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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Urban Logistics Reit Plc | LSE:SHED | London | Ordinary Share | GB00BYV8MN78 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -2.40 | -2.13% | 110.40 | 110.20 | 110.80 | 113.60 | 109.80 | 113.60 | 318,767 | 16:27:37 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 59.71M | -82.66M | -0.1751 | -6.28 | 519.17M |
From Apr 2019 to Apr 2024
TIDMSHED
RNS Number : 1024F
Urban Logistics REIT PLC
12 November 2020
Urban Logistics REIT plc
("Urban Logistics", the "Company" or the "Group")
Interim results for the six months ended 30 September 2020
Significant growth in urban logistics portfolio with strong underlying results
Unique position in dynamic sub-sector
Urban Logistics, (AIM: SHED) the specialist UK logistics REIT, issues its interim financial results for the half year ended 30 September 2020.
Hot Features
Premium
Highlights 30 Sep 30 Sep Change
20 19 (%)
------- ------- -------
Income Statement
------- ------- -------
Net rental income (GBPm) 9.4 5.8 +62.0
------- ------- -------
Operating profit before revaluation
gain (GBPm) 7.6 4.7 +60.9
------- ------- -------
EPRA earnings per share (p)(1) 3.19 3.92 -18.6
------- ------- -------
Interim dividend (p)(2) 3.25 3.75 -13.3
------- ------- -------
Balance Sheet
------- ------- -------
EPRA NTA per share (p)(3) 141.57 145.17 -2.5
------- ------- -------
Gross borrowings (GBPm) 122.4 75.7 +61.7
------- ------- -------
LTV (%) 19.7 34.1
------- ------- -------
Total Accounting Return (%) (NTA
+ dividends) 5.5 8.2
------- ------- -------
(1) Decrease in earnings primarily due to equity issuance and ongoing investment programme.
(2) Paid on 23 October 2020.
(3) EPRA has introduced new best practice recommendations for the reporting of net asset value. The Group considers EPRA Net Tangible Assets (NTA) to be the most relevant measure for its operating activities and this has been adopted as the Group's primary measure of net asset value.
Financial Highlights
-- Total Shareholder Return of 21.8% (H1 2020: 12.1%)
-- Total Property Return of 8.0% (H1 2020: 6.6%)
-- GBP345.9 million portfolio valuation with a 5.0% like-for-like increase since 31 March 2020
-- EPRA net tangible assets ("NTA") of 141.57 pence per share (+2.7% since 31 March 2020)
-- Debt refinancing with new GBP151 million facility
Operational Highlights
-- More than 99% of rent demanded has been collected on time in 2020
-- Eighteen logistics properties and two development sites acquired for GBP140.2 million at a 6.0% NIY
-- EPRA vacancy rate 3.0% (of which 0.9% is undergoing refurbishment)
-- Gross to net rental income ratio 98.4%
-- WAULT of 5.5 years
-- EPC rating of A-C across 73% portfolio (H1 2020: 70%)
Post period end
-- GBP92 million equity capital raised in October (GBP228 million raised in total in 2020)
-- GBP67 million of logistics properties purchased (67% in South East of UK)
-- Approximately GBP115 million of identified acquisitions to be made in coming months
-- Tenants continue to trade well and all remain operational
Richard Moffitt, CEO, summarises the results:
"A rapid increase in e-commerce has tested supply chains this year due to the unexpected surge in demand. As a result, the logistics market continues to break all records, with the quarter to June 2020 seeing the largest take-up ever recorded.
"We expect that behavioural changes formed during lockdown are here to stay. At the same time, the supply of mid-sized logistics assets close to cities remains severely constrained.
"Urban Logistics is extremely well placed to benefit from this market backdrop. We have a unique investment strategy based on management's considerable industrial and logistics experience. Over 90% of our assets are purchased off-market and we take a stringent approach to tenant selection. We have collected over 99% of rent demanded for the March, June and September quarters in 2020.
"Urban Logistics is now focussed on the deployment of the capital we have raised this year to continue to drive strong growth and deliver attractive returns to our shareholders."
For further information contact:
Urban Logistics REIT plc Richard Moffitt +44 (0)20 7591 1600 Buchanan - Financial PR Helen Tarbet +44 (0)7872 604453 Henry Wilson +44 (0)7788 528143 George Beale +44 (0)7450 295099 N+1 Singer - Nominated Adviser and Broker James Maxwell / James Moat (Corporate Finance) Alan Geeves / James Waterlow / Sam Greatrex (Sales) +44 (0)20 7496 3000 Panmure Gordon (UK) Limited - Joint Broker Chloe Ponsonby (Corporate Broking) Emma Earl (Corporate Finance) +44 (0)20 7886 2500
About Urban Logistics REIT
Urban Logistics REIT plc is a property investment company, delivering income and capital growth by focussing on the selective acquisition and active management of mid-sized, single-let, 'last touch' logistics properties (AIM: SHED; mkt cap c GBP360m).
The Company has been established to invest in UK-based logistics properties with the objective of generating attractive dividends and capital returns for its shareholders. Its investment strategy focuses on strategically located smaller single-let properties servicing high-quality tenants. Investment returns are generated by an experienced management team focusing on quality stock selection and active asset management.
A number of structural and commercial factors currently support the attractive opportunity in the last mile/logistics real estate sub-sector targeted by the Company, including: strong occupier demand, (driven by the growth of e-commerce and investment by retailers in their associated supply chain) and a decline in the supply of quality smaller sized available space in logistics real estate across the UK.
Chairman's Statement
The long-term effect of Covid-19 on our society and way of living is hard to determine but one has to believe solutions, whether vaccines or remedial medicines, will be fully rolled out in the foreseeable future.
Despite Covid-19, Urban Logistics has made significant progress over the last six months. The equity capital from the successful March fundraising, and associated leverage, has now been invested into GBP213 million of new assets since that raise at an average net initial yield of 6.0%. Progress has also been made in managing the existing assets to improve rents resulting in a valuation increase on the historical portfolio of 5.0%. Vacancies have been minimal, 3.0% at period end, and 99% or more of rents demanded have been collected on time in 2020. This reflects the Company's strategy of purchasing well located properties near city centres with tenants focussed on the distribution of domestic UK products.
Our Manager continues to look for new assets to acquire and by August had built up an extensive pipeline of acquisitions. We decided to once again go to the equity market to fund these purchases and on 15 October 2020 we announced a successful raise of GBP92 million. This, together with banking facilities, will enable the purchase of approximately a further GBP115 million of identified properties over the next few months.
Financial results
Turning to our results for the interim period ended 30 September 2020, our property portfolio increased in value from GBP207 million to GBP346 million. On a like-for-like basis, properties held throughout the period increased in value by 5.0% (3.8% to September 2019). The capitalisation rates for industrial properties within our sub-sector have remained flat in 2020 and the increase in value is therefore due principally to the Manager's active asset management initiatives.
Revenue increased from GBP5.9 million to GBP9.8 million, reflecting rent received from new properties acquired earlier in the year. EPRA earnings per share decreased from 3.92 pence to 3.19 pence due to the issue of new shares and the timing of the ongoing investment programme. At the period end, the Company had GBP54 million of cash which together with the proceeds from our recent equity issue will be used to fund the purchase of further properties in line with our strategy.
In August, the Company entered into a new GBP151 million loan facility with Barclays, Santander and Lloyds, to replace the existing loan facility totalling GBP76 million, which was due to expire in 2022. This new facility provides a three-year term and includes an option to extend for a further two years. At the period end, the portfolio LTV was 19.7% reflecting cash held and will initially fall further following receipt of proceeds from the new issue but will rise again once the current investment programme has been completed. We continue to target an LTV range of between 30 and 40%.
Dividend
On 25 September 2020, the Company declared an interim dividend for the first half of the financial year ended 31 March 2021 of 3.25 pence per share prior to the closing of the October capital raise, payable to existing shareholders. This was paid on 23 October 2020. The Company intends to declare the next dividend following the release of its final results for the financial year ending 31 March 2021.
On 8 August 2020, the Company, by way of a Special Resolution, cancelled the then value of its share premium, by an Order of the High Court of Justice, Chancery Division. As a result, GBP228.8 million has been transferred from the share premium reserve to the capital reduction reserve. The capital reduction reserve is classified as a distributable reserve.
At 30 September 2020, the Company had distributable reserves of GBP230.5 million providing substantial cover for future dividend payments.
Outlook
With England now under lockdown until at least early December, many parts of the economy, especially the retail and hospitality sector, will be badly affected as will many people's livelihoods, finances and wellbeing.
Despite this, the last eight months have been eventful for Urban Logistics. We have raised over GBP228 million of new equity, refinanced our debt and acquired over GBP213 million of new properties. With the proceeds of the recent equity issue and the funds available from banking facilities, we will be able to acquire approximately a further GBP115 million of identified properties over the next few months.
We continue to believe in our investment strategy, which remains resilient in the current environment, and will seek further assets to acquire in key regions of the country with proximity to cities with tenants supplying essential needs to consumers. Active asset management of the assets acquired will be essential in delivering future returns to our shareholders.
Nigel Rich CBE, Chairman
Manager's Report
Overview
"Same day" delivery to households and "just in time" delivery to manufacturing processes were deemed to be the ultimate goal for logistics operators historically. Having broadly reached that seemingly unattainable position, supply chains were tested severely during the Covid-19 lockdown earlier this year.
The shortage of essential items such as food, pharmaceuticals and PPE, was common. This also amplified some weaknesses as global supply chains were found to be lacking in sufficient levels of stock in the event of unexpected demand. The rapid increase in e-commerce further compounded the problem.
In January, e-commerce accounted for 19% of all retail sales in the UK; by June this had reached 31% (previous ONS estimates had suggested the UK would reach 25% by the end of 2023). Throughout all of this, the central thesis behind our investment strategy has proven itself to be robust. Our commitment is to acquire well located warehouses with the correct specification for occupiers. Our focus on tenant covenants, in sectors which have been less volatile historically, has served us well.
We are pleased to report that despite our investment strategy being tested in the most unwelcome and unexpected circumstances, we have collected over 99% of rent demanded for the March, June and September quarters in 2020. We immediately implemented a management strategy back in March that, despite our team working remotely, kept us in regular contact with occupiers; we knew that 61 of our 64 buildings were open and operational during lockdown and this quickly increased back to the entire 64 buildings by late April.
We remain focused on building our business through working closely with our tenants, acquiring assets that provide solid medium-term income from strong covenants and which are aided by asset management initiatives to enhance our total return. More than two thirds of our financial performance since IPO has come from asset management, not market movement.
The longer-term strategy of having tenants focused on the distribution of domestic UK products, such as food and pharmaceuticals, and avoiding the fashion sector, has provided resilience at a challenging time. Our tenants are typically third-party logistics companies and UK businesses who move staple domestic products around the country to homes and businesses requiring last mile or e-fulfilment services, such as Boots, NHS, Travis Perkins, Booker, DHL, XPO and Sainsbury's.
Environment
Our increasing focus on the environment, as part of our ESG agenda, is proving to be extremely important in terms of investor relations and with our tenant relationships. This issue is high on the agenda of our occupiers, some of whom are the largest logistics operators globally, and our focus in this area is helping our landlord / tenant relationship providing another reason for constructive dialogue and investment into buildings. I am pleased to report that our EPCs are 73% A-C at period end and our investment process involves, amongst other considerations, assessment of energy efficiency ratings to ensure properties are sustainable in the long-term. We aim to improve sustainability in conjunction with our tenants.
Another key focus is to modernise and alter built space as opposed to developing new facilities in the UK greenbelt; this has been a silent part of our strategy but now it has increasing significance.
The Market
Covid-19 has accelerated the e-commerce revolution, but expansion of the industrial and logistics sector is not a new concept. The share of the UK real estate portfolio accounted for by retail has plummeted from approximately 50% to 30% in a decade (source: CBRE); in the same period industrial's share has almost doubled, to 23%.
Over a 40-year history, capital value growth has been slightly higher for industrial versus retail. Due to the positive re-rating of industrial since the 2008/09 global financial crisis trough, we have seen 82% capital growth in 10 years for industrial versus 2% for retail. Retail rents increased more than fourfold from 1980-2007 but have fallen by 10% from their 2008 peak; industrial rents meanwhile have risen 28% from their 2012 low point (source: CBRE).
For about six weeks in Q2 2020, at the start of lockdown, the investment market adopted a 'wait and see' approach. As measures eased over the summer, investors shifted their focus towards the resilient logistics sector, with H1 2020 volumes to June ending down just 7.2% on H1 2019 (source: CBRE). Fierce competition emerged for all sales with institutions looking to increase their exposure to this sector. September also saw the sales launch of some larger portfolios from established logistics investors, looking to cash-in on private equity and sovereign wealth fund interest, and reminding us of the premiums available for specialist platforms.
We still remain able to acquire assets in "off market" trades where vendors sometimes prefer the certainty that we bring through a strong equity position. The vast majority of our acquisitions since IPO have been "off market" which is testament to our connections within the logistics sector and our reputation for swift deal execution.
Warehouse Supply at Low Levels
Since the start of 2020, supply has risen very slightly and now stands at 36.2m sq ft according to CBRE, reflecting a vacancy rate of 6.6%. We have seen a fall in the level of 'Grade A' supply, from 20.4m sq ft to 18.8m sq ft, now accounting for 52% of total supply in this space. It is likely that supply will continue to decline as just 0.9m sq ft of speculative build was announced in Q2, the lowest level since the first quarter of 2017.
This lack of supply is compounded by a variety of factors:
-- High barriers to entry as a result of a high percentage of warehouse development land being taken for Big Box units (those above 300,000 sq ft); plus a time lag of 3-5 years for sites to obtain planning and then be built.
-- Costs of construction rising (100,000 sq ft building at GBP30-35 per sq ft in 2015 and now at GBP60-65 per sq ft in the Midlands).
-- Development land costs doubling in 5 years (Northampton for example; GBP400,000 an acre in 2015 and now at more than GBP900,000 an acre).
-- 35% of all industrial land in the South East of the UK has been lost to higher value uses in last 10 years.
Source: Savills, CBRE, Management information
Supply is already responding to a surge in demand; however, most of the incoming logistics schemes will not help ease market pressure in the urban logistics space in the short term. Also, approximately 82% of space under construction at the end of Q2 2020 was committed through pre-lettings. This trend, which is shared across Europe, follows a shift in occupier preferences; who tend to plan their expansion strategies and secure units that suit their needs. However, this planning process requires years of anticipation and, when supply adapts and focuses on providing sites for build to suit opportunities rather than building speculatively, it diminishes the ability of the market to absorb surges in demand for ready-to-occupy space.
Demand at record levels
Despite the ongoing turmoil, and in some cases because of it, Q2 2020 broke all records for quarterly logistics take-up. Lack of new, ready-to-occupy units has also pushed occupiers towards the second-hand market, which saw its busiest quarter since 2012. The supply side has responded to such overwhelming demand by pressing on with projects that were put on hold during lockdown, trying to get them back on schedule. Third quarter demand in 2020 is expected to show a continuation of this strong take-up.
Total retail sales recovered over the summer as high street stores reopened. However, some behavioural changes formed during lockdown will have a lasting effect. Online retail penetration increased markedly. The unstoppable growth of e-commerce has concentrated five years of growth into just six months. Similarly, online penetration for food stores remains above 10% according to ONS, almost doubling the pre-pandemic share and steering investment from all UK supermarkets to improving their online channels. The majority of retailers are exploring ways to adapt their platforms to provide greater online sales capability.
Investment Activity
In March, the Group successfully raised GBP136.2 million of equity capital against a pipeline of properties. In the six-months to 30 September 2020, the Company has been very focused on the investment front and deployed GBP140.2 million, excluding purchaser costs, into logistics assets across the UK, consisting of two portfolios (14 properties at a total GBP79.1 million), four single let properties (GBP35.7 million) and two development sites (GBP25.4 million). Aside from the development sites, these properties have a WAULT of 6.7 years as at 30 September 2020.
Paloma Portfolio
On 7 April 2020, the Company acquired a portfolio of seven single-let regional distribution warehouses, the Paloma Portfolio, for a total consideration of GBP31.9 million, representing a 6.8% NIY. The portfolio comprises 482,012 sq ft of warehousing with a low capital value of GBP66 per sq ft, low average passing rent of GBP4.86 per sq ft and presents opportunities for asset management. The sites are all in close proximity to established regional transport networks, have good labour availability and are located in well-populated areas where there is strong occupier demand.
Crown Portfolio
On 29 April 2020, the Company acquired the Crown Portfolio as part of a corporate acquisition, which comprises seven properties, for a total consideration of GBP47.2 million, a 7.0% NIY. Tenants include Giant Booker (three sites), Anglian Water, Hermes Parcelnet and Pegler plc. Included within the portfolio is a site in Aberdeen which is multi-let and subject to a 12-month rental guarantee on its two vacant units. Average warehouse size is 84,105 sq ft and the portfolio has a low passing rent of GBP4.96 per sq ft. With a weighted average unexpired lease term of eight years the portfolio offers asset management opportunities as well as secure income from high-quality tenants.
Single let assets
In the financial period the Company also acquired four single let properties which are let to a variety of tenants, providing the distribution of essential products around the UK, including; Unipart (who operate an NHS contract), Iron Mountain and Health Stores. These were purchased off market at an average net initial yield of 5.4%. They are well located near main arterial routes and are well suited to local distribution requirements.
Paloma Crown Single
Portfolio Portfolio assets
------------------------- ----------- ----------- ---------
Purchase price GBP31.9m GBP47.2m GBP35.7m
Net initial yield 6.8% 7.0% 5.4%
Area (sq ft) 482,013 567,271 452,487
Contracted rent GBP2.3m GBP3.3m GBP2.0m
Rent per sq ft GBP4.81 GBP4.96 GBP4.53
Capital value per sq ft GBP66.18 GBP83.16 GBP78.67
Development sites
Peterborough : a commitment was made to acquire a three-acre land site and forward fund a 46,500 sq ft facility on the well-established Peterborough Gateway Logistics Park at a total development cost to the Company of GBP5.8 million. The project is part pre-let to DPD.
Exeter : a commitment was made to acquire a 6-acre development site at Exeter Gateway near junction 29 of the M5 motorway. The development is pre-let to Amazon at completion and is an expansion to the tenant's existing parcel distribution facility. The Company will fund the project to a total cost of GBP8.5 million.
The Company has also acquired an adjoining site, also of 6 acres, which is conditionally pre-let to DHL and will be its local parcel sorting centre with a low site cover and dual service yards. This GBP11.2 million development site is due for practical completion by February 2022. It is envisaged DHL will sign a 15-year lease with five-yearly upward only rent reviews. This opportunity came about as a result of the developer losing a Local Authority funding partner due to Covid-19. The forward funding represents a discounted entry point at a 5.3% NIY in a location known for its constrained supply of logistics facilities. It will create a prime urban logistics park with the potential to own further warehouses developed on the remaining adjacent land.
Pipeline
The management team have been living and breathing logistics for over 25 years, building strong relationships with the vendors, developers and occupiers of Urban Logistics assets. In short, we are uniquely placed to hear of opportunities, which is why over 90% of our acquisitions have been acquired off market since our IPO in April 2016. Our pipeline is constantly evolving through daily interaction with our market contacts.
We can provide a "funding source" to developers which, in turn gives them an exit, similarly we can provide a sale and leaseback option to an occupier or a guaranteed sale execution to an investor. Urban Logistics prides itself on deal execution; doing what it says it will do with expedience.
Off the back of developing a pipeline of opportunities, we initiated a fundraising in September 2020 and succeeded in raising GBP92 million. Together with banking facilities, this will enable the purchase of approximately a further GBP115 million of identified logistics properties.
Financial Review
Net rental income
In the interim period, the portfolio generated net rental income of GBP9.4 million, an increase of GBP3.6 million or 62% compared to the prior period. The increase was driven largely from acquisitions made in the period following the March 2020 equity raise. On a like-for-like basis, net rental income remained broadly flat. However, there are a number of asset management initiatives ongoing which we expect to crystallise in the second half of the year.
Property costs have increased by GBP0.3 million, but our gross to net rental income ratio remains high at 98.4% (Sep 19: 99.2%), illustrating the strength of our business model.
Administrative costs
Administrative costs, which include all operational costs of running the business increased by GBP0.8 million to GBP1.8 million. This is primarily due to the growth in the investment management fee following the March 2020 equity raise, and the corresponding increase in EPRA Net Tangible Assets.
The Investment Management Agreement was reviewed and amended by the Board in conjunction with the March 2020 equity raise. The incentive terms were adjusted such that there is now a ratchet in place for the management fee;
- 0.95 per cent. per annum of the Group's EPRA NTA up to, and including, GBP250 million;
- 0.90 per cent. per annum of the Group's EPRA NTA in excess of GBP250 million and up to and including GBP500 million; and
- 0.85 per cent. per annum of the Group's EPRA NTA in excess of GBP500 million.
EPRA cost ratio
We continue to monitor the operational efficiency of the Group through the EPRA cost ratio, which increased to 20.7% from 18.6% in the prior period. This increase is short-term in nature and as we undertake our investment programme is expected to reduce in future periods which will benefit from the full effect of rental income from acquisitions made in the period.
Net finance costs
On 7 August 2020, the Company entered into a new GBP151 million loan facility with Barclays, Santander and Lloyds, to replace the existing loan facility, totalling GBP76 million, which was due to expire in 2022. This new facility provides a three-year term and includes an option to extend for a further two years.
The weighted average cost of debt for the period was 20 bps lower than the previous period at 2.9% and the Group reported an interest cover ratio of 5.7x.
The net finance costs for the interim period were GBP1.5 million, an increase of GBP0.3 million from the prior period. This is explained by gross drawn debt increasing by GBP46.7 million to GBP122.4 million in August 2020 following the completion of the new loan facility.
IFRS profit and EPRA earnings
IFRS profit after tax for the interim period was GBP9.8 million (Sep 19: GBP9.0 million), representing a basic and diluted earnings per share of 5.20 pence, compared with 10.31 pence for the prior period. This is primarily due to the level of investment activity in the period, where the Group acquired GBP120.8 million of industrial and logistics properties (excluding funds advanced on our forward funding sites). In aggregate, the Group incurred GBP6.1 million of purchaser costs with respect to these property acquisitions, which due to the short ownership period, had only been partially recovered in the half year portfolio valuation. This revaluation deficit in properties acquired in the period was offset by a GBP9.8 million surplus across our existing portfolio, resulting in an overall surplus reported for the interim period of GBP4.3 million compared with GBP5.6 million in the prior period.
EPRA earnings for the interim period increased by GBP2.6 million to GBP6.0 million, however, on a per share basis this reduced by 0.73 pence to 3.19 pence per share. This is primarily due to the pace of investment being affected by the impact of Covid-19 and consequent lockdown. EPRA earnings in the second half of this year will benefit from the full effect of the acquisitions made during this interim period.
A full reconciliation between IFRS profit and EPRA earnings can be found in note 7 of the Notes.
Statement of Financial Position
At 30 September 2020, IFRS net assets attributable to ordinary shareholders were GBP265.2 million (Sep 19: GBP126.1 million), representing a basic and diluted net asset value per share of 140.60 pence (Sep 19: 143.71 pence).
The Group considers EPRA Net Tangible Assets ("EPRA NTA") a key measure of overall performance. At 30 September 2020, EPRA NTA were GBP267.0 million (Sep 19: GBP127.4 million), representing an EPRA NTA per share of 141.57 pence (Sep 19: 145.17 pence).
On a per share basis both IFRS and EPRA net assets decreased in the twelve-months from 30 September 2019. The decrease is primarily due to the acquisition, and associated costs, of investment properties over this interim period. The value created through our asset management initiatives is expected to come through in future financial periods.
A full reconciliation between IFRS and EPRA net assets can be found in note 18 of the Notes.
Cash and net debt
At 30 September 2020, the Group's cash balance was GBP54.4 million, of which GBP52.9 million was readily available. A significant proportion of the cash available to the Group at the period end will be deployed partly into new acquisitions and also to finance the remaining capital commitments of our development properties.
Over the interim period, net debt increased by GBP1.4 million, to GBP68.0 million, representing a loan to value ("LTV") of 19.7%, which is below our medium-term target of 30-40%. As we continue to deploy capital into new assets, we expect our LTV to increase to the lower end of our medium-term target.
Portfolio valuation
The value of the portfolio, which includes forward funded developments, was GBP345.9 million. In the period, the Group invested GBP120.8 million in industrial and logistics properties and advanced GBP13.6 million of funding across five forward funded developments.
The Group recognised a valuation surplus of GBP4.3 million upon revaluation of the portfolio. On a like-for-like basis, the portfolio generated a valuation surplus of GBP9.8 million, or 5.0% (Sep 19: 3.8%).
The portfolio delivered a total property return ("TPR") of 8.0% for the interim period (Sep 19: 6.6%).
Outlook
The logistics market remains in focus with property investors due to its resilience at the current time and the forecast for the next few years shows a continuation of its outperformance. We remain committed to our strategy, based on our experience of the sector and believe we can continue to acquire assets that meet our criteria and allow our assets to outperform.
The UK continues to be one of the fastest growing adopters of online retail sales and there is a requirement for all tenants to develop their e-fulfilment capability accordingly. As such, key geographic regions across the UK are seeing buoyant leasing activity. Alongside our investment programme, we will also focus on maintaining and building existing tenant relationships with a view to securing the Group's reputation as the leader in the smaller size urban logistics market.
The GBP115 million of assets we expect to acquire in the coming months will continue to add to the income and returns of the company.
Richard Moffitt
Independent Review Report to Urban Logistics REIT plc
1. Introduction
We have been engaged by Urban Logistics REIT plc (the "Company") to review the condensed set of financial statements in the interim report for the six months ended 30 September 2020 which comprise the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Cash Flow Statement and the Condensed Consolidated Statement of Changes in Equity and notes to the interim financial statements.
We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information in the condensed set of financial statements.
2. Directors' responsibility
The interim report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report in accordance with AIM Rule 18.
As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union. It is the responsibility of the Directors to ensure that the condensed set of financial statements included in this interim report have been prepared on a basis consistent with that which will be adopted in the Group's annual financial statements.
3. Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim report based on our review.
4. Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom.
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.
5. 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 interim report for the six months ended 30 September 2020 is not prepared, in all material respects, in accordance with the requirements of the AIM rules.
6. Use of our report
This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the AIM Rule 18. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report or the conclusions we have reached.
Nexia Smith & Williamson
Statutory Auditor
Chartered Accountants
25 Moorgate
London
EC2R 6AY
Condensed Consolidated Statement of Comprehensive Income
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
------------------------------------------------------------------ ----- -------------- -------------- -----------
Revenue 5 9,795 5,853 12,601
Property operating expenses (385) (46) (437)
Net rental income 9,410 5,807 12,164
Administrative and other expenses (1,835) (1,045) (2,142)
Long-term incentive plan charge 8 (11) (60) (3,557)
------------------------------------------------------------------ ----- -------------- -------------- -----------
Operating profit before changes in fair value of
investment properties and interest rate derivatives 7,564 4,702 6,465
Changes in fair value of investment property 10 4,289 5,636 5,691
Profit on disposal of investment property - 582 575
------------------------------------------------------------------ ----- -------------- -------------- -----------
Operating profit 11,853 10,920 12,731
Finance income 62 7 7
Finance expense 6 (1,605) (1,272) (2,721)
Changes in fair value of interest rate derivatives 13 (510) (612) (657)
------------------------------------------------------------------ ----- -------------- -------------- -----------
Profit before taxation 9,800 9,043 9,360
------------------------------------------------------------------ ----- -------------- -------------- -----------
Tax credit/(charge) for the period - - -
------------------------------------------------------------------ ----- -------------- -------------- -----------
Profit and total comprehensive income (attributable to the
shareholders) 9,800 9,043 9,360
------------------------------------------------------------------ ----- -------------- -------------- -----------
Earnings per share - basic 7 5.20p 10.31p 9.95p
Earnings per share - diluted 7 5.20p 10.31p 9.95p
EPRA earnings per share - diluted 7 3.19p 3.92p 3.99p
Condensed Consolidated Statement of Financial Position
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
----------------------------------- ----- ------------ ------------ ----------
Non-current assets
Investment property 10 348,610 196,900 209,179
Intangible assets 15 20 17
----------------------------------- ----- ------------ ------------ ----------
Total non-current assets 348,625 196,920 209,196
Current assets
Trade and other receivables 3,171 4,189 1,816
Cash and cash equivalents 54,409 9,103 132,280
----------------------------------- ----- ------------ ------------ ----------
Total current assets 57,580 13,292 134,096
----------------------------------- ----- ------------ ------------ ----------
Total assets 406,205 210,212 343,292
----------------------------------- ----- ------------ ------------ ----------
Current liabilities
Trade and other payables (8,559) (2,762) (2,956)
Deferred rental income (4,219) (2,698) (2,728)
----------------------------------- ----- ------------ ------------ ----------
Total current liabilities (12,778) (5,460) (5,684)
Non-current liabilities
Long term rental deposits (1,486) (953) (1,029)
Lease liability 4 (1,977) (1,865) (1,774)
Interest rate derivatives 13 (1,857) (1,302) (1,347)
Other borrowings (2,797) - -
Bank borrowings 12 (120,119) (74,522) (74,696)
----------------------------------- ----- ------------ ------------ ----------
Total non-current liabilities (128,236) (78,642) (78,846)
----------------------------------- ----- ------------ ------------ ----------
Total liabilities (141,014) (84,102) (84,530)
----------------------------------- ----- ------------ ------------ ----------
Total net assets 265,191 126,110 258,762
----------------------------------- ----- ------------ ------------ ----------
Equity
Share capital 14 1,886 878 1,886
Share premium 15 - 93,937 228,764
Capital reduction reserve 16 228,760 - -
Other reserves 67 254 56
Retained earnings 34,478 31,041 28,056
----------------------------------- -----
Total equity 265,191 126,110 258,762
----------------------------------- ----- ------------ ------------ ----------
Net Asset Value per share basic 18 140.60p 143.71p 137.19p
Net Asset Value per share diluted 18 140.60p 143.71p 137.19p
EPRA NTA per share 18 141.57p 145.17p 137.89p
Condensed Consolidated Cash Flow Statement
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
------------------------------------------------------------- ----- -------------- -------------- -----------
Cash flows from operating activities
Profit for the period (attributable to equity shareholders) 9,800 9,043 9,360
Add: amortisation and depreciation 10 3 13
Less: changes in fair value of investment property 10 (4,289) (5,636) (5,691)
Add: changes in fair value of interest rate derivatives 13 510 612 657
Less: profit on disposal of investment property - (582) (575)
Less: finance income (62) (7) (7)
Add: finance expense 6 1,605 1,272 2,721
Long-term investment plan 8 11 60 2,454
Increase in trade and other receivables (1,856) (2,658) (625)
Increase in trade and other payables 7,557 1,265 1,454
------------------------------------------------------------- ----- -------------- -----------
Cash generated from operations 13,286 3,372 9,761
Net cash flow generated from operating activities 13,286 3,372 9,761
------------------------------------------------------------- ----- -------------- -------------- -----------
Investing activities
Purchase of investment properties 10 (85,591) (20,488) (32,378)
Disposal of investment properties - 18,091 18,085
Acquisition of a subsidiary, net of cash acquired 11 (48,861) - -
Net cash flow used in investing activities (134,452) (2,397) (14,293)
------------------------------------------------------------- ----- -------------- -------------- -----------
Financing activities
Proceeds from issue of ordinary share capital - - 136,200
Proceeds from issue of warrant shares - 59 59
Cost of share issue (4) - (2,951)
Bank borrowings drawn 12 122,389 10,771 10,775
Bank borrowings repaid 12 (75,702) (7,667) (7,667)
Loan arrangement fees paid 12 (1,474) (165) (179)
Other borrowings drawn 2,797 - -
Interest paid 6 (1,395) (1,109) (2,374)
Interest received 62 7 7
Dividends paid to equity holders 9 (3,378) (3,528) (6,818)
------------------------------------------------------------- ----- -------------- -------------- -----------
Net cash flow generated from financing activities 43,295 (1,632) 127,052
------------------------------------------------------------- ----- -------------- -------------- -----------
Net increase in cash and cash equivalents for the period (77,871) (657) 122,520
------------------------------------------------------------- ----- -------------- -------------- -----------
Cash and cash equivalents at start of period 132,280 9,760 9,760
------------------------------------------------------------- ----- -------------- -------------- -----------
Cash and cash equivalents at end of period 54,409 9,103 132,280
------------------------------------------------------------- ----- -------------- -------------- -----------
Condensed Consolidated Statement of Changes in Equity
Share Share Share warrant Capital Other Retained
reduction
capital premium reserves reserve reserves earnings Total
Six months ended 30 September GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2020 (unaudited)
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
1 April 2020 1,886 228,764 - - 56 28,056 258,762
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
Profit for the period - - - - - 9,800 9,800
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
Total comprehensive income - - - - - 9,800 9,800
Dividends to shareholders - - - - - (3,378) (3,378)
Long-term incentive plan - - - - 11 - 11
Issue of Ordinary Shares - (4) - - - - (4)
Transfer to capital reduction
reserve - (228,760) - 228,760 - - -
30 September 2020 1,886 - - 228,760 67 34,478 265,191
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
Six months ended 30 September
2019 (unaudited)
1 April 2019 877 93,877 14 - 194 25,514 120,476
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
Profit for the period - - - - - 9,043 9,043
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
Total comprehensive income - - - - - 9,043 9,043
Dividends to shareholders - - - - - (3,528) (3,528)
Long-term incentive plan - - - - 60 - 60
Exercise of warrant shares 1 60 (2) - - - 59
Expiry of warrant shares - - (12) - - 12 -
30 September 2019 878 93,937 - - 254 31,041 126,110
--------------------------------- -------- ---------- -------------- ----------- --------- --------- --------
Share Share Share warrant Capital Other Retained
reduction
capital premium reserves reserve reserves earnings Total
Year ended 31 March 2020 (audited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- -------- -------------- ----------- --------- --------- --------
1 April 2019 877 93,877 14 - 194 25,514 120,476
------------------------------------- -------- -------- -------------- ----------- --------- --------- --------
Profit for the period - - - - - 9,360 9,360
------------------------------------- -------- -------- -------------- ----------- --------- --------- --------
Total comprehensive income - - - - - 9,360 9,360
Dividends to shareholders - - - - - (6,818) (6,818)
Long-term incentive plan - - - - 2,436 - 2,436
Crystallisation of long-term
incentive plan 18 2,556 - - (2,574) - -
Issue of Ordinary Shares 990 132,259 - - - - 133,249
Redemption of Warrant Shares 1 60 (2) - - - 59
Warrant Shares expired - 12 (12) - - - -
31 March 2020 1,886 228,764 - - 56 28,056 258,762
------------------------------------- -------- -------- -------------- ----------- --------- --------- --------
Notes to the Interim Financial Statements
1. Corporate information
Urban Logistics REIT plc (the "Company") and its subsidiaries (the "Group") carry on the business of property lettings throughout the United Kingdom. The Company is a public limited company incorporated and domiciled in England and Wales and listed on AIM, part of the London Stock Exchange. The registered office address is 124 Sloane Street, London, SW1X 9BW.
2. Basis of preparation
The interim financial information in this report has been prepared using accounting policies consistent with IFRS as adopted by the European Union. IFRS is subject to amendment and interpretation by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee and there is an ongoing process of review and endorsement by the European Commission. The financial information has been prepared on the basis of IFRS that the Directors expect to be adopted by the European Union and applicable as at 31 March 2021. The Group has chosen not to adopt IAS 34 "Interim Financial Statements" in preparing the interim financial information.
The Group's financial information has been prepared on a historical cost basis, except for investment property and derivative interest rate caps which have been measured at fair value.
The functional currency of the Group is considered to be pounds sterling as this is the currency of the primary environment in which the Group operates.
Non-statutory financial statements
Financial information contained in this document does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The statutory accounts for the year ending 31 March 2020 have been delivered to the Registrar of Companies. The audit report was unqualified and did not contain a statement under Section 498 of the Companies Act 2006 however it did include references to two emphasis of matter, which comprised to the following points:
-- Valuation of investment properties
We draw your attention to CBRE Limited's 31 March 2020 independent valuer's report which included a material valuation uncertainty as per VPS 3 and VPGA 10 of the RICS Red Book in relation to the valuation of investment properties. Our opinion is not modified in this respect.
-- Impact of COVID-19
We draw your attention to the going concern statement in the notes to the financial statements, which describes the impact of COVID-19 on the Group. Our opinion is not modified in respect of this matter.
Going concern
The Directors have reviewed the current and projected financial position of the Group, making reasonable assumptions about future trading performance. As part of the review, the Group has considered its cash balances, its debt maturity profile, including undrawn facilities, and the long-term nature of the tenant leases.
On the basis of this review, and after making due enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim Report and financial statements.
3. Significant accounting judgements, estimates and assumptions
The preparation of the financial statements in conformity with the generally accepted accounting practices requires management to make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the statement of financial position date and the reported amounts of revenue and expenses during the reporting period.
Business combinations
The Group has acquired companies that own real estate. At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property.
Where such acquisitions are not judged to be the acquisition of a business, they are not treated as business combinations. Rather the cost to acquire the corporate entity is allocated between identifiable assets and liabilities of the entity based upon their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred tax arises.
Fair value of investment property
The fair value of investment property is market value as determined on a half-yearly basis, to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. Each property has been valued on an individual basis. The valuers use recognised valuation techniques and the principles of IFRS 13. The valuations have been prepared in accordance with RICS Valuation - Global Standards January 2020 (the "Red Book"). Factors reflected include current market conditions, annual rentals, lease lengths and location. The significant methods and assumptions used by the valuers in estimating the fair value of investment property are set out in note 10.
4. Principal accounting policies
The principal accounting policies applied in the preparation of these financial statements are consistent with those applied within the Company's Annual Report and Financial Statements for the year ended 31 March 2020.
Leases
At inception, the Group assesses whether a contract is or contains a lease. This assessment involves the exercise of judgement about whether the Group obtains substantially all the economic benefits from the use of that asset, and whether the Group has the right to direct the use of the asset.
The Group recognises a right-of-use ("ROU") asset and a corresponding lease liability at the commencement date of the lease. The ROU asset is initially measured based on the present value of lease payments, plus initial direct costs and the cost of obligations to refurbish the asset, less any incentives received.
Lease payments generally include fixed payments and variable payments that depend on an index (such as an inflation index). When the lease contains an extension or purchase option that the Group considers reasonably certain to be exercised, the cost of the option is included in the lease payments.
Each lease payment is allocated between the liability and finance cost. The lease payments are discounted using the interest rate implicit in the lease if that rate can be readily determined or if not, the incremental borrowing rate is used. The finance cost is charged to profit or loss over the lease period so as to produce a constant rate of interest on the remaining balance of the liability for each period.
As the head leases meet the definition of investment property, it is initially recognised in accordance with IFRS 16, and then subsequently accounted for as investment property in accordance the Group's accounting policy. After initial recognition the ROU head lease asset is subsequently carried at fair value and the valuation gains and losses recognised within 'Changes in fair value of investment property' in the Statement of Comprehensive Income.
ROU assets are included in the heading Non-current assets, and the lease liability included in the heading Non-current liabilities on the Statement of Financial Position.
Where the ROU asset relates to land or property that meets the definition of investment property under IAS 40, the ROU assets are included in the heading Investment properties, and the lease liability in the heading Non-current liabilities on the Statement of Financial Position.
Revenue recognition
Rental income and service charge income from operating leases on properties owned by the Group is accounted for on a straight-line basis over the term of the lease. Rental income excludes service charges and other costs directly recoverable from tenants.
Lease incentives are amortised on a straight-line basis over the term of the lease.
Dividends
Dividends on equity shares are recognised when they become legally payable. In the case of interim dividends, this is when paid. In the event of a final dividend this will need approval by the shareholders at the Annual General Meeting.
5. Revenue
The Group is involved in UK property ownership and letting and is considered to operate in a single geographical and business segment. The total revenue of the Group for the year was derived from its principal activity, being that of property lettings. No single tenant accounted for more than 10% of the Group's gross rental income.
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
----------------------- ---------------------- ----------------------- ----------------------
Rental income 9,257 5,853 12,158
Service charge income 235 - 238
Licence fee 303 - 205
Total revenue 9,795 5,853 12,601
-------------------------- ---------------------- ----------------------- ----------------------
6. Finance Expense
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
--------------------------------------- ------------ ------------ ----------
Interest on bank borrowings 1,096 1,004 2,101
Swap interest paid 229 105 242
Amortisation of loan arrangement fees 210 163 347
Other interest payable 38 - -
Interest on lease liabilities 32 - 31
---------------------------------------- ------------ ----------
Total 1,605 1,272 2,721
---------------------------------------- ------------ ------------ ----------
7. Earnings per share
The calculation of the basic earnings per share ("EPS") was based on the profit attributable to Ordinary Shareholders divided by the weighted average number of Ordinary Shares outstanding during the period, in accordance with IAS 33.
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------------------------------------------- -------------- -------------- -----------
Profit attributable to Ordinary Shareholders
Total comprehensive income (GBP'000) 9,800 9,043 9,360
------------------------------------------------------------------- -------------- -------------- -----------
Weighted average number of Ordinary Shares in issue 188,616,023 87,738,937 94,083,745
Basic earnings per share (pence) 5.20p 10.31p 9.95p
------------------------------------------------------------------- -------------- -------------- -----------
Number of diluted shares under option/warrant - - -
Weighted average number of Ordinary Shares for the purpose of
dilutive earnings per share 188,616,023 87,738,937 94,083,745
------------------------------------------------------------------- -------------- -------------- -----------
Diluted earnings per share (pence) 5.20p 10.31p 9.95p
------------------------------------------------------------------- -------------- -------------- -----------
Adjustments to remove:
Changes in fair value of investment property (4,289) (5,636) (5,691)
Changes in fair value of interest rate derivatives 510 612 657
(Loss)/profit on disposal of investment properties - (582) (575)
------------------------------------------------------------------- -------------- -------------- -----------
EPRA earnings (GBP'000) 6,021 3,437 3,751
EPRA diluted earnings per share 3.19p 3.92p 3.99p
------------------------------------------------------------------- -------------- -------------- -----------
Adjustments to add back:
LTIP crystallisation - - 3,452
------------------------------------------------------------------- -------------- -------------- -----------
Adjusted earnings (GBP'000) 6,021 3,437 7,203
Adjusted earnings per share 3.19p 3.92p 7.66p
------------------------------------------------------------------- -------------- -------------- -----------
8. Long-term incentive plan
The Company has a LTIP, accounted for as an equity settled share-based payment. At 30 September 2020, Pacific Industrial LLP, an affiliate of Pacific Capital Partners Limited, held 1,000 C Ordinary Shares of GBP0.01 each issued in Urban Logistics Holdings Limited, a subsidiary of the Company.
Fair value at grant Charge for the period
Date granted Class of share GBP'000 GBP'000
-------------- ---------------- -------------------- ----------------------
August 2017 C Ordinary 131 11
An independent valuation of the fair value of these shares was carried out at the grant date. The valuation was prepared in accordance with International Financial Reporting Standard 2 ("IFRS 2") - Share Based Payments. These shares were subsequently revalued at the modification date, in March 2020, with no material change.
Following the completion of the equity issue, in March 2020, the Company and the Manager agreed to amend how the LTIP is assessed for the period from the Revised First Calculation Date to 30 September 2023 (the "Second Calculation Date").
As a result of the changes:
-- The EPRA NAV element will be 5 per cent. of the amount by which the Company's EPRA NAV at the Second Calculation Date exceeds the Company's EPRA NAV as at the Revised First Calculation Date and an annualised 10 per cent. hurdle thereon (adjusted for any new issue of shares; all distributions including inter alia dividends, and any returns of capital).
-- The share price element will be 5 per cent. of the amount by which the market capitalisation of the Company at the Second Calculation Date exceeds the market capitalisation of the Company as at the Revised First Calculation Date and an annualised 10 per cent. hurdle thereon (adjusted for any new issue of shares, all distribution including inter alia dividends, and any returns of capital).
The LTIP payment shall be capped at three times the average annual management fees paid from 7 February 2020 to the Second Calculation Date.
If there is a change of control, the LTIP will continue to be assessed by applying the relevant offer price of the EPRA NAV element and the share price element calculations at the date of the change of control.
The LTIP will be paid in shares of Urban Logistics REIT plc or, at the Board's discretion, in cash.
9. Dividends
30 Sep 20 30 Sep 19 31 Mar 20
GBP'000 GBP'000 GBP'000
------------------------------------------------ ---------- ---------- ----------
Ordinary dividends paid
2019: Second interim dividend: 4.02p per share - 3,528 3,528
2020: First interim dividend: 3.75p per share - - 3,290
2020: Interim dividend: 3.85p per share 3,378 - -
Total dividends paid in the period (GBP000's) 3,378 3,528 6,818
--------------------------------------------------- ---------- ---------- ----------
Total dividends paid in the period 3.85p 4.02p 7.77p
On 14 February 2020, the Company declared an interim dividend of 3.85 pence per Ordinary Share in respect of the financial year ended 31 March 2020. The dividend was paid as a property income distribution ("PID") on 21 April 2020, taking total dividends paid with respect to the financial year ended 31 March 2020 to 7.60 pence per share.
On 25 September 2020, the Company declared an interim dividend for the first half of the financial year ended 31 March 2021 of 3.25 pence per Ordinary Share. The dividend was paid as a property income distribution on 23 October 2020 to Shareholders on the register on 9 October 2020.
10. Investment properties
In accordance with IAS 40 "Investment Property", investment property is carried at its fair value as determined by an external valuer. This valuation has been conducted by CBRE and has been prepared as at 30 September 2020, in accordance with the RICS valuation - Professional Standards UK January 2020 (the "Red Book").
The valuations have been prepared in accordance with those recommended by the International Valuation Standards Committee and are consistent with the principles in IFRS 13.
Investment Investment
properties properties Development
freehold leasehold Properties Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------------------------- ----------- ----------- ------------ --------
At 1 April 2020 151,560 46,020 9,400 206,980
Property additions through acquisitions 102,403 18,362 13,639 134,404
Capital expenditure 72 196 - 268
Transfer from development properties 15,240 - (15,240) -
Revaluation surplus in year 3,136 3,522 (2,369) 4,289
-------------------------------------------------------------------- ----------- ----------- ------------ --------
At 30 September 2020 272,411 68,100 5,430 345,941
Add: tenant lease incentives 367 236 - 603
-------------------------------------------------------------------- ----------- ----------- ------------ --------
Investment properties excluding head lease ROU assets at 30
September 2020 272,778 68,336 5,430 346,544
Add: right of use asset - 2,066 - 2,066
-------------------------------------------------------------------- ----------- ----------- ------------ --------
Total investment properties at 30 September 2020 272,778 70,402 5,430 348,610
-------------------------------------------------------------------- ----------- ----------- ------------ --------
Total rental income for the interim period recognised in the Condensed Consolidated Statement of Comprehensive Income amounted to GBP9.8 million (Sep 19: GBP5.9 million).
Upon application of IFRS 16, tenant lease incentives have been reclassified from Other debtors to Investment properties. Tenant lease incentives at 30 September 2020 totalled GBP0.60 million (Sep 19: GBP0.74 million). The financial information relating to the six-months ended 30 September 2019 has not been restated given the immaterial amounts involved.
11. Acquisition of subsidiaries
On 29 April 2020, the Group obtained sole control of EOS Property Unit Trust, a property investment company incorporated in Jersey, through the acquisition of the entire units in the Trust.
This acquisition was not judged to be the acquisition of a business and, therefore, is not treated as a business combination. Rather, the cost to acquire the Trust is allocated between identifiable assets and liabilities of the Trust based upon its relative fair value at the acquisition date. Accordingly, no goodwill or additional deferred tax arises.
The table below sets out the initial fair values to the Group in respect of this acquisition.
Book Redemption Fair Value
Value of Liabilities Adjustments Total
GBP'000 GBP'000 GBP'000 GBP'000
Investment properties 47,174 - 1,913 49,087
Cash 695 - - 695
Other receivables 1 - (3) (2)
Finance liabilities (28,141) 28,115 - (26)
Other liabilities (870) - (23) (894)
---------------------------------------------- --------- --------------- ------------ --------
Total 18,859 28,115 1,887 48,861
---------------------------------------------- --------- --------------- ------------ --------
Net cash outflow arising on acquisition
Total consideration 49,556
Cash and cash equivalents acquired 695
------------------------------------------- --------- --------------- ------------ --------
Cash consideration net of cash acquired 48,861
------------------------------------------- --------- --------------- ------------ --------
12. Bank borrowings and reconciliation of liabilities to cash flows from financing activities
Bank Borrowings
GBP'000
-------------------------------------------------------------------------------------- ----------------
Balance at 1 April 2020 74,696
Bank borrowings drawn in the year 122,389
Bank borrowings repaid in the year (75,702)
Loan arrangement fees paid (1,474)
Non-cash movements:
Amortisation of loan arrangement fees 210
--------------------------------------------------------------------------------------- ----------------
Total bank borrowings per the Condensed Consolidated
Statement of Financial Position 120,119
--------------------------------------------------------------------------------------- ----------------
Being:
Drawn debt 122,389
Unamortised loan arrangement fees (2,270)
--------------------------------------------------------------------------------------- ----------------
Total bank borrowings per the Condensed Consolidated Statement of Financial Position 120,119
--------------------------------------------------------------------------------------- ----------------
On 7 August, the Group entered into a new GBP151 million loan facility with Barclays, Santander and Lloyds, to replace the existing loan facility totalling GBP76 million. This new facility provides a three-year term and includes an option to extend for a further two-years. At 30 September 2020, GBP28.6 million of this new facility was undrawn.
13. Interest rate derivatives
The Group has used interest rate swaps to mitigate exposure to interest rate risk. The total fair value of these contracts is recorded in the Statement of Financial Position. The interest rate derivatives are marked to market by the relevant counterparty banks on a quarterly basis in accordance with IFRS 9. Any movement in the fair value of the interest rate derivatives are taken to finance costs in the Statement of Comprehensive Income.
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
GBP'000 GBP'000 GBP'000
---------------------------------------------------------- -------------- -------------- -----------
Non-current liabilities: derivative interest rate swaps:
At beginning of period (1,347) (690) (690)
Change in fair value in the period (510) (612) (657)
------------------------------------------------------------- -------------- -------------- -----------
Total (1,857) (1,302) (1,347)
------------------------------------------------------------- -------------- -------------- -----------
14. Share capital
30 Sep 20 30 Sep 20
(unaudited) (unaudited)
Number GBP'000
------------------------------------- ---------------- ---------------------
Issued and fully paid up at 1p each 188,616,023 1,886
----------------------------------------- ---------------- ---------------------
At beginning of period 188,616,023 1,886
At 30 September 2020 188,616,023 1,886
----------------------------------------- ---------------- ---------------------
15. Share premium
Share premium relates to amounts subscribed for share capital in excess of nominal value less any associated issue costs that have been capitalised.
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
----------------------------------------------- ------------ ------------ ----------
Balance brought forward 228,764 93,877 93,877
Share premium on the issue of ordinary shares - 60 135,270
Expiry of warrant shares - - 12
Share issue costs (4) - (2,951)
Crystallisation of LTIP - - 2,556
Transfer to capital reduction reserve (228,760) - -
----------------------------------------------- ------------ ------------ ----------
At 30 September 2020 - 93,937 228,764
-------------------------------------------------- ------------ ------------ ----------
16. Capital reduction reserve
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------- ------------ ------------ ----------
Balance brought forward - - -
Transfer from share premium 228,760 - -
---------------------------- ------------ ------------ ----------
At 30 September 2020 228,760 - -
---------------------------- ------------ ------------ ----------
On 8 August 2020, the Company, by way of a Special Resolution, cancelled the then value of its share premium, by an Order of the High Court of Justice, Chancery Division. As a result, GBP228.8 million has been transferred from the share premium reserve. The capital reduction reserve is classified as a distributable reserve.
17. Related party transactions
The terms and conditions of the Investment Management Agreement are described in the Management Engagement Committee Report. During the interim period, the amount paid for services provided by Pacific Capital Partners Limited (the "Manager") totalled GBP1,246,722 (Sep 19: GBP587,568).
Long-term incentive plan
Under the terms of the Company's long-term incentive plan, at 30 September 2020 Pacific Industrial LLP, an affiliate of Pacific Capital Partners Limited, has subscribed for shares in Urban Logistics Holdings Limited, a subsidiary of Urban Logistics REIT plc. Further details have been provided in note 8.
Acquisition of investment properties
During the interim period, the Group incurred fees totalling GBP542,795 (Sep 19: GBP315,570) from M1 Agency LLP, a partnership in which Richard Moffitt is a member. These fees were incurred in the acquisition and sale of investment properties.
For the transactions listed above, Richard Moffitt's benefit is derived from the profit allocation he receives from M1 Agency LLP as a member and not from the transaction.
The Board, with the assistance of the Manager, and excluding Richard Moffitt, reviews and approves each fee payable to M1 Agency LLP, and ensures the fees are in line with market rates and on standard commercial property terms.
18. Net asset value per share
Basic NAV per share is calculated by dividing net assets in the Condensed Consolidated Statement of Financial Position attributable to Ordinary Shareholders by the number of Ordinary shares at the end of the period.
Net assets have been calculated as follows:
30 Sep 20 30 Sep 19 31 Mar 20
Net assets per Condensed Consolidated Statement of Financial Position
(GBP'000) 265,191 126,110 258,762
Adjustments for:
Fair value of intertest rate derivatives (GBP'000) 1,857 1,302 1,347
Intangible assets (GBP'000) (15) (20) (17)
EPRA Net Tangible Assets (GBP'000) 267,033 127,392 260,092
Ordinary shares in issue at period end (basic and diluted) 188,616,023 87,751,604 188,616,023
------------------------------------------------------------------------- ------------ ----------- ------------
IFRS NAV per share (basic and diluted) 140.60p 143.71p 137.19p
EPRA NTA per share 141.57p 145.17p 137.89p
In October 2019, the European Public Real Estate Association ("EPRA") published new best practice recommendations (BPR) for financial disclosures by public real estate companies. The BPR introduced three new measures for reporting net asset value: EPRA net reinstatement value (NRV), EPRA net tangible assets (NTA) and EPRA net disposal value (NDV). These new measures being effective for accounting periods starting on 1 January 2020 and have been adopted by the Group in reporting the financial position as at 30 September 2020.
The Group considers EPRA NTA to be the most relevant measure for its operating activities, therefore, will be adopted as the Group's primary measure of net asset value, replacing previously reported EPRA NAV.
A reconciliation of the three new net asset value measurements is provided in Supplementary Information.
19. Post balance sheet events
On 5 October 2020, the Group acquired a 43,881 sq ft distribution unit for GBP2.9 million, representing a NIY of 6.25%.
On 19 October 2020, the Company raised GBP92.3 million through the issue of 66,429,798 Ordinary Shares at an issue price of 139.0 pence per share.
On 30 October 2020, the Group acquired a distribution warehouse in Braintree for GBP11.2 million, representing a NIY of 5.25%.
On 4 November 2020, the Group acquired a 71,384 sq ft distribution warehouse for GBP9.1 million, representing a NIY of 6.6%.
On 6 November 2020, the Group acquired a site in Exeter for a total consideration of GBP5.1 million, representing a NIY of 8.0%.
On 6 November 2020, the Group acquired a warehouse in Warrington for a total consideration of GBP4.8 million, representing a NIY of 7.4%.
On 9 November 2020, the Group completed the acquisition of a logistics site in Hoddesdon for a total consideration of GBP34.3 million, representing a NIY of 5.4%.
Supplementary Information
i. EPRA performance measures summary
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
--------------------------------------------------- -------------- -------------- -----------
EPRA EPS (diluted) 3.19p 3.92p 3.99p
EPRA net tangible asset value 141.57p 145.17p 137.89p
EPRA net reinstatement value 153.87p 160.09p 145.26p
EPRA net disposal value 140.60p 143.71p 137.19p
---------------------------------------------------- -------------- -------------- -----------
EPRA net initial yield 5.5% 6.2% 5.6%
EPRA "topped up" net initial yield 5.8% 6.2% 5.6%
EPRA vacancy rate 3.0% 0.0% 2.4%
EPRA cost ratio (including vacant property costs) 20.7% 18.6% 46.9%
EPRA cost ratio (excluding vacant property costs) 20.4% 18.5% 46.8%
---------------------------------------------------- -------------- -------------- -----------
ii. Income statement
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------------------------- -------------- -------------- -----------
Gross rental income 9,795 5,853 12,601
Property operating costs (385) (46) (437)
--------------------------------------------- -------------- -------------- -----------
Net rental income 9,410 5,807 12,164
Administrative expenses (1,835) (1,045) (2,142)
Long-term incentive plan charge (11) (60) (3,557)
--------------------------------------------- -------------- -------------- -----------
Operating profit before interest and tax 7,564 4,702 6,465
Net finance costs (1,543) (1,265) (2,714)
--------------------------------------------- -------------- -------------- -----------
Profit before tax 6,021 3,437 3,751
Tax on EPRA earnings - - -
-------------------------------------------- -------------- -------------- -----------
EPRA earnings 6,021 3,437 3,751
--------------------------------------------- -------------- -------------- -----------
Weighted average number of Ordinary Shares 188,616,023 87,738,937 94,083,745
--------------------------------------------- -------------- -------------- -----------
EPRA earnings per share 3.19p 3.92p 3.99p
--------------------------------------------- -------------- -------------- -----------
iii. Balance sheet
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
GBP'000 GBP'000 GBP'000
---------------------------------------- --------------- --------------- ------------
Investment properties 348,610 196,900 209,179
Other net assets 36,700 3,732 124,279
Net borrowings (120,119) (74,522) (74,696)
Total shareholders' equity 265,191 126,110 258,762
Adjustments to calculate EPRA NTA:
Fair value of interest rate derivative 1,857 1,302 1,347
Intangible assets (15) (20) (17)
EPRA net assets 267,033 127,392 260,092
------------------------------------------ --------------- --------------- ------------
Ordinary Shares in issue at year end
(basic and diluted) 188,616,023 87,751,604 188,616,023
EPRA NTA per share 141.57p 145.17p 137.89p
------------------------------------------ --------------- --------------- ------------
In October 2019, the European Public Real Estate Association ("EPRA") published new best practice recommendations (BPR) for financial disclosures by public real estate companies. The BPR introduced three new measures for reporting net asset value: EPRA net reinstatement value (NRV), EPRA net tangible assets (NTA) and EPRA net disposal value (NDV). These new measures being effective for accounting periods starting on 1 January 2020 and have been adopted by the Group in reporting the financial position as at 30 September 2020.
The Group considers EPRA NTA to be the most relevant measure for its operating activities, therefore, will be adopted as the Group's primary measure of net asset value, replacing previously reported EPRA NAV.
A reconciliation of the three new net asset value measurements is provided in the table below.
Current Measures
----------------------------------------
EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
30 September 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
IFRS equity attributable to shareholders 265,191 265,191 265,191 265,191 265,191
Fair value of interest rate derivatives 1,857 1,857 - 1,857 -
Intangible assets (15) - - - -
Real estate transfer tax - 23,178 - - -
EPRA net asset value 267,033 290,226 265,191 267,048 265,191
Diluted shares (number) 188,616,023 188,616,023 188,616,023 188,616,023 188,616,023
EPRA net asset value per share 141.57p 153.87p 140.60p 141.58p 140.60p
------------------------------------------ ------------ ------------ ------------ ------------ ------------
Current Measures
----------------------------------------
EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
30 September 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
IFRS equity attributable to
shareholders 126,110 126,110 126,110 126,110 126,110
Fair value of interest rate derivatives 1,302 1,302 - 1,302 -
Intangible assets (20) - - - -
Real estate transfer tax - 13,067 - - -
EPRA net asset value 127,392 140,479 126,110 127,412 126,110
Diluted shares (number) 87,751,604 87,751,604 87,751,604 87,751,604 87,751,604
EPRA net asset value per share 145.17p 160.09p 143.71p 145.20p 143.71p
Current Measures
----------------------------------------
EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
31 March 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
IFRS equity attributable to
shareholders 258,762 258,762 258,762 258,762 258,762
Fair value of interest rate derivatives 1,347 1,347 - 1,347 -
Intangible assets (17) - - - -
Real estate transfer tax - 13,868 - - -
EPRA net asset value 260,092 273,977 258,762 260,109 258,762
Diluted shares (number) 188,616,023 188,616,023 188,616,023 188,616,023 188,616,023
EPRA net asset value per share 137.89p 145.26p 137.19p 137.90p 137.19p
iv. EPRA net initial yield and 'topped up' net initial yield
30 Sep 20 30 Sep 19 31 Mar 20
GBP'000 GBP'000 GBP'000
----------------------------------------------------- ---------- ---------- ----------
Total properties per financial statements 348,610 196,900 209,179
Less head lease right of use asset (2,066) (1,865) (1,858)
Less development properties (5,430) (4,300) (9,400)
Completed property portfolio 341,114 190,735 197,921
Add notional purchasers' costs 22,514 12,919 13,342
Gross up completed property portfolio valuation (A) 363,628 203,654 211,263
Annualised passing rent 20,319 12,737 11,989
Less irrecoverable property outgoings (182) (63) (63)
------------------------------------------------------- ---------- ---------- ----------
Annualised net rents (B) 20,137 12,674 11,926
------------------------------------------------------- ---------- ---------- ----------
Contractual rental increases for rent free period 1,019 - -
'Topped up' annualised net rent ('C) 21,156 12,674 11,926
------------------------------------------------------- ---------- ---------- ----------
EPRA net initial yield (B/A) 5.5% 6.2% 5.6%
------------------------------------------------------- ---------- ---------- ----------
EPRA 'topped up' net initial yield (C/A) 5.8% 6.2% 5.6%
------------------------------------------------------- ---------- ---------- ----------
v. EPRA vacancy rate
30 Sep 20 30 Sep 19 31 Mar 20
GBP'000 GBP'000 GBP'000
------------------------------------------------------------------------ ---------- ---------- ----------
Annualised potential rental value of vacant properties 666 - 317
Annualised potential rental value for the completed property portfolio 22,159 12,942 13,286
EPRA vacancy rate 3.0% 0.0% 2.4%
-------------------------------------------------------------------------- ---------- ---------- ----------
vi. EPRA cost ratio
Six months to Six months to Year ended
30 Sep 20 30 Sep 19 31 Mar 20
Total cost ratio GBP'000 GBP'000 GBP'000
------------------------------------------------------------------- -------------- -------------- -----------
Costs
Property operating expenses(1) 385 46 437
Administrative expenses 1,835 1,045 2,142
Less: service charge income (68) - (116)
Less: service charge costs recovered through rents but not
separately invoiced (167) - (122)
Less: ground rents (8) (1) (8)
Total costs including vacant property costs (A) 1,977 1,090 2,333
--------------------------------------------------------------------- -------------- -------------- -----------
Group vacant property costs (32) (9) (8)
Total costs excluding vacant property costs (B) 1,945 1,081 2,325
--------------------------------------------------------------------- -------------- -------------- -----------
Gross rental income
Gross rental income 9,795 5,853 12,601
Less: ground rents paid (32) (1) (31)
Less: service charge income (68) - (116)
Less: service charge costs recovered through rents but not
separately invoiced (167) - (122)
Total gross rental income (C) 9,528 5,852 12,332
--------------------------------------------------------------------- -------------- -------------- -----------
Total cost including vacant property costs (A/C) 20.7% 18.6% 18.9%
Total cost excluding vacant property costs (B/C) 20.4% 18.5% 18.9%
--------------------------------------------------------------------- -------------- -------------- -----------
EPRA cost ratio
Total costs (A) 1,977 1,090 2,333
Long-term incentive plan crystallisation - - 3,452
EPRA total costs including vacant property costs (D) 1,977 1,090 5,785
Vacant property costs (32) (9) (8)
EPRA total costs excluding vacant property costs (E) 1,945 1,081 5,777
EPRA cost ratio (including vacant property costs (D/C) 20.7% 18.6% 46.9%
EPRA cost ratio (excluding vacant property costs (E/C) 20.4% 18.5% 46.8%
(1) Property operating expenses are cost of sales. These typically include Utilities, Business rates, Letting fees, and other direct costs.
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