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

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