Urban Logistics Regulatory News (SHED)

Urban Logistics REIT plc

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

Results for the Year Ended 31 March 2020

Transformational period for the business with strong performance across urban logistics portfolio

Urban Logistics, (AIM: SHED) the specialist UK logistics REIT, issues its results for the year ended 31 March 2020.

*Adjusted for early LTIP crystallisation as part of March 2020 capital raise (£3.5 million)

Financial Highlights

§ £136 million of equity capital raised in March 2020

§ EPRA NAV 137.90p per share (2019: 137.96p) reflects the fundraise and early LTIP crystallisation

§ Portfolio valuation at 31 March 2020 of £207.0 million

§ Dividends for period up 8.6% to 7.60p

§ Total Property Return 10.1%

§ Net cash of £57 million at period end

Operational Highlights

§ Nine logistics properties acquired for £20.7 million (blended 6.4% NIY) with asset management potential

§ Disposals totalling £18.4 million, all at or above book value, representing average Total Property Return of 49.6%

§ Limited void at period end of 2.4%

§ WAULT of 4.9 years (2019: 5.5 years)

§ Like-for-like contracted income growth across portfolio of 3.4%

Post period end

§ £98 million of acquisitions across two portfolios, one distribution warehouse and one development site

§ All rents due for the quarter to June 2020 were collected in full

§ Credit approval for new 5-year banking facility at reduced margin

§ Tenants continue to trade well with only two sites not fully operational due to Covid-19

Nigel Rich, Chairman, commented:

"The long-term economic impact of Covid-19 on the UK economy will take time to emerge. However, it will change the way business is conducted with many more people working from home and doing their shopping on the internet, a trend which started well before the virus. Against this backdrop, the fundamentals of the urban logistics market remain attractive. We have successfully raised £136 million which has enabled us to purchase new assets with asset management opportunities across the country, but predominantly in the Midlands and the North. We will be making further asset purchases in the coming months funded by the balance of the equity capital raise and a new banking facility.

"I am also delighted to be announcing today the appointment of a new independent director, Heather Hancock, who has agreed to join the board from 15 June."

Richard Moffitt, Chief Executive, added:

"Urban Logistics remains real estate's top performing sub-sector and this Company is the only listed business giving investors a "pure play" exposure to urban logistics assets. With our focus on urban logistics, and most of our warehouses situated near to town and city centres, our tenants are mostly involved in the supply chain for getting household goods to end users. Throughout a challenging period for UK businesses in recent months, the resilience of our investment strategy has proven itself. We remain focused on building our business through working closely with our tenants and all our properties are selected for their location, specification and strong tenant covenant characteristics. Our tenants continue to perform well, all paid their rents for the recent quarter through to June, and our strong balance sheet gives us the ability to move quickly as good investment opportunities arise."

- Ends -

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Chairman's Statement

2019 was a year of political turmoil and market volatility, in spite of which Urban Logistics was able to produce good half year results. On the back of these results, and a Conservative election victory in December, which led to more certainty around Brexit, we successfully raised £136 million shortly before lockdown, with the support of both new and existing shareholders.

Covid-19, a name of little importance to most of us in January, has impacted the whole global economy. Sadly, lives continue to be lost and the economic consequences of a prolonged lockdown have yet to be seen. The long-term economic impact of Covid-19 on the UK economy will take time to emerge. However, it will change the way business is conducted with many more people working from home and doing their shopping on the internet. With our focus on urban logistics, and most of our warehouses situated near to town and city centres, our tenants are mostly involved in the supply chain for getting UK domestic goods to end users. We believe that urban logistics can only become more important in a post Covid-19 world.

During a busy financial year, we continued to actively manage our portfolio of properties. New lettings, renewals and lease extensions all helped to add income and capital value. We sold three properties in the year, having maximised returns from them, and purchased nine properties where there are asset management opportunities, including a portfolio of properties let to Tuffnells on 20-year leases, and a further three development sites which are expected to be completed towards the end of 2020 and in early 2021. The Manager's Report provides more information on these purchases. The Manager also developed a pipeline of future acquisitions spread across the country, but predominantly in the Midlands and North, which met our strategy of being near to cities and towns and mostly providing urban logistics.

The successful capital raise in March 2020 enabled us to announce the acquisitions in late March and, post period end, in April of two portfolios of properties, two single properties and a development site, at a cost of £103 million. Further acquisitions will follow in the coming months.

Financial results

Turning to our results for the year ended 31 March 2020, our property portfolio increased from £186 million to £207 million. On a like-for-like basis, properties held throughout the year increased in value by 4.6%. Capitalisation rates barely moved in the year and the increase in value is principally due to active asset management. Thus, the profit and loss account shows a lower increase in fair value in 2020, £5.7 million, compared to £13.4 million in 2019.

Revenue increased from £10.8 million to £12.6 million, reflecting both rent increases and rent received from new properties acquired in 2019 and 2020. Earnings, however, decreased from £18.7 million to £9.4 million. The decrease in earnings was principally due to the lower increase in property values year-on-year and the early LTIP charge of £3.5 million in the financial period.

At the year end, and as a result of the capital raise, the Group was in a net cash position. This cash has been, and will be, used to fund the purchase of properties in line with the Company's strategy. In the current macro-environment, your Board is exercising appropriate vigilance over acquisition opportunities but we are also in a position to move quickly for the right assets. The Group has agreed, subject to documentation, a new credit approved facility with Barclays, Santander and Lloyds banks, totalling £151 million and with a term through to 2025. These funds will be used for future asset purchases. We are now aiming at an LTV range of between 30 and 40%, with the intention of being at the lower end of the range until the current crisis looks like coming to an end. We are fortunate to be in such a strong financial position.

Dividend

We declared an interim dividend for the second half of the financial period of 3.85 pence per share prior to the closing of the capital raise, payable to existing shareholders. This was paid on 21 April 2020. The total dividends paid in respect of the financial year amounted to 7.60 pence per share, an increase of 8.6% on the prior year. We intend to declare a first interim dividend in respect of the financial year to March 2021 when our interim results are announced in November.

The Manager

Our Manager, Pacific Capital Partners, has continued to serve us well. Richard Moffitt leads the business, supported by Christopher Turner. Their principal responsibility is to find suitable properties for investment and then to provide active asset management to maximise returns and capital values. They do both to great effect and they are critical to the success of the business.

The Manager's financial and administrative team provide excellent support.

The Investment Management Agreement was reviewed and amended by the Board in conjunction with the recent equity capital raise process. The incentive terms were adjusted such that there is now a ratchet in place for the management fee over a total net asset value of £250 million; reducing incrementally to 0.90% of net asset value through to £500 million and then to 0.85% over and above £500 million. The LTIP has also been adjusted with performance to February 2020 crystallised and paid out to the Manager. The majority of the award was paid in the Company's shares and subject to a 12-month lock-in.

The annual hurdle rate for the continuing LTIP has been increased to 10% and is linked to total value created across both net asset value and market capitalisation. Any future payment to the Manager is also capped at three times average annual management fees paid from February 2020. The next calculation date for the plan is 30 September 2023.

Richard Moffitt and Christopher Turner share in the income from the management contract and in any benefits arising from the LTIP.

Director appointment

Following our statement on 10 February 2020 that the Nominations Committee of the Board had instigated a process to appoint a further independent non-executive director, we are pleased to announce that Heather Hancock has agreed to join the Board on 15 June 2020. A further announcement will be made regarding Heather's appointment upon completion of routine director due diligence by our Nominated Advisor, in compliance with the AIM Rules.

Heather is currently Chairman of the Foods Standards Agency which she is stepping down from to take up the position of Master of St. John's College, Cambridge in the autumn. She has a degree in Land Economy from Cambridge and a wide variety of experience in both public and private organisations, including property related businesses. She served as a trustee for the Prince's Trust for more than a decade, for which she was awarded the LVO in 2013. A copy of Heather's CV can be found on our website.

Outlook

Clearly there remains considerable uncertainty about the speed of recovery in the UK's economic growth. As I alluded to earlier, life will not be the same post Covid-19. The lockdown has further improved the adoption of e-commerce which is a central tenet to our business. We believe in our medium to long term strategy and the experience of our Manager to invest well in these markets and of the need to invest to generate the income needed to meet the dividend expectations of our shareholders. The investments we have made in March and April will help to grow the income of the business and we are well set to be making further investments in the coming months. At the same time, we will keep a close watch on the financial wellbeing of our tenants and our level of gearing.

We are confident that we will continue to successfully grow our business despite all that is happening around us.

Nigel Rich CBE, Chairman

Manager's Report

Overview

This year has been a transformational period for the Group. We have doubled the market capitalisation of the business, continued to create shareholder value and sustained our focus on the implementation of our focussed urban logistics strategy.

It's important to remember the backdrop against which we have traded in this last financial year. At the beginning of 2019, Brexit was the most debated economic agenda item - it crowded out virtually every other subject, led to sustained political deadlock and, for businesses generally, created a very unhelpful sense of uncertainty. Then we had a General Election, which seemed to instil a sense of purpose and direction, only for the onset of the Covid-19 pandemic in 2020 to then completely change everybody's thinking once again.

Throughout all of this, the central thesis behind our investment strategy has proven itself. We remain focused on building our business through working closely with our tenants, acquiring assets that provide solid medium-term income from strong covenants aided by asset management initiatives to enhance our total return.

We have continued to invest, effectively manage our portfolio of properties and look at new opportunities. The long-term strategy of having tenants focused on the distribution of domestic UK products, such as food and pharmaceuticals, and avoiding the fashion sector has provided resilience at a challenging time. Our tenants are typically third-party logistics companies and UK businesses who move staple and domestic products around the country to homes and businesses requiring last mile or e-fulfilment services; such as Boots, NHS, Travis Perkins, BSS and J Sainsbury plc. We avoid cyclical, volatile businesses which is why fashion retailers have been excluded from our customer base since IPO. This policy has served us well.

In March we raised £136 million, just before lockdown due to Covid-19. I am delighted that we saw such support from new and existing shareholders. Being in a strong balance sheet position, we have invested cautiously with a view to further diversifying our logistics focused portfolio. We will continue to do so in an orderly fashion whilst maintaining a lower level of gearing in the short term.

The ongoing Covid-19 crisis has really highlighted the importance of logistics real estate, especially scarce regional and last mile, or "last touch", warehouses focused on essential goods and consumer staples. An already constrained development pipeline will be further set back by Covid-19 delays on construction sites and we expect the previous annual take up of c. 8.5 million sq ft in our sub sector of the logistics market to sit well against a predicted supply of 2.5 million sq ft this year.

The market

As a sub-sector, urban logistics is attractive because there is a constant tension between demand and supply. Even before the lockdown was instructed by the government in March, online was growing strongly as a percentage of total retail sales - on course to hit 25% by 2022. The increased adoption of e-commerce as a result of Covid-19 will inevitably expedite this. The importance of a buffer in supply chains has also been highlighted; again, this points to greater demand for space.

That growth creates a race for last mile space which the market is unable to satisfy. Warehouse supply is down 30% since 2012 and remains tight, driven by local planning constraints and the high costs of building new stock. We do not apologise for repeating the fact that there is simply not sufficient space, and this remains a fundamental driver in our particular sub sector.

The ongoing rise in online ordering continues to drive logistics take-up, with take-up in the final quarter of 2019 reaching 6.8 million sq. ft., pushing annual take-up during 2019 to 34.5 million sq. ft. Although this is 18% below the record high reported in 2018, demand remained well above the 10-year average. It is estimated that for every additional £1 billion of online sales there is an additional requirement for approximately 770,000 sq ft of warehouse demand. 

CBRE research (source: Market Summary, Q4 2019) shows that 60% of take-up in 2019 was across the East Midlands and South East with the M1 corridor remaining the most attractive location for occupiers. This is where the majority of our portfolio of properties is centred. Following these areas, the West Midlands and North East accounted for 17% and 12% of take-up in 2019, respectively.

Against this background, the 20,000 sq ft to 200,000 sq ft mid-box logistics market in which we invest remains compelling due to occupier demand causing availability to fall and rents to rise. There also continues to be the beneficial effect with large "super sheds" of over 300,000 sq. ft. acting as national or regional distribution centres and smaller urban logistics buildings providing the "last mile", or "last touch", distribution to modern supply chain infrastructure. Vacancy rates across the mid box market remain low and are around 6.5% at the current time. We now control a growing portfolio of assets fulfilling that vital end role in the logistics chain.

We were seeing a modest amount of speculative development in 2019 but this was typically within the "super shed" or "big box" market for properties of over 300,000 sq ft. This has now been largely curtailed in the short term due to government restrictions. Covid-19 will inevitably also result in some loss of appetite for development risk from developers.

The Group will continue to benefit from the significant opportunity in this resilient sub-sector of the UK logistics market due to 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. Urban Logistics remains a trusted counterparty for vendors, purchasers and tenants in this key real estate sector.

Property portfolio

CBRE, in line with all RICS standard valuations from March 2020, have had to qualify their valuation of our portfolio as at 31 March 2020 due to the "material valuation uncertainty" created by the economic consequences of Covid-19. Consequently, less certainty - and a higher degree of caution - should be attached to the valuation than would normally be the case. However, the inclusion of this "material valuation uncertainty" declaration does not mean that the valuation cannot be relied upon. The clause serves as a precaution and does not invalidate the valuation.

We know that most of our tenants continue to trade well and all the rents due in March for the quarter to June were paid in full.

CBRE valued the portfolio of properties at £207.0 million at 31 March 2020. The Group reported a fair value uplift across the portfolio of £5.7 million in the year. The like-for-like annual valuation uplift was 4.6% for properties held at both 31 March 2019 and 31 March 2020.

Whilst property yields haven't moved materially across the year, unlike prior years, the valuation increase reflects our focus on active asset management opportunities and the buying of well-located, urban logistics properties with upcoming lease events or rent reviews. We talk more about our asset management, including the sale of certain properties which generated strong returns in the year, in the section that follows.

Asset acquisitions and disposals

Acquisitions

The Group acquired nine properties during the period, all of which are high quality logistics warehouses, in good geographical locations. Total purchase price was £20.7 million, with a blended net initial yield of 6.4% and average WAULT of 13 years. The new properties all present a variety of asset management opportunities, which have the potential to drive income growth and capital appreciation.

1. Purchase price excludes acquisition costs.

Tuffnells Portfolio

On 27 September 2019, a portfolio of six parcel depots was acquired for £9.9 million. The acquisition was sourced at a net initial yield of 7.0%. The last mile parcel buildings are close to established areas of population where dedicated parcel facilities are limited. The units are leased for 20 years to Tuffnells Parcel Express Limited, a business-to-business distributor specialising in irregular dimensions and weights. The cost of building dedicated parcel hubs is over twice that of a conventional logistics building which gives these depots a high scarcity value.

Thatcham and Sittingbourne

The Group acquired two logistics properties in Sittingbourne and Thatcham for a combined consideration of £5.3 million at a 5.9% blended net initial yield. The acquisitions further extend the portfolio's weighting across the South East of England where there is a chronic shortage of logistics assets. Both properties are let to DHL's UK Mail business.

Rubery, Birmingham

The Rubery site was acquired in late March 2020 for £5.5 million and is let to Aquapak Polymers (storage of soluble plastic packaging) through to 2031 with a parental guarantee from Systems ADI Group Limited. The property is well located near Birmingham and is subject to rent reviews in 2021 and 2026, linked to RPI with a 3.0-5.0% cap and collar.

New developments

The shortage of available space nationally has resulted in the Company forward funding two new urban logistics buildings at Stone (an M6 motorway location) and Hinckley (an M1/A5 motorway location) - two sites in the Midlands in excellent locations with a known shortage of stock.

The Company has received strong interest from prospective tenants and expects that both sites will be fully pre-let by the time of project completion. The gross development value of the sites is £15.4 million. The Company will receive a two-year rental guarantee from practical completion providing a 6% interest yield. The intention is for the sites to be built and let during 2020.

A further two sites have been acquired in Peterborough and Southwater, Horsham and are expected to commence construction this year with completion expected early 2021.

Disposals

The Group completed the sale of three logistics properties located in Nuneaton, Bedford and Dunstable during the financial period. The sales totalled £18.4 million, representing a blended profit on cost of 43%.

Taken together with the income returns generated during the Group's ownership, the sales of the three properties achieved a Total Property Return (TPR) of 50%. TPR is capital growth plus net rental income plus sale profit expressed as a percentage of the purchase price / opening net book value.

Nuneaton

The building was purchased as part of a portfolio in September 2017 for £6.7 million. The unit was acquired with vacant possession and was subject to a rent guarantee until September 2019. The property was sold to an owner occupier, Cofresh Limited, in April 2019 and realised a TPR of 23%.

Postley Road, Bedford

This property was purchased at IPO in 2016 for £5.6 million and comprises four units with a piece of development land. After extensive asset management, increasing rents and lease terms, the fully occupied site was sold in May 2019 for £9.1 million and realised a TPR of 73%. The land element has been retained and the purchaser has an option to acquire it for £0.5m if planning for redevelopment is granted.

Dunstable

This warehouse was also purchased at IPO in 2016 for £0.6 million. The unit was re-let for a 10-year term at a higher rent and subsequently sold for £1.2 million, selling 14% ahead of book value and generating a TPR of 126%.

Asset management

The Group owns 39 properties which have 42 different tenancies as at 31 March 2020. During the financial period, the Group successfully completed three new lettings and settled four rent reviews, which in total generated £0.6 million of additional annual rental income. Therefore like-for-like contracted income growth across the period was 3.4%. At year end in March there were 7 ongoing discussions with existing tenants about restructuring longer leases.

A tenant occupying a warehouse on Hudson Road, Bedford was made to terminate their contract early and as a result £628,381 of tenant lease incentives were written off. The tenant had been permitted to grant storage licences which have now been taken on directly by the Group with the three underlying users. The building therefore remained 70% occupied and post period end the remaining space was let to a new licensee, reducing the Group's void to 0.1%.

A key element of the Company's acquisition strategy has been a focus on tenants involved in the delivery of food, pharmaceuticals, consumer staples and other essential goods. Consequently, the Company's portfolio has a high degree of resilience. Of the 39 properties in the Company's portfolio at the year-end, only two were not trading to full capacity as a result of Covid-19.

We take our health and safety responsibilities, and other aspects of ESG, seriously. For example, the properties in the portfolio with an A-C Energy Performance Certificate ("EPC") rating increased from 71% to 84% in the year. We consider environmental issues at the time of purchase and aim to improve sustainability in the longer term in conjunction with tenants.

Management, who have transitioned to remote working without any issues, endeavours to engage with tenants on a quarterly basis and it is this hands-on relationship that is guiding us through the Covid-19 pandemic as our tenant-landlord relationships continue to remain constructive.

Post period end

In April we acquired two portfolios, one single property and a development site at a cost of £98 million.

The first portfolio of seven single-let regional distribution warehouses was acquired for £31.9 million at 6.8% NIY and is well located across the UK. The second portfolio was purchased for £47.2m at 7.0% NIY and is let to good quality tenants including Giant Booker (Tesco Plc), Anglian Water, Pegler plc and Hermes.

The Company in April acquired a warehouse in Normanton for £13.0 million at a net initial yield ("NIY") of 5.2%. This site is let to Unipart who operate an NHS contract for the North East of England. There is a lease in place until 2036 with a rent review in 2026. The 14-acre site has low site cover of 25% and a passing rent of £4.70 per sq ft. There is the potential to add 80,000 sq ft of additional warehousing on site.

Finally, a parcel of land was acquired for development at Peterborough Gateway Logistics Park, on the A1, and an adjacent piece of land was purchased and pre-let to DPD for 19 years.

We are not aware of any events across our portfolio since March which would have a material adverse effect on portfolio valuation and our tenants continue to perform and pay their rents.

Financial Review

The financial period to 31 March 2020, in addition to the fundraising, was focussed on asset management and more latterly on sourcing investment properties.

Net rental income for the year was £12.2 million, up from £10.1 million in the prior year. This reflects acquisitions made during the year but also a fully let portfolio of properties for most of the period under review. As a result of rent reviews and lease renewals, on a like-for-like basis contracted rental income increased 3.4%. At year end the WAULT was 4.9 years, we expect this to increase through the upcoming year. In terms of occupancy, the portfolio was fully occupied for most of the year with a small void of 2.4% at period end. Post period end this has subsequently reduced to 0.1% due to a new letting.

As at 31 March 2020, the Group had a senior debt facility with Santander and Barclays totalling £75.7 million with a term through to December 2022. Post period end, the Group has agreed, subject to documentation, a new credit approved facility with Barclays, Santander and Lloyds banks, totalling £151 million and with a term through to 2025.

The Company was in a net cash position at year end of £57 million due to the equity capital raise undertaken in March.

Outlook

Our deliberate focus on essential UK domestic product storage and distribution, and our avoidance of cyclical fashion retail, will continue. We believe that the last mile logistics sub-set of the real estate sector continues to demonstrate resilience in the context of wider economic uncertainty.

The UK remains one of the fastest growing adopters of online retail sales and there is an ongoing requirement for tenants to develop their e-fulfilment infrastructure accordingly. Our focus remains on acquiring properties at below replacement cost and implementing asset management initiatives in light of the current market dynamic of diminishing supply and increasing occupier demand.

We have an active pipeline and will be acquiring further properties in the coming months. We are in a strong position and can move quickly as good opportunities arise.

The Manager

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Company Statement of Financial Position

Consolidated Statement of Cash Flows

Company Statement of Cash Flows

Consolidated Statement of Changes in Equity

Company Statement of Changes in Equity

Notes to the Results

Financial information contained in this document does not constitute statutory accounts within the meaning of section 435 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 2020.

The statutory accounts for the year ended 31 March 2020 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. 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.

Critical accounting judgements

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.

Key sources of estimation uncertainty

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 - Global Standards July 2017 (the "Red Book"). Factors reflected include current market conditions, annual rentals, lease lengths and location.

Material valuation uncertainty due to Novel Coronavirus (COVID - 19)

The following clause can be found within CBRE's valuation report for the Group's portfolio:

'The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a "Global Pandemic" on the 11th March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries. Market activity is being impacted in many sectors. As at the valuation date, we consider that we can attach less weight to previous market evidence for comparison purposes, to inform opinions of value. Indeed, the current response to COVID-19 means that we are faced with an unprecedented set of circumstances on which to base a judgement. Our valuation is therefore reported as being subject to 'material valuation uncertainty' as set out in VPS 3 and VPGA 10 of the RICS Valuation - Global Standards. Consequently, less certainty - and a higher degree of caution - should be attached to our valuation than would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market, we recommend that you keep the valuation under frequent review. For the avoidance of doubt, the inclusion of the 'material valuation uncertainty' declaration above does not mean that the valuation cannot be relied upon. Rather, the declaration has been included to ensure transparency of the fact that - in the current extraordinary circumstances - less certainty can be attached to the valuation than would otherwise be the case. The material uncertainty clause is to serve as a precaution and does not invalidate the valuation.'

3. 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. No single tenant accounted for more than 10% of the Group's gross rental income.

4. Changes in fair value of investment property

Within the financial year, the tenant occupying the Hudson Road property was made to terminate their contract early, as a result £628,381 of tenant lease incentives were written off and recognised within 'Changes in fair value of investment property'.

5. Property operating expenses

6. Operating profit

Operating profit is stated after charging:

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 23.

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 2020, 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.

At 31 March 2020, the Company had nil (Mar 19: 457,250) warrant shares in issue.

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

The Company has a LTIP, accounted for as an equity settled share-based payment. At 31 March 2020, Pacific Industrial LLP, an affiliate of Pacific Capital Partners Limited, has subscribed for 1,000 C Ordinary Shares of £0.01 each issued in Urban Logistics Holdings Limited, a subsidiary of the Company.

On 7 February 2020 (the "Revised First Calculation Date"), the B Ordinary shares were crystallised and the resulting value was satisfied by the issue of 1,809,607 new Ordinary Shares at an issue price of 142.22 pence per Ordinary Share and £1.1m in cash paid to Pacific Industrial LLP, and affiliate of the Manager.

Following the completion of the equity issue, the Company and the Manager agreed to amend how the LTIP is assessed for the period from the Revised First Calculation Date to 30 September 2023 (the "Second Calculation Date").

As a result of the changes:

· The EPRA NAV element will be 5 per cent. of the amount by which the Company's EPRA NAV at the Second Calculation Date exceeds the Company's EPRA NAV as at the Revised First Calculation Date and an annualised 10 per cent. hurdle thereon (adjusted for any new issue of shares; all distributions including inter alia dividends and any returns of capital), and;

· The share price element would be 5 per cent. of the amount by which the market capitalisation of the Company at the Second Calculation Date exceeds the market capitalisation of the Company as at the Revised First Calculation Date and an annualised 10 per cent. hurdle thereon (adjusted for any new issue of shares, all distribution including inter alia dividends and any returns of capital).

The LTIP payment shall be capped at three times the average annual management fees paid from 7 February 2020 to the Second Calculation Date.

If there is a change of control, the LTIP will continue to be assessed by applying the relevant offer price to the EPRA NAV element and the share price element calculations at the date of the change of control.

The LTIP will be paid in shares of Urban Logistics REIT plc or, at the Board's discretion, in cash.

12. Dividends

On 14 February 2020, the Company declared a second interim dividend of 3.85 pence per Ordinary Share in respect of the financial year ended 31 March 2020. The dividend was paid as a property income distribution ("PID") on 21 April 2020 to shareholders on the register at the close of business on 6 March 2020. The second interim dividend has not been recognised in the financial statements for the year ended 31 March 2020.

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 2020, in accordance with the RICS valuation - Professional Standards UK January 2017 (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 16.

As at 31 March 2020, there is material valuation uncertainty due to COVID-19. The clause provided within the CBRE valuation report can be found within Note 2.

Total rental income for the year recognised in the Consolidated Statement of Comprehensive Income amounted to £12.16 million (2019: £10.77 million).

Upon application of IFRS 16, tenant lease incentives have been reclassified from Other debtors to Investment properties. Tenant lease incentive at 31 March 2020 totalled £0.34 million (2019: £0.34 million). The prior year financial statements have not been restated given the immaterial amounts involved.

14. 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.

Trade receivables comprise rental income which is due on contractual quarter days. At 31 March 2020, £1,042,634 (2019: £644,028) was due from tenants. No provision was proposed in the year. Provisions for impairment of trade receivables are established using an expected credit losses model. Expected loss is calculated from a provision matrix based on the expected lifetime default rates and estimates of loss on default.

15. Cash and cash equivalents

Group cash and cash equivalents available include £1.03 million (2019: £0.95 million) of restricted cash in the form of rental deposits held on behalf of tenants.

16. 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.

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

On 5 December 2018, the Group, Santander UK plc and Barclays Bank plc entered into a facility agreement pursuant to which Santander UK plc has agreed to provide the Group with a loan facility of £75.7 million for a term ending December 2022.

Post period end, the Group has agreed, subject to documentation, a new credit approved facility with Barclays, Santander and Lloyds banks, totalling £151 million and with a term through to 2025.

18. 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. Any movement in the fair value of the interest rate derivatives are taken to finance costs in the statement of comprehensive income.

19. Share capital

On 9 May 2019, 61,000 warrant shares were redeemed for an issue price of 97.0 pence per share.

On 9 March 2020, the Company raised £136.2 million through the issue of 99,054,812 Ordinary Shares at an issue price of 137.50 pence per share.

On 9 March 2020, the Company issued 1,809,607 Ordinary Shares as a result of the crystallisation of the LTIP at an issue price of 142.22 pence per share.

At 31 March 2020, there were nil (2019: 457,250) warrant shares in issue.

20. Share premium

Share premium relates to amounts subscribed for share capital in excess of nominal value less any associated issue costs that have been capitalised.

21. Share warrant reserve

This reserve relates to the warrant shares issued upon admission to the AIM Market of The London Stock Exchange in April 2016.

At 31 March 2020, there were nil (2019: 457,250) warrant shares in issue.

During the year, 61,000 warrant shares were exercised for a strike price of 97.0 pence per Ordinary Share. The remaining 396,250 warrant shares expired on 13 April 2019.

22. Retained earnings

Retained earnings relates to net gains and losses less distributions to owners not recognised elsewhere.

23. Related party transactions

The terms and conditions of the Investment Management Agreement are described in the Management Engagement Committee Report. During the year, the amount paid for services provided by Pacific Capital Partners Limited (the "Manager") totalled £1.27 million (2019: £0.58 million). The total amount outstanding at the year-end relating to the Investment Management Agreement was £0.46 million (2019: £0.24 million).

Long-term incentive plan

Under the terms of the Company's long-term incentive plan, at 31 March 2020 Pacific Industrial LLP, an affiliate of Pacific Capital Partners Limited had subscribed for shares in Urban Logistics Holdings Limited, a subsidiary of Urban Logistics REIT plc. Further details have been provided in note 11.

M1 Agency LLP

During the year, the Group incurred fees totalling £303,570 (2019: £679,665) from M1 Agency LLP, a partnership in Richard Moffitt is a member. These fees were incurred in the acquisition of investment properties, sale of three investment properties and two re-lettings.

For the transactions listed above, Richard Moffitt's benefit derived from the profit allocation he receives from M1 Agency LLP as a member and not from the transaction.

The Board, with the assistance of the Manager, excluding Richard Moffitt, review and approve each fee payable to M1 Agency LLP, and ensure the fees are in line with market rates and on standard commercial property terms.

Transactions with subsidiaries

Under IFRS, we are required to disclose all inter-company transactions that took place for all subsidiary undertakings of the Company. Transactions between the Company and its subsidiaries are in the normal course of business. Such transactions are eliminated on consolidation.

During the year fees of £2,090,219 (2019: £1,743,805) were charged to Urban Logistics Acquisitions 1 Limited, a subsidiary undertaking incorporated in England and Wales, from Urban Logistics REIT plc. At 31 March 2020, £nil (2019: £nil) was due from Urban Logistics Acquisitions 1 Limited.

During the year, Urban Logistics REIT plc carried out transactions with Urban Logistics Holdings Limited, a subsidiary undertaking incorporated in England and Wales. The total amount of these transactions was a net loan increase of £139,451,370 (2019: decrease of £60,930,021). At 31 March 2020, Urban Logistics REIT plc was due £141,328,228 (2019: £1,876,858) from Urban Logistics Holdings Limited.

During the year, Urban Logistics REIT plc received a dividend of £13,515,900 from Urban Logistics Holdings Limited.

24. Net asset value per share (NAV)

Basic NAV per share is calculated by dividing net assets in the Consolidated Statement of Financial Position attributable to Ordinary shareholders by the number of Ordinary shares outstanding at the end of the period.

Net Asset Values have been calculated as follows:

25. Post Balance Sheet Events

On 3 April 2020, the Group acquired a 153,476 sq. ft property for £13.0 million at a 5.2% NIY.

On 7 April 2020, the Group announced the acquisition of a portfolio of seven single-let regional distribution warehouses from Paloma Capital LLP for a total consideration of £31.9 million, representing a NIY of 6.8%.

On 7 April 2020, the Group announced, subject to planning, a commitment to acquire a three-acre site and forward fund a 46,500 sq. ft facility on the well-established Peterborough Gateway Logistics Park at a total development cost to the Group of £5.8 million.

On 29 April 2020, the Group acquired a portfolio of seven properties for a total consideration of £47.2 million at a 7.0% NIY.

Supplementary information

i. EPRA performance measures summary

ii. Income statement

iii. Balance sheet

iv. EPRA net initial yield and 'topped up' net initial yield

1. Annualised passing rent excludes short-term lettings and licences.

v. EPRA vacancy rate

vi. Total cost ratio/EPRA cost ratio