Investment case

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

Strong occupier demand

Covid-19 has accelerated the already powerful trends driving demand for urban warehouse space, in particular the structural shift from high street retail to e-commerce. Demand for space is coming from an increasingly diversified occupier base, who compete for the same buildings.

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 a limited supply of urban warehouse space available to let in economically attractive locations.

Growing income

The demand and supply imbalance contributes to growing market rents. Coupled with the benefits of our active asset management programme and the strong reversionary potential in the portfolio, this contributes to robust growth in our rental income each year.

Top management

We have an experienced Board and a highly knowledgeable Investment Advisor, Tilstone, which gives us a deep understanding of the sector and a wide network of industry contacts through which we can source investments.

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. We also have the potential to drive further value from underutilised land within the portfolio.

Strong returns and quarterly dividends

Our diversification by occupier, lease length and geography reduces risk and gives us a sustainable income stream, allowing us to reward shareholders through attractive 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 (“KPIs”) 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, 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

The increase in occupancy reflects the success of our asset management initiatives. Effective occupancy (excluding units being refurbished or under offer) was 98.2% (31 March 2020: 96.5%).

Like-for-like rental income growth

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 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 a 2.9% like-for-like uplift, showing the benefits of asset management and continued favourable market conditions.

Rental increases agreed versus valuer’s ERV

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 superior rental growth 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.

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, 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

The valuation of the portfolio continued to increase during the year, reflecting market yield compression and the benefits of asset management.

Total cost ratio

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 increased due to the timing difference between raising cash and capital deployment. We expect this ratio to decline in the year ending 31 March 2022, as we receive a full year of income from assets acquired in the current year.

EPRA NTA

Description

This net asset value measure assumes entities buy and sell assets, thereby crystallising certain levels of deferred tax liability.

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 increased by 23.4% during the year, largely due to the increase in the portfolio’s valuation.

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 dividend payments to shareholders.

How we performed

We achieved our dividend target for the 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

After engagement with our shareholders, we took the decision to maintain debt levels below our target of 35%.