effect that would otherwise occur from the issuance of Industrials REIT treasury shares.
Net asset value
The IFRS diluted NAV per share was GBP1.66 at 30 September 2022 (31 March 2022: GBP1.76). The decrease of 5.7% is driven by the like-for-like property valuation decrease of 4.5%, or GBP30.5 million. At period end, the portfolio of 103 MLI properties was valued at GBP623.4 million (31 March 2022: GBP653.5 million), representing 95.0% of the total portfolio.
EPRA NTA per share at 30 September 2022 was GBP1.62, representing a 7.4% decrease on the EPRA NTA per share of GBP1.75 at 31 March 2022. A reconciliation of this change is shown in note 6 to the accounts. The decrease in NTA since 31 March 2022, combined with the dividend paid of 3.475 pence, resulted in a total accounting return for the six-month period of -5.4% (2021: +9.8%).
Portfolio valuation
Including the Group's share of joint ventures, Industrials REIT's investment properties were valued at GBP656.5 million at 30 September 2022
(31 March 2022: GBP685.8 million). On a like-for-like basis, excluding the impact of additions and disposals in the period, the valuation of the portfolio since 31 March 2022 decreased by 4.5%.
Market Net initial
value yield
Annualised
Portfolio contracted
30 September by market gross rental (weighted Voids
Combined portfolio 2022 value Property Area income average) by area
(including share
of joint venture) (GBP'000) (%) (number) (sq ft) (GBP'000) (%) (%)
------------------------- -------------- ---------- ---------- --------- ------------- ------------ --------
Investment properties
UK multi-let industrials 623,431 95.0 103 7,114,607 41,004 5.8 7.2
Share of joint
venture
German care homes 33,043 5.0 4 206,066 2,654 7.5 0.0
------------------------- -------------- ---------- ---------- --------- ------------- ------------ --------
Total 656,474 100.0 107 7,322,673 43,658 5.9 7.0
------------------------- -------------- ---------- ---------- --------- ------------- ------------ --------
United Kingdom MLI portfolio
The UK MLI portfolio was independently valued at GBP623.4 million. On a like-for-like basis valuations decreased by GBP30.4 million, or -4.7%, over the valuation at 31 March 2022. We calculate that yield softening over the period accounts for -5.4% of like-for-like change with income growth in the period offsetting this by 0.7%. Whilst cap rates are broadly expected to move out further in the immediate future, we expect the MLI asset class to demonstrate its resilience. Demand for MLI space continues to outstrip supply and we anticipate continued rental growth will have a dampening effect on further yield shift, and hence valuations.
In terms of investment activity, in July 2022 we disposed of Rose Kiln Court in Reading for GBP5.9 million. The Reading property was a non-core asset comprising 31,000 sq ft of hybrid office/industrial accommodation and the disposal proceeds were recycled into MLI opportunities. Accordingly, we acquired a further GBP8.5 million of MLI (net of purchase costs). All of the completed acquisitions were additional terraces/units on or adjacent to existing holdings.
Share of joint venture
The final non-MLI assets held in our portfolio, four German care homes held in joint venture, were independently valued at EUR37.6 million. This reflects a decrease of EUR1.5 million, or 3.8%, from the 31 March 2022 valuation. However, due to weaker Sterling at the period end when compared with 31 March 2022, the Sterling valuation remained broadly unchanged at GBP33.0 million (31 March 2022: GBP33.1 million). In line with the Directors' objective to dispose of the care home investment as soon as is practicable, the interest in the joint venture is disclosed as a current asset in the statement of financial position.
Debt and hedging
Total Group borrowings at 30 September 2022 were GBP196.9 million against GBP196.2 million as at 31 March 2022. There were no new borrowings in the period and the slight variance relates to amortisation and foreign exchange movements on the joint venture debt. The Group loan to value ratio at 30 September 2022 was 26.5% (31 March 2022: 25.6%). The small increase reflects the valuation decrease seen in the period, offset marginally by a small increase in unrestricted cash to GBP23.0 million (31 March 2022: GBP20.7 million).
The GBP25 million revolving credit facility provided by NatWest and signed in May 2022 was not utilised in the period and remains undrawn. The facility expires in November 2025 and has a commitment fee of 1.13% and a margin of 2.25%.
Looking at the MLI debt of GBP180.4 million which is across three separate facilities, the weighted average debt maturity stood at 3.7 years at 30 September 2022 compared with 4.2 years at 31 March 2022. The first contractual loan maturity is not until February 2025 and comprises GBP49.9 million of debt with Lloyds with whom we are in discussions to agree a two-year extension option. The second facility of GBP64.0 million is with NatWest and has an initial maturity in November 2025 with two additional one-year extension options available to the Group. Our longest dated debt of GBP66.5 million with Reassure matures in December 2027. Accordingly, we are looking to mitigate all refinance risk until 2027, taking weighted average debt maturity to approximately 5 years. Incorporating extensions is cost effective and will provide both flexibility and further stability in the current uncertain economic environment. The MLI all-in contracted weighted average cost of debt was 2.58% (based on SONIA at 2.19%) compared with 2.19% at 31 March 2022, reflecting the changing interest rate environment over the period.
As at 30 September 2022, 90% (31 March 2022: 76%) of total Group borrowings were subject to fixed interest rates or protected by interest rate derivatives in the form of caps or swaps. The increase in our hedged position reflects the purchase of an interest rate swap in May 2022 on GBP27 million of debt at a rate of 2.206%, expiring in November 2025. With our Group interest commitments hedged at 90%, we are well protected against further rises in interest rates and a 1% rise in rates would increase the weighted average cost of debt by 0.10%.
Industrials REIT continues to enjoy strong covenant headroom. Across the three MLI loan facilities, our LTV covenant requirements allow for a reduction in values of approximately 50% and interest cover ratio covenants have sufficient cover to cope with an average reduction in net rents of 67%. Against a backdrop of increasing interest rates, recessionary pressures and softening yields, our prudent debt management leaves us well placed to weather the headwinds.
Subsequent events
Since the period end, a further 49 leasing transactions completed over 187,627 sq ft of space (2021: 43 transactions). The transactions included 79,401 sq ft of lettings on previously vacant space, with 108,226 sq ft of lease renewals. Demand for MLI space remains strong, with the number of qualified leads registered in November 2022 at an all-time high.
Prospects
We have had a successful first half with solid earnings, continued occupier demand and rental growth. Our balance sheet remains strong with low Group leverage of 26.5%, no refinancings until 2025, and 90% of our interest rate exposure hedged. Our platform is bedding down nicely, and now that we are fully vertically integrated, we are starting to realise the efficiencies that the Hive will deliver. We continue to proactively manage our estate and the platform on which it is managed.
Whilst there are undoubtedly challenges to face in the immediate future, we are well placed from both an operational and financial perspective. Against this backdrop, we expect to deliver a total full year dividend of not less than that declared last year.
The future continues to hold significant opportunities for our business. We believe that the investment market will go through a period of repricing and look forward to being able to capitalise on opportunities once the operating environment stabilises. We are also exploring joint venture and third-party management opportunities where we can add value from both our direct experience and our platform. We are focused on maximising rental growth, enhancing operational excellence, scaling the portfolio when the time is right, and look forward to delivering value and growth opportunities for all our stakeholders.
Principal risks and uncertainties
The principal risks and uncertainties facing the Company are described in the 2022 Annual Report on pages 52 to 57. The Board has continued its regular review of risks during the period, including robust assessments of those risks deemed most material to the Company and its business which are recorded as principal risks, and the consideration of any emerging risks. The Board considers that the principal risks detailed in the 2022 Annual Report remain largely unchanged, although some have evolved as a result of economic uncertainty in the UK. Certain risks have also evolved as a result of the continuous development of the Hive and the in-housing of the facilities management function. The Board's views on these risks are summarised below.
Economic outlook and political risk
High inflation, rising interest rates, the cost-of-living crisis and the threat of a prolonged recession directly impact asset yields and valuations, our cost-base and ability to raise capital and grow our portfolio. They may also indirectly impact the Company via its customers. The Board is continuously reviewing the risk environment, and, with this in mind, the Company has paused its investment activities (although will consider opportunities as they arise), taken steps to maintain a low LTV ratio, reduced interest rate exposure by increasing hedging, not drawn down on an available loan facility, and maintained appropriate cash balances.
Availability and cost of funding
Directly linked to the above risk, this is closely monitored by the Board. The inability to raise adequate funding in the form of equity or debt finance impacts the ability of the Company to deliver on its MLI acquisition targets and scale its business. This risk has increased over the period; however, the Board considers that it should not materially impact the Company's business in the medium to long term. The Board is also actively investigating other growth options as explained in the Prospects section of this report.
Poor performance of the Hive and excessive reliance on the technology platform
The Hive presents multiple opportunities and has already shown its ability to increase efficiencies and operational performance. However, it is accompanied by an increased risk to operations if it does not perform and has resulted in increased reliance on technology partners. It is also crucial that our new ERP system, including enhancements made to support the newly in-housed facilities management team, delivers on its objectives. The Board is confident that adequate controls exist to mitigate these risks and is closely monitoring implementation and performance in these areas.
Information security and cyber threat
This risk increases as our reliance on, and use of, technology increases. Significant emphasis is being placed on this risk by the Board with appropriate investment made by our technology team in continuously improving our controls and resilience to the ever-increasing external threats.
Major health and safety incident at an MLI site
The Board is closely monitoring compliance with health and safety requirements following the in-housing of the facilities management function and is confident that the Company is taking all relevant steps to mitigate the risks of incidents.
All other principal risks included in the 2022 Annual Report have remained stable in the period under review.
Statement of directors' responsibilities
Statement of going concern
At the date of approving these condensed consolidated interim financial statements, the Group has positive operating cash flow forecasts and positive net assets. Management have carefully assessed the impact of the market uncertainties on the Group's net assets, liquidity and ability to continue as a going concern for the foreseeable future.
A look-forward period of 18 months to March 2024 was used by management to assess the going concern basis. Management tested the base-case forecast by considering the downward impact of the macroeconomic environment on collection rates, vacancy rate, inflation, interest rates and loan covenant sensitivity assumptions on the cashflow model. Further disclosure is provided in note 1 of the condensed consolidated interim financial statements. The test concluded that even in this scenario the Group would have positive liquid assets and be able to meet its obligations as they fall due.
In light of this review and the liquid assets held by the Group, management are satisfied that the Group has access to adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of these condensed consolidated financial statements.
The directors believe that it is therefore appropriate to prepare the accounts on a going concern basis.
Statement of directors' responsibilities in respect of the interim report
The directors confirm that to the best of their knowledge:
i. the condensed set of consolidated financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';
ii. the operating and financial review together with the statement of principal risks and uncertainties above include a fair review of the information required by the Disclosure Guidance and Transparency Rules ('DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year, a description of principal risks and uncertainties for the remaining six months of the year, and their impact on the condensed set of consolidated interim financial statements; and
iii. the operating and financial review together with the condensed set of consolidated interim financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period, and any changes in the related party transactions described in the last annual report that could do so.
The financial statements are published on the Company's website, www.industrialsreit.com. A list of the current directors of Industrials REIT can be found on the Company's website. Legislation in Guernsey governing the preparation and dissemination of the interim financial statements may differ from legislation in other jurisdictions.
Approved by the board on 1 December 2022:
Paul Arenson
Chief Executive Officer
James Beaumont
Chief Financial Officer
Independent review report to Industrials REIT Limited
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2022 is not prepared, in all material respects, in accordance with International Accounting Standard 34, the Johannesburg Stock Exchange Listing Requirements and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2022 which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and the related explanatory notes.
Basis for conclusion
We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB). The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", the Johannesburg Stock Exchange Listing Requirements, the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410, however future events or conditions may cause the group to cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and the Johannesburg Stock Exchange Listing Requirements.
In preparing the half-yearly financial report, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and the Johannesburg Stock Exchange Listings Requirements and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
1 December 2022
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Condensed consolidated statement of
comprehensive income
For the 6 months to 30 September 2022
30 September 30 September
2022 2021
(unaudited) (unaudited)
Note GBP'000 GBP'000
----------------------------------------------------- ------------- ------------
Continuing operations
----------------------------------------------------- ------------- ------------
Revenue 24,754 20,028
Expected credit losses (1,143) (294)
Property expenses (4,933) (4,601)
----------------------------------------------------- ------------- ------------
Net rental income 3 18,678 15,133
------------------------------------------ --------- ------------- ------------
Management fee income - 18
Operating costs 4 (6,604) (5,589)
------------------------------------------ --------- ------------- ------------
Net operating income 12,074 9,562
----------------------------------------------------- ------------- ------------
Fair value (loss)/gain on investment
properties 8 (36,357) 32,999
Loss on disposal of property (230) -
Income from joint venture 9 326 784
Net foreign exchange (loss)/gain (50) 42
------------------------------------------ --------- ------------- ------------
(Loss)/profit from operations (24,237) 43,387
----------------------------------------------------- ------------- ------------
Net gain from fair value of financial liabilities 5,800 304
Interest income 57 63
Finance costs (2,697) (1,975)
----------------------------------------------------- ------------- ------------
(Loss)/profit for the period before taxation (21,077) 41,779
----------------------------------------------------- ------------- ------------
Taxation - 32
----------------------------------------------------- ------------- ------------
(Loss)/profit for the period from continuing
operations (21,077) 41,811
----------------------------------------------------- ------------- ------------
Discontinued operations
----------------------------------------------------- ------------- ------------
Loss for the period from discontinued
operations 10 (182) (3,037)
------------------------------------------ --------- ------------- ------------
(Loss)/profit for the period (21,259) 38,774
----------------------------------------------------- ------------- ------------
(Loss)/profit attributable to:
Equity holders
Other comprehensive income (21,259) 38,774
Items that may be reclassified subsequently
to profit or loss:
Foreign currency translation reserve 784 421
----------------------------------------------------- ------------- ------------
Total comprehensive (loss)/income for the
period (20,475) 39,195
----------------------------------------------------- ------------- ------------
Earnings per share Pence Pence
From continuing operations:
EPS 5 (7.12) 14.42
Diluted EPS 5 (7.12) 14.38
------------------------------------------ --------- ------------- ------------
From continuing and discontinued
operations:
EPS 5 (7.18) 13.37
Diluted EPS 5 (7.18) 13.34
The comparatives have been restated to reflect the change in classification of current year discontinued operations to enable an effective like-for-like comparison.
Condensed consolidated statement of
financial position
As at 30 September 2022
30 September 31 March
2022 2022
(unaudited) (audited)
Note GBP'000 GBP'000
-------------------------------------------------- ------------- -----------
ASSETS
-------------------------------------------------- ------------- -----------
Non-current assets
Investment properties 8 620,564 645,082
Intangible assets 3,927 3,542
Leasehold improvements and equipment 295 -
Derivative financial instruments 13 7,763 1,864
Other debtors 12 - 6,543
Right of use assets 2,379 35
------------------------------------- ----------- ------------- -----------
Total non-current assets 634,928 657,066
-------------------------------------------------- ------------- -----------
Current assets
Cash and cash equivalents 33,877 31,526
Trade and other receivables 12 15,364 12,159
Investment in joint venture 9 - 385
Investment in joint venture bond 9 15,829 14,883
Taxes receivable 70 -
Assets classified as held for
sale 10 - 6,015
------------------------------------- ----------- ------------- -----------
Total current assets 65,140 64,968
-------------------------------------------------- ------------- -----------
Total assets 700,068 722,034
-------------------------------------------------- ------------- -----------
LIABILITIES
Current liabilities
Taxes payable - 1,844
Accounts payable and accruals 24,443 19,549
Provisions 605 947
Lease liability 2,295 28
-------------------------------------------------- ------------- -----------
Total current liabilities 27,343 22,368
-------------------------------------------------- ------------- -----------
Non-current liabilities
Bank loans 11 177,558 177,823
Lease liability 163 7
------------------------------------- ----------- ------------- -----------
Total non-current liabilities 177,721 177,830
-------------------------------------------------- ------------- -----------
Total liabilities 205,064 200,198
-------------------------------------------------- ------------- -----------
Net assets 495,004 521,836
-------------------------------------------------- ------------- -----------
EQUITY
Capital and reserves
Share capital and share premium 7 327,860 327,061
Equity Reserve (728) (3,784)
Retained earnings 147,781 179,252
Foreign currency translation
reserve 20,091 19,307
------------------------------------- ----------- ------------- -----------
Total equity 495,004 521,836
-------------------------------------------------- ------------- -----------
GBP GBP
Net asset value per share 6 1.68 1.79
Diluted net asset value per
share 6 1.66 1.78
Condensed consolidated statement of
changes in equity
For the 6 months to 30 September 2022
Foreign
Share currency
capital Equity reserve Retained translation Total
Note and share GBP'000 earnings reserve equity
premium GBP'000 GBP'000 GBP'000
GBP'000
-------------------------- ----------------------- ---------------- -------------- ------------------ ---------
Balance at 31 March 2022 322,765 189 179,575 19,307 521,836
Treasury shares
accounting
policy change 1 4,296 (3,973) (323) - -
------------------------- ----------------------- ---------------- -------------- ------------------ ---------
Adjusted equity at 1 April
2022 327,061 (3,784) 179,252 19.307 521,836
Profit for the period - - (21,259) - (21,259)
Foreign currency exchange
loss - - - 784 784
Other comprehensive income - - - - -
for the
period
-------------------------- ----------------------- ---------------- -------------- ------------------ ---------
Total comprehensive income
for the
period - - (21,259) 784 (20,475)
Equity-settled share-based
payments 48 906 - - 954
Repurchase of own shares - (254) - - (254)
Ordinary dividends 751 2,404 (10,212) - (7,057)
-------------------------- ----------------------- ---------------- -------------- ------------------ ---------
Total contributions and
distribution recognised
directly in equity 799 3,056 (10,212) - (6,357)
-------------------------- ----------------------- ---------------- -------------- ------------------ ---------
Balance at 30 September
2022 327,860 (728) 147,781 20,091 495,004
-------------------------- ----------------------- ---------------- -------------- ------------------ ---------
Balance at 1 April 2021 322,776 (10,058) 91,647 21,455 425,820
Treasury shares
accounting
policy change 1 1,718 (1,638) (80) - -
------------------------- ----------------------- ---------------- -------------- ------------------ ---------
Adjusted equity at 1 April
2021 324,492 (11,696) 91,567 21,455 425,820
Profit for the period - - 38,774 - 38,774
Other comprehensive income
for the
period - - - 421 421
-------------------------- ----------------------- ---------------- -------------- ------------------ ---------
Total comprehensive income
for the year - - 38,774 421 39,195
Equity-settled share-based
payments (227) 3,714 (15) - 3,472
Ordinary dividends 1,377 3,098 (9,722) - (5,247)
-------------------------- ----------------------- ---------------- -------------- ------------------ ---------
Total contributions and
distribution recognised
directly in equity 1,150 6,812 (9,737) - (1,775)
-------------------------- ----------------------- ---------------- -------------- ------------------ ---------
Balance at 30 September
2021 325,644 (4,884) 120,604 21,876 463,240
-------------------------- ----------------------- ---------------- -------------- ------------------ ---------
Consolidated statement of cash flows
For the 6 months to 30 September 2022
30 September 30 September
2022 2021
Note (unaudited) (unaudited)
GBP'000 GBP'000
---------------------------------------------------- ------------- -----------------------
Operating activities
(Loss)/profit from operations from
continuing operations Loss from operations
from discontinued operations (24,237) 43,387
(216) (2,638)
------------------------------------------------ ------------- -----------------------
(24,453) 40,749
Depreciation 4 116 145
Amortisation of intangibles 4 432 -
Decrease/(increase) in fair value of
investment property 8 36,357 (30,579)
Loss on disposal of property 350 2
Income from joint venture 9 (326) (784)
Share based payments 4 697 734
(Profit)/loss on disposal of subsidiaries 10 (63) 2,350
Exchange rate loss/(gain) 55 (42)
Increase in trade and other receivables (3,123) (1,308)
Increase in trade and other payables 2,150 2,574
------------------------------------------------ ------------- -----------------------
Cash generated by operations 12,192 13,841
Interest paid (2,125) (2,084)
Interest received 457 252
Net tax paid (468) (577)
------------------------------------------------ ------------- -----------------------
Net cash from operating activities 10,056 11,432
------------------------------------------------ ------------- -----------------------
Contributed
by: Continuing operations 10,517 10,584
Discontinued operations (461) 848
Investing activities
Purchase of investment property 8 (8,986) (38,884)
Capital expenditure - Investment property 8 (2,853) (914)
Capital expenditure - ERP (273) (640)
Capital expenditure - Leasehold improvements
and equipment (309) -
Proceeds on disposal of investment
property, net of selling costs 5,665 26,520
Proceeds from Share Purchase Plan loan
repaid 6,530 -
Tax paid on disposal of property - (1,186)
Other investment - Cash and short-maturity
bonds on call - 1,000
Disposal of subsidiary - 24,790
Net cash disposed of in subsidiary - (433)
------------------------------------------------ ------------- -----------------------
Net cash (used in)/from investing
activities (226) 10,253
------------------------------------------------ ------------- -----------------------
Contributed
by: Continuing operations (226) (39,439)
Discontinued operations - 49,692
Financing activities
Repayment of borrowings 11 - (12,620)
Repayment of lease liabilities - capital (36) (175)
Amortisation of loans 11 - (32)
Dividends paid (5,414) (5,247)
Withholding tax on dividends paid (1,409) (576)
Repurchase of shares (254) -
Proceeds from issues of employee share
options 209 2,738
Financing fees paid 11 (656) (174)
------------------------------------------------ ------------- -----------------------
Net cash used in financing activities (7,560) (16,086)
------------------------------------------------ ------------- -----------------------
Contributed
by: Continuing operations (7,560) (7,934)
Discontinued operations - (8,152)
Net increase in cash and cash equivalents 2,270 5,599
Effect of foreign exchange gains 81 1,866
Cash and cash equivalents at beginning
of the period 31,526 53,982
------------------------------------------------ ------------- -----------------------
Cash and cash equivalents at end of
the period 33,877 61,447
------------------------------------------------ ------------- -----------------------
Contributed
by: Continuing operations 23,606 53,395
Discontinued operations and
assets held for sale 1,271 8,052
----------------------------------------------- ------------- -----------------------
Funds totalling GBP10.9 million were restricted at 30 September 2022 (2021: GBP5.1 million).
1 Basis of preparation
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board ('IASB'). These unaudited condensed consolidated interim financial statements for the six months ended 30 September 2022 have been prepared in accordance with IAS 34 'Interim Financial Reporting', the JSE Listings Requirements, the Disclosure and Transparency Rules of the UK's FCA, applicable Guernsey law and the financial reporting pronouncements issued by the Financial Reporting Standards Council of South Africa (the 'FRSC Pronouncements').
These condensed consolidated interim financial statements have been reviewed, not audited. The auditor's review opinion is included in this report.
These condensed consolidated financial statements have been prepared by, and are the responsibility of, the Directors of Industrials REIT.
The condensed consolidated financial statements are presented in GBP (Pounds Sterling).
With the exception of the equity adjustments below, the accounting policies and methods of computation are consistent with those applied in the preparation of the annual financial statements for the year ended 31 March 2022, which were audited and reported on by the Group's external auditor. The consolidated annual financial statements for the year ended 31 March 2022 are available on the Company's website: Industrialsreit.com.
These condensed consolidated interim financial statements reflect the same operating segments at 31 March 2022. The Directors have classified the Guernsey, Germany (retail properties) and Switzerland operating segments as discontinued operations in these condensed consolidated interim financial statements in accordance with IFRS 5: Non-Current Assets Held for Sale and Discontinued Operations. At 30 September 2021, the German (care homes) segment was reported as a discontinued operation. In the current period this segment is being reported as a continuing operation. Accordingly, prior periods in the statement of comprehensive income, statement of cash flows and operating segments note (note 2) have been restated to show the German (care homes) segment as continuing operations. Further details can be found in note 10 - Assets held for sale and discontinued operations.
Treasury shares
The equity reserve account combines the activities of the Company's treasury shares, including the issue of scrip dividend shares, repurchase of share capital, and equity-settled share-based payments. Where share capital is repurchased into Treasury, the amount of the consideration paid, including directly attributable costs, is recognised as a debit in the Equity Reserve.
Previously, distributions out of Treasury were recorded at the scrip dividend reference price, for scrip dividends, or the grant date fair value for equity-settled share-based payments. Under the prior treatment, the Treasury account balance would never clear to nil once all treasury shares are distributed. IFRS and Guernsey company law are silent on the treatment of treasury share accounting, the Company has therefore developed its own accounting policy based upon UK company law.
The new accounting policy states, where the proceeds from scrip dividends settled from Treasury exceed the purchase price paid by the Company the excess is treated as capital and transferred to the share premium account. Where proceeds are less than the purchase price paid by the Company, the balance will be transferred to retained earnings.
All treasury share distributions will be determined on a weighted average price basis.
This change in accounting policy change has been enacted in the current financial period with retrospective effect from 1 April 2021 and has had the following effect on the financial statements:
Depreciation and amortisation
Depreciation and amortisation are charges to the statement of comprehensive income that allocate an assets' cost across its expected useful life. The Company uses the straight-line method to record depreciation and amortisation.
Depreciation and amortisation are recognised from when the asset is first installed and ready for use. In the case of the Industrials Hive intangible asset, amortisation began on 1 April 2022 over a five-year useful life.
Leasehold improvements and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment
losses. Historical cost is the original purchase price, plus costs to bring the asset to a working condition for its intended use.
Going concern
At the date of signing these condensed consolidated financial statements, the Group has positive operating cash flow forecasts and positive net assets. Management have carefully assessed the impact of market uncertainties on the Group's net assets, liquidity and ability to continue as a going concern for the foreseeable future.
A look-forward period of 18 months to March 2024 has been used to assess the going concern basis. Management stress tested the Company's ability to continue as a going concern by considering the downward impact of the macroeconomic environment on collection rates, vacancy rate, inflation, interest rates and loan covenant sensitivity assumptions on the cashflow model. In this scenario analysis:
* An 80% collection rate across the portfolio was
considered for the look forward period, due to the
uncertainties of the macroeconomic environment on the
tenant base.
* 10% increase in direct property and management
company costs, for the look forward period (on top of
5% compounded inflation), resulting from increased
vacancies and/or rising costs.
* An assumed average 5 year rolling swap rate of 7.1%
for the look forward period.
The test concluded that even in this scenario the Group would have positive liquid assets and be able to meet its obligations as they fall due.
Debt refinancing and sensitivities to loan covenants were assessed in detail, as well as the Company's REIT obligations. Despite the
disruption to the economy, management do not expect the risk of default to have increased. The projections indicate that the Group will remain within the limits and not breach covenants. In addition, the Group maintains strong relationships with its facility providers and currently has significant headroom for both interest cover and LTV loan covenants. Notwithstanding this assumption, the Group would have cash resources available, even after considering the respective downside scenarios above, to be utilised to cure covenant breaches if they crystallise and should the lenders take a hard stance. It is further worth noting that the loans are not cross- collateralised and accordingly if certain banks do act aggressively, the Group would continue to operate with the remaining portfolio of assets if any foreclosure events were to arise.
In light of this review and the significant liquid assets, management are satisfied that the Group has access to adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of these condensed consolidated financial statements.
The directors believe that it is therefore appropriate to prepare the accounts on a going concern basis.
Adoption of new and revised standards
In the current period, no new or revised standards and interpretations have been adopted. No other standards or interpretations not yet effective are expected to have a material impact on these condensed consolidated financial statements of the Group.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of condensed consolidated financial statements, in accordance with IFRS, requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group's accounting policies. Although the estimates are based on management's best knowledge of the amount, events or actions, actual results may ultimately differ from those estimates. The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting period, are discussed below.
Key sources of estimation uncertainty Valuation of the property portfolio
The Group's investment properties are stated at estimated fair value, determined by directors, based on an independent external real
estate valuation expert. The valuation of the Group's property portfolio is inherently subjective due to several factors including the individual nature of each property, its location, expectation of future rentals and the discount yield applied to those cash flows.
As a result, the valuations placed on the property portfolio are subject to a degree of uncertainty and are made based on assumptions that may not prove to be accurate, particularly in years of volatility or low transaction flow in the market. The estimated market value may differ from the price at which the Group's assets could be sold at a particular time, since actual selling prices are negotiated between willing buyers and sellers. As a result, if the assumptions prove to be different, actual results of operations and realisation of net assets could differ from the estimates set forth in these financial statements, and the difference could be significant. Further details can be found in note 8.
2 Operating segments
The Group specialises in the ownership and operation of UK multi-let industrial property. Historically the investment portfolio was geographically distributed across the United Kingdom, Germany, Guernsey and Switzerland. Apart from the Group segment, each segment derives its revenue from the rental of investment properties in their respective geographical regions.
Continuing operations Discontinued operations
--------------------- --------------------------------------- --------------------------------- ---------------
UK
For the period ended multi-let Germany Guernsey Germany
30 September 2022 industrial ^ Group ^ Switzerland Total
(unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- -------------- -------- ------------- ------------------- ------------ ---------------
Net rental income 18,631 - - - - - 18,631
Net rental income
(other
income) - - 47 - - - 47
Fair value movement
on investment
properties (36,357) - - - - - (36,357)
Net gain from fair
value
of financial
liabilities 5,800 - - - - - 5,800
Loss on disposal of
properties (230) - - - - - (230)
Income from joint
venture - 326 - - - - 326
Net finance costs (2,745) - 105 - - - (2,640)
Tax, legal &
professional
fees (142) - (294) - - - (436)
Audit fees - - (179) - - - (179)
Administration fees (24) - (131) - - - (155)
Non-Executive
Directors'
costs - - (168) - - - (168)
Staff remuneration
costs - - (2,857) - - - (2,857)
Operating costs (11) - (2,798) - - - (2,809)
Net foreign exchange
loss - - (50) - - - (50)
Loss from
discontinued
operations - - - - (119) (63) (182)
--------------------- -------------- -------- ------------- ---------- ------- ------------ ---------------
Total (loss)/profit
per reportable
segment (15,078) 326 (6,325) - (119) (63) (21,259)
--------------------- -------------- -------- ------------- ---------- ------- ------------ ---------------
As at 30 September
2022 (unaudited)
--------------------- --------------------------------------- --------------------------------- ---------------
Investment properties 620,564 - - - - - 620,564
Investment in joint
venture bond - 15,829 - - - - 15,829
Cash and cash
equivalents 25,245 35 7,326 - 1,074 197 33,877
Other 22,374 - 7,045 - 329 50 29,798
--------------------- -------------- -------- ------------- ---------- ------- ------------ ---------------
Total assets 668,183 15,864 14,371 - 1,403 247 700,068
--------------------- -------------- -------- ------------- ---------- ------- ------------ ---------------
Borrowings - bank
loans 177,558 - - - - - 177,558
Other 12,797 4 14,526 - 121 58 27,506
--------------------- -------------- -------- ------------- ---------- ------- ------------ ---------------
Total liabilities 190,355 4 14,526 - 121 58 205,064
--------------------- -------------- -------- ------------- ---------- ------- ------------ ---------------
Continuing operations Discontinued operations
------------------ -------------------------------------- ------------------------------------ ----------------
For the period UK multi-let
ended industrial Germany Guernsey Germany
30 September 2021 GBP'000 ^ Group ^ Switzerland Total
(unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ------------- -------- ------------- --------------------- ------------- ----------------
Net rental income 15,097 - - - - - 15,097
Net rental income
(other
income) - - 36 - - - 36
Net management fee
income - - 18 - - - 18
Fair value
movement
on investment
properties 32,999 - - - - - 32,999
Net gain/(loss)
from
fair value of
financial
liabilities 394 - (90) - - - 304
Income from joint
venture - 784 - - - - 784
Net finance costs (1,909) - (3) - - - (1,912)
Tax, legal and
professional
fees (252) - (26) - - - (278)
Audit fees - - (150) - - - (150)
Administration
fees (17) - (177) - - - (194)
Non-Executive
Directors'
costs - - (140) - - - (140)
Staff remuneration
costs - - (2,462) - - - (2,462)
Operating costs (1) - (2,364) - - - (2,365)
Net foreign
exchange
gain - - 42 - - - 42
Loss from
discontinued
operations - - - (666) (35) (2,336) (3,037)
Tax credit 32 - - - - - 32
------------------ ------------- -------- ------------- ---------- --------- ------------- ----------------
Total
profit/(loss)
per reportable
segment 46,343 784 (5,316) (666) (35) (2,336) 38,774
------------------ ------------- -------- ------------- ---------- --------- ------------- ----------------
As at 30 September 2021 (unaudited)
---------------------------------------------------------- ------------------------------------ ----------------
Investment
properties 529,027 - - - - - 529,027
Investment in
joint
venture - 195 - - - - 195
Investment in
joint
venture bonds - 14,818 - - - - 14,818
Cash and cash
equivalents 46,443 195 6,757 5,563 2,300 - 61,258
Other 15,738 - 3,241 - 2,458 - 21,437
Assets classified
as
held for sale - - - - - 10,679 10,679
------------------ ------------- -------- ------------- ---------- --------- ------------- ----------------
Total assets 591,208 15,208 9,998 5,563 4,758 10,679 637,414
------------------ ------------- -------- ------------- ---------- --------- ------------- ----------------
Borrowings - bank
loans 149,007 - - - - - 149,007
Other 15,636 3 3,346 395 189 - 19,569
Liabilities
directly
associated with
assets
classified as
held for
sale - - - - - 5,598 5,598
(note 10)
------------------ ------------- -------- ------------- ---------- --------- ------------- ----------------
Total liabilities 164,643 3 3,346 395 189 5,598 174,174
------------------ ------------- -------- ------------- ---------- --------- ------------- ----------------
^ The German operating segment has been split between continuing and discontinued operations. Due to the expected timeframe it will take to dispose of the care homes joint venture, this cash generating operation is being disclosed as a continuing operation. All other historic German property operations have been listed as discontinued. This classification does not change the Group's strategy to dispose of its ownership interest in the care home's joint venture and will endeavour to complete the transaction as soon as is practicable.
3 Net rental income
30 September 30 September
2022 2021
(unaudited) (unaudited)
GBP'000 GBP'000
------------------------ ------------- ------------
Rental income 20,011 16,581
Tenant recharges 4,583 2,313
Other income 160 1,134
------------------------ ------------- ------------
Revenue 24,754 20,028
Direct property costs (4,933) (4,601)
Expected credit losses (1,143) (294)
------------------------ ------------- ------------
Property expenses (6,076) (4,895)
------------------------ ------------- ------------
Total net rental income 18,678 15,133
------------------------ ------------- ------------
4 Operating costs
30 September 30 September
2022 2021
(unaudited) (unaudited)
GBP'000 GBP'000
---------------------------------------- ------------
Tax, legal and professional fees 436 278
Audit fees 135 112
Interim review fees 44 38
Administration fees 155 194
Non-Executive Directors' costs 168 140
Staff remuneration costs 2,857 2,462
Share-based payments 697 734
ERP project expenses 47 385
Amortisation of ERP intangibles 432 -
Depreciation 116 145
Corporate costs 557 422
IT costs 759 429
Other operating costs 201 250
--------------------------------- ----- ------------
Total operating costs 6,604 5,589
--------------------------------- ----- ------------
Share-based payments of GBP697,000 (2021: GBP734,000) relate to the equity-settled incentive schemes operated by the Group. As at
30 September 2022, the Group's equity reserve held GBP4.2 million (31 March 2022: GBP3.6 million) in relation to the schemes after the exercise of options at fair value of GBP330,000 (2021: GBP156,000) during the period.
5 Earnings per ordinary share
30 September 30 September
2022 2021
(unaudited) (unaudited)
GBP'000 GBP'000
--------------------------------------------------------------------- ------------
Reconciliation of profit for the period to
adjusted EPRA (1) earnings
Earnings per IFRS statement of comprehensive
income attributable to shareholders (21,259) 38,774
Adjustment to exclude loss from discontinued
operations 182 3,037
-------------------------------------------------------- ----------- ------------
Earnings per IFRS statement of comprehensive
income from continuing operations attributable
to shareholders (21,077) 41,811
-------------------------------------------------------- ----------- ------------
Earnings per IFRS statement of comprehensive
income attributable to shareholders (21,259) 38,774
Adjustments to calculate EPRA earnings, exclude:
Loss/(gain) on fair value of investment properties 36,357 (30,597)
Gain on fair value of financial instruments,
debt and associated close out costs (5,800) (304)
Deferred tax in respect of EPRA adjustments - (1,719)
Loss/(gain) on disposal of properties 413 (22)
Tax expense on disposal of properties - 1,178
(Gain)/loss on disposal of subsidiaries (63) 2,350
Adjustments above in respect of the joint
venture:
Loss on fair value of investment properties 668 30
Gain on fair value of financial instruments (221) (60)
Deferred tax in respect of EPRA adjustments (71) 14
-------------------------------------------------------- ----------- ------------
EPRA earnings attributable to shareholders 10,024 9,644
-------------------------------------------------------- ----------- ------------
Further adjustments to arrive at adjusted
earnings:
Costs associated with ERP implementation and
amortisation 478 385
-------------------------------------------------------- ----------- ------------
Adjusted earnings attributable to shareholders(2) 10,502 10,029
-------------------------------------------------------- ----------- ------------
Basic - weighted average number of shares in
issue (excluding treasury shares) 295,895,259 290,002,149
Dilutive - potential ordinary shares (share-based
payment awards) 589,652 689,549
-------------------------------------------------------- ----------- ------------
Diluted number of shares 296,484,911 290,691,698
-------------------------------------------------------- ----------- ------------
Earnings per share from continuing operations pence pence
-------------------------------------------------------- ----------- ------------
IFRS EPS (7.12) 14.42
Diluted IFRS EPS(3) (7.12) 14.38
-------------------------------------------------------- ----------- ------------
Earnings per share from continuing and discontinued pence pence
operations
-------------------------------------------------------- ----------- ------------
IFRS EPS (7.18) 13.37
Diluted IFRS EPS(3) (7.18) 13.34
EPRA EPS 3.39 3.33
Diluted EPRA EPS 3.38 3.32
Adjusted EPS 3.54 3.45
-------------------------------------------------------- ----------- ------------
(1) The European Public Real Estate Association Best Practices Recommendations guidelines, February 2022 ('EPRA BPR') provides guidelines for performance measures relevant to real estate companies. Their recommended reporting standards are widely applied across this market, aiming to bring consistency and transparency to the sector. The EPRA earnings measure is intended to show the level of recurring earnings from core operational activities with the purpose of highlighting the Group's underlying operating results from its property rental business and an indication of the extent to which current dividend payments are supported by earnings. The measure excludes unrealised changes in the value of investment properties, gains or losses on the disposal of properties and other items to provide additional information on the Group's underlying operational performance. The measure is considered to accurately capture the long-term strategy of the Group and is an indication of the sustainability of dividend payments.
(2) As described in EPRA BPR, companies wishing to make other adjustments to arrive at an underlying performance measure appropriate to their business model, should do that below 'EPRA earnings' and should use a different name for that measure. 'Adjusted EPS' is a measure that excludes items considered not to be in the ordinary course of business or other exceptional items that do not necessarily provide an accurate picture of the Group's underlying operational performance.
(3) In the current period, diluted IFRS EPS' are stated at their respective IFRS EPS values due to the anti-dilutive effect an IFRS loss has on the diluted number of shares.
As at 30 September 2022, the Company held 4,258,406 treasury shares (2021: 7,989,348 and 31 March 2022: 6,520,962).
Costs associated with ERP implementation and amortisation
Industrials REIT Limited has implemented a new enterprise resource planning (ERP) platform encompassing finance and operations, and customer engagement components to help streamline and grow the business. Significant non-recurring costs were incurred, and the ERP implementation expense related to this one-off project which went live on 1 April 2022. The costs of implementing this project, as well as the associated amortisation expense, have been adjusted for as a "company-specific adjustment".
Headline earnings per share
The JSE listings conditions require the calculation of headline earnings and disclosure of a detailed reconciliation of headline earnings to the earnings numbers used in the calculation of basic earnings per share in accordance with the requirements of IAS 33 - Earnings per Share. Disclosure of headline earnings is not a requirement of IFRS.
30 September 30 September
2022 2021
Reconciliation of profit for the period (unaudited) (unaudited)
to headline earnings
GBP'000 GBP'000
-------------------------------------------------------- ------------- ------------
Earnings per statement of comprehensive
income attributable to shareholders (21,259) 38,774
-------------------------------------------------------- ------------- ------------
Adjustments to calculate headline earnings,
exclude:
Loss/(gain) on fair value of investment properties 36,357 (30,597)
Deferred tax in respect of headline earnings
adjustments - (1,719)
Loss/(gain) on disposal of properties 413 (22)
Tax expense on disposal of properties - 1,178
(Gain)/loss on disposal of subsidiaries (63) 2,350
Adjustments above in respect of joint venture:
Loss on fair value of investment properties 668 30
Deferred tax (98) 4
-------------------------------------------------------- ------------- ------------
Headline earnings attributable to shareholders 16,018 9,998
-------------------------------------------------------- ------------- ------------
Earnings per share pence pence
-------------------------------------------------------- ------------- ------------
Headline EPS 5.41 3.45
Diluted headline EPS 5.40 3.44
-------------------------------------------------------- ------------- ------------
6 Net asset value metrics per share - reconciliations and bridge
EPRA's best practice recommendations are a set of guidelines for public real estate companies which enable investors and other users of annual reports to benefit from the transparency and consistency offered by standardised reporting. EPRA recommends disclosing three measures of net asset value, namely: EPRA net tangible assets (NTA), EPRA net reinvestment value (NRV) and EPRA net disposal value (NDV).
Industrials REIT considers EPRA NTA to be the most relevant measure of the three EPRA NAVs to report on and will act as the key net asset value measure. The EPRA NTA metric is aligned with IFRS NAV in that it includes deferred tax liabilities with regard to properties classified as held for sale. A reconciliation of the three EPRA NAV metrics from IFRS NAV is shown in the table below.
NAV EPRA NAV measures
----------- ----------------------------------------
IFRS EPRA NRV EPRA NTA EPRA NDV
As at 30 September 2022 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ----------- ------------ ------------ ------------
Net assets attributable to equity
shareholders 495,004 495,004 495,004 495,004
Adjustments:
Derivative financial instruments - (7,763) (7,763) -
Adjustments in respect of joint
venture relating to
derivative financial instruments
and deferred tax(1) - 1,317 1,317 -
Intangible assets - - (3,927) -
Purchaser's costs(2) - 42,384 - -
Fair value of fixed interest
rate debt - - - 7,586
--------------------------------------- ----------- ------------ ------------ ------------
Net assets used in per share
calculation 495,004 530,942 484,631 502,590
--------------------------------------- ----------- ------------ ------------ ------------
Number of shares in issue (excluding
treasury shares)(3) 294,516,769 294,516,769 294,516,769 294,516,769
Share-based payment awards 3,778,881 3,778,881 3,778,881 3,778,881
--------------------------------------- ----------- ------------ ------------ ------------
Diluted number of shares 298,295,650 298,295,650 298,295,650 298,295,650
--------------------------------------- ----------- ------------ ------------ ------------
Net assets per share GBP GBP GBP GBP
---------------------------------- ---- ---- ---- ----
Net asset value per share 1.68 - - -
Diluted net asset value per share 1.66 1.78 1.62 1.68
---------------------------------- ---- ---- ---- ----
NAV EPRA NAV measures
----------- ----------------------------------------
IFRS EPRA NRV EPRA NTA EPRA NDV
As at 31 March 2022 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ----------- ------------ ------------ ------------
Net assets attributable to equity
shareholders 521,836 521,836 521,836 521,836
Adjustments:
Derivative financial instruments - (1,864) (1,864) -
Adjustments above in respect
of joint venture(1) - 1,557 1,557 -
Intangible assets - - (3,542) -
Purchaser's costs(2) - 44,125 - -
-------------------------------------- ----------- ------------ ------------ ------------
Net assets used in per share
calculation 521,836 565,654 517,987 521,836
-------------------------------------- ----------- ------------ ------------ ------------
Number of shares in issue (excluding
treasury shares)(3) 292,254,213 292,254,213 292,254,213 292,254,213
Share-based payment awards 1,181,961 1,181,961 1,181,961 1,181,961
-------------------------------------- ----------- ------------ ------------ ------------
Diluted number of shares 293,436,174 293,436,174 293,436,174 293,436,174
-------------------------------------- ----------- ------------ ------------ ------------
Net assets per share GBP GBP GBP GBP
---------------------------------- ---- ---- ---- ----
Net asset value per share 1.79 - - -
Diluted net asset value per share 1.78 1.93 1.77 1.78
---------------------------------- ---- ---- ---- ----
(1) The fair value of the group's share of the joint venture's financial instruments, as well as the deferred tax which has arisen from the revaluation of the joint venture's investment properties and financial instruments, have been excluded from EPRA NRV and EPRA NTA. The deferred tax was excluded on the basis that the deferred tax will only crystallise on sale of the joint venture (for NTA, this will be reassessed when the Company specifically recognises the joint venture as held for sale).
2 EPRA NTA and EPRA NDV reflect IFRS values which are net of purchaser's costs. Purchaser's costs include legal fees, stamp duty and land tax, and other local taxes. Any purchaser's costs deducted from the market value, are added back when calculating EPRA NRV.
(3) As at 30 September 2022, the Company held 4,258,406 treasury shares (31 March 2022: 6,520,962).
7 Share capital
Authorised
1,000,000,000 ordinary shares with a par value of EUR0.000001258 each:
30 September 31 March
2022 2022
Issued share capital (unaudited) (audited) (no.
(no. shares) shares)
---------------------------------- ---------------------------- ---------------------------------
Opening balance 298,775,175 298,775,175
---------------------------------- ---------------------------- ---------------------------------
Closing number of shares in issue 298,775,175 298,775,175
---------------------------------- ---------------------------- ---------------------------------
Authorised share capital GBP'000 GBP'000
-------------------------------------- --------- ---------
Share capital 1 1
Share premium 327,859 327,060
-------------------------------------- --------- ---------
Total share capital and share premium 327,860 327,061
-------------------------------------- --------- ---------
There were no changes made to the number of authorised shares of the Company during the period under review. Industrials REIT Limited has one class of share. All shares rank equally and are fully paid.
The Company has 298,775,175 (31 March 2022: 298,775,175) ordinary shares in issue at the reporting date, including treasury shares.
On 10 June 2022, the Company announced a final dividend of 3.475 pence per share in respect of the six months to 31 March 2022. On 11 August 2022, the Company announced a take-up of the scrip dividend representing 0.71% of the issued share capital and 2,134,779 shares were subsequently issued from treasury shares on 12 August 2022.
As at 30 September 2022, the Company held 4,258,406 treasury shares (31 March 2022: 6,520,962). During the period, the shareholders were offered the option to receive either a scrip dividend by way of an issue of Industrials REIT's treasury shares, or a cash dividend.
The equity reserve account within equity combines the activities of the Company's treasury shares, including the issue of scrip dividend shares (detailed in the below table) as well as the equity-settled share-based payments that are credited to equity. At
30 September 2022, the carrying value of the Company's treasury shares was GBP4,880,000 (2021: GBP5,588,000) and the equity-settled share-based payments reserve reduced this account by GBP4,152,000 (2021: GBP3,483,000).
Retained earnings is the cumulative net profit of the Group. Retained earnings can either be paid out to shareholders as a dividend or be reinvested in the Group as working capital.
30 September 31 March
2022 2022
Treasury shares (unaudited) (audited) (no.
(no. shares) shares)
----------------------------------------------- ---------------------------- ---------------------------------
Opening balance 6,520,962 12,866,950
Issue of scrip dividend shares (2,134,779) (4,177,958)
Market buy-back of shares for the period
(at an average price of GBP1.69 per share) 150,000 -
Exercised shares from the Deferred Share
Bonus Plan (52,346) (55,287)
Exercised shares from the Long-Term Incentive
Plan (225,431) (112,743)
Exercised shares from the Other Share Purchase Plan - (2,000,000) ----------------------------------------------- ---------------------------- --------------------------------- Closing number of treasury shares 4,258,406 6,520,962 ----------------------------------------------- ---------------------------- ---------------------------------
8 Investment property
The consolidated market value of investment properties at 30 September 2022 was GBP623.4 million (31 March 2022: GBP653.5 million). This now comprises only MLI properties. The carrying amount of the investment properties are stated at estimated fair value, determined by the Directors, based on an independent external appraisal. The registered independent appraisers have an appropriate recognised professional qualification and recent experience in the location and category of the property being valued ('valuers').
The fair value of each of the properties for the period ended 30 September 2022, was assessed by the valuers in accordance with the Royal Institution of Chartered Surveyors ('RICS') standards and IFRS 13. Valuers are qualified for purposes of providing valuations in accordance with the 'Appraisal and Valuation Manual' published by RICS.
The valuation of the Group's property portfolio is inherently subjective due to several factors including the individual nature of each property, its location, expectation of future rentals and the discount yield applied to those cash flows. As a result, the valuations placed on the property portfolio are subject to a degree of uncertainty and are made based on assumptions that may not prove to be accurate, particularly in years of volatility or low transaction flow in the market. The estimated market value may differ from the price at which the Group's assets could be sold at a particular time, since actual selling prices are negotiated between willing buyers and sellers. As a result, if the assumptions prove to be different, actual results of operations and realisation of net assets could differ from the estimates set forth in these financial statements, and the difference could be significant.
The valuations performed by the independent valuers are reviewed internally by senior management. This includes discussions of the assumptions used by the external valuers, as well as a review of the resulting valuations.
Discussions of the valuations process and results are held between the senior management and the external valuers on a biannual basis. The Audit and Risk Committee reviews the valuation results and, provided the Committee is satisfied with the results, recommends them to the Board for approval.
The valuation techniques used are consistent with IFRS 13 and use significant 'unobservable' inputs. Investment properties are all at level 3 in the fair value hierarchy and valuations represent the highest and best use of the properties. There have been no changes in valuation techniques since the prior year and no transfers between the fair value hierarchy levels in the current or prior year.
There are interrelationships between all these unobservable inputs as they are determined by market conditions. An increase in more than one unobservable input would magnify the impact on the valuation. The impact on the valuation would be mitigated by the interrelationship of two unobservable inputs moving in opposite directions e.g. an increase in rent may be offset by an increase in yield, resulting in no net impact on the valuation. Expected vacancy rates may impact the yield with higher vacancy rates resulting in higher yield. All revenue is derived from the underlying tenancies given on the investment properties.
With the exception of five (31 March 2022: ten) recently acquired MLI properties, all investment properties are mortgaged, details of which can be seen in note 11. As at the date of signing this report, there are no restrictions on the realisability of any of the underlying investment properties, nor on the remittance of income and disposal proceeds.
The key unobservable inputs used in the valuation of the Group's investment properties at reporting date are detailed in the table below:
30 September 2022 31 March 2022 (audited)
(unaudited)
--------------------------- ------------------------------------ ------------------------------------------
Assets Total Assets Total
- -
---------------------------
Investment held wholly Investment held wholly
property for sale owned property for sale owned
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ---------- -------- -------------- ---------- -------------- --------------
Opening balance 645,082 6,015 651,097 511,220 38,206 549,426
Acquisitions 8,986 - 8,986 102,705 - 102,705
Capitalised expenditure 2,844 9 2,853 3,796 102 3,898
Transfers to assets held
for sale - - - (62,148) 62,148 -
Disposals - (6,015) (6,015) - (92,807) (92,807)
Net fair value (loss)/gain
on investment properties (36,348) (9) (36,357) 89,509 (2,487) 87,022
Foreign exchange movement
in foreign operations - - - - 853 853
--------------------------- ---------- -------- -------------- ---------- -------------- --------------
Net carrying value 620,564 - 620,564 645,082 6,015 651,097
--------------------------- ---------- -------- -------------- ---------- -------------- --------------
The market value of the Group's investment properties, as determined by the Group's external valuer, differs from the carrying value presented in the statement of financial position due to the Group presenting tenant lease incentives separately and the portion of the joint venture the Group does not own. The following table reconciles the net book value of the investment properties to the market value.
30 September 2022 31 March 2022 (audited)
(unaudited)
------------------- ----------------------------------------------- ----------------------------------------------
Group Group
(excl. (excl.
joint Joint Combined joint Joint Combined
venture) venture portfolio venture) venture portfolio
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- ------------------ ------------- ------------ ------------------ ------------- -----------
Market value 623,431 33,043 656,474 653,475 33,099 686,574
Less: share of
joint venture
not owned (1) - - - - (814) (814)
------------------- ------------------ ------------- ------------ ------------------ ------------- -----------
Portfolio market
value 623,431 33,043 656,474 653,475 32,285 685,760
Less: tenant lease
incentives (2,867) - (2,867) (2,378) - (2,378)
------------------- ------------------ ------------- ------------ ------------------ ------------- -----------
Net carrying value
total 620,564 33,043 653,607 651,097 32,285 683,382
------------------- ------------------ ------------- ------------ ------------------ ------------- -----------
(1) At 30 September 2022, the Group owns 100% (31 March 2022: 97.5%) of the economic interest in its joint venture due to its 100% ownership in the bond and negative net asset position of its 50% equity interest in the joint venture. See note 9 for further information.
Market
value at Valuer's
Portfolio net initial
30 September by Valuer's Valuer's yield Valuer's
net initial
yield
market (weighted
Combined portfolio 2022 value ERV ERV (range) average)
(weighted
(range) average)
(including share of jointly (GBP/sq (GBP/sq
controlled entities) (GBP'000) (%) ft) ft) (%) (%)
------------------------------- -------------- ----------------- -------------- ------------- -------------- --------------
Investment properties
95.0 (0.2)-8.0
UK multi-let industrial 623,431 % 2.75-11.51 6.12 % 5.6 %
5.6-10.3
Share of joint venture 33,043 5.0 % 9.05-17.69 12.71 % 6.9 %
------------------------------- -------------- ----------------- -------------- ------------- -------------- --------------
100.0
Market value total 656,474 % - 6.29 - 5.6 %
------------------------------- -------------- ----------------- -------------- ------------- -------------- --------------
Valuer's
Market value Portfolio net initial
at by Valuer's yield Valuer's
net initial
yield
31 March market Valuer's (weighted
Combined portfolio 2022 value ERV (range) ERV (range) average)
(weighted
average)
(including share of jointly (GBP/sq (GBP/sq
controlled entities) (GBP'000) (%) ft) ft) (%) (%)
------------------------------ -------------- --------------- ---------------- -------------- ------------- ------------
Investment properties
1.4-8.0
UK multi-let industrial 647,460 94.4 % 2.7-11.5 6.4 % 5.3 %
Assets held for sale
Rose Kiln Court - Reading 6,015 0.9 % 22.3 22.3 9.3 % 9.3 %
------------------------------ -------------- --------------- ---------------- -------------- ------------- ------------
Total - wholly owned 653,475 95.3 % - 6.5 - 5.3 %
------------------------------ -------------- --------------- ---------------- -------------- ------------- ------------
5.3-9.4
Share of joint venture 32,285 4.7 % 8.1-15.7 12.3 % 6.4 %
------------------------------ -------------- --------------- ---------------- -------------- ------------- ------------
100.0
Market value total 685,760 % - 6.9 - 5.4 %
------------------------------ -------------- --------------- ---------------- -------------- ------------- ------------
9 Investment in joint venture
The Directors have held the investments in the care homes joint venture as a current asset. In line with the Directors' desire to dispose of the care home investments as soon as possible, the joint venture is disclosed as a current asset as the Group expects to receive the proceeds on sale within the next 12 months. However, this investment is not classified as held for sale because it is not highly probable that the sale of these assets is imminent.
Details of the Group's joint venture at the end of the reporting period are as follows:
Place of % equity
Name incorporation Principal owned
activity by subsidiary
---------------------------------- --------------------- ----------------- ----------------
Luxembourg incorporated entities
with registered address:
231, Val des Bons Malades, L-2121
Luxembourg
Elysion S.A. Luxembourg Holding company 50.00%
Elysion Braunschweig S.a.r.l Luxembourg Property company 50.00%
Elysion Dessau S.a.r.l Luxembourg Property company 50.00%
Elysion Kappeln S.a.r.l Luxembourg Property company 50.00%
Elysion Winzlar S.a.r.l Luxembourg Property company 50.00%
---------------------------------- --------------------- ----------------- ----------------
Elysion S.A.
Industrials REIT Limited owns 100% of the shares and shareholder loans in Bernina Property Holdings Limited ('Bernina'), the results and financial position of which is included within these consolidated financial statements. Bernina in turn owns 50% of the issued share capital and 100% of the bonds of Elysion S.A., a company incorporated in Luxembourg which is the beneficial owner of the Care Home portfolio. The remaining 50% of Elysion S.A. is owned by a joint venture partner who manages the portfolio.
The acquired bonds have attracted, and continue to attract, a 10% compounded interest rate since inception in 2007 and have limited recourse to compartment assets within Elysion S.A., with the proceeds made available to subsidiaries in the joint venture for real estate investment in Care Homes. All costs and expenses incurred by the Elysion S.A. compartment are deducted or withheld from any payment of principal or interest. The fair value has been determined based on the net assets of the compartment which would be available to settle the outstanding bond and which is intrinsically linked to the fair value of the investment property. Further details on the estimates and assumptions used in determining the fair value of investment property can be found in note 8.
Summarised consolidated financial information in respect of the Group's joint venture is set out below. Where applicable, these represent the consolidated results of the respective holding companies.
30 September 31 March
2022 2022
(unaudited) (audited)
GBP'000 GBP'000
------------------------------------------------------ ----------
Assets
Investment property 33,044 33,099
Fixed assets 30 30
Financial asset 390 -
Cash and cash equivalents 549 382
Current assets 14 52
-------------------------------------------- -------- ----------
Total assets 34,027 33,563
-------------------------------------------- -------- ----------
Liabilities
Bank loans (16,490) (16,183)
Bond (15,867) (14,883)
Deferred tax (1,512) (1,489)
Financial liability - (63)
Current liabilities (234) (175)
-------------------------------------------- -------- ----------
Total liabilities (34,103) (32,793)
-------------------------------------------- -------- ----------
Net assets of joint venture (76) 770
-------------------------------------------- -------- ----------
Group's investment in joint venture bond * 15,829 14,883
-------------------------------------------- -------- ----------
Group's share of joint venture's net assets
* - 385
-------------------------------------------- -------- ----------
*The Group's share of losses in excess of the investment reduces the joint venture bond.
30 September 31 March
2022 2022
(unaudited) (audited)
GBP'000 GBP'000
------------------------------------------------------------- ----------
(Loss)/profit and total comprehensive (loss)/income
from continuing operations
Revenue 1,285 2,470
Finance costs (904) (1,769)
Net fair value loss (1,150) (100)
Tax expense (88) (316)
---------------------------------------------------- ------- ----------
(Loss)/profit and total comprehensive (loss)/income (857) 285
---------------------------------------------------- ------- ----------
Group income from the joint venture represented
by:
Share of joint venture (loss)/profit (428) 142
Interest income on joint venture bond 754 1,465
Net profit on joint venture bond - 100
---------------------------------------------------- ------- ----------
Income from the joint venture 326 1,707
---------------------------------------------------- ------- ----------
Reconciliation of the above summarised financial information to the carrying amount of the interest recognised in the consolidated financial statements:
Investment
in joint
venture
Bond Elysion Elysion
S.A. S.A.
30 September 2022 (unaudited) GBP'000 GBP'000
Opening balance 14,884 384
Loss from joint venture - (428)
Interest income on bond 754 -
Investment receipts (387) -
Foreign exchange movement in foreign operations 617 5
Transfer of the Group's share of losses in excess
of the investment (39) 39
Closing balance 15,829 -
Investment in joint ventures
Bond
Elysion
S.A. Elysion S.A. Other Total
31 March 2022 (audited) GBP'000 GBP'000 GBP'000 GBP'000
Opening balance 14,119 142 1 143
Income/(loss) from joint
ventures - 242 (1) 241
Interest income on bond 1,465 - - -
Investment receipts (604) - - -
Foreign exchange movement
in foreign operations (96) - - -
Closing balance 14,884 384 - 384
10 Assets held for sale and discontinued operations
At 30 September 2022, management consider no properties to meet the conditions relating to assets held for sale, as per IFRS 5: Non- current Assets Held for Sale and Discontinued Operations. At 31 March 2022, management considered the property known as Rose Kiln Court in Reading, UK to meet the conditions relating to assets held for sale, as per IFRS 5: Non-current Assets Held for Sale and Discontinued Operations. The property was disposed of on 8 July 2022.
Non-current assets classified as held for sale are disclosed at their fair value.
The fair value of the assets held for sale are disclosed in the table below:
30 September 31 March
2022 2022
Note (unaudited) (audited)
GBP'000 GBP'000
Investment properties 8 - 6,015
Assets classified as held for sale - 6,015
The Guernsey, German (retail) and Switzerland operating segments are recognised as discontinued operations by the Group. The results of the discontinued operations were as follows:
30 September 30 September
2022 2021
(unaudited) (unaudited)
GBP'000 GBP'000
Rental (loss)/income (14) 2,846
Tenant recharges 21 699
Other income - 15
Expected credit losses 1 (386)
Property expenses (1) (880)
Net rental income 7 2,294
Operating costs (161) (178)
Net operating (loss)/income (154) 2,116
Fair value loss on investment properties - (2,402)
Loss on disposal of properties (120) (2)
Profit/(loss) on disposal of subsidiaries 63 (2,350)
Net foreign exchange loss (5) -
Loss from operations (216) (2,638)
Finance costs - (362)
Loss for the year before taxation (216) (3,000)
Current tax 34 (1,232)
Deferred tax - 1,195
Loss for the year from discontinued operations (182) (3,037)
Disposals
On 8 July 2022, the Group disposed of its property, Rose Kiln Court, in Reading, UK, held in GGP1 Limited for GBP5.88 million.
Prior year disposals
On 6 August 2021, the Group disposed of its property, Hermann Quartier shopping centre, in Berlin, Germany, held in Stenprop Hermann Limited for EUR30.8 million.
On 2 September 2021, the Group disposed of its 100% shareholding in LPE Limited for a consideration which valued the property at
GBP55.0 million. LPE Limited owned the Guernsey property known as Trafalgar Court. The property was disposed of as a subsidiary and is further disclosed in note 25 in the 31 March 2022 annual report.
On 19 July 2018, the Group disposed of seven properties in Switzerland. As part of the agreements entered into for the sale of these Swiss properties, all of which were sold to the same buyer, Industrials REIT provided a guarantee for obligations and liabilities of each of the selling entities. The maximum amount of the guarantee is CHF6.0 million, which lasts until all obligations under the sale agreements have been fulfilled, with a backstop date of 31 July 2028. As at the date of signing these accounts, there had not been any claim under the guarantee.
11 Borrowings
30 September 2022 (unaudited) 31 March 2022 (audited)
Assets Total Assets held Total -
held - wholly for sale wholly
Borrowings for sale owned Borrowings GBP'000 owned
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening balance 177,823 - 177,823 181,144 13,883 195,027
New loans - - - 29,121 - 29,121
Repayment of borrowings - - - (4,496) (14,218) (18,714)
Bank loans associated
with the disposal
of subsidiaries - - - - (27,959) (27,959)
Transfer of borrowings
to assets held for
sale - - - (27,929) 27,929 -
Amortisation of loans - - - - (33) (33)
Capitalised borrowing
costs (656) - (656) (791) - (791)
Amortisation of transaction
fees 391 - 391 774 37 811
Foreign exchange movement
in foreign
operations - - - - 361 361
Total borrowings 177,558 - 177,558 177,823 - 177,823
30 September 31 March
2022 2022
(unaudited) (audited)
GBP'000 GBP'000
Amount due for settlement within 12 months - -
Amount due for settlement between one to three years 49,420 49,318
Amount due for settlement between three to five years 62,597 63,052
Amount due for settlement after five years 65,541 65,453
Total borrowings 177,558 177,823
Non-current liabilities
Bank loans 177,558 177,823
Total non-current loans and borrowings 177,558 177,823
The terms and conditions of outstanding loans are as follows:
Nominal value Carrying value*
Amortising 30 September 31 March 30 September 31 March
2022 2022 2022 2022
Loan
interest Maturity (unaudited) (audited) (unaudited) (audited)
Entity rate Currency date GBP'000 GBP'000 GBP'000 GBP'000
United Kingdom
- MLI
1.66
Industrials %
UK LP No fixed GBP 3/12/2027 66,500 66,500 65,541 65,453
SONIA
Industrials +
UK 4 1.92
Limited No % GBP 14/11/2025 64,000 64,000 62,797 63,052
Stenprop
Industrials SONIA
6 Limited No + 1.75% GBP 3/02/2025 49,898 49,898 49,420 49,318
Industrials
UK 4 SONIA
Limited No + 2.25% GBP 14/11/2025 - - (200) -
Total borrowings 180,398 180,398 177,558 177,823
* The difference between the nominal and the carrying value represents unamortised facility costs.
The facilities amounting to GBP180.4 million are secured by legal charges over the properties to which they correspond with a market value of GBP600.7 million. There is no cross-collateralisation of the facilities.
12 Trade and other receivables
30 September 31 March
2022 2022
Non-current receivables (unaudited) (audited)
GBP'000 GBP'000
Other debtors - 6,543
Total non-current receivables - 6,543
The non-current other debtors balance of GBP6.54 million at 31 March 2022 comprised a loan advanced under the Share Purchase Plan. This loan advanced under the Share Purchase Plan was repaid in full during the period under review.
30 September 31 March
2022 2022
(unaudited) (audited)
Current receivables GBP'000 GBP'000
Accounts receivable 13,525 8,761
Loss allowance on accounts receivables (3,924) (3,229)
Net receivables 9,601 5,532
Lease incentives 2,867 2,378
Loss allowance on lease incentives (375) (280)
Net lease incentives 2,492 2,098
Other receivables 2,126 3,854
Prepayments 1,145 675
Total current receivables 15,364 12,159
30 September 2022 (unaudited) 31 March 2022 (audited)
Accounts Loss Net Accounts Loss Net
Receivables Rate* Allowance Receivables Receivables Rate* Allowance Receivables
GBP'000 % GBP'000 GBP'000 GBP'000 % GBP'000 GBP'000
Not yet due - - - - - - % - -
%
1-30 days 12
overdue 7,072 % (425) 6,647 3,596 20 % (476) 3,120
31-60 days 24
overdue 1,592 % (244) 1,348 702 38 % (180) 522
61-90 days 31
overdue 212 % (65) 147 462 50 % (121) 342
91-120 days 37
overdue 660 % (179) 481 864 59 % (339) 525
More than
120 days 89
overdue 3,989 % (3,011) 978 3,138 80 % (2,113) 1,025
Closing balance 13,525 - (3,924) 9,601 8,761 - (3,229) 5,535
----------------
*The actual loss allowance is based on the individual rates shown multiplied by the net receivables, then reduced by tenant deposits. The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on shared credit risk characteristics and the days overdue.
The expected loss rates on accounts receivables and lease incentives are based on the Group's historical credit losses experienced over the current period. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers.
Book value approximates fair value.
The movement in loss allowances in respect of trade receivables and lease incentives during the period was as follows:
30 September 31 March
2022 2022
Loss allowance reconciliation (unaudited) (audited)
GBP'000 GBP'000
Opening balance 3,509 2,311
Remeasurement of loss allowance 1,142 1,328
Bad debts written off (352) (130)
Closing balance 4,299 3,509
13 Derivative financial instruments
In accordance with the terms of the borrowing arrangements and Group policy, the Group has entered into interest rate swap agreements which are entered into by the borrowing entities to convert the borrowings from floating to fixed interest rates and are used to manage the interest rate profile of financial liabilities and eliminate future exposure to interest rate fluctuations. It is the Group's policy that no economic trading in derivatives is undertaken by the Group. The Group uses forward foreign exchange contracts to mitigate exchange rate exposure arising from forecast sales in euros (EUR). The Group's policy is to hedge 100% of net foreign exchange exposure when a disposal contract has been signed. In the current year, the Group recognised a total net gain in fair value of financial instruments from continuing and discontinuing operations of GBP5,800,000 (2021: GBP304,000) and nil (2022: nil) respectively.
The following table sets out the interest rate swap agreements at 30 September 2022 and 31 March 2022.
Notional Notional
value Fair value Fair
Effective Maturity Swap 30 value 31 March value
Entity date date rate September 30 2022 31
% 2022 September GBP'000 March
GBP'000 2022 2022
GBP'000 GBP'000
Continuing
operations
UK - MLI
Industrials
UK 4 Limited 29/09/2021 14/11/2024 0.81% 24,000 2,144 24,000 727
Industrials
UK 4 Limited 19/05/2022 14/11/2025 2.21% 27,000 2,269 - -
Stenprop
Industrials
6 Limited 22/12/2020 01/02/2024 0.50% 42,413 2,583 42,413 1,137
Stenprop
Industrials 6 Limited 01/02/2024 31/01/2025 3.45% 42,413 767 - - Total swaps 135,826 7,763 66,413 1,864 Assets - - maturing within 12 months Liabilities - - maturing within 12 months Assets maturing after 12 months 7,763 1,864 Liabilities - - maturing after 12 months Derivative financial instruments - on the statement of financial position 7,763 1,864 Swaps included in investment in joint ventures Elysion Braunschweig S.à r.l. 29/03/2018 29/12/2023 0.52% 5,149 105 4,952 (13) Elysion Dessau S.à r.l. 29/03/2018 29/12/2023 0.52% 5,094 105 4,899 (12) Elysion Kappeln S.à r.l. 31/12/2018 29/12/2023 0.63% 5,517 110 5,306 (23) Elysion Winzlar S.à r.l. 31/12/2018 29/12/2023 0.63% 3,531 70 3,395 (15) Derivative financial instruments - joint ventures 19,291 390 18,552 (63)
14 Contingent Liability
Share Purchase Plan
The Share Purchase Plan (SPP) was a Long-Term Incentive Plan operated by the Company between 2015 and 2017, pursuant to which loans were issued to certain participants (including associates of directors) for the purpose of acquiring shares at market value in the Company. All the SPP loans have been repaid in full by all participants. HMRC considers that a liability arose under Part 7A of ITEPA and has issued protective determinations under Regulation 80 of the Income Tax Regulations 2003 and claims to protect Class 1 NICs in respect of the tax years 2015/16, 2016/17 and 2017/18 in the total amount of GBP6.2 million. The Company has filed protective appeals against these determinations and claims as the directors, having taken advice from the Company's specialist tax advisers and leading tax Counsel consider that no liability should arise under Part 7A. Accordingly, no provision has been made in the interim accounts. The Company and its advisers are seeking to resolve the matter with HMRC.
15 Financial risk management
The fair value measurement for the Group's financial assets and financial liabilities are categorised into different levels in the fair value hierarchy. The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e. derived from prices). The fair values of the Group's secured loan facilities and derivative financial instruments are included in Level 2.
Level 3: unobservable inputs for the asset or liability. The fair value of the Group's investment properties is included in Level 3. Valuations represent the highest and best use of the properties.
The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the transfer has occurred. There were no transfers between levels for the period ended 30 September 2022.
With the exemption of the fixed interest rate debt, disclosed under the EPRA NDV calculation in note 6, the fair value of all other financial assets and liabilities is not materially different from their carrying value in the financial statements.
The Group's financial risk management objectives and policies are consistent with those disclosed in the audited consolidated financial statements for the year ended 31 March 2022.
16 Related party transactions
Parties are considered related if one party has control, joint control or significant influence over the other party in making financial and operating decisions. Transactions with related parties are made on terms equivalent to those that prevail in an arm's-length transaction. There have been no material changes in the related party transactions described in the Annual Report for the year ended 31 March 2022. Transactions with key management personnel are materially consistent with those described in note 8 of the 2022 Annual Report, including details of the bonuses approved on 8 June 2022 in respect of the year ended 31 March 2022.
During the period under review the loan provided to an associate of a director to purchase Industrials REIT shares under the Share Purchase Plan was repaid in full. Further details of this plan can be found in note 12.
Information regarding the transactions and balances with joint venture parties can be found in note 18 of the 2022 Annual Report. There are no other related party transactions that occurred during the period under review.
Ultimate controlling party
The directors do not consider there to be an ultimate controlling party.
17 Events after the reporting period
(i) Declaration of dividend
On 1 December 2022, the directors declared an interim dividend of 3.50 pence per share (2021: 3.375 pence per share). The directors intend to offer shareholders the option to receive all or part of their dividend entitlement by way of a scrip issue of Industrials REIT treasury shares or in cash. An announcement containing details of the dividend, the timetable and the scrip dividend terms is anticipated to be made on 15 December 2022. It is expected that shares will commence trading ex-dividend on 18 January 2023 on the JSE and on 19 January 2023 on the LSE. The record date for the dividend is expected to be 20 January 2023 and the dividend payment date,
10 February 2023.
(ii) Adjusting events
Industrials REIT has identified no adjusting events at the date of signing these consolidated financial statements.
Alternative performance measures - unaudited
Industrial REIT's financial statements are prepared under IFRS. Management considers several alternative performance measures ('APMs') important to improve the transparency and relevance of our published results, as well as the comparability of our results with other listed real estate companies. APMs do not have a standardised meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. These additional disclosures do not fall into scope of the auditor's review.
EPRA performance measures
Alternative Performance Measures used by Industrial REIT include those defined by The European Public Real Estate Association ('EPRA'). EPRA provides guidelines and recommended reporting standards which aim to bring consistency and transparency to the European real estate sector, and which are widely applied across this market. In February 2022, EPRA issued updated best practice guidelines which are effective for accounting periods starting on or after 1 January 2022, introducing the EPRA LTV ('loan-to-value') to standardise the way real estate companies report their LTV.
The EPRA earnings measure is intended to show the level of recurring earnings from core operational activities with the purpose of highlighting the Group's underlying operating results from its property rental business and provide an indication of the extent to which current dividend payments are supported by earnings. The measure excludes unrealised changes in the value of investment properties, gains, or losses on the disposal of properties and other items to provide additional information on the Group's underlying operational performance. The measure is considered to accurately capture the long-term strategy of the Group and is an indication of the sustainability of dividend payments.
The table below summarises the Group's EPRA performance indicators, as well as the nearest IFRS measure where applicable, and a reference to where in these results further explanation and/or reconciliation can be found.
Nearest Reference 30 September 31 March
IFRS measure in document
EPRA performance measure 2022 2022
(unaudited) (unaudited)
EPRA cost ratio (excluding direct N/A N/A 33.3% 35.7%
vacancy costs)
(34.2% at
30 September
2021)
EPRA cost ratio (including direct Operating
vacancy costs) N/A and 39.2% 40.9%
Key measure to enable meaningful financial (38.7% at
measurement of the changes review
in a company's operating costs. 30 September
2021)
EPRA earnings Earnings Note 5 GBP10.02 GBP18.45
A key measure of a company's underlying million million
operating results and (GBP9.64
million
an indication of the extent to at
which current dividend payments
are supported by earnings. 30 September
2021)
EPRA earnings per share IFRS EPS Note 5 3.39p 6.32p
(3.33p at
30 September
2021)
Operating
and financial
Diluted review and
EPRA earnings per share (diluted) IFRS EPS note 5 3.38p 6.30p
(3.32p at
30 September
2021)
EPRA net disposal value per share Diluted Note 6 GBP1.68 GBP1.78
NAV measure that assumes assets net assets
are sold and/or liabilities are per share
not held until maturity. Deferred
tax, financial instruments and
certain other adjustments are calculated
as to the full extent of their
liability, including tax exposure
not reflected in the statement
of financial position.
EPRA net reinstatement value per Diluted Note 6 GBP1.78 GBP1.93
share net assets
NAV measure to highlight the value per share
of net assets on a long-term basis.
Fair value movements on financial
derivatives and deferred taxes
are excluded.
EPRA net tangible assets per share Diluted Operating GBP1.62 GBP1.77
NAV measure that assumes entities net assets and financial
buy and sell assets, thereby crystallising per share review and
certain levels of deferred tax note 6
liability, which is included.
EPRA NIY N/A N/A 5.6% 5.0%
Annualised rental income based (5.7% at
on the cash rents passing at the
reporting date, less non-recoverable
property operating expenses, expressed
as a percentage of the market value
of property.
30 September
2021)
EPRA "topped up" NIY N/A N/A 6.0% 5.3%
(5.9% at
30 September
2021)
EPRA Like-for-like rental income
growth N/A N/A 6.0% 6.0%
This measure illustrates the change (4.9% at
in comparable income
values. 30 September
2021)
EPRA LTV
Loan-to-value ratio expressed as
a proportion of net debt over total
property value in accordance with
EPRA guidelines. N/A N/A 24.9% 24.7%
EPRA vacancy rate N/A N/A 7.3% 5.8%
A 'pure' (%) measure of investment (5.5% at
property space that is
vacant, based on estimated market 30 September
rental value (ERV).
2021)
Operating
Like-for-like valuation (loss)/growth N/A and (4.5)% 19.4%
This measure illustrates the change financial (7.5% at
in comparable property review
market values. 30 September
2021)
Reversion - UK MLI N/A N/A 19.7% 13.2%
The difference between passing (11.1% at
rent and ERV. The increase or
decrease of rent arises on rent 30 September
reviews and letting of vacant
space or re-letting of expiries. 2021)
Only figures relating to the UK
MLI
business are available for this
reporting period. In future periods
this should increase to the whole
Group.
Supplementary calculations not included elsewhere in the unaudited financial statements
EPRA cost ratio
30 September 30 September
2022 2021
EPRA cost ratio (unaudited) (unaudited)
GBP'000 GBP'000
Operating costs per IFRS statement of comprehensive
income (including discontinued operations) 6,765 5,767
Property expenses net of tenant recharges 1,472 3,149
Other income (159) (1,149)
Above items in respect of share of joint venture 258 217
Costs (including direct vacancy costs) (A) 8,336 7,984
Direct vacancy costs (1,253) (914)
Costs (excluding direct vacancy costs) (B) 7,083 7,070
Gross rental income - per IFRS (including discontinued
operations) 19,997 19,427
Add: share of joint venture (gross rental income) 1,285 1,220
Gross rental income (C) 21,282 20,647
EPRA cost ratio (including direct vacancy costs)
(A/C) 39.2% 38.7%
EPRA cost ratio (excluding direct vacancy costs)
(B/C) 33.3% 34.2%
Property related capital expenditure (capex)
No costs directly attributable to overhead and operations that would normally be classified as overhead or administrative costs were capitalised by the Group during the year (2022: nil). The Group does not typically have significant assets under development and does not have a policy of capitalising any overhead and operating expenses.
Group (excl. Joint venture Total
Joint venture) (pro-rated) Group
30 September 2022 (unaudited) GBP'000 GBP'000 GBP'000
Acquisitions(1) 8,986 - 8,986
Development(2) 815 - 815
Investment properties(3)
Incremental lettable space - - -
No incremental lettable space 2,038 - 2,038
Tenant incentives - - -
Other material non-allocated types of expenditure - - -
Capitalised interest - - -
Total capital expenditure 11,839 - 11,839
Conversion from accrual to cash basis - - -
Total capital expenditure on cash basis 11,839 - 11,839
(1) Amounts spent on the purchase of investment properties (including any capitalised transaction costs).
(2) Amounts spent on investment properties under construction and related development projects (including any internal costs capitalised).
(3) Amounts spent on the operational investment property portfolio.
Group (excl. Joint venture
30 September 2021 (unaudited) Joint venture) (pro-rated) Total Group
GBP'000 GBP'000 GBP'000
Acquisitions(1) 38,884 - 38,884
Development(2) - - -
Investment properties(3)
Incremental lettable space - - -
No incremental lettable space 2,074 - 2,074
Tenant incentives - - -
Other material non-allocated types - - -
of expenditure
Capitalised interest - - -
Total capital expenditure 40,958 - 40,958
Conversion from accrual to cash
basis (1,160) - (1,160)
Total capital expenditure on
cash basis 39,798 - 39,798
(1) Amounts spent on the purchase of investment properties (including any capitalised transaction costs).
(2) Amounts spent on investment properties under construction and related development projects (including any internal costs capitalised).
(3) Amounts spent on the operational investment property portfolio.
EPRA Like-for-like rental income growth (%)
30 September 30 September
2022 2021
Annualised gross rental income(1) (unaudited) (unaudited) Change Change
(GBPm) (GBPm) (GBPm) (%)
UK multi-let industrial(2) 36.5 34.4 2.1 6.1%
Share of joint venture(3) 2.7 2.5 0.1 5.2%
Total like-for-like 39.2 36.9 2.2 6.0%
Disposals - 0.7
Acquisitions 4.6 -
Total 43.8 37.6
(1) Gross annual rental income generated by properties that were held by the Group for the year. There is one property undergoing significant development at 30 September 2022. The size of the portfolio, in value, on which the change in comparable income values is based is detailed in note 8.
(2) Like-for-like rental growth for the UK multi-let industrial portfolio, based on passing rent is 2.7% (2021: 5.0%) with the difference being due to rent free periods and fixed uplifts.
(3) A standardised rate has been used to translate the portfolio and remove any foreign exchange impact.
EPRA vacancy rate by ERV
30 September 31 March
2022 2022
(unaudited) (unaudited)
(GBPm) (GBPm)
Estimated rental value of vacant space (A) 3.6 2.8
Estimated rental value of the whole portfolio (B) 49.4 48.1
EPRA vacancy rate by ERV (A/B) 7.3% 5.8%
EPRA NIY and "topped-up" NIY disclosure
UK multi-let
industrial Joint venture
30 September 2022 (unaudited) (GBPm) (GBPm) Total (GBPm)
Market value 623.4 33.0 656.5
Less: developments (1.6) - (1.6)
Add: estimated purchaser's costs 42.4 2.6 45.0
Gross up completed property portfolio valuation
(B) 664.2 35.7 699.8
Annualised current passing rental income 38.2 2.7 40.9
Non-recoverable property operating expenses (1.8) (0.1) (2.0)
Annualised net rents (A) 36.4 2.5 38.9
EPRA NIY (A/B) 5.5% 7.1% 5.6%
Add: rent free periods and fixed uplifts 2.8 - 2.8
Topped-up net annualised rent (C) 39.2 2.5 41.7
EPRA "topped-up" NIY (C/B) 5.9% 7.1% 6.0%
UK multi-let
industrial Joint venture
31 March 2022 (audited) (GBPm) (GBPm) Total (GBPm)
Market value 653.5 32.3 685.8
Estimated purchaser's costs 44.0 2.6 46.6
Gross up completed property portfolio
valuation (B) 697.5 34.9 732.3
Annualised current passing rental
income 38.2 2.5 40.7
Non-recoverable property operating
expenses (3.9) (0.1) (4.1)
Annualised net rents (A) 34.3 2.4 36.6
EPRA NIY (A/B) 4.9% 6.7% 5.0%
Add: rent free periods and fixed
uplifts 2.1 - 2.1
Topped-up net annualised rent (C) 36.4 2.4 38.7
EPRA "topped-up" NIY (C/B) 5.2% 6.7% 5.3%
EPRA LTV
Group
operations
ex. JVs Joint venture
30 September 2022 (unaudited) (GBPm) (GBPm) Total (GBPm)
Borrowings from financial institutions 180.4 8.2 188.6
Bond loans - 7.9 7.9
Foreign currency derivatives (7.8) - (7.8)
Net payables 9.7 (0.1) 9.6
Less: cash and cash equivalents (33.9) (0.3) (34.2)
Net debt (a) 148.4 15.7 164.1
Investment properties at fair value 621.8 16.5 638.3
Properties under development 1.6 - 1.6
Intangibles 3.9 - 3.9
Financial assets 15.8 - 15.8
Total property value (b) 643.1 16.5 659.6
LTV (a/b) 23.1% 94.8% 24.9%
Group
operations Joint venture
31 March 2022 (unaudited) ex. JVs (GBPm) (GBPm) Total (GBPm)
Borrowings from financial institutions 180.4 8.1 188.5
Bond loans - 7.4 7.4
Foreign currency derivatives (1.9) - (1.9)
Net payables 7.4 0.1 7.5
Less: cash and cash equivalents (31.5) (0.2) (31.7)
Net debt (a) 154.4 15.4 169.8
Investment properties at fair
value 653.5 - 653.5
Properties held for sale - 16.4 16.4
Intangibles 3.5 - 3.5
Financial assets 14.9 - 14.9
Total property value (b) 671.9 16.4 688.3
LTV (a/b) 23.0% 93.9% 24.7%
Other alternative performance measures
Management use certain financial performance measures to assess the financial and operational performance of the Group. These alternative performance measures are not defined or specified under IFRS or EPRA. However, management believe they provide useful information to readers. These non-IFRS measures may not be comparable to similar measures presented by other companies. The table below summarises the additional alternative performance measures included in these results.
Nearest 30 September 31 March
IFRS 2022 2022
Other alternative performance measure Reference in document (unaudited) (unaudited)
measure
Adjusted earnings Earnings Operating and financial GBP10.5 GBP20.0
review million million
and note 5 (GBP10.0
million
at
30 September
2021)
Adjusted earnings per Operating and financial
share Earnings review 3.54p 6.88p
per share and note 5 (3.45p at
30 September
2021)
Operating and financial
Cost of debt N/A review 2.52% 2.16%
Debt maturity N/A Operating and financial 3.5 years 4.0 years
review
Operating and financial
review
Distribution per share N/A and note 17 3.50p 6.85p
Headline earnings per
share Earnings Note 5 5.41p 7.05p
per share (3.45p at
30 September
2021)
Headline earnings per
share - diluted Diluted Note 5 5.40p 7.02p
earnings (3.44p at
per share 30 September
2021)
Operating and financial
Loan-to-value ratio (LTV) N/A review 26.5% 25.6%
Operating and financial
Total accounting return N/A review (5.4)% 23.6% (1)
(1) The total accounting return of 23.6% at 31 March 2022 has been amended from its reported value of 25% in the 31 March 2022 annual report, as per the RNS announcement date 16 August 2022.
FX rates in period
Average foreign exchange rates in the period: GBP1.00:EUR1.1740; GBP1.00:CHF1.1746 (2021: GBP1.00:EUR1.1647; GBP1.00:CHF1.2696). Period end foreign exchange rates: GBP1.00:EUR1.1364; GBP1.00:CHF1.0918 (31 March 2022: GBP1.00:EUR1.1816; GBP1.00:CHF1.2129).
Corporate information
Industrials REIT Limited
Registered in Guernsey Registration number: 64865 LSE share code: MLI
JSE share code: MLI
ISIN: GG00BFWMR296
Company secretary
Sarah Bellilchi
United Kingdom Guernsey South Africa
Postal address of the Registered office of JSE sponsor
Company the Company
180 Great Portland Street Industrials REIT Limited Java Capital Trustees
and Sponsors
London Kingsway House Proprietary Limited
W1W 5QZ Havilland Street (Registration number
United Kingdom St Peter Port 2006/005780/07)
6th Floor, 1 Park Lane
GY1 2QE Weirda Valley
Guernsey Sandton, 2196
Johannesburg
South Africa
(PO Box 522606, Saxonwold,
2132)
Broker and financial Guernsey registrars South African corporate
adviser adviser
Numis Securities Limited Computershare Investor Java Capital Proprietary
Services Limited
45 Gresham Street (Guernsey) Limited ('Computershare') (Registration number
2012/089864/07)
London 1st Floor 6th Floor, 1 Park Lane
EC2V 7BF Tudor House Weirda Valley
United Kingdom Le Bordage Sandton, 2196
St Peter Port Johannesburg
GY1 1DB South Africa
Guernsey (PO Box 522606, Saxonwold,
2132)
Independent auditor Computershare correspondence SA transfer secretaries
address:
BDO LLP 13 Castle Street Computershare Investor
Services
55 Baker Street St Helier Proprietary Limited
London JE1 1ES (Registration number
2004/003647/07)
W1U 7EU Jersey Rosebank Towers
United Kingdom Channel Islands 15 Biermann Avenue
Rosebank, 2196
Johannesburg
South Africa
(PO Box 61051, Marshalltown,
2107)
Glossary
Adjusted earnings Adjusted earnings per share
Utilises EPRA earnings and applies Adjusted earnings per share after
further company-specific adjustments considering dilutive share options.
to earnings to exclude items considered
not to be in the ordinary course
of business or other exceptional
items that do not necessarily provide
an accurate picture of the Group's
underlying operational performance.
Contractual rent Cost of debt
Rent receivable including rent contracted This represents the all-in interest
from expiry of rent-free periods rate after including the reference
and fixed uplifts (rent from long rate, the margin and interest rate
leaseholds are excluded). derivative, if applicable. The Group
weighted average cost of debt is
the all-in interest rate of
the Group weighted by loan size.
Debt maturity Dividend per share
Measured in years, the debt maturity Total dividend per share that Industrials
is calculated by comparing the reference REIT makes to
date (e.g. period-end) to the maturity shareholders in respect of the financial
date of the year. Dividends are paid twice yearly.
debt referred to.
EPRA EPRA "topped up" NIY
The European Public Real Estate Association. EPRA NIY adjusted for the expiration
of rent-free periods (or other unexpired
lease incentives such as discounted
rent periods and
stepped rents).
EPRA cost ratio (excluding direct EPRA cost ratio (including direct
vacancy costs) vacancy costs)
Administrative and operating costs Administrative and operating costs
(adjusted to exclude vacancy costs) expressed as a percentage of gross
expressed as a percentage of gross rental income.
rental income.
EPRA earnings EPRA earnings per share
Earnings from operational activities. Earnings from operational activities
A key measure of the Group's underlying per share after considering dilutive
operating results and an indication share options.
of the extent to
which current dividend payments are
supported by earnings.
EPRA like-for-like rental income EPRA LTV
growth
The change in gross contractual rental Loan-to-value ratio expressed as
income at reporting date, generated a proportion of net debt over total
by properties that were held by the property value in accordance with
Group for the year, excluding properties EPRA guidelines.
undergoing significant development.
This
measure illustrates the change in
comparable income values.
EPRA NDV per share EPRA net disposal value (NDV)
EPRA net disposal value per share An EPRA NAV measure that represents
after considering dilutive share the shareholders' value
options. under a disposal scenario, where
deferred tax, financial instruments
and certain other adjustments are
calculated to the full extent of
their liability, net of any resulting
tax.
EPRA net initial yield (EPRA NIY) EPRA net reinstatement value (NRV)
Passing rent less non-recoverable A NAV measure that aims to represent
property expenses such as empty rates, the value required to rebuild the
divided by the property valuation entity. The NAV per the IFRS financial
plus notional purchasers' costs. statements is adjusted to assume
This is in accordance with EPRA's that the entity never sells assets.
Best
Practices Recommendations.
EPRA net tangible assets (NTA) EPRA NRV per share
The NAV per the IFRS financial statements EPRA net reinstatement value per
is adjusted to assume share after considering dilutive
that the entity buys and sells assets, share options.
thereby crystallising certain levels
of unavoidable deferred tax.
EPRA NTA per share EPRA vacancy rate
EPRA net tangible assets per share Estimated rental value of vacant
after considering dilutive space divided by estimated rental
share options. value of the portfolio as a whole.
EPS Equivalent yield
Earnings per share based on the weighted A weighted average of the net initial
average number of shares in issue. yield and reversionary yield. It
represents the return a property
will produce based upon the
timing of the income received.
Estimated rental value (ERV) EURIBOR
Industrials REIT's opinion of the EURO Interbank Offered Rate; daily
open market rent which, on the date reference rate, published by the
of valuation, could reasonably be European Money Markets Institute,
expected to be obtained on based on the average
a new letting or rent review of a interest rates at which Eurozone
property. banks offer to lend funds.
Gross rental income Group
Rental income is as reported in the Industrials REIT, the Company, its
income statement, on an accruals subsidiaries and its share of its
basis, and adjusted for the spreading joint venture.
of lease incentives over the term
of the lease. It is stated gross,
prior to the deduction
of property operating expenses.
Headline earnings IFRS
A method of reporting corporate earnings, International Financial Reporting
as required by the JSE listings requirements. Standards issued by the International
The measure is based entirely on Accounting Standards Board.
operational, trading, and capital
investment activities achieved during
the period. Excluded from the headline
earnings figure are profits or losses
associated with the sale or termination
of discontinued operations, fixed
assets or related businesses, or
from any permanent devaluation or
write-off of their values.
Interest cover LIBOR
Represents the number of times net London Interbank Offered Rate, the
interest payable is covered by underlying interest rate charged by one bank
rental income (or net rental income, to another for lending money.
as appropriate).
Like-for-like basis Loan-to-value (LTV)
This represents the change in a measure Loan to value (LTV) is the ratio
(such as passing rent or property of principal value of gross debt,
valuation) for reference data that less unrestricted cash, to the Group's
applies throughout the aggregate value of
current and previous periods under properties.
review.
NAV Net assets per share
Net asset value. NAV divided by the number of shares
in issue at the period end
(less treasury shares).
Net initial yield ("NIY") Net rental income
The passing rent expressed as a percentage Gross rental income, less ground
of the market value, rents paid, net service charge
after adding notional purchaser's expenses and property operating
costs. expenses.
Occupancy rate Passing rent
Estimated market rental value (ERV) Rental income receivable on a property
of occupied space divided by ERV as at the reporting date. Excludes
of the portfolio as a whole (the rental income where a rent-free
inverse of EPRA vacancy period is in operation.
rate).
Property income distribution (PID) Real estate investment trust (REIT)
As a REIT, the Group is obliged to REITs are property companies that
distribute 90% of its UK property allow people and organisations to
tax-exempt profits. PIDs are profits invest in commercial property and
distributed to shareholders, which receive benefits as if they directly
are subject to tax in the hands of owned the properties themselves.
the shareholders as property income. The effect is that taxation is moved
PIDs are normally paid net of withholding from the corporate level to the
tax currently at 20%, which the REIT investor level as investors are
pays to the tax authorities on behalf liable for tax as if they owned
of the shareholder. Certain types the property directly. Industrials
of shareholders (e.g., pension funds) REIT became a UK REIT in May 2018.
are tax exempt and receive PIDs without
deduction of withholding tax. REITs
also pay out normal dividends, which
are taxed in the same way as dividends
received from non-REIT companies
and are not subject to withholding
tax.
Restricted cash Reversion
Represents restricted cash balances, The difference between passing rent
including tenant deposits, service and ERV. The increase or decrease
charge monies held by managing agents of rent arises at rent reviews,
and monies held in bank accounts the letting of vacant space or the
secured by lenders, for the purposes reletting of existing leases.
of debt
repayments.
SMEs SONIA
Small and Medium-sized Enterprises. Sterling Overnight Index Average.
Square meters (sq m) Total accounting return
The area of buildings' measurement Growth in EPRA NTA per share plus
used in the emissions dividends paid, expressed as a percentage
reporting analysis. The conversion of EPRA NTA per share at the beginning
factor used, where appropriate, is of the
one sq m = 10.7639 sq ft. period.
Total shareholder return Treasury shares
The growth in value of a shareholding Shares repurchased by the Company,
over a specified period, reducing the amount of outstanding
assuming dividends are reinvested stock on the open market.
to purchase additional units of stock.
Unrestricted cash Valuer's ERV
Cash, cash equivalents and liquid The annualised estimated market
investments after deducting restricted rental value of lettable space as
cash. determined by Industrials REIT's
external valuers.
Valuer's net initial yield Voids
The net initial yield as determined Unlet space as a percentage of area,
by Industrials REIT's external valuers. including voids where refurbishment
work is being carried out unless
specifically
mentioned.
WAULT
Weighted average unexpired lease
term, indicating the average
remaining life of the leases within
our portfolio.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
END
IR UPGMPPUPPGBG
(END) Dow Jones Newswires
December 02, 2022 02:00 ET (07:00 GMT)
1 Year Industrials Reit Chart |
1 Month Industrials Reit Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
