Six months to September: 8.0% total asset returns

The 12 November interims showed an impressive 16.0% annualised total asset return. The company’s “last-touch” distribution warehouse portfolio is in a strong spot. Market supply is reducing structurally, and demand is growing in the short and long term. In 2H’21, 17% of leases are being renewed into a strong market. Deployment of recent equity raises is ahead of schedule, set to complete (with gearing) by January 2021. Expertise is paying off in an actively managed portfolio, yet the shares trade barely above NAV and far below the assets’ replacement cost. With FY’22 likely to see assets fully deployed and with rents rising, the earnings growth is set fair, we believe.

• Results – six months to September 2020: 97% of rent was collected on time (94% pre COVID-19), and the rest is coming. Only 2% of space available is unlet. The March 2020 equity raise, increasing issued shares by 115%, has now been invested. With cash drag below expectations, the 18.6% EPS fall is encouraging.
• Deployment: Urban Logistics raised £93m further equity in October, which should be deployed promptly. We estimate LTV approaching 30% by as early as January 2021. Nearly 80% of the equity from the oversubscribed £136m March fund raise was invested in the following quarter – during lockdown.
• Valuation: FY’22 dividend growth potential is clear, we believe – simply from the anticipated asset deployment. Importantly, rent payment is reliable, and rent values are rising well. These factors, on their own, cover the progressive FY’22E dividend, and management has a lengthening track record of adding further value.
• Risks: Tenant sectoral exposure is biased towards food, pharmaceuticals, staple goods and large logistics firms, which are household names. At year-end 2020, the balance sheet held £132m cash. Deployment will impact FY’21 profits, but most equity is deployed. £151m loan facilities have been finalised this month.
• Investment track record: Since listing on the AIM in April 2016, Urban Logistics has generated annual NAV and dividend returns of over 13% p.a. compound. Total asset returns (asset values plus rent) were 16.0% annualised in the 1H’21 figures. Market rents are ca.9% above the REIT’s current levels, evidenced by recent months’ rent reviews. This trend will benefit 2H’21.