INDUSTRIALS REIT LIMITED

(Registered in Guernsey)

(Registration number 64865)

LSE share code: MLI  JSE share code: MLI

ISIN:  GG00BFWMR296

("Industrials REIT" or the "Company")

28 April 2023

MLI trading update Q4 FY 2023

Strong tenant demand delivers 4.8% p.a. growth in passing rents

Industrials REIT, the UK multi-let industrial ("MLI") property company, today publishes a trading update on its MLI portfolio for the period 1 January 2023 to 31 March 2023 and up-to-date rent collection across the Company's whole portfolio. 

Commenting on the trading update Paul Arenson, CEO of Industrials REIT, said:  

"Our final trading update of the financial year has seen continued strong underlying occupational conditions in the MLI market driven by high demand, limited supply and affordable rents.  Whilst the macro-economic backdrop remains challenging in the UK, our MLI portfolio has delivered on target, with 4.8% like-for-like growth in passing rents and 10.6% growth in estimated rental values over the 12 month period. 

"The Industrials Hive platform continues to support the business by generating a strong pipeline of new lettings and enabling the business to transact with increasing efficiency.  During the quarter, we concluded 120 leasing transactions taking the total for the financial year to 401, a 50% increase on the prior year.  We saw average uplifts in rent of 27% on all lettings signed during the quarter, totalling a further £2.6 million of rent, with 73% of new lettings on Smart Lease® terms and conditions and over 82% of leases including 3% p.a. fixed uplifts.  Furthermore, in the small number of instances where units have been handed back due to tenant move-outs, insolvency or forfeiture, demand remains sufficiently robust to maintain occupancy levels and to continue delivering rental growth.

"Finally, in early April, we completed the sale of our interest in a care homes joint venture in Germany, representing the completion of the non-MLI asset disposal programme we started in March 2018, following the initial acquisition of 25 MLI estates in June 2017, and completing our transition into a fully focused MLI operating business. This transaction released approximately £15 million in equity, which we intend to reinvest in accretive MLI opportunities in the UK.

"Despite the economic headwinds, the MLI occupational market remains robust and supportive of rental growth. However, Industrials REIT is not immune to these forces, and during this period is likely to see a proportion of top line revenue growth eroded by higher interest rates and cost base inflation. Nevertheless, the business remains well positioned to weather the storm with a low level of debt and a highly diversified customer base and portfolio."

Key metrics

400 leasing transactions completed over the last year

4.8% p.a. growth in passing rents

Industrials Hive generates strong demand

Asset management highlight

Lake Enterprise Park in Bromborough was acquired by Industrials in January 2021 and comprises a 37,000 sq ft estate with 35 units averaging 1,050 sq ft.  The property is located adjacent to Croft Business Centre, another Industrials REIT property, which was acquired as part of the original Industrials portfolio in June 2017, and also comprises small 'starter units' averaging around 1,000 sq ft.  The properties are in a mixed commercial area with a range of industrial and retail uses, including the adjacent 450,000 sq ft Croft Retail & Leisure Park.

Upon acquisition we identified that Lake Enterprise Park would benefit from capital investment to enhance its 'yard appeal' and enhance rental growth.  In October 2022, we commenced a four month refurbishment program principally focused on renewing the roofs and other external improvements designed to improve the appearance, appeal and longevity of the property.  The investment totalled £350,000 (£9.38 psf) and completed ahead of time and below budget. 

We have since renewed, relet or reviewed rents on 16 units on the estate, generating an uplift in rent of over £77,000 vs the previous passing rent.  All new lettings and renewals were completed on Smart Leases.  In addition, there are a further 13 refurbished units left to renew, relet or review over the next few years, with potential to deliver additional rent of c. £50,000 per annum.  In aggregate, the scheme is forecast to deliver an uplift in revenue of £127,000 per annum, a 43% increase from the pre-works passing rent.

Finally, because of upgraded insulation and lighting installed as part of the works, we have seen the average EPC rating across all units on the estate improve from a Grade D to a Grade C.  This ensures compliance with all future and proposed EPC regulations until at least 2030 and is in line with our broader strategy of continually upgrading the environmental credentials of our portfolio through active asset management.

Rent collections continue to improve

Completion of the final non-MLI asset sale

On 5 April 23 the Company announced that it had sold its interest in a Care Home joint venture in Germany generating net proceeds of £15.6 million (€17.8 million).  For further information please see https://www.industrialsreit.com/investor-information/rns-and-sens-feed/rns/rns-announcements/?rid=4271499.

No new MLI acquisitions were completed during the quarter. 

Low leverage with significant covenant headroom

As at close of business on 31 March 2023, Industrials REIT's loan-to-value ratio was 29% on drawn facilities, and approximately 23% when allowing for unrestricted cash¹.  The average cost of debt is 2.8% (based on SONIA at 4.2%).  With 90% interest hedging against drawn debt, a 1% rise in SONIA increases the weighted average cost of debt by 0.10%.  The average maturity of drawn debt is 3.2 years (rising to 4.4 years assuming loan extension options are exercised), with strong headroom across all debt covenants.

Notes 

The financial information on which this trading update is based has not been reviewed or reported on by the Company's external auditors. 

¹ Calculated as gross borrowing less unrestricted cash, divided by gross asset value based on our 30 September 2022 valuations adjusted for subsequent acquisitions and disposals and changes in foreign exchange rates.  Unrestricted cash is cash and cash equivalents after deducting amounts for service charge, tenant deposits and cash held in debt service accounts.

On 14 April 2023 the Company announced that it had agreed the terms of a cash acquisition of the entire issued, and to be issued, share capital of Industrials REIT. The transaction has been recommended by the Industrials REIT board and remains subject to shareholder approval.  The full announcement can be found on the Company's website, https://www.industrialsreit.com/investor-information/rns-and-sens-feed/rns/rns-announcements/?rid=4274048.

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About Industrials REIT:

Industrials REIT is a UK REIT with a primary listing on the London Stock Exchange and a secondary listing on the Johannesburg Stock Exchange. The objective of the Company is to deliver a combination of sustainable growing income and growth in value to its investors. Industrials REIT focuses on owning and operating a diversified portfolio of UK purpose built multi-let industrial (MLI) estates across the UK. The Company aspires to be the leading MLI business in the UK. For further information, go to www.industrialsreit.com.