Investment case

The urban warehouse market is compelling for asset owners and presents us with significant opportunities for long-term value creation, through further growth in the portfolio enhanced by active asset management.

Strong occupier demand

Urban warehouses are critical to a wide range of businesses, from small manufacturers to multinational companies. The structural shift from high street retail to e-commerce is a key driver of demand for warehouse space, increasing competition for available units.

Constrained supply

Capital values for small and medium‑sized warehouses are typically well below replacement cost, making it uneconomic to develop new assets in many areas. Combined with strong occupational demand, this means there is limited supply of urban warehouse space available to let in attractive locations.

Growing income

The demand and supply imbalance, coupled with the benefits of our active asset management and the strong reversionary potential in the portfolio, are contributing to robust rental growth each year.

Top management

We have an experienced Board and a highly knowledgeable Investment Advisor, Tilstone Partners Limited (“Tilstone”), which gives us a deep understanding of the sector and a wide network of industry contacts.

Attractive pipeline

We continue to see good opportunities to acquire assets at below their replacement cost, while further diversifying our income and strengthening the portfolio’s sustainability, quality and growth prospects.

Progressive dividends and strong returns

Our diversification by tenant, lease length and geography reduces risk and gives us a sustainable income stream, allowing us to reward shareholders through attractive and progressive dividends. These dividends, along with capital growth, contribute to a total return target of 10% per annum.

Key performance indicators

We use the following key performance indicators to monitor our performance and strategic progress.

Occupancy (%)

Description

Total open market rental value of the units leased divided by total open market rental value, excluding development property and land, equivalent to one minus the EPRA vacancy rate.

Why is this important?

Shows our ability to retain tenants at renewal and to let vacant space, which in turn underpins our income and dividend payments.

How we performed

Occupancy increased from 93.4% at 31 March 2020 to 94.3% at 30 September 2020, reflecting the strength of occupier demand.

Like-for-like rental income growth (%)

Description

The increase in contracted rent of units owned throughout the period under review, expressed as a percentage of the contracted rent at the start of the period, excluding development property and land and units undergoing refurbishment.

Why is this important?

Shows our ability to identify and acquire attractive properties and grow average rents over time.

How we performed

We continued to deliver good rental growth from the portfolio, with 2.0% like-for-like rental income growth in the year ended 31 March 2020 and a further 1.9% in the six months to 30 September 2020, showing the benefits of asset management and the underlying rental growth in the market.

Rental increases agreed versus valuer’s ERV (%)

Description

The difference between the contracted rent achieved on new lettings and renewals and the ERV assessed by the external valuer, expressed as a percentage above the ERV at the start of the period.

Why is this important?

Shows our ability to achieve superior rental growth through asset management and the attractiveness of our assets to potential tenants.

How we performed

Our track record of achieving rental levels ahead of ERV continued into the six months ended 30 September 2020 with rental increases agreed at 3.7% ahead of valuer's ERV.

Like-for-like valuation increase (%)

Description

The increase in the valuation of properties owned throughout the period under review, expressed as a percentage of the valuation at the start of the period, net of capital expenditure.

Why is this important?

Shows our ability to acquire the right quality of assets at attractive valuations, add value through asset management and drive increased capital values by capturing rental growth.

How we performed

The valuation of the portfolio increased during the year ended 31 March 2020, although the year end valuation was held back by the outbreak of COVID-19. The valuation increase in the six months to 30 September 2020 of a further 6.6% was primarily driven by yield compression as well as benefitting from income growth.

Total cost ratio (%)

Description

EPRA cost ratio including direct vacancy cost but excluding one-off costs. The EPRA cost ratio is the sum of property expenses and administration expenses as a percentage of gross rental income.

Why is this important?

Shows our ability to effectively control our cost base, which in turn supports dividend payments to shareholders.

How we performed

The total cost ratio increased in the six months to 30 September 2020.

EPRA NTA per share (%)

Description

The net asset value measure assuming assets are bought and sold, including properties at fair value and excluding the fair value of any financial derviatives, divided by the number of shares outstanding at the balance sheet date.

Why is this important?

Shows our ability to acquire well and to increase capital values through active asset management.

How we performed

The EPRA NTA per share increased by 8.1% from 31 March 2020, primarily due to the strong valuation uplift in the period as well as the benefit from the timing of the payment of the first interim dividend, paid shortly after the 30 September 2020 period end.

Dividends per share (%)

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

Dividends paid or declared of 3.1 pence per share in the six months ended 30 September 2020, in line with the target for the financial year of 6.2 pence per share.

Loan to value ratio (%)

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

Loan to value ratio is expected to increase as further assets are acquired and be maintained at a level of around 35%.