Urban Logistics REIT : Results for the year ended 31 March 2021

Urban Logistics REIT plc

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

Results for the Year Ended 31 March 2021

Significant growth and resilient performance across portfolio

Urban Logistics, (AIM: SHED) the specialist UK logistics REIT, issues its results for the year ended 31 March 2021.

Nigel Rich, Chairman, commented:

"This has been another transformational year for Urban Logistics, during which our portfolio increased in value from £207m to £508m driven by two capital raises in 2020 and strong underlying performance. Ongoing momentum in our real estate sector, with a portfolio acquired through targeted off market transactions, and the benefits of our asset management programme, saw a rise in the portfolio valuation on a like-for-like basis of over 13 per cent. In addition, we are today announcing a dividend of 4.35 pence per share, taking the total paid or declared in respect of the year to 7.60 pence per share.

"Since IPO we have produced an annual average Total Accounting Return of 13.9 per cent, over which time our market capitalisation has risen to £400m. The Board aspires to reach a level of market capitalisation that will justify a move to a Premium Listing on the Main Market of the London Stock exchange in the near future."

	31 Mar 21	31 Mar 20	Change
Highlights	(£m)	(£m)	(%)
Income Statement
Net rental income	22.9	12.2	+88.0
Adjusted earnings per share (p)1	6.76	7.66	-11.7
Balance Sheet
Portfolio valuation	507.6	207.0	+145.2
EPRA NTA per share (p)	152.33	137.89	+10.5
IFRS net assets	387.5	258.8	+49.7
LTV (%)2	27.9	n/a
Portfolio like-for-like growth in value	13.2%	4.6%
Total Accounting Return	15.6%	5.6%
WAULT	7.4 years	4.9 years
Dividends
Total dividend per share paid or declared in respect of the financial year3	7.60p	7.60p	0.0

1. Adjusted for early LTIP crystallisation in prior year (£3.5 million). Decrease in earnings in current year due to issuance of new shares and pace of investment being partly affected by impact of Covid-19 and the time it took to implement new banking facilities
2. Company was in a net cash position 31 Mar 20
3. Part of the second interim dividend is being paid out of the profits from the disposal of properties in March

Financial Highlights

• Total Property Return of 17.1% (2020: 10.1%)
• £92.3 million of equity capital raised in October 2020
• 145.2% growth in portfolio to £507.6 million
• EPRA NTA 152.33p per share (2020: 137.89p) reflects strong uplift in property values
• Dividends for period of 7.60p (2020: 7.60p)
• LTV 27.9%

Operational Highlights

• More than 99% of rent due has been collected during the period
• 36 logistics assets acquired for £264.0 million (blended 6.2% NIY) with good asset management potential
• £26.2 million forward funding across 5 development sites which reached practical completion
• £39.5 million committed to 5 further sites where development work is ongoing
• Portfolio disposal totalling £30.0 million (+35.4% uplift to book values) representing average Total Property Return of 78.8% and an exit yield of 4.8%
• WAULT of 7.4 years (2020: 4.9 years)
• Like-for-likecontracted income growth across portfolio of 6.5% (2020: 3.4%)

Post period end

• £33.0 million of acquisitions at 6.3% NIY

Richard Moffitt, Chief Executive, added:

"Urban Logistics continues to prosper with a portfolio focused on last mile, or last touch, logistics real estate. Logistics tenants continue to invest into their real estate footplate as they respond to strengthening underlying customer demand and build out their own future, medium-to-long term, infrastructure plans.

"Whilst in any real estate cycle or class there is no room for complacency, we have a significant asset management programme in place and our longer WAULT at the year-end evidences both shorter term lettings opportunities, from assets which have been in the portfolio for a while, as well as line of sight on medium to longer term potential across the portfolio as a whole.

"During the year we took advantage of strong market conditions, realising £30m in disposals at an attractive 4.8 per cent exit yield. High lettings levels, a shortage of supply in the market generally and a strong M&A market evidence further potential in our portfolio. Equally, in terms of the year ahead, we are fully invested and have a strong pipeline of attractive off market opportunities which would allow us to keep pace with our past track record of new investment."

For further information contact:	- Ends -
Urban Logistics REIT plc	[phone]
Richard Moffitt
Buchanan	[phone]
Helen Tarbet	[phone]
Henry Wilson	[phone]
George Beale	[phone]
N+1 Singer - Nominated Adviser and Broker	[phone]
James Maxwell / Alaina Wong (Corporate Finance)
Alan Geeves / James Waterlow / Sam Greatrex (Sales)
Panmure Gordon (UK) Limited - Joint Broker	[phone]
Chloe Ponsonby (Corporate Broking)
Emma Earl (Corporate Finance)

Chairman's Statement

The last year has been extremely difficult for many people, but hopefully, in the United Kingdom at least, the successful rollout of vaccinations seems to be winning the battle with COVID-19. We will now start to find out how much this will change the way we lead our lives.

During the worst periods of the pandemic, the high streets were empty with shops and hospitality closed in the successive lockdowns. Household needs were provided by e-commerce. Life will return to the high streets but the trend towards e-commerce, which preceded the pandemic, is likely to continue.

The combined £228 million of capital raised in the two issues in March and October 2020, together with the additional debt funding, has enabled us to purchase £295 million of properties during the financial year, including some for development.

These properties continue to be acquired in line with our strategy of targeting single let, near or adjacent to cities and major roadways, with many of our tenants distributing essential consumer products. Most of the properties purchased have opportunities for active asset management initiatives which have added, or will add, further value.

The value of the property portfolio at 31 March 2021 was £507.6 million compared with £207.0 million at the end of the prior financial year. Like for like, properties held throughout the year increased in value by 13.2%, or £17 million. The balance of the increase is due to the new properties purchased during the year. Capitalisation rates tightened in the second half of the year but most of the value increase was due to the Manager's active asset management. Our EPRA NTA at the end of the year were 152.33 pence per share compared with 137.89 pence at the previous year end.

ESG

We regard our environmental, social and governance ("ESG") obligations as very important to our business and are in the process of formalising our approach. We have created a Board Committee under the chairmanship of Heather Hancock who is working with management to set key objectives, particularly relating to environmental impacts. With no direct employees, and all our properties leased to tenants, it is harder for us to make an impact on social matters. We put a high emphasis on forming and sustaining good tenant relationships, and this includes encouraging occupiers to be good neighbours in the immediate area where the property is located, and that they have appropriate health and safety standards.

With regard to governance, as a Board we have taken steps to prepare for an eventual move to a Premium Listing on the Main Market of the London Stock Exchange. Smith and Williamson have been our auditor since the incorporation of the Company, but our capital raises

of the last twelve months have taken our market capitalisation above the AIM SME limit, which they do not audit. Following a competitive tender process, we appointed RSM UK Audit LLP as our auditor with effect from 15 February 2021.

At the same time, and also following a tender process, we appointed Link Company Matters, part of Link Group ("Company Matters"), as our new Company Secretary, replacing Vistra Company Secretaries Limited. This was due to Company Matters' greater experience in the listed markets.

We recognise that a move to the Main Market will require a high standard of governance and so we will continue to prepare for this.

Financial Results

‑ ‑

In the year ended 31 March 2021, net rental income increased by 88.0%, driven by rent increases on a like for like basis and the rental income from properties purchased both in the prior and current financial year. Adjusted earnings have increased 105.7% to £14.8 million but Adjusted earnings per share have decreased by 0.90 pence to 6.76 pence per share. This is due to the issuance of new shares and the pace of investment in new properties being partly affected by the impact of COVID-19 and the time it took to put in place new banking facilities.

Financing

As well as the £228 million raised from the share issues in March and October 2020, the Group increased its loan facility with its lender group to £151 million and extended the maturity. More recently, a £48 million seven-year Sustainable Green debt facility has been put in place with Aviva Investors.

All of our available funds have now been used for the purchase of properties from the pipeline. At the end of the financial year there was a cash balance of £60.5 million, which together with the funds due on recent sales is earmarked for development projects and other properties we are committed to purchasing. Our LTV at the end of the year was 27.9% (below our target range of 30-40%).

Dividends

An interim dividend of 3.25 pence per share was paid in October 2020 to shareholders prior to the issuance of new shares in the same month.

A second interim dividend of 4.35 pence per share will be paid on 2 July 2021 to shareholders on the register at the close of business on 18 June 2021. The total dividends per share amount of 7.60 pence per share is the same as was paid in the previous year. Part of the second interim dividend is being paid out of the profits on the disposal of properties in March. The Board will use such profits and retained earnings to endeavour to at least maintain the dividend each year even when new shares have been issued.

Board and management

Heather Hancock joined the Board on 15 June 2020. Heather is making a significant contribution to Board discussions as well as chairing the ESG Committee.

The management team from Pacific Capital Partners, led by Richard Moffitt, continues to drive the Company forward with great success. The team sources the pipeline, executes the property transactions and then implements asset management plans. We also place considerable reliance on the Manager's very capable finance team.

Outlook

We are confident that the investment and occupational markets will remain favourable for mid-box assets, especially in the Midlands and North where we believe the government will concentrate much of its promotional efforts.

Our Manager's access to properties at attractive yields, and with opportunities for active asset management, has enabled the Company to build a fresh pipeline of potential acquisitions.

While the judicious use of gearing, and rotation of assets, can fund some of the pipeline we will otherwise need to raise further funds in the capital markets. We also aspire to reach a level of market capitalisation that will justify a move to the Main Market in the near future.

Nigel Rich CBE

Chairman

Manager's Report

Overview

As life hopefully begins to return to some sort of normality now that we appear to be through the worst of the pandemic in the UK, we find ourselves assessing what life will look like for businesses and consumers.

I think we all agree that logistics has never been so important. This is a trend which preceded the pandemic but has only become more in focus as working from home and spending time online sustained us over the course of 2020 and into 2021.

We have also witnessed how swiftly events at our borders, in the Suez Canal and with the EU over the ongoing vaccination programme can cause supply chain issues.

Businesses are, in some aspects, relieved about the fact that a trade deal was agreed at the end of 2020, covering our future trading relationship with the EU, but this trade deal has created barriers to trade, rather than removing them. Therefore, as the dust settles and we become more outward focused once again, it is possible that we will see companies looking to restructure their supply chains to gain greater operational efficiencies.

With supply chains tested like never before during several lockdowns, there were shortages and issues across the UK - notably for essential items such as food, pharmaceuticals and PPE. These challenges amplified notable weaknesses as global supply chains were found to be lacking in sufficient levels of stock. A rapid increase in e-commerce further compounded the problem. Whilst the economy is showing signs of recovery, specific behavioural changes will be here to stay.

In January 2020, and before the world changed due to COVID-19,e-commerce accounted for 19% of all retail sales in the UK; by February 2021 this had reached 35% (previous ONS estimates suggested the UK would reach 25% by the end of 2022).

Throughout this structural change, the central thesis behind our investment strategy has proven itself to be robust. Our commitment to shareholders is to acquire well-located warehouses with the correct specification for occupiers at below replacement cost.

Our focus on tenant covenants, in sectors which have been less volatile historically, has also served us well at a time when all these attributes have been fundamental to overall performance and a Total Property Return of 17.1% for this recent financial year.

We are pleased to report that when our investment strategy was tested in the most unwelcome and unexpected circumstances, over 99% of rents due were collected during the year.

Right back at the beginning of the financial year, we implemented a management strategy that, despite our team working remotely, kept us in regular contact with occupiers; only three sites weren't operational at the very beginning of the first lockdown but this quickly changed back to all buildings being operational by late April.

Fundamentally, we remain focused on building our business through working closely with our tenants, acquiring assets that provide solid medium-term income.

Our strategy of having tenants focused on the distribution of domestic UK products, such as food and pharmaceuticals, and avoiding the fashion sector, has provided resilience at a challenging time. Our tenants are typically third-party logistics companies and UK businesses who move staple domestic products around the country to homes and businesses requiring last mile or e-fulfilment services; such as Boots, the NHS, Travis Perkins, Booker, DHL, XPO and Sainsbury's.

Environment

Our increasing focus on the environment, as part of our ESG agenda, is proving to be extremely important in terms of investor relations and with our tenant relationships. This issue is high on the agenda of our tenants, some of whom are the largest logistics operators globally, and our focus in this area is helping our landlord/tenant relationship, providing another reason for constructive dialogue and investment into buildings. At the year end our EPCs were 76% A-C and our investment process involves, amongst other considerations, assessment of energy efficiency ratings to ensure properties are sustainable in the long term.

An ESG Committee has been established to scrutinise performance across the full suite of ESG commitments that Urban Logistics places on us as the Manager. We welcome this development and recognise the importance of demonstrating our ongoing engagement and initiatives with our tenants across the portfolio.

The Market

COVID-19 has accelerated the e-commerce revolution, but expansion of the logistics sector is not a new concept. The share of the UK real estate portfolio accounted for by retail has plummeted from approximately 50% to 30% in a decade (source: CBRE); in the same period the market share for our logistics sector has almost doubled, to over 23%.

For about six weeks at the start of the initial lockdown, the investment market adopted a "wait and see" approach. As measures eased over last summer, investors shifted their focus towards the logistics sector, with H1 2020 volumes to June ending down just 7.2% on H1 2019 (source: CBRE). Fierce competition then emerged for asset purchases with institutions looking to increase their exposure to this sector, with little care often given to length of income and tenant covenants. September also saw the sales launch of some larger portfolios from established logistics investors, looking to cash in on private equity and sovereign wealth fund interest, and reminding us of the premiums available for specialist platforms.

We remain able to acquire assets in "off market" trades where vendors sometimes prefer the certainty that we bring through a strong equity position. The vast majority of our acquisitions since IPO have been "off market" which is testament to our connections within the logistics sector and our reputation for swift and certain deal execution.

Warehouse supply at low levels

Recent issues such as the Suez Canal blockage have further created a focus on shorter, more dependable supply chains (this particular issue is important because approximately 12% of global freight and 30% of container freight travel through the canal). Brexit has also compounded the issue, giving freight operators a renewed focus on resilience. This in turn leads to occupier demand and at the end of

March there were 55 warehouses under offer in the UK, representing 16 million sq ft. Vacant, ready-to-occupy space meanwhile remains at an all-time low of sub 6% and we anticipate further increases in take-up through 2021.

A lack of supply is compounded by a variety of factors, but notably:

• high barriers to entry as a result of a high percentage of warehouse development land being taken for "Big Box" units (those above 300,000 sq ft); plus a time lag of three to five years for sites to obtain planning and then be built;
• costs of construction rising (100,000 sq ft building at £30-35 per sq ft in 2015 and now at £60-65 per sq ft in the Midlands);
• development land costs doubling in five years (Northampton, for example: £400,000 an acre in 2015 and now at more than £900,000 an acre); and
• 35% of all industrial land in the South East of the UK has been lost to higher value uses in last ten years.

Sources: Savills, CBRE, management information.

Supply is responding to a surge in demand; however, most of the incoming logistics schemes will not help ease market pressure in our urban logistics space in the short term as they are larger build-to-suit propositions. Furthermore, approximately 85% of space under construction at the end of 2020 was committed through pre-lettings. This trend, which is shared across Europe (where vacancy is even tighter in a majority of markets), follows a shift in occupier preferences who tend to plan their expansion strategies and secure units that suit their needs. This planning process requires years of anticipation and, when supply adapts and focuses on providing sites for build-to- suit opportunities rather than building speculatively, it diminishes the ability of the market to absorb surges in demand for ready-to-occupy space.

The management team has been living and breathing logistics for most of their professional careers, building strong relationships with the vendors, developers and occupiers of urban logistics assets. In short, we are uniquely placed to hear of opportunities which is why our acquisitions have predominantly been off market since our IPO in April 2016. We can also provide a "funding source" to developers which in turn gives them an exit. Similarly, we can provide a sale and leaseback option to an occupier or a guaranteed sale execution to an investor. Urban Logistics prides itself on deal execution; doing what it says it will do with expedience.

Demand at record levels

Despite the recent pandemic challenges, and in some cases because of it, 2020 broke all records for logistics take-up. There were new leases signed for 50.1 million sq ft of warehouse space, 12.7 million sq ft ahead of the previous record set in 2016. Online retailers took close to 50% of available space, with omnichannel retailers and supermarkets expanding their online presence. If we add the indirect take-up from third-party logistics operators, or traditional retailers working an online channel, the estimated figure is over 65%.

Lack of new, ready-to-occupy units has also pushed occupiers towards the second-hand market, which saw its busiest quarter ever in Q2 2020. The supply side has responded to such overwhelming demand by pressing on with projects that were put on hold during lockdown, trying to get them back on schedule.

Property review

	As at
	31 March 2021
Portfolio value	£507.6 million
Valuation NIY	5.1%
Equivalent yield	6.0%
WAULT	7.4 years
Area	5.3 million sq ft
Contracted rent	£30.3 million
Average rent per sq ft	£5.35
Like-for-like ERV growth	3.9%
EPC ratings: A-C	76%
Total Property Return	17.1%

Buy well

In the year to 31 March 2021, the Company acquired 36 assets for a total consideration of £264.0 million (including purchaser costs) and advanced £26.2 million across five forward funded development assets, which all reached practical completion in the year.

	South	South		North	Yorkshire
	East	West	Midlands	West	& NE	Scotland
Purchase price1	£80.0m	£30.4m	£36.3m	£44.8m	£38.0m	£22.1m
Net initial yield	5.5%	6.8%	5.8%	6.1%	6.7%	7.5%
Area (sq ft)	688,701	412,055	633,303	561,935	483,547	333,082
Contracted rent	£4.7m	£1.9m	£2.1m	£2.8m	£2.6m	£2.0m
Rent per sq ft	£7.01	£4.65	£3.32	£4.97	£5.41	£6.03
Capital value per sq ft	£119.63	£73.71	£57.32	£79.74	£78.62	£66.39

1. Excludes development sites and is stated before acquisition costs.