TIDMWHR
RNS Number : 6077O
Warehouse REIT PLC
02 June 2020
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EC No. 596/2014).
2 June 2020
Warehouse REIT plc
(the "Company" or "Warehouse REIT")
PRELIMINARY RESULTS ANNOUNCEMENT FOR THE YEARED 31 MARCH
2020
A YEAR OF STRATEGIC PROGRESS REINFORCING THE RESILIENCE
OF THE BUSINESS
Warehouse REIT, the AIM-listed specialist warehouse investor,
today announces its audited preliminary results for the year ended
31 March 2020.
Neil Kirton, Chairman of Warehouse REIT, commented:
"The Group continued to perform well during the period and made
further strategic progress. We added high-quality assets to the
portfolio and extracted value from the existing assets through
active asset management. We are confident that we have built a
resilient business, with around 560 tenants across numerous
industry sectors and a portfolio of assets that are attractive to a
wide range of potential occupiers. The Board is therefore confident
that we are well placed to navigate the short-term disruption
caused by COVID-19 and that we are in a strong position to resume
our growth."
RESULTS OVERVIEW
-- A positive year for the Group with further strategic progress
and robust operational and financial performance, despite the
outbreak of the COVID-19 pandemic in the final weeks of the
period
-- The UK occupational market remains strong as a result of
structural trends underpinning the growth in internet shopping and
'last-mile' delivery. COVID-19 has meant a change in people's
behaviour which is accelerating these trends, contributing to
ongoing demand for warehouse space for logistics and
distribution
-- Rapid response to COVID-19 has enabled us to work flexibly
with tenants on the required health and safety measures, supporting
their operations and strengthening tenant relationships. The Board
continues to have regular and more frequent discussions and
oversight of current issues during the pandemic
-- Key performance highlights for the year
o Declared a fourth interim dividend of 1.6 pence per share for
the quarter to 31 March 2020, thereby meeting our revised dividend
target. This dividend will be paid in full as a property income
distribution ("PID") on 3 July 2020, to shareholders on the
register at 12 June 2020. Paid or declared dividends of 6.2 pence
per share, in line with our increased target for the year
o Portfolio valued at GBP450.5 million at 31 March 2020, a
like-for-like increase of 2.5% on the valuation at 31 March 2019.
The valuation of the same portfolio at 31 January 2020 was GBP454.9
million, a like-for-like increase of 4.1% on 31 March 2019. The
decrease in value since January reflects the uncertainty caused by
COVID-19
o EPRA net asset value ("NAV") per share of 109.5 pence (31
March 2019: 109.7 pence), reflecting positive unrealised valuation
surplus less the costs of acquisitions and the dilutive impact of
the April 2019 share issue (which together totalled 6.8 pence per
share), as well as capital expenditure on asset improvements and
the impact of COVID-19 on the year-end portfolio valuation
o Total accounting return of 5.4% for the year was below our 10%
target, as a result of the flat NAV over the year, having absorbed
the impact of the April 2019 share issue and costs associated with
deploying the capital
-- Current trading and outlook
o Good progress with collection of March 2020 contracted rents,
with payments made or agreed for 94.0% of contracted rent as at 27
May 2020. We continue to work with the remaining tenants to secure
payment as soon as possible
o The business is resilient and well placed to continue to
navigate short-term market disruption. As we progress through the
quarter to June 2020, we continue to review the quarterly earnings
available for distribution, in line with the REIT obligations to
pay 90% of earnings as dividends. We continue to target a total
dividend per share of 6.2 pence for the year ending 31 March 2021
and will monitor this as the impact of COVID-19 is better
understood. We intend to declare the dividend for the first quarter
of the year ending 31 March 2021 in August 2020, as usual
o We have a strong focus on preserving our balance sheet
strength over the coming months. At 31 March 2020, we had available
cash of GBP5.5 million and GBP33.5 million headroom in our undrawn
facilities, and were operating well within our banking
covenants
o Looking further ahead, we see potential for further market
rental growth, continued value creation through asset management
and an attractive acquisition pipeline. Prior to the onset of
COVID-19, we had identified a significant pipeline of attractive
acquisitions. We still see good opportunities to continue with our
investment strategy, with much of this pipeline still in place, and
a proportion of it now at potentially more attractive values, as
well as several new opportunities emerging in recent months. The
pipeline, which has an increased focus on e-commerce opportunities,
amounts to approximately GBP350.0 million, of which over GBP100.0
million are in exclusive or final negotiations or have solicitors
instructed and approximately a further GBP250.0 million are in
detailed negotiations
o We are focused on continuing to increase our exposure to the
digital economy through the assets we acquire and the tenants we
work with as well as further lengthening the WAULT on our
portfolio. The Company is again considering an equity fundraising
to enable it to capitalise on its pipeline and is commencing a
period of engagement with existing and potential new investors
FINANCIAL HIGHLIGHTS(1)
Year to 31 March 2020 2019
Revenue GBP30.1m GBP22.0m
Operating profit before gains on GBP21.1m GBP13.0m
investment properties
IFRS profit before tax GBP20.7m GBP22.8m
IFRS earnings per share 8.6p 13.7p
EPRA earnings per share 6.3p 5.1p
Adjusted earnings per share(2) 6.5p 6.4p
Dividends per share(3) 6.2p 6.0p
Total accounting return(4) 5.4% 13.3%
Total cost ratio(5) 27.1% 29.4%
As at 31 March 2020 2019
Portfolio valuation GBP450.5m GBP307.4m
IFRS net asset value GBP263.1m GBP182.3m
IFRS net asset value per share 109.5p 109.8p
EPRA net asset value per share 109.5p 109.7p
Loan to value ratio 40.2% 39.7%
-- Successfully raised gross proceeds of GBP76.5 million through
an equity raise in April 2019, with strong support from existing
and new shareholders. A second equity raise in March 2020 was
postponed as a result of the impact of COVID-19 on global equity
markets. The Company is again considering an equity fundraising to
enable it to capitalise on its pipeline and is commencing a period
of engagement with existing and potential new investors
-- Acquisitions totalling GBP149.7 million completed during the
year, adding 1.8 million sq ft to the portfolio at a net initial
yield ("NIY") of 6.6%
-- Portfolio valuation at 31 March 2020 comprised GBP433.5
million in relation to the investment portfolio of completed assets
and GBP17.0 million of development property and land (31 March
2019: GBP304.2 million of completed assets and GBP3.2 million of
development property and land)
-- Bank debt of GBP186.5 million at the year end, resulting in a
loan to value ratio ("LTV") of 40.2% (31 March 2019: 39.7%), at the
upper end of our target range. This will be managed below 40%
through the further disposal of a small number of non-core
assets
-- The Group entered into a new five-year GBP220.0 million debt
facility with a club of four banks in January 2020, reducing the
cost of debt and extending maturity to January 2025
OPERATIONAL HIGHLIGHTS
As at 31 March(6) 2020 2019
Contracted rent GBP29.7m GBP21.6m
Passing rent GBP27.8m GBP20.6m
WAULT(7) to expiry 5.2 years 4.6 years
WAULT to first break 4.0 years 3.1 years
EPRA net initial yield 5.9% 6.1%
Occupancy 93.4% 92.0%
-- Continued progress unlocking value from the portfolio through active asset management:
o Completed 75 lettings of vacant space, generating rent of
GBP1.8 million per annum, 8.1% ahead of 31 March 2019 estimated
rental value ("ERV"). ERV across the portfolio has grown by 2.1%,
on a like-for-like basis
o Renewed 98 leases, securing income of GBP3.1 million, a 19.7%
increase over previously contracted rents, including a major
renewal with Alliance Healthcare (Boots)
o Capital expenditure on enhancements to the investment
portfolio of GBP3.5 million spent or committed in the year (year
ended 31 March 2019: GBP2.1 million), with rents responding well to
this investment
o Occupancy increased to 93.4% (31 March 2019: 92.0%),
reflecting successful asset management activity. Effective
occupancy, which excludes units under offer and units undergoing
refurbishment, was 96.5% (31 March 2019: 94.9%)
o Continued to progress opportunities to generate value from
surplus or adjacent land
-- Successfully invested the proceeds of the April 2019 equity
raise, acquiring 15 assets at a net initial yield of 6.6%
o Further enhanced the quality of the tenant mix, adding strong
e-commerce focused covenants such as John Lewis Partnership and
Direct Wines, as well as increasing exposure to existing major
tenants such as Amazon
-- Extended WAULT to 5.2 years at 31 March 2020 (31 March 2019:
4.6 years), reflecting the benefits of the acquisitions in the year
and asset management initiatives
-- Completed the disposal of 12 smaller or non-core assets for a
combined consideration of GBP16.7 million, reflecting a NIY of
6.6%, an 8.3% premium to 31 March 2019 book values and a 10.7%
premium to cost
Post year end highlights
-- In April 2020, the Group acquired Knowsley Business Park, a
116,900 sq ft multi-let warehouse investment opposite the Group's
Nexus, Knowsley asset, for GBP7.9 million, reflecting a net initial
yield of 7.1%. The business park comprises five units and is fully
let to two strong covenants, with a WAULT of 6.4 years on
acquisition
-- Since 31 March 2020 the Group has completed the disposal of
two warehouses for a combined consideration of GBP1.0 million, in
line with their 31 March 2020 book values
Andrew Bird, Managing Director of the Investment Advisor,
Tilstone Partners Limited, added:
"The occupational market for urban warehouses remains strong,
with occupiers seeking logistics and distribution space as
consumers increasingly shop online during the COVID-19 pandemic.
This may well accelerate the structural trends in the market, which
are underpinned by the growth in internet shopping and last-mile
delivery. In the short term, we are working closely with the
Group's tenants to support them where necessary, while remaining
rigorously focused on cash collection."
Notes
1. The Group presents adjusted earnings per share ("EPS"),
dividends per share, total accounting return, total cost ratio, LTV
and EPRA Best Practice Recommendations as Alternative Performance
Measures ("APMs") to assist stakeholders in assessing performance
alongside the Group's statutory results reported under IFRS. APMs
are among the key performance indicators used by the Board to
assess the Group's performance and are used by research analysts
covering the Group. EPRA Best Practice Recommendations have been
disclosed to facilitate comparison with the Group's peers through
consistent reporting of key real estate specific performance
measures. Certain other APMs may not be directly comparable with
other companies' adjusted measures and are not intended to be a
substitute for, or superior to, any IFRS measures of performance.
EPRA EPS is set out in note 12. EPRA NAV is set out in note 23. A
glossary of terms is shown at the end of this report.
2. Adjusted earnings per share is based on IFRS earnings
excluding unrealised fair value gains on investment properties,
profit on disposal of investment properties and one-off costs,
which were a property and acquisition provision in the year to 31
March 2019, as set out in note 19 and accelerated amortisation of
loan issue costs following the debt refinance and the costs of the
postponed equity raise in the year to 31 March 2020, as set out in
note 12.
3. Dividends paid and declared in relation to the year including
the fourth interim dividend to be paid on 3 July 2020. Dividends
paid during the year totalled 6.1 pence per share (year ended 31
March 2019: 6.0 pence per share).
4. Total accounting return based on decrease in EPRA NAV per
share of 0.2 pence plus dividends paid per share of 6.1 pence, as a
percentage of the opening EPRA NAV of 109.7 pence per share.
5. Total cost ratio represents the EPRA cost ratio including
direct vacancy cost but excluding one-off costs.
6. All references to contracted rent, passing rent, ERV, WAULT,
NIY, net reversionary yield and occupancy in this report relate
only to the investment portfolio of completed assets and exclude
development property and land. Development property and land is
where the whole or a material part of an estate is identified as
having potential for development. Such assets are classified as
development property and land until development is completed and
they have the potential to be fully income generating.
7. Weighted average unexpired lease term.
Meeting and audio webcast
A meeting for investors and analysts will be held at 9:30
today
The conference call dial-in for the meeting is: +44 (0) 33 0606
1122 (Room Number: 183405; Participant Passcode: 9311)
For the live webcast see:
https://webcasting.brrmedia.co.uk/broadcast/5ec6543131da814c9fc75b12
Enquiries:
Warehouse REIT plc via FTI Consulting
Tilstone Partners Limited +44 (0) 1244 470
Andrew Bird 090
G10 Capital Limited (part of the Lawson
Conner Group),
acting as AIFM +44 (0) 20 3696
Maria Glew, Gerhard Grueter 1302
Peel Hunt (Financial Adviser, Nominated
Adviser and Broker) +44 (0)20 7418
Capel Irwin, Harry Nicholas, Carl Gough 8900
FTI Consulting (Financial PR & IR Adviser
to the Company)
Dido Laurimore, Ellie Sweeney, Richard +44 (0) 20 3727
Gotla 1000
Further information on Warehouse REIT is available on its
website:
http://www.warehousereitplc.co.uk
Notes to editors:
Warehouse REIT plc is an AIM-listed specialist warehouse
investor.
Our purpose is to own and manage warehouses in economically
vibrant urban areas across the UK, providing the space our tenants
need for their businesses to thrive.
As we grow, our vision is to become the UK's warehouse provider
of choice.
The Company is an alternative investment fund ("AIF") for the
purposes of the Alternative Investment Fund Managers Directive
(2011/61/EU) ("AIFMD") and as such is required to have an
investment manager who is duly authorised to undertake the role of
an alternative investment fund manager ("AIFM"). The Investment
Manager is currently G10 Capital Limited.
Forward-looking Statements
Certain information contained in these preliminary results may
constitute forward looking information. This information relates to
future events or occurrences or the Company's future performance.
All information other than information of historical fact is
forward looking information. The use of any of the words
"anticipate", "plan", "continue", "estimate", "expect", "may",
"will", "project", "should", "believe", "predict" and "potential"
and similar expressions are intended to identify forward looking
information. This information involves known and unknown risks,
uncertainties and other factors that may cause actual results or
events to differ materially from those anticipated in such
forward-looking information. No assurance can be given that this
information will prove to be correct and such forward looking
information included in this announcement should not be relied
upon. Forward-looking information speaks only as of the date of
this announcement.
The forward-looking information included in this announcement is
expressly qualified by this cautionary statement and is made as of
the date of this announcement. The Company and its Group does not
undertake any obligation to publicly update or revise any
forward-looking information except as required by applicable
securities laws.
CHAIRMAN'S STATEMENT
This has been a positive year for the Group, as we continued to
successfully implement our strategy and deliver robust financial
performance. Since the COVID-19 pandemic took hold towards the end
of the financial year, our priority has been to protect the health
and wellbeing of our stakeholders. The Board believes the business
is resilient and well placed to navigate any ongoing market
disruption, and that the long-term structural trends in our market
mean our investment case remains compelling.
Overview
The financial year started with the conclusion of a successful
equity raise, which generated net proceeds of GBP74.8 million. We
deployed the new equity and associated debt before the end of
September, three months faster than assumed in our business plan.
The capital raise was well timed, during a period when open-ended
funds were selling assets to satisfy redemptions.
In total, we invested GBP149.7 million, acquiring 15 assets
during the year. These high-quality properties are located in
economically active areas across the UK, where we expect to
continue to outperform market rental growth. The acquisitions have
enhanced both our tenant base and our income stream, and have
near-term asset management potential. The purchase price of assets
generally remains well below replacement cost and the blended NIY
of our acquisitions was accretive at 6.6%.
Across the portfolio, we continue to focus on multi-let estates,
which offer diversification of risk and present more value-creation
opportunities than single-let properties. Approximately 80% of our
assets by ERV are multi-let. These are complemented by the quality
of our single-let assets, which are leased to some of our strongest
tenant covenants, such as Direct Wines, John Lewis Partnership and
Amazon.
Tilstone's pro-active approach and 'space intelligence', which
underpins our strong tenant relationships and deep understanding of
their needs, have enabled us to extract further asset management
gains from the portfolio. Capital expenditure continues to support
new lettings and lease renewals and to drive rental growth. Among
nearly 100 lease renewals in the year, a highlight was re --
letting our unit in Basingstoke to Alliance Healthcare (Boots) on a
new ten-year lease without a break, at a 42.3% uplift to the
previous rent. We completed 75 new lettings, at rental levels more
than 8% above ERV. Like-for-like rental growth across the portfolio
was 2.0% in the year and, pleasingly, our WAULT to expiry is now
5.2 years compared with 4.6 years at the time of our last Annual
Report. We also continued to progress our development plans on some
of the underutilised land in the portfolio, notably at Queenslie in
Glasgow and Nexus in Knowsley.
In my previous reports, I have discussed our vigilant monitoring
of tenant risk. During the year, we further enhanced our
understanding of our 560 tenants by commissioning expert analysis
by Income Analytics that assigned the equivalent of a bond rating
to each one. In aggregate, our tenants generate a rating equivalent
to BAA3, which is strong investment grade. Unlike a bond, this
high-quality income stream is backed by the assets we own, which
can be re-let should an individual tenant fail. We therefore
believe our highly diversified income stream is defensive and
compares favourably with other sectors of the real estate market.
Tilstone's knowledge of our tenants is also helping us to engage
with them on a case-by-case basis during the COVID-19 pandemic, so
we can provide constructive support where necessary.
Sustainability is an important theme for the Group and we have
worked hard this year to define our approach and begin to capture
the data that will allow us to measure our performance.
Dividends and total accounting return
At the start of the year ended 31 March 2020, our dividend
target was to pay at least 6.0 pence per share for the financial
year. As a result, we paid two quarterly dividends of 1.5 pence per
share each in respect of the first half of the year. Having rapidly
invested our available capital by September, we were able to raise
our dividend target for the year to 6.2 pence per share. We
therefore paid a covered dividend of 1.6 pence per share in respect
of the quarter to 31 December 2019 and have today declared a fourth
interim dividend of 1.6 pence per share, for the quarter to 31
March 2020, thereby meeting our revised dividend target. This
dividend will be paid in full as a property income distribution
("PID") on 3 July 2020, to shareholders on the register at 12 June
2020.
The total dividend is an important element of our total
accounting return, which was 5.4% for the year. This was less than
our target of 10% per annum, as a result of the EPRA NAV being flat
year on year, as described below.
Financial results
The EPRA NAV per share at 31 March 2020 was 109.5 pence (31
March 2019: 109.7 pence). The dilutive effect of the April 2019
share issue and the costs associated with making the acquisitions
together reduced the NAV by 6.8 pence per share. The year-end asset
valuation was also affected by the economic uncertainty caused by
COVID-19, which reduced the valuation of the assets by GBP5.1
million between 31 January and 31 March 2020. Had the 31 January
2020 valuation been rolled forward to the year end, the NAV at 31
March 2020 would have been 2.1 pence per share higher.
Financing
In light of the pandemic, we have been even more focused on
financial discipline and maintaining a strong balance sheet. At the
year end, net debt stood at GBP181.0 million, giving an LTV of
40.2% (31 March 2019: net debt of GBP122.1 million and LTV of
39.7%). At the same date, we had approximately GBP5.5 million of
cash and GBP33.5 million of headroom in our debt facilities,
providing substantial operational flexibility. Our asset management
programme contributed to our robust balance sheet, with the
disposal of non-core assets raising GBP16.7 million of proceeds in
the second half of the year.
In January 2020, we agreed new debt facilities totalling
GBP220.0 million with a club of four lenders. This increased the
size of our facilities by GBP10 million, lengthened their maturity
to at least 2025 and reduced our cost of debt. The facilities give
us significant headroom on both an LTV and interest cover basis.
Valuations would need to fall by 24.7% or rents by 57.0%, when
compared with 31 March 2020, before these covenants would be
breached.
On 5 March 2020, we announced our intention to raise GBP100
million, and potentially up to GBP250 million, through an equity
raise, enabling us to acquire an attractive pipeline of investment
opportunities. Our meetings with investors showed strong appetite
for the proposed issue. However, as a result of the rapid onset of
the COVID-19 pandemic, we made the prudent decision to adjourn the
general meeting to approve the share issue. In the meantime, we are
rigorously focused on preserving the Group's balance sheet strength
and maintaining the availability of cash and headroom within our
banking facilities.
Governance
There were no changes to Board membership during the year. I am
pleased to report that the latest evaluation of the Board's
performance has shown that the Directors continued to work well as
a team and particularly well with Tilstone and specifically in the
last few weeks they have given significantly increased time to
fulfil their stewardship responsibilities during the COVID-19
pandemic.
Strong governance is fundamental to successful delivery of our
strategy. The Board is responsible for setting the Group's strategy
and overseeing its implementation, and we have ensured the
Directors have an appropriate combination of skills, expertise and
experience to contribute effectively. We look to understand and
take account of our stakeholders' needs, and ensure they are
reflected in both our strategy and the way the Group operates.
During the year, we undertook our second strategy day since the
IPO, to retest the proposition we set out at that time. The day was
chaired by Non -- Executive Director Aimée Pitman and attended by
all the Board members and a number of Tilstone's senior staff. The
topics we reviewed included the sector dynamics, the deployment of
capital, acquisitions and asset management, the Group's financial
outlook, the management of investor relations and our longer-term
ambition for the Group. We concluded that the strategy, which
Tilstone is successfully implementing, continues to be the right
one for our business.
Outlook
Demand for warehouse space has remained positive since the start
of the pandemic, as companies seek additional space for logistics
and distribution. We have continued to see interest in the
remaining vacant space in the portfolio. Since the year end, we
have been rigorously focused on collecting the rent that became due
at the end of March. We have made good progress and as at 27 May
2020, we had received or agreed payment of 94.0% of the contracted
rent. We continue to talk to the remaining tenants about
arrangements for collecting the outstanding income.
The Group's wide range of tenants, across different industries,
means that we are not significantly exposed to any one tenant or
business sector. The properties we own are also flexible and
adaptable to the needs of different occupiers, which will support
our ability to re-let any space that does become vacant.
Looking further ahead, we do not believe the pandemic will
materially alter the structural changes that are driving demand for
warehouse space. Indeed, with many more people discovering the
convenience of buying online, COVID-19 may accelerate the shift
from high street retail to the internet. In addition, businesses
who have previously relied on just-in-time deliveries may look to
increase their resilience by holding more stock or switching to
UK-based suppliers, with a corresponding requirement for warehouse
space. The continued imbalance of demand and supply of warehouse
space means we see the potential for further rental growth and we
are well placed to capitalise on this, with the average rent across
the portfolio being GBP5.45 per sq ft.
Prior to the onset of COVID-19, we had identified a significant
pipeline of attractive acquisitions. We still see good
opportunities to continue with our investment strategy, with much
of this pipeline still in place, and a proportion of it now at
potentially more attractive values, as well as several new
opportunities emerging in recent months. We are focused on
continuing to increase our exposure to the digital economy through
the assets we acquire and the tenants we work with as well as
further lengthening the WAULT on our portfolio. The Company is
again considering an equity fundraising to enable it to capitalise
on its pipeline and is commencing a period of engagement with
existing and potential new investors. We also have more value to
extract from the existing portfolio, through our active asset
management. In summary, we are confident of a positive future for
the Group and further value creation for shareholders, tenants and
other stakeholders in the years ahead.
Neil Kirton
Chairman
1 June 2020
OUR OBJECTIVES AND STRATEGY
We aim to create value through a top -- down approach to
investment, supported by an appropriate mix of financing, followed
by hands -- on asset management with best -- in-class
processes.
Our objectives
We aim to provide shareholders with an attractive level of
income, together with the potential for income and capital
growth.
Dividends
6.2 pence Our initial target Outcome in 2019/20 Plan for 2020/21
was a total dividend Achieved We continue to
of 6.0 pence We declared total target a total
per share for dividends of dividend per
the year ended 6.2 pence per share of 6.2
31 March 2020, share. pence for the
which we increased year ending 31
to 6.2 pence March 2021 and
in January 2020. will monitor
this as the impact
of COVID-19 is
better understood.
Total accounting
return
10% per annum At least 10% Outcome in 2019/20 Plan for 2020/21
per annum, through Not achieved We continue to
a combination The total accounting target a return
of dividends return for the of at least 10%
and growth in year was 5.4%. per annum.
NAV.
Our strategy
To achieve our objectives, we follow the strategy set out
below:
Investment During the year Post year end Measured by
strategy we: we: Like-for-like
Location * acquired 15 assets for GBP149.7 million, at a NIY of * acquired a 116,900 sq ft multi-let warehouse valuation
We look for 6.6%; investment opposite the Group's Nexus, Knowsley ass increase
attractive et, EPRA NAV
sites, close for GBP7.9 million, fully let to two strong covenan Dividend per
to major * added 1.8 million sq ft to the portfolio; and ts, share
transport with a WAULT of 6.4 years on acquisition.
links and Principal
large * further enhanced the quality of the tenant mix, risks
conurbations, adding strong new covenants and increasing exposure Poor
with a high to existing major tenants. performance
level of the
of occupier Investment
demand Advisor
and suitable Poor returns
local on portfolio
workforce. Acquisition
Optionality of
We look for inappropriate
buildings assets or
with a range unrecognised
of different liabilities,
uses which or a breach
offer of
long -- term investment
flexibility, strategy
such as the
ability
to sub-divide
larger units,
and which have
the potential
to change
permitted
use.
Buildings
We look
through
the lens of
the
occupier, to
ensure the
buildings
match their
current
and future
needs.
Multi -- let
warehouse
estates
spread risk
and
offer more
asset
management
opportunities
than
single-let
assets. Rental
increases can
also be
reflected
across the
rest
of the estate.
We generally
target
buildings
of less than
100,000 sq ft,
with a typical
unit size of
5,000 to
25,000
sq ft.
Asset During the year Post year end Measured by
management we: we: Occupancy
strategy * invested GBP3.5 million, or 0.82% of GAV, in capital * completed the disposal of two warehouses for a Like-for-like
We budget to expenditure, in line with the long-term target of combined consideration of GBP1.0 million, in line rental income
spend 0.75% of 0.75% per year; with their 31 March 2020 book values. growth
our gross Rental
asset increases
value ("GAV") * completed 75 new lettings, at rents 8.1% ahead of agreed versus
on capital ERV; valuer's ERV
expenditure
each year, Principal
with * completed 98 lease renewals, with a 19.8% increase in risks
a target headline rents; Poor
return performance
of at least of the
10%. * improved occupancy from 92.0% at 31 March 2019 to Investment
We also target 93.4%; Advisor
a vacancy
level
of 5-7%, since * disposed of 12 assets for a total of GBP16.7 million,
vacant reflecting an 8.3% premium to 31 March 2019 book
properties values; and
allow us to
carry
out asset * progressed our development projects at Queenslie,
management Glasgow, and Nexus, Knowsley.
activities.
Improving the
sustainability
performance of
our assets,
for
example by
improving
their energy
efficiency, is
an important
part of
maintaining
property
values
and occupier
appeal.
Financial During the year Post year end Measured by
strategy we: we: Loan to value
We fund the * raised GBP76.5 million of new equity in April 2019; * raised further disposal proceeds of GBP1.0 million. ratio
business
through Principal
shareholders' * entered into a new five-year GBP220.0 million debt risks
equity, bank facility with a syndicate of four banks, extending Significant
debt and any the term, reducing the margin and increasing the volatility
disposal total facility size; and in interest
proceeds rates
we generate. Inability to
We look to * raised disposal proceeds of GBP16.7 million. attract
raise investors
equity at Breach of
times borrowing
when we can policy or
make loan
investments covenants
that
are accretive
to
shareholders.
Our strategy
for debt
financing
is to maintain
a prudent
level
of debt, with
a target LTV
of 30-40% in
the longer
term.
We look to
hedge
the interest
on a
proportion
of our debt,
to provide
certainty
over our
financing
costs.
KEY PERFORMANCE INDICATORS
We use the following key performance indicators to monitor our
performance and strategic progress.
Occupancy
2018: 93.1%
2019: 92.0%
2020: 93.4%
Description
Total open market rental value of the units leased divided by
total open market rental value, excluding development property and
land, equivalent to one minus the ERPA vacancy rate.
Why is this important?
Shows our ability to retain tenants at renewal and to let vacant
space, which in turn underpins our income and dividend
payments.
How we performed
Occupancy increased from 92.0% at 31 March 2019 to 93.4% at 31
March 2020, reflecting the success of our asset management
initiatives.
Like-for-like rental income growth
2019: 2.1%
2020: 2.0%
Description
The increase in contracted rent of units owned throughout the
period under review, expressed as a percentage of the contracted
rent at the start of the period, excluding development property and
land and units undergoing refurbishment.
Why is this important?
Shows our ability to identify and acquire attractive properties
and grow average rents over time.
How we performed
We continued to deliver good rental growth from the portfolio,
with 2.0% like-for-like growth, showing the benefits of asset
management and the underlying rental growth in the market.
Rental increases agreed versus valuer's ERV
2018: 7.3%
2019: 10.0%
2020: 5.1%
Description
The difference between the contracted rent achieved on new
lettings and renewals and the ERV assessed by the external valuer,
expressed as a percentage above the ERV at the start of the
period.
Why is this important?
Shows our ability to achieve superior rental growth through
asset management and the attractiveness of our assets to potential
tenants.
How we performed
We maintained our track record of achieving rental levels ahead
of ERV.
Like-for-like valuation increase
2019: 4.3%
2020: 2.5%
Description
The increase in the valuation of properties owned throughout the
period under review, expressed as a percentage of the valuation at
the start of the period, net of capital expenditure.
Why is this important?
Shows our ability to acquire the right quality of assets at
attractive valuations, add value through asset management and drive
increased capital values by capturing rental growth.
How we performed
The valuation of the portfolio continued to increase during the
year, although the year-end valuation was held back by the outbreak
of COVID-19.
Total cost ratio
2018: 34.5%
2019: 29.4%
2020: 27.1%
Description
EPRA cost ratio including direct vacancy cost but excluding
one-off costs. The EPRA cost ratio is the sum of property expenses
and administration expenses as a percentage of gross rental
income.
Why is this important?
Shows our ability to effectively control our cost base, which in
turn supports dividend payments to shareholders.
How we performed
The total cost ratio declined further during the year,
demonstrating the benefits of scale. The reduction reflects our
cost control and the operational gearing in the business.
EPRA NAV per share
2018: 102.1p
2019: 109.7p
2020: 109.5p
Description
The value of net assets, adjusted to include properties and
other investment interests at fair value and to exclude items not
expected to be realised in a long -- term property business, such
as the fair value of any financial derivatives and deferred taxes
on property valuation surpluses, divided by the number of shares
outstanding at the balance sheet date.
Why is this important?
Shows our ability to acquire well and to increase capital values
through active asset management.
How we performed
The EPRA NAV per share declined by 0.2 pence during the year,
largely due to the increase in the portfolio's valuation being
offset by the dilutive effects of the share issue and the costs of
acquisitions during the year.
Dividends per share
2018: 2.5p
2019: 6.0p
2020: 6.2p
Description
The total amount of dividends paid or declared in respect of the
financial year divided by the number of shares in issue in the
period.
Why is this important?
Shows our ability to construct a portfolio that delivers a
secure and growing income, which underpins progressive dividend
payments to shareholders.
How we performed
We achieved our increased dividend target for the year of 6.2
pence per share.
Loan to value ratio
2018: 40.5%
2019: 39.7%
2020: 40.2%
Description
Gross debt less cash, short-term deposits and liquid
investments, divided by the aggregate value of properties and
investments.
Why is this important?
Shows our ability to balance the additional portfolio
diversification and returns that come from using debt, with the
need to manage risk through prudent financing.
How we performed
We continue to maintain a prudent level of debt, which is
largely in line with our target and well within our covenant
limits.
INVESTMENT ADVISOR'S REPORT
This was a good year for the Group, which saw strong progress
both strategically and operationally. The Company fully invested
the proceeds of the April 2019 equity raise, along with associated
gearing, three months ahead of the business plan. We continued to
create value through active asset management, including success
with renewals and new lettings, targeted capital expenditure to
drive rental growth and advised upon further disposals of non-core
assets, which generated funds for reinvestment.
This section of the report provides further details of the
Group's strategic, operational and financial performance. In
addition, the section towards the end of this document sets out the
Group's performance using a range of EPRA measures.
Acquisitions
The Group acquired 42 warehouse units during the year, adding
1.8 million sq ft of space to the portfolio. The assets acquired
included a number of larger units, whose purchase was made possible
by the Group's increasing scale. The aggregate purchase price was
GBP140.0 million, excluding the associated transaction costs of
GBP9.7 million.
The acquisitions added more than 37 tenants, further enhancing
the tenant covenant profile and increasing the WAULT at point of
purchase. This in turn improved the quality of the income stream
that underpins dividends to shareholders.
First quarter acquisitions
Industrial unit in Wakefield
The Group acquired a 53,000 sq ft single-let industrial unit in
Wakefield for GBP4.2 million, reflecting a NIY of 6.3%. The unit is
let to Stapleton's Tyre Services Limited, one of the UK's largest
distributors of car and van tyres. On acquisition, the tenant
agreed a new 15-year lease at GBP5.25 per sq ft, with CPI-linked
rent reviews and tenant-only break options at years five and ten.
Wakefield is widely considered to be Yorkshire's premier
distribution location.
Distribution units in Northampton and an Aberdeen industrial
estate
In Northampton, the Group acquired the freehold of two John
Lewis distribution units, totalling 336,000 sq ft. John Lewis has
the highest available 5A1 covenant rating and has been in
occupation for over 25 years, using the premises to serve their
online deliveries. It signed new five-year leases, with a headline
rent of GBP1,836,000 per annum across both units. The units are
within the 'Golden Triangle' on the Brackmills Industrial Estate,
one of the UK's premier distribution locations, with excellent
access to the M1 motorway.
In Aberdeen, the Group acquired the long-leasehold Murcar
Industrial Estate. On acquisition, the 125,000 sq ft estate was
100% let to a range of occupiers, with a WAULT of 8.0 years (5.2
years to break) and total net passing rent of GBP776,000 per annum.
The 8.5-acre site is within the Bridge of Don Industrial Estate, a
major industrial and business area, which fronts the A90 dual
carriageway and is four miles from Aberdeen city centre.
These acquisitions had a combined cost of GBP37.0 million and a
blended NIY of 6.6%.
Three warehouse units in Tewkesbury
The Group purchased a further three units, providing an
additional 54,600 sq ft next to its existing holding at Tewkesbury
Business Park. The purchase price of GBP3.8 million reflected a NIY
of 6.9% and is comfortably below replacement cost at less than
GBP70 per sq ft. The WAULT on acquisition was 7.0 years.
Second quarter acquisitions
Warehouse assets in Chorley and Doncaster
In Chorley, Lancashire, the Group acquired a 47,500 sq ft
modern, purpose-built warehouse for GBP3.6 million. The property
had recently undergone a complete refurbishment and is let to an
established manufacturing business as its distribution centre,
generating a net passing rent of approximately GBP260,000 per
annum. The lease had 4.5 years remaining on acquisition.
The Group also increased its holding on the popular Sky Business
Park in Doncaster, acquiring units 1 and 2 which total 20,700 sq ft
of space, to add to the 36,000 sq ft already owned across six
units. The tenant signed a new ten-year lease with a break at year
five, with a passing rent of GBP5.81 per sq ft, which compares
favourably with lettings the Group has recently achieved on the
estate. The purchase price was GBP1.7 million.
The blended NIY of the two purchases was 6.8%.
1 million sq ft portfolio
In September 2019, the Group acquired a portfolio of one
multi-let and seven single-let warehouses, totalling 995,100 sq ft.
The purchase price was GBP70.0 million, with a further payment of
up to GBP5.0 million due on or before September 2023, and reflected
a NIY of 6.7%. The assets were fully let on acquisition and were
generating annual rent of GBP5.38 million. In the six months since
acquisition, the portfolio has increased in value by 7.4%.
The assets in the portfolio range in size from approximately
50,000 sq ft to 217,000 sq ft and are all close to major
conurbations and on or near arterial routes. All the income is
secured against D&B-rated 'minimum risk' covenants, with
occupiers including Amazon, Direct Wines, Iron Mountain and Sytner
Group. The portfolio had a WAULT of 5.3 years on acquisition and a
low average rent of GBP5.40 per sq ft. A number of short leases and
below-market rents offer scope to unlock value through active asset
management.
Third quarter acquisitions
In October 2019, the Group acquired the Midpoint Estate, a
multi-let estate of 20 high-quality individual warehouse units. The
purchase price was GBP15.5 million, reflecting a NIY of 6.6%. The
estate totals 182,500 sq ft, with units ranging from 2,300 sq ft to
31,600 sq ft. It is strategically located off the M6 motorway in
Middlewich, Cheshire, and offers a number of opportunities to grow
rents and the WAULT through pro-active lease regears and
renewals.
Future acquisitions
The acquisitions made in the first three quarters of the
financial year, plus the purchase of Knowsley Business Park (see
post year end activity below) meant that the Group had fully
invested the April 2019 equity raise, the associated additional
gearing and the proceeds of disposals made during the year (see
asset management below). With the March 2020 equity raise being
postponed due to equity market conditions after the outbreak of
COVID-19, the Group is now focused on preserving liquidity and
maintaining its balance sheet strength, with further acquisitions
only likely once conditions enable the postponed equity raise to
proceed.
Asset management
The Group continued to undertake a wide range of asset
management activities during the year, contributing to rental
growth and supporting capital values.
To support this work, we have further expanded our asset
management team. We recruited an additional asset manager during
the year, with a senior asset manager starting work on 1 April
2020. This recruitment is in anticipation of growth in the business
and will ensure we continue to have the capacity required to
effectively manage the Group's tenant relationships and its
assets.
Disposals
The Group's asset management strategy includes disposing of
mature, lower-yielding or non-core assets, so it can redeploy the
capital to generate further income growth and higher total
returns.
During the second half of the year, the Group completed the
disposal of 12 smaller or non-core properties for a combined price
of GBP16.7 million. The assets sold included office and retail
space, smaller workshops and vacant warehouse space, including
assets where we had completed the business plan. The aggregate
sales proceeds were 8.3% ahead of the March 2019 book values and
10.7% ahead of cost, reflecting a blended net initial yield of
6.6%.
Capital expenditure
Carefully targeted capital expenditure is key to enhancing the
quality of the Group's assets. It enables us to attract occupiers,
increase rental levels and capital values, and support occupiers'
growth plans, through value-enhancing improvements or extensions to
units, in exchange for higher rents or extended leases. The Group
therefore aims to invest around 0.75% of its GAV in capital
expenditure each year. This excludes investment in development
projects and is calculated based on GAV excluding developments.
During the year, the Group spent or committed GBP3.5 million, or
0.82% of GAV, on capital expenditure (year ended 31 March 2019:
GBP2.1 million, or 0.69% of GAV) on enhancements to the investment
portfolio. Significant elements of this spend included:
-- the full refurbishment of vacant units at the Group's
multi-let asset in Witney, Oxfordshire. As part of this, the Group
received a surrender premium and dilapidations payment of GBP0.8
million, providing effective income cover until early 2020 and a
contribution to the refurbishment works;
-- re-roofing a number of units at Nexus, Knowsley;
-- the full refurbishment of vacant units at Farthing Road, Ipswich; and
-- refurbishment and improvement works at Stadium Industrial Estate, Luton.
At the year end, approximately 2.1% of the portfolio's ERV was
under refurbishment. The COVID-19 pandemic means new capital
expenditure projects are generally on hold at present, although the
Group may fund investment for occupiers with good covenants and who
are willing to extend their leases sufficiently.
Leasing activity
The Group continued to successfully let vacant space and renew
leases during the year, supported by the capital expenditure
described above. Our 'space intelligence' is fundamental to the
Group's leasing activity, enabling us to understand occupiers'
space requirements by building strong relationships with them.
The activity during the year maintained the Group's track record
of leasing outperformance, which has seen it achieve new lettings
on average around 8% ahead of ERV since IPO, along with substantial
rental growth at lease renewal.
In total, the Group completed 173 new leases or lease renewals
during the year.
New leases
The Group secured 75 new leases on 296,900 sq ft of space during
the year ended 31 March 2020. These will generate annual rent of
GBP1.8 million, which is 8.1% ahead of the 31 March 2019 ERV. On
average, new leases continue to lengthen, with 16 leases of ten
years or more signed in the period. The level of incentives is
broadly steady.
Key examples of new lettings in the year included:
-- a ten-year lease with no break, to a building materials
manufacturer and distributor, on a 20,300 sq ft unit at Gawsworth
Court, Warrington. The rent of GBP137,000 per annum represents a
21.9% premium to the 31 March 2019 ERV;
-- a ten-year lease, without a break, on a unit at Vantage
Point, Leeds, at a rental level 22.9% ahead of ERV;
-- a ten-year lease with no break at the Midpoint Industrial
Estate, at a rent of GBP161,500 per annum, in line with ERV;
-- a ten-year lease with a break at year six on a 5,600 sq ft
letting to a sports charity at Yale Business Park, Ipswich, at
GBP43,000 per annum, 28.4% ahead of the 31 March 2019 ERV;
-- a ten-year lease, with a break at year five, on a unit at
Kingsditch Trading Estate, Cheltenham, at a rental level 13.2%
ahead of ERV;
-- a ten-year lease, with a break at year five, on a unit at New
England Industrial Estate, Hoddesdon, at a rent of GBP150,000 per
annum, in line with ERV;
-- a nine-year lease, with a break at year six, on a unit at
Shieling Court, Corby, at a rental level 11.1% ahead of ERV;
and
-- a five-year lease, with a break at year three, on a unit at
Kingsditch Trading Estate, at a rental level 17.4% ahead of
ERV.
Lease renewals
The Group continues to retain the majority of its occupiers,
with 76.4% remaining in occupation at lease expiry and 68.1% with a
break arising in the period. Of the 31.9% that did exercise breaks,
73.3% were re-let within the period at rents 16.5% ahead of
previous rents.
In total, there were 98 lease renewals on 533,000 sq ft of space
during the year. The renewals resulted in average rental growth of
19.7% above the previous passing rent and 3.5% above the ERV.
Examples of notable lease renewals in the period included:
-- a major renewal with Alliance Healthcare (Distribution)
Limited, the distribution arm of Walgreens Boots Alliance Inc., at
Daneshill Industrial Estate in Basingstoke. The ten-year lease
renewal, with no breaks, in return for market standard incentives,
was agreed at a 42.3% uplift to the previous rent, with a headline
rent of GBP925,000 per annum or GBP8.19 per sq ft. Boots has
occupied the 113,300 sq ft unit since 1989;
-- a ten-year lease, without a break, on a unit at Kingsditch
Trading Estate, Cheltenham at a rental level 19.1% ahead of the
previous rent;
-- a ten-year lease, without a break, on units at Queenslie
Industrial Estate, Glasgow, at a rental level 8.8% ahead of the
previous rent;
-- a ten-year lease, with a break at year five, on a unit at
Witan Park, Witney, at a rental level 24.6% ahead of the previous
rent;
-- a six-year lease, with a break at year three, on a unit at
Yale Business Park, Ipswich, at a rental level 37.8% ahead of the
previous rent;
-- a seven-year lease on a 2,500 sq ft unit at Smeed Dean
Centre, Sittingbourne, with the average rent over the lease term
representing a 63.6% premium to the previous rent;
-- a four-year lease to a fluid technology company on an 11,700
sq ft unit at Goodridge Business Park, Gloucester, at 18.9% ahead
of the previous rent; and
-- a lease extension of over ten years on 41,600 sq ft agreed
with Tristel PLC, a manufacturer of infection prevention,
contamination control and hygiene products, at Lynx Business Park,
Newmarket, Cambridgeshire.
Development activity
The Group looks to extract value from unused or underutilised
land either on or adjacent to its estates. It will not build new
accommodation without first achieving a pre-let on at least some of
the proposed new space.
At Queenslie Industrial Estate, Glasgow, the Group received
outline planning permission during the prior year for up to 250,000
sq ft of employment-led space. The plans for the site continued to
progress during the year ended 31 March 2020, including starting to
clear the planning conditions and obtaining a number of offers on a
portion of the land from a petrol filling station and other
roadside users. Securing pre-lets will enable the Group to seek
detailed planning consent for the occupiers' specific requirements.
Occupancy in the existing estate at Queenslie remains high.
At Nexus, Knowsley, the Group secured planning consent in
October 2019 on 4.2 acres of surplus land. The proposed development
will comprise up to 35,000 sq ft of warehouse space, a petrol
station with ancillary uses of 5,000 sq ft and a 2,200 sq ft
drive-through. Discussions with potential occupiers are progressing
well.
At Radway Green Business Park, Crewe, the Group owns an estate
occupying a site area of 25 acres, most of which has development
potential, and is working in conjunction with the owner of the
neighbouring site to submit a planning application to develop the
combined ownerships. Radway Green makes up the majority of the
Group's development property and land by value. The Group also owns
land with development potential at Tramway Industrial Estate,
Banbury. The Group's plans at both Radway Green and Tramway are in
their early stages and little expenditure has been incurred to date
in progressing these plans.
Portfolio analysis
The acquisitions and asset management activity during the year
contributed to the portfolio valuation of GBP450.5 million at the
year end, across a total of 6.2 million sq ft of space. The table
below analyses the portfolio as at 31 March 2020:
Warehouse Occupancy Valuation Net Reversionary WAULT WAULT Average Average
sector GBPm initial yield to expiry to break rent capital
yield Years Years GBPper value
sq ft GBPper
sq ft
Warehouse
- storage
and distribution
use 94.6% 355.8 6.2% 6.9% 5.3 4.0 5.35 74.7
Warehouse
- light
manufacture
and assembly
use 87.8% 51.7 7.0% 8.2% 4.9 3.9 4.76 58.5
Warehouse
- trade
use 96.8% 11.7 7.4% 7.7% 6.4 5.2 7.27 87.4
Warehouse
- retail
use 89.0% 8.7 9.3% 10.4% 4.1 4.1 12.58 112.6
Workspace
and office
use 84.0% 5.6 7.8% 9.9% 3.5 2.4 12.18 108.7
Total investment
portfolio 93.4% 433.5 6.4% 7.2% 5.2 4.0 5.45 73.4
Development
property
and land 80.9% 17.0 3.8% 1.2% 1.9 1.3 6.80 70.2
Total portfolio 93.3% 450.5 6.3% 6.9% 5.1 3.9 5.47 73.2
At the year end, the contracted rent roll for the Group's
investment portfolio, which comprises the completed buildings and
excludes development property and land, was GBP29.7 million,
compared with the ERV of GBP33.1 million. In addition, the Group
had contracted rent of GBP0.7 million from development property.
Contracted rents increased by 2.0% on a like-for-like basis,
showing the benefits of asset management and the underlying rental
growth in the market. EPRA like-for-like rental income growth was
GBP1.4 million increasing rental income from GBP17.8 million to
GBP19.2 million on the like-for-like portfolio, excluding
development property and land, of GBP303.0 million. This
represented an 8.0% increase, ahead of the 2.0% above, largely due
to surrender premiums received and back dated rent reviews settled
during the year. Excluding surrender premiums received the increase
would have been 5.2%.
The NIY of the investment portfolio was 6.4% at 31 March 2020,
with a reversionary yield of 7.2%. The ERV typically assumes that a
unit is re-let in its current condition and does not take account
of the potential to increase rents through refurbishment,
repositioning or change in permitted planning use. As noted above,
the Group's asset management programme is unlocking the portfolio's
reversionary potential.
The WAULT for the investment portfolio stood at 5.2 years at 31
March 2020, against 4.6 years at the start of the year. This
reflects the benefits of the acquisitions and asset management in
the year, partially offset by the natural reduction in the WAULT
over time.
Occupancy across the investment portfolio increased from 92.0%
at 31 March 2019 to 93.4% at the year end, reflecting the
successful letting activity described above. Effective occupancy
across the investment portfolio, which excludes units under offer
to let or undergoing refurbishment, was 96.5 % at the year end (31
March 2019: 94.9%). At 31 March 2020, 1.0% of the investment
portfolio was under offer to let, with a further 2.1% undergoing
refurbishment.
Financial review
Performance
Rental income rose from GBP20.6 million in the year ended 31
March 2019 to GBP28.5 million in the year ended 31 March 2020, an
increase of 38.2%. This primarily reflected asset acquisitions in
the year and a full year of revenue from assets purchased during
the year ended 31 March 2019, as well as the benefits of the
Group's ongoing asset management activities.
Total revenue, which includes insurance recharges, dilapidation
income and any surrender premiums, was GBP30.1 million for the year
(year ended 31 March 2019: GBP22.0 million). Total revenue in the
year ended 31 March 2020 included the GBP0.8 million surrender
premium and dilapidations payment in respect of the units taken
back at Witney.
The Group's operating costs include its running costs (primarily
the management, audit, company secretarial, other professional and
Directors' fees), and property-related costs (including legal
expenses, void costs and repairs). Total operating costs for the
year were GBP9.0 million (year ended 31 March 2019: GBP9.0
million). Bad debts in the year ended 31 March 2020 remained low at
GBP0.2 million, reflecting the quality and diversity of the Group's
tenant base. Operating costs for the year included one-off costs
totalling GBP0.4 million, associated with the planned equity raise
that was subsequently postponed (see equity financing below).
Operating costs in 2018/19 included one-off costs of GBP2.2 million
associated with a terminated acquisition and the default of the
tenant at Deeside, who entered into administration.
The Group continues to exercise tight cost control and to
benefit from the fixed or semi-fixed nature of a number of its
costs. The total cost ratio, being the EPRA cost ratio including
direct vacancy cost but excluding one-off costs, which is
calculated as a percentage of revenue, was 27.1% for the period
(year ended 31 March 2019: 29.4%). The ongoing charges ratio,
excluding one-off costs, representing the costs of running the REIT
as a percentage of NAV, was 1.9% (2018/19: 1.9%).
As noted in the asset management section, the Group completed
the sale of 12 assets during the year, generating proceeds of
GBP16.7 million and a profit on disposal of GBP0.9 million. In the
year ended 31 March 2019, the Group recorded a profit of GBP3.5
million on the sale of four investment properties.
At 31 March 2020, the Group recognised a gain of GBP5.1 million
on the revaluation of its investment properties (year ended 31
March 2019: gain of GBP11.2 million), reflecting a revaluation
uplift of GBP14.8 million less the one-off costs associated with
the acquisitions in the year of GBP9.7 million.
Net financing costs, which are primarily the interest costs
associated with the Group's revolving credit facility ("RCF") and
term loan (see debt financing and hedging), totalled GBP6.5 million
(year ended 31 March 2019: GBP5.0 million). The charge for the year
included a one-off cost of GBP0.4 million, relating to the
accelerated amortisation of loan issue costs following the
refinancing of the Group's debt facilities.
Statutory profit before tax for the year was GBP20.7 million
(year ended 31 March 2019: GBP22.8 million).
As a REIT, the Group's profits and gains from its property
investment business are exempt from corporation tax. The
corporation tax charge for the period was therefore GBPnil (year
ended 31 March 2019: GBP5,000).
Earnings per share ("EPS") under IFRS was 8.6 pence (year ended
31 March 2019: 13.7 pence). EPRA EPS was 6.3 pence, or 6.5 pence
excluding one-off costs (year ended 31 March 2019: 5.1 pence, or
6.4 pence excluding one-off costs).
Dividends
The table below sets out the interim dividends declared in
respect of the year ended 31 March 2020:
Quarter to Declared Paid Amount (pence)
30 Jun 2019 1 Aug 2019 27 Sep 2019 1.5
30 Sep 2019 4 Nov 2019 27 Dec 2019 1.5
31 Dec 2019 20 Jan 2020 31 Mar 2020 1.6
31 Mar 2020 1 June 2020 3 July 2020 1.6
Total 6.2
As noted in the Chairman's statement, on 20 January 2020, the
Company increased its dividend target for the year from a total of
at least 6.0 pence per share to 6.2 pence per share. The total
dividend paid and declared in relation to the year of 6.2 pence per
share was in line with this increased target and represented growth
of 3.3% over the 6.0 pence per share paid and declared in respect
of the year ended 31 March 2019. The total dividend was 105%
covered by adjusted EPS. All four interim dividends were declared
in full as PIDs. We continue to target a total dividend per share
of 6.2 pence for the year ending 31 March 2021 and will monitor
this as the impact of COVID-19 is better understood.
The cash cost of the total dividend during the year was GBP14.7
million (year ended 31 March 2019: GBP10.0 million).
At 31 March 2020, the Company had distributable reserves of
GBP166.1 million (31 March 2019: GBP165.1 million).
Valuation and net asset value
The portfolio was independently valued by CBRE as at 31 March
2020, in accordance with the internationally accepted RICS
Valuation - Professional Standards January 2020 (incorporating the
International Valuation Standards).
The portfolio valuation of GBP450.5 million (31 March 2019:
GBP307.4 million) represented a 2.5% like-for-like increase on the
valuation at 31 March 2019, after taking into account capital
expenditure in the period of GBP3.8 million. The like-for-like
valuation increase was primarily driven by income growth. The EPRA
NIY was 5.9% (31 March 2019: 6.1%). While all property valuations
necessarily incorporate some uncertainty, the COVID-19 pandemic is
unprecedented and its full impact is not yet clear. In line with
market practice since the outbreak, the valuer's report noted this
material uncertainty relating to property valuations in the current
environment. This uncertainty can arise from difficulties with
inspecting properties due to the outbreak or reduced access to
evidential data, such as comparable transactions.
The impact of the COVID-19 pandemic on the year-end valuation is
reflected in the reduction of GBP5.1 million against the valuation
at 31 January 2020, which was carried out ahead of the planned
equity raise (see equity financing below). The 31 January 2020
valuation showed a like-for-like valuation increase of GBP12.1
million since the start of the financial year, or 5.0 pence per
share. The reduction in the valuation between 31 January and 31
March primarily related to lower values for office buildings and
retail warehouses.
The year-end valuation resulted in an EPRA NAV of 109.5 pence
per share at 31 March 2020 (31 March 2019: 109.7 pence per share).
The movement reflects the dilutive effect of the April 2019 share
issue (see below), the impact on the year-end valuation of COVID-19
and the costs associated with acquisitions in the year, which
totalled GBP9.7 million, or 4.0 pence per share, and largely
comprised stamp duty land tax and agents' fees.
Equity financing
On 2 April 2019, the Company raised gross proceeds of GBP76.5
million through a placing, open offer and offer for subscription.
In total, the Company issued 74,254,043 new ordinary shares at
103.0 pence each. The net proceeds raised, after associated costs,
were GBP74.8 million.
On 5 March 2020, the Company announced its intention to raise
gross proceeds of approximately GBP100 million through a placing,
open offer, offer for subscription and intermediaries offer. On 18
March 2020, the Company adjourned the planned general meeting for
shareholders to approve the share issue, as a result of the market
uncertainty caused by the global spread of COVID-19. The Company is
now again considering an equity fundraising to enable it to
capitalise on its pipeline and is commencing a period of engagement
with existing and potential new investors.
Debt financing and hedging
At the start of the financial year, the Group had a total debt
facility of GBP135.0 million, comprising a GBP30.0 million term
loan and a GBP105.0 million RCF, both with HSBC. During the first
half, the Group extended its debt facilities twice to support its
acquisition programme. The first extension increased the RCF by
GBP45.0 million to GBP150.0 million, with the second extension
being a short-term increase to the term loan of GBP30.0 million to
GBP60.0 million, giving total facilities of GBP210.0 million.
The HSBC facility was due to expire in part in March 2020, with
the remainder expiring in November 2022. In January 2020, the
Company entered into a new five-year debt facility totalling
GBP220.0 million, replacing the full HSBC facility. The refinancing
comprises a GBP157.0 million term loan and a GBP63.0 million RCF,
with a club of lenders consisting of HSBC, Barclays, Bank of
Ireland and Royal Bank of Canada.
The new facility both reduces the cost and extends the term of
the Group's debt. The facility is at a margin of 2.0% per annum
above LIBOR, representing a 14 basis points saving compared to the
previous blended rate, and includes an option to extend the
duration by a further two years beyond the initial five-year term,
subject to lender consent.
In addition to increasing the Group's total debt facility by
GBP10.0 million, the new facility includes an accordion of a
further GBP80.0 million. The debt therefore provides the Group with
extended firepower over current drawings to support operational
flexibility, deliver further portfolio initiatives and give wider
scope for new investments.
At the year end, the term loan was fully drawn and GBP29.5
million had been drawn against the RCF. Total debt was therefore
GBP186.5 million (31 March 2019: GBP127.0 million). The Group had
GBP5.5 million of cash at 31 March 2020 and headroom within the
facilities of GBP33.5 million. At 31 March 2020, the Group's LTV
ratio was 40.2% (31 March 2019: 39.7%), and interest cover for the
year was 477% (year ended 31 March 2019: 355%). Based on the 31
January 2020 valuation, the LTV ratio at the year end would have
been 39.8%. The LTV will be managed below 40% through the further
disposal of a small number of non-core assets.
The covenants in the Group's new facility relate to LTV,
interest cover and the aggregate market value of the portfolio. To
breach the LTV or market value covenants, valuations would need to
fall by 24.7% or 33.4% respectively, compared to 31 March 2020. To
breach the interest cover covenant, the Group's annual rental
income would need to fall by 57.0%. The Group is therefore
operating well within its covenants.
The primary movements relate to the net proceeds of GBP74.8
million from the April 2019 share issue and net asset disposal
proceeds of GBP16.4 million, which part-funded the investment of
GBP144.7 million in property purchases in the year. Recurring cash
flow of GBP13.0 million was used to meet dividend payments
totalling GBP14.7 million.
There were no changes to the Group's interest rate hedging
arrangements during the year. The Group therefore continues to have
two interest rate caps of GBP30.0 million each, which run until
November 2022 and November 2023 and have respective rates of 1.50%
and 1.75%, excluding lending margin. At the year end, the Group had
therefore hedged the interest costs on 27.3% of its debt.
Post year end activity
On 14 April 2020, the Group acquired Knowsley Business Park,
which is located opposite its existing Nexus estate. The asset
comprises five units totalling 116,900 sq ft, which are fully let
to two strong covenants. The purchase price was GBP7.9 million,
reflecting a net initial yield of 7.1 %. The business park presents
asset management opportunities, including the potential for lease
extensions.
Since 31 March 2020, the Group has completed the disposal of two
warehouses for a combined consideration of GBP1.0 million, in line
with their 31 March 2020 book values.
The Group's priority since the year end has been to work with
tenants to support them where practicable during the COVID-19
pandemic, while maximising the receipt of rent due and preserving
the Group's cash and facility headroom. The Board will continue to
review each quarter the earnings available for distribution as
dividends, while ensuring compliance with the Company's obligations
as a REIT to pay out at least 90% of its earnings.
Compliance with the investment policy
The Group's investment policy is summarised below. The Group
continued to comply in full with this policy throughout the
year.
Investment policy Status Performance
The Group will only invest in warehouse ü All of the Group's
assets in the UK. assets are UK-based
and the majority
are urban warehouses.
------- -----------------------------
No individual warehouse will represent ü The largest individual
more than 20% of the Group's last warehouse represents
published GAV, at the time it invests. 6.8% of GAV.
------- -----------------------------
The Group will target a portfolio ü The largest tenant
with no one tenant accounting for accounts for 6.0%
more than 10% of its gross contracted of gross contracted
rents at the time of purchase. No rents and 6.8% of
more than 20% of its gross assets gross assets.
will be exposed to the creditworthiness
of a single tenant at the time of
purchase.
------- -----------------------------
The Group will diversify the portfolio ü The portfolio is
across the UK, with a focus on areas well balanced across
with strong underlying investment the UK.
fundamentals.
------- -----------------------------
The Group can invest no more than ü The Group held no
10% of gross assets in other listed investments in other
closed-ended investment funds. funds during the
year.
------- -----------------------------
The Group will not speculatively develop ü Other than refurbishing
properties, except for refurbishing vacant units, the
or extending existing assets. Speculative Group did not undertake
developments are those which have any speculative development
not been at least partially leased, in the period.
pre-leased or de-risked in a similar
way.
------- -----------------------------
The Group may invest directly, or ü The Group made no
through forward-funding agreements investments or financial
or commitments, in developments (including commitments to pure
pre-developed land), where: developments in the
* the structure provides us with investment risk rather period.
than development risk;
* the development is at least partially pre-let, sold
or de-risked in a similar way; and
* we intend to hold the completed development as an
investment asset.
The Group's exposure to these developments
cannot exceed 15% of gross assets
at the time of purchase.
------- -----------------------------
The Group views an LTV of between ü The LTV at 31 March
30% and 40% as optimal over the longer 2020 was 40.2%.
term but can temporarily increase
gearing up to a maximum LTV of 50%
at the time of an arrangement, to
finance value-enhancing opportunities.
------- -----------------------------
Investment Manager
The Company is an alternative investment fund for the purposes
of the Alternative Investment Fund Managers Directive ("AIFMD")
and, as such, is required to have an Investment Manager who is duly
authorised to undertake that role. G10 is the Company's AIFM, with
Tilstone providing advisory services to both G10 and the
Company.
Tilstone Partners Limited
Investment Advisor
1 June 2020
RISK MANAGEMENT AND PRINCIPAL RISKS
Risk management framework
Effective risk management is essential for the successful
delivery of our ambitions.
To ensure that risks are recognised and appropriately managed,
the Board has agreed a formal risk management framework. This
framework sets out the mechanisms through which the Board
identifies, evaluates and monitors its principal risks and the
effectiveness of the controls in place to mitigate them. This
includes:
-- the Board's review and approval of a detailed corporate risk
register, which records and evaluates significant business,
financial, operational, compliance and reputational risks;
-- determination of those risks considered to be principal risks to the business; and
-- receipt and consideration of information about the management
of risks, from both contracted service providers and independent
sources.
The Board determines the level of risk it will accept in
achieving our business objectives, and this has not changed during
the year. We have no appetite for risk in relation to regulatory
compliance or the health, safety and welfare of our tenants, the
staff of our contractors and service providers, and the wider
community in which we work. We continue to have a moderate appetite
for risk in relation to activities which drive revenues and
increase financial returns for our investors.
The Audit Committee has considered the effectiveness of the risk
management process, and reviewed the corporate risks and those
risks which are considered to be principal risks. The Committee has
also reviewed information relating to actions taken and the
effectiveness of mitigating controls, prior to advising the Board.
The Board has carried out its own robust assessment and approved
the list of principal risks.
The Investment Manager and Investment Advisor have primary roles
alongside the Board and Audit Committee, assisting with the
understanding of the risk framework, its translation into
operational risk management and measurement activities, and
compliance with those activities to enable that risks remain within
a level which is acceptable to the Board.
The Management Engagement Committee is responsible for reviewing
the performance of third parties, including the Investment Manager
and Investment Advisor, and includes the effectiveness of their
risk management processes within its performance evaluation.
Emerging risks
The risk management process includes the Board's identification,
consideration and assessment of those emerging risks which may
impact the Group. Emerging risks are specifically covered in the
risk framework, with assessments made both during the regular
quarterly risk review and as potentially significant risks arise
during the year.
The quarterly assessment includes input from the Investment
Advisor and review of information by the Investment Manager, prior
to consideration by the Audit Committee. Key emerging risks
considered during the year include:
-- uncertainty around the impact of the Brexit transitional
arrangements - this is not currently considered to be a significant
risk for the REIT, as assets and the majority of tenants are based
in the UK and there is considerable diversity of tenants and
assets. The Board and Audit Committee receive and consider
information relating to the risk profile of the portfolio
throughout the year.
-- the impact of the COVID-19 pandemic - this has been evaluated
as a significant risk, and has been included within the summary of
principal risks and mitigations.
The identification and evaluation of emerging risks is
effective, through the strength and experience of the Board, the
experience of the Investment Manager, and the depth and breadth of
experience and market knowledge of the Investment Advisor. The
process includes a forward look at planned activities and the
associated risks, and the assessment of external risk factors and
their likelihood and impact.
Our risk categories
We categorise our risks into the following groups, although we
recognise that they are often inextricably linked.
Business risks which relate to the delivery of our business as a
whole, including strategy, market, systems and processes and
stakeholders.
Operational risks which focus on the REIT's core business, such
as portfolio composition and management, developments, valuation
and tenancy management.
Compliance risks which relate to the regulatory environment in
which we operate, including the requirements of the FCA, AIM, and
general business regulations.
Financial risks arising from our strategy for the funding of
business operations, including investors, joint ventures, debt and
cash management, and which include market, credit and liquidity
risk.
Reputational risks, which are those risks which could damage the
business's reputation with stakeholders or in the wider
marketplace.
Principal risks
A principal risk is a risk that is considered material to the
Group's development, performance, position or future prospects.
The principal risks are captured in the corporate risk register
and are reviewed by the Board and Audit Committee during their
regular meetings. This includes considering:
-- any substantial changes to principal risks, including new or emerging risks;
-- material changes to control frameworks;
-- changes in risk scores;
-- changes in tolerance to risk;
-- any significant risk incidents arising; and
-- progress with any additional mitigating actions which have been agreed.
The Board, through the Audit Committee, has undertaken a robust
assessment and review of the principal risks facing the Group,
together with a review of any new risks which may have arisen
during the period, including those that would threaten our business
model, future performance, solvency or liquidity.
Changes to principal risks
The Board has regularly reviewed the principal risks during the
year, each time reflecting on external and commercial pressures and
any risk changes arising from business activities in the delivery
of our ambitions. In some cases the evaluation of the business's
exposure to a risk has changed during the year, but in most cases
the principal risks themselves remain consistent. One new principal
risk, relating to the impact of the COVID-19 pandemic, has been
added.
This COVID-19 pandemic risk may have a significant impact on all
aspects of the business and in addition to evaluating exposure as
an individual risk, the assessment of exposure for each of the
other principal risks has been reconsidered. It is difficult for
the Board to assess the best or worst case outcomes, as the likely
duration of the pandemic suppression measures are not known. A
number of additional controls and monitoring routines have been put
in place by the Investment Advisor to support tenants and provide
clear visibility of the position and trends over time.
Overall, the pandemic may affect delivery of our ambitions, as
commercial, liquidity and funding challenges may restrict our
ability to grow the business, and slow our ability to deliver on
our business strategy.
Business risks
---------------------------------- --------------------------------- -----------------------------------------
Risk Potential impact Mitigation
---------------------------------- --------------------------------- -----------------------------------------
1 In addition to the The underlying strength of
Impact of the immediate health and the business is the diverse
COVID-19 pandemic social care risks, tenant base, with 560 tenants
the potential impact across the portfolio at 31
of the pandemic is March 2020. We do not rely
significant, including: on any one organisation or
- commercial - potential sector for significant proportions
loss of tenants, increase of our business. However,
in bad debts, and increase it is likely that the pandemic
in void rates and costs will have an impact across
- financial - impact all commercial and business
on banking covenants, activities.
asset values, returns
and potentially dividend A range of enhanced controls
- reduced quality of and mitigations have been
services and support put in place, including initially
from professional advisors daily calls with the Investment
and service providers Advisor and weekly debtors
and issue monitoring.
Different working arrangements
have been implemented for
both the Investment Advisor's
asset managers and the outsourced
Property Managers, which
are designed to maintain
safe, regular contact and
dialogue with tenants, to
provide the Board with clear
visibility of significant
issues and risks arising.
The outsourced operating
model offers additional resilience,
as staff resource absences
are more easily covered,
and in most cases those providing
services to the REIT were
already operating with remote
working arrangements.
The Board is constantly assessing
the position, with additional
mitigations possible. For
example, there is the ability
to flex expenditure, such
as capital expenditure, refurbishments
and some discretionary costs.
---------------------------------- --------------------------------- -----------------------------------------
Change
in year:
NEW
-------------------------- ------ ------------------------------- -----------------------------------------
2 If the Investment Advisor A formal, detailed contract
Poor performance does not perform as is in place between the REIT
of the Investment anticipated, there and the Investment Advisor,
Advisor is potentially a significant setting out the requirements
risk to our success. and expectations of each
party.
The Board and the Investment
Advisor frequently liaise,
supporting the regular Board
meetings and comprehensive
formal reporting that has
been put in place. Individuals
within the Investment Advisor
have significant shareholdings
in the Company, which significantly
reduces the risk that the
Investment Advisor will not
fulfil its responsibilities.
The activities of the Investment
Advisor are also subject
to the oversight of the Investment
Manager, G10, which reviews
and approves transactions,
including the acquisition
and disposal of assets. The
Investment Advisor further
invested in its compliance
framework during the year,
with enhanced tools and records
put in place.
The Management Engagement
Committee carries out an
annual formal service review
of the Investment Advisor.
---------------------------------- --------------------------------- -----------------------------------------
Change
in year:
-------------------------- ------ ------------------------------- -----------------------------------------
3 If our strategy is The Board uses its expertise
Poor returns not delivered effectively, and experience to set our
on portfolio it would be challenging investment strategy and seeks
to produce the target external advice to underpin
returns set out in its decisions, for example
the Company's prospectus. independent asset valuations.
We consider the exposure There are complex controls
here has increased and detailed due diligence
primarily because of arrangements in place around
the potential impact the acquisition of assets,
of the COVID-19 pandemic. designed to ensure that investments
will produce the expected
results.
Significant changes to the
portfolio, both acquisitions
and disposals, require specific
Board approval.
The Board regularly reviews
performance statistics against
forecasts and targets.
---------------------------------- --------------------------------- -----------------------------------------
Change
in year:
-------------------------- ------ ------------------------------- -----------------------------------------
4 Changes in interest We actively manage our debt
Significant volatility rates could affect position and during the year
in interest rates our ability to fund have entered into a new funding
and deliver our strategy. arrangement with a consortium,
Interest rate changes which has enabled the REIT
may also affect overall to benefit from improved
market stability. margin. In addition, the
arrangement provides a five-year
facility, with significant
headroom, at commercially
attractive rates.
----------------------------------
Change
in year:
Operational risks
------------------------------------ ------------------------------- -----------------------------------------
Risk Potential impact Mitigation
------------------------------------ ------------------------------- -----------------------------------------
5 Inappropriate acquisitions We have a clearly defined
Acquisition of could reduce our returns investment policy, with processes
inappropriate assets and increase risk. and controls designed to
or unrecognised ensure that acquisitions
liabilities, or are made only if they comply
a breach of investment with it.
policy Our acquisition and disposal
protocols set out robust,
documented due diligence
processes for all key areas
of consideration, including
portfolio mix, property type
and quality, legal issues,
environmental requirements,
sector, and quality of tenant.
Where appropriate, external
expertise is sought, for
example on environmental
issues and property valuations.
The protocols specifically
exclude assets with some
high-risk category tenants
(such as waste or recycling)
from consideration.
All potential acquisitions
are measured against our
agreed investment strategy
by the Investment Advisor
and approved by G10, the
Investment Manager. Significant
acquisition decisions must
also be approved by the Board.
------------------------------------ ------------------------------- -----------------------------------------
Change
in year:
-------------------------- -------- ------------------------------- -----------------------------------------
6 If we cannot attract The quality of our performance
Inability to attract additional investors, is inherent to our ability
investors there would be a potential to attract additional investment.
impact on the share Portfolio performance and
price and on our ability results are subject to regular
to raise funds and and detailed review by the
deliver the strategy. Board. The Board also regularly
The investor base reviews the Investment Advisor's
increased during the performance, both formally
year, following the and informally.
fundraise in April We have regular investor
2019, but we have, communications exercises,
in common with other setting out our activities,
businesses, been affected forecasts, performance and
by the market impact plans.
of the COVID-19 pandemic.
------------------------------------
Change
in year:
Compliance risks
------------------------------------ ------------------------------- -----------------------------------------
Risk Potential impact Mitigation
------------------------------------ ------------------------------- -----------------------------------------
7 If we breach REIT We have a comprehensive governance
Loss of REIT status or AIM rules, there framework, including the
would be a significant Board and Audit Committee,
impact on investors. and clearly allocated responsibilities,
set out through the matters
reserved for the Board, terms
of reference for Board committees,
and contracts with the Investment
Advisor and other key service
providers.
We seek external advice on
governance and compliance
with rules. Peel Hunt is
our Nominated Advisor and
is responsible for advising
and guiding us on our responsibilities
under the AIM rules.
The position against key
requirements of the REIT
legislation is reviewed by
the Investment Advisor each
month and by Link quarterly,
and is reported to the Board.
Similarly, cash and earnings
cover for dividends is continuously
monitored.
------------------------------------
Change
in year:
Financial risks
------------------------------ ------------------------------------- -----------------------------------------
Risk Potential impact Mitigation
------------------------------ ------------------------------------- -----------------------------------------
8 Breaching borrowing policies The Investment Advisor continually
Breach of borrowing and/or loan covenants monitors our debt covenants
policy or loan may affect our ability and reports on them to the
covenants to obtain additional Board.
funding, either through Performance and forecasts
investment or financing. are reported to the Board
The increase in exposure on a quarterly basis and
is driven by the COVID-19 considered against the approved
pandemic as, although treasury strategy.
borrowing can to a great We prepare a quarterly compliance
extent be controlled, letter for our lenders, which
in the unlikely event confirms our position over
of a significant drop the period.
in portfolio values, LTVs are reviewed regularly
compliance with the borrowing and investment decisions
policy or loan covenants take these into account.
could be put at risk.
------------------------------ ------------------------------------- -----------------------------------------
Change
in year:
------------------------ ---- ------------------------------- -----------------------------------------
9 A significant loss of We have a large and diverse
Significant rental income through tenant portfolio, which means
rent arrears bad debts could have we do not have a high level
and irrecoverable a material impact on of exposure to any specific
debt our ability to meet our sector or organisation. We
financial forecasts. undertake robust due diligence
The increase in potential on tenants, which is subsequently
exposure is again driven supported by effective credit
by our consideration control processes.
of the impact of the The Investment Advisor continually
COVID-19 pandemic on monitors our exposure to
the general economy. larger tenants, and the Board
receives analysis of portfolio
risk by sector and customer.
We also take rent deposits
and rent guarantees, where
appropriate, and rents are
predominantly paid in advance.
Additional weekly debtors
monitoring arrangements have
been implemented, to ensure
that we have the most up-to-date
view of the position, and
the Investment Advisor's
Asset and Property Managers
maintain regular contact
and relationships with tenants.
------------------------------
Change
in year:
GOING CONCERN AND VIABILITY STATEMENT
Going concern
The Board monitors the Group's ability to continue as a going
concern. Specifically, at quarterly Board meetings, the Board
reviews summaries of the Group's liquidity position and compliance
with loan covenants, as well as forecast financial performance and
cash flows. More recently, the Board has been meeting on a weekly
basis, in conjunction with the Investment Advisor, to review the
current uncertainties created by the COVID-19 pandemic,
specifically rent collection, cash resources, loan facility
headroom and covenant compliance, acquisitions and disposals of
investment properties, discretionary and committed capital
expenditure and dividend distributions.
The Group ended the year with GBP5.5 million of cash and GBP33.5
million of headroom readily available under the RCF facility. The
Group is operating comfortably within its covenants and sensitivity
analysis has been performed to identify the decrease in valuations
and rental income that would result in a breach of the LTV, market
value covenants or interest cover covenants. Valuations would need
to fall by 24.7% or rents by 57.0%, when compared with 31 March
2020, before these covenants would be breached, which, based on
available market data, is considered highly unlikely.
As at 27 May 2020, 89.9% of rents invoiced in March in relation
to the quarter to June were received or 94.0% including rents
contracted to be received monthly.
As part of the going concern assessment, and taking the above
into consideration, the Directors reviewed a number of scenarios
which included extreme downside sensitivities in relation to rental
cash collection, making no acquisitions or discretionary capital
expenditure and minimum dividend distributions under the REIT
rules.
Based on this information, and in light of mitigating actions
available, the Directors have a reasonable expectation that the
Group and the Company have adequate resources to continue in
business for a period of at least 12 months from the date of
approval of the Annual Report and Financial Statements. The
Directors are also not aware of any material uncertainties that may
cast significant doubt upon the Group's ability to continue as a
going concern. They therefore have adopted the going concern basis
in the preparation of the Annual Report and Financial
Statements.
Assessment of viability
In accordance with the AIC Code of Corporate Governance, the
Directors have assessed the Group's prospects over a period greater
than the 12 months considered by the going concern provision.
The Directors have conducted their assessment over a three-year
period to May 2023, allowing a reasonable level of accuracy given
typical lease terms and the cyclical nature of the UK property
market.
The principal risks detailed above summarise the matters that
could prevent the Group from delivering its strategy. The Board
seeks to ensure that risks are kept to a minimum at all times and,
where appropriate, the potential impact of such risks is modelled
within its viability assessment.
The nature of the Group's business as the owner of a diverse
portfolio of UK warehouses, principally located close to urban
centres or major highways and let to a wide variety of tenants,
reduces the impact of adverse changes in the general economic
environment or market conditions, particularly as the properties
are typically flexible spaces, adaptable to changes in occupational
demands.
The Directors' assessment takes into account forecast cash
flows, debt maturity and renewal prospects, forecast covenant
compliance, dividend cover and REIT compliance. The model is then
stress tested for severe but plausible scenarios, individually and
in aggregate, along with consideration for potential mitigating
factors. The key sensitivities applied to the model are a downturn
in economic outlook and restricted availability of finance,
specifically:
-- increased tenant churn;
-- increased void periods following break or expiry;
-- decreased rental income; and
-- increased interest rates.
Given the unpredictable nature of the COVID-19 outbreak, how
rapidly responses to the outbreak are changing and the uncertainty
as to the extent and impact of social distancing measures, the
Board is unable to predict the full extent of the impact. The key
sensitivities applied have been more extreme than in previous
reviews, including a loss of 50% of rental income, significantly in
excess of the Investment Advisor's assessment of tenants with an
adequate or poor expectation of recovery of 16%, over a period of
six months, on the basis that the UK Government's actions and the
flexibility of warehouse space to respond to changes in
occupational demands should see the current economic turbulence
normalise over that time period.
Current debt and associated covenants are summarised in note 17,
with no covenant breaches during the period. The sensitivity
analysis identifies the decrease in valuations and rental income
that would result in a breach of the LTV, market value covenants or
interest cover covenants.
Taking into account mitigating actions, the results of the
sensitivity analysis and stress testing demonstrated that the Group
would have sufficient liquidity to meet its ongoing liabilities as
they fall due, maintain compliance with banking covenants and
maintain compliance with the REIT regime over the period of the
assessment.
Furthermore, the Board, in conjunction with the Audit Committee,
carried out a robust assessment of the principal risks and
uncertainties facing the Group, including those that would threaten
its business model, strategy, future performance, solvency or
liquidity over the three-year period. The risk review process
provided the Board with assurance that the mitigations and
management systems are operating as intended. The Board believes
that the Group is well positioned to manage its principal risks and
uncertainties successfully, taking into account the current
COVID-19 risk and the economic and political environment.
The Board's expectation is further supported by regular
briefings provided by the Investment Advisor. These briefings
consider market conditions, opportunities, changes in the
regulatory landscape and the current economic and political risks
and uncertainties. Additionally, the trend for increased warehouse
space driven by online sales and the shortage of supply nationally
is seen as mitigation. These risks, and other potential risks which
may arise, continue to be closely monitored by the Board.
Viability statement
Having considered the forecast cash flows, covenant compliance
and the impact of sensitivities in combination, the Directors
confirm that, taking account of the Group's current position, the
principal risks set out in the strategic report and in light of the
current economic turbulence resulting from the impact of COVID-19,
they have a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall due
over the three-year period of their assessment.
On behalf of the Board
Neil Kirton
Chairman
1 June 2020
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
ANNUAL REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable UK law and
International Financial Reporting Standards ("IFRS") as adopted by
the European Union.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors
have elected to prepare the financial statements in accordance with
IFRS. Under company law, the Directors must not approve the
financial statements unless they are satisfied that they present
fairly the financial position, financial performance and cash flows
of the Group for that year.
In preparing the financial statements, the Directors are
required to:
-- select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors and
apply them consistently;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with specific
requirements in IFRS is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the Group's financial position and financial performance;
-- state that the Group has complied with IFRS, subject to any
material departures disclosed and explained in the financial
statements; and
-- make judgements and estimates that are reasonable and prudent.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that the
financial statements comply with the Companies Act 2006 and Article
4 of the IAS Regulation. They are also responsible for safeguarding
the assets of the Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a strategic report, Directors' report,
Directors' remuneration report and corporate governance statement
that comply with that law and those regulations, and for ensuring
that the Annual Report includes information required by the AIM
Rules and (where applicable) the Disclosure Guidance and
Transparency Rules of the UKLA.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. The work carried out by the Auditor does not
involve consideration of the maintenance and integrity of this
website and, accordingly, the Auditor accepts no responsibility for
any changes that have occurred to the financial statements since
they were initially presented on the website. Visitors to the
website need to be aware that legislation in the UK covering the
preparation and dissemination of the financial statements may
differ from legislation in their jurisdiction.
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with IFRS as
adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit of the Company
(and Group as a whole); and
-- the Chairman's Statement and the Investment Advisor's Report
include a fair review of the development and performance of the
business and the position of the Company (and Group as a whole),
together with a description of the principal risks and
uncertainties that it faces.
The Directors consider that the Annual Report and Financial
Statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess
the Company's position and performance, business model and
strategy.
On behalf of the Board
Neil Kirton
Chairman
1 June 2020
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2020
Year ended Year ended
------------------------------------------------------- -----
31 March 31 March
2020 2019
Continuing operations Notes GBP'000 GBP'000
------------------------------------------------------- ----- ---------- ----------
Revenue 3 30,053 21,985
Property operating expenses 4 (3,930) (3,407)
------------------------------------------------------- ----- ---------- ----------
Gross profit 26,123 18,578
Administration expenses 4 (5,032) (3,398)
Property and acquisition provision 19 - (2,164)
------------------------------------------------------- ----- ---------- ----------
Operating profit before gains on investment properties 21,091 13,016
Fair value gains on investment properties 13 5,104 11,229
Realised gain on disposal of investment properties 13 934 3,494
------------------------------------------------------- ----- ---------- ----------
Operating profit 27,129 27,739
Finance income 7 30 11
Finance expenses 8 (6,483) (4,972)
Profit before tax 20,676 22,778
Taxation 9 - (5)
------------------------------------------------------- ----- ---------- ----------
Total comprehensive income for the period 20,676 22,773
------------------------------------------------------- ----- ---------- ----------
Earnings per share (basic and diluted) (pence) 12 8.6 13.7
------------------------------------------------------- ----- ---------- ----------
All items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the
year.
There is no other comprehensive income and therefore the profit
for the year after tax is also the total comprehensive income.
The accompanying notes form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2020
31 March 31 March
2020 2019
Notes GBP'000 GBP'000
------------------------------------------------------ ----- --------- ---------
Assets
Non-current assets
Investment property 13 459,088 311,791
Interest rate derivatives 16 22 249
------------------------------------------------------ ----- --------- ---------
459,110 312,040
------------------------------------------------------ ----- --------- ---------
Current assets
Cash and cash equivalents 14 5,483 4,866
Trade and other receivables 15 6,408 4,400
------------------------------------------------------ ----- --------- ---------
11,891 9,266
------------------------------------------------------ ----- --------- ---------
Total assets 471,001 321,306
------------------------------------------------------ ----- --------- ---------
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 17 (183,190) (125,510)
Other payables and accrued expenses 19 (4,500) -
Head lease liability 18 (8,319) (4,170)
------------------------------------------------------ ----- --------- ---------
(196,009) (129,680)
------------------------------------------------------ ----- --------- ---------
Current liabilities
Other payables and accrued expenses 19 (6,497) (3,996)
Property and acquisition provision 19 - (1,434)
Deferred income 19 (4,888) (3,585)
Head lease liability 18 (488) (284)
------------------------------------------------------ ----- --------- ---------
(11,873) (9,299)
------------------------------------------------------ ----- --------- ---------
Total liabilities (207,882) (138,979)
------------------------------------------------------ ----- --------- ---------
Net assets 263,119 182,327
------------------------------------------------------ ----- --------- ---------
Equity
Share capital 20 2,403 1,660
Share premium 21 74,028 -
Capital reduction reserve 22 161,149 161,149
Retained earnings 22 25,539 19,518
------------------------------------------------------ ----- --------- ---------
Total equity 263,119 182,327
------------------------------------------------------ ----- --------- ---------
Number of shares in issue (thousands) 240,254 166,000
Net asset value per share (basic and diluted) (pence) 23 109.5 109.8
------------------------------------------------------ ----- --------- ---------
These financial statements were approved by the Board of
Directors of Warehouse REIT plc on 1 June 2020 and signed on its
behalf by:
Neil Kirton
Company number: 10880317
The accompanying notes form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2020
Capital
Share Share Retained reduction
capital premium earnings reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ------ ------- ------- -------- --------- --------
Balance at 31 March 2018 1,660 - 6,705 161,149 169,514
Total comprehensive income - - 22,773 - 22,773
Dividends paid 11 - - (9,960) - (9,960)
--------------------------- ------ ------- ------- -------- --------- --------
Balance at 31 March 2019 1,660 - 19,518 161,149 182,327
Total comprehensive income - - 20,676 - 20,676
Ordinary shares issued 20, 21 743 75,739 - - 76,482
Share issue costs 21 - (1,711) - - (1,711)
Dividends paid 11 - - (14,655) - (14,655)
--------------------------- ------ ------- ------- -------- --------- --------
Balance at 31 March 2020 2,403 74,028 25,539 161,149 263,119
--------------------------- ------ ------- ------- -------- --------- --------
The accompanying notes form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2020
Year ended Year ended
31 March 31 March
2020 2019
Notes GBP'000 GBP'000
------------------------------------------------------------------ ----- ---------- ----------
Cash flows from operating activities
Operating profit 27,129 27,739
Adjustments to reconcile profit for the period to net cash flows:
Gains from change in fair value of investment properties 13 (5,104) (11,229)
Realised gains on disposal of investment properties 13 (934) (3,494)
Head lease asset depreciation 4 110 50
Property and acquisition provision 19 - 2,164
------------------------------------------------------------------ ----- ---------- ----------
Operating cash flows before movements in working capital 21,201 15,230
(Increase)/decrease in other receivables and prepayments (2,410) 491
Increase in other payables and accrued expenses 3,365 200
Movement in property and acquisition provision (1,434) (730)
Tax paid - (5)
------------------------------------------------------------------ ----- ---------- ----------
Net cash flow generated from operating activities 20,722 15,186
------------------------------------------------------------------ ----- ---------- ----------
Cash flows from investing activities
Acquisition of investment properties (144,700) (21,057)
Capital expenditure (3,378) (1,740)
Development expenditure (236) (297)
Disposal of investment properties 16,355 18,654
------------------------------------------------------------------ ----- ---------- ----------
Net cash used in investing activities (131,959) (4,440)
------------------------------------------------------------------ ----- ---------- ----------
Cash flows from financing activities
Proceeds from issue of ordinary shares 21 76,482 -
Share issuance costs paid 21 (1,711) -
Bank loans drawn down 17 320,000 21,550
Bank loans repaid 17 (260,500) (19,000)
Interest received 7 30 11
Interest rate derivative premium - (595)
Loan interest and other finance expenses paid (4,524) (3,557)
Loan issue costs paid (2,761) (599)
Head lease payments (507) (302)
Dividends paid in the period 11 (14,655) (9,960)
Net cash flow generated/(used) from financing activities 111,854 (12,452)
------------------------------------------------------------------ ----- ---------- ----------
Net increase/(decrease) in cash and cash equivalents 617 (1,706)
Cash and cash equivalents at start of the period 4,866 6,572
------------------------------------------------------------------ ----- ---------- ----------
Cash and cash equivalents at end of the period 14 5,483 4,866
------------------------------------------------------------------ ----- ---------- ----------
The accompanying notes form an integral part of these financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2020
1. General information
Warehouse REIT plc is a closed-ended Real Estate Investment
Trust ("REIT") incorporated in England and Wales on 24 July 2017.
The Company began trading on 20 September 2017. The registered
office of the Company is located at Beaufort House, 51 New North
Road, Exeter EX4 4EP. The Company's shares are admitted to trading
on AIM, a market operated by the London Stock Exchange.
The Group's consolidated financial statements for the year ended
31 March 2020 comprise the results of the Company and its
subsidiaries (together constituting the "Group") and were approved
by the Board and authorised for issue on 1 June 2020. The nature of
the Group's operations and its principal activities are set out
above.
2. Basis of preparation
The financial information set out in these financial statements
does not constitute the Company's statutory accounts for the year
ended 31 March 2020, but is derived from those accounts. Statutory
accounts for 2020 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditors have
reported on those accounts; their report was unqualified, did not
draw to attention any matters by way of emphasis of matter without
qualifying their report and did not contain statements under
s498(2) or (3) of the Companies Act 2006. The text of the Auditors'
Report can be found in the full Annual Report.
These financial statements are prepared in accordance with IFRS
issued by the International Accounting Standards Board ("IASB") as
adopted by the European Union. The financial statements have been
prepared under the historical cost convention, except for
investment property, which has been measured at fair value. The
financial statements are presented in Pound Sterling and all values
are rounded to the nearest thousand pounds (GBP'000), except when
otherwise indicated.
The Directors have made an assessment of the Group's ability to
continue as a going concern. They carefully considered areas of
potential financial risk and reviewed cash flow forecasts,
evaluating a number of scenarios which included extreme downside
sensitivities in relation to rental cash collection, making no
acquisitions or discretionary capital expenditure and minimum
dividend distributions under the REIT rules. A range of scenarios
have been applied, including a loss of 50% of rental income for a
period of six months and taking into account mitigating management
actions. Further effects of the post year end COVID-19 outbreak are
documented in the risk management and principal risks section
above. The Directors are satisfied that the Group has the resources
to continue in business for the foreseeable future, for a period of
not less than 12 months from the date of this report. Furthermore,
the Directors are not aware of any material uncertainties that may
cast significant doubt upon the Group's ability to continue as a
going concern. Therefore, the financial statements have been
prepared on the going concern basis.
2.1 Changes to accounting standards and interpretations
There were a number of new standards and amendments to existing
standards which are required for the Group's accounting period
beginning on 1 April 2019, which have been considered and applied
as follows:
-- IFRS 16 Leases. In January 2016, the IASB published the final
version of IFRS 16 Leases. IFRS 16 specifies how an IFRS reporter
will recognise, measure, present and disclose leasing arrangements.
The new standard results in almost all leases held as lessee being
recognised on the balance sheet, as the distinction between
operating and finance leases is removed.
However, IFRS 16 has not impacted operating leases held by the
Group where the Group is lessor.
Under IFRS 16, where the Group is lessee, it recognises the
right-to-use asset in the consolidated statement of financial
position at fair value and this is amortised over the life of the
lease. Amortisation is recognised in the consolidated statement of
comprehensive income. In addition, a financial liability is
recognised in the consolidated statement of financial position
which is valued at the present value of future lease payments using
the discount rate implicit in the lease, if readily determinable,
or, if not, the Group's incremental borrowing rate. Previously,
under IAS 17, finance lease liabilities were measured at fair value
which is not materially different to the present value of the
future lease payments using an appropriate discount rate.
Therefore, the adoption of IFRS 16 has an immaterial impact on
net assets and an immaterial impact on underlying profit/(loss)
before tax. Accordingly, comparative amounts have not been restated
and adjustments in opening retained earnings have not been
recognised.
The following have been considered, but have had no impact on
the Group for the reporting period:
-- Amendments to IFRS 9;
-- IFRIC 23, Uncertainty over Income Tax Treatments;
-- Amendments to IAS 28 Long Term Interests in Associates and Joint Ventures; and
-- Amendments to IAS 19 Plan Amendment, Curtailment or Settlement.
There are a number of new standards and amendments to existing
standards which have been published and are mandatory for the
Group's accounting periods beginning on or after 1 April 2020 or
later. The Group is not adopting these standards early. The
following are the most relevant to the Group:
-- Definition of Material - amendments to IAS 1 and IAS 8;
-- Annual improvements to IFRS 2015-2017 Cycle: amendments to
IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12
Income Taxes and IAS 23 Borrowing Costs;
-- IFRS 17 - Insurance Contracts; and
-- Revised Conceptual Framework for financial reporting: The
IASB has issued a revised Conceptual Framework for future standard
setting decisions. No changes will be made to any of the current
standards.
The Group does not expect the adoption of new accounting
standards issued but not yet effective to have a significant impact
on its financial statements.
2.2 Significant accounting judgements and estimates
The preparation of these financial statements in accordance with
IFRS requires the Directors of the Company to make judgements,
estimates and assumptions that affect the reported amounts
recognised in the financial statements. However, uncertainty about
these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of the asset
or liability in the future.
Judgements
In the course of preparing the financial statements, no
judgements have been made in the process of applying the Group's
accounting policies, other than those involving estimations, that
have had a significant effect on the amounts recognised in the
financial statements.
Estimates
In the process of applying the Group's accounting policies, the
Investment Advisor has made the following estimates which have the
most significant risk of material change to the carrying value of
assets recognised in the consolidated financial statements:
Valuation of property
The valuations of the Group's investment property are at fair
value as determined by the external valuer on the basis of market
value in accordance with the internationally accepted RICS
Valuation - Professional Standards January 2020 (incorporating the
International Valuation Standards) and in accordance with IFRS 13.
The key estimates made by the valuer are the ERV and equivalent
yields of each investment property. See notes 13 and 24 for further
details.
2.3 Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these financial statements are stated in the notes to the financial
statements.
a) Basis of consolidation
The Company does not meet the definition of an investment entity
and therefore does not qualify for the consolidation exemption
under IFRS 10. The consolidated financial statements comprise the
financial statements of the Group and its subsidiaries as at 31
March 2020. Subsidiaries are consolidated from the date of
acquisition, being the date on which the Group obtained control,
and will continue to be consolidated until the date that such
control ceases. An investor controls an investee when the investor
is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns
through its power over the investee. In preparing these financial
statements, intra-group balances, transactions and unrealised gains
or losses have been eliminated in full. All subsidiaries have the
same year end as the Company. Uniform accounting policies are
adopted in the financial statements for like transactions and
events in similar circumstances.
b) Functional and presentation currency
The overall objective of the Group is to generate returns in
Pound Sterling and the Group's performance is evaluated in Pound
Sterling. Therefore, the Directors consider Pound Sterling as the
currency that most faithfully represents the economic effects of
the underlying transactions, events and conditions and have
therefore adopted it as the functional and presentation
currency.
c) Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business, being the investment and provision of
UK urban warehouses.
3. Revenue
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
-------------------- ---------- ----------
Rental income 28,513 20,656
Insurance recharged 663 548
Dilapidation income 877 781
-------------------- ---------- ----------
Total 30,053 21,985
-------------------- ---------- ----------
Accounting policy
Rental income arising from operating leases on investment
property is accounted for on a straight-line basis over the lease
term and is included in gross rental income in the Group statement
of comprehensive income. Initial direct costs incurred in
negotiating and arranging an operating lease are recognised as an
expense over the lease term on the same basis as the lease income.
Rental income is invoiced in advance and for all rental income that
relates to a future period, this is deferred and appears with
current liabilities on the Group statement of financial
position.
For leases which contain fixed or minimum uplifts, the rental
income arising from such uplifts is recognised on a straight-line
basis over the lease term.
Tenant lease incentives are recognised as an adjustment of
rental revenue on a straight-line basis over the term of the lease.
The lease term is the non-cancellable period of the lease together
with any further term for which the tenant has the option to
continue the lease where, at the inception of the lease, the
Directors are reasonably certain that the tenant will exercise that
option.
Amounts received from tenants to terminate leases or to
compensate for dilapidations are recognised in the Group statement
of comprehensive income when the right to receive them arises.
4. Property operating and administration expenses
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
-------------------------------- ---------- ----------
Premises expenses 2,446 2,468
Insurance 818 600
Rates 376 44
Utilities 170 50
Loss allowance 120 245
Property operating expenses 3,930 3,407
Investment management fees 2,812 1,888
Directors' remuneration 150 110
Head lease asset depreciation 110 50
Other administration expenses 1,584 1,350
Costs of postponed equity raise 376 -
-------------------------------- ---------- ----------
Administration expenses 5,032 3,398
-------------------------------- ---------- ----------
Total 8,962 6,805
-------------------------------- ---------- ----------
Accounting policy
All property operating expenses and administration expenses are
charged to the consolidated statement of comprehensive income and
are accounted for on an accruals basis.
5. Directors' remuneration
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------ ---------- ----------
Neil Kirton 45 37
Lynette Lackey 35 13
Martin Meech 35 30
Aimée Pitman 35 30
Total 150 110
------------------ ---------- ----------
A summary of the Directors' emoluments, including the
disclosures required by the Companies Act 2006, is set out in the
full annual report. The Group had no employees in either
period.
6. Auditor's remuneration
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
---------- ---------- ----------
Audit fee 135 120
---------- ---------- ----------
Total 135 120
---------- ---------- ----------
The Group reviews the scope and nature of all proposed non-audit
services before engagement, to ensure that the independence and
objectivity of the Auditor are safeguarded. Audit fees are
comprised of the following items:
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
-------------------------------------------------- ---------- ----------
Period-end Annual Report and Financial Statements 105 92
Subsidiary accounts 30 28
-------------------------------------------------- ---------- ----------
Total 135 120
-------------------------------------------------- ---------- ----------
Non-audit fees are comprised of the following:
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------------------------------------- ---------- ----------
Services in respect of an acquisition 60 -
Services in respect of a terminated acquisition - 50
Tax advice 231 -
Services provided as reporting accountant on equity
raise 95 -
Services provided as reporting accountant on postponed
equity raise 83 -
------------------------------------------------------- ---------- ----------
Total 469 50
------------------------------------------------------- ---------- ----------
7. Finance income
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
----------------------------------------- ---------- ----------
Income from cash and short-term deposits 30 11
----------------------------------------- ---------- ----------
Total 30 11
----------------------------------------- ---------- ----------
Accounting policy
Interest income is recognised on an effective interest rate
basis and shown within the Group statement of comprehensive income
as finance income.
8. Finance expenses
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
-------------------------------------------------- ---------- ----------
Loan interest 4,717 3,822
Head lease interest 597 302
Loan arrangement fees amortised* 941 491
Bank charges 1 11
-------------------------------------------------- ---------- ----------
6,256 4,626
Change in fair value of interest rate derivatives 227 346
-------------------------------------------------- ---------- ----------
Total 6,483 4,972
-------------------------------------------------- ---------- ----------
*This includes accelerated amortisation of GBP375,000 given the
substantial modification to the term loan following the refinance
that took place in January 2020. Refer to note 17 for details of
the refinancing.
Accounting policy
Any finance costs that are separately identifiable and directly
attributable to a liability which takes a period of time to
complete are amortised as part of the cost of the liability. All
other finance costs are expensed in the period in which they occur.
Finance costs consist of interest and other costs that an entity
incurs in connection with bank and other borrowings. Fair value
movements on derivatives are recorded in finance expenses.
9. Taxation
Corporation tax has arisen as follows:
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
---------------------------------------------------- ---------- ----------
Corporation tax on residual income for prior period - 5
---------------------------------------------------- ---------- ----------
Total - 5
---------------------------------------------------- ---------- ----------
Reconciliation of tax charge to profit before tax:
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
---------------------------------------------------- ---------- ----------
Profit before tax 20,676 22,778
Corporation tax at 19.0% (2019: 19.0%) 3,928 4,328
Change in value of investment properties (1,147) (2,797)
Tax exempt property rental business (2,781) (1,531)
Corporation tax on residual income for prior period - 5
---------------------------------------------------- ---------- ----------
Total - 5
---------------------------------------------------- ---------- ----------
Accounting policy
Corporation tax is recognised in the consolidated statement of
comprehensive income except where in certain circumstances
corporation tax may be recognised in other comprehensive
income.
As a REIT, the Group is exempt from corporation tax on the
profits and gains from its property rental business, provided it
continues to meet certain conditions as per REIT regulations.
Non-qualifying profits and gains of the Group continue to be
subject to corporation tax. Therefore, current tax is the expected
tax payable on the non-qualifying taxable income for the period, if
applicable, using tax rates enacted or substantively enacted at the
balance sheet date.
10. Operating leases
Operating lease commitments - as lessor
The Group has entered into commercial property leases on its
investment property portfolio. These non-cancellable leases have a
remaining term of up to 15 years.
Future minimum rentals receivable under non-cancellable
operating leases as at 31 March 2020 are as follows:
31 March 31 March
2020 2019
GBP'000 GBP'000
--------------------------- -------- --------
Within one year 27,868 17,198
Between one and five years 63,500 47,068
More than five years 31,528 22,585
--------------------------- -------- --------
Total 122,896 86,851
--------------------------- -------- --------
11. Dividends
Pence
For the year ended 31 March 2020 per share GBP'000
------------------------------------------------------------------------------ --------- --------------------
Fourth interim dividend for year ended 31 March 2019 paid on 28 June 2019 1.50 3,604
First interim dividend for year ended 31 March 2020 paid on 27 September 2019 1.50 3,604
Second interim dividend for year ended 31 March 2020 paid on 27 December 2019 1.50 3,604
Third interim dividend for year ended 31 March 2020 paid on 31 March 2020 1.60 3,843
Total dividends paid during the year 6.10 14,655
------------------------------------------------------------------------------ --------- --------------------
Paid as:
Property income distributions 6.10 14,655
Non-property income distributions - -
------------------------------------------------------------------------------ --------- --------------------
Total 6.10 14,655
------------------------------------------------------------------------------ --------- --------------------
Pence
For the year ended 31 March 2019 per share GBP'000
------------------------------------------------------------------------------ --------- -------
Interim dividend for period ended 31 March 2018 paid on 6 July 2018 1.50 2,490
First interim dividend for year ended 31 March 2019 paid on 28 September 2018 1.50 2,490
Second interim dividend for year ended 31 March 2019 paid on 28 December 2018 1.50 2,490
Third interim dividend for year ended 31 March 2019 paid on 29 March 2019 1.50 2,490
Total dividends paid during the year 6.00 9,960
------------------------------------------------------------------------------ --------- -------
Paid as:
Property income distributions 5.65 9,379
Non-property income distributions 0.35 581
------------------------------------------------------------------------------ --------- -------
Total 6.00 9,960
------------------------------------------------------------------------------ --------- -------
As a REIT, the Group is required to pay PIDs equal to at least
90% of the property rental business profits of the Group.
Accounting policy
Dividends due to the Company's shareholders are recognised when
they become payable.
12. Earnings per share
Basic EPS is calculated by dividing profit for the period
attributable to ordinary shareholders of the Company by the
weighted average number of ordinary shares during the period. As
there are no dilutive instruments in issue, basic and diluted EPS
are identical.
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
--------------------------------------------------- ---------- ----------
IFRS earnings 20,676 22,773
--------------------------------------------------- ---------- ----------
EPRA earnings adjustments:
Profit on disposal of investment properties (934) (3,494)
Fair value gains on investment properties (5,104) (11,229)
Changes in fair value of interest rate derivatives 227 346
Accelerated amortisation of loan issue costs 375 -
EPRA earnings 15,240 8,396
--------------------------------------------------- ---------- ----------
Group-specific earnings adjustments:
Costs of postponed equity raise 376 -
Property and acquisition provision - 2,164
Adjusted earnings 15,616 10,560
--------------------------------------------------- ---------- ----------
31 March 31 March
2020 2019
Pence Pence
Basic IFRS EPS 8.6 13.7
----------------- -------- --------
Diluted IFRS EPS 8.6 13.7
----------------- -------- --------
EPRA EPS 6.3 5.1
----------------- -------- --------
Adjusted EPS 6.5 6.4
----------------- -------- --------
31 March 31 March
2020 2019
Number Number
of shares of shares
------------------------------------------------------- --------- ---------
Weighted average number of shares in issue (thousands) 240,051 166,000
------------------------------------------------------- --------- ---------
13. UK investment property
Completed investment Development Total investment
property property property
and land
GBP'000 GBP'000 GBP'000
--------------------------------------- -------------------- ----------- ----------------
Investment property valuation brought
forward as at 1 April 2019 304,185 3,200 307,385
Transfer to development property and
land (11,700) 11,700 -
Acquisition of properties 149,665 - 149,665
Capital expenditure 3,549 238 3,787
Disposal of properties (15,421) - (15,421)
Fair value gains on revaluation of
investment property 3,272 1,832 5,104
--------------------------------------- -------------------- ----------- ----------------
Total portfolio valuation per valuer's
report 433,550 16,970 450,520
Adjustment for head lease obligations 8,568 - 8,568
--------------------------------------- -------------------- ----------- ----------------
Carrying value at 31 March 2020 442,118 16,970 459,088
--------------------------------------- -------------------- ----------- ----------------
Completed Development Total investment
investment property property
property and land
GBP'000 GBP'000 GBP'000
---------------------------------------------- ----------- ----------- ----------------
Investment property valuation brought forward
as at 1 April 2018 287,800 3,200 291,000
Acquisition of properties 18,199 - 18,199
Capital expenditure 1,820 297 2,117
Disposal of properties (15,160) - (15,160)
Fair value gains on revaluation of investment
property 11,526 (297) 11,229
---------------------------------------------- ----------- ----------- ----------------
Total portfolio valuation per valuer's
report 304,185 3,200 307,385
Adjustment for head lease obligations 4,406 - 4,406
---------------------------------------------- ----------- ----------- ----------------
Carrying value at 31 March 2019 308,591 3,200 311,791
---------------------------------------------- ----------- ----------- ----------------
All investment properties are charged as collateral on the
Group's borrowings. One asset is also subject to a second ranking
charge in relation to deferred consideration outstanding. See note
19 for further details.
Gains realised on disposal of investment property
31 March 31 March
2020 2019
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Net proceeds from disposals of investment property
during the year 16,355 18,654
Carrying value of disposals (15,421) (15,160)
--------------------------------------------------- -------- --------
Gains realised on disposal of investment property 934 3,494
--------------------------------------------------- -------- --------
Accounting policy
Investment property comprises property held to earn rental
income or for capital appreciation, or both. Investment property is
measured initially at cost including transaction costs. Transaction
costs include transfer taxes and professional fees to bring the
property to the condition necessary for it to be capable of
operating. The carrying amount also includes the cost of replacing
part of an existing investment property at the time that cost is
incurred, if the recognition criteria are met.
Development property and land is where the whole or a material
part of an estate is identified as having potential for
development. Assets are classified as such until development is
completed and they have the potential to be fully income
generating. Development property and land is measured at fair value
if the fair value is considered to be reliably determinable. Where
the fair value cannot be determined reliably but where we expect
that the fair value of the property will be reliably determined
when construction is completed, the property is measured at cost
less any impairment until the fair value becomes reliably
determinable or construction is completed, whichever is earlier. It
is the Group's policy not to capitalise overheads or operating
expenses and no such costs were capitalised in either the year
ended 31 March 2020 or the year ended 31 March 2019.
Subsequent to initial recognition, investment property is stated
at fair value (see note 24). Gains or losses arising from changes
in the fair values are included in the consolidated statement of
comprehensive income in the period in which they arise under IAS 40
Investment Property.
Investment properties cease to be recognised when they have been
disposed of or withdrawn permanently from use and no future
economic benefit is expected. Gains or losses on the disposal of
investment property are determined as the difference between net
disposal proceeds and the carrying value of the asset.
14. Cash and cash equivalents
31 March 31 March
2020 2019
GBP'000 GBP'000
-------------------------- -------- --------
Cash and cash equivalents 5,483 4,866
-------------------------- -------- --------
Total 5,483 4,866
-------------------------- -------- --------
Accounting policy
Cash and cash equivalents comprise cash at bank and short-term
deposits with banks and other financial institutions, with an
initial maturity of three months or less.
15. Trade and other receivables
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------------- -------- --------
Rent and insurance receivables 3,075 2,358
Prepayments 229 69
Other receivables 3,104 1,973
------------------------------- -------- --------
Total 6,408 4,400
------------------------------- -------- --------
The rent and insurance receivables balance represents gross
receivables of GBP3,650,000 (31 March 2019: GBP2,623,000), net of a
provision of GBP575,000 (31 March 2019: GBP265,000). GBP190,000 (31
March 2019: GBPnil) of the provision is in relation to rents
invoiced in advance and therefore netted off the deferred income
balance.
Accounting policy
Rent and other receivables are recognised at their original
invoiced value and become due based on the terms of the underlying
lease or at the date of invoice.
The Group carries out an assessment of expected credit losses at
each period end, using the simplified approach, where a lifetime
expected loss allowance is recognised over the expected life of the
financial instrument. Adjustments are recognised in the income
statement as an impairment gain or loss.
16. Interest rate derivatives
31 March 31 March
2020 2019
GBP'000 GBP'000
--------------------------------------------------- -------- --------
At the start of the period 249 -
Interest rate cap premium paid - 595
Changes in fair value of interest rate derivatives (227) (346)
--------------------------------------------------- -------- --------
Balance at the end of the period 22 249
--------------------------------------------------- -------- --------
To mitigate the interest rate risk that arises as a result of
entering into variable rate linked loans, the Group entered into
interest rate derivatives. The instruments have a combined notional
value of GBP60.0 million with GBP30.0 million at a strike rate of
1.50% and a termination date of 21 November 2022 and GBP30.0
million at a strike rate of 1.75% and a termination date of 21
November 2023.
Accounting policy
Derivative financial instruments, comprising interest rate
derivatives for mitigating interest rate risks, are initially
recognised at fair value and are subsequently measured at fair
value, being the estimated amount that the Group would receive or
pay to terminate the agreement at the period end date, taking into
account current interest rate expectations and the current credit
rating of the Group and its counterparties. Premiums payable under
such arrangements are initially capitalised into the statement of
financial position.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data is available to measure
fair value, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs significant to the fair
value measurement as a whole. Changes in fair value of interest
rate derivatives are recognised within finance expenses in profit
or loss in the period in which they occur.
17. Interest-bearing loans and borrowings
31 March 31 March
2020 2019
GBP'000 GBP'000
---------------------------------------------------- --------- --------
At the beginning of the year 127,000 124,450
Drawn in the year 320,000 21,550
Repaid in the year (260,500) (19,000)
---------------------------------------------------- --------- --------
Interest-bearing loans and borrowings 186,500 127,000
Unamortised fees at the beginning of the year (1,490) (1,398)
Loan arrangement fees paid in the year (2,761) (583)
Amortisation charge for the year 941 491
---------------------------------------------------- --------- --------
Unamortised loan arrangement fees (3,310) (1,490)
---------------------------------------------------- --------- --------
Loan balance less unamortised loan arrangement fees 183,190 125,510
---------------------------------------------------- --------- --------
As at 31 March 2019, the Group had a five-year RCF of GBP105.0
million at a coupon of 2.25% above LIBOR and a GBP30.0 million
fixed-term loan on the same terms; both facilities were due to
expire on 30 November 2020.
On 22 January 2020, the Group entered into a new five-year
GBP220.0 million loan facility, to replace the existing HSBC
facility totalling GBP210.0 million. The facility comprises a
GBP157.0 million term loan and a GBP63.0 million RCF and has been
agreed with a club of lenders consisting of HSBC Bank plc, Barclays
Bank plc, Bank of Ireland and Royal Bank of Canada. The facility is
at a margin of 2.0% per annum above LIBOR and will expire on 22
January 2025 with an option to extend the duration by a further two
years, subject to lender consent. The facility is secured on all
properties within the portfolio. As at 31 March 2020, there is
GBP33.5 million (31 March 2019: GBP8.0 million) available to draw
on the RCF.
The debt facility includes LTV, interest cover and market value
covenants that are measured at a Group level. The Group has
complied with all covenants throughout the financial period.
Accounting policy
Loans and borrowings are initially recognised at the proceeds
received net of directly attributable transaction costs. Loans and
borrowings are subsequently measured at amortised cost with
interest charged to the consolidated statement of comprehensive
income at the effective interest rate, and shown within finance
costs. Transaction costs are spread over the term of loan.
18. Head lease obligations
The following table analyses the present value of minimum lease
payments under non-cancellable head leases using an average
discount rate of 6.91% for each of the following periods:
31 March 31 March
2020 2019
GBP'000 GBP'000
-------------------------------------------- -------- --------
Current liabilities
Within one year 488 284
Non-current liabilities
After one year but not more than five years 1,892 1,034
Later than five years 6,427 3,136
-------------------------------------------- -------- --------
Total 8,807 4,454
-------------------------------------------- -------- --------
Year ended Year ended
31 March 31 March
2020 GBP'000 2019 GBP'000
----------------------------------------- ------------- -------------
Head lease liability - opening balance 4,454 4,068
Cash flows
Non-cash movements (507) (302)
Interest 597 281
Additions 4,274 407
Head lease accrual (11) -
----------------------------------------- ------------- -------------
Head lease obligations - closing balance 8,807 4,454
----------------------------------------- ------------- -------------
The following table analyses the minimum lease payments under
non-cancellable head leases for each of the following periods:
31 March 31 March
2020 2019
GBP'000 GBP'000
-------------------------------------------- -------- --------
Current liabilities
Within one year 634 326
Non-current liabilities
After one year but not more than five years 2,534 1,303
Later than five years 52,523 26,945
-------------------------------------------- -------- --------
Total 55,691 28,574
-------------------------------------------- -------- --------
The fair value of the Group's lease obligations is estimated to
be equal to its carrying value.
Accounting policy
At the commencement date, head lease obligations are recognised
at the present value of future lease payments using the discount
rate implicit in the lease, if determinable, or, if not, the
Group's incremental borrowing rate.
19. Other liabilities - other payables and accrued expenses,
provisions and deferred income
31 March 31 March
2020 2019
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Property operating expenses payable 1,500 514
Administration expenses payable 2,404 1,467
Loan interest payable 980 784
Capital expenses payable 377 80
Other expenses payable 1,236 1,151
---------------------------------------------------- -------- --------
Total other payables and accrued expenses - current 6,497 3,996
---------------------------------------------------- -------- --------
31 March 31 March
2020 2019
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Capital expenses payable 4,500 -
Total other payables and accrued expenses - non-current 4,500 -
-------------------------------------------------------- -------- --------
Capital expenses payable includes deferred consideration of
GBP4,500,000 in relation to a property acquired during the year
ended 31 March 2020. The deferred consideration is due in September
2023, or earlier if the property is sold before that date. The
consideration is secured on a second ranking charge over the
asset.
31 March 31 March
2020 2019
GBP'000 GBP'000
Property and acquisition provision brought forward 1,434 -
Provision recognised in the period - 2,164
Costs incurred in the period (1,434) (730)
Property and acquisition provision carried forward - 1,434
--------------------------------------------------- -------- --------
The property and acquisition provision comprises costs
associated with a terminated acquisition and one-off costs
associated with the default of a tenant at Deeside who entered into
administration.
31 March 31 March
2020 2019
GBP'000 GBP'000
---------------------- -------- --------
Total deferred income 4,888 3,585
---------------------- -------- --------
The deferred income balance is stated net of bad debt provision
in relation to rents invoiced in advance of GBP190,000 (31 March
2019: GBPnil).
Accounting policy
Other payables and accrued expenses are initially recognised at
fair value and subsequently held at amortised cost.
Deferred income is rental income received in advance during the
accounting period. The income is deferred and is unwound to revenue
on a straight-line basis over the period in which it is earned.
20. Share capital
Share capital is the nominal amount of the Company's ordinary
shares in issue.
31 March 31 March
2020 2019
Ordinary shares of GBP0.01 Number GBP'000 Number GBP'000
each
----------------------------- ----------- -------- ----------- --------
Authorised, issued and fully
paid:
At the start of the period 166,000,000 1,660 166,000,000 1,660
Shares issued 74,254,043 743 - -
----------------------------- ----------- -------- ----------- --------
Balance at the end of the
period 240,254,043 2,403 166,000,000 1,660
----------------------------- ----------- -------- ----------- --------
The share capital comprises one class of ordinary shares. At
general meetings of the Company, ordinary shareholders are entitled
to one vote on a show of hands and on a poll, to one vote for every
share held. There are no restrictions on the size of a shareholding
or the transfer of shares, except for the UK REIT restrictions.
On 2 April 2019, the Company raised gross proceeds of GBP76.5
million through a placing, open offer and offer for
subscription.
In total, the Company issued 74,254,043 new ordinary shares at
103.0 pence each.
21. Share premium
Share premium comprises the following amounts:
31 March 31 March
2020 2019
GBP'000 GBP'000
--------------------------- -------- --------
At the start of the period - -
Shares issued 75,739 -
Share issue costs (1,711) -
--------------------------- -------- --------
Share premium 74,028 -
--------------------------- -------- --------
Share premium represents the excess over nominal value of the
fair value of the consideration received for equity shares net of
direct issue costs.
22. Other capital and reserves
Capital reduction reserve
Capital reduction reserve comprises the following amounts:
31 March 31 March
2020 2019
GBP'000 GBP'000
--------------------------- -------- --------
At the start of the period 161,149 161,149
Movement in the period - -
--------------------------- -------- --------
Capital reduction reserve 161,149 161,149
--------------------------- -------- --------
The capital reduction reserve is a distributable reserve
established upon cancellation of the share premium.
Retained earnings
Retained earnings comprise the following cumulative amounts:
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------------------------------ -------- --------
Total unrealised gains on investment properties 20,671 15,892
Total unrealised loss on interest rate caps (119) (346)
Total realised profits 31,262 15,592
Dividends paid from revenue profits (26,275) (11,620)
------------------------------------------------ -------- --------
Retained earnings 25,539 19,518
------------------------------------------------ -------- --------
Retained earnings represent the profits of the Group less
dividends paid from revenue profits to date. Unrealised gains on
the revaluation of investment properties contained within this
reserve are not distributable until any gains crystallise on the
sale of the investment property.
As at 31 March 2020, the Company had distributable reserves
available of GBP166,136,000 (31 March 2019: GBP165,121,000).
23. Net asset value per share
Basic NAV per share amounts are calculated by dividing net
assets attributable to ordinary equity holders of the Company in
the statement of financial position by the number of ordinary
shares outstanding at the end of the period. As there are no
dilutive instruments in issue, basic and diluted NAV per share are
identical.
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------------------------------------ -------- --------
IFRS net assets attributable to ordinary shareholders 263,119 182,327
IFRS net assets for calculation of NAV 263,119 182,327
------------------------------------------------------ -------- --------
Adjustment to net assets:
Fair value of interest rate derivatives (see note 16) (22) (249)
------------------------------------------------------ -------- --------
EPRA net assets 263,097 182,078
------------------------------------------------------ -------- --------
31 March 31 March
2020 2019
Pence Pence
IFRS basic and diluted NAV per share (pence) 109.5 109.8
--------------------------------------------- -------- --------
EPRA NAV per share (pence) 109.5 109.7
--------------------------------------------- -------- --------
31 March 31 March
2020 2019
Number Number
of shares of shares
-------------------------------------- --------- ---------
Number of shares in issue (thousands) 240,254 166,000
-------------------------------------- --------- ---------
24. Fair value
IFRS 13 defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The following methods and assumptions were used to estimate the
fair values.
The fair value of cash and short-term deposits, trade
receivables, trade payables and other current liabilities
approximate their carrying amounts due to the short-term maturities
of these instruments.
Interest-bearing loans and borrowings are disclosed at amortised
cost. The carrying value of the loans and borrowings approximate
their fair value due to the contractual terms and conditions of the
loan. The loans are at a variable interest rate of 2.0% above
LIBOR.
Six-monthly valuations of investment property are performed by
CBRE, accredited external valuers with recognised and relevant
professional qualifications and recent experience of the location
and category of the investment property being valued, on a fixed
fee basis. The valuations are the ultimate responsibility of the
Directors, however, who appraise these every six months.
The valuation of the Group's investment property at fair value
is determined by the external valuer on the basis of market value
in accordance with the internationally accepted RICS Valuation -
Professional Standards January 2020 (incorporating the
International Valuation Standards).
In line with market practice since the COVID-19 outbreak, the
valuer's report notes a material uncertainty relating to property
valuations in the current environment. This uncertainty can arise
from difficulties with inspecting properties due to the outbreak or
reduced access to evidential data, such as comparable transactions.
At any time, property valuations are inherently subjective as they
are made on the basis of assumptions by the valuer which may not
prove to be accurate. For these reasons, consistent with EPRA's
guidance, we have classified the valuations of the property
portfolio as Level 3 as defined by IFRS 13; see table below for
further details.
Completed investment properties are valued by adopting the
'income capitalisation' method of valuation. This approach involves
applying capitalisation yields to current and future rental
streams, net of income voids arising from vacancies or rent-free
periods and associated running costs. These capitalisation yields
and future rental values are based on comparable property and
leasing transactions in the market using the valuer's professional
judgement and market observations. Other factors taken into account
in the valuations include the tenure of the property, tenancy
details and ground and structural conditions.
Development property and land has been valued by adopting the
'comparable method' of valuation and where appropriate supported by
a 'residual development appraisal'. The comparable method involves
applying a sales rate per acre to relevant sites supported by
comparable land sales. Residual development appraisals have been
completed where there is sufficient clarity regarding planning and
an identified or indicative scheme. In a similar manner to 'income
capitalisation', development inputs include the capitalisation of
future rental streams with an appropriate yield to ascertain a
gross development value. The costs associated with bringing a
scheme to the market are then deducted, including construction
costs, professional fees, finance and developer's profit, to
provide a residual site value.
The fair value of the interest rate contracts is recorded in the
statement of financial position and is determined by forming an
expectation that interest rates will exceed strike rates and
discounting these future cash flows at the prevailing market rates
as at the year end.
The following tables show an analysis of the fair values of
investment properties and interest rate derivatives recognised in
the statement of financial position by level of the fair value
hierarchy(1) :
31 March 2020
----------------------------------
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at fair value GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ------- ------- ------- -------
Investment properties - - 450,520 450,520
Interest rate derivatives - 22 - 22
---------------------------------------------- ------- ------- ------- -------
Total - 22 450,520 452,542
---------------------------------------------- ------- ------- ------- -------
31 March 2019
----------------------------------
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at fair value GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ------- ------- ------- -------
Investment properties - - 307,385 307,385
Interest rate derivatives - 249 - 249
---------------------------------------------- ------- ------- ------- -------
Total - 249 307,385 307,634
---------------------------------------------- ------- ------- ------- -------
1.
Explanation of the fair value hierarchy:
-- Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities that the entity can access at the
measurement date;
-- Level 2 - use of a model with inputs (other than quoted
prices included in Level 1) that are directly or indirectly
observable market data; and
-- Level 3 - use of a model with inputs that are not based on observable market data.
Sensitivity analysis to significant changes in unobservable
inputs within the valuation of investment properties
The following table analyses:
-- the fair value measurements at the end of the reporting period;
-- a description of the valuation techniques applied;
-- the inputs used in the fair value measurement, including the
ranges of rent charged to different units within the same building;
and
-- for Level 3 fair value measurements, quantitative information
about significant unobservable inputs used in the fair value
measurement.
Key
Valuation unobservable
Fair value technique inputs Range
GBP'000
-------------------- ---------- ----------------------- ------------ --------------------------
31 March 2020
Completed GBP433,550 Income capitalisation ERV GBP22,000 - GBP1,880,000
per annum
investment Equivalent 5.1% - 12.9%
property yield
Development GBP16,970 Comparable method/ Various
property and residual method
land
-------------------- ---------- ----------------------- ------------ --------------------------
GBP450,520
-------------------- ---------- ----------------------- ------------ --------------------------
31 March 2019
Completed GBP304,185 Income capitalisation ERV GBP25,000-GBP1,490,000
per annum
investment property Equivalent 5.2% - 13.1%
yield
Development property GBP3,200 Comparable method/ Various
and land residual method
-------------------- ---------- ----------------------- ------------ --------------------------
GBP307,385
-------------------- ---------- ----------------------- ------------ --------------------------
Significant increases/decreases in the ERV (per sq ft per annum)
and rental growth per annum in isolation would result in a
significantly higher/lower fair value measurement. Significant
increases/decreases in the long-term vacancy rate and discount rate
(and exit yield) in isolation would result in a significantly
higher/lower fair value measurement.
Generally, a change in the assumption made for the ERV (per sq
ft per annum) is accompanied by:
-- a similar change in the rent growth per annum and discount rate (and exit yield); and
-- an opposite change in the long-term vacancy rate.
The table below sets out a sensitivity analysis for each of the
key sources of estimation uncertainty with the resulting
increase/(decrease) in the fair value of completed investment
property:
As at 31 March 2020
Increase Decrease
in sensitivity in sensitivity
GBP'000 GBP'000
--------------------------------------------------- --------------- ---------------
Change in ERV of 5% 21,668 (21,668)
Change in net equivalent yields of 25 basis points (15,093) 16,260
--------------------------------------------------- --------------- ---------------
As at 31 March 2019
Increase Decrease
in sensitivity in sensitivity
GBP'000 GBP'000
--------------------------------------------------- --------------- ---------------
Change in ERV of 5% 15,369 (15,369)
Change in net equivalent yields of 25 basis points (10,036) 10,757
--------------------------------------------------- --------------- ---------------
Gains and losses recorded in profit or loss for recurring fair
value measurements categorised within Level 3 of the fair value
hierarchy amount to GBP5,104,000 (31 March 2019: GBP11,229,000) and
are presented in the consolidated statement of comprehensive income
in line item 'fair value gains on investment properties'.
All gains and losses recorded in profit or loss for recurring
fair value measurements categorised within Level 3 of the fair
value hierarchy are attributable to changes in unrealised gains or
losses relating to investment property held at the end of the
reporting period.
The carrying amount of the Group's assets and liabilities is
considered to be the same as their fair value.
25. Financial risk management objectives and policies
The Group's principal financial liabilities are loans and
borrowings. The main purpose of the Group's loans and borrowings is
to finance the acquisition of the Group's property portfolio. The
Group has trade and other receivables, trade and other payables and
cash and short-term deposits that arise directly from its
operations.
The Group is exposed to market risk, interest rate risk, credit
risk and liquidity risk. The Board of Directors reviews and agrees
policies for managing each of these risks, which are summarised
below.
Market risk
Market risk is the risk that future values of investments in
property and related investments will fluctuate due to changes in
market prices. The total exposure at the statement of financial
position date is GBP450,520,000 and to manage this risk, the Group
diversifies its portfolio across a number of assets. The Group's
investment policy is to invest in UK-located warehouse assets. The
Group will invest and manage its portfolio with an objective of
spreading risk and, in doing so, will maintain the following
investment restrictions:
-- the Group will only invest, directly or indirectly, in warehouse assets located in the UK;
-- no individual warehouse property will represent more than 20%
of the last published GAV of the Group at the time of
investment;
-- the Group will target a portfolio with no one tenant
accounting for more than 10% of the gross contracted rents of the
Group at the time of purchase. In any event, no more than 20% of
the gross assets of the Group will be exposed to the
creditworthiness of any one tenant at the time of purchase;
-- the portfolio will be diversified by location across the UK
with a focus on areas with strong underlying investment
fundamentals; and
-- the Group will not invest more than 10% of its gross assets
in other listed closed-ended investment funds.
Interest rate risk
Interest rate risk is the risk that future cash flows of a
financial instrument will fluctuate because of changes in market
interest rates. The Group's exposure to the risk of changes in
market interest rates relates to its variable rate bank loans. In
order to address interest rate risk, the Group has entered into
interest rate cap instruments, details of which are set out in note
16.
Credit risk
Credit risk is the risk that a counterparty or tenant will cause
a financial loss to the Group by failing to meet a commitment it
has entered into with the Group.
All cash deposits are placed with approved counterparties,
currently HSBC Bank plc. In respect of property investments, in the
event of a default by a tenant, the Group will suffer a shortfall
and additional costs concerning re-letting of the property. The
Investment Manager monitors the tenant arrears in order to
anticipate and minimise the impact of defaults by occupational
tenants.
The following table analyses the Group's exposure to credit
risk:
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------------- -------- --------
Cash and cash equivalents 5,483 4,866
Trade and other receivables(1) 3,910 3,389
------------------------------- -------- --------
Total 9,393 8,255
------------------------------- -------- --------
(1)Excludes lease incentive debtor and prepayments
Liquidity risk
Liquidity risk is defined as the risk that the Group will
encounter difficulty in meeting obligations associated with
financial liabilities that are settled by delivering cash or
another financial asset. Exposure to liquidity risk arises because
of the possibility that the Group could be required to pay its
liabilities earlier than expected. The Group's objective is to
maintain a balance between continuity of funding and flexibility
through the use of bank deposits and loans.
Set out below is a comparison by class of the carrying amounts
and fair value of the Group's financial instruments that are
carried in the financial statements:
2020 2019
----------- ----------------------- -----------------------
Fair
value Carrying Carrying
hierarchy value Fair value value Fair value
-------------------------------- ---- ----------- ---------- ----------- ---------- -----------
GBP'000 GBP'000 GBP'000 GBP'000
Held at amortised
cost
Cash and cash equivalents n/a 5,483 5,483 4,866 4,866
Trade and other receivables(1) n/a 3,910 3,910 4,400 4,400
Other payables and accrued
expenses(2) n/a (10,157) (10,157) (3,285) (3,285)
Head lease liabilities n/a (8,807) (8,807) (4,454) (4,454)
Interest-bearing loans
and borrowings n/a (183,190) (183,190) (125,510) (125,510)
Held at fair value
Interest rate derivatives
(assets) 2 22 22 249 249
-------------------------------------- ----------- ---------- ----------- ---------- -----------
(1)Excludes lease incentive debtor and prepayments
(2)Excludes VAT liability
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments:
Less Three
than three to 12 One to Two to More than
months months two years five years five years Total
Year ended 31 March
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ---------- ------- --------- ---------- ---------- -------
Interest-bearing loans
and borrowings - 3,777 5,013 201,538 - 210,328
Other payables and
accrued expenses 5,758 739 - 4,500 - 10,997
Head lease obligations - 532 1,012 915 6,348 8,807
----------------------- ---------- ------- --------- ---------- ---------- -------
Total 5,758 5,048 6,025 206,953 6,348 230,132
----------------------- ---------- ------- --------- ---------- ---------- -------
Less Three
than three to 12 One to Two to More than
months months two years five years five years Total
Year ended 31 March 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ---------- ------- --------- ---------- ---------- -------
Interest-bearing loans and borrowings - 2,886 3,842 138,525 - 145,253
Other payables and accrued expenses 2,477 1,519 - - - 3,996
Head lease obligations - 284 552 482 3,136 4,454
-------------------------------------- ---------- ------- --------- ---------- ---------- -------
Total 2,477 4,689 4,394 139,007 3,136 153,703
-------------------------------------- ---------- ------- --------- ---------- ---------- -------
26. Subsidiaries
Country of Number and class
incorporation of share held Group
Company and operation by the Group holding
--------------------------------------- -------------- -------------------- -------
63,872 ordinary
Tilstone Holdings Limited(2) UK shares 100%
94,400 ordinary
Tilstone Warehouse Holdco Limited(2) UK shares 100%
Tilstone Industrial Warehouse 23,600 ordinary
Limited(1,2) UK shares 100%
20,000 ordinary
Tilstone Retail Warehouse Limited(1,2) UK shares 100%
20,000 ordinary
Tilstone Industrial Limited(1,2) UK shares 100%
200 ordinary
Tilstone Retail Limited(1,2) UK shares 100%
20,004 ordinary
Tilstone Trade Limited(1,2) UK shares 100%
1,000 ordinary
Tilstone Basingstoke Limited(1,2) UK shares 100%
Tilstone Glasgow Limited(1,2) UK 1 ordinary share 100%
Tilstone Radway Limited (previously
Quantum North Limited)(1,2) UK 100 ordinary shares 100%
100 ordinary
Warehouse 18 Limited(1,2) UK shares 100%
100 ordinary
Warehouse 1234 Limited(1,2) UK shares 100%
7,545,347 ordinary
Chip (One) Limited(3) IOM shares 100%
1,250,780 ordinary
Chip (Two) Limited(3,5) IOM shares 100%
755,045 ordinary
Chip (Three) Limited(3,5) IOM shares 100%
Chip (Four) Limited(3) IOM 10 ordinary shares 100%
8,461,919 ordinary
Chip (Five) Limited(3) IOM shares 100%
Chip (Ipswich) One Limited(3) IOM 2 ordinary shares 100%
Chip (Ipswich) Two Limited(3) IOM 2 ordinary shares 100%
1,780,801 ordinary
Glashen Services Limited(4) IOM shares 100%
----------------------------------------- -------------- ------------------ -------
1. Indirect subsidiaries.
2. Registered office: Beaufort House, 51 New North Road, Exeter EX4 4EP.
3. Registered office: IOMA House, Hope Street, Douglas, Isle of Man IM1 1AP.
4. Registered office: Merchants House, 24 North Quay, Douglas, Isle of Man IM1 4LE.
5. Dissolved post year end on 28 April 2020.
The principal activity of all the subsidiaries relates to
property investment.
Accounting policy
Where property is acquired, via corporate acquisitions or
otherwise, management considers the substance of the assets and
activities of the acquired entity in determining whether the
acquisition represents the acquisition of a business.
Where such acquisitions are not judged to be an acquisition of a
business, they are not treated as business combinations. Rather,
the cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based on their
relative fair values at the acquisition date. Accordingly, no
goodwill or additional deferred taxation arises. Otherwise,
acquisitions are accounted for as business combinations.
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, measured at acquisition date fair
value, and the amount of any non-controlling interest in the
acquiree.
For each business combination, the acquirer measures the
non-controlling interest in the acquiree at fair value of the
proportionate share of the acquiree's identifiable net assets.
Acquisition costs (except for costs of issue of debt or equity) are
expensed in accordance with IFRS 3 Business Combinations.
When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition
date.
Contingent consideration is deemed to be equity or a liability
in accordance with IAS 32. If the contingent consideration is
classified as equity, it is not re-measured and its subsequent
settlement shall be accounted for within equity. If the contingent
consideration is classified as a liability, subsequent changes to
the fair value are recognised either in profit or loss or as a
change to other comprehensive income.
27. Capital management
The Group's capital is represented by share capital, reserves
and borrowings.
The primary objective of the Group's capital management is to
ensure that it remains within its quantitative banking covenants
and maintains a strong credit rating. The Group's capital policies
are as follows:
-- the Group will keep sufficient cash for working capital
purposes with excess cash, should there be any, deposited at the
best interest rate available whilst maintaining flexibility to fund
the Group's investment programme;
-- borrowings will be managed in accordance with the loan
agreements and covenants will be tested quarterly and reported to
the Directors. Additionally, quarterly lender reporting will be
undertaken in line with the loan agreement; and
-- new borrowings are subject to Director approval. Such
borrowings will support the Group's investment programme but be
subject to a maximum 50% LTV. The intention is to maintain
borrowings at a LTV of between 30% and 40%.
During the period, the Group did not breach any of its loan
covenants, nor did it default on any other of its obligations under
its loan agreement.
28. Related party transactions
Directors
The Directors (all Non-Executive Directors) of the Company and
its subsidiaries are considered to be the key management personnel
of the Group. Directors' remuneration for the period totalled
GBP150,000 (31 March 2019: GBP110,000) and at 31 March 2020, a
balance of GBPnil (31 March 2019: GBPnil) was outstanding.
Investment Advisor
The Company is party to an Investment Management Agreement with
the Investment Manager, pursuant to which the Investment Manager
has appointed the Investment Advisor to provide investment advisory
services relating to the respective assets on a day-to-day basis in
accordance with their respective investment objectives and
policies, subject to the overall supervision and direction by the
Investment Manager and the Board of Directors.
For its services to the Company, the Investment Advisor receives
an annual fee at the rate of 1.1% of the NAV of the Company.
During the year, the Group incurred GBP2,812,000 (31 March 2019:
GBP1,888,000) in respect of investment management fees. As at 31
March 2020, GBP810,230 (31 March 2019: GBP465,000) was
outstanding.
Subsidiaries
As at 31 March 2020, the Company owned a 100% controlling stake
in Tilstone Holdings Limited, Tilstone Warehouse Holdco Limited,
Tilstone Industrial Warehouse Limited, Tilstone Retail Warehouse
Limited, Tilstone Industrial Limited, Tilstone Retail Limited,
Tilstone Trade Limited, Tilstone Basingstoke Limited, Tilstone
Glasgow Limited, Tilstone Radway Limited (previously Quantum North
Limited), CHIP (One) Limited, Warehouse 18 Limited, Warehouse 1234
Limited, CHIP (Two) Limited, CHIP (Three) Limited, CHIP (Four)
Limited, CHIP (Five) Limited, CHIP (Ipswich) One Limited, CHIP
(Ipswich) Two Limited, and Glashen Services Limited.
29. Ultimate controlling party
It is the view of the Directors that there is no ultimate
controlling party.
30. Post balance sheet event
A fourth interim dividend in respect of the year ended 31 March
2020 of 1.6 pence per share will be payable on 3 July 2020 to
shareholders on the register on 12 June 2020. The ex-dividend date
will be 11 June 2020.
UNAUDITED SUPPLEMENTARY NOTES NOT PART OF THE CONSOLIDATED
FINANCIAL INFORMATION
For the year ended 31 March 2020
The Group is a member of the European Public Real Estate
Association ("EPRA"). EPRA has developed and defined the following
performance measures to give transparency, comparability and
relevance of financial reporting across entities which may use
different accounting standards. The following measures are
calculated in accordance with EPRA guidance.
Table 1: EPRA performance measures summary
Notes 2020 2019
------------------------------------------------------- --------- ----------- -----------
EPRA EPS (pence) Table 2 6.3 5.1
EPRA NAV per share (pence) Table 3 109.5 109.7
EPRA NNNAV per share (pence) Table 3 109.5 109.8
EPRA NIY Table 4 5.9% 6.1%
EPRA 'topped-up' net initial yield Table 4 6.3% 6.4%
EPRA vacancy rate Table 5 6.6% 8.0%
EPRA cost ratio (including direct vacancy
cost) Table 6 28.4% 39.6%
EPRA cost ratio (excluding direct vacancy
cost) Table 6 23.8% 36.6%
Table 2: EPRA income statement
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------------------------------------- --------- ----------- -----------
Revenue 30,053 21,985
Less insurance recharged (663) (548)
------------------------------------------------------------------ ----------- -----------
Rental income 29,390 21,437
Property operating expenses (3,930) (3,407)
Add back insurance recharged 663 548
Gross profit 26,123 18,578
Administration expenses (5,032) (3,398)
Add back costs of postponed equity raise 376 -
------------------------------------------------------------------ ----------- -----------
Adjusted operating profit before interest
and tax 21,467 15,180
Finance income 30 11
Finance expenses (6,483) (4,972)
Less change in fair value of interest rate
derivatives 227 346
Less accelerated amortisation of loan issue
costs 375 -
------------------------------------------------------------------ ----------- -----------
Adjusted profit before tax 15,616 10,565
Tax on adjusted profit - (5)
------------------------------------------------------------------ ----------- -----------
Adjusted earnings 15,616 10,560
------------------------------------------------------------------ ----------- -----------
Weighted average number of shares in issue
(thousands) 240,051 166,000
------------------------------------------------------------------ ----------- -----------
Adjusted EPS (pence) 6.5 6.4
------------------------------------------------------------------ ----------- -----------
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------------------------------------- --------- ----------- -----------
Adjusted earnings 15,616 10,560
Property and acquisition provision - (2,164)
Costs of postponed equity raise (376) -
EPRA earnings 15,240 8,396
------------------------------------------------------------------ ----------- -----------
Weighted average number of shares in issue
(thousands) 240,051 166,000
------------------------------------------------------------------ ----------- -----------
EPRA EPS (pence) 6.3 5.1
------------------------------------------------------------------ ----------- -----------
EPRA earnings represents earnings from operational activities. It
is a key measure of the Group's underlying operating results and
an indication of the extent to which current dividend payments are
supported by earnings.
Table 3: EPRA balance sheet
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------------------------------------- --------- ----------- -----------
Total properties (1) 450,520 307,385
Net borrowings (2) (181,017) (122,134)
Other net liabilities (6,384) (2,924)
------------------------------------------------------------------ ----------- -----------
IFRS NAV 263,119 182,327
------------------------------------------------------------------ ----------- -----------
Exclude: fair value of interest rate derivatives (22) (249)
------------------------------------------------------------------ ----------- -----------
EPRA net assets 263,097 182,078
------------------------------------------------------------------ ----------- -----------
Include: fair value of interest rate derivatives 22 249
------------------------------------------------------------------ ----------- -----------
EPRA triple net assets 263,119 182,327
------------------------------------------------------------------ ----------- -----------
Number of shares in issue (thousands) 240,254 166,000
------------------------------------------------------------------ ----------- -----------
IFRS NAV per share (pence) 109.5 109.8
------------------------------------------------------------------ ----------- -----------
EPRA NAV per share (pence) 109.5 109.7
------------------------------------------------------------------ ----------- -----------
EPRA NNNAV per share (pence) 109.5 109.8
------------------------------------------------------------------ ----------- -----------
Loan to value ratio (3) 40.2% 39.7%
------------------------------------------------------------------ ----------- -----------
(1) Professional valuation of investment
property.
(2) Comprising interest-bearing loans and borrowings (excluding
unamortised loan arrangement fees) of GBP186,500,000 (2019: GBP127,000,000)
net of cash of GBP5,483,000 (2019: GBP4,866,000).
(3) Net borrowings divided by the aggregate fair value of properties.
EPRA NAV represents IFRS adjusted to exclude certain items not expected
to crystallise in a long-term investment property business model.
It provides stakeholders with the most relevant information on the
fair value of the assets and liabilities within the Group given
its long-term investment strategy.
EPRA NNNAV is derived from EPRA NAV adjusted to include the fair
values of (i) financial instruments, (ii) debt and (iii) deferred
taxes where relevant. It makes adjustments to EPRA NAV to provide
stakeholders with the most relevant information on the current fair
value of all the assets and liabilities within the Group.
Table 4: EPRA net initial yield
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------------------------------------- --------- ----------- -----------
Total properties per external valuers' report 450,520 307,385
Less development property and land (16,970) (3,200)
------------------------------------------------------------------ ----------- -----------
Net valuation of completed properties 433,550 304,185
Add estimated purchasers' costs (4) 29,481 20,685
------------------------------------------------------------------ ----------- -----------
Gross valuation of completed properties including
estimated purchasers' costs (A) 463,031 324,870
-------------------------------------------------------- -------- ----------- -----------
Gross passing rents (5) (annualised) 27,829 20,634
Less irrecoverable property costs (5) (742) (926)
------------------------------------------------------------------ ----------- -----------
Net annualised rents (B) 27,087 19,708
------------------------------------------------------------------ ----------- -----------
Add notional rent on expiry of rent-free
periods or other lease incentives (6) 1,875 934
------------------------------------------------------------------ ----------- -----------
'Topped-up' net annualised rents (C) 28,962 20,642
------------------------------------------------------------------ ----------- -----------
EPRA NIY (B/A) 5.9% 6.1%
------------------------------------------------------------------ ----------- -----------
EPRA 'topped-up' net initial yield (C/A) 6.3% 6.4%
------------------------------------------------------------------ ----------- -----------
(4) Estimated purchasers' costs estimated
at 6.8%.
(5) Gross passing rents and irrecoverable property costs assessed
as at the balance sheet date for completed investment properties
excluding development property and land.
(6) Adjustment for unexpired lease incentives such as rent-free
periods, discounted rent period and step rents. The adjustment includes
the annualised cash rent that will apply at the expiry of the lease
incentive. Rent-frees expire over a weighted average period of nine
months.
EPRA NIY represents annualised rental income based on the cash rents
passing at the balance sheet date, less non-recoverable property
operating expenses, divided by the market value of the property,
increased with (estimated) purchasers' costs. It is a comparable
measure for portfolio valuations designed to make it easier for
investors to judge themselves, how the valuation of portfolio X
compares with portfolio Y.
EPRA NNNIY incorporates an adjustment to the EPRA NIY in respect
of the expiration of rent-free periods (or other unexpired lease
incentives such as discounted rent periods and step rents).
NIY as stated in the Investment Advisor's report calculates net
initial yield on topped-up annualised rents but does not deduct
non-irrecoverable property costs.
Table 5: EPRA vacancy rate
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------------------------------------- --------- ----------- -----------
Annualised ERV of vacant premises (D) 2,201 2,004
Annualised ERV for the investment portfolio
(E) 33,141 24,920
------------------------------------------------------------------ ----------- -----------
EPRA vacancy rate (D/E) 6.6% 8.0%
------------------------------------------------------------------ ----------- -----------
EPRA vacancy rate represents ERV of vacant space divided by ERV
of the completed investment portfolio, excluding development property
and land. It is a pure measure of investment property space that
is vacant, based on ERV.
Table 6: Total cost ratio/EPRA cost ratio
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------------------------------------- --------- ----------- -----------
Property operating expenses 3,930 3,407
Add back insurance recharged (663) (548)
------------------------------------------------------------------ ----------- -----------
Net property operating expenses 3,267 2,859
Administration expenses 5,032 3,398
Less cost of postponed equity raise (376) -
Less ground rents (7) (110) (50)
------------------------------------------------------------------ ----------- -----------
Total cost including direct vacancy cost
(F) 7,813 6,207
Direct vacancy cost (1,320) (636)
------------------------------------------------------------------ ----------- -----------
Total cost excluding direct vacancy cost
(G) 6,493 5,571
------------------------------------------------------------------ ----------- -----------
Rental income 29,390 21,437
Less ground rents paid (507) (302)
------------------------------------------------------------------ ----------- -----------
Gross rental income (H) 28,883 21,135
------------------------------------------------------------------ ----------- -----------
Less direct vacancy cost (1,320) (636)
------------------------------------------------------------------ ----------- -----------
Net rental income 27,563 20,499
Total cost including direct vacancy cost
(F/H) 27.1% 29.4%
------------------------------------------------------------------ ----------- -----------
Total cost excluding direct vacancy cost
(G/H) 22.5% 26.4%
------------------------------------------------------------------ ----------- -----------
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
------------------------------------------------------- --------- ----------- -----------
Total cost including direct vacancy cost
(F) 7,813 6,207
Cost of postponed equity raise 376 -
Property and acquisition provision - 2,164
------------------------------------------------------------------ ----------- -----------
EPRA total cost (I) 8,189 8,371
Direct vacancy cost (1,320) (636)
------------------------------------------------------------------ ----------- -----------
EPRA total cost excluding direct vacancy
cost (J) 6,869 7,735
------------------------------------------------------------------ ----------- -----------
EPRA cost ratio including direct vacancy
cost (I/H) 28.4% 39.6%
------------------------------------------------------------------ ----------- -----------
EPRA cost ratio excluding direct vacancy
cost (J/H) 23.8% 36.6%
------------------------------------------------------------------ ----------- -----------
(7) Ground rent expenses included within administration expenses
such as depreciation of head lease assets
EPRA cost ratios represent administrative and operating costs
(including and excluding costs of direct vacancy) divided by gross
rental income. They are a key measure to enable meaningful
measurement of the changes in the Group's operating costs.
It is the Group's policy not to capitalise overheads or
operating expenses and no such costs were capitalised in either the
year ended 31 March 2020 or the year ended 31 March 2019.
Table 7: Lease
data
Year Years Head rents
Year 1 2 3-5 Year 5+ payable Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- -------------- -------------- -------------- -------------- ---------- -------------
Passing rent of
leases
expiring in: 2,876 3,098 11,127 11,310 (582) 27,829
--------------- -------------- -------------- -------------- -------------- ---------- -------------
ERV of leases
expiring
in: 5,662 3,135 12,173 12,833 (662) 33,141
--------------- -------------- -------------- -------------- -------------- ---------- -------------
Passing rent
subject
to review in: 9,820 5,619 11,797 1,175 (582) 27,829
--------------- -------------- -------------- -------------- -------------- ---------- -------------
ERV subject to
review
in: 13,178 5,660 13,754 1,211 (662) 33,141
--------------- -------------- -------------- -------------- -------------- ---------- -------------
WAULT to expiry is 5.2 years and to break is 4.0 years.
Table 8: Capital expenditure
Year ended Year ended
31 March 31 March
2020 2019
GBP'000 GBP'000
--------------------------------- ---------- ----------
Acquisitions 149,665 18,199
Development spend 238 297
Completed investment properties:
No incremental lettable space
- like-for-like portfolio 2,942 1,546
No incremental lettable space
- other 107 24
Tenant incentives 500 250
Total capital expenditure 153,452 20,316
Conversion from accruals to cash
basis (5,138) 2,778
Total capital expenditure on a
cash basis 148,314 23,094
----------------------------------- ---------- ----------
GLOSSARY
Adjusted earnings per share ("Adjusted EPS")
EPRA EPS adjusted to exclude one-off costs, divided by the
weighted average number of shares in issue during the year
Admission
The admission of Warehouse REIT plc onto the London Stock
Exchange on 20 September 2017
AGM
Annual General Meeting
AIC
The Association of Investment Companies
AIFM
Alternative Investment Fund Manager
AIFMD
Alternative Investment Fund Managers Directive
AIM
A market operated by the London Stock Exchange
Contracted rent
Gross annual rental income currently receivable on a property
plus rent contracted from expiry of rent-free periods and uplifts
agreed at the balance sheet date less any ground rents payable
under head leases
Development property and land
Whole or a material part of an estate identified as having
potential for development. Such assets are classified as
development property and land until development is completed and
they have the potential to be fully income generating
Effective occupancy
Total open market rental value of the units leased divided by
total open market rental value excluding assets under development,
units undergoing refurbishment and units under offer to let
EPRA
The European Public Real Estate Association, the industry body
for European REITs
EPRA cost ratio
The sum of property expenses and administration expenses as a
percentage of gross rental income calculated both including and
excluding direct vacancy cost
EPRA earnings
IFRS profit after tax excluding movements relating to changes in
fair value of investment properties, gains/losses on property
disposals, changes in fair value of financial instruments and the
related tax effects
EPRA earnings per share ("EPRA EPS")
A measure of EPS on EPRA earnings designed to present underlying
earnings from core operating activities based on the weighted
average number of shares in issue during the year
EPRA guidelines
The EPRA Best Practices Recommendations Guidelines October
2019
EPRA like-for-like rental income growth
The growth in rental income on properties owned throughout the
current and previous year under review. This growth rate includes
revenue recognition and lease accounting adjustments but excludes
development property and land in either year and properties
acquired or disposed of in either year
EPRA NAV
The value of net assets, adjusted to include properties and
other investment interests at fair value and to exclude items not
expected to be realised in a long-term property business, such as
the fair value of any financial derivatives and deferred taxes on
property valuation surpluses
EPRA net asset value per share ("EPRA NAV per share")
The NAV per share figure based on EPRA NAV divided by the number
of shares outstanding at the balance sheet date
EPRA net initial yield ("EPRA NIY")
The annualised passing rent generated by the portfolio, less
estimated non--recoverable property operating expenses, expressed
as a percentage of the portfolio valuation (adding notional
purchasers' costs), excluding development property and land
EPRA 'topped-up' net initial yield
The annualised passing rent generated by the portfolio, topped
up for contracted uplifts, less estimated non--recoverable property
operating expenses, expressed as a percentage of the portfolio
valuation (adding notional purchasers' costs), excluding
development property and land
EPRA vacancy rate
Total open market rental value of vacant units divided by total
open market rental value of the portfolio excluding development
property and land
EPS
Earnings per share
Equivalent yield
The weighted average rental income return expressed as a
percentage of the investment property valuation, plus purchasers'
costs, excluding development property and land
ERV
The estimated annual open market rental value of lettable space
as assessed by the external valuer
FCA
Financial Conduct Authority
GAV
Gross asset value
Group
Warehouse REIT plc and its subsidiaries
IASB
International Accounting Standards Board
IFRS
International Financial Reporting Standards adopted by the
European Union
IFRS earnings per share ("EPS")
IFRS earnings after tax for the year divided by the weighted
average number of shares in issue during the year
IFRS NAV per share
IFRS net asset value divided by the number of shares outstanding
at the balance sheet date
Investment portfolio
Completed buildings and excluding development property and
land
IPO
Initial public offering
LIBOR
The basic rate of interest used in lending between banks on the
London interbank market and also used as a reference for setting
the interest rate on other loans
Like-for-like rental income growth
The increase in contracted rent of properties owned throughout
the period under review, expressed as a percentage of the
contracted rent at the start of the period, excluding development
property and land and units undergoing refurbishment
Like-for-like valuation increase
The increase in the valuation of properties owned throughout the
period under review, expressed as a percentage of the valuation at
the start of the period, net of capital expenditure
Loan to value ratio ("LTV")
Gross debt less cash, short-term deposits and liquid
investments, divided by the aggregate value of properties and
investments
NAV
Net asset value
Net initial yield ("NIY")
Contracted rent at the balance sheet date, expressed as a
percentage of the investment property valuation, plus purchasers'
costs, excluding development property and land
Net rental income
Gross annual rental income receivable after deduction of ground
rents and other net property outgoings including void costs and net
service charge expenses
Net reversionary yield ("NRY")
The anticipated yield to which the net initial yield will rise
(or fall) once the rent reaches the ERV
Occupancy
Total open market rental value of the units leased divided by
total open market rental value excluding development property and
land, equivalent to one minus the ERPA vacancy rate
Passing rent
Gross annual rental income currently receivable on a property as
at the balance sheet date less any ground rents payable under head
leases
Property income distribution ("PID")
Profits distributed to shareholders which are subject to tax in
the hands of the shareholders as property income. PIDs are usually
paid net of withholding tax (except for certain types of tax-exempt
shareholders). REITs also pay out normal dividends called
non-PIDs
RCF
Revolving credit facility
Real Estate Investment Trust ("REIT")
A listed property company which qualifies for, and has elected
into, a tax regime which is exempt from corporation tax on profits
from property rental income and UK capital gains on the sale of
investment properties
RPI
Retail price index
Total accounting return
The movement in EPRA NAV over a period plus dividends paid in
the period, expressed as a percentage of the EPRA NAV at the start
of the period
Total cost ratio
EPRA cost ratio excluding one-off costs calculated both
including and excluding vacant property costs
Weighted average unexpired lease term ("WAULT")
Average unexpired lease term to first break or expiry weighted
by contracted rent across the portfolio, excluding development
property and land
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on this announcement (or
any other website) is incorporated into, or forms part of, this
announcement.
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.
END
FR FBMTTMTTMTFM
(END) Dow Jones Newswires
June 02, 2020 02:00 ET (06:00 GMT)
Warehouse Reit (LSE:WHR)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Warehouse Reit (LSE:WHR)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024
