MLI trading update Q3 FY 2023 Strong tenant demand continues to drive rental growth

(Registered in Guernsey)
(Registration number 64865)
LSE share code: MLI JSE share code: MLI
("Industrials REIT" or the "Company")

27 January 2023

MLI trading update Q3 FY 2023 Strong tenant demand continues to drive rental growth

Industrials REIT , the UK multi-let industrial ("MLI") property company, today publishes a trading
update on its MLI portfolio for the period 1 October 2022 to 31 December 2022 and up-to-date rent
collection across the Company's whole portfolio.

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

"The MLI market finished 2022 on a strong footing, with high demand, limited supply and the
affordability of our high-quality space translating into a 31% average uplift in rent at renewal or
reletting. New lettings were particularly strong this quarter, with average rental uplifts of 36%
compared to that paid by the previous tenant, whilst lease terms and incentives remain unchanged.
This helped push like-for-like passing rents for the total portfolio up 5.0% over the last 12 months,
during which time Estimated Rental Values ("ERVs") have grown 10.5%, creating potential for strong
rental uplifts between letting or renewal in future. Whilst occupancy fell 0.4% during the quarter, we
believe that the continued strength of tenant demand and rental growth in the quarter means this is
not an indicator of a trend at this stage.

"We also enter the first quarter of 2023 with a strong pipeline of lettings under offer on the back of
another busy period of enquiries and viewings. Our Industrials Hive platform continues to generate
demand via our website (visitors  15.4% year on year), whilst our dedicated sales
team has continued to convert enquiries into viewings and lettings with increased efficiency.

"Investment activity in the last quarter of 2022 remained muted when compared to previous years,
with DTRE reporting total MLI transaction volumes down 23% when compared with the same period
last year. Despite this, there remains plenty of capital seeking MLI investment opportunities at a
repriced level and increasing evidence of vendors adjusting their expectations. We continue to watch
the market carefully and believe that attractive and accretive acquisition opportunities will emerge as
we move through the first half of 2023.

"Overall, customer demand for MLI remains strong and we continue to lease space at attractive rents
with minimal incentives. We remain cautious that the trading environment may become more difficult
as we progress through 2023, but to date we have seen limited evidence of this in our portfolio."
Key metrics

                                                      Quarter Ended

                         Q3       Q4       Q1       Q2        Q3       Q4       Q1       Q2       Q3
Key metrics
                       FY21     FY21     FY22     FY22      FY22     FY22     FY23     FY23     FY23

Occupancy             93.1%    93.7%    94.7%    93.9%     93.8%    93.8%    93.7%    92.8%    92.4%

Change in rent
(L4L over 12           3.6%     5.6%     8.0%     5.0%      4.8%     4.4%     3.2%     2.7%     5.0%

Change in ERV
(L4L over 12           3.8%     5.5%     5.5%     5.1%      8.0%     4.3%    11.4%    12.2%    10.5%

Average uplift in
on letting or         25.0%    20.0%    21.0%    21.0%     21.6%    22.3%    27.3%    30.4%    31.0%

31% average uplift in rent at reletting or renewal

 -        The average passing rent increased by 31% on the aggregate of all new lettings and lease
          renewals, the highest growth rate achieved to date and surpassing the previous record last
          quarter (previous quarter: 30%). The growth was driven by average uplifts of 28% and 36%
          for renewals and new lettings respectively (previous quarter: 30% on renewals, 31% on
          new lettings). This is the ninth successive quarter of  20% average uplifts and is driven by
          unlocking the strong reversionary potential within the portfolio, with average passing rents
          lagging estimated market rental values on leased MLI units by 17.5% (previous quarter:
 -        We completed 84 letting transactions this quarter with a combined rent roll of £2.2 million,
          which is in line with expectations following exceptionally strong quarters in terms of the
          value of leases signed in March and September 2022 (previous quarter: 108 lettings and
          £2.6 million). This comprised 50 lease renewals and 34 new lettings across a total of
          280,376 sq ft (previous quarter: 71 renewals and 37 new lettings across 383,704 sq ft). A
          further seven lettings exchanged across 23,000 sq ft which will complete in the next
          quarter (previous quarter: 10 lettings across 26,000 sq ft), taking the total area of leases
          exchanged or completed during the quarter to 303,000 sq ft (previous quarter: 406,000 sq
 -        Good leasing momentum continues, and as at 31 December 2022 there were 343,000 sq
          ft of lettings under offer across 43 transactions (previous quarter: 321,000 sq ft across 59
          transactions), of which 185,000 sq ft related to new lettings and 158,000 sq ft to existing
          customer renewals (previous quarter: 160,000 sq ft of new lettings and 161,000 sq ft of
          lease renewals).
 -        Lease terms remain stable, with the average lease signed during the quarter for 4.5 years
          with a tenant break option after 3.3 years and 0.9 months' rent free (previous quarter: 4.4
          years, 3.3 years and 0.6 months respectively).
 -        73% of completed leases were contracted through Industrials REIT's short-form digital
          'Smart Leases' (previous quarter: 68%).
 -        70% of leases signed included at least a 3% annual uplift in rent throughout the term of
          the lease (previous quarter: 79% of leases signed).

5% p.a. growth in passing rents

 -        Like-for-like passing rent over 12 months grew  5.0% on the back of strong releasing
          activity and the expiry of a significant rental incentive in Ashby-de-la-Zouch (previous
          quarter:  2.7%, rising to 4.0% when excluding Ashby de la Zouch). Over the quarter like-
          for-like passing rents grew 3.1% (previous quarter: -0.7%).
 -        Like-for-like ERV growth across the portfolio was 1.8% over the quarter and 10.5% over
          the last year (previous quarter: 1.1% for the quarter and 12.3% over the year). ERVs on
          our MLI units remain highly affordable at an average of £6.99 psf, compared to an average
          passing rent of £5.94 psf (previous quarter: £6.87 psf and £5.74 psf respectively), with the
          average rent on each new lease signed this quarter equating to £2,160 per month for a
          3,338 sq ft unit (previous quarter: £2,040 per month for a 3,550 sq ft unit).
 -        Occupancy across the MLI portfolio (adjusted to exclude yard areas) was marginally lower
          at 92.4% (previous quarter: 92.8%).

Strong customer demand via Industrials Hive

 - website users were down -6.0% vs the previous quarter, as is expected
          over the Christmas period, but up  15.4% year on year (previous quarter:  18.5% vs
          previous quarter and  9.0% year on year). Continued efficiency improvements with
          enquiry-to-lead qualification conversion rates up to 13%, with 92% of leads going on to
          take a viewing on a rolling 12-month basis (previous quarter: 12% and 83% respectively).
 -        Lead volumes were up  27% year on year, reflecting the depth and quality of leasing
          enquiries being generated by the Industrials Hive platform and the desirability of space in
          our portfolio (previous quarter:  24%).
 -        Total viewing/building tour numbers were 207, the best period to date, with 22% of
          viewings resulting in a new letting on a rolling 12-month basis (previous quarter: 179
          viewings with a 26% conversion rate to letting).

Asset management highlight

Imex Business Centre comprises 46,786 sq ft of purpose built MLI and office space in Loanhead, six
miles south of Edinburgh. The estate was acquired in 2017 and has benefited from strong demand
from a diverse range of commercial users attracted by the strategic and well-connected location just
south of the city.

An opportunity was identified to enhance rental growth via a full external refurbishment and
redecoration of the estate. The works include a roof overclad, the installation of new roof lights, and
full external redecoration of 39 units across three terraces. The project has a planned capital
expenditure of £608,000 equating to approximately £13.00 psf. The expectation was that the works
would increase estimated rental values by just over 25%.

Whilst practical completion is targeted for March 2023, we had already completed 16 new leasing
transactions by 31 December 2022 and have a further six units under offer, combining to generate an
additional £64,500 per annum in recurring revenue compared to the previous passing rent. These
new lettings generate a yield on cost of approximately 10.6% for the scheme, and once all the units
have been relet or renewed, we anticipate a total uplift in recurring revenue of c. £108,000 per annum,
reflecting a yield on cost of approximately 17.7%.
Once the refurbishment works are completed, we expect the average EPC ratings across the asset to
improve from a Grade C to a Grade B, in line with our broader strategy of continually upgrading the
environmental credentials of our portfolio through active asset management.

Rent collections continue to improve

 -        90% of rents due in the quarter ended 31 December 2022 had been collected by 25 January
          2023 (previous quarter: 87% of rents collects at the same point after the quarter day)
 -        97% of rents due for the financial year ended 31 March 2022 had been collected by 25
          January 2023

Disciplined capital allocation with limited investment activity until repriced opportunities emerge

No new MLI acquisitions were completed during the quarter. The MLI investment market was
subdued in the last quarter of the year, with transaction volumes 23% down when compared to the
same period last year (Source: DTRE). We continue to monitor the market for attractive opportunities
to selectively deploy capital on an accretive basis.

Low leverage with significant covenant headroom

As at close of business on 31 December 2022, Industrials REIT's loan-to-value ratio was 30% on drawn
facilities, and approximately 27% when allowing for unrestricted cash1. The average cost of debt is
2.6% (based on SONIA at 3.4%). 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.


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

 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.

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For further information:

Industrials REIT Limited                                                                 44(0)20 3918 6600
Paul Arenson (
Julian Carey (
James Beaumont (

Numis Securities Limited (Financial Adviser)                                             44(0)20 7260 1000
Hugh Jonathan
Vicki Paine

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Richard Sunderland
Richard Gotla
Neel Bose

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(JSE Sponsor)

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

Date: 27-01-2023 09:00:00
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