Profits from city logistics triple as last mile demand continues to grow

– Pre-tax profit reached £172m from £48m

– The value of the portfolio has doubled in one year

– Demand far outstrips supply, meaning rents may continue to rise

The past year has been a transformative year for mid-market industrial real estate investors Urban Logistics (SHED) resulting in pre-tax profit which more than tripled to £172m.

The company’s portfolio has doubled in value to over £1bn, while its shares moved from AIM to the main market and are now included in the FTSE 250 index.

HIGH QUALITY WALLET

Key to the company’s success is its focus on high quality, last mile properties in the 100,000 sq ft to 300,000 sq ft market where lack of supply and growing demand from companies wanting to build chains of properties are more resilient supplies continue to drive up rents and values.

The company is able to buy property, usually in off-market deals, and is able to push through significant rent increases on new leases and renewals.

Despite the market turmoil, the company was able to raise £358m of new shares which it invested at a blended net initial yield of 5.3% versus a 4.3% yield on its existing portfolio, giving the management team the opportunity to unlock value in the future. .

Net tangible fixed assets per share increased by 24%, from 152.3p to 188.8p, largely due to the revaluation of the existing portfolio and action by management to upgrade some of its assets in order to charge higher rents.

QUALITY TENANTS

Just as important as the quality of assets and an active approach to their development is the quality of the company’s tenants.

One of investment manager Richard Moffitt’s cardinal rules is that the firm has no fast fashion clients on its books due to the vagaries of the market and the high number of companies falling into insolvency.

Instead, major customers include logistics companies Unipart, which supplies the NHS, XPO (XPO:NYSE)DHL and Hermes, parcel delivery group royal mail (RMG)health care retailer Boots, wholesaler Booker, owned by Tesco (TSCO)and supermarket chain Sainsbury’s (SBRY).

As a result, vacancy rates are low at less than 7% and rent collections are close to 100%.

With a top-notch clientele and affordable rents (an average of £5.59 per square foot), the company has no problem coping with higher costs.

“We are well positioned for an inflationary world,” says Moffitt. “As an active manager with strong tenant engagement, we are able to quickly capture inflationary increases in rental income.

“By focusing on strong covenants and occupants providing essential goods, we believe our tenants will be in a good position to pass on inflationary price increases,” he adds.


Date of issue: June 23, 2022