RNS announcement

6 June 2023

Warehouse REIT plc

(the "Company" or "Warehouse REIT", together with its subsidiaries, the "Group")

Strong operational performance, successful disposal programme and weighting towards multi-let sector provide a strong platform for growth  

Neil Kirton, Chairman of Warehouse REIT commented:

"This financial year saw a marked divergence between equity market valuations and the continued strength of the occupier market.  Operationally, our performance has been strong; our focus on multi-let assets in key industrial hubs where demand remains firm but supply is constrained is paying off with like-for-like growth in contracted rents of 5.3%.  We were not immune from the rapid rise in interest costs, which impacted both our valuation and our earnings, but we acted decisively, with £90 million of non-core disposals in line with our plan, supporting the balance sheet and further focusing the business on its core assets. 

Since year end, there are clearer signs that investors are returning to the market, evidenced by activity across the sector and our most recent sales, which are ahead of book.  At Radway, our flagship scheme in Crewe, we are now in advanced negotiations for a significant pre let, a major milestone which validates our ambitious but highly disciplined approach to development.  This opportunity, coupled with an improved financial position and our 71% weighting towards multi-let assets, the strongest part of our market, leaves us well positioned for the future."

Maintained strong operational performance, capturing in-built portfolio reversion and driving growth

·      £45.3 million contracted rent, including:

o  £3.0 million from 40 new lettings, 29.1% ahead of previous contracted rent

o  £1.0 million from renewals, 15.8% ahead of previous contracted rent

o  £2.0 million from rent reviews, 21.5% ahead of previous contracted rent

·      5.3% like-for-like rental growth, with 17.6% portfolio reversion as at 31 March 2023

·      Occupancy up 3.1% from 30 September 2022 to 95.8%

·      c.99.0% of FY23 rent collected

·      In advanced negotiations for a 350,000 sq ft pre let at the first phase of Radway 16, Crewe

£158.5m of targeted capital activity, delivering on disposal strategy and further focusing the business on its core assets

·      £59.6 million of asset disposals, crystallising an ungeared IRR of 8.0%; further £29.9 million completing post period end

·      £64.0 million of acquisitions including Bradwell Abbey, a multi-let industrial estate in Milton Keynes, 45.0% reversionary

·      £5.0 million of capital investment or 0.5% of GAV, driving rents and values

Portfolio valuation impacted by sector-wide asset re-pricing

·      Like-for-like portfolio valuation decreased 18.5% to £828.8 million (2022: £1,012.0m); 131 bps equivalent yield expansion partially offset by strong like-for-like growth in rental values of 6.2%, reflecting a robust occupier market

·      EPRA NTA per share 122.6p (2022: 173.9p) with total accounting return of (25.7%) (2022: 33.2%); five year total accounting return of 10.8%

Resilient financial performance and strengthened balance sheet

·      Adjusted earnings of £19.8m (2022: £27.2m), primarily reflecting increased debt costs

·      Adjusted EPS of 4.7p (2022: 6.4p), with the dividend maintained at 6.4p

·      Two interest rate caps of £100m acquired; 75.2% of debt hedged against interest rate volatility 

·      £320.0 million of debt refinanced with improved covenants

·      LTV at 33.9%, with further headroom of £14.0 million in available resources; pro forma LTV at 30.5% adjusting for post balance sheet sales

Progressing our sustainability strategy

·      60.2% of the portfolio now EPC A-C rated; advanced our pathway to Net Zero

Financial highlights

Operational highlights

Meeting

A meeting for investors and analysts will be held at 9.00am on 6 June 2023 at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD. 

The results presentation is available in the Investor Centre section of the Group's website. For further details, please email FTI Consulting at warehousereit@fticonsulting.com

Enquiries

Warehouse REIT plc          

via FTI Consulting

Tilstone Partners Limited

Simon Hope, Andrew Bird, Peter Greenslade, Paul Makin, Jo Waddingham

44 (0) 1244 470 090

G10 Capital Limited (part of the IQEQ Group, AIFM)

Maria Baldwin

44 (0) 207 397 5450

FTI Consulting (Financial PR & IR Adviser to the Company)

Dido Laurimore, Richard Gotla

44 (0) 7904 122207 / WarehouseReit@fticonsulting.com

Further information on Warehouse REIT is available on its website: http://www.warehousereit.co.uk

Notes

Warehouse REIT is a FTSE 250 UK Real Estate Investment Trust that invests in UK warehouses, focused on multi-let assets in industrial hubs across the UK.

We provide a range of warehouse accommodation in key locations which meets the needs of a broad range of occupiers.  Our focus on multi-let assets means we provide occupiers with greater flexibility so we can continue to match their requirements as their businesses evolve, encouraging them to stay with us for longer. 

We invest in our business by selectively acquiring assets with potential and by developing opportunities we have created. Through pro-active asset management we unlock the value inherent in our portfolio, helping to capture rising rents and driving an increase in capital values to deliver strong returns for our investors over the long term. 

Sustainability is embedded throughout our business, helping us meet the expectations of our stakeholders today and futureproofing our business for tomorrow.

The Company is an alternative investment fund ("AIF") for the purposes of the AIFM Directive and as such is required to have an investment manager who is duly authorised to undertake the role of an alternative investment fund manager ("AIFM"). The AIFM and the Investment Manager is currently G10 Capital Limited (Part of the IQEQ Group).

Forward-looking Statements

Certain information contained in these half-year results may constitute forward looking information. This information relates to future events or occurrences or the Company's future performance. All information other than information of historical fact is forward looking information. The use of any of the words "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "should", "believe", "predict" and "potential" and similar expressions are intended to identify forward looking information. This information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. No assurance can be given that this information will prove to be correct and such forward looking information included in this announcement should not be relied upon. Forward-looking information speaks only as of the date of this announcement.

The forward-looking information included in this announcement is expressly qualified by this cautionary statement and is made as of the date of this announcement. The Company and its Group do not undertake any obligation to publicly update or revise any forward-looking information except as required by applicable securities laws.

Chairman's statement

The operational fundamentals of our business remained strong throughout the year, but this robust performance has been overshadowed by macro events which resulted in a step change in interest rates, driving property yields higher and impacting valuations across the sector.

Amid this volatility, we have maintained our focus on driving the value of our portfolio through active asset management. The long-term trends which have underpinned occupier demand in recent years continue to support our leasing activity, which this year delivered an additional £3.5 million in rent, bringing contracted rent to £45.3 million as at 31 March 2023. 

We continue to let space significantly ahead of previous rent, demonstrating the reversionary potential of our portfolio and that occupiers are prepared to pay higher rents for the right space in the right locations. Our activity drove a like-for-like increase in contracted rents of 5.3%, with the like-for-like estimated rental value of our space up 6.2% reflecting sound underlying market fundamentals. In addition, building on our strategic focus on multi-let industrial space, we acquired Bradwell Abbey, a multi-let estate near the gateway city of Milton Keynes. Multi-let assets allow greater flexibility for occupiers because they can take multiple or different-sized units and more easily scale up or down according to their needs, accelerating our ability to capture rental growth. This also means we are well placed to appeal to a broader range of occupier as demand diversifies in new directions. This year alone we have let space to a software provider to the healthcare industry, an electronic bike and scooter company and an automotive parts manufacturer. Our multi-let bias also means we can create our own increased rental tone through targeted capex helping to capture reversion at lease events. 

Following the market correction in the second half, we successfully executed on our strategy to reduce the level of variable-rate debt through targeted asset disposals of non-core properties. These totalled £59.6 million over the year and crystallised an unlevered IRR of 8.0%. Encouragingly, there are clear signs that liquidity is returning to the investment markets, with the majority of these transactions completing towards the end of the second half and post year end we have exchanged a further £29.3 million of sales, on average 17.2% ahead of book value. 

This activity further focuses the portfolio on our core assets, enabling Tilstone Partners, our Investment Advisor, to concentrate on opportunities which best drive value for shareholders.

Radway 16 in Crewe is the best example of this and an excellent case study of Tilstone's expertise in site assembly. Initially, it comprised a 250,000 sq ft multi-let estate with surplus land.  It was acquired within a portfolio purchase and has grown through careful acquisition of adjacent sites from just 25 acres to be an exciting development site of over 100 acres, strategically located on Junction 16 of the M6.  Inevitably, macro conditions have impacted its valuation, but its combination of best-in-class, sustainable space and superb connectivity make it highly attractive to a wide range of occupiers. We are pleased that discussions for a significant pre-let on the first phase of this scheme are well advanced and only subject to legal documentation. We will update stakeholders on any developments in due course.

Financial performance and returns

The dramatic increase in interest rates over the course of the financial year to address levels of inflation not seen since the 1980s significantly reduced liquidity in investment markets. Valuers reacted quickly, increasing yields to reflect the new funding environment, and significantly reducing property valuations across all commercial real estate markets. We have not been immune and as a result of significant yield expansion, the value of the portfolio declined by 18.5% on a like-for-like basis over the 12 months. This was partially offset by an increase in ERV of 6.2% contributing to a fall in EPRA NTA to 122.6 pence per share at the year end (31 March 2022: 173.8 pence) and a negative total accounting return of (25.7%) (31 March 2022: 33.2%). However, reflecting our very strong performance in the years following IPO our five-year total accounting return is 10.8%.

When it became clear that interest rates would trend upwards, in July 2022, two additional interest rate caps of £100.0 million each were acquired for a total premium payable of £10.9 million ahead of significant rate rises. These cap the variable SONIA rate at 1.5% until July 2025 and July 2027 respectively. 75.2% of our total debt of £306.0 million is fixed with the remaining 24.8% subject to variable rates.

However, the increased cost of our variable rate debt had a negative impact on earnings. While we met our target dividend of 6.4 pence per share, adjusted earnings of 4.7 pence per share meant that for the full year, the dividend was uncovered. Following the disposals undertaken during the period, our efforts are now focused on continuing to capture the reversion embedded within the portfolio and reduce the variable rate component of our debt.

As at 31 March 2023, the Group's loan to value remains within our target range of 30% to 40%, at 33.9% as at year end, with £14.0 million of headroom within our new facilities and with additional headroom created following further asset disposals that have exchanged, but not yet completed. 

Environmental, social and governance matters

We continued to make significant progress with our ESG agenda under the leadership of my colleague Aimée Pitman, who chairs our Sustainability Committee. We have further strengthened how we integrate ESG factors in everyday decisions, modelled our climate-related risks and formulated a pathway to net zero for our Scope 1 and 2 emissions by 2030. We continued to improve Energy Performance Certificate ("EPC") ratings across the portfolio.  We have eradicated non-compliant F and G ratings ahead of statutory requirements and have a capital expenditure programme aimed at improving the ratings of all D and E rated units in England and Wales to progress meeting expected future legislative requirements for all commercial properties.

In July 2022 the Company transferred from AIM to the Main Market. Given our already robust approach to corporate governance and our comprehensive disclosure, compliance with the requirements of the Listing Rules and related guidance has been straightforward and we now benefit from access to a wider pool of shareholder capital. We continue to follow and comply with the AIC Code of Corporate Governance.

In May 2023, Tilstone Partners Limited, the Investment Advisor, appointed Simon Hope, one of its co-founders, as Executive Chairman and Co-Managing Director alongside Andrew Bird. This follows Simon's move to an executive role at Tilstone.

In a separate announcement today, Martin Meech has indicated that he will not stand for re-election at the AGM this September. Martin has served on the Board since 2017 as the Senior Independent Director and has been a hardworking, respected and valued colleague having served on the Audit, Management Engagement and more recently the Sustainability Committees. I would like to thank him for all his efforts on our behalf and wish him well as he takes up an executive position in the real estate industry.

As reported in elsewhere, this year the Board underwent an externally facilitated Board evaluation. It is envisaged that the outputs of that evaluation will be able to assist the Nomination Committee in identifying Martin's successor. The Board have already commenced the process using external consultants to find a successor.

Outlook

Based on the performance of industry benchmarks and our own experience, there are clear signs that the investment market is stabilising and investors are returning, reflecting the very favourable supply-demand dynamics in our markets.  However, as an industry, we are highly sensitive to the future path of interest rates and the outlook remains uncertain, so the Board will continue to manage the business diligently and carefully. 

In this context, the ability to drive growth organically is key to delivering returns. Occupier demand for space remains robust and our sector continues to benefit from strong tailwinds, including the growth of online retail and heightened focus on supply chain resilience.  In addition, our strong bias towards multi-let space in economically relevant locations means we are well placed to capture demand and drive rents. Selected development opportunities provide further upside and we will commit to these as and when the time is right. 

I am confident that the business is well placed to deliver on behalf of shareholders moving forward. Our primary focus in the near term is continuing to optimise the portfolio earnings growth through active asset management. It should be clear that the Board remain very focused on total shareholder returns. As we pay down more variable rate debt, further capture the significant reversionary potential in the portfolio and continue the value creation process at Radway Green, we believe we have a clear path to further growth in our adjusted earnings per share and therefore our dividend cover.

Neil Kirton

Chairman

5 June 2023

Objectives and strategy

We aim to create value through a top-down approach to investment, hands-on asset management with best-in-class processes, and an appropriate mix of financing.

Our objectives

We aim to provide shareholders with an attractive total return, underpinned by secure income.

Total accounting return

Our target is 10% per annum, through a combination of dividends and growth in NAV.

Outcome in 2022/23

Not achieved.

The total accounting return for the year was (25.7%), reflecting the impact of adverse interest rates and market conditions on the portfolio valuation, partially offset by improvements in occupancy and interest rate caps. Our average total accounting return is on track at 10.8%.

Plan for 2023/24

We continue to target an average return of 10% per annum.

Dividends

Our target for this year was a total dividend of at least 6.4 pence per share.

Outcome in 2022/23

Achieved.

We declared total dividends of 6.4 pence per share.

Plan for 2023/24

Our target for 2023/24 is to maintain the dividend at 6.4 pence per share.

Sustainability

Our new environmental performance target is a 4.2% annual reduction in our like-for-like Scope 1 and 2 emissions.

Our strategy

To achieve our objectives, we follow the strategy set out below:

Key performance indicators

We use the following key performance indicators ("KPIs") to monitor our performance and strategic progress.

Occupancy

2019: 92.0%

2020: 93.4%

2021: 95.6%

2022: 93.7%

2023: 95.8%

Description

Total open market rental value of the units leased divided by total open market rental value, excluding development property and land, and equivalent to one minus the EPRA vacancy rate.

Why is this important?

Shows our ability to retain occupiers at renewal and to let vacant space, which in turn underpins our income and dividend payments.

How we performed

Active asset management, asset disposals and the robust occupational market helped us to increase occupancy during the year to 95.8%.

Link to strategy

Asset management

Like-for-like rental income growth

2019: 2.1%

2020: 2.0%

2021: 2.9%

2022: 3.0%

2023: 5.3%

Description

The increase in contracted rent of units owned throughout the period, expressed as a percentage of the contracted rent at the start of the period, excluding development property, land and units undergoing refurbishment.

Why is this important?

Shows our ability to identify and acquire attractive properties and grow average rents over time.

How we performed

We delivered further good rental growth, as we continued to capture the reversionary potential in the portfolio through active asset management.

Link to strategy

Asset management

Rental increases agreed versus valuer's ERV

2019: 10.0%

2020: 5.1%

2021: 4.3%

2022: 6.0%

2023: 10.2%

Description

The difference between the rent achieved on new lettings and renewals and the ERV assessed by the external valuer, expressed as a percentage above the ERV at the start of the period.

Why is this important?

Shows our ability to achieve rental growth ahead of ERV through asset management and the attractiveness of our assets to potential occupiers.

How we performed

We maintained our track record of achieving rental levels ahead of ERV.

Link to strategy

Asset management

Like-for-like valuation change

2019: 4.3%

2020: 2.5%

2021: 18.8%

2022: 19.4%

2023: (18.5)%

Description

The change in the valuation of properties owned throughout the period under review, expressed as a percentage of the valuation at the start of the period, and net of capital expenditure.

Why is this important?

Shows our ability to acquire the right quality of assets at attractive valuations, add value through asset management and drive increased capital values by capturing rental growth.

How we performed

After two years of exceptionally strong valuation increases, investment market conditions led to an 18.5% fall in the like-for-like valuation.

Link to strategy

Investment

Asset management

Total cost ratio

2019: 29.4%

2020: 27.1%

2021: 29.5%

2022: 27.1%

2023: 28.4%

Description

EPRA cost ratio including direct vacancy costs but excluding one-off costs. The EPRA cost ratio is the sum of property expenses and administration expenses, as a percentage of gross rental income.

Why is this important?

Shows our ability to effectively control our cost base, which in turn supports dividend payments to shareholders.

How we performed

The total cost ratio declined further in the year due to non-recoverable holding costs on larger vacant buildings. Excluding vacancy costs, the EPRA cost ratio was 26.8%.

Link to strategy

Not applicable

EPRA NTA

2019: 109.7p

2020: 109.5p

2021: 135.1p

2022: 173.8p

2023: 122.6p

Description

This net asset value measure assumes entities buy and sell assets, thereby crystallising certain levels of deferred tax liability. The measure excludes the fair value of financial instruments that are used for hedging purposes where the Company has the intention of keeping the hedge position until the end of the contract duration (this is regardless of whether hedge accounting under IFRS is applied).

Why is this important?

Shows our ability to acquire well and to increase capital values through active asset management.

How we performed

The decline in capital values relative to the market contributed to an 29.5% reduction in EPRA NTA per share.

Link to strategy

Investment

Asset management

Dividends per share

2019: 6.0p

2020: 6.2p

2021: 6.2p

2022: 6.4p

2023: 6.4p

Description

The total amount of dividends paid or declared in respect of the financial year, divided by the number of shares in issue in the period.

Why is this important?

Shows our ability to construct a portfolio that delivers a secure and growing income, which underpins progressive dividend payments to shareholders.

How we performed

We achieved our dividend target for the year of at least 6.4 pence per share.

Link to strategy

Investment

Loan to value ratio

2019: 39.7%

2020: 40.2%

2021: 24.6%

2022: 25.1%

2023: 33.9%

Description

Gross debt less cash, short-term deposits and liquid investments, divided by the aggregate value of properties and investments.

Why is this important?

Shows our ability to balance the additional portfolio diversification and returns that come from using debt, with the need to manage risk through prudent financing.

How we performed

The increase in the LTV primarily reflects our acquisition in the year and the reduction in the value of the portfolio, partially offset by proceeds from asset disposals.

Link to strategy

Financing

Investment Advisor's report

The Group performed well from an operational perspective, as we continued to successfully implement the strategy, with a particular focus on driving value from the portfolio through active asset management and progressing the development opportunities, notably at Radway 16, Crewe.

On a statutory basis, the Group's earnings per share of (43.0) pence reflected the loss on revaluation of the investment properties at the year end of £193.4 million, as a result of the conditions in the investment market. The Group had recognised gains on revaluation of £163.7 million and £105.0 million in the previous two financial years.

On an adjusted basis the Group's results were affected by the increased cost of debt in the year, as a result of rising interest rates, and to a lesser extent by higher vacancy costs during the year. As a result, adjusted earnings per share of 4.7 pence were 26.0% lower than the previous financial year, resulting in dividend coverage of 73.0%.

Investment portfolio

During the year, the Group acquired two assets and disposed of a number of other properties.

Acquisition

The Group acquired Bradwell Abbey Industrial Estate in Milton Keynes for £62.0 million, excluding acquisition costs. The multi-let industrial asset comprises 69 units across c.335,000 sq ft and is let to occupiers including Argos, F&F Stores and Taylor Kerr Engineering. The current rent of c.£7.83 per sq ft, offers good reversionary potential compared to an ERV of £9.89 per sq ft. We see clear opportunities to generate upside through strategic capital expenditure, working with the existing occupiers and improving the estate's sustainability credentials, and we have made good progress with our asset management plan since purchase.

Disposals

The Group's asset management strategy includes an ongoing programme of disposing of mature or non-core assets, so it can redeploy the capital or use the proceeds to pay down debt. We keep the portfolio under constant review to identify assets that are candidates for disposal.

During the first half, the Group disposed of two assets, for gross proceeds of £4.8 million. In the second half, we progressed the Group's short-term strategy to reduce the level of variable-rate debt with the disposal of 14 assets, for headline consideration of £54.7 million, crystallising a profit on cost of £3.3 million and generating an ungeared IRR of 8.9%. This brought the aggregate proceeds for the year to £59.6 million. On a statutory basis, due to the high watermark of March 2022 valuations, a £13.1 million loss was realised for the year ended 31 March 2023.

The sale of the assets demonstrate the liquidity of the portfolio and include:

·     Exeter Way, Theale, a vacant 92,000 sq ft warehouse with a high office component, sold to an owner-occupier for £15.0 million; and

·      Temple House, Harlow, for £14.5 million, sold ahead of a potential vacancy and capital expenditure costs, following the receipt of notice to break from the main occupier in March 2023.

The other assets disposed of included a range of smaller properties for £25.2 million with a net initial yield of 6.5% and generating an ungeared IRR of 15.4%. These are assets we had identified as being non-core.

Asset management

Working with occupiers

The Group has a diverse base of 490 occupiers, with the top 15 occupiers accounting for 35.8% of the contracted rent roll from the investment portfolio. The spread of the Group's occupiers across different industries and business sizes means it is not reliant on any one occupier or industry. This increases the Group's resilience and helps to mitigate financial and leasing risks.

We continue to actively monitor the strength of the occupiers' covenants using credit software such as Dun & Bradstreet, enabling us to keep abreast of the impact of the current economic environment on the Group's occupiers, in particular those where energy is a high proportion of their costs. However, we have not identified an increase in corporate failures, as reflected in the Group's rent collection performance and bad debts (see the financial review for more information). As at 2 June 2023, we had collected c.99.0% of the rent due in respect of the year and we expect this to increase as we work with occupiers to collect the outstanding amounts.

Leasing activity

The UK occupational market remains robust and strong occupier demand has helped us to continue to capture the inbuilt reversion in the portfolio through lease renewals and new lettings. New leases continue to exceed ERVs, while lease renewals and rent reviews are achieving strong average uplifts against previous rental levels. As a result, like-for-like contracted rent increased by 5.3% year on year and ERVs by 6.2%, providing significant opportunities to capture the portfolio reversion in future periods.

New leases

The Group completed 40 new leases on 0.5 million sq ft of space during the year, which will generate annual rent of £3.0 million, 29.1% ahead of previous contracted rent and 13.0% ahead of 31 March 2022 ERV. The level of incentives remains steady on all multi-let estates.

Highlights included new leases for:

·      3,700 sq ft at Midpoint 18, Middlewich, to a leading software provider to the UK healthcare sector, on a ten-year lease with a five-year break, at a rent of £237,000 per annum, 97.5% ahead of previous contracted rent and inline with the 31 March 2022 ERV;

·    138,500 sq ft at Daimler Green, Coventry, to an automotive parts manufacturer, on a ten-year term at a rent of £623,000, 25.9% ahead of previous contracted rent and 16.9% above the 31 March 2022 ERV;

·      38,600 sq ft at Swift Valley Industrial Estate, Rugby, on a 20-year lease at £8.60 per sq ft, 11.0% ahead of ERV;

·      20,200 sq ft at Granby Trade Park, Milton Keynes, on a ten-year lease with no break at £10.00 per sq ft;

·     15,200 sq ft at Gateway Park, Birmingham, to an electronic bike and scooter company, on a five-year term at a rent of £7.65 per sq ft, and 17.7% above the 31 March 2022 ERV; and

·     36,100 sq ft at Carisbrooke Industrial Estate, Isle of Wight, for a headline rent of £185,000 per annum for ten years with a break at five years, equivalent to £5.12 per sq ft, 54.2% above previous contracted rent and 7.7% ahead of the 31 March 2022 ERV. The occupier is a leading manufacturing business.

Lease renewals

The Group continues to retain the majority of its occupiers, with 59.0% remaining in occupation at lease expiry and 67.6% with a break arising in the year, including units that were vacated and re-let in the period, this increased the Group's effective retention rate on lease renewals to 88.2%.

There were 22 lease renewals on 0.2 million sq ft of space during the year, with an average uplift of 15.8% above the previous passing rent and 2.7% above the ERV.

Highlights included:

·     31,900 sq ft of lease renewals at Queenslie Park, Queenslie, across nine units, securing £196,500 at an average of 22.8% ahead of previous contracted rent and 10.6% ahead of 31 March 2022 ERV;

·    a five-year renewal at Cairn Court, East Kilbride. The new lease generates total rent of £67,700 per annum and is 33.3% ahead of the previous rent and 20.0% ahead of 31 March 2022 ERV;

·      a five-year renewal at Linkway Industrial Estate, Middleton. The new lease generates total rent of £67,200 per annum and is c.11.0% ahead of both the previous rent and 31 March 2022 ERV;

·     22,000 sq ft lease renewal at Gateway Park, Birmingham, securing £176,700, 22.5% ahead of previous contracted rent and 6.6% ahead of 31 March 2022 ERV.

Rent reviews

During the year 21 rent reviews were completed, generating an additional £0.3 million per annum, 21.5% ahead of previous rent and 5.2% ahead of the 31 March 2022 ERV.

Highlights included:

·     rent reviews on two leases at Air Cargo Centre, Glasgow, which were settled at £440,000, 25.9% ahead of the previous contracted rent and 11.8% ahead of the 31 March 2022 ERV;

·     settled a rent review at Tewkesbury Business Park, Tewkesbury, for £330,000, 20.0% ahead of the previous contracted rent and 9.8% ahead of the 31 March 2022 ERV;

·     settled a rent review at Austin Drive, Coventry, for £275,000, 14.6% ahead of the previous contracted rent and the ERV at the date of the rent review; and

·    rent reviews on two leases at Chittening Industrial Estate, Bristol, which were settled at £210,000, 22.0% ahead of the previous contracted rent and 4.8% ahead of the ERV at the date of the rent review.

Development activity

Since 2017, we have assembled land for a flagship multi-let logistics park development at Radway 16, Crewe. The Group now owns 112 acres in this premier logistics location in the North West, a market characterised by low vacancy rates and high take up in the region providing strong opportunities for above-average rental growth. Radway 16 will provide state-of-the-art, sustainable warehouse space that is suitable for a diverse range of occupiers.

As previously reported, the Group has planning approval for more than 1.8 million sq ft of warehousing at Radway 16, having secured unanimous committee approval in July 2022 on phase 2 (1.02 million sq ft), to add to previously approved consent for 0.8 million sq ft secured in 2021. Since securing the approval on remaining scheme, we have now satisfied the pre-commencement planning conditions of phase 1 to enable a start on site.

In Q4 2022, we launched a marketing campaign, generating significant occupier interest. We have also finalised the marketing for the wider scheme, which can be configured in a number of ways to provide a single 1 million sq ft unit or a number of smaller units.

We continue to make progress with the Group's other development projects, where we will only commence development once a pre-let agreement has been signed.

Capital expenditure

We deploy carefully targeted capital expenditure to increase rents and capital values and improve the assets' ESG performance. On average, the Group aims to invest around 0.75% of its gross asset value ("GAV") in capital expenditure each year. This excludes development projects and is therefore based on GAV excluding developments.

Total capital expenditure in the year was £5.0 million, equivalent to 0.5% of GAV excluding developments. At the year end, approximately 1.3% of the portfolio's ERV was under refurbishment (31 March 2022: 1.6%). In line with the Group's ESG strategy, all capital expenditure projects have long-term sustainable features which target an improvement in the Group's overall EPC rating.

Portfolio analysis

At the year end, the Group's portfolio comprised 833 units across 8.2 million sq ft of space (31 March 2022: 867 units across 8.5 million sq ft). The table below analyses the portfolio as at 31 March 2023:

At he year end, the contracted rent roll for the investment portfolio (excluding developments) was £45.3 million, with the ERV of £53.3 million showing the reversionary potential in the portfolio. Total contracted rents increased by 5.3% on a like-for-like basis during the year.

The NIY of the investment portfolio was 5.6% at 31 March 2023, with an equivalent yield of 6.5% and a reversionary yield of 6.6%. The WAULT for the investment portfolio stood at 5.5 years at 31 March 2023 (31 March 2022: 5.6 years).

Occupancy improved across the investment portfolio and was 95.8% at the year end (31 March 2022: 93.7%). Effective occupancy, which excludes units under offer to let or undergoing refurbishment, was 98.4% at the year end (31 March 2022: 95.8%), with 1.1% of the investment portfolio under offer to let and a further 1.5% undergoing refurbishment at that date.

Financial review

Performance

Rental income for the year was £45.8 million (year ended 31 March 2022: £44.0 million), with the movement reflecting like-for-like rental growth and the initial contribution from the acquisition of Bradwell Abbey Industrial Estate, less revenue foregone from the assets disposed of during the year. EPRA like-for-like rental growth was 6.0%.

The Group's operating costs include its running costs (primarily the management, audit, company secretarial, other professional and Directors' fees), and property-related costs (including legal expenses, void costs and repairs). Total operating costs for the year were £18.9 million (year ended 31 March 2022: £16.0 million). The Investment Advisor fee for the year increased by £0.5 million, primarily as a result of the significant net asset growth in the second half of the previous financial year. The reduced valuation at 31 March 2023 will result in savings for the Group on the Investment Advisor fee in FY 2024 as this is calculated on net assets.

The Company incurred one-off costs in the year of £1.1 million, in relation to its move from trading on AIM to the Main Market of London Stock Exchange. There were no one-off costs in the period to 31 March 2022.

The net increase in the expected credit loss allowance was £0.2 million (year ended 31 March 2022: £0.3 million). This modest change reflects the diversity and quality of the Group's occupiers and our close relationships with them. The Group also often has rent deposits, giving it additional protection from bad debts.

The total cost ratio, which is the adjusted cost ratio including direct vacancy costs, was 28.4% (year ended 31 March 2022: 27.1%), with the increase driven by holding costs relating to non-recoverable property expenses. Excluding void costs, the adjusted cost ratio is 24.4% (year ended 31 March 2022: 24.3%). The ongoing charges ratio, representing the costs of running the REIT as a percentage of NAV, was 1.3% (year ended 30 March 2022: 1.2%).

The Group disposed of 16 assets in the year, resulting in a net loss on disposal of £13.1 million due to the strong revaluation uplifts since the assets were acquired. Against the assets' purchase price, the Group recorded an internal rate of return of 8.0%. There were no disposals in the prior year.

At 31 March 2023, the Group recognised a loss of £193.4 million on the revaluation of its investment properties (year ended 31 March 2022: gain of £163.7 million).

Financing income in the year was £6.9 million (year ended 31 March 2022: £0.3 million), including £2.0 million interest receipts (year ended 31 March 2022: £nil) from interest rate derivatives held by the Company and £4.9 million change in fair value of interest rate derivatives as at 31 March 2023 (year ended 31 March 2022: £nil).

Financing costs include the interest and fees on the Group's revolving credit facility ("RCF") and term loan (see debt financing and hedging). Total finance expenses were £15.5 million (year ended 31 March 2022: £8.2 million). The increase reflects the higher average debt in the year following the acquisition of Bradwell Abbey and the higher weighted average cost of debt, which was partly mitigated by the interest rate caps taken out in the first half (see below). The all-in cost of debt for the year was 4.3% (year ended 31 March 2022: 2.6%). We expect interest costs to reduce in FY 2024, as a result of the reduction in variable-rate debt following the asset disposals in the second half of the year.

The statutory loss before tax was £182.9 million (year ended 31 March 2022: £191.2 million profit).

The Group has continued to comply with its obligations as a REIT and the profits and capital gains from its property investment business are therefore exempt from corporation tax. The corporation tax charge for the year was therefore £nil (year ended 31 March 2022: £nil).

Earnings per share ("EPS") under IFRS was (43.0) pence (year ended 31 March 2022: 45.0 pence). EPRA EPS was 3.9 pence (year ended 31 March 2022: 6.4 pence). Adjusted earnings per share was 4.7 pence (year ended 31 March 2022: 6.4 pence).

Dividends

The Company has declared the following interim dividends in respect of the financial year:

The total dividend of 6.40 pence per share met the Group's target for the year and was 72.9% covered by adjusted EPS. All four interim dividends were property income distributions. The cash cost of the total dividend paid during the year was £27.6 million (year ended 31 March 2022: £26.3 million).

Valuation and net asset value

The portfolio was independently valued by CBRE as at 31 March 2023, in accordance with the internationally accepted RICS Valuation - Global Standards 2020 (incorporating the International Valuation Standards) (the "Red Book"), and the RICS Valuation - Global Standards 2017 - UK national supplement.

The portfolio valuation was £828.8 million (31 March 2022: £1,012.0 million). This represented an 18.5% like-for-like valuation decline, after taking account of capital expenditure of £13.3 million, with the outward yield shift in the year being only partly offset by rising rental values. The EPRA NIY was 5.0% (31 March 2022: 4.0%) and the EPRA topped-up NIY was 5.5% (31 March 2022: 4.4%).

The valuation resulted in an EPRA NTA of 122.6 pence per share at the year end (31 March 2022: 173.8 pence per share).

Debt financing and hedging

At the year end, the Group had a debt facility with a club of four banks: HSBC, Bank of Ireland, Royal Bank of Canada and Barclays. The facility runs until January 2025, with an option to extend for a further two years, and comprises an RCF of £138.0 million and a term loan of £182.0 million, to give a total facility of £320.0 million.

At 31 March 2023, £124.0 million was drawn against the RCF and £182.0 million against the term loan. This gave total debt of £306.0 million (31 March 2022: £271.0 million), with the Group also holding cash balances of £25.1 million (31 March 2022: £16.7 million); the Group's net debt as at 31 March 2023 is £280.9 million (31 March 2022: £254.3 million). The LTV ratio at 31 March 2023 was therefore 33.9% (31 March 2022: 25.1%), with the increase reflecting the acquisition in the year and the lower portfolio valuation, partially offset by the asset disposals.

The Group remains substantially within its covenants in the debt facilities, which place a limit on the LTV of 55% and require minimum interest cover of 2.0 times. Interest cover for the year was 2.9 times.

The Group's debt facilities carry the cost of SONIA plus a lending margin. During the first half of the year, the Group took out two interest rate caps of £100.0 million each, for three and five years respectively at a cost of £10.9 million payable over the term, which cap the SONIA rate in the debt facilities at 1.5%. The Group also has an interest rate cap of £30.0 million, which expires in November 2023 and caps SONIA at 1.75%. A further interest rate cap of £30.0 million expired in November 2022. The Group had hedged approximately 75.0% of its year-end debt against interest rate volatility.

We continue to explore opportunities to diversify the Group's sources of debt funding, hedging requirements, extend the average maturity of its debt and further reduce the average cost of debt.

Post year end activity

Post-year end, the Group entered into a new five-year debt facility totalling £320.0 million, replacing the existing facility. The refinancing consists of £220.0 million term loan and an RCF of £100.0 million, with a club of lenders consisting of HSBC, Bank of Ireland, NatWest and Santander.

The new facility extends the tenure of the of the Group's debt and with improved reporting covenants.

In addition, the Group has exchanged on two further disposals for an aggregate of £29.3 million.

Compliance with the investment policy

The Group's investment policy is summarised below. The Group continued to comply in full with this policy throughout the year.

Investment Manager

The Company is an alternative investment fund for the purposes of the Alternative Investment Fund Managers Directive ("AIFMD") and, as such, is required to have an Investment Manager who is duly authorised to undertake that role. G10 Capital Limited ("G10") is the Company's AIFM and Investment Manager and is authorised and regulated by the Financial Conduct Authority.

Investment Advisor

Tilstone Partners Limited is Investment Advisor to the Company and the Investment Manager.

Tilstone Partners Limited

5 June 2023

Principal risks and uncertainties

PRINCIPAL RISKS AND UNCERTAINTIES

Our ability to identify, understand and manage our risks and uncertainties is key to delivering our strategy and generating returns for investors.

Our approach and culture

Our understanding of the potential risks associated with our business activities, and our ability to implement robust management arrangements linked to our risk appetite are essential for a successful business.  Our risk management activities enable us to identify and manage risks arising internally - from our decision-making and strategy; and from external risks - which arise when we are impacted by changes in the external market and environment. 

Our culture of practical, pragmatic risk awareness and management has been particularly important during the economic challenges of the last financial year, which include increasing interest rates, rising inflation, and significant increases in energy and utility costs.  These financial challenges in particular had an impact on our occupiers and the population of potential occupiers, leading to some changes in our risk profile and risk mitigation plans.

Risk management framework

Our strong culture is underpinned by a structured approach to the understanding and management of risk, with a risk management framework which is reviewed and approved by the Board, via the Audit and Risk Committee, each year. 

The framework is clear and focused, setting out the Board's risk appetite, with defined responsibilities; processes for the regular review of risk and consideration of emerging risk; and reporting arrangements.  This clarity is designed to enable the Group's Investment Advisor to take advantage of opportunities and make effective business decisions, whilst staying within an agreed set of parameters.

During the year, the risk framework and risk appetite were enhanced to reflect our growing focus on ESG and climate-related risks.  We also took the decision to review our risk evaluation matrix, to reflect the increasing size of the business, and our move from AIM to the Main Market.

Risk appetite

Risk management is embedded in our decision-making processes, supported by robust systems, policies, leadership and governance.  Our business uses an outsourced model, and we rely on our service providers to make decisions and take risks within agreed parameters in the delivery of our objectives.  Those parameters are summarised in our stated risk appetite.

The level of risk considered appropriate to accept in achieving business objectives is determined by the Board:

·    The Group has no appetite for risk in areas relating to regulatory compliance, and the health, safety and welfare of our occupiers, stakeholders, and the wider community in which we work 

·      Appetite for risk relating to climate change is low, and the Group is actively focusing on the identification and mitigation of physical and transitional risks for its portfolio

·     We have a moderate appetite for risk in relation to activities which are directed towards driving revenues and increased financial returns for its investors

The Board

The Board has overall responsibility for the Group's approach to risk management and internal control, including:

·    The design and implementation of risk management and internal control systems which identify the risks facing the business and enable the Board to make an assessment of principal risks

·      Determining the nature and extent of the principal risks faced, and those risks which the Group is willing to take

·      Agreeing how principal risks are managed or mitigated to reduce their likelihood or impact

·      Ensuring that there is sufficient relevant, reliable and valid assurance about the mitigation of risk

The Audit and Risk Committee

The majority of the operations of the Group are outsourced, and the Audit and Risk Committee relies on risk information from its service providers, primarily the Investment Advisor.

To fulfil its responsibilities the Audit and Risk Committee:

·      Monitors key risks and changes in risk throughout the year

·      Seeks to identify and consider potential emerging risks to the Group, arising both externally and internally

·    Considers each of the principal risks, the business's mitigation strategies, and assurances from both management and independent sources

·      Undertakes an annual review of the effectiveness of the risk management process, including:

o   The operation of risk management and control systems

o   Integration of risk management and internal control with strategy and business planning

o   Changes in the nature, likelihood and impact of principal risks

o   The quality of risk reporting

o   Any issues dealt with in reports reviewed during the year, in particular the incidence of significant control failings or weaknesses that have been identified, and the extent of the impact which they had or could have had

o   The effectiveness of the Company's public reporting processes

·      Takes advice from the Sustainability Committee with respect to updating climate-related risks and mitigations.

The Sustainability Committee

The Sustainability Committee has oversight of the Group's approach to the management of climate related risks.  It provides the Audit and Risk Committee and Board with updates and information in relation to climate risk generally, and progress with the strategy agreed for the Group to manage risks in this area.

The Investment Advisor

The Investment Advisor supports the Audit and Risk Committee and Board, and is responsible for risk identification, documentation and evaluation, including both current and emerging risks; for the implementation of appropriate controls; and for meaningful reporting to the Audit and Risk Committee. 

Documentation and reporting

The corporate risk register is the core of the risk management process. It contains an assessment of the risks faced by the Group together with the controls established to reduce those risks to an acceptable level.  It is maintained and reviewed regularly by the Investment Advisor, and formally reviewed at each meeting of the Audit and Risk Committee. 

A standard evaluation matrix is used to assess the exposure to risks, and that is reviewed and approved as part of the risk management framework at least annually.

Risks are categorised into:

·      Business risk - the risk of making poor business decisions, implementing decisions ineffectively, or being unable to adapt to changes in its environment. In particular this includes our property investment risk, and our acquisition, disposal and tenancy decision making processes.

·     Compliance risk - the risk of legal or regulatory sanctions, financial loss, or loss to reputation a regulated business may suffer as a result of its failure to comply with all applicable laws, regulations, codes of conduct and standards of good practice. 

·      Climate-related-risk - risks to the business from the impact of climate change.  This includes direct physical impacts such as flooding, or excessive indoor temperatures during periods of extreme heat; and transitional risks such as changes in demand from occupiers, or the cost of complying with changes in building standards.

·      Financial risk - the risk of financial loss resulting from risks such as market, credit and liquidity risks:

·      Market risk - economic losses resulting from price changes in the capital markets. 

·    Credit risk - change in the financial situation of a counterparty, such as an issuer of securities or other debtor with liabilities or arising out of investments and payment transactions with investors. 

·      Liquidity risk - not meeting the criteria of the borrowing policy and payment obligations at all times. 

·     Operational risk - the risk of a loss resulting from inadequate processes, technical failure, human error or external events. 

Emerging risk

The regular risk reviews undertaken by the Investment Advisor specifically include review of emerging risks, and this is also part of the review by and discussions with the Audit and Risk Committee.  The assessment considers internal changes, and external changes trends, and incidents, and considers:

·      Is this risk relevant to the Group's business activities?

·      What is the potential impact, if the risk crystallises?

·      What are our potential strategies for the management and mitigation of the risk? 

·      How could we get assurance that these strategies are effective in practice?

·      Is this a risk that we should continue to pro-actively monitor?

During the year, we have made some changes to the risks on the register, enhancing risk definitions and the evaluation of some risks, to reflect the challenges being presented by the current cost of financing, and more difficult economic and market conditions. 

One new principal risk was agreed during the year, relating to the Group's ability to raise funding - be that equity, loan financing or through asset disposals.

Environmental, social and governance ("ESG") risk

We have continued to invest in and develop our knowledge and plans to manage risk exposure around our sustainable ambitions and climate-related risks. The associated risks are integrated in the Group's risk management process and corporate risk register, and we have also developed an additional, more granular ESG risk register. Climate change risk remains one of the Group's principal risks.

Our governance framework has been enhanced with a Sustainability Committee (a sub-committee of the Board/Investment Advisor), having regular oversight of the Group's responsible business agenda, sustainability strategy and external ESG reporting plus being provided with regular updates on regulatory requirements and general market expectations. Following the climate risk scenario modelling undertaken this year, the Sustainability Committee will review the Group's climate related risks and mitigation strategies in detail via the focused ESG risk register and recommend any required updates to the Audit and Risk Committee.

Climate-related risks, particularly physical risks, are incorporated in our decision-making protocols for portfolio changes and capital developments. Costs associated with the Group's sustainability and climate-related ambitions e.g. minimum energy efficiency standards ahead of legislative requirements for properties and net zero carbon pathway, are included in our financial modelling and budgeting. Capital project planning also includes a focus on energy usage reduction and implementing building efficiency measures such as building management systems, replacement of high emission fittings, reduction of water usage and support of sustainable transport initiatives. A climate risk scenario modelling has been completed, to enable us to assess the exposure of our portfolio to physical climate-related risks across certain climate scenarios. The assessment provided a clear overview of the impact likelihood that modelled hazards pose to the portfolio, enabling us to make strategic decisions on where to focus mitigation actions and harness opportunities. We are introducing targeted surveys of occupiers to understand their challenges and requirements, to enable us to work together to reduce risk and further understand our energy consumption baseline.

Principal risks

Principal risks are those which are considered material to the Group's development, performance, position or future prospects.  The principal risks are captured in the corporate risk register and are reviewed by the Board and Audit and Risk Committee, who consider:

·    any substantial changes to principal risks;

·    material changes to control frameworks in place;

·    changes in risk scores; and

·    any significant risk incidents arising.

Changes in principal risks during the year

One new principal risk was agreed during the year, relating to the Group's ability to raise funding - be that equity, loan financing or through asset disposals. Previously, risks covering this area were included in the risk register, but were not considered to be significant principal risks.  However, the combination of a hardening market for asset disposals, market uncertainties impacting on our share price, the timing of our refinancing, and the increasing cost of capital have all combined to result in an increased exposure.

In some cases the evaluation of principal risks has changed during the year, and the detailed risks section on the following pages shows those changes, with additional information setting out the reasons for changes and risk mitigation plans.

Going concern and viability statement

Going concern

The Board monitors the Group's ability to continue as a going concern. Specifically, at quarterly Board meetings, the Board reviews summaries of the Group's liquidity position and compliance with loan covenants, as well as forecast financial performance and cash flows. Throughout the year, the Board met, in conjunction with the Investment Advisor, Tilstone, to review the uncertainties created by geopolitical tensions and rising inflation and interest rates, and specifically their potential impact on rent collection, cash resources, loan facility headroom, covenant compliance, acquisitions and disposals of investment properties, discretionary and committed capital expenditure and dividend distributions.

The Group ended the year with £19.0 million of unrestricted cash and £14.0 million of headroom readily available under its facilities. Disposals are an important part of our approach to portfolio optimisation and we continually review the portfolio to identify opportunities to increase efficiency and dispose of any assets that are considered ex-growth or non‑core, recycling that capital into accretive acquisitions or to reduce debt. The Group made disposals totalling £59.5 million during the year and exchanged on two further disposals for £29.3 million post year end.

The Group has completed a new five year £320.0 million facility with a club of lenders extending the tenure of the previous financing arrangements past 2025. In making this an assessment on going concern, the Board have considered covenant compliance based on the new terms of the facility.

The Group is operating significantly within its covenants and a sensitivity analysis has been performed to identify the decrease in valuations and rental income that would result in a breach of the LTV, market value covenants or interest cover covenants. Valuations would need to fall by 32.9% or rents by 30.5%, when compared with 31 March 2023, before these covenants would be breached, which, based on available market data, is considered unlikely.

As at 5 June 2023, c.99.0% of rents invoiced in relation to the year ended 31 March 2023 have been received. Furthermore, current debt and associated covenants are summarised in note 28, with no covenant breaches during the period.

Tilstone has prepared projections for the Group covering the going concern period to 30 June 2024, which have been reviewed by the Directors. As part of the going concern assessment, and taking the above into consideration, the Directors reviewed a number of scenarios which included extreme downside sensitivities in relation to rental cash collection, making no discretionary capital expenditure, adverse refinancing conditions and minimum dividend distributions under the REIT rules.

Accordingly, based on this information, and in light of mitigating actions available and the recent refinancing, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in business for a period of at least 12 months from the date of approval of the Annual Report and Financial Statements.

Assessment of viability

In accordance with the AIC Code of Corporate Governance, the Directors have assessed the Group's prospects over a period greater than the 12 months considered by the going concern provision.

The Directors have conducted their assessment over a three-year period to June 2026, allowing a reasonable level of accuracy given typical lease terms and the cyclical nature of the UK property market.

The principal risks summarise the matters that could prevent the Group from delivering its strategy. The Board seeks to ensure that risks are kept to a minimum at all times and, where appropriate, the potential impact of such risks is modelled within its viability assessment.

The nature of the Group's business as the owner of a diverse portfolio of UK warehouses, principally located close to urban centres or major highways and let to a wide variety of occupiers, reduces the impact of adverse changes in the general economic environment or market conditions, particularly as the properties are typically flexible spaces, adaptable to changes in occupational demands.

The Directors' assessment takes into account forecast cash flows, debt maturity and renewal prospects, forecast covenant compliance, dividend cover and REIT compliance. The model is then stress tested for severe but plausible scenarios, individually and in aggregate, along with consideration of potential mitigating factors. The key sensitivities applied to the model are a downturn in economic outlook and restricted availability of finance, specifically:

(i) increased occupier churn and occupier defaults;

(ii) increased void periods following break or expiry;

(iii) decreased rental income;

(iv) decrease in property valuation; and

(v) increased interest rates.

The sensitivity analysis identifies the decrease in valuations and rental income that would result in a breach of the LTV, market value covenants or interest cover covenants as set out in the Going Concern section above. Taking into account mitigating actions, the results of the sensitivity analysis and stress testing demonstrated that the Group would have sufficient liquidity to meet its ongoing liabilities as they fall due, maintain compliance with banking covenants and maintain compliance with the REIT regime over the period of the assessment.

Furthermore, the Board, in conjunction with the Audit and Risk Committee, carried out a robust assessment of the principal risks and uncertainties facing the Group, including those that would threaten its business model, strategy, future performance, solvency or liquidity over the three-year period. The risk review process provided the Board with assurance that the mitigations and management systems are operating as intended. The Board believes that the Group is well positioned to manage its principal risks and uncertainties successfully, taking into account the current economic and political environment.

The Board's expectation is further supported by regular briefings provided by Tilstone. These briefings consider market conditions, opportunities, changes in the regulatory landscape and the current economic and political risks and uncertainties. Additionally, the trend for increased warehouse space driven by online sales and the need to reinforce supply chains, combined with the shortage of supply nationally, is seen as mitigation. These risks, and other potential risks which may arise, continue to be closely monitored by the Board.

Viability statement

The period over which the Directors consider it is feasible and appropriate to report on the Group's viability is a three-year period to June 2026. This period has been selected because it is the period that is used for the Group's medium‑term business plans. Underpinning this plan is an assessment of each individual unit's performance, driving the overall letting assumptions and corresponding forecast cash flows.

Having made an assessment of each individual unit's performance, the forecast cash flows, covenant compliance and the impact of sensitivities in combination, the Directors confirm that, taking account of the Group's current position, the principal risks and in light of the current economic uncertainty, they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment.

Neil Kirton
Chairman

5 June 2023

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with UK adopted international accounting standards and applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements of the Group and the Company in accordance with UK adopted international accounting standards. Additionally, the Directors must not approve the financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the Group and Company for that year.

In preparing the financial statements, the Directors are required to:

·   select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and errors and apply them consistently;

·  present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·  provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance;

·    state that the Group has complied with UK adopted international accounting standards, subject to any material departures disclosed and explained in the financial statements;

·    make judgements and estimates that are reasonable and prudent;

·    prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business; and

·    prepare a directors' report, a strategic report and directors' remuneration report which comply with the requirements of the Companies Act 2006.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website, including ensuring the annual report and the financial statements are made available. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. As such, the Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein. Financial statements are published on the company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements and visitors to the website need to be aware that legislation in the UK covering the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction.

·   The Directors confirm that, pursuant to their responsibilities under DTR4, to the best of their knowledge: the financial statements, prepared in accordance with UK adopted international accounting standards and in conformity with the requirements of the Companies Act 2006, give a true and fair view of the assets, liabilities, financial position and profit of the Company (and Group as a whole); and

·   this Annual Report includes a fair review of the development and performance of the business and the position of the Company (and Group as a whole), together with a description of the principal risks and uncertainties that it faces.

Having taken advice from the Audit Committee, the Directors consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

Neil Kirton

Chairman

5 June 2023

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2023

All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.

There is no other comprehensive income and therefore the profit for the year after tax is also the total comprehensive income.

The accompanying notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2023

These financial statements were approved by the Board of Directors of Warehouse REIT plc on 5 June 2023 and signed on its behalf by:

Neil Kirton
Company number: 10880317
The accompanying notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2023

Further details of retained earnings are presented in Note 23.

The accompanying notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 March 2023

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 March 2023

1. General information

Warehouse REIT plc is a closed-ended Real Estate Investment Trust ("REIT") with an indefinite life incorporated in England and Wales on 24 July 2017. The Company began trading on 20 September 2017. The registered office of the Company is located at 65 Gresham Street, London EC2V 7NQ. The Company's shares are admitted to trading on the Premium Listing Segment of the Main Market, a market operated by the London Stock Exchange.

The Group's consolidated financial statements for the year ended 31 March 2023 comprise the results of the Company and its subsidiaries (together constituting the "Group") and were approved by the Board and authorised for issue on 5 June 2023.

2. Basis of preparation

The financial information set out in these financial statements does not constitute the Company's statutory accounts for the year ended 31 March 2023, but is derived from those accounts. Statutory accounts for the year ended 31 March 2023 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditor has reported on those accounts; their report was unqualified, did not draw to attention any matters by way of emphasis of matter without qualifying their report and did not contain statements under s498(2) or (3) of the Companies Act 2006. The text of the Auditor's Report can be found in the full Annual Report.

These financial statements are prepared in accordance with IFRS issued by the International Accounting Standards Board ("IASB") and in conformity with the requirements of the Companies Act 2006. The financial statements have been prepared under the historical cost convention, except for the revaluation of investment properties and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The audited financial statements are presented in Pound Sterling and all values are rounded to the nearest thousand pounds (£'000), except when otherwise indicated.

Going concern

The Directors have made an assessment of the Group's ability to continue as a going concern. They carefully considered areas of potential financial risk and reviewed cash flow forecasts, evaluating a number of scenarios which included extreme downside sensitivities in relation to rental cash collection, making no acquisitions or discretionary capital expenditure and minimum dividend distributions under the REIT rules.

Accordingly, based on this information, and in light of mitigating actions available and the reasonable expectation that the Group refinancing will be available when required, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in business for a period of at least 12 months from the date of approval of the Annual Report and Financial Statements.

Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern. Therefore, the financial statements have been prepared on the going concern basis.

Changes to accounting standards and interpretations

New standards and interpretations effective in the current period

There were a number of new standards and amendments to existing standards which are required for the Group's accounting period beginning on 1 April 2022, which have been considered and applied as follows:

• Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37);

• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);

• Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and

• References to Conceptual Framework (Amendments to IFRS 3).

There was no material effect from the adoption of the above-mentioned amendments to IFRS effective in the period. They have no significant impact to the Group as they are either not relevant to the Group's activities or require accounting which is already consistent with the Group's current accounting policies.

New and revised accounting standards not yet effective

There are a number of new standards and amendments to existing standards which have been published and are mandatory for the Group's accounting periods beginning on or after 1 April 2023 or later. The Group is not adopting these standards early. The following are the most relevant to the Group:

Amendments to IAS 1 Presentation of Financial Statements clarifies that liabilities are classified as either current or non‑current, depending on the rights that exist at the end of the reporting period and not expectations of, or actual events after, the reporting date. The amendments also give clarification to the definition of settlement of a liability.

Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors clarifies the distinction between accounting policies and accounting estimates and also replaces the definition of accounting estimates. Under the new definition, estimates are "monetary amounts in financial statements that are subject to measurement uncertainty".

The amendments are not expected to have a significant impact on the preparation of the financial statements.

2.2 Significant accounting judgements and estimates

The preparation of these financial statements in accordance with IFRS requires the Directors of the Company to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future.

Judgements

In the course of preparing the financial statements, no judgements have been made in the process of applying the Group's accounting policies, other than those involving estimations detailed below, that have had a significant effect on the amounts recognised in the financial statements.

Estimates

In the process of applying the Group's accounting policies, the Investment Advisor has made the following estimates which have the most significant risk of material change to the carrying value of assets recognised in the consolidated financial statements:

Valuation of property

The valuations of the Group's investment property are at fair value as determined by the external independent valuer on the basis of market value in accordance with the internationally accepted RICS Valuation - Professional Standards January 2020 (incorporating the International Valuation Standards) and in accordance with IFRS 13. The key estimates made by the valuer are the ERV and equivalent yields of each investment property and land values per acre for development properties. The valuers have considered the impact of climate change and that this has not had a material impact on the valuation at the current time. See notes 13 and 25 for further details.

2.3 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are stated in the notes to the financial statements.

a) Basis of consolidation

The Company does not meet the definition of an investment entity and therefore does not qualify for the consolidation exemption under IFRS 10. The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 March 2023. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtained control, and will continue to be consolidated until the date that such control ceases. An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In preparing these financial statements, intra-group balances, transactions and unrealised gains or losses have been eliminated in full. All subsidiaries have the same year end as the Company. Uniform accounting policies are adopted in the financial statements for like transactions and events in similar circumstances.

b) Functional and presentation currency

The overall objective of the Group is to generate returns in Pound Sterling and the Group's performance is evaluated in Pound Sterling. Therefore, the Directors consider Pound Sterling as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions and have therefore adopted it as the functional and presentation currency.

c) Segmental reporting

The Directors are of the opinion that the Group is engaged in a single segment of business, being the investment in, and provision of, UK urban warehouses.

3. Property income

No occupier accounts for more than 10% of rental income.

Accounting policy

Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease term and is included in gross property income in the Group statement of comprehensive income. Initial direct costs incurred in negotiating and arranging an operating lease are recognised as an expense over the lease term on the same basis as the lease income. Rental income is invoiced in advance and for all rental income that relates to a future period, this is deferred and appears with current liabilities on the Group statement of financial position.

For leases which contain fixed or minimum uplifts, the rental income arising from such uplifts is recognised on a straight-line basis over the lease term. A rental adjustment is recognised from the rent review date in relation to unsettled rent reviews, once the rental uplifts are agreed.

Occupier lease incentives are recognised as an adjustment of rental revenue on a straight-line basis over the term of the lease. The lease term is the non-cancellable period of the lease together with any further term for which the occupier has the option to continue the lease where, at the inception of the lease, the Directors are reasonably certain that the occupier will exercise that option.

Insurance income is recognised in the accounting period in which the services are rendered.

Amounts received from occupiers to terminate leases or to compensate for dilapidations are recognised in the Group statement of comprehensive income when the right to receive them arises, typically at the cessation of the lease.

Service charge income is recognised when the related recoverable expenses are incurred. The Group acts as the principal in service charge transactions as it directly controls the delivery of the services at the point at which they are provided to the occupier.

4. Property operating and administration expenses

Main Market expenses are costs associated with the transfer to the Premium Segment of the Main Market of the London Stock Exchange. On 12 July 2022, Warehouse REIT transferred the trading of its ordinary shares to the Premium Segment of the Main Market of the London Stock Exchange.

Details of how the Investment Advisor fees are calculated are disclosed in note 29.

Accounting policy

All property operating expenses and administration expenses are charged to the consolidated statement of comprehensive income and are accounted for on an accruals basis.

Property expenses are costs incurred by the Group that are not directly recoverable from an occupier, as well as professional fees relating to the letting of our estates.

5. Directors' remuneration

A summary of the Directors' emoluments, including the disclosures required by the Companies Act 2006, is set out in the Directors' remuneration report. The Group had no employees in either period.

6. Auditor's remuneration

The Group reviews the scope and nature of all proposed non-audit services before engagement, to ensure that the independence and objectivity of the Auditor are safeguarded. Audit fees are comprised of the following items:

Non-audit fees payable to the Group's Auditor comprised of the following:

There were no non-audit services provided by the Auditor in the year to 31 March 2022. The Audit Committee receives assurance from the Auditor that its independence is not compromised. The Group's Auditor for the year ended 31 March 2023 was BDO LLP.

7. Finance income

Accounting policy

Interest income is recognised on an effective interest rate basis and shown within the Group statement of comprehensive income as finance income.  See note 18 for details on the accounting policy for interest rate derivatives.

8. Finance expenses

The interest capitalisation rates for the year ended 31 March 2023 ranged from 3.2% to 4.3%A(31 March 2022: nil).

Accounting policy

Any finance costs that are separately identifiable and directly attributable to an asset which takes a period of time to complete are capitalised as part of the cost of the asset. Ongoing services fees relating to the maintenance of the loan are expensed in the period in which they occur. All other finance costs are expensed in the period in which they occur. Finance costs consist of interest and other costs that the Group incurs in connection with bank and other borrowings. Fair value movements on derivatives are recorded in finance expenses or in finance income depending on the fair value movement during the year. See note 19 for the accounting policy on head lease interest expensed.

9. Taxation

Corporation tax has arisen as follows:

Reconciliation of tax charge to profit before tax:

Accounting policy

Corporation tax is recognised in the consolidated statement of comprehensive income except where in certain circumstances corporation tax may be recognised in other comprehensive income.

As a REIT, the Group is exempt from corporation tax on the profits and gains from its property rental business, provided it continues to meet certain conditions as per the REIT regulations.

Non-qualifying profits and gains of the Group continue to be subject to corporation tax. Therefore, current tax is the expected tax payable on the non-qualifying taxable income for the period, if applicable, using tax rates enacted or substantively enacted at the balance sheet date.

The United Kingdom Government has announced an increase to the main rate of corporation tax from 19% to 25% from April 2023. As the Company is a REIT, it is not anticipated that the change in the corporate tax rate will have a material impact on the Group, however tax charges on any non-property income will increase.

10. Operating leases

Operating lease commitments - as lessor

The Group has entered into commercial property leases on its investment property portfolio. These non-cancellable leases have a remaining term of up to 15 years.

Future minimum rentals receivable under non-cancellable operating leases as at 31 March 2023 are as follows:

11. Dividends 

As a REIT, the Group is required to pay property income distributions ("PIDs") equal to at least 90% of the property rental business profits of the Group.

A third interim property income dividend for the year ended 31 March 2023 of 1.60 pence per share was declared on 28 February 2023 and paid on 3 April 2023.

Accounting policy

Dividends due to the Company's shareholders are recognised when they become payable.

12. Earnings per share

Basic EPS is calculated by dividing profit for the period attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares during the period. As there are no dilutive instruments in issue, basic and diluted EPS are identical.

The European Public Real Estate Association ('EPRA') publishes guidelines for calculating adjusted earnings on a comparable basis. EPRA EPS is a measure of EPS designed by EPRA to enable entities to present underlying earnings from core operating activities, which excludes fair value movements on investment properties.

The Company has also included an additional earnings measure called "Adjusted Earnings" and "Adjusted EPS." Adjusted Earnings and Adjusted EPS is based on EPRA's Best Practices Recommendations and recognises finance income earned from derivatives held at fair value through profit and loss used to hedge the Company's floating interest rate exposure. Also included in adjusted earnings is the add back of the costs associated with the transfer to the Premium Segment of the Main Market of the London Stock exchange, as these costs will not be reoccurring.

The Board deems this a more relevant indicator of core earnings as it reflects our ability to generate earnings from our portfolio.

13. UK investment property

All investment properties are charged as collateral on the Group's borrowings. One asset is also subject to a second ranking charge in relation to deferred consideration outstanding. See note 20 for details.

Included within the carrying value of investment properties as at 31 March 2023 is £10.4 million (31 March 2022: £9.1 million) in respect to rent incentives as a result of the IFRS treatment of leases with rent-free periods, which require recognition on a straight-line basis over the lease term. The difference between this and cash receipts change the carrying value of the property on which revaluations are measured.

During March 2023, the Group reached practical completion of the development at Valley Court, Middlewich, at which point the asset became income-producing. The transfer between development property and land and completed investment property reflects the completion of this development.

During the period the Group capitalised £1.2 million (31 March 2022: nil) of interest paid in development properties. Please see note 8 for details on the capitalisation rate used.

Accounting policy

Investment property comprises property held to earn rental income or for capital appreciation, or both. Investment properties are recognised upon legal completion of the contract, where costs are reliably measured and future economic benefits that are associated with the property flow to the entity.

Investment properties are measured initially at cost including transaction costs. Transaction costs include transfer taxes and professional fees to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred, if the recognition criteria are met.

Development property and land is where the whole or a material part of an estate is identified as having potential for development. Assets are classified as such until development is completed and they have the potential to be fully income-generating. Development property and land is measured at fair value if the fair value is considered to be reliably determinable. Where the fair value cannot be determined reliably but where it is expected that the fair value of the property will be reliably determined when construction is completed, the property is measured at cost less any impairment until the fair value becomes reliably determinable or construction is completed, whichever is earlier. It is the Group's policy not to capitalise overheads or operating expenses for assets with approved planning permission. In addition, it is the Group's policy to capitalise finance costs relating to the development of the assets with planning permission, see note 8 for details.

Subsequent to initial recognition, investment property is stated at fair value (see note 25). Gains or losses arising from changes in the fair values are included in the consolidated statement of comprehensive income in the period in which they arise under IAS 40 Investment Property.

Investment properties cease to be recognised when they have been disposed of or withdrawn permanently from use and no future economic benefit is expected. Gains or losses on the disposal of investment property are determined as the difference between net disposal proceeds and the carrying value of the asset.

Movements in rent incentives are presented within the total portfolio valuation.

Where an investment property is held under a leasehold interest, the headlease is initially recognised as an asset at cost plus the present value of minimum ground rent payments and is subsequently measured at fair value. The corresponding rental liability to the head leaseholder is included in the balance sheet as a finance lease obligation (see note 19).

14. Investment properties held for sale

As at 31 March 2023, Ellesmere Port, Burnell Road is designated as held for sale, as sales contracts were exchanged on 3 March 2023 and will be completed during the year ended 31 March 2024.

Accounting policy

An asset will be classified as held for sale in line with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations if its carrying value is expected to be recovered though a sale transaction rather than continuing use. An asset will be classified in this way only when a sale is highly probable, management are committed to selling the asset at the year-end date, the asset is available for immediate sale in its current condition and the asset is expected to be disposed of within 12 months after the date of the Consolidated Statement of Financial Position.

15. Cash and cash equivalents

Restricted cash comprises £6.1 million (31 March 2022: £5.9 million) of cash held by the Company's Registrar to fund the shareholder dividend, less withholding tax, which was paid on 3 April 2023 as disclosed in note 11.

Accounting policy

Cash and cash equivalents comprise cash at bank and short-term deposits with banks and other financial institutions, with an initial maturity of three months or less.

16. Trade and other receivables

The rent and insurance receivables balance represents gross receivables of £4.2 million (31 March 2022: £6.2 million), net of a provision for doubtful debts of £0.2 million (31 March 2022: £0.8 million).

Payments in advance of property completion represent the deposits paid to vendors upon exchange of purchase contracts.

Accounting policy

Rent and other receivables are recognised at their original invoiced value and become due based on the terms of the underlying lease or at the date of invoice.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk and ageing.

The expected loss rates are based on the Group's historical credit losses experienced over the two‑year period prior to the year end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers.

17. Interest-bearing loans and borrowings

athe year end, the Group had a debt facility with a club of four banks: HSBC, Bank of Ireland, Royal Bank of Canada and Barclays. The facility runs until January 2025, with an option to extend for a further two years (subject to lender consent), and comprises an RCF of £138.0 million and a term loan of £182.0 million, to give a total facility of £320.0 million.

At 31 March 2023, £124.0 million was drawn against the RCF and £182.0 million against the term loan. This gave total debt of £306.0 million (31 March 2022: £271.0 million); with the Group also holding cash balances of £25.1 million (31 March 2022: £16.7 million), the Group's net debt as at 31 March 2023 is £280.9 million (31 March 2022: £254.3 million). The LTV ratio at 31 March 2023 was therefore 33.9% (31 March 2022: 25.1%), with the increase reflecting the acquisition in the year and the lower portfolio valuation, partially offset by the asset disposals. All borrowings under these agreements attract a margin of 2.0% - 2.2% per annum above SONIA, plus a credit adjustment spread equal to 11.93 bps.

As at 31 March 2023, there is £14.0 million (31 March 2022: £49.0 million) available to draw.

The debt facility includes interest cover and market value covenants that are measured at a Group level. The Group has complied with all covenants throughout the financial period.

Accounting policy

Loans and borrowings are initially recognised at the proceeds received net of directly attributable transaction costs. Loans and borrowings are subsequently measured at amortised cost with interest charged to the consolidated statement of comprehensive income at the effective interest rate, and shown within finance costs. Transaction costs are spread over the term of the loan.

18. Interest rate derivatives

On 20 July 2022, the Group entered into interest rate caps with a premium of £2.2 million paid in the year ending 31 March 2023. The remaining premium of £8.7 million is due in quarterly instalments with the final payment due in January 2025.

The instruments have a combined notional value of £230.0 million with £200.0 million at a strike rate of 1.50% and the remaining £30.0 million at a strike rate of 1.75%. The £30.0 million instrument has a termination date of 20 November 2023, £100.0 million has a termination date of 20 July 2025 and £100.0 million has a termination date of 20 July 2027.

Accounting policy

Interest rate derivatives are initially recognised at fair value and are subsequently measured at fair value, being the estimated amount that the Group would receive or pay to terminate the agreement at the period end date, taking into account current interest rate expectations and the current credit rating of the Group and its counterparties. Premiums payable under such arrangements are initially capitalised into the statement of financial position.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to the fair value measurement as a whole. Changes in fair value of interest rate derivatives are recognised within finance expenses in profit or loss in the period in which they occur.

All receipts of income from the instrument are recognised as finance income in note 8 of the financial statements separate from the fair value measurement recorded.

19. Head lease obligations

The following table analyses the present value of minimum lease payments under non-cancellable head leases using an average discount rate of 6.91% for each of the following periods:

The following table analyses the minimum undiscounted lease payments under non-cancellable head leases for each of the following periods:

The fair value of the Group's lease obligations is estimated to be equal to its carrying value.

Accounting policy

At the commencement date, head lease obligations are recognised at the present value of future lease payments using the discount rate implicit in the lease, if determinable, or, if not, the property specific incremental borrowing rate.

20. Other liabilities - other payables and accrued expenses, provisions and deferred income

Other payables and accrued expenses are initially recognised at fair value and subsequently held at amortised cost.

During the year ended 31 March 2021, the Group exchanged contracts to acquire land for £15.0 million. The first three instalments were paid for a total of £2.5 million to the year ended 31 March 2022 with an additional £1.5 million paid during the year ended 31 March 2023. The final instalment of £11.3 million is due to be paid on 1 September 2024.

Deferred consideration payable of £4.5 million is in relation to a property acquired during the year ended 31 March 2020.  The deferred consideration is due in September 2023, or earlier if the property is sold before that date. The consideration is secured on a second ranking charge over the asset.

No discounting is applied to deferred consideration on the grounds of materiality.

Deferred income is rental income received in advance during the accounting period. The income is deferred and is unwound to revenue on a straight-line basis over the period in which it is earned.

21. Share capital

Share capital is the nominal amount of the Company's ordinary shares in issue.

The share capital comprises one class of ordinary shares. At general meetings of the Company, ordinary shareholders are entitled to one vote on a show of hands and on a poll, to one vote for every share held. There are no restrictions on the size of a shareholding or the transfer of shares, except for the UK REIT restrictions.

22. Share premium

Share premium comprises the following amounts:

Share premium represents the excess over nominal value of the fair value of the consideration received for equity shares net of direct issue costs.

23. Retained earnings

Retained earnings comprise the following cumulative amounts: