Logistics specialist, Warehouse REIT, reports strong trading period

Chester-based specialist urban and ‘last mile’ industrial warehouse investor, Warehouse REIT, revealed a strong performance in a trading update today, covering the period from April 1, to August 23, 2022.

It achieved a resolution to grant outline planning permission from Cheshire East Council for a further 1,020,000 sq ft of warehousing at its 102-acre flagship logistics park development at Radway Green, Crewe.

The total consented floor area at the Radway Green site now totals 1.8 million sq ft, with construction due to start in early 2023.

Fifteen new lettings, nine lease renewals and nine rent reviews were completed across 198,000 sq ft of space. The transactions will generate £1.5m of annual contracted rent, 3.5% ahead of March 31, 2022 estimated rental values (ERVs).

The new lettings were agreed five per cent ahead of March 31, 2022, ERVs and will generate rent of £700,000. Lease renewals and rent reviews have continued to capture the portfolio reversionary potential, generating rent of £800,000 at an uplift of 18% versus the previous rent.

As a result of these transactions, the portfolio like-for-like contracted rent has increased by 1.64%.

Portfolio occupancy has remained stable at 93.4%, with effective vacancy down to 2.7%, excluding units under refurbishment or under offer to let.

The company has taken out two additional interest rate caps of £100m each for three and five years, respectively, which serve to cap the SONIA rate in the company’s debt facilities at 1.5%.

SONIA is the Sterling Overnight Index Average and reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions and institutional investors.

These are in addition to the two existing £30m interest rate caps the company has in place, which expire in November 2022 and 2023, and cap SONIA at rates of 1.50% and 1.75%, respectively. Following these caps, approximately 75% of the company’s debt is now hedged against interest rate volatility.

Andrew Bird, managing director of Tilstone Partners, the investment advisor of Warehouse REIT, said: “This has been another busy period for the company, as we continue to successfully execute on our asset management and value add strategies.

“In particular, securing planning at Radway Green was a major milestone, and in partnership with a leading global developer, will see us deliver a much needed state of the art logistics hub in the North West, one of our high conviction regional markets.

“Additionally, we have significantly strengthened the company’s financial position by growing rents, maintaining occupancy and further hedging our balance sheet, whilst also completing the company’s move to the main market of the London Stock Exchange.”

He added: “Whilst we remain alert to the increasingly challenging macroeconomic backdrop, our confidence in the warehouse and logistics sector remains strong.

“Underpinned by chronic undersupply and supply chain reconfiguration demands, H1 2022 take up reached a record 30.8 million sq ft, a 10% increase on H1 2021. At a portfolio level, demand for tenant critical assets which account for a fraction of an occupiers’ costs, in commercially relevant locations, is enabling the company to continue to capture reversionary potential, as well as materially grow ERV’s and contracted rent.”

The company revealed that, according to CBRE’s monthly index, rental growth in the industrial and warehouse sector continues to outperform the UK property market, achieving 2.2% during the quarter to June 30 2022, versus one per cent for all properties. This trend has continued into the current quarter, with the most recent July statistics showing 0.7% month-on-month rental growth, versus 0.3% for all properties.

During the trading update period, the company completed on the previously announced acquisition at Bradwell Abbey, Milton Keynes, for £62m, before acquisition costs, as well an adjoining plot at Radway Green, Crewe for £2m, before acquisition costs.

Warehouse REIT has continued its programme of recycling non-core assets with the disposal of properties in Ballymena and Deeside, for £4.8m, 15.6% ahead of March 31, 2022 book value.

Highlights during the update period included the letting of unit 23 (15,200 sq ft), at Gateway Park, Birmingham, to an electronic bike and scooter company, on a new five year term, at a rent of £7.65 per sq ft, at 17.7% above the March 31, 20022 ERV, and settlement of an outstanding rent review with an online sales and print manufacturer at Groundwell Industrial Estate Swindon, for £117,200, 35% ahead of previous contracted rent.

The two additional interest rate caps of £100m each for three and five years, respectively, serve to cap the SONIA rate in the company’s debt facilities at 1.5%. Following these caps, the company has total drawn debt of £336m, with a low loan to value ratio of approximately 30% – calculated on March 31, 2022 valuations – and interest caps in place on more than £260m. The maturity and quantum of hedging will be kept under constant review, the company said.