Urban Logistics Regulatory News (SHED)

Urban Logistics REIT plc

("Urban Logistics", the "Company" or the "Group")

Results for the Year Ended 31 March 2018

Strong underlying performance during transformational year

Urban Logistics, (AIM: SHED) the specialist UK logistics REIT, issues its results for the year ended 31 March 2018.

§ Portfolio valuation at 31 March 2018 of £131.9m, representing a 12.9% like-for-like increase across the financial year (2017: 9.8%)

§ Net initial yield of 5.9% (6.6% at 31 March 2017)

§ Portfolio occupancy of 93.3% (96.2% at 31 March 2017)

§ 29 assets in the portfolio at 31 March 2018, high-quality tenant base includes: DHL, Culina, XPO, Sainsbury's, Travis Perkins and Puma

§ £53.0m of equity capital raised from new and existing investors in August 2017

§ £82.9m invested in off-market acquisitions of 17 logistics assets at 7.6% blended net initial yield

§ A further equity capital raise was undertaken in April 2018 with gross proceeds of £20.4m. Proceeds will be invested in a portfolio of 6 logistics assets for an acquisition cost of £36.0m

§ Disposal of site in Bedford for £5.8m, representing an IRR of c.43% and a net initial yield of 6.0%

* reflecting the issuance of new shares in August 2017, the benefit of being fully invested by 31 December 2017 to come through in the financial year to 31 March 2019

Nigel Rich, Chairman of Urban Logistics, commented:

"This has been a transformational period for the Company, which underwent a significant capital raise, increasing its market capitalisation to over £100 million. We further diversified the shareholder base and the proceeds were well invested in a timely manner.

"The fundamentals of our market remain attractive and we are confident of delivering excellent returns for our shareholders. In line with our focus and strategy, we recently underwent a name change, and are now known as "Urban Logistics REIT plc (ticker: SHED)"

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Chairman's Statement

I am pleased to present the Group's consolidated results for its annual reporting year to 31 March 2018.

Overview

The past financial year has been an exciting time in the development of your Company. We continue to build a portfolio that offers secure income from good quality logistics tenants, with the prospect of an attractive total return through asset management initiatives undertaken by the Manager.

In August 2017 we raised £53 million of gross proceeds, which were used together with bank financing for the purchase of £83 million (excluding acquisition costs) of logistics assets. More recently in April 2018 we completed a further £20 million fundraise, which will be used with financing to purchase £36 million of assets in July and September of this year.

At the time of writing, our market capitalisation stands at just over £108 million compared with £25 million at 31 March 2017. We now own a portfolio of assets which at 31 March 2018 was valued at £132 million, compared with £43 million at 31 March 2017. Including assets scheduled to be purchased in July and September of this year, the portfolio will be approximately £168 million.

Finally, with the approval of Shareholders we have changed the name of the Company to "Urban Logistics REIT plc", which more accurately reflects what we do.

The Market

The business of logistics is about the delivery of essential product to businesses and consumers. This activity is a critical part of the ongoing commercial revolution changing the way goods are sourced, bought, stored and delivered.

Our tenants typically require warehousing near, or adjacent to, cities with good transport infrastructure. We look to buy 25,000 - 150,000 sq ft properties with single tenants who are involved in the supply of goods to an end user. The leases will usually have an upcoming lease event such as break clause, an impending rent review, or a termination/vacancy which allows the Manager the opportunity to increase rents or improve the yield.

Financial Results

Turning to our results for the year ended 31 March 2018, contracted rent increased from £3.2 million to £7.6 million and EPRA earnings from £1.1 million to £2.5 million. EPRA earnings per share decreased from 7.82p in the prior year to 4.91p, reflecting the issuance of new shares in August 2017 and the timing of the portfolio purchases enabled by this fundraising. The first portfolio purchase following last summer's raise was completed in September 2017 and the second in December 2017. It was therefore only in the last quarter of the financial year that the full benefit of the rents from these purchases flowed through to earnings.

The assets under management of the Group increased from £43.4 million to £131.9 million during the year. There was little increase in the value of more recently acquired properties. On a like-for-like basis for those properties still owned on 31 March 2018, values increased by 12.9% reinforcing the Manager's investment strategy. The LTV was 36.9% at the year end, versus 42.4% at the end of the prior year - well within our target range of 35-40%.

We have paid four dividends over the course of the financial year, amounting to 6.32 pence per share, of which 3.23 pence per share related to the prior financial year. A further dividend of 3.20 pence per share was paid on 4 May 2018 to shareholders on the register on 20 April 2018. Taking total dividends paid and declared for the financial year to 31 March 2018 to 6.32 pence per share (2017: 6.23 pence per share).

The Manager

Our Manager, Pacific Capital Partners Limited, has continued to serve us very well. Richard Moffitt and Christopher Turner are responsible for asset acquisitions, management and disposals. They remain very successful in finding suitable properties to acquire, and occasionally dispose of when full value has been extracted. Their skills are critical to the success of the Company. Following the acquisition of properties, asset management is vital in both securing and enhancing income. Examples of both are covered in the Manager's Report.

On the financial and administrative front, including the work required on the recent share issues, the Manager's staff have performed extremely well.

Prior to the August 2017 fundraise, the independent directors collectively agreed to changes to the management contract. The annual management fee was replaced with a fee that is now 0.95% of the Group's EPRA NAV, payable quarterly in arrears. The LTIP was also amended and is now linked to both NAV and share price and has a higher hurdle rate. Consideration is being given to the term of the contract.

Outlook

Earnings in the 2019 financial year will benefit from the full effect of the acquisitions made in the 2018 financial year and from the forthcoming LondonMetric acquisition. We are confident that the high-quality portfolio of urban logistic assets will continue to deliver good total returns to shareholders.

Nigel Rich CBE, Chairman

23 May 2018

Manager's Report

Overview

The Group's name change to "Urban Logistics REIT plc" (formerly Pacific Industrial & Logistics REIT plc), effective from 25 April 2018, neatly reflects our investment focus and is consistent with both our investment policy and growth strategy.

The term 'logistics' means a number of different things to different people - to us it is about the delivery of essential products to UK businesses and consumers and includes an array of items - from dairy products to pharmaceuticals to sports apparel. All these items are housed across our portfolio of properties.

In the UK we are undergoing a 'business revolution' whereby a structural change is underway with e-commerce in particular driving changes to logistics and how individuals and businesses go about buying and distributing products.

Investor interest is driven by structural changes, e-commerce as well as modern technology according to CBRE. In 2017, third-party logistics providers (3PLs) and online accounted for 41% of all industrial and logistics space take up, maintaining the strongest market shares respectively.

The FT reported in January 2018, that online UK sales for non-food items have increased markedly over the last five years, from 11.6% of the total market in December 2012 to 24.1% in December 2017 and demand for regional warehouse space remains high as a result whilst supply is constrained. This in turn drives rental growth with 2.3% noted across the UK in the six months to end of December 2017 (Source: CBRE Logistics Property Perspective H2 2017).

Whilst stores continue to support retailers' online sales, albeit with more of a focus on being a showroom or service centre as opposed to a traditional 'shop', we expect more flexible arrangements going forward. We are seeing an increasing role for "Click and Collect" for example which underpins a continuing role for a store network. This is convenient for consumers and in turn makes life easier for retailers in recycling stock - we note that approximately 45% of online customers returned at least one item in 2017 (source: Mintel).

Online only retailers will no doubt continue to gain traction, e.g. Asos, Boohoo and Amazon. However, it is important in the current climate to keep an eye on general retail, in particular fashion retail, with retail sales contracting (source: ONS April 2018) and declines in all sectors noted over recent months except for non-store retailing.

As occupiers increase their use of smart technology, for example transport automation and robotics, warehouse occupiers will need to find locations close to city centres as consumers expect same day delivery. This rise in same-day delivery across the UK, driven by consumers, has led to an increase in demand for smaller distribution warehouses that are closer to the customer. Our focus is on smaller single-let logistics sites, rather than multi-let, as we believe in the attractions of minimal service charges and a more stream-lined, less onerous approach to asset management led initiatives.

The Group will continue to benefit from the significant opportunity in this sub-sector of the UK industrial and logistics market due to strong tenant demand, limited stock and current lack of speculative development. Through the Manager's knowledge of the sector, track record and experience, we are well-placed to continue sourcing attractive new opportunities, whilst remaining disciplined in our investment approach.

Financial commentary

The financial year to 31 March 2018 was a period of significant growth for the Company with a focus on both asset management and investment activity. The results demonstrate some substantial achievements, demonstrating how the Group's strategy of adding scale whilst focusing on investment returns, continues to bear fruit. We expect the results to continue to improve as the Group scales and the effect of asset management initiatives are reflected in cash flow and portfolio value.

Investment activity

The Group acquired 17 assets during the year. The Group's portfolio comprised the properties in the table below as at 31 March 2018. These have proven to be quality logistics investments, with a good geographical spread and diverse tenancies. The new properties all present a variety of asset management opportunities, which have the potential to drive both income growth and capital appreciation.

The average size of the properties in the portfolio at 31 March 2018 was 55,225 sq ft. The weighted average unexpired lease term at the same date was 5.0 years, at 31 March 2017 this was 4.4 years.

Portfolio summary at 31 March 2018:

* excluding purchaser costs

1. Void from 24 March 2017

2. Void - rental guarantee expired 31 December 2017

3. Void from 28 September 2017 - rental guarantee in place until 27 September 2019

4. Void from 22 December 2017 - rental guarantee in place until 21 December 2018

Valuation and portfolio growth

CBRE independently valued the portfolio at 31 March 2018, in accordance with the RICS Valuation - Professional Standards. The portfolio's market value was £131.9 million, compared with the assets' combined purchase price of £118.4 million, excluding purchaser costs. This represents an increase of £13.5 million or 11.4%, when compared to the purchase prices. The valuation increase reflects our focus on asset management and buying well-located sites. It also highlights our success in sourcing off-market deals at attractive prices.

Like-for-like across the financial year, property values increased by 12.9%, supporting our growth conviction. As the Company was so acquisitive during the year, with a number of new properties purchased from September 2017 onwards, we expect to see the benefit of these properties being revalued following asset management initiatives from this financial year onwards.

Current Portfolio Analysis

The Group has invested in 29 assets, comprising 32 properties and 28 tenants as at 31 March 2018. Select asset management across the financial year:

1. P W Gates, Bedford

Annual passing rent - £375,050, Size (sq ft) - 59,607

Rent per sq ft - £6.29, Tenure - Freehold

The property is located to the north west of Bedford, within the Elms Farm Industrial Estate. It is a 59,607 sq ft logistics unit that sits c. 1.0 miles from the A421. It is a well maintained and configured warehouse.

During the year, the Manager introduced a new tenant at £6.29 per sq ft on a 10-year lease with a five year break and subsequently completed the sale of the property for £5.8 million (excluding sales costs). This was at a net initial yield of 6.0% and reflects an IRR on equity invested of 43.0%.

2. Price's Candles, Bedford

Annual passing rent - £265,000, Size (sq ft) - 44,195

Rent per sq ft - £6.00, Tenure - Leasehold

This is a well configured warehouse with two bays and a trade counter. It is located in an established commercial location, with good access and circulation.

During the year a rent review was settled and a head lease extension to 150 years was agreed with Bedford Borough Council. The property was under offer to a purchaser at 31 March 2018 and subsequently sold on 6 April 2018 for £3.2 million, an IRR on equity invested of 55.8%.

3. Komori / Pharmacy2u, Leeds

Annual passing rent - £213,000, Size (sq ft) - 41,420

Rent per sq ft - £5.14 (Komori/Pharmacy2u), Tenure - Freehold

This is a well configured warehouse comprising two units in an established strategic location, with good access and circulation. The site was acquired in November 2017.

The acquisition is consistent with the Company's investment strategy of identifying attractively priced stock with asset management potential; and is well located to the north east of Leeds City Centre, close to the A64. It comprises a modern logistics warehouse which is let on leases through to 2020 and 2022 respectively. Both have outstanding rent reviews which are currently being negotiated and both tenants are seeking to extend their lease terms by a further five years.

4. HID, Haverhill

Annual passing rent - £320,366, Size (sq ft) - 37,355

Rent per sq ft - £8.58, Tenure - Freehold

This is a smaller warehouse with an office element in an established strategic location, with good access to main arterial routes and full circulation.

There is potential to extend on land to the rear and the tenant's break option recently lapsed so there is now a five-year unexpired term. There is also an outstanding rent review currently being negotiated.

Financing

As at 31 March 2018, the Group has a senior debt facility with Santander totalling £48.6 million. This facility has a term of five years and reflects an LTV of 36.9%. In the medium term the Group's target LTV is 35-40%. Net financing costs were £0.9 million for the year.

A new term facility is under negotiation with both Santander and another lender on a club basis. This is expected to be completed in September 2018.

Investment Activity

Acquisitions and disposals across the financial year comprised:

Portfolio Acquisitions

A portfolio of nine logistics assets was purchased for £45.5 million (excluding acquisition costs) in September 2017. The acquisition was sourced off-market at a net initial yield of 7.3%. The portfolio's logistics occupiers include Culina, XPO, Sainsbury's and Travis Perkins. The assets are close to established regional transport hubs in urban or last-mile locations where there is strong occupier demand.

In December 2017, the Company purchased another portfolio of assets totalling £31.5 million (excluding acquisition costs), reflecting a 7.1% net initial yield. The portfolio had a low average rent of £4.46 per sq ft, reflecting significant reversionary potential. The sites are well-located single-let assets across the UK and three of the sites are let to DHL.

Asset Acquisitions

A logistics asset at Victoria Road, Seacroft, Leeds was purchased for a total consideration of £2.8 million in November 2017. The purchase price represents a net initial yield of 6.8% and comprises a modern 41,420 sq ft logistics warehouse let to Komori UK Limited and Pharmacy2u Limited on leases through to 2020 and 2022 respectively. There are outstanding rent reviews on both units. This site recently won best 'New Facility' at The Logistics Awards 2017, which recognises operational excellence among companies within the logistics and supply chain sectors.

The Company completed the acquisition of a site in Northampton in December 2017 for £3.0m at a net initial yield of 6.4%. The site located at Moulton Park, Northampton is located close to the A43. It is a 42,553 sq. ft. logistics unit let to Panther Logistics.

Post Year End Acquisitions

Following the equity raise in April 2018, which raised gross proceeds of £20.4 million, the Group exchanged contracts on a portfolio of six urban logistics assets for an acquisition cost of £36.0 million (excluding acquisition costs). The combined portfolio represents a blended net initial yield of 5.9%.

Disposals

The Company completed the sale of a site located at Hammond Road, Bedford, in November 2017 for a total consideration of £5.8 million (excluding sales costs), representing a net initial yield of 6.0%. The disposal follows the recent letting of the property on a 10-year lease to P W Gates (mentioned above) and the total consideration is a 64% gain on the asset's cost, representing an IRR of approximately 43%.

In February 2018, the Company commenced discussions regarding the sale of an asset located at Hudson Road, Bedford. The sale completed post year end on 5 April 2018 for £3.2 million. Taken together with the income returns generated during the Company's ownership this sale price represents an IRR on equity invested of 55.8%.

Market Overview

The industrial and logistics market in the UK continues to see resilient occupier demand outweighing available supply. This is due to on-going under-investment in the sector which is principally due to some substantial barriers to entry, namely: the cost of construction; availability of land; planning constraints; and letting risk. This results in an ongoing supply constraint regarding quality industrial and logistics assets across the UK.

Strong occupier demand, owing in particular to the growth in e-commerce and investment by retailers and suppliers in e-fulfilment supply chain capability, also means that there is sustained low void across key locations.

During 2017 we saw total return potential supported by structural growth, particularly strong rental growth. Sterling's depreciation post the EU referendum should continue to prove a boost to exports and the manufacturing sector. This combined with e-commerce growth is expected to provide strong cyclical and structural support, despite any perceived weakness due to the ongoing negotiations with the EU.

The logistics total return in H2 2017 was 9.3%, a marked uplift on H1 2017 (5.0%). This improvement was driven by stronger capital growth with rental growth stable over the period (Source: CBRE Logistics Property Perspective H2 2017).

A wider range of facilities will underpin the sector's transformation going forward, notably XXL warehouses (with several floors) and urban logistics centres, where we are focused. Speculative development remains subdued as occupiers shift to purpose-built factories and development finance remains limited.

Market Outlook

The Board and the Manager believe that this part of the property sector continues to show resilience in a context of wider economic uncertainty. Underlying market conditions remain favourable for UK business and we see ongoing activity across our occupier base which is centred proportionately across SMEs, logistics firms and larger occupiers.

The UK continues to be one of the fastest growing adopters of online retail and there is a requirement for tenants to develop their e-fulfilment capability accordingly. As such, key geographic regions across the UK are seeing improvements year-on-year in leasing activity. In the longer-term, demand for sites will fluctuate with economic drivers such as the value of Sterling, manufacturing and production, exports, domestic consumption and Brexit. However, the UK has relatively high barriers to entry (compared to other European markets) with respect to planning and development, so we expect sustainable growth for the foreseeable future.

For the rest of 2018 and beyond, we expect the demands that occupiers place on their units to become more advanced. Power demand has become of increasing importance to many occupiers, particularly given the growing level of automation utilised across different supply chains. With electric vehicles (both trucks and cars) increasingly being considered, the ability to accommodate and charge these vehicles on site will become important. Meanwhile, with unemployment reaching record lows, sourcing labour will become an increasing issue.

Supply

Whilst there have been recent tentative steps towards the speculative development of smaller floorplate buildings, this has yet to result in availability matching the requirement for take-up across the UK. Indeed, supply is focussing more on second-hand space with new and early marketed space (units within six month of practical completion) contracting (Source: CBRE Logistics Report H1 2017 - The Property Perspective). Supply remains low by historical standards and there remains a lack of land allocated for warehouse development, particularly across the Midlands where interest and enquiries are being registered on schemes that have yet to secure planning permission. There remain very few large strategic sites across the Midlands that are in a position to complete quickly and meet demand. We also note that since the EU referendum there has been a reduction in speculative commitments by developers whilst good quality demand has held up.

The logistics sector will also be impacted by the introduction of the Minimum Energy Efficiency Standard (MEES) regulations from April 2018 which will prevent 'substandard' property, where an EPC falls below the minimum standard of an E banding, from being let. None of the properties across the Group's portfolio fall into this category.

Demand

Demand for smaller lot size warehouses in recent years has been strong. The underlying driver being a lack of new building availability and high replacement cost. The Manager will continue to focus on purchasing sites below replacement cost.

One of the other key features of demand is the emergence of new locations, traditionally seen as more secondary. These locations have come to the fore due to the limited supply in many prime areas around London and the notable rental growth within the M25. For example, in the South East the lack of supply has led to occupiers considering alternative locations elsewhere - with the South West and West Midlands achieving take-up well above long-run averages.

Acquisitions

The Manager will continue to focus on acquiring attractive assets and implementing asset management initiatives to drive rental growth in light of the current market dynamic of diminishing supply and increasing occupier demand.

The Manager is focussed on maintaining and building existing tenant relationships with a view to extending the Group's reputation as a leader in the smaller lot size logistics market.

Investment volumes remain high and the sector is undeniably popular. The sector's superior returns in 2017 allied to projected rental growth prospects have proven highly attractive to both existing and new entrants. With alternative assets generally providing low returns there is continued search for yield and growth. We are well positioned to continue to achieve our target returns for our investors.

Richard Moffitt

23 May 2018

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Company Statement of Financial Position

Consolidated Cash Flow Statement

Company Cash Flow Statement

Consolidated Statement of Changes in Equity

Notes to the Preliminary Results

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of Companies Act 2006 (the "Act").

The financial information set out in this announcement does not comprise the Group's statutory accounts for the year ended 31 March 2018.

The statutory accounts for the year ended 31 March 2018 have not yet been delivered to the Registrar of Companies, nor have the auditors yet reported on them.

1. Corporate information

Urban Logistics REIT plc, previously Pacific Industrial & Logistics REIT plc, (the "Company") and its subsidiaries (the "Group") carry on the business of property lettings throughout the United Kingdom. The Company is a public limited company incorporated and domiciled in England and Wales and listed on the AIM Market of The London Stock Exchange. The registered office address is 124 Sloane Street, London, SW1X 9BW.

2. Basis of preparation

The financial statements have been prepared in accordance with IFRS as adopted by the European Union and, as regards the parent company financial statements, applied in accordance with the provisions of the Companies Act 2006.

The Group's financial information has been prepared on a historical cost basis, except for investment property and derivative interest rate caps which have been measured at fair value.

The functional currency of the Group is considered to be pounds sterling as this is the currency of the primary environment in which the company operates.

The Company has not presented its own Statement of Comprehensive Income, as permitted by Section 408 of the Companies Act 2006. The Company made a profit of £2.39 million.

Going concern

The Directors have reviewed the current and projected financial position of the Group, making reasonable assumptions about future trading performance. As part of the review, the Group has considered its cash balances, its debt maturity profile, including undrawn facilities, and the long-term nature of the tenant leases.

On the basis of this review, and after making due enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis is preparing the Annual Report and financial statements.

Standards issued but not yet effective

The company has not yet applied the following new and revised IFRSs that have been issued but are not yet effective:

§ IFRS 9 "Financial instruments" will be effective for the year ending March 2019 onwards.

§ IFRS 15 "Revenue from contracts with customers" will be effective for the year ended March 2019 onwards.

§ IFRS 16 "Leases" will be effective for the year ending March 2020 onwards.

§ Amendments to IFRS 2 "Classification and measurement of share-based payment" will be effective for the year ending March 2019 onwards.

§ Amendments to IAS 40 "Transfers of Investment Property" will be effective for the year ended March 2019 onwards.

The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application, other than on presentation and disclosure.

3. Significant accounting judgements, estimates and assumptions

The preparation of the financial statements in conformity with the generally accepted accounting practices requires management to make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the statement of financial position date and the reported amounts of revenue and expenses during the reporting period.

Business combinations

The Group acquires subsidiaries that own real estate. At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property.

Where such acquisitions are not judged to be the acquisition of a business, they are not treated as business combinations. Rather the cost to acquire the corporate entity is allocated between identifiable assets and liabilities of the entity based upon their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred tax arises.

Long-term incentive plan

In determining the fair value of the long-term incentive plan and the related charge to the statement of comprehensive income, the group makes assumptions about future events and market conditions.

In particular, judgement must be formed as to the likely number of shares that will vest, and the fair value of each award granted.

The fair value is determined using a valuation model which is dependent on a number of assumptions of the Group's future dividend policy and the future volatility in the price of the group's shares. Such assumptions are based on publicly available information and reflects market expectation. Different assumptions about these factors to those made by the group could materially affect the reported value of long-term investment plan.

Details of the Group's long-term incentive plan can be found in note 11.

Fair value of investment property

The market value of investment property is determined by real estate valuation experts, to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. Each property has been valued on an individual basis. The valuation experts use recognised valuation techniques and the principles of IFRS 13.

The valuations have been prepared in accordance with RICS Valuation - Professional Standards UK January 2014 (revised April 2015) (the "Red Book"). Factors reflected include current market conditions, annual rentals, lease lengths and location. The significant methods and assumptions used by the valuers in estimating the fair value of investment property are set out in note 13.

4. Principal accounting policies

The principal accounting policies applied in the preparation of these interim financial statements are set out below. These policies, which are also applicable to the financial statements of the Company, have been consistently applied to all the years presented.

Basis of consolidation

The financial statements consolidate the accounts of the Company and all subsidiary undertakings drawn up to the same year end.

Business combinations

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. At the Group level, acquisition costs are recognised in the Statement of Comprehensive income as incurred.

The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date.

Subsidiaries are entities which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiary entities are consolidated from the date on which control is transferred to the Group and are deconsolidated from the date on which control ceases. In respect of subsidiaries, inter-company transactions and unrealised gains on intra-group transactions are eliminated on consolidation.

The financial information of the subsidiaries is prepared for the same reporting periods as the parent company, using consistent accounting policies.

Investment in subsidiaries

Investments in subsidiaries are stated at cost less any provision for permanent diminution in value. Realised gains and losses are dealt with through the Statement of Comprehensive Income. A review for impairment is carried out if events or changes in circumstances indicate that the carrying amount may not be recoverable, in which case an impairment provision is recognised and charged to the Statement of Comprehensive Income.

Borrowing costs

Borrowing costs in relation to interest charges on bank borrowings are expensed in the period to which they relate. Fees incurred in relation to the arrangement of bank borrowings are capitalised and expensed on a straight-line basis over the term of the loan.

Segmental reporting

IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reported to the chief operating decision maker to allocate resources to the segments and to assess their performance. Following the strategic review, the directors consider there to be only one reportable segment, being the investment in the United Kingdom of medium size industrial warehouses.

Investment properties

Investment properties comprises completed property that is held to earn rentals or for capital appreciation or both.

Investment properties are initially recognised at cost including transactions costs. Transaction costs include transfer taxes and professional fees for legal services. Subsequent to initial recognition investment properties are carried at fair value, as determined by real estate valuation experts. Gains or losses arising from change in fair value is recognised in the statement of comprehensive income in the period in which they arise.

On disposal of an investment property, the difference between the disposal proceeds and the carrying amount is recognised in the statement of comprehensive income.

Financial instruments

Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest rate method.

A provision is established for irrecoverable amounts when there is objective evidence that amounts due under the original payment terms will not be collected. The amount of any provision is recognised in the statement of comprehensive income.

Cash and cash equivalents are recognised initially at fair value and subsequently measured at amortised cost. Cash and cash equivalents comprise cash in hand, deposits held with banks and other short-term, highly liquid investments with original maturities of three months or less.

Financial liabilities

Financial liabilities, equity instruments and warrant instruments issued by the Group are classified in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost using the effective interest rate method.

Derivative financial instruments

Derivative financial instruments, comprising interest rate caps and swaps for hedging purposes, are initially recognised at cost 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. The gain or loss at each fair value measurement date is recognised in the statement of comprehensive income. Premiums payable under such arrangements are initially capitalised into the statement of financial position, subsequently they are remeasured and held at their fair values.

Hedge accounting has not been applied in these financial statements.

Revenue recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other sales taxes or duties.

Rental income from operating leases on properties owned by the Company is accounted for on a straight-line basis over the term on the lease. Rental income excludes service charges and other costs directly recoverable from tenants.

Lease incentives are amortised on a straight-line basis over the term of the lease.

Leases

Leases where substantially all of the risks and rewards of ownership are transferred to the lessee are classified as finance leases. All others are deemed operating leases. Property interests held under operating leases which meet the definition of investment properties are carried, as such, at fair value with the related lease treated as a finance lease.

Long-term incentive plan

There is a Long-Term Incentive Plan ("LTIP") in place whereby Pacific Industrial LLP, an affiliate of Pacific Capital Partners Limited (the "Manager") has subscribed for B Ordinary shares and C Ordinary shares issued in Pacific Industrial & Logistics Limited. Under the terms of the LTIP, the Company is obliged to acquire the B Ordinary share and C Ordinary shares in Pacific Industrial & Logistics Limited, in return for services provided by Pacific Industrial LLP, subject to certain conditions.

The fair value of the long-term incentive plan is calculated at the grant date using the Monte Carlo Model. The resulting cost is charged to the Statement of Comprehensive Income over the vesting period. The value of the charge is adjusted to reflect expected and actual levels of vesting.

Taxation

Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and deferred tax. Current tax is expected tax payable on any non-REIT taxable income for the period, using tax rates enacted or substantively enacted at the period end date, and any adjustment to tax payable in respect of previous years.

Dividends

Dividends on equity shares are recognised when they become legally payable. In the case of interim dividends, this is when paid. In the case of final dividends, this is when approved by the shareholders at the Annual General Meeting.

5. Revenue

The Group is involved in UK property ownership and letting and is considered to operate in a single geographical and business segment. The total revenue of the Group for the year was derived from its principal activity, being that of property lettings.

For the year to 31 March 2018, no single tenant accounted for more than 10% of the Group's gross rental income.

6. Operating profit

Operating profit is stated after charging:

In addition to the above, Smith & Williamson received £466k for advice and assistance in relation to a specific property transaction involving the acquisition of a corporate structure which required a significant amount of restructuring to transfer the assets into our continuing business and liquidate companies no longer required. The fees incurred were shared equally with the vendor, by way of a price reduction, therefore, the true economic burden of these costs was £233k. These fees were capitalised as part of the acquisition process.

Smith & Williamson also received £25k in respect of providing reporting accountant services in connection with the Company's public offering in August 2017. These fees have been treated as share issue expenses and offset against share premium.

7. Directors' remuneration

A summary of the Directors' emoluments, including the disclosures required by the Companies Act 2006, is set out in the Directors' Report. Two directors are also set to benefit from the Long-term incentive plan (LTIP). For further information refer to related party transactions in note 28.

8. Finance expense

9. Taxation

As a REIT, the Group is exempt from corporation tax on the profits and gains from its property investment business, provided it continues to meet certain conditions as per REIT regulations. For the year ending 31 March 2018, the Group did not have any non-qualifying profits and accordingly there is no tax charge in the period. Any non-qualifying profits and gains however will continue to be subject to corporation tax.

10. Earnings per share

The calculation of the basic earnings per share ("EPS") was based on the profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the period, in accordance with IAS 33.

The ordinary number of shares is based on the time weighted average number of shares throughout the period.

The profit before tax for the year ended 31 March 2018 includes a £0.62m charge in relation to the crystallisation of the Long-Term Incentive Plan ("LTIP"). The Directors believe that a more appropriate measure to assess the underlying operating performance of the business is to add back the LTIP crystallisation charge to EPRA earnings for the year.

At 31 March 2018, the Company had 2,962,000 warrant shares in issue. Each warrant holder has the right to subscribe for new Ordinary shares on the basis of one new Ordinary share for each warrant held at a strike price of 97.0 pence per Ordinary share. The dilutive nature of the share is 3.0 pence per share.

11. Long-Term Incentive Plan ("LTIP")

The Company has a Long-Term Incentive Plan ("LTIP"), accounted for as an equity settled share-based payment. At 31 March 2018, Pacific industrial LLP, an affiliate of Pacific Investments Limited, has subscribed for 1,000 B Ordinary Shares of £0.01 each and 1,000 C Ordinary Shares of £0.01 each issued in Pacific Industrial & Logistics Limited, a subsidiary of the Company, as detailed.

On 13 July 2017, the A Ordinary Shares were crystallised and the resulting value was paid by way of the issue of 520,557 Ordinary Shares to Pacific Industrial LLP, an affiliate of the Manager.

Following the completion of the placement of Ordinary Shares in Urban Logistics REIT plc (the "Company") on 17 August 2017, the Company amended the existing LTIP adopted at the time of IPO.

The new LTIP has an EPRA NAV element and a share price element and will be assessed on: i) 30 September 2020 (the "First Calculation Date") and ii) 30 September 2023 (the "Second Calculation Date"). The EPRA NAV element will be 10 per cent. of the excess of the EPRA NAV per Ordinary share return over an annualised 9 per cent. hurdle, multiplied by the number of Ordinary shares in issue at the relevant calculation date. The share price element will be 10 per cent. of the excess of the share price return over an annualised 9 per cent. hurdle, multiplied by the number of Ordinary shares in issue at the relevant calculation date.

At the First Calculation Date, the share price element and the EPRA NAV element hurdle will be calculated by reference to the Placing Price.

At the Second Calculation Date, if a payment has been made at the First Calculation Date under either element, the hurdle for that element at the Second Calculation Date will be re-set to be based on the prevailing EPRA NAV per Ordinary Share/share price as at the First Calculation Date (as applicable). If no payment is made under an element at the First Calculation Date, then the hurdle for that element will continue to be calculated by reference to the Placing Price.

The LTIP will be paid in shares or, at the Board's discretion, cash.

12. Dividends

On 6 April 2018, the Company announced the declaration of a third interim dividend in respect of the financial year ended 31 March 2018 of 3.2 pence per Ordinary share. This has not been recognised in the financial statements and was paid on or around 4 May 2018.

13. Investment properties

In accordance with IAS 40 "Investment Property", investment property is carried at its fair value as determined by an external valuer. This valuation has been conducted by CBRE and has been prepared as at 31 March 2018, in accordance with the RICS valuation - Professional Standards UK January 2017 (revised April 2015) (the "Red Book").

The valuations have been prepared in accordance with those recommended by the International Valuation Standards Committee and are consistent with the principles in IFRS 13.

Total rental income for the year recognised in the Consolidated Statement of Comprehensive Income amounted to £5.6 million.

Further information relating to property valuation techniques have been disclosed in note 21.

14. Investments

Investments are analysed as follows:

Details of the Group's subsidiary undertakings as at 31 March 2018, all of which are included in the consolidated financial statements, are given below:

Registered office address for companies incorporated in England and Wales; 124 Sloane Street, London, SW1 X9BW

Registered office address for companies incorporated in Guernsey companies; 11 New Street, St Peter Port, Guernsey GY1 2PF

Registered office address for companies incorporated in Luxembourg companies: 14, Rue Edward Steichen, L-2540 Luxembourg

Pacific Industrial LLP, an affiliate of the Manager, owns 0.02% of the issued share capital in Pacific Industrial & Logistics Limited. These shares have no right to dividends, therefore, no amounts have been recognised within non-controlling interests.

15. Acquisition of subsidiaries

On 28 September 2017, the Group obtained sole control of Sheds Prop 4 Sarl, Sheds General Partner 2 Limited and Sheds Haverhill Limited, property investment companies incorporation in Luxembourg, England and Wales and Jersey respectively, through the acquisition of the entire issued share capital in the companies.

On 22 December, the Group obtained sole control of Sheds YPL (Investments) Limited, Sheds YPL (Investments II) Limited and Sheds YPL (Investments III) Limited, property investment companies in Guernsey, through the acquisition of the entire issued share capital in the companies.

These acquisitions are not judged to be the acquisition of a business and are not treated as business combinations. Rather the cost to acquire the corporate entity is allocated between identifiable assets and liabilities of the entity based upon their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred tax arises.

The table below sets out the initial fair values to the Group in respect of these acquisitions.

16. Trade and other receivables

Trade receivables are due within 30 days of the date at which the invoice is generated and are not interest bearing in nature. All trade receivables relate to amounts that are less than 30 days overdue as at the year end date. Due to their short maturities, the fair value of trade and other receivables approximates their fair value.

Amounts due from group undertakings have been issued without terms and are interest free, therefore, the full amount has been recognised within trade and other receivables due within one year.

17. Cash and cash equivalents

Group cash and cash equivalents include £0.67 million of restricted cash in the form of rental deposits held on behalf of tenants.

18. Trade and other payables

The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. Due to their short maturities, the fair value of trade and other payables approximates their fair value.

19. Bank borrowings and reconciliation of liabilities to cash flows from financing activities

On 22 December 2017, the Group and Santander UK plc entered into a facility agreement pursuant to which Santander UK plc has agreed to provide the Group with a loan facility of £48.6 million for a term of five years.

Bank borrowings are secured by charges over investment properties held by certain asset holding subsidiaries, providing the lender with a maximum loan to value of 55% on those properties specifically charged to it and the interest cover will be at least 200%. Under the terms of the loan, the Group pays interest of 2.1% above three-month LIBOR pa on the outstanding utilised under the terms of the agreement. At 31 March 2018, £48.6 million was drawn to fund business and property acquisitions.

20. Interest rate derivatives

The Group has used interest rate swaps to mitigate exposure to interest rate risk. The total fair value of these contracts are recorded in the statement of financial position. The interest rate derivatives are marked to market by the relevant counterparty banks on a quarterly basis in accordance with IAS 39. Any movement in the fair value of the interest rate derivatives are taken to finance costs in the statement of comprehensive income.

21. Financial risk management

Financial instruments - Group

The Group's financial instruments comprise financial assets and liabilities that arise directly from its operations; cash and cash equivalents, trade and other receivables, trade and other payables, interest rate derivative and bank borrowings. The main purpose of these financial instruments is to provide finance for the acquisition and development of the Group's investment property portfolio.

Credit risk

Credit risk is the risk of financial loss to the Group if a client or counterparty fails to meet it contractual obligations.

The Group's credit risk is primarily attributable to its trade receivables. The Group has implemented policies that require appropriate credit checks on potential tenants before lease agreements are signed. The amount of exposure to any individual counterparty is subject to a limit, which is reassessed annually by the board.

Outstanding trade receivables are regularly monitored. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial asset.

Interest rate risk

The Group has both interest-bearing assets and interest-bearing liabilities. Interest bearing assets comprise only cash and cash equivalents which earn interest at a variable rate. The Group's debt strategy is to minimise the effect of a significant rise in underlying interest rates by utilising interest rate swaps.

The directors will revisit the appropriateness of this policy should the Group's operations change in size or nature.

Details of the terms of the Group's borrowings are disclosed in note 19.

Market risk

Market risk is the risk that the fair values of financial instruments will fluctuate due to changes in market prices. The financial instruments held by the Group that are affected by market risk are principally the Group's cash balances along with an interest rate cap entered into to mitigate interest rate risk.

Liquidity risk

The Group actively maintains a medium-term debt finance that is designed to ensure it has sufficient available funds for operations and committed investments. The Group monitors its levels of working capital to ensure that it can meet its debt repayments as they fall due.

The following table shows the contractual maturities of the Group's financial liabilities, all of which are measured at amortised cost: