TIDMWHR
RNS Number : 7254B
Warehouse REIT PLC
06 June 2023
6 June 2023
Warehouse REIT plc
(the "Company" or "Warehouse REIT", together with its
subsidiaries, the "Group")
Strong operational performance, successful disposal programme
and weighting towards multi-let sector provide a strong platform
for growth
Neil Kirton, Chairman of Warehouse REIT commented:
"This financial year saw a marked divergence between equity
market valuations and the continued strength of the occupier
market. Operationally, our performance has been strong; our focus
on multi-let assets in key industrial hubs where demand remains
firm but supply is constrained is paying off with like-for-like
growth in contracted rents of 5.3%. We were not immune from the
rapid rise in interest costs, which impacted both our valuation and
our earnings, but we acted decisively, with GBP90 million of
non-core disposals in line with our plan, supporting the balance
sheet and further focusing the business on its core assets.
Since year end, there are clearer signs that investors are
returning to the market, evidenced by activity across the sector
and our most recent sales, which are ahead of book. At Radway, our
flagship scheme in Crewe, we are now in advanced negotiations for a
significant pre let, a major milestone which validates our
ambitious but highly disciplined approach to development. This
opportunity, coupled with an improved financial position and our
71% weighting towards multi-let assets, the strongest part of our
market, leaves us well positioned for the future."
Maintained strong operational performance, capturing in-built
portfolio reversion and driving growth
-- GBP45.3 million contracted rent, including:
o GBP3.0 million from 40 new lettings, 29.1% ahead of previous
contracted rent
o GBP1.0 million from renewals, 15.8% ahead of previous
contracted rent
o GBP2.0 million from rent reviews, 21.5% ahead of previous
contracted rent
-- 5.3% like-for-like rental growth, with 17.6% portfolio reversion as at 31 March 2023
-- Occupancy up 3.1% from 30 September 2022 to 95.8%
-- c.99.0% of FY23 rent collected
-- In advanced negotiations for a 350,000 sq ft pre let at the first phase of Radway 16, Crewe
GBP158.5m of targeted capital activity, delivering on disposal
strategy and further focusing the business on its core assets
-- GBP59.6 million of asset disposals, crystallising an ungeared
IRR of 8.0%; further GBP29.9 million completing post period end
-- GBP64.0 million of acquisitions including Bradwell Abbey, a
multi-let industrial estate in Milton Keynes, 45.0%
reversionary
-- GBP5.0 million of capital investment or 0.5% of GAV, driving rents and values
Portfolio valuation impacted by sector-wide asset re-pricing
-- Like-for-like portfolio valuation decreased 18.5% to GBP828.8
million (2022: GBP1,012.0m); 131 bps equivalent yield expansion
partially offset by strong like-for-like growth in rental values of
6.2%, reflecting a robust occupier market
-- EPRA NTA per share 122.6p (2022: 173.9p) with total
accounting return of (25.7%) (2022: 33.2%); five year total
accounting return of 10.8%
Resilient financial performance and strengthened balance
sheet
-- Adjusted earnings of GBP19.8m (2022: GBP27.2m), primarily reflecting increased debt costs
-- Adjusted EPS of 4.7p (2022: 6.4p), with the dividend maintained at 6.4p
-- Two interest rate caps of GBP100m acquired; 75.2% of debt
hedged against interest rate volatility
-- GBP320.0 million of debt refinanced with improved covenants
-- LTV at 33.9%, with further headroom of GBP14.0 million in
available resources; pro forma LTV at 30.5% adjusting for post
balance sheet sales
Progressing our sustainability strategy
-- 60.2% of the portfolio now EPC A-C rated; advanced our pathway to Net Zero
Financial highlights
Year ended 31 March 2023 2022
Gross property income GBP47.8m GBP48.7m
------------ ------------
Operating profit before change in value GBP32.2m GBP35.4m
of investment properties
------------ ------------
IFRS (loss)/profit before tax (GBP182.8m) GBP191.2m
------------ ------------
IFRS earnings per share (43.0) 45.0p
------------ ------------
EPRA earnings per share 3.9p 6.4p
------------ ------------
Adjusted earnings per share(2) 4.7p 6.4p
------------ ------------
Dividends per share(3) 6.4p 6.4p
------------ ------------
Total accounting return(4) (25.7%) 33.2%
------------ ------------
Total cost ratio(5) 28.4% 27.1%
------------ ------------
As at 31 March 31 March
2023 2022
------------ ------------
Portfolio valuation GBP828.8m GBP1,012.0m
------------ ------------
IFRS net asset value GBP528.5m GBP739.0m
------------ ------------
IFRS net asset value per share 124.4p 173.9p
------------ ------------
EPRA net tangible assets ("NTA") per
share(6) 122.6p 173.8p
------------ ------------
Loan to value ("LTV") ratio 33.9% 25.1%
------------ ------------
Operational highlights
As at 31 March 31 March
2023 2022
Contracted rent GBP45.3m GBP44.0m
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Passing rent GBP41.2m GBP40.6m
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WAULT(7) to expiry 5.5 years 5.6 years
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WAULT to first break 4.5 years 4.5 years
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EPRA topped up yield 5.5% 4.4%
---------- ----------
Occupancy 95.8% 93.7%
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Meeting
A meeting for investors and analysts will be held at 9.00am on 6
June 2023 at the offices of FTI Consulting, 200 Aldersgate, London,
EC1A 4HD.
The results presentation is available in the Investor Centre
section of the Group's website. For further details, please email
FTI Consulting at warehousereit@fticonsulting.com
Enquiries
Warehouse REIT plc
via FTI Consulting
Tilstone Partners Limited
Simon Hope, Andrew Bird, Peter Greenslade, Paul Makin, Jo
Waddingham
+44 (0) 1244 470 090
G10 Capital Limited (part of the IQEQ Group, AIFM)
Maria Baldwin
+44 (0) 207 397 5450
FTI Consulting (Financial PR & IR Adviser to the
Company)
Dido Laurimore, Richard Gotla
+44 (0) 7904 122207 / WarehouseReit@fticonsulting.com
Further information on Warehouse REIT is available on its
website: http://www.warehousereit.co.uk
Notes
Warehouse REIT is a FTSE 250 UK Real Estate Investment Trust
that invests in UK warehouses, focused on multi-let assets in
industrial hubs across the UK.
We provide a range of warehouse accommodation in key locations
which meets the needs of a broad range of occupiers. Our focus on
multi-let assets means we provide occupiers with greater
flexibility so we can continue to match their requirements as their
businesses evolve, encouraging them to stay with us for longer.
We invest in our business by selectively acquiring assets with
potential and by developing opportunities we have created. Through
pro-active asset management we unlock the value inherent in our
portfolio, helping to capture rising rents and driving an increase
in capital values to deliver strong returns for our investors over
the long term.
Sustainability is embedded throughout our business, helping us
meet the expectations of our stakeholders today and futureproofing
our business for tomorrow.
The Company is an alternative investment fund ("AIF") for the
purposes of the AIFM Directive 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 AIFM and the
Investment Manager is currently G10 Capital Limited (Part of the
IQEQ Group).
Forward-looking Statements
Certain information contained in these half-year 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 do not
undertake any obligation to publicly update or revise any
forward-looking information except as required by applicable
securities laws.
Chairman's statement
The operational fundamentals of our business remained strong
throughout the year, but this robust performance has been
overshadowed by macro events which resulted in a step change in
interest rates, driving property yields higher and impacting
valuations across the sector.
Amid this volatility, we have maintained our focus on driving
the value of our portfolio through active asset management. The
long-term trends which have underpinned occupier demand in recent
years continue to support our leasing activity, which this year
delivered an additional GBP3.5 million in rent, bringing contracted
rent to GBP45.3 million as at 31 March 2023.
We continue to let space significantly ahead of previous rent,
demonstrating the reversionary potential of our portfolio and that
occupiers are prepared to pay higher rents for the right space in
the right locations. Our activity drove a like-for-like increase in
contracted rents of 5.3%, with the like-for-like estimated rental
value of our space up 6.2% reflecting sound underlying market
fundamentals. In addition, building on our strategic focus on
multi-let industrial space, we acquired Bradwell Abbey, a multi-let
estate near the gateway city of Milton Keynes. Multi-let assets
allow greater flexibility for occupiers because they can take
multiple or different-sized units and more easily scale up or down
according to their needs, accelerating our ability to capture
rental growth. This also means we are well placed to appeal to a
broader range of occupier as demand diversifies in new directions.
This year alone we have let space to a software provider to the
healthcare industry, an electronic bike and scooter company and an
automotive parts manufacturer. Our multi-let bias also means we can
create our own increased rental tone through targeted capex helping
to capture reversion at lease events.
Following the market correction in the second half, we
successfully executed on our strategy to reduce the level of
variable-rate debt through targeted asset disposals of non-core
properties. These totalled GBP59.6 million over the year and
crystallised an unlevered IRR of 8.0%. Encouragingly, there are
clear signs that liquidity is returning to the investment markets,
with the majority of these transactions completing towards the end
of the second half and post year end we have exchanged a further
GBP29.3 million of sales, on average 17.2% ahead of book value.
This activity further focuses the portfolio on our core assets,
enabling Tilstone Partners, our Investment Advisor, to concentrate
on opportunities which best drive value for shareholders.
Radway 16 in Crewe is the best example of this and an excellent
case study of Tilstone's expertise in site assembly. Initially, it
comprised a 250,000 sq ft multi-let estate with surplus land. It
was acquired within a portfolio purchase and has grown through
careful acquisition of adjacent sites from just 25 acres to be an
exciting development site of over 100 acres, strategically located
on Junction 16 of the M6. Inevitably, macro conditions have
impacted its valuation, but its combination of best-in-class,
sustainable space and superb connectivity make it highly attractive
to a wide range of occupiers. We are pleased that discussions for a
significant pre-let on the first phase of this scheme are well
advanced and only subject to legal documentation. We will update
stakeholders on any developments in due course.
Financial performance and returns
The dramatic increase in interest rates over the course of the
financial year to address levels of inflation not seen since the
1980s significantly reduced liquidity in investment markets.
Valuers reacted quickly, increasing yields to reflect the new
funding environment, and significantly reducing property valuations
across all commercial real estate markets. We have not been immune
and as a result of significant yield expansion, the value of the
portfolio declined by 18.5% on a like-for-like basis over the 12
months. This was partially offset by an increase in ERV of 6.2%
contributing to a fall in EPRA NTA to 122.6 pence per share at the
year end (31 March 2022: 173.8 pence) and a negative total
accounting return of (25.7%) (31 March 2022: 33.2%). However,
reflecting our very strong performance in the years following IPO
our five-year total accounting return is 10.8%.
When it became clear that interest rates would trend upwards, in
July 2022, two additional interest rate caps of GBP100.0 million
each were acquired for a total premium payable of GBP10.9 million
ahead of significant rate rises. These cap the variable SONIA rate
at 1.5% until July 2025 and July 2027 respectively. 75.2% of our
total debt of GBP306.0 million is fixed with the remaining 24.8%
subject to variable rates.
However, the increased cost of our variable rate debt had a
negative impact on earnings. While we met our target dividend of
6.4 pence per share, adjusted earnings of 4.7 pence per share meant
that for the full year, the dividend was uncovered. Following the
disposals undertaken during the period, our efforts are now focused
on continuing to capture the reversion embedded within the
portfolio and reduce the variable rate component of our debt.
As at 31 March 2023, the Group's loan to value remains within
our target range of 30% to 40%, at 33.9% as at year end, with
GBP14.0 million of headroom within our new facilities and with
additional headroom created following further asset disposals that
have exchanged, but not yet completed.
Environmental, social and governance matters
We continued to make significant progress with our ESG agenda
under the leadership of my colleague Aimée Pitman, who chairs our
Sustainability Committee. We have further strengthened how we
integrate ESG factors in everyday decisions, modelled our
climate-related risks and formulated a pathway to net zero for our
Scope 1 and 2 emissions by 2030. We continued to improve Energy
Performance Certificate ("EPC") ratings across the portfolio. We
have eradicated non-compliant F and G ratings ahead of statutory
requirements and have a capital expenditure programme aimed at
improving the ratings of all D and E rated units in England and
Wales to progress meeting expected future legislative requirements
for all commercial properties.
In July 2022 the Company transferred from AIM to the Main
Market. Given our already robust approach to corporate governance
and our comprehensive disclosure, compliance with the requirements
of the Listing Rules and related guidance has been straightforward
and we now benefit from access to a wider pool of shareholder
capital. We continue to follow and comply with the AIC Code of
Corporate Governance.
In May 2023, Tilstone Partners Limited, the Investment Advisor,
appointed Simon Hope, one of its co-founders, as Executive Chairman
and Co-Managing Director alongside Andrew Bird. This follows
Simon's move to an executive role at Tilstone.
In a separate announcement today, Martin Meech has indicated
that he will not stand for re-election at the AGM this September.
Martin has served on the Board since 2017 as the Senior Independent
Director and has been a hardworking, respected and valued colleague
having served on the Audit, Management Engagement and more recently
the Sustainability Committees. I would like to thank him for all
his efforts on our behalf and wish him well as he takes up an
executive position in the real estate industry.
As reported in elsewhere, this year the Board underwent an
externally facilitated Board evaluation. It is envisaged that the
outputs of that evaluation will be able to assist the Nomination
Committee in identifying Martin's successor. The Board have already
commenced the process using external consultants to find a
successor.
Outlook
Based on the performance of industry benchmarks and our own
experience, there are clear signs that the investment market is
stabilising and investors are returning, reflecting the very
favourable supply-demand dynamics in our markets. However, as an
industry, we are highly sensitive to the future path of interest
rates and the outlook remains uncertain, so the Board will continue
to manage the business diligently and carefully.
In this context, the ability to drive growth organically is key
to delivering returns. Occupier demand for space remains robust and
our sector continues to benefit from strong tailwinds, including
the growth of online retail and heightened focus on supply chain
resilience. In addition, our strong bias towards multi-let space in
economically relevant locations means we are well placed to capture
demand and drive rents. Selected development opportunities provide
further upside and we will commit to these as and when the time is
right.
I am confident that the business is well placed to deliver on
behalf of shareholders moving forward. Our primary focus in the
near term is continuing to optimise the portfolio earnings growth
through active asset management. It should be clear that the Board
remain very focused on total shareholder returns. As we pay down
more variable rate debt, further capture the significant
reversionary potential in the portfolio and continue the value
creation process at Radway Green, we believe we have a clear path
to further growth in our adjusted earnings per share and therefore
our dividend cover.
Neil Kirton
Chairman
5 June 2023
Objectives and strategy
We aim to create value through a top-down approach to
investment, hands-on asset management with best-in-class processes,
and an appropriate mix of financing.
Our objectives
We aim to provide shareholders with an attractive total return,
underpinned by secure income.
Total accounting return
Our target is 10% per annum, through a combination of dividends
and growth in NAV.
Outcome in 2022/23
Not achieved.
The total accounting return for the year was (25.7%), reflecting
the impact of adverse interest rates and market conditions on the
portfolio valuation, partially offset by improvements in occupancy
and interest rate caps. Our average total accounting return is on
track at 10.8%.
Plan for 2023/24
We continue to target an average return of 10% per annum.
Dividends
Our target for this year was a total dividend of at least 6.4
pence per share.
Outcome in 2022/23
Achieved.
We declared total dividends of 6.4 pence per share.
Plan for 2023/24
Our target for 2023/24 is to maintain the dividend at 6.4 pence
per share.
Sustainability
Our new environmental performance target is a 4.2% annual
reduction in our like-for-like Scope 1 and 2 emissions.
Our strategy
To achieve our objectives, we follow the strategy set out
below:
Investment strategy Risks: What we achieved: Post year end activity:
We look for: * poor performance of the Investment Advisor, Tilston * acquired one asset totalling c.335,000 sq ft in t * exchanged on a further GBP29.3m of sales
* sites close to major transport links and large e; he
conurbations, with high occupier demand and a highly attractive location of Milton Keynes; and
suitable workforce;
* poor returns on portfolio; and
* disposed of 16 assets for GBP59.6 million, genera
* buildings or land with a range of uses and long-term ting
flexibility, including the potential to change * acquisition of inappropriate assets or unrecognised an internal rate of return of 8.0%.
permitted use; and liabilities, or a breach of the investment strategy
.
* assets that match occupiers' current and future needs,
including their ESG objectives. Progress measured by:
* like-for-like valuation change;
Multi-let estates spread
risk and offer more asset * EPRA NAV;
management opportunities
than single-let assets.
Rental increases can * dividend per share; and
also be reflected across
the estate. We generally
target buildings of less * Total accounting return
than 100,000 sq ft and
have an average size
of 12,000 sq ft.
Asset management strategy Risks: During the year we: Post year end activity:
We budget to spend 0.75% * poor performance of Tilstone. * invested GBP5.0 million, or 0.5% of GAV, in capital * 8 new lettings and 3 renewals, 39.5% ahead of
of our gross asset value expenditure; prior
("GAV") on capital expenditure rents and 1.6% above March 2023 ERV; and
each year, with a target Progress measured by:
return of at least 10%. * occupancy; * completed 40 new lettings, at rents 13.0% ahead of
We also target a vacancy ERV; * 2 rent reviews, 22.5% ahead of prior rent, 19
level of 5-7%, since .5%
vacant properties allow * like-for-like rental income growth; ahead of ERV at the time of the rent review.
us to carry out asset * completed 22 lease renewals, with a 15.8% increase in
management activities. headline rents;
Improving the sustainability * rental increases agreed versus valuer's ERV;
performance of our assets,
for example by improving * completed 21 rent reviews with a 21.5% increase in
their energy efficiency, * number of energy efficient initiatives; and headline rents;
is an important part
of maintaining property
values and occupier appeal. * portfolio EPC performance * continued to progress our development project at
Radway 16, Crewe; and
* 18 EV chargers installed.
---------------------------------------------------------- ------------------------------------------------------------ ---------------------------------------------------------
Financial strategy Risks: During the year we: Post year end activity:
We fund the business * significant volatility in interest rates; * moved the Company's listing to the Premium Segment of * Refinancing with new club of lenders agreed with
through shareholders' the Main Market of the London Stock Exchange, thereby improved reporting covenants for a further 5 years
equity, bank debt and increasing the number of potential investors in the
any disposal proceeds * inability to attract investors; and Company's shares, in the UK and overseas;
we generate. We look
to raise equity at times
when we can make investments * breach of borrowing policy or loan covenants. * took out two interest rate caps of GBP100.0 million
that are accretive to each, for three and five years, capping the SONIA
shareholders. rate in the debt facilities at 1.5%;
Our strategy for debt Measured by:
financing is to maintain * LTV ratio
a prudent level of debt, * reduced leverage through the disposal programme
with an LTV range of described above; and
30 -- 40% in the longer
term. We look to hedge
the interest on a significant * maintained the LTV ratio in line with our target of
proportion of our debt, c.35%.
to provide greater certainty
over our financing costs.
---------------------------------------------------------- ------------------------------------------------------------ ---------------------------------------------------------
Key performance indicators
We use the following key performance indicators ("KPIs") to
monitor our performance and strategic progress.
Occupancy
2019: 92.0%
2020: 93.4%
2021: 95.6%
2022: 93.7%
2023: 95.8%
Description
Total open market rental value of the units leased divided by
total open market rental value, excluding development property and
land, and equivalent to one minus the EPRA vacancy rate.
Why is this important?
Shows our ability to retain occupiers at renewal and to let
vacant space, which in turn underpins our income and dividend
payments.
How we performed
Active asset management, asset disposals and the robust
occupational market helped us to increase occupancy during the year
to 95.8%.
Link to strategy
Asset management
Like-for-like rental income growth
2019: 2.1%
2020: 2.0%
2021: 2.9%
2022: 3.0%
2023: 5.3%
Description
The increase in contracted rent of units owned throughout the
period, expressed as a percentage of the contracted rent at the
start of the period, excluding development property, 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 delivered further good rental growth, as we continued to
capture the reversionary potential in the portfolio through active
asset management.
Link to strategy
Asset management
Rental increases agreed versus valuer's ERV
2019: 10.0%
2020: 5.1%
2021: 4.3%
2022: 6.0%
2023: 10.2%
Description
The difference between the 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 rental growth ahead of ERV through
asset management and the attractiveness of our assets to potential
occupiers.
How we performed
We maintained our track record of achieving rental levels ahead
of ERV.
Link to strategy
Asset management
Like-for-like valuation change
2019: 4.3%
2020: 2.5%
2021: 18.8%
2022: 19.4%
2023: (18.5)%
Description
The change in the valuation of properties owned throughout the
period under review, expressed as a percentage of the valuation at
the start of the period, and 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
After two years of exceptionally strong valuation increases,
investment market conditions led to an 18.5% fall in the
like-for-like valuation.
Link to strategy
Investment
Asset management
Total cost ratio
2019: 29.4%
2020: 27.1%
2021: 29.5%
2022: 27.1%
2023: 28.4%
Description
EPRA cost ratio including direct vacancy costs 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 in the year due to
non-recoverable holding costs on larger vacant buildings. Excluding
vacancy costs, the EPRA cost ratio was 26.8%.
Link to strategy
Not applicable
EPRA NTA
2019: 109.7p
2020: 109.5p
2021: 135.1p
2022: 173.8p
2023: 122.6p
Description
This net asset value measure assumes entities buy and sell
assets, thereby crystallising certain levels of deferred tax
liability. The measure excludes the fair value of financial
instruments that are used for hedging purposes where the Company
has the intention of keeping the hedge position until the end of
the contract duration (this is regardless of whether hedge
accounting under IFRS is applied).
Why is this important?
Shows our ability to acquire well and to increase capital values
through active asset management.
How we performed
The decline in capital values relative to the market contributed
to an 29.5% reduction in EPRA NTA per share.
Link to strategy
Investment
Asset management
Dividends per share
2019: 6.0p
2020: 6.2p
2021: 6.2p
2022: 6.4p
2023: 6.4p
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 dividend target for the year of at least 6.4
pence per share.
Link to strategy
Investment
Loan to value ratio
2019: 39.7%
2020: 40.2%
2021: 24.6%
2022: 25.1%
2023: 33.9%
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
The increase in the LTV primarily reflects our acquisition in
the year and the reduction in the value of the portfolio, partially
offset by proceeds from asset disposals.
Link to strategy
Financing
Investment Advisor's report
The Group performed well from an operational perspective, as we
continued to successfully implement the strategy, with a particular
focus on driving value from the portfolio through active asset
management and progressing the development opportunities, notably
at Radway 16, Crewe.
On a statutory basis, the Group's earnings per share of (43.0)
pence reflected the loss on revaluation of the investment
properties at the year end of GBP193.4 million, as a result of the
conditions in the investment market. The Group had recognised gains
on revaluation of GBP163.7 million and GBP105.0 million in the
previous two financial years.
On an adjusted basis the Group's results were affected by the
increased cost of debt in the year, as a result of rising interest
rates, and to a lesser extent by higher vacancy costs during the
year. As a result, adjusted earnings per share of 4.7 pence were
26.0% lower than the previous financial year, resulting in dividend
coverage of 73.0%.
Investment portfolio
During the year, the Group acquired two assets and disposed of a
number of other properties.
Acquisition
The Group acquired Bradwell Abbey Industrial Estate in Milton
Keynes for GBP62.0 million, excluding acquisition costs. The
multi-let industrial asset comprises 69 units across c.335,000 sq
ft and is let to occupiers including Argos, F&F Stores and
Taylor Kerr Engineering. The current rent of c.GBP7.83 per sq ft,
offers good reversionary potential compared to an ERV of GBP9.89
per sq ft. We see clear opportunities to generate upside through
strategic capital expenditure, working with the existing occupiers
and improving the estate's sustainability credentials, and we have
made good progress with our asset management plan since
purchase.
Disposals
The Group's asset management strategy includes an ongoing
programme of disposing of mature or non-core assets, so it can
redeploy the capital or use the proceeds to pay down debt. We keep
the portfolio under constant review to identify assets that are
candidates for disposal.
During the first half, the Group disposed of two assets, for
gross proceeds of GBP4.8 million. In the second half, we progressed
the Group's short-term strategy to reduce the level of
variable-rate debt with the disposal of 14 assets, for headline
consideration of GBP54.7 million, crystallising a profit on cost of
GBP3.3 million and generating an ungeared IRR of 8.9%. This brought
the aggregate proceeds for the year to GBP59.6 million. On a
statutory basis, due to the high watermark of March 2022
valuations, a GBP13.1 million loss was realised for the year ended
31 March 2023.
The sale of the assets demonstrate the liquidity of the
portfolio and include:
-- E xeter Way, Theale, a vacant 92,000 sq ft warehouse with a
high office component, sold to an owner-occupier for GBP15.0
million; and
-- Temple House, Harlow, for GBP14.5 million, sold ahead of a
potential vacancy and capital expenditure costs, following the
receipt of notice to break from the main occupier in March
2023.
The other assets disposed of included a range of smaller
properties for GBP25.2 million with a net initial yield of 6.5% and
generating an ungeared IRR of 15.4%. These are assets we had
identified as being non-core.
Asset management
Working with occupiers
The Group has a diverse base of 490 occupiers, with the top 15
occupiers accounting for 35.8% of the contracted rent roll from the
investment portfolio. The spread of the Group's occupiers across
different industries and business sizes means it is not reliant on
any one occupier or industry. This increases the Group's resilience
and helps to mitigate financial and leasing risks.
We continue to actively monitor the strength of the occupiers'
covenants using credit software such as Dun & Bradstreet,
enabling us to keep abreast of the impact of the current economic
environment on the Group's occupiers, in particular those where
energy is a high proportion of their costs. However, we have not
identified an increase in corporate failures, as reflected in the
Group's rent collection performance and bad debts (see the
financial review for more information). As at 2 June 2023, we had
collected c.99.0% of the rent due in respect of the year and we
expect this to increase as we work with occupiers to collect the
outstanding amounts.
Leasing activity
The UK occupational market remains robust and strong occupier
demand has helped us to continue to capture the inbuilt reversion
in the portfolio through lease renewals and new lettings. New
leases continue to exceed ERVs, while lease renewals and rent
reviews are achieving strong average uplifts against previous
rental levels. As a result, like-for-like contracted rent increased
by 5.3% year on year and ERVs by 6.2%, providing significant
opportunities to capture the portfolio reversion in future
periods.
New leases
The Group completed 40 new leases on 0.5 million sq ft of space
during the year, which will generate annual rent of GBP3.0 million,
29.1% ahead of previous contracted rent and 13.0% ahead of 31 March
2022 ERV. The level of incentives remains steady on all multi-let
estates.
Highlights included new leases for:
-- 3,700 sq ft at Midpoint 18, Middlewich, to a leading software
provider to the UK healthcare sector, on a ten-year lease with a
five-year break, at a rent of GBP237,000 per annum, 97.5% ahead of
previous contracted rent and inline with the 31 March 2022 ERV;
-- 138,500 sq ft at Daimler Green, Coventry, to an automotive
parts manufacturer, on a ten-year term at a rent of GBP623,000,
25.9% ahead of previous contracted rent and 16.9% above the 31
March 2022 ERV;
-- 38,600 sq ft at Swift Valley Industrial Estate, Rugby, on a
20-year lease at GBP8.60 per sq ft, 11.0% ahead of ERV;
-- 20,200 sq ft at Granby Trade Park, Milton Keynes, on a
ten-year lease with no break at GBP10.00 per sq ft;
-- 15,200 sq ft at Gateway Park, Birmingham, to an electronic
bike and scooter company, on a five-year term at a rent of GBP7.65
per sq ft, and 17.7% above the 31 March 2022 ERV; and
-- 36,100 sq ft at Carisbrooke Industrial Estate, Isle of Wight,
for a headline rent of GBP185,000 per annum for ten years with a
break at five years, equivalent to GBP5.12 per sq ft, 54.2% above
previous contracted rent and 7.7% ahead of the 31 March 2022 ERV.
The occupier is a leading manufacturing business.
Lease renewals
The Group continues to retain the majority of its occupiers,
with 59.0% remaining in occupation at lease expiry and 67.6% with a
break arising in the year, including units that were vacated and
re-let in the period, this increased the Group's effective
retention rate on lease renewals to 88.2%.
There were 22 lease renewals on 0.2 million sq ft of space
during the year, with an average uplift of 15.8% above the previous
passing rent and 2.7% above the ERV.
Highlights included:
-- 31,900 sq ft of lease renewals at Queenslie Park, Queenslie,
across nine units, securing GBP196,500 at an average of 22.8% ahead
of previous contracted rent and 10.6% ahead of 31 March 2022
ERV;
-- a five-year renewal at Cairn Court, East Kilbride. The new
lease generates total rent of GBP67,700 per annum and is 33.3%
ahead of the previous rent and 20.0% ahead of 31 March 2022
ERV;
-- a five-year renewal at Linkway Industrial Estate, Middleton.
The new lease generates total rent of GBP67,200 per annum and is
c.11.0% ahead of both the previous rent and 31 March 2022 ERV;
-- 22,000 sq ft lease renewal at Gateway Park, Birmingham,
securing GBP176,700, 22.5% ahead of previous contracted rent and
6.6% ahead of 31 March 2022 ERV.
Rent reviews
During the year 21 rent reviews were completed, generating an
additional GBP0.3 million per annum, 21.5% ahead of previous rent
and 5.2% ahead of the 31 March 2022 ERV.
Highlights included:
-- rent reviews on two leases at Air Cargo Centre, Glasgow,
which were settled at GBP440,000, 25.9% ahead of the previous
contracted rent and 11.8% ahead of the 31 March 2022 ERV;
-- settled a rent review at Tewkesbury Business Park,
Tewkesbury, for GBP330,000, 20.0% ahead of the previous contracted
rent and 9.8% ahead of the 31 March 2022 ERV;
-- settled a rent review at Austin Drive, Coventry, for
GBP275,000, 14.6% ahead of the previous contracted rent and the ERV
at the date of the rent review; and
-- rent reviews on two leases at Chittening Industrial Estate,
Bristol, which were settled at GBP210,000, 22.0% ahead of the
previous contracted rent and 4.8% ahead of the ERV at the date of
the rent review.
Development activity
Since 2017, we have assembled land for a flagship multi-let
logistics park development at Radway 16, Crewe. The Group now owns
112 acres in this premier logistics location in the North West, a
market characterised by low vacancy rates and high take up in the
region providing strong opportunities for above-average rental
growth. Radway 16 will provide state-of-the-art, sustainable
warehouse space that is suitable for a diverse range of
occupiers.
As previously reported, the Group has planning approval for more
than 1.8 million sq ft of warehousing at Radway 16, having secured
unanimous committee approval in July 2022 on phase 2 (1.02 million
sq ft), to add to previously approved consent for 0.8 million sq ft
secured in 2021. Since securing the approval on remaining scheme,
we have now satisfied the pre-commencement planning conditions of
phase 1 to enable a start on site.
In Q4 2022, we launched a marketing campaign, generating
significant occupier interest. We have also finalised the marketing
for the wider scheme, which can be configured in a number of ways
to provide a single 1 million sq ft unit or a number of smaller
units.
We continue to make progress with the Group's other development
projects, where we will only commence development once a pre-let
agreement has been signed.
Capital expenditure
We deploy carefully targeted capital expenditure to increase
rents and capital values and improve the assets' ESG performance.
On average, the Group aims to invest around 0.75% of its gross
asset value ("GAV") in capital expenditure each year. This excludes
development projects and is therefore based on GAV excluding
developments.
Total capital expenditure in the year was GBP5.0 million,
equivalent to 0.5% of GAV excluding developments. At the year end,
approximately 1.3% of the portfolio's ERV was under refurbishment
(31 March 2022: 1.6%). In line with the Group's ESG strategy, all
capital expenditure projects have long-term sustainable features
which target an improvement in the Group's overall EPC rating.
Portfolio analysis
At the year end, the Group's portfolio comprised 833 units
across 8.2 million sq ft of space (31 March 2022: 867 units across
8.5 million sq ft). The table below analyses the portfolio as at 31
March 2023:
Value Occupancy NIY NRY WAULT WAULT Average Capital
(GBPm) by ERV (%) (%) to expiry to break rent value
(%) (years) (years) (GBP (GBP
per sq per
ft) sq ft)
-------------------------------- ---------- ----- ----- ----------- ---------- -------- --------
Multi-let
more than
100k sq ft 384.0 95.2% 5.5% 6.5% 4.6 3.6 5.88 92.13
Multi-let
less than
100k sq ft 153.9 92.3% 6.4% 7.4% 5.4 4.0 6.63 89.95
Single let-
Regional distribution 131.9 100.0% 5.1% 5.8% 7.8 7.6 5.22 95.55
Single let-
last mile 83.3 100.0% 5.6% 6.9% 6.2 5.2 5.74 89.64
------------------------- ------ ---------- ----- ----- ----------- ---------- -------- --------
Total 753.1 95.8% 5.6% 6.6% 5.5 4.5 5.90 91.97
Development
land 75.7
------------------------- ------ ---------- ----- ----- ----------- ---------- -------- --------
Total portfolio 828.8
------------------------- ------ ---------- ----- ----- ----------- ---------- -------- --------
At he year end, the contracted rent roll for the investment
portfolio (excluding developments) was GBP45.3 million, with the
ERV of GBP53.3 million showing the reversionary potential in the
portfolio. Total contracted rents increased by 5.3% on a
like-for-like basis during the year.
The NIY of the investment portfolio was 5.6% at 31 March 2023,
with an equivalent yield of 6.5% and a reversionary yield of 6.6%.
The WAULT for the investment portfolio stood at 5.5 years at 31
March 2023 (31 March 2022: 5.6 years).
Occupancy improved across the investment portfolio and was 95.8%
at the year end (31 March 2022: 93.7%). Effective occupancy, which
excludes units under offer to let or undergoing refurbishment, was
98.4% at the year end (31 March 2022: 95.8%), with 1.1% of the
investment portfolio under offer to let and a further 1.5%
undergoing refurbishment at that date.
Financial review
Performance
Rental income for the year was GBP45.8 million (year ended 31
March 2022: GBP44.0 million), with the movement reflecting
like-for-like rental growth and the initial contribution from the
acquisition of Bradwell Abbey Industrial Estate, less revenue
foregone from the assets disposed of during the year. EPRA
like-for-like rental growth was 6.0%.
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 GBP18.9 million (year ended 31 March 2022: GBP16.0
million). The Investment Advisor fee for the year increased by
GBP0.5 million, primarily as a result of the significant net asset
growth in the second half of the previous financial year. The
reduced valuation at 31 March 2023 will result in savings for the
Group on the Investment Advisor fee in FY 2024 as this is
calculated on net assets.
The Company incurred one-off costs in the year of GBP1.1
million, in relation to its move from trading on AIM to the Main
Market of London Stock Exchange. There were no one-off costs in the
period to 31 March 2022.
The net increase in the expected credit loss allowance was
GBP0.2 million (year ended 31 March 2022: GBP0.3 million). This
modest change reflects the diversity and quality of the Group's
occupiers and our close relationships with them. The Group also
often has rent deposits, giving it additional protection from bad
debts.
The total cost ratio, which is the adjusted cost ratio including
direct vacancy costs, was 28.4% (year ended 31 March 2022: 27.1%),
with the increase driven by holding costs relating to
non-recoverable property expenses. Excluding void costs, the
adjusted cost ratio is 24.4% (year ended 31 March 2022: 24.3%). The
ongoing charges ratio, representing the costs of running the REIT
as a percentage of NAV, was 1.3% (year ended 30 March 2022:
1.2%).
The Group disposed of 16 assets in the year, resulting in a net
loss on disposal of GBP13.1 million due to the strong revaluation
uplifts since the assets were acquired. Against the assets'
purchase price, the Group recorded an internal rate of return of
8.0%. There were no disposals in the prior year.
At 31 March 2023, the Group recognised a loss of GBP193.4
million on the revaluation of its investment properties (year ended
31 March 2022: gain of GBP163.7 million).
Financing income in the year was GBP6.9 million (year ended 31
March 2022: GBP0.3 million), including GBP2.0 million interest
receipts (year ended 31 March 2022: GBPnil) from interest rate
derivatives held by the Company and GBP4.9 million change in fair
value of interest rate derivatives as at 31 March 2023 (year ended
31 March 2022: GBPnil).
Financing costs include the interest and fees on the Group's
revolving credit facility ("RCF") and term loan (see debt financing
and hedging). Total finance expenses were GBP15.5 million (year
ended 31 March 2022: GBP8.2 million). The increase reflects the
higher average debt in the year following the acquisition of
Bradwell Abbey and the higher weighted average cost of debt, which
was partly mitigated by the interest rate caps taken out in the
first half (see below). The all-in cost of debt for the year was
4.3% (year ended 31 March 2022: 2.6%). We expect interest costs to
reduce in FY 2024, as a result of the reduction in variable-rate
debt following the asset disposals in the second half of the
year.
The statutory loss before tax was GBP182.9 million (year ended
31 March 2022: GBP191.2 million profit).
The Group has continued to comply with its obligations as a REIT
and the profits and capital gains from its property investment
business are therefore exempt from corporation tax. The corporation
tax charge for the year was therefore GBPnil (year ended 31 March
2022: GBPnil).
Earnings per share ("EPS") under IFRS was (43.0) pence (year
ended 31 March 2022: 45.0 pence). EPRA EPS was 3.9 pence (year
ended 31 March 2022: 6.4 pence). Adjusted earnings per share was
4.7 pence (year ended 31 March 2022: 6.4 pence).
Dividends
The Company has declared the following interim dividends in
respect of the financial year:
Quarter to Declared Paid Amount (pence)
--------------- ----------------- ---------------- ---------------
30 June 2022 17 August 2022 3 October 2022 1.60
30 September 30 December
2022 8 November 2022 2022 1.60
31 December 28 February
2022 2023 3 April 2023 1.60
31 March 2023 6 June 2023 7 July 2023 1.60
--------------- ----------------- ---------------- ---------------
Total 6.40
---------------------------------------------------- ---------------
The total dividend of 6.40 pence per share met the Group's
target for the year and was 72.9% covered by adjusted EPS. All four
interim dividends were property income distributions. The cash cost
of the total dividend paid during the year was GBP27.6 million
(year ended 31 March 2022: GBP26.3 million).
Valuation and net asset value
The portfolio was independently valued by CBRE as at 31 March
2023, in accordance with the internationally accepted RICS
Valuation - Global Standards 2020 (incorporating the International
Valuation Standards) (the "Red Book"), and the RICS Valuation -
Global Standards 2017 - UK national supplement.
The portfolio valuation was GBP828.8 million (31 March 2022:
GBP1,012.0 million). This represented an 18.5% like-for-like
valuation decline, after taking account of capital expenditure of
GBP13.3 million, with the outward yield shift in the year being
only partly offset by rising rental values. The EPRA NIY was 5.0%
(31 March 2022: 4.0%) and the EPRA topped-up NIY was 5.5% (31 March
2022: 4.4%).
The valuation resulted in an EPRA NTA of 122.6 pence per share
at the year end (31 March 2022: 173.8 pence per share).
Debt financing and hedging
At the year end, the Group had a debt facility with a club of
four banks: HSBC, Bank of Ireland, Royal Bank of Canada and
Barclays. The facility runs until January 2025, with an option to
extend for a further two years, and comprises an RCF of GBP138.0
million and a term loan of GBP182.0 million, to give a total
facility of GBP320.0 million.
At 31 March 2023, GBP124.0 million was drawn against the RCF and
GBP182.0 million against the term loan. This gave total debt of
GBP306.0 million (31 March 2022: GBP271.0 million), with the Group
also holding cash balances of GBP25.1 million (31 March 2022:
GBP16.7 million); the Group's net debt as at 31 March 2023 is
GBP280.9 million (31 March 2022: GBP254.3 million). The LTV ratio
at 31 March 2023 was therefore 33.9% (31 March 2022: 25.1%), with
the increase reflecting the acquisition in the year and the lower
portfolio valuation, partially offset by the asset disposals.
The Group remains substantially within its covenants in the debt
facilities, which place a limit on the LTV of 55% and require
minimum interest cover of 2.0 times. Interest cover for the year
was 2.9 times.
The Group's debt facilities carry the cost of SONIA plus a
lending margin. During the first half of the year, the Group took
out two interest rate caps of GBP100.0 million each, for three and
five years respectively at a cost of GBP10.9 million payable over
the term, which cap the SONIA rate in the debt facilities at 1.5%.
The Group also has an interest rate cap of GBP30.0 million, which
expires in November 2023 and caps SONIA at 1.75%. A further
interest rate cap of GBP30.0 million expired in November 2022. The
Group had hedged approximately 75.0% of its year-end debt against
interest rate volatility.
We continue to explore opportunities to diversify the Group's
sources of debt funding, hedging requirements, extend the average
maturity of its debt and further reduce the average cost of
debt.
Post year end activity
Post-year end, the Group entered into a new five-year debt
facility totalling GBP320.0 million, replacing the existing
facility. The refinancing consists of GBP220.0 million term loan
and an RCF of GBP100.0 million, with a club of lenders consisting
of HSBC, Bank of Ireland, NatWest and Santander.
The new facility extends the tenure of the of the Group's debt
and with improved reporting covenants.
In addition, the Group has exchanged on two further disposals
for an aggregate of GBP29.3 million.
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
urban warehouses.
------- -----------------------------
No individual warehouse will represent ü The largest individual
more than 20% of the Group's last warehouse represents
published gross asset value ("GAV"), 6.2% of GAV.
at the time it invests.
------- -----------------------------
The Group will target a portfolio ü The largest occupier
with no one occupier accounting for accounts for 6.7%
more than 20% of its gross contracted of gross contracted
rents at the time of purchase. No rents and 7.1% of
more than 20% of its gross assets gross assets.
will be exposed to the creditworthiness
of a single occupier 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 consider where appropriate ü Other than refurbishing
an element of speculative development, vacant units, the
provided the exposure to these assets, Group did not undertake
assessed on a cost basis, shall not any speculative development
exceed 10% of the gross assets of in the period.
the Company.
------- -----------------------------
The Group may invest directly, or ü The Group's exposure
through forward funding agreements to developments at
or forward commitments (provided within the year end was
the overall exposure limited stated 9.1% of GAV.
above), in developments (including
pre-developed land), where:
* the structure provides us with investment risk rather
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 views an LTV of between ü The LTV at 31 March
30% and 40% as optimal over the longer 2023 was 33.9%.
term but can temporarily increase
gearing up to a maximum of 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 Capital Limited ("G10") is
the Company's AIFM and Investment Manager and is authorised and
regulated by the Financial Conduct Authority.
Investment Advisor
Tilstone Partners Limited is Investment Advisor to the Company
and the Investment Manager.
Tilstone Partners Limited
5 June 2023
Principal risks and uncertainties
PRINCIPAL RISKS AND UNCERTAINTIES
Our ability to identify, understand and manage our risks and
uncertainties is key to delivering our strategy and generating
returns for investors.
Our approach and culture
Our understanding of the potential risks associated with our
business activities, and our ability to implement robust management
arrangements linked to our risk appetite are essential for a
successful business. Our risk management activities enable us to
identify and manage risks arising internally - from our
decision-making and strategy; and from external risks - which arise
when we are impacted by changes in the external market and
environment.
Our culture of practical, pragmatic risk awareness and
management has been particularly important during the economic
challenges of the last financial year, which include increasing
interest rates, rising inflation, and significant increases in
energy and utility costs. These financial challenges in particular
had an impact on our occupiers and the population of potential
occupiers, leading to some changes in our risk profile and risk
mitigation plans.
Risk management framework
Our strong culture is underpinned by a structured approach to
the understanding and management of risk, with a risk management
framework which is reviewed and approved by the Board, via the
Audit and Risk Committee, each year.
The framework is clear and focused, setting out the Board's risk
appetite, with defined responsibilities; processes for the regular
review of risk and consideration of emerging risk; and reporting
arrangements. This clarity is designed to enable the Group's
Investment Advisor to take advantage of opportunities and make
effective business decisions, whilst staying within an agreed set
of parameters.
During the year, the risk framework and risk appetite were
enhanced to reflect our growing focus on ESG and climate-related
risks. We also took the decision to review our risk evaluation
matrix, to reflect the increasing size of the business, and our
move from AIM to the Main Market.
Risk appetite
Risk management is embedded in our decision-making processes,
supported by robust systems, policies, leadership and governance.
Our business uses an outsourced model, and we rely on our service
providers to make decisions and take risks within agreed parameters
in the delivery of our objectives. Those parameters are summarised
in our stated risk appetite.
The level of risk considered appropriate to accept in achieving
business objectives is determined by the Board:
-- The Group has no appetite for risk in areas relating to
regulatory compliance, and the health, safety and welfare of our
occupiers, stakeholders, and the wider community in which we
work
-- Appetite for risk relating to climate change is low, and the
Group is actively focusing on the identification and mitigation of
physical and transitional risks for its portfolio
-- We have a moderate appetite for risk in relation to
activities which are directed towards driving revenues and
increased financial returns for its investors
The Board
The Board has overall responsibility for the Group's approach to
risk management and internal control, including:
-- The design and implementation of risk management and internal
control systems which identify the risks facing the business and
enable the Board to make an assessment of principal risks
-- Determining the nature and extent of the principal risks
faced, and those risks which the Group is willing to take
-- Agreeing how principal risks are managed or mitigated to reduce their likelihood or impact
-- Ensuring that there is sufficient relevant, reliable and
valid assurance about the mitigation of risk
The Audit and Risk Committee
The majority of the operations of the Group are outsourced, and
the Audit and Risk Committee relies on risk information from its
service providers, primarily the Investment Advisor.
To fulfil its responsibilities the Audit and Risk Committee:
-- Monitors key risks and changes in risk throughout the year
-- Seeks to identify and consider potential emerging risks to
the Group, arising both externally and internally
-- Considers each of the principal risks, the business's
mitigation strategies, and assurances from both management and
independent sources
-- Undertakes an annual review of the effectiveness of the risk management process, including:
o The operation of risk management and control systems
o Integration of risk management and internal control with strategy and business planning
o Changes in the nature, likelihood and impact of principal risks
o The quality of risk reporting
o Any issues dealt with in reports reviewed during the year, in
particular the incidence of significant control failings or
weaknesses that have been identified, and the extent of the impact
which they had or could have had
o The effectiveness of the Company's public reporting processes
-- Takes advice from the Sustainability Committee with respect
to updating climate-related risks and mitigations.
The Sustainability Committee
The Sustainability Committee has oversight of the Group's
approach to the management of climate related risks. It provides
the Audit and Risk Committee and Board with updates and information
in relation to climate risk generally, and progress with the
strategy agreed for the Group to manage risks in this area.
The Investment Advisor
The Investment Advisor supports the Audit and Risk Committee and
Board, and is responsible for risk identification, documentation
and evaluation, including both current and emerging risks; for the
implementation of appropriate controls; and for meaningful
reporting to the Audit and Risk Committee.
Documentation and reporting
The corporate risk register is the core of the risk management
process. It contains an assessment of the risks faced by the Group
together with the controls established to reduce those risks to an
acceptable level. It is maintained and reviewed regularly by the
Investment Advisor, and formally reviewed at each meeting of the
Audit and Risk Committee.
A standard evaluation matrix is used to assess the exposure to
risks, and that is reviewed and approved as part of the risk
management framework at least annually.
Risks are categorised into:
-- Business risk - the risk of making poor business decisions,
implementing decisions ineffectively, or being unable to adapt to
changes in its environment. In particular this includes our
property investment risk, and our acquisition, disposal and tenancy
decision making processes.
-- Compliance risk - the risk of legal or regulatory sanctions,
financial loss, or loss to reputation a regulated business may
suffer as a result of its failure to comply with all applicable
laws, regulations, codes of conduct and standards of good
practice.
-- Climate-related-risk - risks to the business from the impact
of climate change. This includes direct physical impacts such as
flooding, or excessive indoor temperatures during periods of
extreme heat; and transitional risks such as changes in demand from
occupiers, or the cost of complying with changes in building
standards.
-- Financial risk - the risk of financial loss resulting from
risks such as market, credit and liquidity risks:
-- Market risk - economic losses resulting from price changes in the capital markets.
-- Credit risk - change in the financial situation of a
counterparty, such as an issuer of securities or other debtor with
liabilities or arising out of investments and payment transactions
with investors.
-- Liquidity risk - not meeting the criteria of the borrowing
policy and payment obligations at all times.
-- Operational risk - the risk of a loss resulting from
inadequate processes, technical failure, human error or external
events.
Emerging risk
The regular risk reviews undertaken by the Investment Advisor
specifically include review of emerging risks, and this is also
part of the review by and discussions with the Audit and Risk
Committee. The assessment considers internal changes, and external
changes trends, and incidents, and considers:
-- Is this risk relevant to the Group's business activities?
-- What is the potential impact, if the risk crystallises?
-- What are our potential strategies for the management and mitigation of the risk?
-- How could we get assurance that these strategies are effective in practice?
-- Is this a risk that we should continue to pro-actively monitor?
During the year, we have made some changes to the risks on the
register, enhancing risk definitions and the evaluation of some
risks, to reflect the challenges being presented by the current
cost of financing, and more difficult economic and market
conditions.
One new principal risk was agreed during the year, relating to
the Group's ability to raise funding - be that equity, loan
financing or through asset disposals.
Environmental, social and governance ("ESG") risk
We have continued to invest in and develop our knowledge and
plans to manage risk exposure around our sustainable ambitions and
climate-related risks. The associated risks are integrated in the
Group's risk management process and corporate risk register, and we
have also developed an additional, more granular ESG risk register.
C limate change risk remains one of the Group's principal
risks.
Our governance framework has been enhanced with a Sustainability
Committee (a sub-committee of the Board/Investment Advisor), having
regular oversight of the Group's responsible business agenda,
sustainability strategy and external ESG reporting plus being
provided with regular updates on regulatory requirements and
general market expectations. Following the climate risk scenario
modelling undertaken this year, the Sustainability Committee will
review the Group's climate related risks and mitigation strategies
in detail via the focused ESG risk register and recommend any
required updates to the Audit and Risk Committee.
Climate-related risks, particularly physical risks, are
incorporated in our decision-making protocols for portfolio changes
and capital developments. Costs associated with the Group's
sustainability and climate-related ambitions e.g. minimum energy
efficiency standards ahead of legislative requirements for
properties and net zero carbon pathway, are included in our
financial modelling and budgeting. Capital project planning also
includes a focus on energy usage reduction and implementing
building efficiency measures such as building management systems,
replacement of high emission fittings, reduction of water usage and
support of sustainable transport initiatives. A climate risk
scenario modelling has been completed, to enable us to assess the
exposure of our portfolio to physical climate-related risks across
certain climate scenarios. The assessment provided a clear overview
of the impact likelihood that modelled hazards pose to the
portfolio, enabling us to make strategic decisions on where to
focus mitigation actions and harness opportunities. We are
introducing targeted surveys of occupiers to understand their
challenges and requirements, to enable us to work together to
reduce risk and further understand our energy consumption
baseline.
Principal risks
Principal risks are those which are 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 and Risk Committee, who
consider:
-- any substantial changes to principal risks;
-- material changes to control frameworks in place;
-- changes in risk scores; and
-- any significant risk incidents arising.
Changes in principal risks during the year
One new principal risk was agreed during the year, relating to
the Group's ability to raise funding - be that equity, loan
financing or through asset disposals. Previously, risks covering
this area were included in the risk register, but were not
considered to be significant principal risks. However, the
combination of a hardening market for asset disposals, market
uncertainties impacting on our share price, the timing of our
refinancing, and the increasing cost of capital have all combined
to result in an increased exposure.
In some cases the evaluation of principal risks has changed
during the year, and the detailed risks section on the following
pages shows those changes, with additional information setting out
the reasons for changes and risk mitigation plans.
Risk Risk mitigation Change and Category
commentary
A Interest rate ó Financial
changes Increases in Interest rates
Changes in interest interest have increased
rates could directly rates are not significantly
impact on our cost within our over the last
of capital, and control, and our 12 months,
indirectly may focus and there is
impact on market is therefore still the risk
stability. primarily of further
Interest rates on mitigation of increases.
continued to increase the impact.
during 2022/23. Interest rate However, during
caps are the year we
in place, and we have reduced
are revising our exposure,
and by increasing
renegotiating hedging and
our reducing debt
funding levels, and
arrangements. our plans and
forecasts have
The Investment taken the current
Advisor high interest
maintains rates into
detailed records account.
of the property
portfolio, Overall, we
and financial consider that
scenario the level of
testing is risk is therefore
undertaken unchanged from
to assess the previous years.
potential
impact of
changes in
financing
costs.
Whilst we remain
comfortable
that appropriate
new funding
arrangements
will be put
in place,
changes in
interest
rates could have
an impact
on returns and
profitability.
------------------------------------------------------------ ------------------ ------------------ ------------
B Unable to raise The downturn in New Financial
funding through the economy
equity, debt or during the year This is the
asset disposals has had first year
sufficient to raise an impact on each this has been
capital and finance of these considered
the Group's activities. potential risk a principal
There are three areas. risk, and this
areas of potential We have a decision has
risk: framework of been driven
* Inability to attract additional equity investment mitigations in by the
place, combination
designed to of pressures
* Difficulty in securing new loan funding for the address the on each of
business, at an affordable rate risks, but the three areas.
recognise that
market conditions
* Our ability to raise funds through the disposal of are
assets could be impacted by a hardening market if the more challenging.
economic outlook deteriorates further
We have regular
investor
communications
and performance
reporting against
our
strategy, and
have the
benefit of an
enlarged
investor base
following
previous
fundraises.
The Investment
Advisor
completed the
refinance
of the Group's
financing
arrangements.
The Investment
Advisor
maintains close
contact
with agents to
ensure
that disposal
proceeds
and the timing of
sales
are optimised.
The monitoring
of financial
covenants
also enables
efficient
disposal
planning.
------------------------------------------------------------ ------------------ ------------------ ------------
C Poor portfolio ñ Business
returns The investment The external
strategy economic
There is a risk is set by the environment
that the returns Board, and has increased
generated by the performance the potential
portfolio may not against key for occupier
be in line with targets and KPIs defaults and
our plans and forecasts. is reviewed liquidations,
There are many and reported to which in turn
factors that could the Board may impact
drive this, including on an ongoing both rental
: basis. income and
* Inappropriate investment strategy set by the Board Significant portfolio
decisions, valuations.
relating to
* Poor delivery of the strategy by the Investment assets or
Advisor occupiers follow
established
protocols,
* Poor yields from the property portfolio because of ensuring there
reduced capital valuations or rental income is proper
assessment,
at the right
levels.
This would have
an impact on the
financial performance
of the REIT, and
returns for our
investors.
------------------------------------------------------------ ------------------ ------------------ ------------
D Impact of climate ó Business
change on our portfolio
Climate change We have a
is likely to have Sustainability
an increasing impact Committee, which
across the business, challenges,
which could include: approves and
- Extreme weather monitors
events impacting our
on properties sustainability
- Increasing costs strategy
of suppliers/disruption and progress.
to supplies for The committee
maintenance and members have
development received
- Properties not training on
meeting regulatory/occupier climate related
requirements relating risks from MEES,
to energy efficiency, and this
building standards, training will be
or location for rolled
logistics out to the
- Increasing costs Investment
of compliance as Advisor.
requirements around During the year
energy efficient we have
solutions and building obtained support
standards continue from
to strengthen. external
There is also a specialists to
potentially significant assist us with
resource requirement defining
for the collection our ambitions,
and maintenance including
of the different our
data required for decarbonisation
reporting (eg. pathway,
carbon emissions), climate-related
because of the governance
size and make up and the
of the portfolio resulting TCFD
- A reduction in reporting.
property values An environmental
and achievable specialist
rents, if assets completed a
are not developed/maintained climate risk
to appropriate scenario
standards modelling to
assess the
It may also impact exposure of
on investor interest, our portfolio to
our reputation physical
compared to our hazards. We
peers, and our continue to
ability to access invest in
green funding options. resource and
expertise in
this area,
as we recognise
the importance
and the
challenges
ahead.
.
Our Investment
Advisor,
along with our
Property
Managers, are
working
with occupiers
to understand
their energy
usage and
how we can
support them
to meet their
sustainability
objectives and
net zero
plans.
Capital
development and
refurbishment
works include
detailed
consideration
of energy
efficient
solutions,
emissions
management,
and options to
reduce
waste and
resource usage
through the use
of existing
or low carbon
material.
Although the
challenges
in this area are
increasing,
we have made
good progress
this year
towards
understanding
our
climate-related
risk
and consider the
results
highlighted to
date and
our approach to
investments
and improvements
made
this year have
resulted
in no overall
change to
the current
level of risk.
------------------------------------------------------------ ------------------ ------------------ ------------
E Poor performance There are ó Business
of the Investment contracts in
Advisor or Investment place between the
Manager Company,
the Investment
The Group outsources Advisor
it activities and and the
is reliant on the Investment
performance of Manager,
third-party service setting out
providers. responsibilities.
In particular, Both provide
poor performance regular quarterly
of the Investment reports to the
Advisor could have Board,
a significant impact which include key
on the performance performance
of the Group, as targets and KPIs.
it is fundamental The Management
to the management Engagement
and delivery of Committee carries
all aspects of out
the business. an annual service
review,
which is reported
to the
Board.
Members of the
Investment
Advisor team have
investments
in the Group,
which reduces
the risk of
reduced or
poor service
levels.
------------------------------------------------------------ ------------------ ------------------ ------------
F Significant rent Our diverse ñ Operational
arrears/irrecoverable portfolio We consider
bad debt of assets, and it sensible
wide range to increase
A substantial increase of occupiers, is our assessment
in our bad debt, key to of risk in
or the level of maintaining a low these areas,
arrears and slow risk as whilst our
payment could have profile in rent collection
a direct impact relation to performance
on cash flow and bad debts. remains good,
profitability, We have with bad debts
and could also approximately consistently
have an impact 490 occupiers below our level
on average lease across our of provisioning,
lengths, and void portfolio of the current
levels and costs. around 76 economic
Furthermore, poor estates, and our challenges
payment performance top ten and high
would increase occupiers inflation
the focus required generate less increase the
from the Property than 30% of our likelihood
Managers and Investment rent roll. that some
Advisor Asset Managers, This is closely occupier
impacting on resource monitored businesses
availability to to ensure that we will fail.
manage other aspects are
of the business. not at
significant risk
from any
individual
occupier.
At an operational
level,
we have robust
processes
in place across
our tenancy
management
activities,
ensuring that we
accurately
record, invoice
and collect
amounts due.
There is a
rigorous due
diligence process
prior
to the acceptance
of occupiers,
with rent
guarantees or
rent deposits
taken where
appropriate.
Occupier
management
routines include
credit control
processes
to identify any
potential
arrears problems
and ensure
that debt is
recovered
or actions taken
at an
early stage.
Enhanced
automated
monitoring on
the occupier
portfolio
has been
implemented
during
the year through
subscriptions
to credit
management
software.
In addition,
disposals
in 2022 targeted
those
more granular
assets with
exposure to
smaller SMEs,
which has also
reduced
our risk.
------------------------------------------------------------ ------------------ ------------------ ------------
G Inappropriate We have ó Operational
acquisitions, breach comprehensive
of the investment governance
policy procedures
Inappropriate acquisitions supporting
could increase acquisition
risk in relation decisions,
to portfolio returns, including an
as properties may acquisition
be harder to let, protocol which
may not generate is linked to the
appropriate revenues, matters
or may require reserved for the
additional costs Board
to support. and the delegated
authority
matrix.
The protocol sets
out
detailed due
diligence
steps which must
be completed
and fully
evidenced as
part of the
decision-making
process.
Acquisition
decisions
are approved by
the Investment
Advisor
Investment
Committee
and the
Investment
Manager
Investment
Committee,
and any higher
risk acquisition
decisions (by
value or
complexity) are
escalated
to the Board.
The REIT's
Depositary,
Crestbridge, is
also required
to approve
acquisition
decisions.
------------------------------------------------------------ ------------------ ------------------ ------------
H Loss of REIT status The Board has ó Compliance
approved
Loss of our REIT a clear
status, through governance
failing to meet framework
regulatory requirements which
or the Listing incorporates the
Rules, would have matters reserved
a significant impact for the
on our reputation Board and
and the financial delegated
returns for our authorities,
investors. which are further
supported
by the clear,
contracted
allocation of
responsibilities
to our
third-party
service
providers.
The Investment
Advisor
reviews the
position against
REIT legislation
with
Link quarterly,
and this
is reported to
the Audit
and Risk
Committee and
Board. We are
further
supported by
Deloitte,
who complete our
PID tracker.
Dividend cover
and cash
is continuously
monitored
and forecast
forward,
and the position
reported
to the Audit and
Risk
Committee and
Board.
------------------------------------------------------------ ------------------ ------------------ ------------
7 Breach of loan Our financial ó Compliance
covenants or our position
borrowing policy. is closely and
regularly
Our loan funding monitored, and in
is subject to conditions, particular
and breach of those the Investment
could result in Advisor
restrictions to monitors LTV %
funding and activities against
going forward. our loan covenant
In addition to and
the loan covenants, borrowing policy
the Board approved on an
and communicated ongoing basis.
our borrowing policy, In addition,
and breach of those forward forecasts
limits may risk are prepared and
financial and reputation reviewed
damage. both to assess
the business's
position, and to
ensure
that any
acquisition
decisions
include
consideration
of the cash and
funding
impact.
The Board
receives a formal
update each
quarter, and
there is a
quarterly
compliance
letter prepared
for the
bank.
------------------------------------------------------------ ------------------ ------------------ ------------
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. Throughout the year, the Board met, in conjunction with
the Investment Advisor, Tilstone, to review the uncertainties
created by geopolitical tensions and rising inflation and interest
rates, and specifically their potential impact on rent collection,
cash resources, loan facility headroom, covenant compliance,
acquisitions and disposals of investment properties, discretionary
and committed capital expenditure and dividend distributions.
The Group ended the year with GBP19.0 million of unrestricted
cash and GBP14.0 million of headroom readily available under its
facilities. Disposals are an important part of our approach to
portfolio optimisation and we continually review the portfolio to
identify opportunities to increase efficiency and dispose of any
assets that are considered ex-growth or non -- core, recycling that
capital into accretive acquisitions or to reduce debt. The Group
made disposals totalling GBP59.5 million during the year and
exchanged on two further disposals for GBP29.3 million post year
end.
The Group has completed a new five year GBP320.0 million
facility with a club of lenders extending the tenure of the
previous financing arrangements past 2025. In making this an
assessment on going concern, the Board have considered covenant
compliance based on the new terms of the facility.
The Group is operating significantly within its covenants and a
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 32.9% or rents by 30.5%, when compared with
31 March 2023, before these covenants would be breached, which,
based on available market data, is considered unlikely.
As at 5 June 2023, c.99.0% of rents invoiced in relation to the
year ended 31 March 2023 have been received. Furthermore, current
debt and associated covenants are summarised in note 28, with no
covenant breaches during the period.
Tilstone has prepared projections for the Group covering the
going concern period to 30 June 2024, which have been reviewed by
the Directors. 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 discretionary capital
expenditure, adverse refinancing conditions and minimum dividend
distributions under the REIT rules.
Accordingly, based on this information, and in light of
mitigating actions available and the recent refinancing, 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.
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 June 2026, allowing a reasonable level of accuracy given
typical lease terms and the cyclical nature of the UK property
market.
The principal risks 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 occupiers,
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 of potential mitigating
factors. The key sensitivities applied to the model are a downturn
in economic outlook and restricted availability of finance,
specifically:
(i) increased occupier churn and occupier defaults;
(ii) increased void periods following break or expiry;
(iii) decreased rental income;
(iv) decrease in property valuation; and
(v) increased interest rates.
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 as set out in the Going
Concern section above. 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 and Risk
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
economic and political environment.
The Board's expectation is further supported by regular
briefings provided by Tilstone. 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 need to reinforce supply chains, combined with
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
The period over which the Directors consider it is feasible and
appropriate to report on the Group's viability is a three-year
period to June 2026. This period has been selected because it is
the period that is used for the Group's medium -- term business
plans. Underpinning this plan is an assessment of each individual
unit's performance, driving the overall letting assumptions and
corresponding forecast cash flows.
Having made an assessment of each individual unit's performance,
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 and in
light of the current economic uncertainty, 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.
Neil Kirton
Chairman
5 June 2023
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 UK adopted
international accounting standards and applicable law and
regulations. 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 of the
Group and the Company in accordance with UK adopted international
accounting standards. Additionally, 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 and Company 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 UK adopted
international accounting standards, subject to any material
departures disclosed and explained in the financial statements;
-- make judgements and estimates that are reasonable and prudent;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Company will continue in business; and
-- prepare a directors' report, a strategic report and
directors' remuneration report which comply with the requirements
of the Companies Act 2006.
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. They are
also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website , including ensuring the annual report and the
financial statements are made available . 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. As
such, the Directors' responsibility also extends to the ongoing
integrity of the financial statements contained therein. Financial
statements are published on the company's website in accordance
with legislation in the United Kingdom governing the preparation
and dissemination of financial statements and 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.
-- The Directors confirm that, pursuant to their
responsibilities under DTR4, to the best of their knowledge: the
financial statements, prepared in accordance with UK adopted
international accounting standards and in conformity with the
requirements of the Companies Act 2006, give a true and fair view
of the assets, liabilities, financial position and profit of the
Company (and Group as a whole); and
-- this Annual Report includes 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.
Having taken advice from the Audit Committee, 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
5 June 2023
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2023
Year ended Year ended
---------------------------------------------------------------- -----
31 March 31 March
2023 2022
Continuing operations Notes GBP'000 GBP'000
---------------------------------------------------------------- ----- ----------------- ------------
Gross property income 3 47,845 48,714
Service charge income 3 3,340 2,682
Service charge expenses 4 (3,767) (3,011)
Net property income 47,418 48,385
Property operating expenses 4 (5,454) (4,789)
---------------------------------------------------------------- ----- ----------------- ------------
Gross profit 41,964 43,596
Administration expenses 4 (9,716) (8,244)
Operating profit before (losses)/gains on investment properties 32,248 35,352
Fair value (losses)/gains on investment properties 13 (193,367) 163,685
Realised (loss) on disposal of investment properties 13 (13,105) -
---------------------------------------------------------------- ----- ----------------- ------------
Operating (loss)/profit (174,224) 199,037
Finance income 7 2,039 321
Finance expenses 8 (15,528) (8,154)
Changes in fair value of interest rate derivatives 18 4,850 -
(Loss)/profit before tax (182,863) 191,204
Taxation 9 - -
---------------------------------------------------------------- ----- ----------------- ------------
Total comprehensive (loss)/ income for the period (182,863) 191,204
---------------------------------------------------------------- ----- ----------------- ------------
(Loss)/Earnings per share (basic and diluted) (pence) 12 (43.0) 45.0
---------------------------------------------------------------- ----- ----------------- ------------
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 2023
31 March 31 March
2023 2022
Notes GBP'000 GBP'000
------------------------------------------------------ ----- --------- ---------
Assets
Non-current assets
Investment property 13 842,269 1,026,066
Interest rate derivatives 18 11,228 337
------------------------------------------------------ ----- --------- ---------
853,497 1,026,403
------------------------------------------------------ ----- --------- ---------
Current assets
Investment property held for sale 14 625 -
Cash and cash equivalents 15 25,053 16,706
Trade and other receivables 16 9,258 9,849
34,936 26,555
------------------------------------------------------ ----- --------- ---------
Total assets 888,433 1,052,958
------------------------------------------------------ ----- --------- ---------
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 17 (304,093) (268,216)
Other payables and accrued expenses 20 (11,300) (16,550)
Head lease liability 19 (14,320) (14,200)
------------------------------------------------------ ----- --------- ---------
(329,713) (298,966)
------------------------------------------------------ ----- --------- ---------
Current liabilities
Interest rate derivatives 18 (3,841) -
Other payables and accrued expenses 20 (18,584) (6,855)
Deferred income 20 (7,115) (7,487)
Head lease liability 19 (705) (696)
------------------------------------------------------ ----- --------- ---------
(30,245) (15,038)
------------------------------------------------------ ----- --------- ---------
Total liabilities (359,958) (314,004)
------------------------------------------------------ ----- --------- ---------
Net assets 528,475 738,954
------------------------------------------------------ ----- --------- ---------
Equity
Share capital 21 4,249 4,249
Share premium 22 275,648 275,648
Retained earnings 23 248,578 459,057
------------------------------------------------------ ----- --------- ---------
Total equity 528,475 738,954
------------------------------------------------------ ----- --------- ---------
Number of shares in issue (thousands) 424,862 424,862
Net asset value per share (basic and diluted) (pence) 24 124.4 173.9
------------------------------------------------------ ----- --------- ---------
These financial statements were approved by the Board of
Directors of Warehouse REIT plc on 5 June 2023 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 2023
Share Share Retained
capital premium earnings Total
Notes GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ----- ------- ------- --------- ---------
Balance at 31 March
2021 4,249 275,648 294,194 574,091
Total comprehensive
income - - 191,204 191,204
Dividends paid 11 - - (26,341) (26,341)
-------------------- ----- ------- ------- --------- ---------
Balance at 31 March
2022 4,249 275,648 459,057 738,954
Total comprehensive
income - - (182,863) (182,863)
Dividends paid 11 - - (27,616) (27,616)
-------------------- ----- ------- ------- --------- ---------
Balance at 31 March
2023 4,249 275,648 248,578 528,475
-------------------- ----- ------- ------- --------- ---------
Further details of retained earnings are presented in Note
23.
The accompanying notes form an integral part of these financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2023
Year ended Year ended
31 March 31 March
2023 2022
Notes GBP'000 GBP'000
------------------------------------------------------------------ ----- ---------- ----------
Cash flows from operating activities
Operating (loss)/profit (174,224) 199,037
Adjustments to reconcile profit for the period to net cash flows:
Losses/(gains) from change in fair value of investment properties 13 193,367 (163,685)
Realised loss on disposal of investment properties 13 13,105 -
Head lease movement in asset value (42) 181
Operating cash flows before movements in working capital 32,206 35,533
Decrease/(increase) in other receivables and prepayments 329 (6,318)
Increase/(decrease) in other payables and accrued expenses 2,788 (970)
Net cash flow generated from operating activities 35,323 28,245
------------------------------------------------------------------ ----- ---------- ----------
Cash flows from investing activities
Acquisition of investment properties (66,053) (45,178)
Capital expenditure (4,628) (7,536)
Development expenditure (7,141) (1,133)
Purchase of interest rate caps (2,200) -
Interest received 989 -
Disposal of investment properties 58,101 -
------------------------------------------------------------------ ----- ---------- ----------
Net cash flow used in investing activities (20,932) (53,847)
------------------------------------------------------------------ ----- ---------- ----------
Cash flows from financing activities
Bank loans drawn down 17 65,000 49,000
Bank loans repaid 17 (30,000) -
Loan interest and other finance expenses paid (11,810) (5,288)
Other finance expenses paid (390) (799)
Recurrent loan fees (396) (392)
Head lease payments (832) (1,057)
Dividends paid in the period 11 (27,616) (26,341)
Net cash flow (used in)/generated from financing activities (5,648) 15,123
------------------------------------------------------------------ ----- ---------- ----------
Net increase/(decrease) in cash and cash equivalents 8,347 (10,479)
Cash and cash equivalents at start of the period 16,706 27,185
------------------------------------------------------------------ ----- ---------- ----------
Cash and cash equivalents at end of the period 15 25,053 16,706
------------------------------------------------------------------ ----- ---------- ----------
The accompanying notes form an integral part of these financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2023
1. General information
Warehouse REIT plc is a closed-ended Real Estate Investment
Trust ("REIT") with an indefinite life 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 65 Gresham
Street, London EC2V 7NQ. The Company's shares are admitted to
trading on the Premium Listing Segment of the Main Market, a market
operated by the London Stock Exchange.
The Group's consolidated financial statements for the year ended
31 March 2023 comprise the results of the Company and its
subsidiaries (together constituting the "Group") and were approved
by the Board and authorised for issue on 5 June 2023.
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 2023, but is derived from those accounts. Statutory
accounts for the year ended 31 March 2023 will be delivered to the
Registrar of Companies following the Company's Annual General
Meeting. The auditor has 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 Auditor's 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") and
in conformity with the requirements of the Companies Act 2006. The
financial statements have been prepared under the historical cost
convention, except for the revaluation of investment properties and
financial instruments that are measured at revalued amounts or fair
values at the end of each reporting period, as explained in the
accounting policies below. Historical cost is generally based on
the fair value of the consideration given in exchange for goods and
services. The audited financial statements are presented in Pound
Sterling and all values are rounded to the nearest thousand pounds
(GBP'000), except when otherwise indicated.
Going concern
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.
Accordingly, based on this information, and in light of
mitigating actions available and the reasonable expectation that
the Group refinancing will be available when required, 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.
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.
Changes to accounting standards and interpretations
New standards and interpretations effective in the current
period
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 2022, which have been considered and applied
as follows:
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments
to IAS 37);
-- Property, Plant and Equipment: Proceeds before Intended Use
(Amendments to IAS 16);
-- Annual Improvements to IFRS Standards 2018-2020 (Amendments
to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and
-- References to Conceptual Framework (Amendments to IFRS
3).
There was no material effect from the adoption of the
above-mentioned amendments to IFRS effective in the period. They
have no significant impact to the Group as they are either not
relevant to the Group's activities or require accounting which is
already consistent with the Group's current accounting
policies.
New and revised accounting standards not yet effective
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 2023 or
later. The Group is not adopting these standards early. The
following are the most relevant to the Group:
Amendments to IAS 1 Presentation of Financial Statements
clarifies that liabilities are classified as either current or
non--current, depending on the rights that exist at the end of the
reporting period and not expectations of, or actual events after,
the reporting date. The amendments also give clarification to the
definition of settlement of a liability.
Amendments to IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors clarifies the distinction between accounting
policies and accounting estimates and also replaces the definition
of accounting estimates. Under the new definition, estimates are
"monetary amounts in financial statements that are subject to
measurement uncertainty".
The amendments are not expected to have a significant impact on
the preparation of the 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
detailed below, 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 independent 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 and land values per acre for
development properties. The valuers have considered the impact of
climate change and that this has not had a material impact on the
valuation at the current time. See notes 13 and 25 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 2023. 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 in, and provision
of, UK urban warehouses.
3. Property income
Year
ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
---------------------- --------- ----------
Rental income 45,750 44,020
Insurance recharged 1,592 1,507
Dilapidation income 503 3,187
---------------------- --------- ----------
Gross property income 47,845 48,714
Service charge income 3,340 2,682
---------------------- --------- ----------
Total property income 51,185 51,396
---------------------- --------- ----------
No occupier accounts for more than 10% of rental income.
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 property 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. A rental adjustment is recognised from
the rent review date in relation to unsettled rent reviews, once
the rental uplifts are agreed.
Occupier 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 occupier has the option to
continue the lease where, at the inception of the lease, the
Directors are reasonably certain that the occupier will exercise
that option.
Insurance income is recognised in the accounting period in which
the services are rendered.
Amounts received from occupiers to terminate leases or to
compensate for dilapidations are recognised in the Group statement
of comprehensive income when the right to receive them arises,
typically at the cessation of the lease.
Service charge income is recognised when the related recoverable
expenses are incurred. The Group acts as the principal in service
charge transactions as it directly controls the delivery of the
services at the point at which they are provided to the
occupier.
4. Property operating and administration expenses
Year Year
ended ended 31
31 March March
2023 2022
GBP'000 GBP'000
------------------------------------------------------ --------- ---------
Service charge expenses 3,767 3,011
------------------------------------------------------ --------- ---------
Premises expenses 2,481 2,313
Insurance 1,735 1,558
Rates 716 490
Utilities 335 87
Loss allowance on trade receivables 187 341
Property operating expenses 5,454 4,789
------------------------------------------------------ --------- ---------
Investment Advisor fees 6,970 6,484
Costs associated with the transfer to the Main Market 1,069 -
Directors' remuneration (including social security
costs) 179 175
Head lease asset depreciation 189 181
Other administration expenses 1,309 1,404
Administration expenses 9,716 8,244
------------------------------------------------------ --------- ---------
Total 18,937 16,044
------------------------------------------------------ --------- ---------
Main Market expenses are costs associated with the transfer to
the Premium Segment of the Main Market of the London Stock
Exchange. On 12 July 2022, Warehouse REIT transferred the trading
of its ordinary shares to the Premium Segment of the Main Market of
the London Stock Exchange.
Details of how the Investment Advisor fees are calculated are
disclosed in note 29.
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.
Property expenses are costs incurred by the Group that are not
directly recoverable from an occupier, as well as professional fees
relating to the letting of our estates.
5. Directors' remuneration
Year Year ended
ended 31 March
31 March
2023 2022
GBP'000 GBP'000
------------------ --------- ----------
Neil Kirton 48 47
Lynette Lackey 38 37
Martin Meech 38 37
Aimée Pitman 38 37
Total 162 158
------------------ --------- ----------
A summary of the Directors' emoluments, including the
disclosures required by the Companies Act 2006, is set out in the
Directors' remuneration report. The Group had no employees in
either period.
6. Auditor's remuneration
Year
ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
---------- --------- ----------
Audit fee 192 148
---------- --------- ----------
Total 192 148
---------- --------- ----------
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
2023 2022
GBP'000 GBP'000
------------------------------------------------------ --------- ----------
Group year-end Annual Report and Financial Statements 172 130
Subsidiary accounts 20 18
------------------------------------------------------ --------- ----------
Total 192 148
------------------------------------------------------ --------- ----------
Non-audit fees payable to the Group's Auditor comprised of the
following:
Year
ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------------------------------------------------- --------- ----------
Services as reporting accountant relating to Main Market
move 110 -
--------------------------------------------------------- --------- ----------
Total 110 -
--------------------------------------------------------- --------- ----------
There were no non-audit services provided by the Auditor in the
year to 31 March 2022. The Audit Committee receives assurance from
the Auditor that its independence is not compromised. The Group's
Auditor for the year ended 31 March 2023 was BDO LLP.
7. Finance income
Year
ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
------------------------------------------- --------- ----------
Interest from cash and short-term deposits 12 -
Interest from derivatives 2,027 -
Total 2,039 -
------------------------------------------- --------- ----------
Accounting policy
Interest income is recognised on an effective interest rate
basis and shown within the Group statement of comprehensive income
as finance income. See note 18 for details on the accounting policy
for interest rate derivatives.
8. Finance expenses
Year
ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
----------------------------------------------------------- --------- ----------
Loan interest 14,057 5,816
Head lease interest 961 1,030
Loan arrangement fees amortised 1,052 898
Recurrent loan fees 607 392
Bank charges 5 18
----------------------------------------------------------- --------- ----------
16,682 8,154
Less: amounts capitalised on the development of properties (1,154) -
Total 15,528 8,154
----------------------------------------------------------- --------- ----------
The interest capitalisation rates for the year ended 31 March
2023 ranged from 3.2% to 4.3%A(31 March 2022: nil).
Accounting policy
Any finance costs that are separately identifiable and directly
attributable to an asset which takes a period of time to complete
are capitalised as part of the cost of the asset. Ongoing services
fees relating to the maintenance of the loan are expensed in the
period in which they occur. All other finance costs are expensed in
the period in which they occur. Finance costs consist of interest
and other costs that the Group incurs in connection with bank and
other borrowings. Fair value movements on derivatives are recorded
in finance expenses or in finance income depending on the fair
value movement during the year. See note 19 for the accounting
policy on head lease interest expensed.
9. Taxation
Corporation tax has arisen as follows:
Year
ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
---------------------------------- --------- ----------
Corporation tax on residual income - -
---------------------------------- --------- ----------
Total - -
---------------------------------- --------- ----------
Reconciliation of tax charge to profit before tax:
Year
ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------------------------------------------- --------- ----------
(Loss)/profit before tax (182,863) 191,204
Corporation tax at 19.0% (2022: 19.0%) (34,744) 36,329
Change in value of investment properties 36,740 (31,092)
Realised loss on disposal of investment properties 2,490 -
Tax-exempt property rental business (4,486) (5,237)
Total - -
--------------------------------------------------- --------- ----------
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 the 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.
The United Kingdom Government has announced an increase to the
main rate of corporation tax from 19% to 25% from April 2023. As
the Company is a REIT, it is not anticipated that the change in the
corporate tax rate will have a material impact on the Group,
however tax charges on any non-property income will increase.
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 2023 are as follows:
31 March 31 March
2023 2022
GBP'000 GBP'000
----------------------------- -------- --------
Within one year 42,033 42,364
Between one and two years 33,340 35,838
Between two and three years 26,998 27,002
Between three and four years 22,360 21,154
Between four and five years 18,457 17,058
Between five and ten years 34,394 35,641
More than ten years 19,607 22,578
----------------------------- -------- --------
Total 197,189 201,635
----------------------------- -------- --------
11. Dividends
Pence
For the year ended 31 March 2023 per share GBP'000
----------------------------------------------------- --------- -------
Third interim dividend for year ended 31 March 2022
paid on 1 April 2022 1.55 6,585
Fourth interim dividend for year ended 31 March 2022
paid on 30 June 2022 1.75 7,435
First interim dividend for year ended 31 March 2023
paid on 3 October 2022 1.60 6,798
Second interim dividend for year ended 31 March 2023
paid on 30 December 2022 1.60 6,798
Total dividends paid during the year 6.50 27,616
----------------------------------------------------- --------- -------
Paid as:
Property income distributions 6.50 27,616
Non-property income distributions - -
----------------------------------------------------- --------- -------
Total 6.50 27,616
----------------------------------------------------- --------- -------
Pence
For the year ended 31 March 2022 per share GBP'000
------------------------------------------------------------------------------ --------- -------
Third interim dividend for year ended 31 March 2021 paid on 1 April 2021 1.55 6,585
Fourth interim dividend for year ended 31 March 2021 paid on 30 June 2021 1.55 6,586
First interim dividend for year ended 31 March 2022 paid on 1 October 2021 1.55 6,585
Second interim dividend for year ended 31 March 2022 paid on 30 December 2021 1.55 6,585
------------------------------------------------------------------------------ --------- -------
Total dividends paid during the year 6.20 26,341
------------------------------------------------------------------------------ --------- -------
Paid as:
Property income distributions 6.20 26,341
Non-property income distributions - -
------------------------------------------------------------------------------ --------- -------
Total 6.20 26,341
------------------------------------------------------------------------------ --------- -------
As a REIT, the Group is required to pay property income
distributions ("PIDs") equal to at least 90% of the property rental
business profits of the Group.
A third interim property income dividend for the year ended 31
March 2023 of 1.60 pence per share was declared on 28 February 2023
and paid on 3 April 2023.
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.
The European Public Real Estate Association ('EPRA') publishes
guidelines for calculating adjusted earnings on a comparable basis.
EPRA EPS is a measure of EPS designed by EPRA to enable entities to
present underlying earnings from core operating activities, which
excludes fair value movements on investment properties.
The Company has also included an additional earnings measure
called "Adjusted Earnings" and "Adjusted EPS." Adjusted Earnings
and Adjusted EPS is based on EPRA's Best Practices Recommendations
and recognises finance income earned from derivatives held at fair
value through profit and loss used to hedge the Company's floating
interest rate exposure. Also included in adjusted earnings is the
add back of the costs associated with the transfer to the Premium
Segment of the Main Market of the London Stock exchange, as these
costs will not be reoccurring.
The Board deems this a more relevant indicator of core earnings
as it reflects our ability to generate earnings from our
portfolio.
Year
ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
---------------------------------------------------------- --------- ----------
IFRS earnings (182,863) 191,204
---------------------------------------------------------- --------- ----------
EPRA earnings adjustments:
Loss on disposal of investment properties 13,105 -
Fair value losses/(gains) on investment properties 193,367 (163,685)
Interest from derivatives (2,027) -
Changes in fair value of interest rate derivatives (4,850) (321)
EPRA earnings 16,732 27,198
---------------------------------------------------------- --------- ----------
Group-specific earnings adjustments:
Interest from derivatives 2,027
Costs associated with the transfer to the Premium Segment
of the Main Market of the London Stock Exchange 1,069 -
Adjusted earnings 19,828 27,198
---------------------------------------------------------- --------- ----------
Year Year ended
ended 31 March
31 March 2022
2023
Pence Pence
Basic IFRS EPS (43.0) 45.0
----------------- --------- ----------
Diluted IFRS EPS (43.0) 45.0
----------------- --------- ----------
EPRA EPS 3.9 6.4
----------------- --------- ----------
Adjusted EPS 4.7 6.4
----------------- --------- ----------
Year Year ended
ended 31 March
31 March 2022
2023
Number Number
of shares of shares
------------------------------------------------------- --------- ----------
Weighted average number of shares in issue (thousands) 424,862 424,862
------------------------------------------------------- --------- ----------
13. UK investment property
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 2022 913,035 98,950 1,011,985
Transferred in the period 5,449 (5,449) -
Acquisition of properties 64,512 2,216 66,728
Capital expenditure 5,035 8,295 13,330
Movement in rent incentives 1,272 28 1,300
Disposal of properties (71,206) - (71,206)
Assets transferred to held for sale (625) - (625)
Fair value losses on revaluation
of investment property (164,987) (28,380) (193,367)
--------------------------------------- ----------- ----------- ----------------
Total portfolio valuation per valuer's
report 752,485 75,660 828,145
Adjustment for head lease obligations 14,124 - 14,124
--------------------------------------- ----------- ----------- ----------------
Carrying value at 31 March 2023 766,609 75,660 842,269
--------------------------------------- ----------- ----------- ----------------
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 2021 751,930 40,870 792,800
Acquisition of properties 30,027 13,364 43,391
Capital expenditure 6,467 1,103 7,570
Movement in rent incentives 4,545 (6) 4,539
Fair value gains on revaluation
of investment property 120,066 43,619 163,685
--------------------------------------- ----------- ----------- ----------------
Total portfolio valuation per valuer's
report 913,035 98,950 1,011,985
Adjustment for head lease obligations 14,081 - 14,081
--------------------------------------- ----------- ----------- ----------------
Carrying value at 31 March 2022 927,116 98,950 1,026,066
--------------------------------------- ----------- ----------- ----------------
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
20 for details.
Included within the carrying value of investment properties as
at 31 March 2023 is GBP10.4 million (31 March 2022: GBP9.1 million)
in respect to rent incentives as a result of the IFRS treatment of
leases with rent-free periods, which require recognition on a
straight-line basis over the lease term. The difference between
this and cash receipts change the carrying value of the property on
which revaluations are measured.
During March 2023, the Group reached practical completion of the
development at Valley Court, Middlewich, at which point the asset
became income-producing. The transfer between development property
and land and completed investment property reflects the completion
of this development.
During the period the Group capitalised GBP1.2 million (31 March
2022: nil) of interest paid in development properties. Please see
note 8 for details on the capitalisation rate used.
Realised loss on disposal of investment properties
31 March 31 March
2023 2022
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Net proceeds from disposals of investment property 58,101 -
during the year
Carrying value of disposals (71,206) -
---------------------------------------------------- -------- --------
Realised loss on disposal of investment properties (13,105) -
---------------------------------------------------- -------- --------
Accounting policy
Investment property comprises property held to earn rental
income or for capital appreciation, or both. Investment properties
are recognised upon legal completion of the contract, where costs
are reliably measured and future economic benefits that are
associated with the property flow to the entity.
Investment properties are 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 it is expected 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 for assets with approved planning
permission. In addition, it is the Group's policy to capitalise
finance costs relating to the development of the assets with
planning permission, see note 8 for details.
Subsequent to initial recognition, investment property is stated
at fair value (see note 25). 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.
Movements in rent incentives are presented within the total
portfolio valuation.
Where an investment property is held under a leasehold interest,
the headlease is initially recognised as an asset at cost plus the
present value of minimum ground rent payments and is subsequently
measured at fair value. The corresponding rental liability to the
head leaseholder is included in the balance sheet as a finance
lease obligation (see note 19).
14. Investment properties held for sale
Completed investment Development Total investment
property property property
and land
GBP'000 GBP'000 GBP'000
---------------------------------- -------------------- ----------- ----------------
Investment property held for sale 625 - 625
Carrying value at 31 March 2023 625 - 625
Carrying value at 31 March 2022 - - -
As at 31 March 2023, Ellesmere Port, Burnell Road is designated
as held for sale, as sales contracts were exchanged on 3 March 2023
and will be completed during the year ended 31 March 2024.
Accounting policy
An asset will be classified as held for sale in line with IFRS 5
Non-Current Assets Held for Sale and Discontinued Operations if its
carrying value is expected to be recovered though a sale
transaction rather than continuing use. An asset will be classified
in this way only when a sale is highly probable, management are
committed to selling the asset at the year-end date, the asset is
available for immediate sale in its current condition and the asset
is expected to be disposed of within 12 months after the date of
the Consolidated Statement of Financial Position.
15. Cash and cash equivalents
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------------------------------- -------- --------
Unrestricted cash and cash equivalents 18,990 10,787
Restricted cash and cash equivalents 6,063 5,919
--------------------------------------- -------- --------
Total 25,053 16,706
--------------------------------------- -------- --------
Restricted cash comprises GBP6.1 million (31 March 2022: GBP5.9
million) of cash held by the Company's Registrar to fund the
shareholder dividend, less withholding tax, which was paid on 3
April 2023 as disclosed in note 11.
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.
16. Trade and other receivables
31 March 31 March
2023 2022
GBP'000 GBP'000
------------------------------------------- -------- --------
Rent and insurance receivables 3,952 5,445
Payments in advance of property completion 2,080 2,090
Interest receivable on derivatives 1,050 -
Occupier deposits 698 535
Prepayments 191 198
Other receivables 1,287 1,581
------------------------------------------- -------- --------
Total 9,258 9,849
------------------------------------------- -------- --------
The rent and insurance receivables balance represents gross
receivables of GBP4.2 million (31 March 2022: GBP6.2 million), net
of a provision for doubtful debts of GBP0.2 million (31 March 2022:
GBP0.8 million).
Payments in advance of property completion represent the
deposits paid to vendors upon exchange of purchase contracts.
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 applies the IFRS 9 simplified approach to measuring
expected credit losses using a lifetime expected credit loss
provision for trade receivables. To measure expected credit losses
on a collective basis, trade receivables are grouped based on
similar credit risk and ageing.
The expected loss rates are based on the Group's historical
credit losses experienced over the two--year period prior to the
year end. The historical loss rates are then adjusted for current
and forward-looking information on macroeconomic factors affecting
the Group's customers.
17. Interest-bearing loans and borrowings
31 March 31 March
2023 2022
GBP'000 GBP'000
---------------------------------------------------- -------- --------
At the beginning of the year 271,000 222,000
Drawn in the year 65,000 49,000
Repaid in the year (30,000) -
---------------------------------------------------- -------- --------
Interest-bearing loans and borrowings 306,000 271,000
Unamortised fees at the beginning of the year (2,784) (2,901)
Loan arrangement fees paid in the year (175) (781)
Amortisation charge for the year 1,052 898
---------------------------------------------------- -------- --------
Unamortised loan arrangement fees (1,907) (2,784)
---------------------------------------------------- -------- --------
Loan balance less unamortised loan arrangement fees 304,093 268,216
---------------------------------------------------- -------- --------
athe year end, the Group had a debt facility with a club of four
banks: HSBC, Bank of Ireland, Royal Bank of Canada and Barclays.
The facility runs until January 2025, with an option to extend for
a further two years (subject to lender consent), and comprises an
RCF of GBP138.0 million and a term loan of GBP182.0 million, to
give a total facility of GBP320.0 million.
At 31 March 2023, GBP124.0 million was drawn against the RCF and
GBP182.0 million against the term loan. This gave total debt of
GBP306.0 million (31 March 2022: GBP271.0 million); with the Group
also holding cash balances of GBP25.1 million (31 March 2022:
GBP16.7 million), the Group's net debt as at 31 March 2023 is
GBP280.9 million (31 March 2022: GBP254.3 million). The LTV ratio
at 31 March 2023 was therefore 33.9% (31 March 2022: 25.1%), with
the increase reflecting the acquisition in the year and the lower
portfolio valuation, partially offset by the asset disposals. All
borrowings under these agreements attract a margin of 2.0% - 2.2%
per annum above SONIA, plus a credit adjustment spread equal to
11.93 bps.
As at 31 March 2023, there is GBP14.0 million (31 March 2022:
GBP49.0 million) available to draw.
The debt facility includes 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 the loan.
18. Interest rate derivatives
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------------------------------------------- -------- --------
At the start of the period 337 16
Additional premiums paid and accrued 10,926 -
Changes in fair value of interest rate derivatives 4,850 321
Interest rate derivative premium payable (8,726) -
--------------------------------------------------- -------- --------
Balance at the end of the period 7,387 337
--------------------------------------------------- -------- --------
Current (3,841) -
Non-current 11,228 337
Balance at the end of the period 7,387 337
--------------------------------------------------- -------- --------
On 20 July 2022, the Group entered into interest rate caps with
a premium of GBP2.2 million paid in the year ending 31 March 2023.
The remaining premium of GBP8.7 million is due in quarterly
instalments with the final payment due in January 2025.
The instruments have a combined notional value of GBP230.0
million with GBP200.0 million at a strike rate of 1.50% and the
remaining GBP30.0 million at a strike rate of 1.75%. The GBP30.0
million instrument has a termination date of 20 November 2023,
GBP100.0 million has a termination date of 20 July 2025 and
GBP100.0 million has a termination date of 20 July 2027.
Accounting policy
Interest rate derivatives 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.
All receipts of income from the instrument are recognised as
finance income in note 8 of the financial statements separate from
the fair value measurement recorded.
19. 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
2023 2022
GBP'000 GBP'000
-------------------------------------------- -------- --------
Current liabilities
Within one year 705 696
Non-current liabilities
After one year but not more than five years 2,975 2,931
Later than five years 11,345 11,269
-------------------------------------------- -------- --------
14,320 14,200
Total head lease obligations 15,025 14,896
-------------------------------------------- -------- --------
31 March 31 March
2023 2022
GBP'000 GBP'000
----------------------------------------- -------- --------
Head lease liability - opening balance 14,896 14,897
Cash flows
Non-cash movements (832) (1,057)
Interest 961 1,030
Head lease accrual - 26
----------------------------------------- -------- --------
Head lease obligations - closing balance 15,025 14,896
----------------------------------------- -------- --------
The following table analyses the minimum undiscounted lease
payments under non-cancellable head leases for each of the
following periods:
31 March 31 March
2023 2022
GBP'000 GBP'000
-------------------------------------------- -------- --------
Current liabilities
Within one year 1,052 1,053
Non-current liabilities
After one year but not more than five years 4,219 4,211
Later than five years 85,530 85,526
-------------------------------------------- -------- --------
Total 90,801 90,790
-------------------------------------------- -------- --------
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
property specific incremental borrowing rate.
20. Other liabilities - other payables and accrued expenses,
provisions and deferred income
31 March 31 March
2023 2022
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Administration expenses payable 2,170 2,576
Deferred consideration payable 4,500 -
Capital expenses payable 3,864 2,042
Loan interest payable 3,691 1,444
Property operating expenses payable 855 465
Other expenses payable 3,504 328
---------------------------------------------------- -------- --------
Total other payables and accrued expenses - current 18,584 6,855
---------------------------------------------------- -------- --------
Other payables and accrued expenses are initially recognised at
fair value and subsequently held at amortised cost.
31 March 31 March
2023 2022
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Capital expenses payable 11,300 16,550
Total other payables and accrued expenses - non-current 11,300 16,550
-------------------------------------------------------- -------- --------
During the year ended 31 March 2021, the Group exchanged
contracts to acquire land for GBP15.0 million. The first three
instalments were paid for a total of GBP2.5 million to the year
ended 31 March 2022 with an additional GBP1.5 million paid during
the year ended 31 March 2023. The final instalment of GBP11.3
million is due to be paid on 1 September 2024.
Deferred consideration payable of GBP4.5 million is 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
2023 2022
GBP'000 GBP'000
---------------------- -------- --------
Total deferred income 7,115 7,487
---------------------- -------- --------
No discounting is applied to deferred consideration on the
grounds of materiality.
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.
21. Share capital
Share capital is the nominal amount of the Company's ordinary
shares in issue.
31 March 31 March
2023 2022
Ordinary shares of GBP0.01 Number GBP'000 Number GBP'000
each
----------------------------- ----------- -------- ----------- --------
Authorised, issued and fully
paid:
At the start of the period 424,861,650 4,249 424,861,650 4,249
Shares issued - - - -
Balance at the end of the
period 424,861,650 4,249 424,861,650 4,249
----------------------------- ----------- -------- ----------- --------
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.
22. Share premium
Share premium comprises the following amounts:
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------------------- -------- --------
At the start of the period 275,648 275,648
Shares issued - -
Share premium 275,648 275,648
--------------------------- -------- --------
Share premium represents the excess over nominal value of the
fair value of the consideration received for equity shares net of
direct issue costs.
23. Retained earnings
Retained earnings comprise the following cumulative amounts:
31 March 31 March
2023 2022
GBP'000 GBP'000
------------------------------------------------ -------- --------
Capital reduction reserve 161,149 161,149
Total unrealised gains on investment properties 96,011 289,378
Total unrealised gain on interest rate caps 5,046 196
Total realised profits 82,208 76,554
Dividends paid from revenue profits (95,836) (68,220)
------------------------------------------------ -------- --------
Retained earnings 248,578 459,057
------------------------------------------------ -------- --------
Retained earnings represent the profits of the Group less
dividends paid from revenue profits to date. Unrealised gains on
the revaluation of investment properties and interest rate caps
contained within this reserve are not distributable until any gains
crystallise on the sale of the investment property and settlement
of the interest rate caps. The capital reduction reserve is a
distributable reserve established upon cancellation of the share
premium of the Company on 17 November 2017.
As at 31 March 2023, the Group had distributable reserves
available of GBP147,521,000 (31 March 2022: GBP169,483,000).
24. 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
2023 2022
GBP'000 GBP'000
------------------------------------------------------ -------- --------
IFRS net assets attributable to ordinary shareholders 528,475 738,954
IFRS net assets for calculation of NAV 528,475 738,954
------------------------------------------------------ -------- --------
Adjustment to net assets:
Fair value of interest rate derivatives (note 18) (7,387) (337)
------------------------------------------------------ -------- --------
EPRA NTA 521,088 738,617
------------------------------------------------------ -------- --------
31 March 31 March
2023 2022
Pence Pence
IFRS basic and diluted NAV per share (pence) 124.4 173.9
--------------------------------------------- --------- ---------
EPRA NTA per share (pence) 122.6 173.8
--------------------------------------------- --------- ---------
31 March 31 March
2023 2022
Number Number
of shares of shares
--------------------------------------------- --------- ---------
Number of shares in issue (thousands) 424,862 424,862
--------------------------------------------- --------- ---------
25. 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 variable interest rates of 2.0% to 2.2%
above SONIA.
Interest rate derivatives
The fair value of the interest rate cap contracts is recorded in
the statement of financial position and is revalued quarterly by an
independent valuations specialist, Chatham Financial.
The fair value of 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.
Investment properties
Six-monthly valuations of investment property are performed by
CBRE, accredited independent external valuers with recognised and
relevant professional qualifications and recent experience of the
location and category of the investment property being valued. 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 independent 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).
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 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 2023
----------------------------------
Level Level Level
1 2 3 Total
Assets and liabilities measured at fair value GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- ------- ------- ------- -------
Investment properties and assets held for sale - - 828,770 828,770
Interest rate derivatives - 7,387 - 7,387
----------------------------------------------- ------- ------- ------- -------
Total - 7,387 828,770 836,157
----------------------------------------------- ------- ------- ------- -------
31 March 2022
--------------------------------------
Level Level Level
1 2 3 Total
Assets and liabilities measured at fair value GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ------- ------- --------- ---------
Investment properties - - 1,011,985 1,011,985
Interest rate derivatives - 337 - 337
---------------------------------------------- ------- ------- --------- ---------
Total - 337 1,011,985 1,012,322
---------------------------------------------- ------- ------- --------- ---------
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:
1. the fair value measurements at the end of the reporting period;
2. a description of the valuation techniques applied;
3. the inputs used in the fair value measurement, including the
ranges of rent charged to different units within the same building;
and
4. or 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 2023
Completed 753,110 Income capitalisation ERV GBP2.38 per sq ft
- GBP17.50 per sq
ft
investment property Equivalent 5.03% - 19.77%
yield
--------------------- ---------- --------------------- ------------ -------------------------
Development property 75,660 Comparable method S ales GBP200,000 - GBP925,000
and land rate per
acre
828,770
--------------------- ---------- --------------------- ------------ -------------------------
31 March 2022
Completed 913,035 Income capitalisation ERV GBP3.00 per sq ft
- GBP17.50 per sq
ft
investment property Equivalent 3.5% - 13.23%
yield
Development property 98,950 Comparable method/ GBP300,000 - GBP1,750,000
and land
1,011,985
--------------------- ---------- --------------------- ------------ -------------------------
The weighted average ERV and equivalent yield for completed
investment property is 6.8% and GBP7.26 per sq ft respectively (31
March 2022: 5.3% and GBP6.49 per sq ft). The weighted average sales
rate per acre for development property and land is GBP622,000 (31
March 2022: GBP864,000).
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 equivalent yield) in isolation would result in a significantly
higher/lower fair value measurement.
Generally, a change in the assumption made for the ERV is
accompanied by:
1. a similar change in the rent growth per annum and discount
rate (and exit yield); and
2. 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 and derivatives:
As at 31 March 2023
Completed investment property Increase Decrease
in sensitivity in sensitivity
GBP'000 GBP'000
--------------------------------------------------- --------------- ----------------
Change in ERV of 5% 37,656 (37,656)
Change in net equivalent yields of 25 basis points 28,012 (30,341)
--------------------------------------------------- --------------- ----------------
Development property and land Increase Decrease
in in sensitivity
sensitivity
GBP'000 GBP'000
------------------------------------ ------------ ----------------
Change in sales rate per acre of 5% 3,756 (3,756)
As at 31 March 2022
Completed investment property Increase Decrease
in sensitivity in sensitivity
GBP'000 GBP'000
--------------------------------------------------- --------------- ----------------
Change in ERV of 5% 45,652 (45,652)
Change in net equivalent yields of 25 basis points (48,513) 43,630
--------------------------------------------------- --------------- ----------------
Development property and land Increase Decrease
in sensitivity in sensitivity
GBP'000 GBP'000
------------------------------------ --------------- ----------------
Change in sales rate per acre of 5% 4,751 (4,751)
------------------------------------ --------------- ----------------
Interest rate derivatives Increase Decrease
in in sensitivity
sensitivity
GBP'000 GBP'000
Change in SONIA by 50 basis points 1,359 (1,360)
----------------------------------- ------------ ----------------
The sensitivity analysis for a change in SONIA has not been
prepared for the year ended 31 March 2022 on the basis that the
movements are immaterial.
Losses recorded in profit or loss for recurring fair value
measurements categorised within Level 3 of the fair value hierarchy
amount to GBP193,367,000 (31 March 2022: gain of GBP163,685,000)
and are presented in the consolidated statement of comprehensive
income in line item 'fair value (losses)/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.
26. 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
The Group's activities expose it primarily to the financial
risks of changes in interest rates. The Group enters into a variety
of derivative financial instruments to manage its exposure to
interest rate risk. There has been no change to the Group's
exposure to market risks or the manner in which these risks are
managed and measured.
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.
The instruments have a combined notional value of GBP230.0
million, with GBP200.0 million at a strike rate of 1.50% and the
remaining GBP30.0 million at a strike rate of 1.75%. The GBP30.0
million instrument has a termination date of 20 November 2023,
GBP100.0 million has a termination date of 20 July 2025 and
GBP100.0 million has a termination date of 20 July 2027.
As at 31 March 2023, the unhedged exposure to changes in
interest rates is GBP76.0 million (31 March 2022: GBP211.0
million).
Changes in interest rates may have an impact on consolidated
earnings over the longer term. The table below provides indicative
sensitivity data.
2023 2022
Increase Decrease Increase Decrease
in interest in interest in interest in interest
rates by rates by rates by rates by
1% 1% 1% 1%
Effect on profit before tax: GBP'000 GBP'000 GBP'000 GBP'000
Increase/(decrease) (760) 760 (2,498) 2,498
----------------------------- ------------ ------------ ------------ ------------
Credit risk
Credit risk is the risk that a counterparty or occupier 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 occupier, the Group will suffer a shortfall
and additional costs concerning re-letting of the property. The
Investment Advisor monitors the occupier arrears in order to
anticipate and minimise the impact of defaults by occupational
occupiers.
Credit risk is not considered material due to the diverse number
of occupiers in the investment property portfolio.
The following table analyses the Group's exposure to credit
risk:
31 March 31 March
2023 2022
GBP'000 GBP'000
------------------------------- -------- --------
Cash and cash equivalents 18,990 10,787
Restricted cash 6,063 5,919
Trade and other receivables(1) 6,987 7,561
------------------------------- -------- --------
Total 32,040 24,267
------------------------------- -------- --------
(1)Excludes 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:
2023 2022
----------- ----------------------- -----------------------
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 18,990 18,990 10,787 10,787
Restricted cash n/a 6,063 6,063 5,919 5,919
Trade and other
receivables(1) n/a 6,987 6,987 7,561 7,561
Other payables
and accrued
expenses(2) n/a (26,629) (26,629) (23,209) (23,209)
Head lease liabilities n/a (15,025) (15,025) (14,896) (14,896)
Interest-bearing
loans and borrowings n/a (304,093) (304,093) (268,216) (268,216)
Held at fair
value
Interest rate
derivatives
(assets) 2 7,387 7,387 337 337
------------------------- ----------- ---------- ----------- ---------- -----------
(1)Excludes prepayments and payments in advance of completion
.
(2)Excludes VAT liability and deferred income.
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
2023 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ---------- ------- --------- ---------- ---------- -------
Interest-bearing loans
and borrowings - 13,993 321,112 - - 335,105
Other payables and
accrued expenses 10,829 4,500 11,300 - - 26,629
Head lease obligations 263 789 1,055 3,164 85,530 90,801
----------------------- ---------- ------- --------- ---------- ---------- -------
Total 11,092 19,282 333,467 3,164 85,530 452,535
----------------------- ---------- ------- --------- ---------- ---------- -------
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
2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ---------- ------- --------- ---------- ---------- -------
Interest-bearing loans
and borrowings - 5,329 7,098 276,776 - 289,203
Other payables and
accrued expenses 6,159 500 4,875 11,675 - 23,209
Head lease obligations 263 790 1,052 3,159 85,526 90,790
----------------------- ---------- ------- --------- ---------- ---------- -------
Total 6,422 6,619 13,025 291,610 85,526 403,202
----------------------- ---------- ------- --------- ---------- ---------- -------
27. Subsidiaries
Country Number and class
of
incorporation of share held Group
Company and operation by the Group holding
---------------------------- -------------- -------------------- -------
63,872 ordinary
Tilstone Holdings Limited UK shares 100%
Tilstone Warehouse 94,400 ordinary
Holdco Limited UK shares 100%
Tilstone Property Holdings 9,102 ordinary
Limited UK shares 100%
Tilstone Industrial 23,600 ordinary
Warehouse Limited(1) UK shares 100%
Tilstone Retail Warehouse 20,000 ordinary
Limited(1) UK shares 100%
Tilstone Industrial 20,000 ordinary
Limited(1) UK shares 100%
Tilstone Retail Limited(1) UK 200 ordinary shares 100%
20,004 ordinary
Tilstone Trade Limited(1) UK shares 100%
Tilstone Basingstoke 1,000 ordinary
Limited(1) UK shares 100%
Tilstone Glasgow Limited(1) UK 1 ordinary share 100%
Tilstone Radway Limited(1) UK 100 ordinary shares 100%
1,000 ordinary
Tilstone Oxford Limited(1) UK shares 100%
Tilstone Liverpool
Limited(1) UK 100 ordinary shares 100%
Warehouse 1234 Limited(1) UK 100 ordinary shares 100%
Tilstone Chesterfield 15,000,001 ordinary
Limited(1) UK shares 100%
------------------------------- -------------- ------------------- -------
1. Indirect subsidiaries.
The registered office of all subsidiaries is located at 65
Gresham Street, London EC2V 7NQ.
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.
Under the Definition of a Business (Amendments to IFRS 3
Business Combinations), to be considered a business an acquired set
of activities and assets must include, at a minimum, an input and a
substantive process that together significantly contribute to the
ability to create outputs. The optional 'concentration test' is
also applied; where substantially all of the fair value of gross
assets acquired is concentrated in a single asset (or a group of
similar assets), the assets acquired would not represent a
business.
The Group accounts for an acquisition as a business combination
where an integrated set of activities is acquired in addition to
the property. Where an acquisition is considered to be a business
combination the consolidated financial statements incorporate the
results of business combinations using the acquisition method.
In the Group statement of financial position, the acquiree's
identifiable assets, liabilities and contingent liabilities are
initially recognised at their fair values at the acquisition date.
Any excess of the cost of a business combination over the Group's
interest in the fair value of identifiable assets, liabilities and
contingent liabilities acquired is treated as goodwill.
Where the fair value of identifiable assets, liabilities and
contingent liabilities acquired exceeds the fair value of the
purchase consideration, the difference is treated as a gain on
bargain purchase and credited to the Group profit or loss.
The results of acquired operations are included in the Group
profit or loss from the date on which control is obtained until the
date on which control ceases.
Where such acquisitions are not judged to be the acquisition of
a business, they are not treated as business combinations. Rather,
the cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based upon their
relative fair values at the acquisition date. Accordingly, no
goodwill or additional deferred tax arises.
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.
28. 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 an LTV of between 30% and 40%.
The Group is subject to banking covenants in regards to its debt
facility and these include a prescribed methodology for interest
cover and market value covenants that are measured at a Group
level.
The Group has complied with all covenants on its borrowings up
to the date of this report. All of the targets mentioned above sit
comfortably within the Group's covenant levels, which include loan
to value ("LTV"), interest cover ratio and loan to projected
project cost ratio. The Group LTV at the year end was 33.9% (2021:
25.1%) and there is substantial headroom within existing
covenants.
29. 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 (including social security
costs) for the period totalled GBP179,000 (31 March 2022:
GBP175,000) and at 31 March 2023, a balance of GBPnil (31 March
2022: GBPnil) was outstanding. During the year the Directors who
served during the year received GBP1.6 million in dividend payments
(31 March 2022: GBP1.5 million). Further information is given in
note 5.
Investment Advisor
The Company is party to an Investment Management Agreement with
the Investment Manager and the Investment Advisor, pursuant to
which the Company 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 up to
GBP500 million and at a lower rate of 0.9% thereafter.
During the year, the Group incurred GBP6,970,000 (31 March 2022:
GBP6,484,000) in respect of investment management fees. As at 31
March 2023, GBP1,529,000 (31 March 2022: GBP1,715,000) was
outstanding.
During the year, the Group reimbursed GBP86,900 (31 March 2022:
GBPnil) in respect of direct costs incurred by the Investment
Advisor relating to the movement to the Premium Segment of the Main
Market, as well as GBP16,665 (31 March 2022: GBP16,192) of
incidental travel related costs.
30. Ultimate controlling party
It is the view of the Directors that there is no ultimate
controlling party.
31. Notes to the statement of cash flows
Reconciliation of changes in liabilities to cash flows generated
from financing activities
Interest Interest-bearing Head Total
payable loans and lease GBP'000
GBP'000 borrowings liability
GBP'000 GBP'000
----------------------------- -------- ---------------- ---------- --------
Balance as at 1 April
2022 1,444 268,216 14,896 284,556
Changes from financing
cash flows:
Bank loans drawn down - 65,000 - 65,000
Bank loans repaid - (30,000) - (30,000)
Loan arrangement fees
paid in the year - (175) - (175)
Loan interest paid (11,810) - - (11,810)
Head lease payments - - (832) (832)
----------------------------- -------- ---------------- ---------- --------
Total changes from financing
cash flows (11,810) 34,825 (832) 22,183
Amortisation charge for
the year - 1,052 - 1,052
Head lease interest - - 961 961
Interest and commitment
fee 14,057 - - 14,057
Accrued head lease expense - - - -
----------------------------- -------- ---------------- ---------- --------
Balance as at 31 March
2023 3,691 304,093 15,025 322,809
----------------------------- -------- ---------------- ---------- --------
Interest Interest-bearing Head Total
payable loans and lease GBP'000
GBP'000 borrowings liability
GBP'000 GBP'000
----------------------------- -------- ---------------- ---------- --------
Balance as at 1 April
2021 916 219,099 14,897 234,912
Changes from financing
cash flows:
Bank loans drawn down - 49,000 - 49,000
Bank loans repaid - - - -
Loan arrangement fees
paid in the year - (781) - (781)
Interest and commitment
fees paid (5,288) - - (5,288)
Head lease payments - - (1,057) (1,057)
----------------------------- -------- ---------------- ---------- --------
Total changes from financing
cash flows (5,288) 48,219 (1,057) 41,874
Amortisation charge for
the year - 898 - 898
Head lease interest - - 1,030 1,030
Interest and commitment
fee 5,816 - - 5,816
Accrued head lease expense - - 26 26
----------------------------- -------- ---------------- ---------- --------
Balance as at 31 March
2022 1,444 268,216 14,896 284,556
----------------------------- -------- ---------------- ---------- --------
32. Post balance sheet events
A third interim dividend in respect of the year ended 31 March
2023 of 1.6 pence per share was paid to shareholders on 3 April
2023.
A fourth interim dividend in respect of the year ended 31 March
2023 of 1.6 pence per share will be payable to shareholders on the
register on 6 June 2023. The ex-dividend date will be 1 June
2023.
On 2 June 2023, the Group entered into a new five-year debt
facility totalling GBP320.0 million, replacing the existing
facility. The refinancing consists of GBP220.0 million term loan
and an RCF of GBP100.0 million, with a club of lenders consisting
of HSBC, Bank of Ireland, NatWest and Santander.
The new facility extends the tenure of the of the Group's debt
and with improved reporting covenants.
In addition, the Group has exchanged on two further disposals
for an aggregate of GBP29.3 million.
UNAUDITED SUPPLEMENTARY NOTES NOT PART OF THE CONSOLIDATED
FINANCIAL INFORMATION
For the year ended 31 March 2023
The Group is a member of the European Public Real Estate
Association ("EPRA"). EPRA has developed and defined performance
measures to give transparency, comparability and relevance of
financial reporting across entities which may use different
accounting standards.
The Group presents adjusted earnings per share ("EPS"),
dividends per share, total accounting return, total cost ratio, LTV
ratio and EPRA Best Practices Recommendations, calculated in
accordance with EPRA guidance, 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 Practices 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.
Table 1: EPRA performance measures summary
Notes 2023 2022
----------------------------------------------------- -----------------------
EPRA EPS (pence) Table 2 3.9 6.4
EPRA cost ratio (including direct vacancy
cost) Table 6 30.8% 27.1%
EPRA cost ratio (excluding direct vacancy
cost) Table 6 26.8% 24.3%
------------------------------------------- -------- ---------- ---------
EPRA NDV per share (pence) Table 3 124.4 173.9
EPRA NRV per share (pence) Table 3 135.9 190.0
EPRA NTA per share (pence) Table 3 122.6 173.8
EPRA NIY Table 4 5.0% 4.0%
EPRA 'topped-up' net initial yield Table 4 5.5% 4.4%
EPRA vacancy rate Table 5 5.0% 6.3%
EPRA LTV Table 10 36.1% 26.8%
------------------------------------------- -------- ---------- ---------
Table 2: EPRA income statement
Year ended Year
31 March ended
2023 31 March
2022
Note GBP'000 GBP'000
------------------------------------------- -------- ---------- ---------
Total property income 3 51,185 51,396
Less: service charge income 3 (3,340) (2,682)
Less: dilapidation income 3 (503) (3,187)
Less: insurance recharged 3 (1,592) (1,507)
------------------------------------------- -------- ---------- ---------
Rental income 45,750 44,020
Property operating expenses 4 (5,454) (4,789)
Service charge expenses 4 (3,767) (3,011)
Add back: service charge income 3 3,340 2,682
Add back: dilapidation income 3 503 3,187
Add back: insurance recharged 3 1,592 1,507
Gross profit 41,964 43,596
Administration expenses 4 (9,716) (8,244)
------------------------------------------- -------- ---------- ---------
Operating profit before interest and tax 32,248 35,352
Interest from cash and short-term deposits 7 12 -
Finance expenses 8 (15,528) (8,154)
Profit before tax 16,732 27,198
Tax on adjusted profit - -
------------------------------------------- -------- ---------- ---------
EPRA earnings 16,732 27,198
------------------------------------------- -------- ---------- ---------
Weighted average number of shares in issue
(thousands) 424,862 424,862
------------------------------------------- -------- ---------- ---------
EPRA EPS (pence) 3.9 6.4
------------------------------------------- -------- ---------- ---------
Year ended Year
31 March ended
2023 31 March
2022
GBP'000 GBP'000
------------------------------------------- -------- ---------- ---------
EPRA earnings 16,732 27,198
Add: Interest from derivatives 2,027 -
Add: Costs associated with the transfer
to the Premium Segment of the Main Market
of the London Stock Exchange 1,069 -
------------------------------------------- -------- ---------- ---------
Adjusted earnings 19,828 27,198
------------------------------------------- -------- ---------- ---------
Weighted average number of shares in issue
(thousands) 424,862 424,862
------------------------------------------- -------- ---------- ---------
Adjusted EPS (pence) 4.7 6.4
------------------------------------------- -------- ---------- ---------
The Company has also included an additional earnings measure
called "Adjusted Earnings" and "Adjusted EPS." Adjusted Earnings
and Adjusted EPS is based on EPRA's Best Practices Recommendations
and recognises finance income earned from derivatives held at fair
value through profit and loss used to hedge the Company's floating
interest rate exposure. Also included in adjusted earnings is the
add back of the costs associated with the transfer to the Premium
Segment of the Main Market of the London Stock exchange, as these
costs will not be reoccurring and has been adjusted for as a
"company-specific adjustment".
The Board deems this a more relevant indicator of core earnings
as it reflects our ability to generate earnings from our
portfolio.
Table 3: EPRA balance sheet and net asset value performance measures
In line with the European Public Real Estate Association ("EPRA")
published Best Practice Recommendations ("BPR") for financial disclosures
by public real estate companies. The Group presents three measures
of net asset value: EPRA net disposal value ("NDV"), EPRA net reinstatement
value ("NRV") and EPRA net tangible assets ("NTA"). EPRA NTA is
considered to be the most relevant measure for Warehouse REIT's
operating activities.
EPRA NDV EPRA NRV EPRA NTA
As at 31 March 2023 GBP'000 GBP'000 GBP'000
------------------------------------------------- --------- --------- ---------
Total properties(1) 828,770 828,770 828,770
Net borrowings(2) (280,947) (280,947) (280,947)
Other net liabilities (19,348) (19,348) (19,348)
--------------------------------------------------- --------- --------- ---------
IFRS NAV 528,475 528,475 528,475
--------------------------------------------------- --------- --------- ---------
Exclude: fair value of interest rate derivatives - (7,387) (7,387)
Include: real estate transfer tax(3) - 56,356 -
--------------------------------------------------- --------- --------- ---------
NAV used in per share calculations 528,475 577,444 521,089
--------------------------------------------------- --------- --------- ---------
Number of shares in issue (thousands) 424,862 424,862 424,862
--------------------------------------------------- --------- --------- ---------
NAV per share (pence) 124.4 135.9 122.6
--------------------------------------------------- --------- --------- ---------
EPRA NDV EPRA NRV EPRA NTA
As at 31 March 2022 GBP'000 GBP'000 GBP'000
------------------------------------------------- --------- --------- ---------
Total properties(1) 1,011,985 1,011,985 1,011,985
Net borrowings(2) (254,294) (254,294) (254,294)
Other net liabilities (18,737) (18,737) (18,737)
--------------------------------------------------- --------- --------- ---------
IFRS NAV 738,954 738,954 738,954
--------------------------------------------------- --------- --------- ---------
Exclude: fair value of interest rate derivatives - (337) (337)
Include: real estate transfer tax(3) - 68,815 -
--------------------------------------------------- --------- --------- ---------
NAV used in per share calculations 738,954 807,432 738,617
--------------------------------------------------- --------- --------- ---------
Number of shares in issue (thousands) 424,862 424,862 424,862
--------------------------------------------------- --------- --------- ---------
NAV per share (pence) 173.9 190.0 173.8
--------------------------------------------------- --------- --------- ---------
1. Professional valuation of investment property (including assets
held for sale).
2 . Comprising interest-bearing loans and borrowings (excluding
unamortised loan arrangement fees) of GBP306,000,000 (31 March 2022:
GBP271,000,000) net of cash of GBP25,053,000 (31 March 2022: GBP16,706,000).
3 . EPRA NTA and EPRA NDV reflect IFRS values which are net of
real estate transfer tax. Real estate transfer tax is added back
when calculating EPRA NRV.
EPRA NDV details the full extent of liabilities and resulting shareholder
value if company assets are sold and/or if liabilities are not held
until maturity. Deferred tax and financial instruments are calculated
as to the full extent of their liability, including tax exposure
not reflected in the statement of financial position, net of any
resulting tax.
EPRA NTA assumes entities buy and sell assets, thereby crystallising
certain levels of deferred tax liability.
EPRA NRV highlights the value of net assets on a long-term basis
and reflects what would be needed to recreate the Company through
the investment markets based on its current capital and financing
structure. Assets and liabilities that are not expected to crystallise
in normal circumstances, such as the fair value movements on financial
derivatives and deferred taxes on property valuation surpluses,
are excluded. Costs such as real estate transfer taxes are included.
Table 4: EPRA net initial yield
31 March 31 March
2023 2022
GBP'000 GBP'000
---------------------------------------------------------------------------------------- --- ---------- ----------
Total properties per external valuers' report 828,770 1,011,985
Less development property and land (75,660) (98,950)
--------------------------------------------------------------------------------------------- ---------- ----------
Net valuation of completed investment property 753,110 913,035
Add estimated purchasers' costs (4) 51,211 62,086
--------------------------------------------------------------------------------------------- ---------- ----------
Gross valuation of completed property including
estimated purchasers' costs (A) 804,321 975,121
----------------------------------------------------------------------------------------- ---------- ----------
Gross passing rents (5) (annualised) 41,241 40,605
Less irrecoverable property costs (5) (1,279) (1,478)
--------------------------------------------------------------------------------------------- ---------- ----------
Net annualised rents (B) 39,962 39,127
--------------------------------------------------------------------------------------------- ---------- ----------
Add notional rent on expiry of rent-free periods or other lease incentives (6) 4,068 3,376
--------------------------------------------------------------------------------------------- ---------- ----------
'Topped-up' net annualised rents (C) 44,030 42,503
--------------------------------------------------------------------------------------------- ---------- ----------
EPRA NIY (B/A) 5.0% 4.0%
--------------------------------------------------------------------------------------------- ---------- ----------
EPRA 'topped-up' net initial yield (C/A) 5.5% 4.4%
--------------------------------------------------------------------------------------------- ---------- ----------
(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 three
months' passing rents. Irrecoverable property costs assessed as
at the balance sheet date for completed investment properties excluding
development property and land.)
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 for themselves how the valuation of portfolio
X compares with portfolio Y.
EPRA 'topped-up' NIY 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-recoverable property costs.
Table 5: EPRA vacancy rate
31 March 31 March
2023 2022
GBP'000 GBP'000
---------------------------------------------------------------------------------------- --- ---------- ----------
Annualised ERV of vacant premises (D) 2,537 3,241
Annualised ERV for the investment portfolio (E) 50,736 51,479
--------------------------------------------------------------------------------------------- ---------- ----------
EPRA vacancy rate (D/E) 5.0% 6.3%
--------------------------------------------------------------------------------------------- ---------- ----------
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
2023 2022
GBP'000 GBP'000
---------------------------------------------------------------------------------------- --- ---------- ----------
Property operating expenses 5,454 4,789
Service charge expenses 3,767 3,011
Add back service charge income (3,340) (2,682)
Add back insurance recharged (1,592) (1,507)
Net property operating expenses 4,289 3,611
Administration expenses 9,716 8,244
Costs associated with the transfer to the Premium Segment of the Main Market of the London
Stock Exchange (1,069) -
Less ground rents (7) (189) (181)
--------------------------------------------------------------------------------------------- ---------- ----------
Total cost including direct vacancy cost (F) 12,747 11,674
Direct vacancy cost (1,774) (1,224)
--------------------------------------------------------------------------------------------- ---------- ----------
Total cost excluding direct vacancy cost (G) 10,973 10,450
--------------------------------------------------------------------------------------------- ---------- ----------
Rental income 45,750 44,020
Less ground rents paid (832) (1,058)
--------------------------------------------------------------------------------------------- ---------- ----------
Gross rental income less ground rents (H) 44,918 42,962
--------------------------------------------------------------------------------------------- ---------- ----------
Less direct vacancy cost (1,774) (1,224)
--------------------------------------------------------------------------------------------- ---------- ----------
Net rental income less ground rents 43,144 41,738
Total cost ratio including direct vacancy cost (F/H) 28.4% 27.1%
--------------------------------------------------------------------------------------------- ---------- ----------
Total cost ratio excluding direct vacancy cost (G/H) 24.4% 24.3%
--------------------------------------------------------------------------------------------- ---------- ----------
Year ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
---------------------------------------------------------------------------------------- --- ---------- ----------
Total cost including direct vacancy cost (F) 12,745 11,674
Costs associated with the transfer to the Premium Segment of the Main Market of the London
Stock Exchange 1,069 -
EPRA total cost (I) 13,814 11,674
Direct vacancy cost (1,774) (1,224)
--------------------------------------------------------------------------------------------- ---------- ----------
EPRA total cost excluding direct vacancy cost (J) 12,040 10,450
--------------------------------------------------------------------------------------------- ---------- ----------
EPRA cost ratio including direct vacancy cost (I/H) 30.8% 27.1%
--------------------------------------------------------------------------------------------- ---------- ----------
EPRA cost ratio excluding direct vacancy cost (J/H) 26.8% 24.3%
--------------------------------------------------------------------------------------------- ---------- ----------
(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 less ground rents. 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 2023 or the year ended 31 March 2022.
Table 7: Lease data
Head
Year Years rents
Year 1 2 3- 10 Year 10+ payable Total
As at 31 March 2023 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- -------- -------- -------- -------- --------- --------
Passing rent of
leases expiring in: 5,812 4,327 27,533 4,773 (1,204) 41,241
----------------------- -------- -------- -------- -------- --------- --------
ERV of leases expiring
in: 9,239 5,062 33,716 6,460 (1,204) 53,273
----------------------- -------- -------- -------- -------- --------- --------
Passing rent subject
to review in: 15,782 8,522 18,139 2 (1,204) 41,241
----------------------- -------- -------- -------- -------- --------- --------
ERV subject to review
in: 21,055 10,280 23,140 2 (1,204) 53,273
----------------------- -------- -------- -------- -------- --------- --------
WAULT to expiry is 5.5 years and to break is 4.5 years.
Year Year Years Head rents
1 2 3- 10 Year 10+ payable Total
As at 31 March 2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ -------- -------- -------- -------- ---------- --------
Passing rent of leases
expiring in: 2,725 5,380 28,818 4,873 (1,191) 40,605
------------------------ -------- -------- -------- -------- ---------- --------
ERV of leases expiring
in: 10,529 6,018 30,600 5,523 (1,191) 51,479
------------------------ -------- -------- -------- -------- ---------- --------
Passing rent subject
to review in: 5,960 5,176 25,828 4,832 (1,191) 40,605
------------------------ -------- -------- -------- -------- ---------- --------
ERV subject to review
in: 10,529 6,018 30,600 5,523 (1,191) 51,479
------------------------ -------- -------- -------- -------- ---------- --------
WAULT to expiry is 5.6 years and to break is 4.5 years.
Table 8: EPRA capital expenditure
Year Year
ended ended
31 March 31 March
2023 2022
GBP'000 GBP'000
------------------------------------- --------- ---------
Acquisitions(8) 66,728 43,391
Development spend(9) 8,295 1,103
Completed investment properties:(10)
No incremental lettable space
- like-for-like portfolio 5,035 6,467
No incremental lettable space - -
- other
Occupier incentives - -
Total capital expenditure 80,058 50,961
Conversion from accruals to cash
basis (1,082) 2,886
Total capital expenditure on
a cash basis 78,976 53,847
--------------------------------------- --------- ---------
(8) Acquisitions include GBP64,512,000 completed investment
property and GBP2,216,000 development property and land (2022:
GBP30,027,000 and GBP13,364,000 respectively ).
(9) Expenditure on development property and land .
(10) Expenditure on completed investment properties .
Table 9: EPRA like-for-like rental income
Year ended Year ended
31 March 31 March
2023 2022
Note GBP'000 GBP'000 % change
------------------------------------- ----- ---------- ---------- --------
EPRA like-for-like rental income(11) 40,722 38,400 6.1%
Other(12) (815) -
-------------------------------------- ----- ---------- ---------- --------
Adjusted like-for-like rental income 39,907 38,400 3.9%
Development lettings 306 483
Properties acquired 3,155 863
Properties sold 2,382 4,274
-------------------------------------- ----- ---------- ---------- --------
Rental income 45,750 44,020
Service charge income 3,340 2,682
Dilapidation income 503 3,187
Insurance recharged 1,592 1,507
Total property income 3 51,185 51,396
-------------------------------------- ----- ---------- ---------- --------
(11) Like-for-like portfolio valuation as at 31 March 2023:
GBP679.9 million (31 March 2022: GBP814.1 million ).
(12) Includes rent surrender premiums, back rent and other items
.
Table 10: Loan to value ("LTV") ratio and EPRA LTV
Gross debt less cash, short-term deposits and liquid
investments, divided by the aggregate value of properties and
investments. The Group has also opted to present the EPRA loan to
value, which is defined as net debt divided by total property
market value. This measure was included as a new measure in EPRA's
Best Practices Recommendations (issued in February 2022). The year
ended 31 March 2023 is the first year this measure has been adopted
and published.
Year ended Year ended
31 March 31 March
2023 2022
Note GBP000 GBP000
--------------------------------------- ----- ---------- ----------
Interest-bearing loans and borrowings 17 306,000 271,000
Cash 15 (25,053) (16,706)
---------------------------------------- ----- ---------- ----------
Net debt (A) 280,947 254,294
Total portfolio valuation per valuer's
report (B) 13,14 828,770 1,011,985
---------------------------------------- ----- ---------- ----------
LTV ratio (A/B) 33.9% 25.1%
---------------------------------------- ----- ---------- ----------
EPRA LTV
Year ended Year ended 31
31 March March 2022
2023
GBP000 GBP000
Notes
----------------------------------------- ----- ---------- -------------
Interest-bearing loans and borrowings(1) 17 306,000 271,000
Net payables(2) 29,352 21,044
Cash 15 (25,053) (16,706)
----------------------------------------- ----- ---------- -------------
Net borrowings (A) 310,299 275,338
Investment properties at fair value 13,14 828,770 1,011,985
Interest rate derivatives 18 7,387 337
Head Lease Obligation 14,124 14,081
----------------------------------------- ----------------- -------------
Total property value (B) 850,281 1,026,403
----------------------------------------- ----- ---------- -------------
EPRA LTV (A/B) 36.5% 26.8%
----------------------------------------- ----- ---------- -------------
1. Excludes unamortised loan arrangement fees asset of GBP1.9
million (2022: GBP2.8 million) (see note 17).
2. Net payables includes trade and other receivables and other
payables and accrued expenses.
Table 11: Total accounting return
The movement in EPRA NTA over a period plus dividends paid in
the period, expressed as a percentage of the EPRA NTA at the start
of the period.
Year ended Year ended
31 March 31 March
2023 2022
Pence Pence
Note per share per share
-------------------------------- ------ ---------- ----------
Opening EPRA NTA (A) 173.8 135.1
Movement (B) (51.2) 38.7
Closing EPRA NTA 24 122.6 173.8
Dividends per share (C) 11 6.5 6.2
--------------------------------- ------ ---------- ----------
Total accounting return (B+C)/A (25.7%) 33.2%
--------------------------------- ------ ---------- ----------
Table 12: Ongoing charges ratio
Ongoing charges ratio represents the costs of running the REIT
as a percentage of NAV as prescribed by the Association of
Investment Companies .
Year ended Year ended
31 March 31 March
2023 2022
Note GBP000 GBP000
------------------------------------ ----- ---------- ----------
Administration expenses 4 9,716 8,244
Less: costs associated with moving
to Main Market (1,069) -
Less: head lease asset depreciation (189) (181)
------------------------------------- ----- ---------- ----------
Annualised ongoing charges (A) 8,458 8,063
Opening NAV as at 1 April 738,954 574,091
NAV as at 30 September 678,578 647,366
Closing NAV as at 31 March 528,475 738,954
------------------------------------- ----- ---------- ----------
Average undiluted NAV during the
period (B) 648,669 653,470
Ongoing charges ratio (A/B) 1.3% 1.2%
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 which
ultimately underpins our dividend payments
Admission
The admission of Warehouse REIT plc onto the AIM of the London
Stock Exchange on 12 July 2022
AGM
Annual General Meeting
AIC
The Association of Investment Companies
AIFM
Alternative Investment Fund Manager
AIFMD
The Alternative Investment Fund Managers Regulations 2013 (as
amended by The Alternative
Investment Fund Managers (Amendment etc.) (EU Exit) Regulations
2019) and the Investment Funds
Sourcebook forming part of the FCA Handbook
AIM
A market operated by the London Stock Exchange
APM
An Alternative Performance Measure is a numerical measure of the
Company's current, historical or future financial performance,
financial position or cash flows, other than a financial measure
defined or specified in the applicable financial framework. In
selecting these APMs, the Directors considered the key objectives
and expectations of typical investors
Company
Warehouse REIT plc
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 less ground rents, 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 NDV / EPRA NRV / EPRA NTA per share
The EPRA net asset value measures figures divided by the number
of shares outstanding at the balance sheet date
EPRA net disposal value ("EPRA NDV")
The net asset value measure detailing the full extent of
liabilities and resulting shareholder value if company assets are
sold and/or if liabilities are not held until maturity. Deferred
tax and financial instruments are calculated as to the full extent
of their liability, including tax exposure not reflected in the
statement of financial position, net of any resulting tax
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 net reinstatement value ("EPRA NRV")
The net asset value measure to highlight the value of net assets
on a long-term basis and reflect what would be needed to recreate
the Company through the investment markets based on its current
capital and financing structure. Assets and liabilities that are
not expected to crystallise in normal circumstances, such as the
fair value movements on financial derivatives and deferred taxes on
property valuation surpluses, are excluded. Costs such as real
estate transfer taxes are included
EPRA net tangible assets ("EPRA NTA")
The net asset value measure assuming entities buy and sell
assets, thereby crystallising certain levels of deferred tax
liability
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
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
Interest cover
Adjusted operating profit before gains on investment properties,
interest (net of interest received) and tax, divided by the
underlying net interest expense
IPO
Initial public offering
Main Market
The Premium Segment of the London Stock Exchange's Main
Market
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 EPRA vacancy rate
Ongoing charges ratio
Ongoing charges ratio represents the costs of running the REIT
as a percentage of NAV as prescribed by the Association of
Investment Companies
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
SONIA
Sterling Overnight Index Average
Total accounting return
The movement in EPRA NTA over a period plus dividends paid in
the period, expressed as a percentage of the EPRA NTA 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
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END
FR FAMBTMTIMTIJ
(END) Dow Jones Newswires
June 06, 2023 02:00 ET (06:00 GMT)
Warehouse Reit (LSE:WHR)
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Warehouse Reit (LSE:WHR)
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