Urban Logistics reports strong first half, asset value slips

Urban Logistics reported a strong first-half financial performance on Thursday, as net rental income increased 12.1% year-on-year to £28.5m, although the value of its portfolio slipped.

The FTSE 250 real estate investment trust said its gross-to-net rental income ratio remained high at 96.5%, only slightly up from 96.4% in September last year.

Its IFRS profit soared to £16.9m from £2.4m, and adjusted earnings per share increased to 3.46p from 3.38p.

Furthermore, the interim dividend per share remained stable at 3.25p, consistent with September 2022.

The company successfully collected 99.1% of rents demanded during the first half of the year, slightly down from 99.6% in the prior year.

Urban Logistics said it maintained a robust balance sheet, with EPRA net tangible assets (NTA) per share at 161.69p, representing a marginal decrease of 0.5% since March and a more substantial decrease of 11.7% since September last year, when it was 183.11p per share.

IFRS net assets currently stood at £766m, down from £871m a year ago.

The loan-to-value (LTV) ratio increased to 29.3% from 22.3%, while the company’s debt totalled £354m with a weighted average maturity of six years, compared to £310m and 6.4 years in September last year.

Additionally, undrawn and available facilities totalled £64.5m, a significant increase from zero a year ago.

The company’s weighted average debt costs for the period were 3.9%, with 97% of the debt hedged or fixed to term, slightly up from 3.0% in September 2022, with the same level of hedging or fixing.

Urban Logistics described its portfolio as high quality with substantial asset management potential, consisting of 130 mid-box urban logistics assets covering 9.7 million square feet, valued at £1.1bn.

That compared to 125 assets, 9.1 million square feet, and £1.13bn in September 2022.

The portfolio’s estimated rental value was £73.8m, providing a 23% reversion to contracted rent of £60m, compared to £66.3m and contracted rent of £56.8m a year ago.

Its weighted average unexpired lease term (WAULT) stood at eight years, a slight decrease from 8.3 years in the prior year.

The company achieved a 10% like-for-like rental increase across 10 lettings or rent reviews during the period.

Moreover, the portfolio’s like-for-like estimated rental values increased by 1.4% over the six months, reflecting an active occupational market.

The EPRA vacancy rate was 6.8%, with 6.3% of the vacancy consisting of assets acquired with less than 12 months on the lease or recently completed developments, up from 5% in September last year.

Looking ahead, the firm expected resilient income flows and continued favourable occupational market conditions.

It said its strong tenant base included Theo Muller Group, Unipart Group, XPO Logistics and Giant Booker, which focus on essential goods and are less susceptible to broader economic headwinds.

Furthermore, 55% of the portfolio fell within the active asset management category, where reversion to estimated rental value was 30%.

“Of all areas in commercial real estate, the logistics market retains some of the strongest fundamentals,” said Richard Moffitt, investment adviser chief executive officer.

“Our belief is that the Urban Logistics sub-sector, comprising well-located, single-let logistics warehousing serving the UK’s urban areas, remains the most exciting part of this market.

“Given the interest rate environment, capital market transactions have been subdued, and corporate decision making around leasing activity has slowed.”

Despite that, Moffitt said the company’s portfolio valuation remained stable over the six months, with asset management opportunities and significant reversion within the portfolio still evident.

“This is a testament to both our ongoing asset management ability and the quality of our asset selection.

“With low levels of debt, which is 97% hedged or fixed to term, and approximately 55% of the portfolio being in the active asset management category, we believe that the company is well placed to deliver returns to shareholders both from income generated from our high quality tenant base and capital growth delivered by our asset management initiatives.”

At 0855 GMT, shares in Urban Logistics REIT were down 2.87% at 112.47p.

Reporting by Josh White for Sharecast.com.