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Urban Logistics REIT PLC
24 May 2019
 

Urban Logistics REIT plc

 

("Urban Logistics", the "Company" or the "Group")

 

 

Results for the Year Ended 31 March 2019

 

Asset management driving strong performance across urban logistics portfolio

 

Urban Logistics, (AIM: SHED) the specialist UK logistics REIT, issues its results for the year ended 31 March 2019.

 

Highlights

31 Mar 19

(£m)

31 Mar 18

(£m)

Change

(%)

Income Statement




Rental income

10.8

5.6

+93.6

EPRA Earnings

5.9

2.5

+139.7

EPRA Earnings per share (p)

7.01p

4.91p

+42.7





Balance Sheet




EPRA NAV per share (p)

137.96p

122.49p

+12.6

Revaluation uplift on investment properties

13.4

7.2

+85.6

Net borrowing

71.4

47.7

+49.8

LTV (%)

33.7

34.4






Dividends




Total dividend per share paid or declared in respect of the financial year

7.00p

6.32p

+10.8

 

Financial Highlights

·      EPRA net asset value ("NAV") per share up 12.6% to 137.96p

·      Portfolio valuation at 31 March 2019 of £186.4 million

·      EPRA Earnings per share up 42.7% to 7.01p

·      Second interim dividend declared of 4.02p per share making a total of 7.00p per share for the financial period, up 10.8%

·      £20.4 million of equity capital raised from new and existing investors in April 2018

·      Total Accounting Return (NAV + dividends) of 17.7%

 

Operational Highlights

·      Seven logistics properties acquired for £48.0 million with asset management potential

·      Disposals totalling £11.3 million, all at or above book value, representing average Total Property Return of 25.2%

·      Portfolio fully occupied

·      WAULT of 5.5 years (2018: 5.0 years)

·      Low average rents of £4.83 per sq ft with significant upside potential. Rent reviews increasing rent by average 39.6%

 

Market commentary

 

Investor interest remains strong in the UK's logistics real estate sub-sector, with record-breaking take-up in 2018 of 31.5 million sq ft - up 8.2% on 2017's previous record of 29.4 million sq ft¹. E-commerce continues to drive demand, particularly online retail, which represented 32% of overall take-up.

 

Forward-thinking retailers and distributors are continuing to invest in distribution centres that facilitate delivery to the consumer. The Company sees a strong market for local delivery driven by 10% expected population growth across major UK conurbations by 20382. Furthermore, supply in the 20,000-200,000 sq ft logistics space, where Urban Logistics is focused, has fallen by 36.0% since 2012 and rents are expected to continue rising2.

 

1CBRE H2 Logistics 2018

²Savills

 

Nigel Rich, Chairman, commented:

 

"The Group has delivered another strong performance over the financial period. EPRA NAV per share has increased by 13% and earnings per share by 43%, enabling an increase in the dividend of 11%.

 

"Three years on from the Company's IPO we continue to build an increasingly diversified and high-quality urban logistics portfolio with secure income from our tenants.

 

"We undertook a capital raise in April 2018 of £20 million and subsequently focussed on investment and asset management activity.

 

"The fundamentals of our market remain attractive and we are confident of continuing to deliver consistent returns for our shareholders."

 

Richard Moffitt, Chief Executive, added:

 

"Urban Logistics remain real estate's top performing sub-sector.

 

"We remain focused on growing our portfolio and enabling our diverse tenant base to meet the challenges of e-commerce, modern logistics and evolving infrastructure demands.

 

"Growth of online retail continues to create yet more demand for distribution warehousing. Supply is not keeping pace, meaning logistics assets, especially 'last-mile' fulfilment centres, offer investors the opportunity for capital appreciation and rental income growth. I also note that over 80% of our tenants hold the highest possible credit rating, demonstrating the security of our income.

 

"Looking ahead, we have a high-quality acquisition pipeline and continue to assess the potential for additional equity financing to grow the business. Whilst capital values are falling in the retail property sector, we are witnessing continued improvement in our sector due to both rental growth and lease activity - our focus being on quality tenants and the improvement of both rental and lease terms. This translates to value increases at the asset level and we remain confident in our ability to continue sourcing opportunities at attractive yields."

 

- Ends -

 

For further information contact:

 

Urban Logistics REIT plc

Richard Moffitt

 

+44 (0)20 7591 1600

Montfort - Financial PR and IR adviser

Olly Scott

 

+44 (0)78 1234 5205

 

N+1 Singer - Nominated Adviser and Broker

James Maxwell / James Moat (Corporate Finance)

Alan Geeves / James Waterlow / Sam Greatrex (Sales)

 

+44 (0)20 7496 3000

Radnor Capital Partners

Joshua Cryer

Iain Daly

+44 (0)20 3897 1830

 

 

Chairman's Statement

 

I am pleased to present the Group's consolidated results for its annual reporting period to 31 March 2019.

 

Overview

The Group has delivered another strong performance over the financial period. EPRA NAV per share has increased by 12.6% and earnings per share by 42.7%, enabling an increase in the dividend of 10.8%. The Total Accounting Return of 17.7% has exceeded our total return target of 10-15% per annum.

 

In April 2018 we raised £20 million via a market placement, which was used together with bank financing for the £36 million purchase of six logistics assets from LondonMetric Property plc.

 

The addition of these six properties, and a site in Bedford, meant we held 33 properties at 31 March 2019 and own a portfolio which at 31 March 2019 was valued at £186 million, compared with £132 million at 31 March 2018. On a like-for-like basis the valuation uplift over the period was 10.7%.

 

The Group's income profile and capital values continue to improve through successful acquisitions and asset management and contracted rent is now £11.3 million, up from £7.6 million in the prior year. The portfolio has also seen an increase in average WAULT to 5.5 years (5.0 years at 31 March 2018). At 31 March 2019 the portfolio was fully occupied.

 

The Market

The Manager's Report describes our investment focus in the real estate subsector that is UK logistics. Logistics is the delivery of essential products to consumers and the portfolio is well positioned to deal with the ongoing changing dynamics in this market, in particular from e-commerce and e-fulfilment. This is against a backdrop of changing fortunes on the high street with a number of traditional retailers struggling.

 

Our tenants typically require warehousing near, or adjacent to, cities with good road infrastructure. We look to buy 20,000 - 200,000 square foot properties with single tenants who are involved in the supply of goods to an end user. The leases will usually have an upcoming lease event such as break clauses, an impending rent review, or a termination / vacancy which allows the Manager the opportunity to increase rents or improve the yield and, in some cases, develop the property.

 

The portfolio

In addition to the new properties purchased we have also disposed of three properties for £10.9m.

 

In February 2019 we exchanged contracts to forward fund two urban logistics sites in Staffordshire and Leicestershire. Practical completion is anticipated by early 2020, these sites will deliver new assets to our portfolio at a time when smaller urban logistics buildings remain in short supply.

 

We continue to develop a high-quality pipeline of acquisition opportunities, the purchase of which is dependent on being able to raise new money from the equity capital markets.

 

Dividend

We are announcing a second interim dividend for the financial year of 4.02 pence per share, with a record date of 7 June 2019. This will be paid to shareholders on 28 June 2019. This dividend takes the total dividends paid or declared in respect of the financial year to 7.00 pence per share, which is an increase of 10.8% on the prior year.

 

The Manager

Our Manager, Pacific Capital Partners Limited, has continued to serve us very well. Richard Moffitt and Christopher Turner are responsible for asset acquisitions, disposals and asset management. They remain very successful in finding suitable properties to acquire, asset manage and occasionally dispose of when full value has been extracted. Their skills are critical to the success of the company. Following acquisition, asset management is vital in both securing and enhancing income. Examples of both are covered in the Manager's Report.

 

We were also well supported by the Manager's financial and administrative team.

 

The Investment Management Agreement was extended in July 2018 such that it now runs through to April 2024. This ensures continuity of the relationship we enjoy with the Manager. All other key terms of the agreement remain unchanged.

 

Outlook

We will look to acquire further assets in line with our proven strategy where we recycle capital but principally, we expect to fund through equity raising and bank debt.

 

At this point, it is difficult to predict the outcome of the political process surrounding Brexit. While politicians continue to do battle, uncertainty will likely impact the equity markets and the property market in general.

 

For Urban Logistics this may make it challenging to raise equity, however, we believe that the market for last mile logistics will remain strong due to end customer needs and our portfolio, which comprises urban logistics assets where tenants' activities revolve around essential everyday products, will remain attractive as e-commerce's share of the supply chain continues to grow.

 

Nigel Rich CBE, Chairman

24 May 2019

 

 

Manager's Report

 

Overview

Our focus is the urban logistics sub-sector of the UK property market, concentrating on a part of the market that delivers essential products to UK businesses and consumers, usually by way of e-commerce.

 

We have always avoided fashion retailers, whose fortunes can be volatile. Our tenants typically supply everyday items such as pharmaceuticals, ambient and frozen food, building supplies and general merchandise.

 

The continued rise in online ordering continues to drive logistics take-up to unprecedented levels in the UK with 2018 take-up 82% higher than in 2017, (Source: CBRE H2 Logistics 2018) and exceeded 2016's previous record (31.5 million sq ft v. 29.35 million sq ft). Take up in this sector of the market, (sub-200,000 sq ft), was 8.5 million sq ft in 2018 with speculative development for 2019 predicted to be only 2.5 million sq ft. Against this backdrop we are developing a considerable pipeline of assets across the logistics sector.

 

Retail Economics suggest that online retail in the UK might well represent over 24% of total retail sales by 2022, totalling approximately £98.5 billion of sales. It is estimated that for every additional £1 billion of online sales this leads to an additional requirement for approximately 1.125 million sq ft of warehouse demand. Alongside population growth around major UK cities of over 10% by 2038, according to Savills, we see a strong market for local delivery continuing.

 

Supply in the 20,000-200,000 sq ft logistics space where we are focused has fallen by 36% since 2012 and rents are expected to rise by an average of 11.5% by 2022 across the market (source: Savills).

 

The market

We are seeing a modest amount of speculative developments, but this is typically for assets of over 300,000 sq ft. In particular, last mile logistics businesses are struggling to find available space in the 'mid-box' market, due to competition from other land uses. This presents unique challenges to the future configuration of the supply chain model. The UK Warehouse Association, for example, is reporting capacity constraints across more than 75% of its members, with Brexit concerns also causing some shorter-term build-up in inventory.

 

Whilst automation and autonomous vehicle solutions for distribution garner headlines, we see labour availability as a more immediate concern for suppliers. Properties near urban locations will benefit from improved labour pools. 

 

According to our research commissioned from Savills, the 'mid-box' market remains compelling due to indicators demonstrating that structural changes are continuing to stimulate occupier demand, causing availability to fall and rents to rise. A constrained development pipeline suggest vacancy rates in the sub 200,000 sq ft range will remain low in the medium-term. The most significant "space race" going forward is set to be focused around urban locations. Greater London alone is deemed to have lost one third of its industrial land over the past 10 years.

 

Radius Data Exchange shows that units of approximately 45,000 sq ft have been taken up with greater intensity recently; growing from 54% to 61% of overall letting activity in 2018. 

 

Better supply chains will facilitate a decisive competitive advantage for retailers who possess or control them, with further benefits from moving to a vertically integrated model. To a large extent we believe large-scale operators have developed their supply chains and it is to last mile logistics where the funding needs to be committed. 

 

Traditional locations for logistics - alongside motorways and on urban boundaries - will not be sufficient to cover city demands for last mile deliveries and reverse logistics. Therefore, more logistics facilities will be needed close to city and town centres. We foresee an increasing growth of demand for logistics hubs or consolidation centres to service big cities across the UK. 

 

Financial commentary

The financial period to 31 March 2019 was focussed on portfolio asset management and investment activity. The results demonstrate some significant achievements and how the stated strategy of the Group, namely adding scale whilst focusing on investment returns, continues to prosper. 

 

Valuation and portfolio growth

CBRE independently valued the portfolio at 31 March 2019, in accordance with the RICS Valuation Professional Standards, at £186.4 million. The Group reported a fair value uplift across the portfolio of £13.4 million in the year, or 7.2%. The like-for-like annual valuation uplift was 10.7% for properties held at both 31 March 2018 and 31 March 2019, supporting our growth conviction.

 

The valuation increase reflects our focus on asset management and buying well-located properties. It also highlights our success in sourcing off-market opportunities

 

Portfolio Activity

The Group has invested in 33 assets, currently comprising 35 different tenancies as at 31 March 2019. Some asset management examples across the portfolio in this financial year include:

 

1. Bedford

Annual passing rent - £1,100,328, Size (sq ft) - 183,389

Rent per sq ft - £6.00, Tenure - Freehold

 

This site was purchased on 8 November 2018 for £17.0 million and consisted of approximately 10 acres of land and a property with vacant possession. It is located at Hudson Road, Bedford.

 

A land element of approximately four acres was sub-sold to a local developer for £5.0 million at the time of acquisition.

 

A tenant was then secured within five days of completion of purchase on a 15-year lease with a rent at £6.00 per sq ft. The capital value at 31 March 2019 was up £2.8 million, or 23%.

 

2. Price's Candles, Bedford

Annual passing rent - £265,000, Size (sq ft) - 44,195

Rent per sq ft - £6.00, Tenure - Freehold

 

This is a well configured warehouse that was acquired at IPO in April 2016. It is located in an established commercial location, with good access to both the A1 and M1.

 

Following a rent review with the tenant and head lease extension to 150 years the property was sold for £3.2 million, a Total Property Return of 55%. This is a good example of the Manager extracting value from active asset management (rent and lease terms) and realising value created by selling into the market. 

 

3. Komori / Pharmacy2u, Leeds

Annual passing rent - £207,500, Size (sq ft) - 41,494

Rent per sq ft - £5.15 (Komori) £5.24 (Pharmacy2u), Tenure - Freehold

 

This is a well configured warehouse in an established strategic location, with good access to Leeds city centre. The property was acquired in November 2017.

 

The acquisition is consistent with the Company's investment strategy of identifying attractively priced stock with asset management potential. Two rent reviews were negotiated and both tenants extended their leases. The property was subsequently sold, representing a Total Property Return of 16%.

 

4. Nuneaton

Annual passing rent - n/a, Size (sq ft) - 130,508

Rent per sq ft - n/a, Tenure - Freehold

 

This building was purchased as part of a portfolio in September 2017 for £6.7 million and refurbished. It was subject to a rent guarantee until September 2019.

 

The property was sold to an owner occupier, Cofresh Limited, post financial period on 2 April 2019 and realised a Total Property Return of 38%.

 

5. HID, Haverhill

Annual passing rent - £382,053, Size (sq ft) - 37,355

Rent per sq ft - £9.90, Tenure - Freehold

 

The property was acquired in September 2017 and is in an established strategic location with good access and circulation. During the period the tenant did not exercise a break clause and a rent review was settled, increasing the rent by 16.5%. The capital value increased by £0.8 million, or 15.9%. 

 

6. Acquisition and forward funding

Stone (an M6 motorway location) and Hinckley (an M1/A5 motorway location) are two sites in the Midlands where the Company is working with a local developer to forward fund and deliver six new high-quality urban logistics warehouses.

 

The Company has received strong interest from prospective tenants and expects that both sites will be fully pre-let by the time of practical completion. The gross development value of the sites is £15.4 million.

 

The intention is for the sites to be built and let by early 2020. They are both well located and near key arterial routes.

 

The Company will benefit from a 6% interest rate coupon on the forward funding provided for construction. An element of financing will be sought from the Group's financing partners - Barclays and Santander.

 

Financial results

EPRA earnings for the period were £5.9 million, up from £2.5 million in the prior year. There were two principal drivers of this positive performance. The first was the impact of acquisitions and related property income. The second was the successful asset management undertaken during the period, including rent reviews and lease extensions. This resulted in EPRA NAV per share increasing by 12.6% to 137.96p at 31 March 2019.

 

Administrative and other expenses, which include the Manager's fee (excluding the LTIP charge) and other costs of running the Group, were £1.8 million, equivalent to 1.3% of the total assets at 31 March 2019.

 

Financing and hedging

As at 31 March 2019, the Group has a senior debt facility with Santander and Barclays totalling £72.6 million with a term of five years. The loan to value (LTV) of 33.7% was slightly below the Group's target range of 35-40%. Net financing costs were £2.2 million for the period. We had a cash balance at 31 March 2019 of £9.8 million which has now been fully committed to further property investments.

 

Investment Activity

Acquisitions and disposals across the financial year included:

 

Acquisitions

The Group acquired a total of seven logistics properties in the year for £48.0 million. Six logistics assets were purchased in portfolios for £36.0 million from LondonMetric in July and September 2018. This acquisition was sourced off-market at a net initial yield of 5.9%. A single asset in Bedford was also acquired in December 2018 for £12.0m. 

 

The portfolios' logistics occupiers include DHL, NNR Global Logistics, Encon and Hillary's Blinds. The assets are close to established regional transport hubs in urban or last-mile locations.

 

Disposals

The Company sold three properties in Bedford, Newport and Leeds for £10.9 million. In addition to Leeds and Bedford, mentioned above, the Group also sold a non-core office in Newport for £4.3 million realising a Total Property Return of 7.8%.

 

Post period end

In April 2019, a property was sold in Nuneaton for £8.1 million, representing a Total Property Return of 21.2%. A property was also sold in May 2019 in Bedford for £9.2 million, representing a Total Property Return of 74.2%. At the same time as the Nuneaton disposal a property was purchased in Thatcham for £3.4 million, let to DHL's UK Mail, offering reversionary potential given its South East location.

 

Market Outlook

We believe that the logistics sector continues to show resilience in a context of wider economic uncertainty. Underlying market conditions remain favourable for domestic UK business and we see ongoing activity across our occupier base which is centred proportionately across SMEs, Third Party Logistics operators and FTSE listed entities.

 

Investment volumes remain high at over £4 billion per annum and despite the sector's popularity there is no dominant player. The sector's superior returns in 2018 allied to projected rental growth prospects have proven highly attractive.

 

With alternative real estate assets generally providing low returns there is continued search for yield and growth, with the pricing gap between logistics and 10-year gilt yields remaining wide. We are well positioned to continue to achieve our target returns for our investors.  

 

Richard Moffitt

24 May 2019

 

 

Consolidated Statement of Comprehensive Income



Year ended

Year ended



31 Mar 19

31 Mar 18


Note

£'000

£'000

Rental income

5

10,771

5,564

Property operating expenses


(694)

(561)





Net rental income


10,077

5,003





Administrative and other expenses


(1,833)

(1,074)

Other income


-

133

Long-term incentive plan charge

11

(119)

(657)

Operating profit before changes in fair value of




investment properties and interest rate derivatives


8,125

3,405





Changes in fair value of investment property

13

13,352

7,194

Profit on disposal of investment property


160

57

Operating profit


21,637

10,656





Finance income


29

4

Finance expense

8

(2,210)

(929)

Changes in fair value of interest rate derivatives

19

(709)

134

Profit before taxation


18,747

9,865

Tax credit/(charge) for the period

9

-

-

Profit and total comprehensive income (attributable to the shareholders)


18,747

9,865

Earnings per share - basic

10

22.12p

19.54p

Earnings per share - diluted

10

22.10p

19.51p

EPRA earnings per share - diluted

10

7.01p

4.91p

 

 

Consolidated Statement of Financial Position



31 Mar 19

31 Mar 18


Note

£'000

£'000

Non-current assets




Investment property

13

186,420

131,850

Intangible assets


22

-

Interest rate derivatives

19 

-

19

Total non-current assets


186,442

131,869





Current assets




Trade and other receivables

15

1,531

585

Cash and cash equivalents

16

9,760

3,280

Total current assets


11,291

3,865

Total assets


197,733

135,734





Current liabilities




Trade and other payables

17

(1,808)

(1,490)

Deferred rental income


(2,388)

(1,694)

Total current liabilities


(4,196)

(3,184)





Non-current liabilities




Long term rental deposits


(951)

(672)

Interest rate derivatives

19

(690)

-

Bank borrowings

18

(71,420)

(47,672)

Total non-current liabilities


(73,061)

(48,344)

Total liabilities


(77,257)

(51,528)

Total net assets


120,476

84,206





Equity




Share capital

22

877

681

Share premium

23

93,877

71,832

Share warrant reserve

24

14

89

Other reserves


194

75

Retained earnings

26

25,514

11,529

Total equity


120,476

84,206

Net Asset Value per share basic

28

137.39p

123.62p

Net Asset Value per share diluted

28

137.18p

122.51p

EPRA Net asset Value - diluted

28

137.96p

122.49p

 

 

Company Statement of Financial Position



31 Mar 19

31 Mar 18


Note

£'000

£'000

Non-current assets




Investment in subsidiaries

14

93,800

11,800

Intangible assets


22

-

Total non-current assets


93,822

11,800





Current assets




Trade and other receivables

15

1,897

62,816

Cash and cash equivalents

16

1,702

41

Total current assets


3,599

62,857

Total assets


97,421

74,657





Current liabilities




Trade and other payables


(744)

(346)

Total current liabilities


(744)

(346)





Total liabilities


(744)

(346)

Total net assets


96,677

74,311





Equity




Share capital

22

877

681

Share premium

23

93,877

71,832

Share warrant reserve

24

14

89

Other reserves


194

75

Retained earnings

26

1,715

1,634

Total equity


96,677

74,311

 

The Company has not presented its own Statement of Comprehensive Income, as permitted by Section 408 of the Companies Act 2006. The Company made a profit of £4.84 million.

 

 

Consolidated Cash Flow Statement



Year ended

Year ended



31 Mar 19

31 Mar 18


Note

£'000

£'000

Cash flows from operating activities




Profit for the period (attributable to equity shareholders)


18,747

9,865

Add: amortisation of intangible assets

Less: changes in fair value of investment property


4

(13,352)

-

(7,194)

Add/less: changes in fair value of interest rate derivatives


709

(134)

Less: profit on disposal of investment property


(160)

(57)

Less: finance income


(29)

(4)

Add: finance expense


2,210

929

Long-term investment plan


119

657

Increase in trade and other receivables


(946)

(45)

Increase in trade and other payables


1,291

1,443

Cash generated from operations


8,593

5,460





Net cash flow generated from operating activities


8,593

5,460





Investing activities




Purchase of investment properties


(52,088)

(12,236)

Disposal of investment properties


11,030

5,542

Purchase of intangible assets


(26)

-

Acquisition of a subsidiary, net of cash acquired


-

(74,031)

Net cash flow used in investing activities


(41,084)

(80,725)





Financing activities




Proceeds from issue of ordinary share capital


20,400

53,053

Proceeds from issue of warrant shares


2,430

-

Cost of share issue


(664)

(1,826)

Bank borrowings drawn


28,931

32,582

Bank borrowings repaid


(4,930)

(2,394)

Loan arrangement fees paid


(610)

(860)

Interest paid


(1,853)

(781)

Interest received


29

4

Dividends paid to equity holders


(4,762)

(2,913)

Net cash flow generated from financing activities


38,971

76,865





Net increase in cash and cash equivalents for the period


6,480

1,600

Cash and cash equivalents at start of period


3,280

1,680

Cash and cash equivalents at end of period


9,760

3,280

 

 

Company Cash Flow Statement



Year ended

Year ended



31 Mar 19

31 Mar 18


Note

£'000

£'000

Cash flows from operating activities




Profit for the period (attributable to equity shareholders)


4,843

2,393

Add: amortisation of intangible assets


4

-

Less: finance income


(3)

(2)

Long-term investment plan


119

657

Increase in trade and other receivables


(10)

(4)

Increase in trade and other payables


397

114

Cash generated from operations


5,350

3,158





Net cash flow generated from operating activities


5,350

3,158





Investing activities




Increase in loan due from group undertakings


(21,070)

(51,499)

Purchase of intangible assets


(26)

-

Net cash flow used in investing activities


(21,096)

(51,499)





Financing activities




Proceeds from issue of ordinary share capital


20,400

53,053

Proceeds from issue of warrant shares


2,430

-

Cost of share issue


(664)

(1,826)

Interest received


3

2

Dividends paid to equity holders


(4,762)

(2,913)

Net cash flow generated from financing activities


17,407

48,316





Net increase in cash and cash equivalents for the period


1,661

(25)

Cash and cash equivalents at start of period


41

66

Cash and cash equivalents at end of period


1,702

41





 

 

Consolidated Statement of Changes in Equity


Share capital

Share premium

Share warrant reserves

Other reserves

Retained earnings

Total

Year ended 31 March 2019

£'000

£'000

£'000

£'000

£'000

£'000

1 April 2018

681

71,832

89

75

11,529

84,206








Profit for the period

-

-

-

-

18,747

18,747

Total comprehensive income

-

-

-

-

18,747

18,747








Dividends to shareholders

-

-

-

-

(4,762)

(4,762)

Long term incentive plan

-

-

-

119

-

119

Issue of Ordinary Shares

171

19,565

-

-

-

19,736

Redemption of Warrant Shares

25

2,480

(75)

-

-

2,430

31 March 2019

877

93,877

14

194

25,514

120,476








Year ended 31 March 2018







1 April 2017

215

20,454

91

34

4,577

25,371








Profit for the period

-

-

-

-

9,865

9,865

Total comprehensive income

-

-

-

-

9,865

9,865








Dividends to shareholders

-

-

-

-

(2,913)

(2,913)

Long term incentive plan

-

-

-

657

-

657

Crystallisation of long-term incentive plan

5

611

-

(616)

-

-

Issue of Ordinary Shares

461

50,767

-

-

-

51,228

Redemption of Warrant Shares

-

-

(2)

-

-

(2)

31 March 2018

681

71,832

89

75

11,529

84,206

 

 

Company Statement of Changes in Equity


Share capital

Share premium

Share warrant reserves

Other reserves

Retained earnings

Total

Year ended 31 March 2019

£'000

£'000

£'000

£'000

£'000

£'000

1 April 2018

681

71,832

89

75

1,634

74,311








Profit for the period

-

-

-

-

4,843

4,843

Total comprehensive income

-

-

-

-

4,843

4,843








Dividends to shareholders

-

-

-

-

(4,762)

(4,762)

Long term incentive plan

-

-

-

119

-

119

Issue of Ordinary Shares

171

19,565

-

-

-

19,736

Redemption of Warrant Shares

25

2,480

(75)

-

-

2,430

31 March 2019

877

93,877

14

194

1,715

96,677








Year ended 31 March 2018







1 April 2017

215

20,454

91

34

2,154

22,948








Profit for the period

-

-

-

-

2,393

2,393

Total comprehensive income

-

-

-

-

2,393

2,393








Dividends to shareholders

-

-

-

-

(2,913)

(2,913)

Long term incentive plan

-

-

-

657

-

657

Crystallisation of long-term incentive plan

5

611

-

(616)

-

-

Issue of Ordinary Shares

461

50,767

-

-

-

51,228

Redemption of Warrant Shares

-

-

(2)

-

-

(2)

31 March 2018

681

71,832

89

75

1,634

74,311








 

 

Notes to the Results

 

Financial information contained in this document does not constitute statutory accounts within the meaning of section 435 of Companies Act 2006 (the "Act").

 

The financial information set out in this announcement does not comprise the Group's statutory accounts for the year ended 31 March 2019.

 

The statutory accounts for the year ended 31 March 2019 have not yet been delivered to the Registrar of Companies, nor have the auditors yet reported on them.

 

1. Corporate information

Urban Logistics REIT plc, previously Pacific Industrial & Logistics REIT plc, (the "Company") and its subsidiaries (the "Group") carry on the business of property lettings throughout the United Kingdom. The Company is a public limited company incorporated and domiciled in England and Wales and listed on the AIM Market of The London Stock Exchange. The registered office address is 124 Sloane Street, London, SW1X 9BW.

 

2. Basis of preparation

The financial statements have been prepared in accordance with IFRS as adopted by the European Union and, as regards the parent company financial statements, applied in accordance with the provisions of the Companies Act 2006.

 

The Group's financial information has been prepared on a historical cost basis, except for investment property and derivative interest rate caps which have been measured at fair value.

 

The functional currency of the Group is considered to be pounds sterling as this is the currency of the primary environment in which the company operates.

 

The Company has not presented its own Statement of Comprehensive Income, as permitted by Section 408 of the Companies Act 2006. The Company made a profit of £4.84 million.

 

Going concern

The Directors have reviewed the current and projected financial position of the Group, making reasonable assumptions about future trading performance. As part of the review, the Group has considered its cash balances, its debt maturity profile, including undrawn facilities, and the long-term nature of the tenant leases.

 

On the basis of this review, and after making due enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis is preparing the Annual Report and financial statements.

 

Standards in issue and effective from 1 April 2018

The Group and the Company have adopted IFRS 15: Revenue from Contracts with Customers and IFRS 9: Financial instruments for the year ended 31 March 2019. The Group earns revenue from rental income, therefore IFRS 15 is not significant for the Group or Company. In respect of IFRS 9, the Group and Company adopted the expected credit loss model when calculating impairment losses on financial assets carried at amortised cost. Details of these are provided in note 15 to the financial statements.

 

Standards issued but not yet effective

The company has not yet applied the following new and revised IFRSs that have been issued but are not yet effective:

·      IFRS 16 "Leases" will be effective for the year ending March 2020 onwards.

The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application, other than on presentation and disclosure.

 

3. Significant accounting judgements, estimates and assumptions

The preparation of the financial statements in conformity with the generally accepted accounting practices requires management to make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the statement of financial position date and the reported amounts of revenue and expenses during the reporting period.

 

Critical accounting judgements

Business combinations

The Group acquires subsidiaries that own real estate. At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property.

 

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 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.

 

Key sources of estimation uncertainty

Fair value of investment property

The market value of investment property is determined by real estate valuation experts, to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. Each property has been valued on an individual basis. The valuation experts use recognised valuation techniques and the principles of IFRS 13.

 

The valuations have been prepared in accordance with RICS Valuation - Global Standards July 2017 (the "Red Book"). Factors reflected include current market conditions, annual rentals, lease lengths and location. The significant methods and assumptions used by the valuers in estimating the fair value of investment property are set out in note 13.

 

4. Principal accounting policies

The principal accounting policies applied in the preparation of these interim financial statements are set out below. These policies, which are also applicable to the financial statements of the Company, have been consistently applied to all the years presented.

 

Basis of consolidation

The financial statements consolidate the accounts of the Company and all subsidiary undertakings drawn up to the same year end.

 

Business combinations

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. At the Group level, acquisition costs are recognised in the Statement of Comprehensive income as incurred.

 

The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date.

 

Subsidiaries are entities which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

 

Subsidiary entities are consolidated from the date on which control is transferred to the Group and are deconsolidated from the date on which control ceases. In respect of subsidiaries, inter-company transactions and unrealised gains on intra-group transactions are eliminated on consolidation.

 

The financial information of the subsidiaries is prepared for the same reporting periods as the parent company, using consistent accounting policies.

 

Investment in subsidiaries

Investments in subsidiaries are stated at cost less any provision for permanent diminution in value. Realised gains and losses are dealt with through the Statement of Comprehensive Income. A review for impairment is carried out if events or changes in circumstances indicate that the carrying amount may not be recoverable, in which case an impairment provision is recognised and charged to the Statement of Comprehensive Income.

 

Borrowing costs

Borrowing costs in relation to interest charges on bank borrowings are expensed in the period to which they relate. Fees incurred in relation to the arrangement of bank borrowings are capitalised and expensed on a straight-line basis over the term of the loan.

 

Segmental reporting

IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reported to the Board to allocate resources to the segments and to assess their performance. The directors consider there to be only one reportable segment, being the investment in the United Kingdom into small logistics warehouses.

 

Investment properties

Investment properties comprises completed property that is held to earn rentals or for capital appreciation or both.

 

Investment properties are initially recognised at cost including transactions costs. Transaction costs include transfer taxes and professional fees for legal services. Subsequent to initial recognition investment properties are carried at fair value, as determined by real estate valuation experts. Gains or losses arising from change in fair value is recognised in the statement of comprehensive income in the period in which they arise.

 

On disposal of an investment property, the difference between the disposal proceeds and the carrying amount is recognised in the statement of comprehensive income.

 

Financial instruments

Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

 

Financial assets

Investments other than investments in subsidiaries are classified as either held-for-trading or not at initial recognition. At the year-end date all investments are classified as not held f or trading. An irrevocable election has been made to recognise changes in fair value in other comprehensive income.

 

Trade receivables are held in order to collect the contractual cash flows and are initially measured at the transaction price as defined in IFRS 15, as the contracts of the Group do not contain significant financing components. Impairment losses are recognised based on lifetime expected credit losses in profit or loss.

 

Other receivables are held in order to collect the contractual cash flows and accordingly are measured at initial recognition at fair value, which ordinarily equates to cost and are subsequently measured at cost less impairment due to their short-term nature.  A provision for impairment is established based on 12-month expected credit losses unless there has been a significant increase in credit risk when lifetime expected credit losses are recognised.  The amount of any provision is recognised in profit or loss.

 

Financial liabilities

Financial liabilities, equity instruments and warrant instruments issued by the Group are classified in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

 

Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost using the effective interest rate method.

 

Derivative financial instruments

Derivative financial instruments, comprising interest rate caps and swaps for hedging purposes, are initially recognised at cost 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.

 

The gain or loss at each fair value measurement date is recognised in the statement of comprehensive income. Premiums payable under such arrangements are initially capitalised into the statement of financial position, subsequently they are remeasured and held at their fair values.

 

Hedge accounting has not been applied in these financial statements.

 

Revenue recognition

Rental income from operating leases on properties owned by the Group is accounted for on a straight-line basis over the term on the lease. Rental income excludes service charges and other costs directly recoverable from tenants.

 

Lease incentives are amortised on a straight-line basis over the term of the lease.

 

Leases

Leases where substantially all of the risks and rewards of ownership are transferred to the lessee are classified as finance leases. All others are deemed operating leases. Property interests held under operating leases which meet the definition of investment properties are carried, as such, at fair value with the related lease treated as a finance lease.

 

Long-term incentive plan

There is a long-term incentive plan ("LTIP") in place whereby Pacific Industrial LLP, an affiliate of Pacific Capital Partners Limited (the "Manager") has subscribed for B Ordinary Shares and C Ordinary Shares issued in Pacific Industrial & Logistics Limited, a subsidiary of Urban Logistics REIT plc (the "Company"). Under the terms of the LTIP, the Company is obliged to acquire the B Ordinary Shares and C Ordinary Shares in Pacific Industrial & Logistics Limited, in return for services provided by Pacific Industrial LLP, subject to certain conditions.

 

The fair value of the LTIP is calculated at the grant date using the Monte Carlo Model. The resulting cost is charged to the Statement of Comprehensive Income over the vesting period. The value of the charge is adjusted to reflect expected and actual levels of vesting. Further details have been provided in note 11.

 

Taxation

Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and deferred tax. Current tax is expected tax payable on any non-REIT taxable income for the period, using tax rates enacted or substantively enacted at the period end date, and any adjustment to tax payable in respect of previous years.

 

Dividends

Dividends on equity shares are recognised when they become legally payable. In the case of interim dividends, this is when paid. In the case of final dividends, this is when approved by the shareholders at the Annual General Meeting.

 

5. Revenue

The Group is involved in UK property ownership and letting and is considered to operate in a single geographical and business segment. The total revenue of the Group for the year was derived from its principal activity, being that of property lettings.

 

For the year to 31 March 2019, there were two tenants who accounted for 13% and 10% of the Group's gross rental income.

 

6. Operating profit

Operating profit is stated after charging:


 31 Mar 19

31 Mar 18


£'000

£'000

Directors' remuneration (note 7)

162

128

Long-term incentive plan (note 11)

119

657

Auditor's fees



- Fees payable for the audit of the Company's annual accounts

18

15

- Fees payable for the ISRE 2410 review of the Company's interim accounts

13

13

- Fees payable for the audit of the Company's subsidiaries

51

56

- Fees payable for other services

59

4

Total Auditor's fee

141

88

 

In addition to the above, Smith & Williamson also received £15k in respect of providing reporting accountant services in connection with the Company's public offering in April 2018. These fees have been treated as share issue expenses and offset against share premium.

 

7. Directors' remuneration


31 Mar 19

31 Mar 18


£'000

£'000

Directors' fees

145

114

Employer's National Insurance

17

14


162

128

 

A summary of the Directors' emoluments, including the disclosures required by the Companies Act 2006, is set out in the Directors' Report. Two directors are also set to benefit from the Long-term incentive plan (LTIP). For further information refer to related party transactions in note 28.

 

8. Finance expense


31 Mar 19

31 Mar 18


£'000

£'000

Interest on bank borrowings

1,853

781

Amortisation of loan arrangement fees

357

148


2,210

929

 

9. Taxation

As a REIT, the Group is exempt from corporation tax on the profits and gains from its property investment business, provided it continues to meet certain conditions as per REIT regulations. For the year ending 31 March 2019, the Group did not have any non-qualifying profits and accordingly there is no tax charge in the period. Any non-qualifying profits and gains however will continue to be subject to corporation tax.

 

10. Earnings per share

The calculation of the basic earnings per share ("EPS") was based on the profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the period, in accordance with IAS 33.

 


31 Mar 19

31 Mar 18


£'000

£'000

Profit attributable to Ordinary Shareholders



Total comprehensive income (£'000)

18,747

9,865

Weighted average number of Ordinary Shares in issue

84,734,355

50,473,801

Basic earnings per share (pence)

22.12p

19.54p

Number of diluted shares under option/warrant

89,866

88,860

Weighted average number of Ordinary Shares for the purpose of dilutive earnings per share

84,824,221

50,562,661

Diluted earnings per share (pence)

22.10p

19.51p

Adjustments to remove:



Changes in fair value of investment property (£'000)

(13,352)

(7,194)

Changes in fair value of interest rate derivatives (£'000)

709

(134)

Profit on disposal of investment properties

(160)

(57)

EPRA earnings (£'000)

5,944

2,480

EPRA diluted earnings per share

7.01p

4.91p

Adjustments to add back:



LTIP crystallisation

-

616

Adjusted earnings (£'000)

5,944

3,096

Adjusted earnings per share

7.01p

6.12p

 

The ordinary number of shares is based on the time weighted average number of shares throughout the period.

 

At 31 March 2019, the Company had 457,250 warrant shares in issue. Each warrant holder has the right to subscribe for new Ordinary shares on the basis of one new Ordinary share for each warrant held at a strike price of 97.0 pence per Ordinary share. The dilutive nature of the share is 3.0 pence per share.

 

11. Long-Term Incentive Plan ("LTIP")

The Company has a LTIP, accounted for as an equity settled share-based payment. At 31 March 2019, Pacific Industrial LLP, an affiliate of Pacific Capital Partners Limited, has subscribed for 1,000 B Ordinary Shares of £0.01 each and 1,000 C Ordinary Shares of £0.01 each issued in Urban Logistics Holdings Limited (formerly Pacific Industrial & Logistics Limited), a subsidiary of the Company.

 

Date options granted

Class of Share

Fair Value at Grant

Charge for the Year



 £'000

 £'000

April 2016

B Ordinary

307

98

August 2017

C Ordinary

131

21




119

 

The LTIP has an EPRA NAV element and a share price element and will be assessed on: i) 30 September 2020 (the "First Calculation Date") and ii) 30 September 2023 (the "Second Calculation Date"). The EPRA NAV element will be 10 per cent. of the excess of the EPRA NAV per Ordinary Share return, including dividends, over an annualised 9 per cent. hurdle, multiplied by the number of Ordinary Shares in issue at the relevant calculation date. The share price element will be 10 per cent. of the excess of the share price return, including dividends, over an annualised 9 per cent. hurdle, multiplied by the number of Ordinary Shares in issue at the relevant calculation date.

 

At the First Calculation Date, the share price element and the EPRA NAV element hurdle will be calculated by reference to the Placing Price of 115.0 pence.

 

At the Second Calculation Date, if a payment has been made at the First Calculation Date under either element, the hurdle for that element at the Second Calculation Date will be re-set to be based on the prevailing EPRA NAV per Ordinary Share/share price as at the First Calculation Date (as applicable). If no payment is made under an element at the First Calculation Date, then the hurdle for that element will continue to be calculated by reference to the Placing Price of 115.0 pence.

 

The LTIP will be paid in shares of Urban Logistics REIT plc or, at the Board's discretion, in cash.

 

12. Dividends


Year ended

Year ended


31 Mar 19

31 Mar 18


£'000

£'000

Ordinary dividends paid



2017 Second interim dividend: 3.00p per share

-

644

2017 Third interim dividend: 0.23p per share

-

157

2018 Interim dividend: 1.00p per share

-

681

2018 Special interim dividend: 2.10p per share

-

1,430

2018 Third interim dividend: 3.20p per share

2,180

-

2018: Fourth interim dividend: 0.02p per share

17

-

2019: First interim dividend: 2.98p per share

2,565

-




Total dividends paid

4,762

2,912

 

The Company has declared a second interim dividend of 4.02 pence per Ordinary Share in respect of the financial year ended 31 March 2019. The dividend will be paid as a property income distribution ("PID") on 28 June 2019 to shareholders on the register at the close of business on 7 June 2019. The ex-dividend date will be 6 June 2019.

 

13. Investment properties

In accordance with IAS 40 "Investment Property", investment property is carried at its fair value as determined by an external valuer. This valuation has been conducted by CBRE and has been prepared as at 31 March 2019, in accordance with the RICS valuation - Global Standards July 2017 (the "Red Book").

 

The valuations have been prepared in accordance with those recommended by the International Valuation Standards Committee and are consistent with the principles in IFRS 13.

 


Investment properties freehold

Investment properties leasehold

Total


£'000

£'000

£'000

As at 1 April 2018

106,100

25,750

131,850

Property additions through acquisitions

51,960

128

52,088

Disposals in year

(7,700)

(3,170)

(10,870)

Change in fair value during the period

10,970

2,382

13,352

As at 31 March 2019

161,330

25,090

186,420





 

Total rental income for the year recognised in the Consolidated Statement of Comprehensive Income amounted to £10.77 million (Mar 2018: £5.56 million).

 

Further information relating to property valuation techniques have been disclosed in note 20.

 

14. Investments

Investments are analysed as follows:

 


Group

 Company


 £'000

 £'000

At 1 April 2018

-

11,800

Increase in investments via share purchase

-

82,000




 At 31 March 2019

-

93,800

 

Details of the Group's subsidiary undertakings as at 31 March 2019, all of which are included in the consolidated financial statements, are given below:

 

Company Name

Country of Incorporation

Principal Activity

Effective Group Interest

Pacific Industrial & Logistics Limited

England and Wales

Holding Company

99.99%

Pacific Industrial & Logistics Acquisitions (1) Limited

England and Wales

Holding Company

99.99%

 

Pacific Industrial & Logistics Acquisitions 2 Limited

England and Wales

Property Investment

99.99%

 

Alanchoice Limited

England and Wales

Property Investment

99.99%

Sheds General Partner 2 Limited *

England and Wales

Dormant

99.99%

Sheds GP Nominee Co. 1 Limited *

England and Wales

Dormant

99.99%

Sheds GP Nominee Co. 2 Limited *

England and Wales

Dormant

99.99%

Sheds Prop 4 S.a.r.l

Luxembourg

Dormant

99.99%

Sheds YPL (Investments) Limited *

Guernsey

Dormant

99.99%

Sheds YPL (Investments II) Limited *

Guernsey

Dormant

99.99%

Sheds YPL (Investments III) Limited *

Guernsey

Dormant

99.99%

 

Registered office address for companies incorporated in England and Wales; 124 Sloane Street, London, SW1 X9BW

 

Registered office address for companies incorporated in Guernsey companies; 11 New Street, St Peter Port, Guernsey GY1 2PF.

 

Registered office address for companies incorporated in Luxembourg companies: 14, Rue Edward Steichen, L-2540 Luxembourg

 

Pacific Industrial LLP, an affiliate of the Manager, owns 0.02% of the issued share capital in Pacific Industrial & Logistics Limited. These shares have no right to dividends, therefore, no amounts have been recognised within non-controlling interests.

 

* At 31 March 2019, these companies were in liquidation.

 

15. Trade and other receivables


Group

Company

Group

Company


31 Mar 19

31 Mar 19

31 Mar 18

31 Mar 18


£'000

£'000

£'000

£'000

Trade receivables

644

7

194

-

Other receivables

459

-

34

-

Amounts due from group undertakings

-

1,877

-

62,807

Prepayments

428

13

357

9







1,531

1,897

585

62,816

 

Trade receivables are due within 30 days of the date at which the invoice is generated and are not interest bearing in nature. All trade receivables relate to amounts that are less than 30 days overdue as at the year end date. Due to their short maturities, the fair value of trade and other receivables approximates their fair value.

 

Amounts due from group undertakings have been issued without terms and are interest free, therefore, the full amount has been recognised within trade and other receivables due within one year.

 

Trade receivables comprise rental income which is due on contractual quarter days. At 31 March 2019, £644,028 (2018: £194,226) was due from tenants. A provision for impairment of trade receivables is established using an expected credit losses model. Expected loss is calculated from a provision matrix based on the expected lifetime default rates and estimates of loss on default. The calculation resulted in no allowance for bad debt needing to be recognised in the accounts.

 

Included within Other receivables is £344,673 (2018: £18,370) in relation to the unamortised lease incentives associated with entering into tenant leases. The year on year increase is a result of an increased number of new lettings for the current financial year.

 

16. Cash and cash equivalents

 


Group

Company

Group

Company


31 Mar 19

31 Mar 19

31 Mar 18

31 Mar 18


£'000

£'000

£'000

£'000

Cash and cash equivalents

9,760

1,702

3,280

41







9,760

1,702

3,280

41

 

Group cash and cash equivalents available include £0.95 million (Mar 2018: £0.67 million) of restricted cash in the form of rental deposits held on behalf of tenants.

 

17. Trade and other payables


Group

Company

Group

Company


31 Mar 19

31 Mar 19

31 Mar 18

31 Mar 18


£'000

£'000

£'000

£'000

Falling due in less than one year










Trade and other payables

406

352

693

302

Social security and other taxes

450

173

110

10

Accruals

746

178

647

34

Other creditors

206

41

40

-







1,808

744

1,490

346






 

The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. Due to their short maturities, the fair value of trade and other payables approximates their fair value.

 

Social security and other taxes relate solely to the Group's net VAT position with HMRC at the balance sheet date. At 31 March 2019, the Group owed £450,057 (2018: £110,461) to HMRC. The year on year increase is largely driven by the increased VAT arising on contractual rental income.

 

18. Bank borrowings and reconciliation of liabilities to cash flows from financing activities


Bank borrowings


£'000

Balance at 1 April 2018

47,672

Bank borrowings drawn in the year

28,931

Bank borrowings repaid in the year

(4,930)

Loan arrangement fees paid

(610)



Non-cash movements:


Amortisation of loan arrangement fees

357

Total bank borrowings per the Consolidated Group Statement of Financial Position

71,420



Being:


Drawn debt

72,594

Unamortised loan arrangement fees

(1,174)

Total bank borrowings per the Consolidated Group Statement of Financial Position

71,420



 

On 5 December 2018, the Group, Santander UK plc and Barclays Bank plc entered into a facility agreement pursuant to which Santander UK plc has agreed to provide the Group with a loan facility of £72.6 million for a term of five years.

 

19. Interest rate derivatives

The Group has used interest rate swaps to mitigate exposure to interest rate risk. The total fair value of these contracts are recorded in the statement of financial position. The interest rate derivatives are marked to market by the relevant counterparty banks on a quarterly basis. Any movement in the fair value of the interest rate derivatives are taken to finance costs in the statement of comprehensive income.

 


Year ended

Year ended


31 Mar 19

31 Mar 18


£'000

£'000

Non-current liabilities: derivative interest rate swaps:



At beginning of period

19

(115)

Change in fair value in the period

(709)

134


(690)

19

 

20. Financial risk management

Financial instruments - Group

The Group's financial instruments comprise financial assets and liabilities that arise directly from its operations; cash and cash equivalents, trade and other receivables, trade and other payables, interest rate derivative and bank borrowings. The main purpose of these financial instruments is to provide finance for the acquisition and development of the Group's investment property portfolio.

 


Book Value

Fair Value

Book Value

Fair Value


31 Mar 19

31 Mar 19

31 Mar 18

31 Mar 18


£'000

£'000

£'000

£'000

Financial assets





Trade receivables

651

651

194

194

Cash and short-term deposits

9,760

9,760

3,280

3,280

Interest rate derivatives

-

-

19

19

Financial liabilities





Trade and other payables

(2,309)

(2,309)

(2,052)

(2,052)

Bank loans

(71,420)

(72,594)

(47,672)

(48,593)

Interest rate derivatives

(690)

(690)

-

-






 

Credit risk

Credit risk is the risk of financial loss to the Group if a client or counterparty fails to meet it contractual obligations.

 

The Group's credit risk is primarily attributable to its trade receivables. The Group has implemented policies that require appropriate credit checks on potential tenants before lease agreements are signed. The amount of exposure to any individual counterparty is subject to a limit, which is reassessed annually by the board.

 

Outstanding trade receivables are regularly monitored. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial asset.

 

Interest rate risk

The Group has both interest-bearing assets and interest-bearing liabilities. Interest bearing assets comprise only cash and cash equivalents which earn interest at a variable rate. The Group's debt strategy is to minimise the effect of a significant rise in underlying interest rates by utilising interest rate swaps.

 

The directors will revisit the appropriateness of this policy should the Group's operations change in size or nature.

 

Details of the terms of the Group's borrowings are disclosed in note 18.

 

Market risk

Market risk is the risk that the fair values of financial instruments will fluctuate due to changes in market prices. The financial instruments held by the Group that are affected by market risk are principally the Group's cash balances along with an interest rate cap entered into to mitigate interest rate risk.

 

Liquidity risk

The Group actively maintains a medium-term debt finance that is designed to ensure it has sufficient available funds for operations and committed investments. The Group monitors its levels of working capital to ensure that it can meet its debt repayments as they fall due.

 

The following table shows the contractual maturities of the Group's financial liabilities, all of which are measured at amortised cost:

 


6 months or less

6-12 months

1-2 years

2-5 years

More than 5 years

Total


£'000

£'000

£'000

£'000

£'000

£'000

31 March 2019







Bank borrowings

1,075

1,075

2,219

79,259

-

83,628

Trade and other payables

1,808

-

-

951

-

2,759


2,883

1,075

2,219

80,210

-

86,387

31 March 2018







Bank borrowings

733

734

1,436

52,858

-

55,761

Trade and other payables

1,490

-

-

672

-

2,162


2,223

734

1,436

53,530

-

57,923

 

Included within the contracted payments is £11.03 million bank interest payable up to the point of maturity across the facility

 

Included in trade and other payables is £951k (2018: £672k) in relation to rent deposits held with respect to three tenants.

 

Financial instruments - Company

The Company's financial instruments comprise amounts due from group undertakings, cash and cash equivalents and trade and other payables.

 


Book Value

Fair Value

Book Value

Fair Value


31 Mar 19

31 Mar 19

31 Mar 18

31 Mar 18


£'000

£'000

£'000

£'000

Financial assets





Trade and other receivables

1,884

1,884

62,807

62,807

Cash and short-term deposits

1,702

1,702

41

41

Financial liabilities





Trade and other payables

(744)

(744)

(346)

(346)

 

Fair value hierarchy

The company uses the following hierarchy for determining the fair value of financial instruments:

 

Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities.

 

Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.

 

Level 3: inputs for the asset or liability that are derived from formal valuation techniques that include inputs for the asset or liability that are not based on observable market data.

 

Investment property - level 3

The Group's investment property assets are classified as level 3, as defined by IFRS 13, in the fair value hierarchy. Level 3 inputs for the asset or liability that are derived from formal valuation techniques that include inputs for the asset or liability that are not based on observable market data.

 

The valuation has been prepared on the basis of Fair Value (FV), in accordance with IFRS 13, which is defined 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."

 

Fair value, for the purpose of financial reporting under IFRS 13, is effectively the same as Market Value, which is defined as:

 

"The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion."

 

Various assumptions were made in the determination of the Market Value, namely; tenure, letting, taxation, town planning and the condition and repair of the properties and sites.

 

A 5% increase in Estimated Rental Value ("ERV") would increase the property portfolio valuation by £9.33m and a 5% decrease would decrease the property portfolio valuation by £9.33m. Similarly, a decrease in Net Initial Yield ("NIY") by 0.25% would increase the property portfolio valuation by £8.30m and an increase of 0.25% would decrease the property portfolio valuation by £7.62m.

 

21. Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and continues to qualify for UK REIT status.

 

The Group defines capital as being share capital plus reserves. The Board of Directors monitors the level of capital as compared to the Group's debt facility and adjusted the ratio of debt to capital as is determined to be necessary, by issuing new shares, reducing or increasing debt, paying dividends and returning capital to shareholders.

 

The Directors intend that the Group will maintain a conservative level of aggregate borrowings with a medium-term target of 35-40% of the Group's gross assets.

 

22. Share capital


31 Mar 19

31 Mar 19


Number

£'000

Issued and fully paid up at 1p each

87,690,604

877

At beginning of period

68,114,724

681

Issued and fully paid - 26 April 2018

17,071,130

171

Issued and fully paid - 1 May 2018

521,964

5

Issued and fully paid - 12 September 2018

373,000

4

Issued and fully paid - 22 November 2018

20,000

-

Issued and fully paid - 12 March 2019

106,750

1

Issued and fully paid - 27 March 2019

1,483,036

15

At 31 March 2019

87,690,604

877




 

On 26 April 2018, the Company raised £20.4 million through the issue of 17,071,130 Ordinary Shares at an issue price of 119.50 pence per share.

 

On 1 May 2018, 521,964 warrant shares were redeemed for an issue price of 97.0 pence per share.

 

On 12 September 2018, 373,000 warrant shares were redeemed for an issue price of 97.0 pence per share.

 

On 22 November 2018, 20,000 warrant shares were redeemed for an issue price of 97.0 pence per share.

 

On 12 March 2019, 106,750 warrant shares were redeemed for an issue price of 97.0 pence per share.

 

On 27 March 2019, 1,483,036 warrant shares redeemed for an issue price of 97.0 pence per share.

 

At 31 March 2019, there were 457,250 warrant shares in issue. Each warrant holder has the right to subscribe for Ordinary Shares on the basis of one new Ordinary Share for each warrant held at a strike price of 97.0 pence per Ordinary Share.

 

23. Share premium

Share premium relates to amounts subscribed for share capital in excess of nominal value less any associated issue costs that have been capitalised.

 


 31 Mar 19

 31 Mar 18


 £'000

 £'000

Balance brought forward

71,832

20,454

Share premium on the issue of ordinary shares

22,709

52,593

Crystallisation of LTIP - Ordinary A shares

-

611

Share issue costs

(664)

(1,826)


93,877

71,832

 

24. Share warrant reserve

This reserve relates to the warrant shares issued upon admission to the AIM Market of The London Stock Exchange in April 2016.

 


31 Mar 19

31 Mar 19


Number

£'000

At beginning of the year

2,962,000

89

Redeemed - 1 May 2018

(521,964)

(16)

Redeemed - 12 September 2018

(373,000)

(11)

Redeemed - 22 November 2018

(20,000)

(1)

Redeemed - 12 March 2019

(106,750)

(3)

Redeemed - 27 March 2019

(1,483,036)

(44)

At 31 March 2019

457,250

14

 

At 31 March 2019, there were 457,250 (2018: 2,962,000) warrant shares in issue. Each warrant holder has the right to subscribe for new Ordinary shares on the basis of one new Ordinary share for each warrant held at a strike price of 97.0 pence per Ordinary share.

 

Post year end, a further 61,000 warrant shares were exercised for a strike price of 97.0 pence per Ordinary Share. The remaining 396,250 warrant shares expired on 13 April 2019.

 

25. Operating leases

The Group as lessor

Future aggregate minimum rentals receivable under non-cancellable operating leases are:

 


< 1 year

2 - 5 years

> 5 years

Total


£'000

£'000

£'000

£'000

31 March 2019

11,151

27,387

23,957

62,495

 


< 1 year

2 - 5 years

> 5 years

Total


£'000

£'000

£'000

£'000

31 March 2018

7,599

23,082

7,020

37,701

 

26. Retained earnings

Retained earnings relates to net gains and losses less distributions to owners not recognised elsewhere.

 


Group

Company


31 Mar 19

31 Mar 19


£'000

£'000

Balance at the beginning of the period

11,529

1,634

Retained profit for the period

18,747

4,843

Third interim dividend for the year ended 31 March 2018

(2,180)

(2,180)

Fourth interim dividend for the year ended 31 March 2018

(17)

(17)

First interim dividend for the year ended 31 March 2019

(2,565)

(2,565)




Balance at end of period

25,514

1,715

 

27. Related party transactions

The terms and conditions of the Investment Management Agreement are described in the Management Engagement Committee Report. During the year, the amount paid for services provided by Pacific Capital Partners Limited (the "Manager") totalled £1.05 million. The total amount outstanding at the year end relating to the Investment Management Agreement was £0.34 million.

 

Long-term incentive plan

Under the terms of the Company's long-term incentive plan, at 31 March 2019 Pacific Industrial LLP, an affiliate of Pacific Investments Limited had subscribed for shares in Pacific Industrial & Logistics Limited, a subsidiary of Urban Logistics REIT plc. Further details have been provided in note 11.

 

M1 Agency LLP

During the year, the Group incurred fees totalling £679,665 from M1 Agency LLP, a partnership in Richard Moffitt is a member. These fees were incurred in the acquisition of investment properties, sale of three investment properties and two re-lettings.

 

For the transactions listed above, Richard Moffitt's benefit derived form the profit allocation he receives from M1 Agency LLP as a member and not from the transaction.

 

The Board, with the assistance of the Manager, excluding Richard Moffitt, review and approve each fee payable to M1 Agency LLP, and ensure the fees are in line with market rates and on standard commercial property terms.

 

Transactions with subsidiaries

Under IFRS, we are required to disclose all inter-company transactions that took place for all subsidiary undertakings of the Company. Transactions between the Company and its subsidiaries are in the normal course of business. Such transactions are eliminated on consolidation.

 

During the year fees of £1,743,805 were charged to Pacific Industrial & Logistics Acquisitions (1) Limited, a subsidiary undertaking incorporated in England and Wales, from Urban Logistics REIT plc. At 31 March 2019, £nil was due from Pacific Industrial & Logistics Acquisitions (1) Limited.

 

During the year, Urban Logistics REIT plc carried out transactions with Pacific Industrial & Logistics Limited, a subsidiary undertaking incorporated in England and Wales. The total amount of these transactions was a net loan decrease of £60,930,021 (2018: increase of £51,499,288). At 31 March 2019, Urban Logistics REIT plc was due £1,876,858 (2018: £62,806,879) from Pacific Industrial & Logistics Limited.

 

During the year, Urban Logistics REIT plc received a dividend of £5,000,000 from Pacific Industrial & Logistics Limited.

 

28. Net asset value per share (NAV)

Basic NAV per share is calculated by dividing net assets in the Consolidated Statement of Financial Position attributable to Ordinary shareholders by the number of Ordinary shares outstanding at the end of the period.

 

Net Asset Values have been calculated as follows:

 


31 Mar 19

31 Mar 18

Net assets per Condensed Statement of Financial Position (£'000)

120,476

84,206

Add:



Cash received from issued share warrants (£'000)

444

2,873

Diluted NAV (£'000)

120,920

87,079

Adjustment for:



Fair value of interest rate derivatives (£'000)

690

(19)

EPRA NAV (£'000) - basic

121,166

84,187

EPRA NAV (£'000) - diluted

121,610

87,060

Ordinary shares:



Number of Ordinary shares in issue at period end

87,690,604

68,114,724

Number of Ordinary shares for the purposes of dilutive Net Asset Value per share at period end

88,147,854

71,076,724

Basic NAV

137.39p

123.62p

EPRA NAV - basic

138.17p

123.60p

Diluted NAV

137.18p

122.51p

EPRA NAV - diluted

137.96p

122.49p

 

29. Post Balance Sheet Events

 

On 5 April 2019, the Group completed the sale of a property located in Nuneaton for £8.1 million. The property was sold to an owner occupier, Cofresh Limited, and realised a Total Property Return of 38%.

 

On 5 April 2019, the Group purchased a logistics property in Thatcham for a total consideration of £3.4 million, representing a net initial yield of 5.9%. The site has a rent of £7.97 per sq. ft. and a reversionary yield of c. 7.0%.

 

Post year end, a further 61,000 warrant shares were exercised for a strike price of 97.0 pence per Ordinary Share. The remaining 396,250 warrant shares expired on 13 April 2019.

 

On 17 May 2019, the Group completed the sale of a site located on Postley Road, Bedford for £9.2 million realising a Total Property Return of 74.2%.

 

Supplementary information

 

i. EPRA performance measures summary


31 Mar 19

31 Mar 18


£'000

£'000

EPRA earnings per share (diluted)

7.01p

4.91p

EPRA net asset value per share (diluted)

137.96p

122.49p

EPRA triple net asset value per share (diluted)

137.18p

122.51p

EPRA net initial yield

5.9%

5.9%

EPRA 'topped up' net initial yield

6.1%

6.1%

EPRA vacancy rate

0.0%

6.7%

EPRA cost ratio (including vacant property costs)

23.5%

29.0%

EPRA cost ratio (excluding vacant property costs)

17.5%

20.1%

 

ii. Income statement


31 Mar 19

31 Mar 18


£'000

£'000

Gross rental income

10,771

5,564

Property operating costs

(694)

(561)

Net rental income

10,077

5,003

Administrative expenses

(1,833)

(1,074)

Other income

-

133

Long-term incentive plan charge

(119)

(657)

Operating profit before interest and tax

8,125

3,405

Net finance costs

(2,181)

(925)

Profit before tax

5,944

2,480

Tax on EPRA earnings

-

-

EPRA earnings

5,944

2,480

 

iii. Balance sheet


31 Mar 19

31 Mar 18


£'000

£'000

Investment property

186,420

131,850

Other net assets/(liabilities)

6,166

9

Net borrowings

(71,420)

(47,672)

EPRA net assets

121,166

84,187

 

iv. EPRA net initial yield and 'topped up' net initial yield


31 Mar 19

31 Mar 18


£'000

£'000

Investment property - wholly owned

186,420

131,850

Completed property portfolio

186,420

131,850

Add:



Allowance for estimated purchasers' costs

12,332

8,646

EPRA property portfolio valuation (A)

198,752

140,496




Annualised passing rent

11,883

8,960

Less irrecoverable property costs

(247)

(714)

Annualised net rents (B)

11,636

8,246

Contractual rental increased for rent free period

503

380

'Topped up' annualised net rent ('C)

12,139

8,626

EPRA net initial yield (B/A)

5.9%

5.9%

EPRA 'topped up' net initial yield (C/A)

6.1%

6.1%




 

v. EPRA vacancy rate


31 Mar 19

31 Mar 18


£'000

£'000

Annualised potential rental value of vacant properties

-

649

Annualised potential rental value for the completed property portfolio

12,847

9,665

EPRA vacancy rate

0.0%

6.7%

 

vi. EPRA cost ratio


31 Mar 19

31 Mar 18


£'000

£'000

Costs



Property operating expenses

694

561

Administrative expenses

1,833

1,074

Less:



Ground rents

(1)

(34)

Total costs including vacant property costs (A)

2,526

1,601

Group vacant property costs

(638)

(492)

Total costs excluding vacant property costs (B)

1,888

1,109

Gross rental income

10,771

5,564

Less:



Ground rents

(1)

(34)

Total gross rental income (C')

10,770

5,530

Total EPRA cost ration (including vacant property costs) (A/C)

23.5%

29.0%

Total EPRA cost ration (excluding vacant property costs) (B/C)

17.5%

20.1%

 

 

Property Summary at 31 March 2019:

 




Acquisition

Net Book

Size

Tenant

Location

Acquired

Cost (£000)*

Value (£000)

(sq ft)

Bowman Ingredients

Bedford

Apr 16

2,675

3,975

39,306

The BSS Group

Northampton

Apr 16

750

930

13,633

ACO Technologies

Bedford

Apr 16

1,675

3,650

38,762

Blackburn Metals

Bedford

Apr 16

1,250

2,370

24,380

Ball and Young

Bedford

Apr 16

1,100

1,900

22,535

Ideal Industries

Bedford

Apr 16

2,850

5,400

38,512

Dymatec

Dunstable

Apr 16

600

1,050

10,051

Winit Corporation

Bardon

Apr 16

6,000

6,500

73,791

Greenmill Supply Company

Bedford

Apr 16

1,393

2,096

21,139

Professional Fulfilment

Bedford

Apr 16

1,394

2,100

21,182

Arqadia

Bedford

Apr 16

2,813

4,233

42,691

Strata Products

Chesterfield

Jan 17

4,659

5,950

108,873

PUMA United Kingdom

Leeds

Mar 17

6,050

5,750

63,979

HID Corporation

Haverhill

Sep 17

4,090

5,970

37,355

Culina Logistics

Haverhill

Sep 17

14,150

18,550

194,965

XPO Transport Solutions

Leigh

Sep 17

3,340

3,570

39,720

XPO Transport Solutions

Motherwell

Sep 17

2,420

2,920

100,832

Void (1)

Nuneaton

Sep 17

6,710

8,000

130,508

XPO Supply Chain UK

Hinckley

Sep 17

3,280

3,280

62,082

XPO Transport Solutions

Normanton

Sep 17

6,110

6,100

94,102

J Sainsburys Plc

Hoddesdon

Sep 17

3,950

5,210

45,018

Travis Perkins

Hoddesdon

Sep 17

1,480

1,680

10,935

Panther Warehousing

Northampton

Dec 17

3,025

3,100

42,553

Manitowoc Crane Group

Buckingham

Dec 17

6,286

9,000

29,378

DHL Supply Chain

Hebburn

Dec 17

3,157

3,320

77,430

DHL Supply Chain

Norwich

Dec 17

2,176

2,250

31,410

OTC Direct

Leigh

Dec 17

7,154

7,740

103,268

Unipart Group

Runcorn

Dec 17

8,083

8,000

122,478

Unipart Group

Alfreton

Jul 18

8,900

9,230

136,383

DHL Supply Chain

Leicester

Jul 18

6,300

6,575

65,164

NNR Global Logistics

Northampton

Jul 18

4,300

4,600

65,554

Encon

Northampton

Sep 18

3,800

3,900

45,243

Cogne UK Ltd

Sheffield

Sep 18

3,450

3,520

54,682

Hillary's Blinds

Nottingham

Sep 18

9,250

9,250

129,915

Your Farmer Produce

Bedford

Dec 18

12,000

14,750

183,388

Total



156,620

186,420

2,321,197

 

*Excluding purchaser costs

(1) Void from 28 September 2017 - rental guarantee in place until 27 September 2019. Sold post period end on 5 April 2019

 


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