RNS announcement

15 November 2023

Warehouse REIT plc

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

Resilient occupier market and active asset management supports leasing momentum and valuation uplift, providing a strong platform to drive rents and earnings

Neil Kirton, Chairman of Warehouse REIT commented:

"In June we set out a plan to drive earnings by capturing portfolio reversion, selling non-core assets to reduce expensive debt and progressing Radway Green. We have made good progress. Our focus on multi-let industrials where demand is resilient and supply is tight has supported further leasing momentum; we have delivered asset sales significantly ahead of book value and strengthened the balance sheet with 88% of our debt now hedged. 

"A consensus is emerging that interest rates will remain 'higher for longer' and we are managing our business accordingly. Key to this is delivering value for shareholders at Radway Green, which is a highly attractive development but not one we will undertake alone.  We have therefore launched a process for a sale of the whole, or a majority, of the asset, which will enable the business to focus on what it does well - active asset management. This is also the most effective way to deliver sustainable earnings growth over the long term."

Portfolio valuation increase driven by ERV growth, with valuation yields stable

·      Like-for-like portfolio valuation increased 1.0% to £811.3 million (31 March 2023: £828.8 million)

o  Yields broadly flat, with like-for-like growth in estimated rental values of 2.8% benefitting from our leasing activity;expect ERV growth for the year of 5-6%

·      EPRA NTA per share up 0.9% to 123.7p (31 March 2023: 122.6p) with a total accounting return of 3.5%

Leasing activity capturing reversion, driving rents 31.8% ahead of previous rents

·      48 lease events over 0.5 million sq ft securing £3.4 million in contracted rent, including:

o  £0.7 million from 23 new lettings, 21.5% ahead of previous contracted rent;

o  £0.9 million from 15 renewals, 36.7% ahead of previous contracted rent; and

o  £1.8 million from 10 rent reviews, 32.4% ahead of previous contracted rent

·      1.7% like-for-like growth in contracted rents, with 11.7% portfolio reversion as at 30 September 2023

·      Occupancy stable at 96.0% with c.98.0% of HY24 rent already collected

·     Post period-end, a further 14 lease events over 0.7 million sq ft, 20.5% ahead of previous contracted rent taking like-for-like growth in contracted rents to 3.4% for the first seven months

Targeted disposal plan well progressed, capitalising on pockets of demand with sales ahead of book

·      £39.6 million of non-core asset sales completed, 20.1% ahead of March 2023 book value; generating £5.4 million of profit

·      Total sales of £94.3 million since disposal plan announced in November 2022

·      Evaluating options to deliver value at Radway Green, Crewe to further reduce debt

·      £21.0 million of debt repaid during the period and £7.8 million allocated to value-enhancing capital expenditure initiatives  

Robust financial performance and sound financial management

·     Operating profit up 1.5% to £17.3 million (30 Sept 2022: £17.0 million), reflecting leasing momentum and reduction in total cost ratio of 440 basis points to 23.2%

·      Adjusted earnings of £9.8 million (30 Sept 2022: £11.1 million), primarily reflecting increased debt costs

·      Adjusted EPS of 2.3p (30 Sept 2022: 2.6p)

·     Dividend maintained at 3.2p; dividend cover expected to improve as ongoing asset management initiatives conclude; fully cash covered when profits on disposals included

·    £320.0 million of debt refinanced with more favourable covenants and additional interest rate caps of £50.0 million acquired; 87.7% of debt hedged against interest rate volatility with no major refinancing until 2028

·      LTV at 34.0%, with significant headroom of £35.0 million in cash and available facilities

Progressing our sustainability strategy

·      64.1% of the portfolio now EPC A-C rated (31 March 2023: 60.2%)

Financial highlights

Investment portfolio statistics

Meeting

A meeting for professional investors and analysts will be held at 9.00am on 15 November 2023 at the offices of FTI Consulting, 200 Aldersgate, London EC1A 4HD.  Registration is required for this event, please email FTI Consulting at warehousereit@fticonsulting.com should you wish to attend.

The results presentation will also be available in the Investor Centre section of the Group's website.

Enquiries

Warehouse REIT plc     

via FTI Consulting

Tilstone Partners Limited

Simon Hope, 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: warehousereit.co.uk

Notes

Warehouse REIT is a 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 delivering 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

When we announced our full-year results in June, we reiterated our focus on driving earnings through capturing the reversion in our portfolio, reducing the variable rate element of our debt and delivering value at our Radway Green development in Crewe. We are pleased to be reporting good progress against these targets with 0.5 million sq ft of leasing activity, £39.6 million of asset sales completed, and a £320 million debt refinancing, extending the term and improving the covenants on our debt. Radway Green is an outstanding development opportunity but in the current environment, our focus is on extracting value from it in the near term.

Our leasing activity over the six months has generated an additional £1.2 million in rent, bringing contracted rent to £43.8 million as at 30 September 2023 with a like-for-like increase of 1.7% for the six-month period. New lettings have been achieved on average 21.5% ahead of previous rent while renewals and rent reviews were 36.7% and 32.4% ahead respectively.  This is a good performance and reflects both the expertise of the Tilstone team as well as our focus on multi-let industrial space. Ours is a scarce asset class with new development constrained by a strict planning environment and with average capital values of £92.4 per sq ft well below rebuild cost, new development is rarely economic. At the same time, it appeals to a broad spectrum of occupier, from light industrial, to technology, warehousing and e-commerce. This is reflected in our occupier base which comprises businesses across a range of industries and is a key advantage from a risk diversification perspective. 

We have been particularly pleased with the performance of Bradwell Abbey, Milton Keynes which we acquired 15 months ago. An undermanaged estate in an emerging economic hub, it is an excellent case study of what we do well. Following a partial refurbishment, we are now achieving top rents of c. £10 psf on the largest units ranging up to £19 psf on the smaller units; this compares to average rents of £7.89 per sq ft on acquisition. Our improvements have also increased EPC A-C rated space to 71% from 38% at acquisition.

The context for the half year has been an uncertain economic environment with perhaps some greater clarity over peak interest rates tempered by the growing 'higher for longer' perspective. Against this backdrop, we have prioritised optimising the balance sheet to enable the business to focus on its competitive advantage in asset management and with that in mind, we are evaluating our options with respect to Radway Green. With potential for over 1.8 million sq ft, this is an exceptionally well-located logistics development opportunity, just 1.5 miles from Junction 16 of the M6. We assembled the site through a series of acquisitions starting in 2017 and we achieved full planning consent during the period, making this a highly attractive opportunity for asset owners or developers with a low cost of capital. In the current environment, it would not be prudent to progress this development using our own balance sheet.  In addition, the pre-let we were close to signing at the start of the period has now fallen away as the proposed occupier required the space sooner than originally envisaged.  While disappointing not to be progressing this development as planned, we consider a sale of the whole or a majority of the scheme to be in the best interests of shareholders and have therefore launched a formal process to deliver this.  We will update the market as appropriate.

The Board is alert to all opportunities to deleverage, but not at any price. We have completed on the sale of £39.6 million of properties since 1 April 2023, all of which are non-core or where we have successfully delivered on our asset management initiatives. Sales were on average 20.1% ahead of book value, demonstrating that there are pockets of demand for well-let and well-located industrial assets. This continuing programme of disposals not only strengthens our balance sheet, but also progresses the reshaping of our portfolio, increasing our weighting towards multi-let assets in leading industrial hubs.

Financial performance

We reported a 1.5% increase in operating profits before interest, reflecting the impact of disposals, offset by our successful leasing activity and a fall in overall operating expenditure.  However, with SONIA increasing 300 basis points since 1 October 2022, adjusted earnings per share fell 11.5% to 2.3 pence (H1 FY22: 2.6 pence).

Yields have continued to stabilise and were broadly flat in the period.  ERV growth across the portfolio was 2.8%, demonstrating the continuing attraction of our assets and driving an increase of 1.0% in the like-for-like value of our portfolio to £811.3 million. EPRA NTA per share increased 0.9% to 123.7 pence (31 March 2023: 122.6 pence), contributing to a total accounting return of 3.5%.  Reflecting our very strong performance in the years following IPO, our average total accounting return is 7.8% per annum.

We took further steps to optimise our capital structure in June 2023 by refinancing our previous £320 million facility and extending the tenure from January 2025 to June 2028. The new facility comprises a £220 million term loan and a £100 million revolving credit facility with a club of four lenders; HSBC, Bank of Ireland, NatWest and Santander. It was agreed with more favourable covenants, reflecting the strength of our banking relationships as well as the quality of our portfolio.

Last year, we acquired £200 million of interest rate caps, fixing SONIA at 1.5% and in November this year, we are replacing the £30 million of caps expiring this month with £50 million of caps, fixing SONIA at 2.0% and effectively hedging 87.7% of our debt.

These measures significantly reduce the risk that earnings are impacted by changes in the cost of finance, providing greater confidence in our earnings trajectory.

As at 30 September 2023, the Group's loan to value remains within our target range of 30% to 40%, at 34.0%, with £35.0 million of headroom within our new facilities.

Environmental, social and governance

ESG considerations are now firmly embedded in the way we do business. Last year, we set out an annual commitment to reduce our Scope 1 and 2 emissions by 4.2%, but we also recognise that we have a key role to play in helping our occupiers to reduce their emissions. Accurately measuring Scope 3 emissions is an important first step and one we are focused on this year. Our close engagement with occupiers and the steps we have taken to introduce green leases encouraging data sharing wherever possible are already having a positive impact in this regard. We have delivered good progress on EPCs with 64% of the portfolio now rated EPC A - C by sq ft, up from 60% at the start of the period.

As previously announced, Martin Meech stepped down from the Board at the Annual General Meeting ('AGM') in September 2023. He has made a very significant contribution to our development as a listed company, and we wish him well for the future. Following a comprehensive search, Dominic O'Rourke joined the Board as a Non-Executive Director, also in September. He is currently Group Property Director for FTSE 100 retailer Next plc, a role he has held since 2014. His customer-facing experience in a sector that is key for our business will be a highly positive and complementary addition to the Board's expertise.

Outlook

Since I last wrote to you, interest rate expectations have shifted. While peak rates may be in sight, the expectation is that they will remain higher for longer, which inevitably has implications for how we, and our peers, run our businesses. Successfully restructuring our debt was the key balance sheet event in the first half of the year and positions us well for the second half, where our focus is on rebuilding dividend coverage. We have a clear plan to achieve this, which includes capturing the reversion in our portfolio, actively seeking a majority partner for or sale of our Radway Green development and further reducing our finance costs through asset sales and active financial management. We have real conviction in this plan and that underpins our recommendation to pay a second interim dividend of 1.6 pence, taking the total dividend for the period to 3.2 pence, in line with last year.

The Board also believes that our focus on multi-let space in key industrial hubs in the UK is one of the best places to be in real estate. We benefit from supportive long-term trends, including online retail and supply chain resilience but we also cater for a broad range of other industries, reflecting our presence in economically relevant centres in the UK. This diversity helps protect our income and with a 'higher for longer' environment also posing challenges for our occupiers, is a key benefit of our business model. While we recognise there is an elevated risk around tenant default, we are managing that appropriately, and we do expect attractive levels of rental growth to continue across our markets albeit at a lower, more sustainable level than in prior years. Based on our recent trading, we would expect ERV growth for the year to be in the region of 5-6%. 

In conclusion, we firmly believe in the quality of our assets and their potential to deliver an attractive total return over the long-term but are also examining more immediate opportunities to drive returns for shareholders. We set these priorities both as a Board and significant shareholders ourselves. 

Neil Kirton

Chairman

14 November 2023

Investment Advisor's report

Overview

This was a good period for the Group from an operational perspective, with positive leasing momentum and low vacancy contributing to a solid trading performance and uplift in valuation. However, increased interest costs due to the 300 basis point increase in SONIA since 1 October 2022 resulted in an 11.5% reduction in adjusted earnings per share to 2.3p.

FY'24 priorities

At the start of the financial year, we set ourselves four priorities. These were to:

·      continue to capture the reversionary potential of the portfolio,

·      dispose of further assets, to pay down the Group's floating rate debt, strengthening the balance sheet and supporting earnings;

·      progress the Radway Green development scheme; and

·      increase dividend cover by driving earnings through these actions.

We made good progress against the first two objectives in the period which position the Group well for improving dividend cover, our fourth objective.  We are evaluating a range of options with regards to Radway Green which will enable us to make further progress on this in the coming period. More information can be found in the relevant sections below.

Market overview

The long-term trends underpinning the wider industrial market, including the dominance of e-commerce and focus on supply chain resilience continue to play out albeit demand was more muted at the big box end of the market, with take up back to pre-Covid averages at 12.5 million sq ft for the six months to June (source: Savills). Multi-let assets increasingly attract a broad range of uses including innovation / technology, trade counters, retail, quasi-office and business storage meaning the occupier pool is more diverse and demand more resilient.

Void rates across the multi-let space have ticked up marginally over the period to 8.2% for London and the South-east and 8.7% for the rest of the UK (source: Gerald Eve) but remain well below historic averages of 9.3% and 10.8% respectively. In London and the South-east, where there is more reversion to capture and occupier covenants are strong, landlords appear happy to hold out for the right occupier rather than compromising on rents, explaining part of the increase in vacancy. Vacancy is also notably lower in the North-west, West and East Midlands at 6% or less.

For multi-let assets, where build cost per sq ft is typically above capital value, new development is uneconomic in many regions. Gerald Eve estimates that there is only 3.2 million sq ft of multi-let space under construction with at most only 0.5 million sq ft in any one region, having relatively limited impact on supply. The higher cost of finance makes profitable development highly challenging for all but those with the lowest cost of capital and Savills report that in the big box space, there have been just 22 speculative announcements in the first half of the year compared to 39 over the comparable period last year. These dynamics are supportive for long-term rental growth; multi-let ERVs are estimated to be growing at an annualised rate of 7.0% in London and the Southeast and 7.8% across the rest of the UK as at Q1 2023.

Having adjusted rapidly in the prior reporting period, industrial yields have now effectively stabilised. This has been driven by increased confidence in the prime end of the market and supported by the weight of global equity which continues to target the industrial space reflecting relatively attractive forward total return prospects at 5.8% annualised for 2023-5, ahead of retail and offices.

Actively managing the investment portfolio

The Group is highly focused on multi-let estates, which offer more asset management opportunities than single-let assets, creating more opportunities to raise the rental tone and therefore more quickly capture the reversion created, while reducing risk by having a more diverse range of occupiers. Multi-let assets are also more flexible for occupiers, allowing them to scale up or down by taking different units on the site. At 30 September 2023, multi-let estates made up 70.4% of the portfolio by value (excluding development land). The portfolio is spread across key economic hubs such as the North-west, Midlands and Oxford-Cambridge Arc, in gateway locations with access to major arterial routes and a plentiful local labour force.

We keep the portfolio under constant review, to identify mature or non-core assets that are candidates for disposal. This allows the Group to pay down debt or redeploy the capital and better focuses the portfolio on its most attractive opportunities. During the first half, the Group disposed of five assets for £39.6 million, overall 20.1% ahead of book value. This brings total disposals since our disposal plan was announced in November 2022 to £94.3 million.

Disposals during in the period included Dales Manor Business Park, Cambridge for £27.0 million, and smaller assets in Ipswich, Ellesmere Port, the Isle of Wight and Cardiff. The disposals were at a blended NIY of 5.3% and crystallised a profit of £5.4 million above 31 March 2023 valuations. We continue to be focused on capital recycling and expect to make further progress in the second half.

Following these disposals, the investment portfolio comprised 647 units across 8.0 million sq ft of space at the period end (31 March 2023: 693 units across 8.2 million sq ft). The table below analyses the portfolio as at 30 September 2023:

At the period-end, the contracted rent roll for the investment portfolio (excluding developments) was £43.8 million. The estimated rental value (ERV) was £52.0 million, with the difference reflecting £6.1 million of portfolio reversion and £2.1 million of potential rent on vacant space. The structure of the Group's leases supports capturing reversion, with less than 9% of leases index linked. During the period we captured £0.4 million of reversion and £0.5 million from letting vacant space with a further £0.5 million of reversion captured since 30 September 2023. More information can be found in the Leasing Activity section below. Contracted rent from development property was £0.2 million as at 30 September 2023. Total contracted rents increased by 1.7% on a like-for-like basis during the period or 4.7% in the past 12 months.

The NIY of the Investment portfolio was 5.6% at 30 September 2023, with a reversionary yield of 6.6%. The WAULT for the investment portfolio stood at 5.2 years (31 March 2023: 5.5 years).

Occupancy across the investment portfolio remained high at 96.0% at the period-end (31 March 2023: 95.8%). Effective occupancy, which excludes units under offer or undergoing refurbishment was 98.0% (31 March 2023: 98.4%), with 1.0% of the investment portfolio under offer and a further 1.0% undergoing refurbishment at that date.

Working with occupiers

The Group has a diverse occupier base of over 440 businesses, with the top 15 accounting for 36.2% of the contracted rent roll from the investment portfolio, and the top 100 generating 77.7%. The spread of the Group's occupiers across 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 monitor the strength of the occupier'' covenants using credit software such as Dun & Bradstreet, keeping us informed of what impact evolving macro-economic conditions are having on their business. During the period, we also ran a formal occupier survey, with responses from around 50% of major occupiers. This showed that trading conditions were the same, or better, for most respondents, although they identified rising costs as an issue. Informal discussions with occupiers also suggest that the very smallest businesses may be finding it harder to adapt to higher costs, due to lower pricing power in their markets.

Overall, the Group's occupiers appear well placed in the current environment, and we have not yet seen a rise in corporate failures or issues with rent collection escalate. As at 14 November 2023, we had collected c.98.0% of the rent due in respect of the period and we expect this to increase as we work with occupiers to collect the outstanding amounts.

Leasing activity

The robust occupier demand described above has helped us to continue to capture reversion in the portfolio through lease renewals and new lettings. New leases were in line with ERVs, while lease renewals and rent reviews are achieving strong average uplifts against previous rental levels.

New leases

The Group completed 23 new leases on 0.1 million sq ft of space during the period, which will generate annual rent of £0.7 million, 21.5% ahead of the previous contracted rent and in-line with 31 March 2023 ERV. The level of incentives remained steady over the period compared to the prior period.

Highlights included new leases for:

·      20,700 sq ft at Delta Court Industrial Estate, Doncaster, to a building and DIY supplier, on a five-year lease, at a rent of £138,700 per annum, 15.7% ahead of previous contracted rent and 12.0% ahead of 31 March 2023 ERV. The letting is also the third expansion by the occupier on the estate; and

·      6,800 sq ft at Granby Industrial Estate, Milton Keynes, to an event management company, on a ten-year term at a rent of £57,400, 42.2% ahead of previous contracted rent and 6.3% above the 31 March 2023 ERV.

Lease renewals

The Group continues to retain the majority of its occupiers, with 79.0% remaining in occupation at lease expiry and 94.1% with a break arising in the period.

There were 15 lease renewals on 0.1 million sq ft of space during the period, generating an additional £0.2 million per annum, 36.7% above the previous passing rent, and 7.8% above the ERV.

Highlights included:

·      21,100 sq ft at South Fort Street Edinburgh, across three units, securing £200,200 of contracted rent at an average of 30.1% ahead of previous contracted rent and 5.5% ahead of 31 March 2023 ERV; and

·     12,400 sq ft at Bradwell Abbey, Milton Keynes, across four units, securing £120,000 of contracted rent at an average of 35.6% ahead of previous contracted rent and in-line with 31 March 2023 ERV.

Rent reviews

During the period, ten rent reviews were completed, generating an additional £0.4 million per annum, 32.4% ahead of previous rent and 12.1% ahead of the March 2023 ERV.

Highlights included:

·    two leases at Chittening Industrial Estate, Bristol, which were settled at £390,000, 51.0% ahead of the previous contracted rent, and 3.2% ahead of 31 March 2023 ERV; and

·     one lease at Howley Park Industrial Estate, Morley, settled at £304,500, 31.5% ahead of the previous contracted rent and 15.0% ahead of the 31 March 2022 ERV.

Development activity

Radway Green is the Group's key logistics development opportunity, in a premier location just 1.5 miles from Junction 16 of the M6 near Crewe. Targeting BREEAM Excellent, it will provide state-of-the-art, sustainable warehouse space suitable for a diverse range of occupiers.

The development has the potential to deliver 1.8 million sq ft of space, across two phases. During the period, we discharged the pre-commencement planning conditions on the 0.8 million sq ft Phase 1, allowing the contractor to start enabling and site clearance works, to create a levelled and serviced plot. The Group also achieved full planning permission on the remaining 1.0 million sq ft Phase 2 having executed the s106 requirements during the first half.

In June 2023, the Group announced that it was in discussions for a pre-let on part of Phase 1; the proposed occupier is trading very well and since that time has seen an acceleration in its timetable which cannot be accommodated at Radway Green. As a result, the pre-let has fallen away.  The Group is currently evaluating a number of options to deliver value for shareholders from this scheme which include a sale of the whole, or a majority, of the asset but in any event will not progress the development alone.

Capital expenditure

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 period was £2.2 million, equivalent to 0.3% of GAV excluding developments. At the period-end, approximately 1.0% of the portfolio's ERV was under refurbishment (31 March 2023: 1.3%). The Group's priorities when investing in the portfolio are to drive rental growth, improve EPC ratings and deliver other ESG improvements; approximately 20.0% of capex spend is typically directed towards EPC-related improvements and satisfies a minimum return of 10.0% from new capital deployed.

Sustainability

The Group's sustainability strategy focuses on creating a resilient portfolio, reducing the Group's carbon footprint, supporting the Group's occupiers, and ensuring we have responsible business foundations. We made good progress against each part of the strategy during the first half of the financial year.

Creating a resilient portfolio

For FY24, the Group's targets include a 25% reduction in properties with Energy Performance Certificate ("EPC") ratings of D or E. During the first half, we reduced the number of D and E ratings across the portfolio by c.10% both by number of units and by square footage (on a like-for-like basis). By the period-end, the proportion of units with A to C ratings had risen from 60.2% to 64.1%. Examples of progress include nine units at Bradwell Abbey improving to B or C ratings. In total, we completed EPC assessments on 85 units in the portfolio.

Reducing our footprint

In the prior year, we introduced Environmental Refurbishment and Development Standards as part of our pathway to net zero. In the first half of this year, we implemented a system to track compliance with these standards.

We aim for all new utility contracts to be renewables-based and the Group's property managers have continued to implement this requirement.

Supporting our occupiers

We continue to engage with occupiers on sustainability matters, to understand their issues and identify how we can work together to address them. We ran an in-depth occupier survey at Bradwell Abbey, Milton Keynes, which highlighted reducing energy use, LED lighting, recycling and employee wellbeing as among their key issues. In response to this, we are prioritising energy efficient initiatives as part of the Group's refurbishment programme as set out above, and we have plans for a café on the site, expected to open by Christmas. We are rolling out similar surveys at the Group's largest assets in the second half.

Ensuring responsible business foundations

Activities during the period included a data protection audit, which confirmed that the Group is low risk as it does not hold or process any sensitive data, as well as identifying some areas for improvement.

We have also updated the Group's Modern Slavery statement and created a supplier appointment checklist, which we are integrating into the business. The checklist helps us to understand suppliers' ESG credentials and ensure they are taking appropriate measures in areas such as Modern Slavery.

We were also delighted to achieve an EPRA sBPR gold award for the third year running, confirming our continuing dedication to best practice sustainability reporting. 

Financial review

Performance

Rental income for the period was £22.2 million (six months ended 30 September 2022: £22.9 million), reflecting asset disposals in the period and in the prior year, partially offset by EPRA like-for-like rental growth of 1.3% and a full period of ownership of Bradwell Abbey, which the Group acquired halfway through the comparator period.

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 six months were £8.7 million (six months ended 30 September 2022: £10.0 million), with the cost base benefiting from a reduction in the Investment Advisor's fee of £1.0 million and lower vacancy costs. The net increase in the expected credit loss allowance was low at £0.2 million (six months ended 30 September 2022: £0.1 million).

The total cost ratio, which is the adjusted cost ratio including direct vacancy costs, was 23.2% (six months ended 30 September 2022: 27.6%). The ongoing charges ratio, representing the costs of running the REIT as a percentage of NAV, was 1.4% (six months ended 30 September 2022: 1.3%).

The Group disposed of five assets in the period, resulting in a net profit on disposal of £5.4 million.

At 30 September 2023, the Group recognised a gain of £6.8 million on the revaluation of its investment properties (six months ended 30 September 2022: loss of £73.4 million), reflecting the stabilisation of yields in the period and an increase in the portfolio ERV of 2.8%.

Financing income in the period was £5.5 million (six months ended 30 September 2022: £16.0 million), including £3.7 million (six months ended 30 September 2022: £0.1 million) of interest receipts from interest rate derivatives and a £1.6 million change in the fair value of interest rate derivatives (six months ended 30 September 2022: £16.0 million).

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 £13.0 million (six months ended 30 September 2022: £5.9 million). The increase primarily reflects the higher weighted average cost of debt, with the SONIA reference rate having increased by 300 basis points between the two periods. While the impact has been partly mitigated by the interest rate caps taken out in the previous financial year (see below), the all-in cost of debt for the period was 4.7% (six months ended 30 September 2022: 2.8%). We aim to continue to reduce the Group's variable-rate debt through further asset disposals. Finance expenses in the period also included £1.7 million relating to the accelerated amortisation of loan issue costs as a result of the debt refinancing in the period (see below).

The statutory profit before tax was £22.0 million (six months ended 30 September 2022: £46.4 million loss).

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 period was therefore £nil (six months ended 30 September 2022: £nil).

Earnings per share ("EPS") under IFRS was 5.2 pence (six months ended 30 September 2022: 10.9 pence loss per share). EPRA EPS was 1.0 pence (six months ended 30 September 2022: 2.6 pence). Adjusted earnings per share was 2.3 pence (six months ended 30 September 2022 (restated): 2.6 pence).

Dividends

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

The total dividend of 3.2 pence per share for the interim period is in line with the Group's target for the year of 6.4 pence and was 71.9% covered by adjusted EPS. Both interim dividends were property income distributions. The cash cost of the total dividend for the period will be £13.6 million (six months ended 30 September 2022: £14.0 million).

Valuation and net asset value

The portfolio was independently valued by CBRE as at 30 September 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 2021 - UK national supplement.

The portfolio valuation was £811.3 million (31 March 2023: £828.8 million), representing a 1.0% like-for-like valuation increase or 1.3% valuation increase on the investment portfolio, after taking account of capital expenditure of £7.8 million. The EPRA NIY was 5.2% (31 March 2023: 5.0%) and the EPRA topped up NIY was 5.5% (31 March 2023: 5.5%).

The valuation uplift contributed to an increase of 0.9% in the EPRA NTA to 123.7 pence per share at the period-end (31 March 2023: 122.6 pence per share).

Debt financing and hedging

During the period, the Group refinanced its debt facilities, extending the term and improving the covenants. The new £320.0 million facility comprises a £220.0 million term loan and a £100.0 million RCF. It replaces the Company's previous £320.0 million debt facility and extends the tenure from January 2025 to June 2028. The facility is provided by a club of four lenders: HSBC, Bank of Ireland, NatWest and Santander. The minimum interest cover is 1.5 times, compared to 2.0 times under the previous facility, and the maximum LTV has been extended from 55% to 60%. Both the term loan and the RCF attract a margin of 2.2% plus SONIA for an LTV below 40% or 2.5% if the LTV is above 40%.

At 30 September 2023, £65.0 million was drawn against the RCF and £220.0 million against the term loan. This gave total debt of £285.0 million (31 March 2023: £306.0 million), with the Group also holding cash balances of £9.5 million (31 March 2023: £25.1 million). The LTV ratio at 30 September 2023 was therefore 34.0% (31 March 2023: 33.9%). Interest cover for the period was 3.1 times, meaning the Group was substantially within the covenants in the debt facility.

At the period end, the Group had £230.0 million of interest rate caps in place, of which £200.0 million fixed SONIA at 1.5% and £30.0 million fixed SONIA at 1.75%. The £30.0 million interest rate cap is due to expire in November 2023 and has been replaced since the period end by a further cap of £50.0 million, which fixes SONIA at 2.0% until November 2026.

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

Post period-end activity

The Group completed a further 14 lease events over 0.7 million sq ft, securing £4.1 million, 20.5% ahead of previous contracted rent. Driven by a lease renewal of 71,000 sq ft at Kingsland Grange, 42.3% ahead of prior rent, and a 500,000 sq ft rent review, settled at £2.8m, 12.0% ahead of prior rent.

Principal risks and uncertainties

The principal risks facing the Group are documented on pages 60 to 64 of the Annual Report for the year ended 31 March 2023. Since then, the Board has continued its regular review of risks and emerging risks, including detailed consideration of those risks that are most material to the Group and are recorded as its principal risks.

During the period the Board has agreed an additional principal risk, relating to the potential impact of a general economic downturn on the warehouse market.  This was already recognised as one of the Group's business risks, but the Board considers that changing economic conditions make it appropriate to now consider this as one of the Group's principal risks.

Financial risks

·     Changes in interest rates could directly impact our cost of capital, and indirectly may impact market stability.

·    It may become more difficult to raise funding through equity, debt, or asset disposals, which may impact the Group's ability to finance its activities and deliver growth.

Business risks

·     Returns may not be in line with our plans and forecasts, for example because of an inappropriate investment strategy, poor delivery of the strategy, or reduced capital valuations or rental income.

·    The Group depends on the performance of its third-party service providers, in particular the Investment Advisor, and poor delivery by these providers could impact on the REIT's performance.

·    Climate change may have an increasing impact across the business, including adverse weather events, increasing utility costs, and the potential for property values to be impacted.

·    A general economic downturn may have an impact on the warehouse market, as current occupiers may struggle to cover costs if business contracts; and potential occupiers may be less likely to seek additional space or higher quality buildings.

Operational risks

·     A substantial increase in bad debts, arrears or slow payment could have a direct impact on cash flow and profitability. It could also negatively impact average lease lengths, void levels and costs, resulting in reducing portfolio returns.

·    Inappropriate acquisitions could also increase risk in relation to portfolio returns, as properties may be harder to let, may not generate appropriate revenues, or may require additional costs to support.

·    Loss of REIT status, through failing to meet regulatory requirements or the Listing Rules, would have a significant impact on the Group's reputation and the financial returns for investors.

·     Breaching the conditions of the Group's loan funding could result in restrictions to funding and activities going forward. In addition, the Board has approved and communicated the Group's borrowing policy and breaching it may risk financial and reputation damage.

Going concern

In preparing the financial statements, we, and the Company's Board are required to assess whether the Group remains a going concern. During the period, the Group generated gross property income of £23.3 million and operating profits of £17.3 million, showing that rents would have to fall by approximately 34.7% before the business became loss-making. This is considered highly unlikely given the high occupational demand for warehouse assets, the Group's strong relationships with the broad range of occupiers across the portfolio, the level of rent collection, and the fact that the portfolio ERV exceeds the period-end contracted rent roll by 15.7%.

At the same time, the Group has a strong balance sheet, with substantial cash and headroom within its facilities at the period-end of £35.0 million. The Group has refinanced its debt facilities, extending the term by more than three years to June 2028, and at the date of this report has interest rate caps on £250.0 million of debt.

We and the Company's Board have also carefully reviewed the risk landscape and do not believe that the risks facing the Group have materially increased. As a result, we are confident that the Group remains a going concern.

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
14 November 2023

Directors' responsibilities statement

The Directors confirm to the best of our knowledge:

·      the condensed set of financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting', and give a true and fair view of the assets, liabilities, financial position and profit of the Group, as required by DTR 4.2.4R;

·     the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the financial year); and

·      the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

The directors of Warehouse REIT plc are listed on the company website warehousereit.co.uk

By order of the Board.

Neil Kirton

Director

14 November 2023

Results for the six months ended 30 September 2023

Condensed consolidated statement of comprehensive income (unaudited)

For the six months ended 30 September 2023

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

Condensed consolidated statement of financial position (unaudited)

As at 30 September 2023

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

Condensed consolidated statement of changes in equity (unaudited)

For the six months ended 30 September 2023

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

Condensed consolidated statement of cash flows (unaudited)

For the six months ended 30 September 2023

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

Notes to the condensed consolidated financial statements (unaudited)

For the six months ended 30 September 2023

1. General information

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

2. Basis of preparation

These interim condensed consolidated unaudited financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and International Financial Reporting Standards ("IFRS") and interpretations issued by the International Accounting Standards Board ("IASB") as adopted by the United Kingdom.

These interim condensed consolidated unaudited financial statements should be read in conjunction with the Company's last financial statements for the year ended 31 March 2023. These interim condensed consolidated unaudited financial statements do not include all of the information required for a complete set of annual financial statements prepared in accordance with IFRS as adopted by the UK; however, they have been prepared using the accounting policies adopted in the audited financial statements for the year ended 31 March 2023 and selected explanatory notes have been included to explain events and transactions that are significant in understanding changes in the Company's financial position and performance since the last financial statements.

The financial statements have been prepared under the historical cost convention, except for investment property and interest rate derivatives, which have been measured at fair value. The interim financial statements are presented in Pound Sterling and all values are rounded to the nearest thousand pounds (£'000), except when otherwise indicated.

The financial information contained within these interim results does not constitute full statutory accounts as defined in section 434 of the Companies Act 2006. The financial statements for the six months ended 30 September 2023 have not been either audited or reviewed by the Company's Auditor. The information for the year ended 31 March 2023 has been extracted from the latest published Annual Report and Financial Statements, which has been filed with the Registrar of Companies. The Auditor reported on those accounts; its report was unqualified and did not contain a statement under sections 498(2) or (3) of the Companies Act 2006.

The Directors have made an assessment of the Group's ability to continue as a going concern and are satisfied that the Group has the resources to continue in business for the foreseeable future, for a period of not less than 12 months from the date of this report. 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.

2.1 Changes to accounting standards and interpretations

There were several new standards and amendments to existing standards, which are required for the Group's accounting period beginning on 1 April 2023, which have been considered and applied as follows:

·      amendments to IAS 1 Presentation of Financial Statements; and

·      amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

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.

2.2 Significant accounting judgements and estimates

The preparation of these financial statements in accordance with IAS 34 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 an 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, 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, management has made the following estimate, which has 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 valuer on the basis of market value in accordance with the internationally accepted RICS Valuation - Professional Standards 2020 (incorporating the International Valuation Standards), in accordance with IFRS 13. The key estimates made by the valuer are the ERV and equivalent yields of each investment property and the 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 11 and 21 for further details.

2.3 Restatement of financial statements

Following a review of the gross service charge income recognised for the six months ended 30 September, it was noted that there was an inconsistency in the methodology prescribed in the previous year's annual financial statements. The comparative service charge income and expenditure have been updated to reflect this, with no change to net property income previously recognised.

In addition, during the six months ended 31 March 2023, the licence fee previously levied over the land at Radway Green, Crewe was renegotiated to commence upon construction of the site. The comparative adjusted earnings have been updated to reflect the change in negotiations.

2.4 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are consistent with those applied within the Company's Annual Report and Financial Statements for the year ended 31 March 2023.

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 30 September 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.

Functional and presentation currency

The 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.

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.

Derivative financial instruments

Derivative financial instruments, comprising interest rate derivatives for mitigating interest rate risks, 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.

3. Property income

4. Property operating and administration expenses

5. Finance income

6. Finance expenses

The interest capitalisation rate for the six months ended 30 September 2023 was 4.7%.

7. Taxation

Corporation tax has arisen as follows:

Reconciliation of tax charge to profit before tax:

8. 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 4.4 years.

Future minimum rentals receivable under non-cancellable operating leases as at 30 September 2023 are as follows:

9. Dividends

As a REIT, the Company is required to pay PIDs equal to at least 90% of the property rental business profits of the Group.

The Company declared a first interim dividend for the year ending 31 March 2023 of 1.60 pence per share on 31 August 2023, which was paid on 6 October 2023. The dividend was paid in full as a property income distribution.

10. 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 adjusted earnings per share reflects our ability to generate earnings from our portfolio.

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.

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

The comparative adjusted earnings have been restated due to the renegotiation of the licence fee previously levied over Radway Green, Crewe.

Please see table 2 of the supplementary notes for details on the calculation of adjusted earnings.

11. UK investment property                           

Realised loss on disposal of investment property

12. Investment properties held for sale

13. Cash and cash equivalents

14. Trade and other receivables

The rent and insurance receivables balance represent gross receivables of £8.1 million (31 March 2023: £4.2 million), net of a provision for doubtful debts of £0.3 million (31 March 2023: £0.2 million).

15. Interest rate derivatives

To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the Group entered into interest rate derivatives against movements in SONIA. 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 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.

16. Interest-bearing loans and borrowings

On 2 June 2023, the Company entered into a new £320.0 million facility, replacing the Company's previous £320.0 million debt facility and extends the tenure from January 2025 to June 2028. It comprises a £220.0 million term loan and a £100.0 million revolving credit facility ("RCF") with a club of four lenders; HSBC, Bank of Ireland, NatWest, and Santander. The minimum interest cover is 1.5 times compared to 2.0 times under the previous facility and the maximum LTV has been extended to 60% from 55%. Both the term loan and the RCF attract a margin of 2.2% plus SONIA for an LTV below 40% or 2.5% if above. The Company has £230.0 million of interest rate caps in place, of which £200.0 million fixes SONIA at 1.5% and the remaining £30.0 million fixes SONIA at 1.75%. The facilities are secured on all properties within the portfolio.

As at 30 September 2023, there is £35.0 million (31 March 2023: £14.0 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.

17. Head lease obligations

The following table analyses the minimum lease payments under non-cancellable finance leases using an average discount rate of 6.91%:

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

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 and £1.0 million in the period ended 30 September 2023. The final instalment of £10.3 million is due to be paid on 1 September 2024.

19. 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.

20. Net asset value per share

Basic NAV per share is calculated by dividing net assets attributable to ordinary equity holders of the Company in the statement of financial position by the number of ordinary shares outstanding at the end of the period. As there are no dilutive instruments in issue, basic and diluted NAV per share are identical.

21. Fair value

IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair values.

The fair value of cash and short-term deposits, trade receivables, trade payables, and other current liabilities approximate their carrying amounts due to the short-term maturities of these instruments. Interest-bearing loans and borrowings are disclosed at amortised cost. The carrying value of the loans and borrowings approximate their fair value due to the contractual terms and conditions of the loan. The loans are at variable interest rates of between 2.2% and 2.5% above SONIA.

Interest rate derivatives

The fair value of the interest rate cap contracts is recorded in the statement of financial position and is revalued quarterly by an independent valuations specialist, Chatham Financial. The fair value is determined by forming an expectation that interest rates will exceed strike rates and discounting these future cash flows at the prevailing market rates as at the year-end.

Investment properties

Six-monthly valuations of the investment properties are performed by CBRE, an accredited independent external valuer with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued. The valuations are the ultimate responsibility of the Directors, who appraise these every six months.

The valuation of the Group's investment property at fair value is determined by the external valuer on the basis of market value in accordance with the internationally accepted RICS Valuation - Professional Standards January 2020 (incorporating the International Valuation Standards).

Completed investment properties are valued by adopting the 'income capitalisation' method of valuation. This approach involves applying capitalisation yields to current and future rental streams, net of income voids arising from vacancies or rent-free periods and associated running costs. These capitalisation yields and future rental values are based on comparable property and leasing transactions in the market using the valuer's professional judgement and market observations. Other factors taken into account in the valuations include the tenure of the property, tenancy details and ground and structural conditions.

Development property and land has been valued by adopting the 'comparable method' of valuation and where appropriate supported by a 'residual development appraisal'. The comparable method involves applying a sales rate per acre to relevant sites supported by comparable land sales. Residual development appraisals have been completed where there is sufficient clarity regarding planning and an identified or indicative scheme. In a similar manner to 'income capitalisation', development inputs include the capitalisation of future rental streams with an appropriate yield to ascertain a gross development value. The costs associated with bringing a scheme to the market are then deducted, including construction costs, professional fees, finance, and developer's profit, to provide a residual site value.

The following tables show an analysis of the fair values of investment properties recognised in the statement of financial position by level of the fair value hierarchy

Explanation of the fair value hierarchy:

•     Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

•    Level 2 - use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable market data; and

•      Level 3 - use of a model with inputs that are not based on observable market data.

Sensitivity analysis to significant changes in unobservable inputs within the valuation of investment properties

The following table analyses:

•      the fair value measurements at the end of the reporting period;

•      a description of the valuation techniques applied;

•     the inputs used in the fair value measurement, including the ranges of rent charged to different units within the same building; and

•     for Level 3 fair value measurements, quantitative information about significant unobservable inputs used in the fair value measurement.

Significant increases/decreases in the ERV (per sq ft per annum) and rental growth per annum in isolation would result in a significantly higher/lower fair value measurement. Significant increases/decreases in the long-term vacancy rate and discount rate (and exit yield) in isolation would result in a significantly higher/lower fair value measurement.

Generally, a change in the assumption made for the ERV (per sq ft per annum) is accompanied by:

·      a similar change in the rent growth per annum and discount rate (and exit yield); and

·      an opposite change in the long-term vacancy rate.

Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy amount to a gain of £6,778,000 (six months to 30 September 2022: loss of £73,362,000) and are presented in the condensed consolidated statement of comprehensive income in line item 'fair value gains on investment properties'.

All gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property held at the end of the reporting period.

The carrying amount of the Group's assets and liabilities is considered the same as their fair value.

22. Related party transactions

Directors

The Directors (all Non-Executive Directors) of the Company and its subsidiaries are considered to be the key management personnel of the Group. Directors' remuneration for the period totalled £86,360 (six months to 30 September 2022: £87,280) and as at 30 September 2023, a balance of £nil (31 March 2023: £nil) was outstanding. The Directors who served during the period received £0.8 million in dividend payments (30 September 2022: £0.8 million).

Investment Advisor

The Company is party to an Investment Management Agreement with the Investment Manager, pursuant to which the Investment Manager has appointed the Investment Advisor to provide investment advisory services relating to the respective assets on a day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction by the Investment Manager and the Board of Directors.

For its services to the Group, the Investment Advisor receives an annual fee at the rate of 1.1% of the NAV of the Company up to £500 million, then at a lower rate of 0.9% thereafter.

During the period, the Group incurred £2,819,726 (30 September 2022: £3,803,682) in respect of the Investment Advisor's fees. £1,436,000 (31 March 2023: £1,529,000) was outstanding as at the period-end date.

Subsidiaries

As at 30 September 2023, the Company owned directly or indirectly a 100% controlling stake in Tilstone Holdings Limited, Tilstone Warehouse Holdco Limited, Tilstone Industrial Warehouse Limited, Tilstone Retail Warehouse Limited, Tilstone Industrial Limited, Tilstone Retail Limited, Tilstone Trade Limited, Tilstone Basingstoke Limited, Tilstone Glasgow Limited, Tilstone Radway Limited, Tilstone Chesterfield Limited, Tilstone Liverpool Limited, Warehouse 1234 Limited, Tilstone Property Holdings Limited, and Tilstone Oxford Limited.

Tilstone Property Holdings Limited has applied to the Registrar of Companies to be voluntary struck off and dissolved, it is expected that this process will complete on 19 November 2023.

23. Ultimate controlling party

It is the view of the Directors that there is no ultimate controlling party.

24. Post balance sheet events

A second interim dividend of 1.6 pence per share in respect of the year ended 31 March 2024 will be paid full PID on 29 December 2023 to shareholders on the register on 1 December 2023.

Supplementary notes

For the six months ended 30 September 2023

The Group is a member of the European Public Real Estate Association ("EPRA"). EPRA has developed and defined the following performance measures to give transparency, comparability, and relevance of financial reporting across entities that may use different accounting standards. The following measures are calculated in accordance with EPRA guidance.

Table 1: EPRA performance measures summary                                                                   

Table 2: EPRA income statement and earnings performance measures