Warehouse Reit Regulatory News (WHR)

21 May 2019

Warehouse REIT plc

(the 'Company' or 'Warehouse REIT')

PRELIMINARY RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 MARCH 2019

COMPELLING MARKET FUNDAMENTALS AND ASSET MANAGEMENT ACTIVITY UNDERPINS NET ASSET VALUE, PROFIT AND PORTFOLIO VALUATION UPLIFT

SUCCESSFUL POST PERIOD END EQUITY RAISE EXPECTED TO PROVIDE ANOTHER £120 MILLION OF INVESTMENT POTENTIAL

Warehouse REIT, the AIM-listed specialist warehouse investor, today announces its audited preliminary results for the year ended 31 March 2019.

Financial Highlights1

· Paid or declared dividends totalling 6.0 pence per share, in line with our target for the year and 1.1 times covered by adjusted earnings

· Portfolio valued at £307.4 million at 31 March 2019, representing an increase of 8.9% on the aggregate purchase price and a 4.3% like-for-like increase on the valuation at 31 March 2018

· EPRA net asset value ("NAV") per share of 109.7 pence, up 7.4% (31 March 2018: 102.1 pence)

· Total accounting return of 13.3%, ahead of our IPO target of at least 10% per annum

· Profit on disposal of investment properties of £3.5 million

· Bank debt of £127.0 million at the year end, resulting in a loan to value ratio of 39.7% (31 March 2018: 40.5%), within the target range

Operational highlights

· Tenant demand remains strong despite current political and economic uncertainties, while supply of space remains constrained, with capital values generally below replacement cost

· Strong asset management performance has contributed to robust rental growth

o Completed 62 lettings of vacant space, generating rent of £2.1 million per annum, 13.0% ahead of 31 March 2018 estimated rental value ("ERV")

o Renewed 46 leases, securing income of £1.5 million and a 14.6% increase in contracted rents

o Capital expenditure of £2.1 million in the year, with rents responding positively to investment

o Disposed of four assets for £19.0 million, reflecting an aggregate net initial yield ("NIY") of 5.1% and a 27% premium to 31 March 2018 book values

o Occupancy marginally dropped to 92.0% from 93.1% at 31 March 2018. Excluding units under offer to let and units undergoing refurbishment, occupancy was 94.9% at 31 March 2019.

· Successfully reinvested the disposal proceeds at attractive yields, acquiring four assets for a total of £16.7 million, reflecting a NIY of 6.9% and adding a further 250,700 sq ft of space to the portfolio

· Obtained planning permission for a major mixed-use development at Queenslie Business Park, Glasgow, for an additional 250,000 sq ft of warehouse and ancillary uses. The scheme has a gross development value of £25.0 million

Post year end highlights

· Successfully raised gross proceeds of £76.5 million through a placing, open offer and offer for subscription, with strong support from existing and new shareholders

· Acquired four assets for a total consideration of £45.0 million, at a blended NIY of 6.6%, contributing an additional 568,600 sq ft of warehouse space

Neil Kirton, Chairman of Warehouse REIT, commented:

"This was our first full year as a public company and we have stayed true to the commitments we made at our IPO in 2017. We met our dividend and total return targets for the year, while continuing to grow the portfolio and extracting value from it through active asset management. We are grateful to shareholders for their strong support for the equity issue in April 2019, which will enable the Group to acquire additional assets that will be accretive to earnings and enable us to further increase the dividend over time."

Andrew Bird, Managing Director of the Investment Manager, Tilstone Partners Limited, added:

"The occupational market remains strong. Demand for warehouse space is coming from a diverse range of occupiers, with e-commerce remaining an important driver. The supply of space is constrained, with low vacancy rates and little development, which is driving rental growth. We continue to source investments for the Group at below replacement cost and have a significant pipeline of attractive potential acquisitions. The Group is therefore well placed to make further progress in the coming year."

1. The Group uses a number of Alternative Performance Measures ("APMs") which are not defined or specified within IFRS. The Directors use these measures in order to assess the performance of the Group, in line with market practice. EPRA EPS is set out in note 12. EPRA NAV is set out in note 23. Further EPRA measures, including loan to value ratio presented above, are set out in a supplementary note following the financial statements. A glossary of terms is shown at the end of this report

2. Period from 1 August 2017 to 31 March 2018, which represents 6.5 months of activity following the commencement of trading on 20 September 2017

3. Adjusted earnings per share ("EPS") is based on IFRS earnings excluding unrealised fair value gains on investment properties, profit on disposal of investment properties and one-off costs, which were a property and acquisition provision in 2018/19 and IPO-related expenses and a termination fee on debt refinancing in 2017/18, as set out in note 12

4. Dividends paid and declared in relation to the financial year. Dividends paid during the year also totalled 6.0p (period to 31 March 2018: 1.0 pence per share)

5. Total accounting return based on increase in EPRA NAV per share of 7.6 pence per share plus dividend paid per share of 6.0 pence as a percentage of opening EPRA NAV of 102.1 pence per share

Meeting and audio webcast

A meeting for investors and analysts will be held at 1230 today at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD.

The conference call dial-in for the meeting is: +44 (0)330 336 9411 (Participant Passcode: 6008621).

For the live webcast see: https://webcasting.brrmedia.co.uk/broadcast/5cc6f4993c8e41495e2421fe

Enquiries:

Warehouse REIT plc via FTI Consulting

Further information on Warehouse REIT is available on its website:

http://www.warehousereitplc.co.uk

Notes to editors:

Warehouse REIT plc owns and manages a diversified portfolio of warehouse real estate assets in UK urban areas.

This is a compelling market. The structural rise in e-commerce and investment in "last-mile" delivery contribute to high tenant demand, while limited vacant space and our active asset management lead to growing rents. Capturing this value allows us to offer our shareholders an attractive dividend and the prospect of capital and further dividend growth.

Our portfolio of well-located assets is let to occupiers ranging from pure e-commerce to traditional light industrial. As we expand, our vision is for Warehouse REIT to become the warehouse provider of choice across the UK.

The Company's shares were admitted to trading on AIM in September 2017.

The Company is an alternative investment fund ("AIF") for the purposes of the Alternative Investment Fund Managers Directive (2011/61/EU) ("AIFMD") and as such is required to have an investment manager who is duly authorised to undertake the role of an alternative investment fund manager ("AIFM"). The Investment Manager is currently G10 Capital Limited.

Forward-looking Statements

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

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

Chairman's Statement

Dear fellow shareholder

I am pleased to report to you on Warehouse REIT's first full year as a public company.

Overview

Our focus during the year was to stay true to the commitments we set out at our IPO in September 2017. We continue to deploy capital in strategic locations in our chosen real estate asset class, which is the urban warehouse or 'last-mile' segment. This allows us to secure a high-quality and growing rental stream and to apply the considerable experience and asset management skills of our Investment Advisor, Tilstone Partners Limited ("Tilstone"), to enhance the value and income of the assets we acquire. The market dynamics remain favourable and we continue to be able to acquire assets at below their replacement value.

At IPO, we targeted a dividend of 5.5 pence per share for 2018/19. Our rapid progress since then enabled us to increase our target for this year to 6.0 pence per share, which we successfully achieved. The dividend was 1.1 times covered by adjusted earnings and contributed to our total accounting return for the year of 13.3%. We will continue to target further dividend increases as we expand the portfolio. More information on dividends can be found in the Investment Advisor's report.

Tilstone has continued to deliver excellent service to the Company and shown its ability to extract value from the portfolio acquired at IPO. A key example was our announcement in October 2018 that Tilstone had secured planning permission for 250,000 sq ft of warehouse space on 16 acres at the Queenslie Business Park in Glasgow. This project has an estimated gross development value of £25.0 million. We also completed the sale of four assets, for a total of £19.0 million and a 27% premium to book value. These were assets where Tilstone had either completed its asset management programme or successfully lengthened the income stream. We invested the bulk of the disposal proceeds in four assets with a blended NIY of 6.9%, well above the NIY of 5.1% achieved for the assets sold.

In July, we requested the suspension of dealings in your Company's shares in response to a media report regarding a significant potential transaction with Hansteen Holdings plc. After many weeks of due diligence we were unable to agree terms and the discussions terminated. The portfolio was a strong fit for the Group and it was right that we considered it. However, we will maintain a disciplined approach to acquisitions and will only proceed when we consider the terms to be in shareholders' best interests.

Tilstone's rigorous approach to understanding tenants and their needs, has helped us to retain a high proportion of tenants whose leases have expired or reached a break. We also achieved rental levels averaging 13.0% ahead of ERV for new leases, reflecting strong occupier demand for limited space and the benefits of our targeted capital expenditure. This activity has helped to extend the portfolio WAULT from 4.1 years at 31 March 2018 to 4.6 years at 31 March 2019.

Financial results

The EPRA NAV per share at 31 March 2019 was 109.7 pence, up 7.4% (31 March 2018: 102.1 pence). This represents good progress, after accounting for the dividends paid and some one-off costs relating to a tenant default and a terminated acquisition.

At the year end, the Group had £127.0 million of debt (31 March 2018: £124.5 million) and a loan to value ("LTV") ratio of 39.7% (31 March 2018: 40.5%). This is within our longer‑term target range of 30-40% and well below the 50% limit in our investment policy.

Governance

I was delighted that after a rigorous process conducted by a leading executive search firm, we appointed Lynette Lackey to the Board on 15 November 2018. Lynette has considerable Board-level experience and knowledge of the real estate sector. She is a chartered accountant and was a partner of BDO LLP, where she was responsible for a portfolio of real estate investor and developer clients. She is also a former partner in Greenside Real Estate Solutions and chairs the regulated board at Places for People Group. Lynette now chairs our Audit Committee and is already making a considerable contribution to the Board.

During the year, the Board conducted a thorough review of the risk register, which resulted in some modest adjustments to our assessment of risk. Our view is that the current political and economic uncertainty means we must focus carefully on the level and duration of vacancies across the portfolio. The Board is pleased that Tilstone continues to invest in its asset management team, growing the headcount to ensure sufficient capacity to maintain strong tenant relationships as we grow.

The Board's other key activities included a strategy day, chaired by Non-Executive Director Aimée Pitman, and our first formal review of the Board's effectiveness.

Financing

On a final note, we were delighted to receive the support of many existing shareholders and a number of significant new investors, when we successfully issued new shares to raise a further £76.5 million of equity in April. We gave much thought to the timing of this fundraising. I believe that amidst all the current uncertainties, we were absolutely right to trigger the issue as our financial year was concluding, when we could see a quality pipeline of investable assets. Investors showed significant appetite to meet the Company and the subsequent participation of many in the fundraising is a testament to investor appetite for our asset class and the growing appreciation of Tilstone's asset management skills. These new equity funds, and further support from our debt providers, will give us approximately £120.0 million to invest, at a targeted LTV of below 40%.

The Board is very encouraged by the depth and quality of the share register. Collectively, the Board members invested around £1.0 million of their own or their immediate family's monies in the most recent raise. The Board's equity ownership gives us considerable alignment with our fellow shareholders. The Tilstone team also participated in the raise and together own £19.6 million of Warehouse REIT shares.

Outlook

Since IPO, we have consistently demonstrated our ability to buy well and create further value through active asset management. One of our priorities for the year ahead is to invest our firepower in assets which will be accretive to both earnings and the quality of the portfolio. We have started well, with £45.0 million invested in four assets since the year end and an identified pipeline that stands at £76.3 million. Securing lease renewals and new lettings will also remain a focus.

The market outlook is favourable for 2019/20 and beyond. Demand for space is strong, with e-commerce continuing to grow and UK employment at record levels. Supply of small to medium sized warehouses will remain constrained, with build costs making it uneconomic to develop new space across much of the country. The Board is therefore confident in the outlook for the Group and I look forward to reporting on further progress.

Neil KirtonChairman

20 May 2019

Our objectives and strategy

We aim to create value through a top‑down approach to investment, followed by hands-on asset management with best‑in-class processes.

Our objectives

We aim to provide shareholders with an attractive level of income, together with the potential for income and capital growth.

For 2019/20, our dividend target is to pay dividends totalling at least 6.0 pence per share. Thereafter, we will adopt a progressive dividend policy, in line with anticipated growth in earnings. As a REIT, we are required to distribute at least 90% of our property income.

Our strategy

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

When implementing our investment strategy, we follow the investment policy set out in the Investment Advisor's report.

Key Performance Indicators

We use the following key performance indicators ("KPIs") to monitor our performance and strategic progress. We have added four KPIs this year: like-for-like rental growth and rental increases agreed versus valuer's ERV, replacing the previously reported average rent per square foot, as well as like-for-like valuation increase and total costs ratio. These are important measures we use to assess our performance and value creation.

Investment Advisor's Report

This was a strong first full year for the Group, during which it continued to successfully acquire attractive new assets and demonstrate its market-leading ability to add value through active asset management.

Asset acquisitions

Effective stock selection remains a key part of the Group's strategy and it continued to make value-enhancing acquisitions during the year, adding four assets to the portfolio as described below. In making these acquisitions, the Group complied with the investment policy.

31 July 2018Burntbroom Court, Queenslie, Glasgow

Burntbroom Court is on the Queenslie Business Park estate, adjacent to the Group's existing 55-acre site. The nine purpose-built industrial units were acquired for £2.4 million, or £51 per sq ft, and at a NIY of 8.0%. The units have a floor area of 47,400 sq ft and produce income of £207,000 per annum, reflecting an average rent of £4.36 per sq ft. The Group has identified near-term asset management initiatives which should deliver significant rental growth, with a reversionary yield rising to over 9%.

23 October 2018Distribution warehouse in Widnes, Cheshire

The 49,000 sq ft purpose‑built warehouse was acquired for £2.8 million, at a NIY of 7.3%. The warehouse is let to Amazon and is on a self‑contained 2.5-acre site, with a fenced yard and secure parking. At acquisition, the asset was let on a new five-year lease with a tenant-only break on the third anniversary. The purchase price of only £56 per sq ft is less than the cost of rebuilding the premises.

31 October 2018Warehouse in Cheltenham, Gloucestershire

The Group acquired a unit of 4,900 sq ft on the Kingsditch Industrial Estate, for £0.4 million. The Group already owned a number of adjacent assets on the estate and the purchase further consolidates its position.

17 January 2019Air Cargo Centre, Glasgow Airport

The Group acquired the Air Cargo Centre at Glasgow International Airport for £11.1 million, representing a NIY of 6.7% and a reversionary yield in excess of 7%. The 149,000 sq ft estate is arranged across two detached warehouses which were purpose built in 2000. These house eight units let to five occupiers, with a WAULT on acquisition of 6.3 years (4.1 years to first break). It generates a total net passing rent of £788,000 per annum, equating to less than £5.50 per sq ft.

Asset management

The Group's asset management activities continued to generate very favourable returns during the year, reflecting occupiers' ongoing demand for good quality industrial units in the right locations.

Disposals

The Group will consider selling mature, lower-yielding or non-core assets, so it can redeploy the capital to generate longer-term income and higher total returns. During the year, it disposed of four assets for a total consideration of £19.0 million, and used the proceeds to fund the purchase of the assets described above. The disposals reflected a blended NIY of 5.1%, compared with the blended NIY of 6.9% for the assets acquired. The sales prices achieved were a 27% premium to 31 March 2018 book values and delivered an ungeared internal rate of return in excess of 50%. The assets sold had an aggregate contracted rent of £1.0 million per annum.

· Connaught Business Centre, Mitcham, sold for £3.9 million, reflecting a NIY of 3.6% and a 36% premium to the 31 March 2018 book value. Since acquiring the property in March 2018, the Group had reduced vacancy and increased rents from less than £14 per sq ft to set a new rental tone of £20 per sq ft.

· Quantum Park, Manchester, sold for £9.0 million, reflecting a NIY of 4.9% and a 33% premium to the 31 March 2018 book value. The warehouse is let to Travis Perkins (with five years remaining before a tenant-only break) and a specialist car repair centre. The property was acquired in December 2017 as part of a portfolio of seven assets. During its ownership, the Group explored occupier intentions and clarified the potential to enhance the asset and increase value, thereby maximising sale proceeds.

· Warwick House, Solihull, sold for £2.9 million, reflecting a 12% premium to the 31 March 2018 book value. Warwick House is a 15,500 sq ft purpose-built 1970s office building, which had a two-year WAULT on disposal and was a non-core asset for the Group. The Group had worked with its planning partners to demonstrate the asset's suitability for both residential and office redevelopment, to broaden demand and maximise the sale proceeds.

· Stukeley Meadows, Huntington, sold for £3.3 million, reflecting a NIY of 5.4% and a 16% premium to the 31 March 2018 book value. Stukeley Meadows is a 30,000 sq ft multi-let industrial estate. Since purchase earlier in the year, the Group had increased the level and longevity of income by securing a new 10-year lease from Howdens, thereby maximising returns from a sale.

Capital expenditure

The Group has a target of investing 0.75% of its GAV in capital expenditure each year. During 2018/19, the Group spent a total of £2.1 million, largely in line with the long-term target.

The Group's capital expenditure falls into two categories. First, it invests in refurbishing vacant units, to prepare them for re-letting. This cost is partially offset by dilapidations received from outgoing tenants and has been a key enabler of achieving rental levels on new lettings ahead of the valuer's ERV (see leasing activity below).

Second, the Group also invests in value-enhancing improvements or extensions to units, to support tenants' business growth plans, in exchange for higher rents or extended leases. This has already been achieved, for example, at Nexus, Knowsley with a new 15-year lease concluded in return for improvements to the roof.

Leasing activity

The Group's leasing activity was highly positive during the year, reflecting its strong occupier relationships and its constant work to understand occupier requirement. This 'space intelligence' is a key differentiator for Warehouse REIT.

New lettings

During the year, the Group secured 62 new leases on previously vacant space. Significant new lettings included:

· a 15-year lease, with a break at year 10, for a 60,000 sq ft warehouse at Deeside Industrial Estate, Chester. The competitive rent of £3.50 per sq ft, rising to £5.00 per sq ft over the first four years, will be reviewed by reference to RPI at years five and 10. The average rent over the initial five years represents a 16.2% premium to the 30 September 2018 ERV. This unit became vacant following the previous tenant entering administration (see the financial performance section for more information);

· a 15-year lease, with a break at year 10, to the existing tenant at South Gyle Industrial Estate, Edinburgh. This more than doubled the tenant's occupancy on the site to 48,000 sq ft, at a favourable rent of £7 per sq ft, and increased the length of the lease on the occupier's entire holding;

· a 10-year lease, with a break at year five, on two units at Peartree Lane, Dudley. The rental level is 6.5% ahead of the 31 March 2018 ERV;

· an 8,700 sq ft letting to a global health and beauty brand at Stadium Industrial Estate, Luton, on a five-year lease with a break at year three, at £62,900 per annum, 20.8% ahead of the 31 March 2018 ERV;

· a five-year lease, with a break at year three, at Farthing Road, Ipswich. The annual rent of £38,600 per annum is 11.1% ahead of the 31 March 2018 ERV;

· a 10-year lease at Oldbury Point, West Bromwich. The rent of £4.75 per sq ft for the recently refurbished 20,000 sq ft unit compares with the ERV of £3.60 per sq ft when the Group acquired the unit at IPO;

· a five-year lease at Nexus, Knowsley. The headline rent of £4.17 per sq ft is 5.4% ahead of the 31 March 2018 ERV;

· a 10-year lease on 15,800 sq ft at Stadium Industrial Estate, Luton, at £7.50 per sq ft, 25.0% ahead of the ERV at 31 March 2018; and

· a 10-year lease on 16,200 sq ft at Shaw Lane, Doncaster, at £5.50 per sq ft, 11.2% ahead of the ERV at 31 March 2018.

In total, the new leases signed in the period will generate annual rent of £2.1 million, which is 13.0% ahead of ERV. The new lettings demonstrate the shift towards longer leases, with 12 new leases of 10 years or more.

Lease renewals

During the year, the Group successfully retained 72.9% of tenants at lease expiry and 80.9% with a break arising in the year. Of the tenants whose leases expired and did not vacate, 30.2% signed new leases and 69.8% continued to hold over. Occupiers who chose not to renew typically did so because the Group was unable to offer them more space on the same site.

In total, 46 lease renewals were completed in the year. Notable renewals included:

· a 10-year lease, with a break at year five at Vantage Point, Leeds. The new lease reflects a passing rent of £209,100 per annum (£4.34 per sq ft), in line with the previous rent, with a rent review currently underway;

· a 10-year lease, with a break at year five, at Queenslie Business Park, Glasgow. The new rental level is in line with the ERV at 31 March 2018 and reflected a 16.8% increase over the previous passing rent;

· a 15-year lease, with a break at year 10, on 62,400 sq ft at Nexus, Knowsley. The new rental level is 33.3% ahead of ERV at 31 March 2018; and

· a five-year lease on 20,500 sq ft at Road One, Winsford at a rental level 17.5% ahead of ERV at 31 March 2018.

The lease renewals secured an average increase of 14.6% above previous passing rent or 6.0% above ERV.

The Group was able to re-let 28.1% of units vacated before the end of the year, securing an average rental increase of 13.0% above previous passing rent or 10.2% above ERV.

Development activity

In October 2018, the Group received outline planning permission for up to 250,000 sq ft of employment-led space on a 16‑acre site at the Queenslie Business Park in Glasgow. The units are expected to appeal to a wide variety of occupiers and will include distribution and logistics, industrial, commercial, storage, trade-counter, roadside and hospitality space. The 16 acres form part of the Group's wider 55-acre holding at Queenslie Business Park, which contains approximately 350,000 sq ft of existing floor space.

Since receiving planning permission, the Group has commenced the task of satisfying pre-commencement planning conditions and begun to work up occupier interest, with a view to securing pre-lets. Construction will take place in a number of phases, with the development set to create value for shareholders over the next two to four years. In line with the Group's investment policy, work will only start when the majority of units being built are pre-let. The Group may also look to further expand its land and property holdings at Queenslie.

Portfolio analysis

The table below analyses the Group's portfolio as at 31 March 2019. In total, the portfolio offered 4.6 million sq ft of space and was valued at £307.4 million.

At the year end, the contracted rent roll was £21.6 million, resulting in a NIY of 6.6%. This compared with an ERV of £24.9 million, giving a reversionary yield of 7.6%. The Group's asset management activity is progressively unlocking this strong reversionary potential. The ERV typically assumes that a unit is re‑let in its current condition and does not take account of the potential to increase rents through refurbishment, repositioning or change in permitted planning use.

The Group's successful letting activity has assisted increasing rental tone and lengthening WAULT during the year to 4.6 years at 31 March 2019 compared to 4.1 years at 31 March 2018, thereby more than offsetting the natural reduction from the passage of time. The occupancy at 31 March 2019 stood at 92.0% marginally lower than 93.1% at 31 March 2018, which is lower than the Group's long-term target of around 95% but, rental-enhancing refurbishment can only take place in vacant units. Occupancy excluding units under offer to let and units undergoing refurbishment was 94.9% as at 31 March 2019.

Financial review

Comparative figures

The Company was admitted to AIM on 20 September 2017, at which point it acquired the seed portfolio and began trading. The 2017/18 financial year therefore only includes just over six months of business operations. As a result, it is not meaningful to draw comparisons between the Group's financial performance in 2017/18 and 2018/19, and therefore the discussion below largely considers the Group's 2018/19 financial performance on a standalone basis.

Performance

Rental income for the year was £20.6 million (2017/18: £6.3 million). Total revenue, which includes insurance recharges and dilapidation income, was £22.0 million (2017/18: £6.6 million).

The Group's operating costs include its running costs (primarily the management, audit, company secretarial, other professional and Directors' fees), and property-related costs (including legal expenses, void costs and repairs). Total operating costs for the year were £9.0 million (2017/18: £2.4 million). This includes one-off costs totalling £2.2 million, associated with the terminated acquisition with Hansteen Holdings plc and the default of the tenant at Deeside which entered into administration. Excluding these one-off costs, operating costs were £6.8 million. One-off costs incurred in 2017/18 comprised £0.2 million in termination fees relating to the refinancing of the Group's debt facilities.

The EPRA cost ratio including direct costs for 2018/19, which is calculated as costs as a percentage of revenue, was 39.6% (2017/18: 34.5%) or 29.4% excluding the one-off costs noted above. The ongoing charges ratio, which is the costs of running the REIT and investment management costs as a percentage of NAV, was 3.1% or 1.9% excluding the one-off costs noted above.

The profit on the sale of the four investment properties disposed of in the year was £3.5 million (2017/18: £nil). The Group recognised a gain of £11.2 million on the revaluation of its investment properties at the year end (2017/18: £5.2 million).

Net financing costs, which include the interest costs associated with the Group's revolving credit facility ("RCF") and term loan (see debt financing and hedging), amounted to £5.0 million for the year (2017/18: £0.8 million), excluding the termination fee noted above.

Statutory profit before tax was £22.8 million (2017/18: £8.4 million).

As a REIT, the Group's profits and gains from its property investment business are exempt from corporation tax. The corporation tax charge for the year was therefore negligible, at £5,000 (2017/18: £nil).

Earnings per share ("EPS") under IFRS was 13.7 pence (2017/18: 5.0 pence). EPRA EPS was 5.1 pence (2017/18: 1.9 pence). Adjusted EPS, defined as EPRA EPS excluding the one-off costs described above, was 6.4 pence (2017/18: 2.0 pence).

Dividends

The table below sets out the interim dividends declared in respect of the 2018/19 financial year:

The Board has declared a fourth interim dividend of 1.5 pence per share for the quarter to 31 March 2019. This will be paid on 28 June 2019 to shareholders on the register at 31 May 2019. The ex-dividend date will be 30 May 2019.

The total dividend in relation to the year was therefore 6.0 pence (2017/18: 2.5 pence), in line with target. All four dividends were declared in full as property income dividends.

The total dividend was 1.1 times covered by adjusted EPS (2017/18: 0.8 times). The Board considers that adjusted EPS is the most appropriate earnings measure for calculating dividend cover.

The cash cost of the total dividends for the year is £10.0 million (2017/18: £4.2 million).

Valuation and net asset value

The portfolio was independently valued by CBRE as at 31 March 2019, in accordance with the RICS Valuation Global Standards (the "Red Book").

The portfolio valuation of £307.4 million (31 March 2018: £291.0 million) reflected the £15.0 million book value of the disposals during the year. It represented an increase of 8.9% on the aggregate purchase price and a 4.3% like-for-like increase on the valuation at 31 March 2018. The valuation increase was driven by both income growth, represented by a 4.0% like-for-like increase in ERV, and yield compression. The EPRA NIY was 6.1% (31 March 2018: 6.2%).

The valuation resulted in an EPRA NAV at 31 March 2019 of 109.7 pence per share, an increase of 7.4% from the EPRA NAV at 31 March 2018 of 102.1 pence per share.

Debt financing and hedging

The Group has a £30.0 million term loan facility and a £105.0 million RCF, both with HSBC. The five-year facilities run to November 2022, have a margin of 225 basis points above LIBOR and are secured on all properties within the Group. These facilities were unchanged during the year.

At the year end, the term loan was fully drawn and £97.0 million had been drawn against the RCF, resulting in total debt of £127.0 million (31 March 2018: £124.5 million) and headroom within the facilities of £8.0 million. The Group's LTV ratio at 31 March 2019 was 39.7% (31 March 2018: 40.5%), within the longer-term target range of 30-40% and well below the limit in the investment policy of 50%.

On 28 January 2019, the Group entered into two interest rate caps of £30.0 million each, at rates of 1.50% and 1.75% (excluding lending margin). The caps terminate in November 2022 and November 2023 respectively and had an aggregate cost of £0.6 million. At 31 March 2019, the Group had therefore hedged the interest costs on 44% of its debt. In the medium term, its aim is to hedge 50-60% of its interest costs, reflecting the Group's prudent approach to debt financing.

Post year end activity

On 2 April 2019, the Company raised gross proceeds of £76.5 million through a placing, open offer and offer for subscription. In total, the Company issued 74,254,043 new ordinary shares at 103.0 pence each. Once geared to up to 40%, this gives the Group in excess of £120.0 million to acquire value-accretive assets.

The Group has also made a number of acquisitions since the year end:

· a 53,000 sq ft single-let industrial unit in Wakefield for £4.2 million, reflecting a NIY of 6.3%. The tenant has agreed a new 15-year lease, generating £281,000 per annum, which equates to £5.25 per sq ft. There are CPI linked rent reviews and tenant-only break options at years five and 10;

· assets in Northampton and Aberdeen, for a combined cost of £37.0 million and a blended NIY of 6.6%. In Northampton, the Group acquired the freehold of two John Lewis distribution units, totalling 336,000 sq ft. John Lewis has the highest available 5A1 covenant rating and has been on site for over 25 years. It has signed new five-year leases, with a headline rent of £1,836,000 per annum across both units. In Aberdeen, the Group acquired the long-leasehold 125,000 sq ft Murcar multi-let industrial estate. The estate is 100% let to a range of occupiers, with a WAULT of 8.0 years (5.2 years to break) and total net passing rent of £776,000 per annum; and

· an additional three units adjacent to its existing holding at Tewkesbury Business Park, totalling 54,600 sq ft, for £3.8 million reflecting a net initial yield of 6.9%. The units have a WAULT of 7.0 years and reflect a net initial yield of 6.9%.

Enhancing the Investment Advisor's capabilities

Tilstone has continued to invest in its team, with a total headcount of 17, to ensure it can offer the best possible service to the Group. It now employs 10 property professionals, giving complete coverage of the UK. The expanded team will enable Tilstone to maintain its rigorous focus on understanding the needs of the Group's occupiers as the portfolio continues to grow.

Investment Manager

The Company is an alternative investment fund for the purposes of the Alternative Investment Fund Managers Directive and, as such, is required to have an investment manager who is duly authorised to undertake that role. G10 is the Company's AIFM (the "Investment Manager"), with Tilstone providing advisory services to both G10 and the Company. Having reviewed the structure for providing management services, the Board concluded that the Company is best served by continuing the existing arrangements, allowing Tilstone to focus on value creation, with G10 managing regulatory matters.

Compliance with the investment policy

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

Tilstone Partners LimitedInvestment Advisor

20 May 2019

Risk management and principal risks

The Board is responsible for identifying, reviewing, managing and mitigating risks.

Risk management process

Effective risk management is key to the successful delivery of our strategy.

The Board has put in place a formal risk framework, which governs our approach to risk management. The framework sets out the mechanisms by which the Board identifies, evaluates and monitors its principal risks and the effectiveness of the controls in place to mitigate them. This includes:

· the Board's approval of a detailed corporate risk register, which identifies and evaluates significant business, financial, operational, compliance and reputational risks; and

· the review of assurance and information about the management of those risks, from both contracted service providers and independent sources.

The Board determines the level of risk it will accept in achieving our business objectives. We have no appetite for risk in relation to regulatory compliance or the health, safety and welfare of our tenants and the wider community in which we work. We have a moderate appetite for risk in relation to activities which drive revenues and increase financial returns for our investors.

The Audit Committee has considered the effectiveness of our risk management process and reviewed the corporate risks and those risks which are considered to be principal risks. The Committee has also reviewed information relating to actions taken and the effectiveness of mitigating controls, prior to advising the Board. The Board then carried out its own assessment and approved the list of principal risks.

The Investment Manager is the appointed AIFM to the Company and, as required under the AIFMD, has established and maintains an effective and suitable risk management policy to allow the identification, monitoring and management of the risks to which the Investment Manager and the Group are exposed.

The Investment Manager and Investment Advisor therefore have a primary role alongside the Audit Committee and the Board in shaping the risk policy of the Group, in addition to responsibility for risk monitoring and risk measuring in order to ensure that the risk level complies on an ongoing basis with the Group's risk profile.

The Management Engagement Committee is responsible for monitoring the performance of third parties, including the Investment Manager and Investment Advisor, and would include the quality and effectiveness of the risk management process within their scope.

Our principal financial risks, our policies for managing them and our policy and practice with regard to financial instruments are summarised in note 25 to the financial statements.

Principal risks

A principal risk is a risk that is considered material to the Group's development, performance, position or future prospects.

The principal risks are captured in the corporate risk register and are reviewed by the Board and Audit Committee during their regular meetings. This includes reviewing:

· any substantial changes to principal risks, including new or emerging risks;

· material changes to the control frameworks in place;

· changes in risk scores;

· changes in tolerance to risk;

· any significant risk incidents arising; and

· progress with any additional mitigating actions which have been agreed.

The Board, through the Audit Committee, has undertaken a robust assessment and review of the principal risks facing the Group, together with a review of any new risks which may have arisen during the period, including those that would threaten our business model, future performance, solvency or liquidity. 

Within our regular risk reviews, we have specifically considered the potential impact of Brexit on the Group. Overall, we consider that the direct, short to medium term impact would be minimal. The UK property market, in particular the industrial/logistics sector, has remained reasonably robust and demand for property remains strong.

The number of assets, and the range and volume of tenants give us confidence that Brexit would not have an immediate significant impact on the business. It is part of our risk register, but under the wider risk of a broader economic recession, which is not currently considered to be one of our principal risks.

Our risk areas

Business risksThese relate to the delivery of our business as a whole, including strategy, market, systems and processes and stakeholders

Operational risksThese focus on the REIT's core business activities, namely portfolio composition and management, developments, valuation and tenancy management

Compliance risksThese relate to the regulatory environment in which we operate, including the requirements of the FCA, AIM, FRC and general business regulation

Financial risks

These risks arise from our strategy for funding our business operations, including investors, debt and cash management

Reputational risks

These are risks that could damage the Group's reputation amongst stakeholders.

We consider risks under these four main headings but recognise that they are often inextricably interlinked.

Going concern

The Board monitors the Group's ability to continue as a going concern. Specifically, at quarterly Board meetings, the Board reviews summaries of the Group's liquidity position and compliance with loan covenants, as well as forecast financial performance and cash flows.

Based on this information, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in business for a period of at least 12 months from the date of approval of the Annual Report and Financial Statements. They therefore have adopted the going concern basis in the preparation of the Annual Report and Financial Statements.

Assessment of viability

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

The Directors have conducted their assessment over a three-year period to May 2022, allowing a reasonable level of accuracy given typical lease terms and the cyclical nature of the UK property market.

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

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

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

· increased tenant churn;

· increased void periods following break or expiry;

· decreased rental income; and

· increased interest rates.

Current debt and associated covenants are summarised in note 16, with no covenant breaches during the period.

Viability statement

Having considered the forecast cash flows, covenant compliance and the impact of sensitivities in combination, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment.

Approval

The Strategic Report was approved by the Board and signed on its behalf by

Neil Kirton

Chairman

20 May 2019

Statement of Directors' responsibilities

in respect of the Annual Report and Financial Statements

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable UK law and International Financial Reporting Standards ("IFRS") as adopted by the European Union.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with IFRS. Under company law, the Directors must not approve the financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the Group for that year.

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

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

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

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

· state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and

· make judgements and estimates that are reasonable and prudent.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a strategic report, Directors' report, Directors' remuneration report and corporate governance statement that comply with that law and those regulations, and for ensuring that the Annual Report includes information required by the AIM Rules and (where applicable) the Disclosure Guidance and Transparency Rules of the UKLA.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the UK covering the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction.

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company (and Group as a whole); and

· the Chairman's Statement and the Investment Manager's Report include a fair review of the development and performance of the business and the position of the Company (and Group as a whole), together with a description of the principal risks and uncertainties that it faces.

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

On behalf of the Board

Neil Kirton

Chairman

20 May 2019

Consolidated statement of comprehensive incomeFor the year ended 31 March 2019

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

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

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

These financial statements were approved by the Board of Directors of Warehouse REIT plc on 20 May 2019 and signed on its behalf by:Neil KirtonCompany number: 10880317The accompanying notes form an integral part of these financial statements.

Consolidated statement of changes in equityFor the year ended 31 March 2019

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

Consolidated statement of cash flowsFor the year ended 31 March 2019

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

Notes to the consolidated financial statementsFor the year ended 31 March 2019

1. General information

Warehouse REIT plc (the 'Company') is a closed-ended Real Estate Investment Trust ("REIT") incorporated in England and Wales on 24 July 2017. The Company began trading on 20 September 2017. The registered office of the Company is located at Beaufort House, 51 New North Road, Exeter EX4 4EP. The Company's shares are admitted to trading on AIM, a market operated by the London Stock Exchange.

2. Basis of preparation

The financial information set out in these financial statements does not constitute the Company's statutory accounts for the year ended 31 March 2019, but is derived from those accounts. Statutory accounts for 2019 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on those accounts; their report was unqualified, did not draw to attention any matters by way of emphasis of matter without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

The statutory accounts are for the year from 1 April 2018 to 31 March 2019. Comparative figures are for the previous accounting period from 1 August 2017 to 31 March 2018.

The Directors have made an assessment of the Group's ability to continue as a going concern and are satisfied that the Group has the resources to continue in business for the foreseeable future, for a period of not less than 12 months from the date of this report. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern. It is noted that whilst there are net current liabilities of £33,000, there is £8 million headroom readily available under the RCF. Therefore, the financial statements have been prepared on the going concern basis.

2.1 Changes to accounting standards and interpretations

The following new standards and amendments to existing standards have been published and approved by the European Union. The Company has applied the following standards from 1 April 2018, with the year ended 31 March 2019 being the first year end reported under the standards.

· IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018). In July 2014, the IASB published a final version of IFRS 9 which replaces IAS 39 Financial Instruments: Recognition and Measurement. The IFRS 9 requirements represent a change from the existing requirements in IAS 39 in respect of financial assets. The standard contains two primary measurement categories for financial assets: amortised cost and fair value. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset's contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value. The standard eliminates the existing IAS 39 categories of held-to-maturity, available-for-sale and loans and receivables.

Trade and other receivables

Under IFRS 9 there is no change to the classification and measurement of trade and other receivables, however there is a requirement to carry out an ongoing assessment of expected credit losses using a general portfolio approach. The Group has made an assessment of expected credit losses at each period end, using the simplified approach where a lifetime expected loss allowance is always recognised over the expected life of the financial instrument. Any adjustment is recognised in the income statement as an impairment gain or loss. Whilst an increase to the bad debt provision is anticipated, following the adoption of IFRS 9, it is expected to be insignificant in the context of the Group financial statements.

Interest rate derivatives

IFRS 9 requires that all derivative financial instruments are recognised at fair value in the statement of financial position. Changes in fair value are recognised in the income statement where hedge accounting is not applied.

· IFRS 15 Revenue from Contracts with Customers. IFRS 15 establishes a new framework for revenue recognition and replaces all existing standards and interpretations. IFRS 15 does not apply to lease contracts within the scope of IAS 17 Leases or, from its date of application, IFRS 16 Leases. This standard will not have any material impact on the Group's financial statements as presented for the current year as the majority of the Group's revenue consists of rental income from its investment properties which is outside the scope of IFRS 15.

· IFRS 7 Financial Instruments: Disclosures - amendments regarding additional hedge accounting disclosures (applies when IFRS 9 is applied). The changes did not have a material impact on the consolidated financial statements of the Group as hedge accounting is not applied.

· Amendments to IAS 40 Transfers of Investment Property - there is no material impact on the consolidated financial statements of the Group.

· IFRIC 22 Foreign Currency Transactions and Advance Consideration - there is no impact on the consolidated financial statements of the Group.

· Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions - there is no impact on the consolidated financial statements of the Group.

· Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - there is no impact on the consolidated financial statements of the Group.

The following new standards and amendments to existing standards have been published and approved by the EU, and are mandatory

for the Group's accounting periods beginning after 1 April 2019 or later periods.

· IFRS 16 Leases. In January 2016, the IASB published the final version of IFRS 16 Leases. IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leasing arrangements. The Group has decided against early adoption of IFRS 16 Leases. The right of use finance lease asset relating to head leases will be required to be measured at fair value under IFRS 16, however, the difference from the IAS 17 carrying value is expected to be insignificant in the context of the Group financial statements.

· Annual improvements to IFRS 2015 -2017 Cycle: amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs.

· Amendments to IFRS 9 Prepayment features with negative compensation

· IFRIC 23 Uncertainty over Income Tax Treatments

· Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures

· Annual Improvements to IFRS Standards 2015-2017 Cycle

· Amendments to IAS 19 Plan Amendment, Curtailment or Settlement

The Group does not expect the adoption of new accounting standards issued but not yet effective to have a significant impact on its financial statements. 

2.2 Significant accounting judgements and estimates

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

Judgements

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

Estimates

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

a) Valuation of property

The valuations of the Group's investment property are at fair value as determined by the external valuer on the basis of market value in accordance with the internationally accepted RICS Valuation - Professional Standards January 2017 (incorporating the International Valuation Standards) and in accordance with IFRS 13. The key estimates made by the valuer are the ERV and equivalent yields of each investment property. See notes 13 and 24 for further details.

2.3 Summary of significant accounting policies

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

a) Basis of consolidation

The Company does not meet the definition of an investment entity and therefore does not qualify for the consolidation exemption under IFRS 10. The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 March 2019. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtained control, and will continue to be consolidated until the date that such control ceases. An investor controls an investee when the investor is exposed, or has rights to variable returns, from its involvement with the investee and has the ability to affect those returns through its power over the investee. In preparing these financial statements, intra-group balances, transactions and unrealised gains or losses have been eliminated in full. All subsidiaries have the same year end as the Company. Uniform accounting policies are adopted in the financial statements for like transactions and events in similar circumstances.

b) Functional and presentation currency

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

c) Segmental reporting

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

d) Derivative financial instruments

Derivative financial instruments, comprising interest rate caps for interest rate risk management purposes, are initially recognised at fair value and are subsequently measured at fair value, being the estimated amount that the Company 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 Company and its counterparties. Premiums payable under such arrangements are initially capitalised into the statement of financial position.

3. Revenue

Accounting policy

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

For leases which contain fixed or minimum uplifts, the rental income arising from such uplifts is recognised on a straight-line basis over the lease term.

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

Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the Group statement of comprehensive income when the right to receive them arises.

4. Property operating and administration expenses

Accounting policy

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

5. Directors' remuneration

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

6. Auditor's remuneration

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

Non-audit fees are comprised of the following:

The costs relating to the services provided during the IPO have been included as share issue costs and included in the share premium account. All other costs are included in the consolidated statement of comprehensive income.

Subsequent to the year end, a fee of £95,000 was also incurred by the Auditor for reporting accountant services in connection with the prospectus issued by the Company on 12 March 2019. This will be included as share issues costs in the share premium account.

7. Finance income

Accounting policy

Interest income is recognised on an effective interest rate basis and shown within the Group statement of comprehensive income as finance income.

8. Finance expenses

Accounting policy

Any finance costs that are separately identifiable and directly attributable to a liability which takes a period of time to complete are amortised as part of the cost of the liability. All other finance costs are expensed in the period in which they occur. Finance costs consist of interest and other costs that an entity incurs in connection with bank and other borrowings. Fair value movements on derivatives are recorded in finance expenses.

9. Taxation

Corporation tax has arisen as follows:

Reconciliation of tax charge to profit before tax:

Accounting policy

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

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

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

10. Operating leases

Operating lease commitments - as lessor

The Group has entered into commercial property leases on its investment property portfolio. These non-cancellable leases have a remaining term of up to 39 years.

Future minimum rentals receivable under non-cancellable operating leases as at 31 March 2019 are as follows:

11. Dividends 

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

Accounting policy

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

12. Earnings per share

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

13. UK investment property

Accounting policy

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

Subsequent to initial recognition, investment property is stated at fair value (see note 24). Gains or losses arising from changes in the fair values are included in the consolidated statement of comprehensive income in the period in which they arise under IAS 40 Investment Property.

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

14. Cash and cash equivalents

Accounting policy

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

15. Trade and other receivables

Accounting policy

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

The Group carry out an assessment of expected credit losses at each period end, using the simplified approach, where a lifetime expected loss allowance is recognised over the expected life of the financial instrument. Adjustments are recognised in the income statement as an impairment gain or loss.

16. Interest rate derivatives

To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the Group entered into interest rate derivatives. The instruments have a combined notional value of £60.0 million with £30.0 million at a strike rate of 1.50% and a termination date of 21 November 2022 and £30.0 million at a strike rate of 1.75% and a termination date of 21 November 2023.

Accounting policy

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

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

17. Interest-bearing loans and borrowings

The Group has a five-year RCF of £105.0 million at a coupon of 2.25% above LIBOR and a £30.0 million fixed-term loan on the same terms. As at 31 March 2019, £8.0 million (31 March 2018: £10.5 million) remained undrawn. Both credit facilities are secured on all properties within the portfolio and expire on 30 November 2022.

The debt facilities include loan to value and interest cover covenants that are measured at a Group level. The Group has complied with all covenants throughout the financial period.

The Gross method is representative of the sum of the Group's positions after deducting cash balances. The Commitment method is representative of the sum of the Group's positions without deducting cash balances.

Accounting policy

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

18. Finance lease obligations

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

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

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

Accounting policy

Finance leases are capitalised at the lease's commencement at the lower of the fair value of the property and the present value of the minimum lease payments. The present value of the corresponding rental obligations are included as liabilities. Finance leases are subsequently measured at amortised cost.

19. Current liabilities - other payables and accrued expenses, deferred income and provisions

The property and acquisition provision comprises costs associated with the terminated acquisition and one-off costs associated with the default of a tenant at Deeside who entered into administration.

Accounting policy

Trade and other payables are initially recognised at fair value and subsequently held at amortised cost.

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

20. Share capital

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

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

The redeemable ordinary shares of £1 each in the capital of the Company were redeemed by the Company immediately upon Admission on 20 September 2017 in consideration of the payment of a sum equal to the amount received by the Company in payment of the amount due on the redeemable ordinary shares. In all other respects, the rights of the redeemable ordinary shares were the same as, and ranked pari passu with, the ordinary shares. The redeemable ordinary shares were 25% paid up during their existence (£12,500).

21. Share premium

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

22. Capital and reserves

Capital reduction reserve

Capital reduction reserve comprises the following amounts:

Retained earnings

Retained earnings represent the profits of the Group less dividends paid from revenue profits to date. It should be noted that unrealised gains on the revaluation of investment properties contained within this reserve are not distributable until any gains crystallise on the sale of the investment property.

Retained earnings comprise the following cumulative amounts:

23. Net asset value per share

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

24. Fair value

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

The fair value of cash and short-term deposits, trade receivables, trade payables and other current liabilities approximate their carrying amounts due to the short-term maturities of these instruments.

Interest-bearing loans and borrowings are disclosed at amortised cost. The carrying value of the loans and borrowings approximate their fair value due to the contractual terms and conditions of the loan. The loans are at a variable interest rate of 2.25% above LIBOR.

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

The valuation of the Group's investment property at fair value is determined by the external valuer on the basis of market value in accordance with the internationally accepted RICS Valuation - Professional Standards January 2017 (incorporating the International Valuation Standards).

The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles, future revenue streams), the capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property and discount rates applicable to those assets.

The fair value of the interest rate contracts is recorded in the statement of financial position and is determined by JC Rathbone Associates Limited, an independent expert, by forming an expectation that interest rates will exceed strike rates and discounting these future cash flows at the prevailing market rates as at the year end.

The following tables show an analysis of the fair values of investment properties and interest rate derivatives recognised in the statement of financial position by level of the fair value hierarchy1:

1. Explanation of the fair value hierarchy:

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

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

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

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

The following table analyses:

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

· a description of the valuation techniques applied;

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

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

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

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

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

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

The table below sets out a sensitivity analysis for each of the key sources of estimation uncertainty with the resulting increase/(decrease) in the fair value of investment property at 31 March 2019:

Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy amount to £11,229,000 (31 March 2018: £5,173,000) and are presented in the consolidated statement of comprehensive income in line item 'fair value gains on investment properties'.

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

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

25. Financial risk management objectives and policies

The Group's principal financial liabilities are loans and borrowings. The main purpose of the Group's loans and borrowings is to finance the acquisition of the Group's property portfolio. The Group has trade and other receivables, trade and other payables and cash and short-term deposits that arise directly from its operations.

The Group is exposed to market risk, interest rate risk, credit risk and liquidity risk. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below.

Market risk

Market risk is the risk that future values of investments in property and related investments will fluctuate due to changes in market prices. The total exposure at the statement of financial position date is £307,385,000, and to manage this risk, the Group diversifies its portfolio across a number of assets. The Group's investment policy is to invest in UK-located warehouse assets. The Group will invest and manage its portfolio with an objective of spreading risk and, in doing so, will maintain the following investment restrictions:

· the Group will only invest, directly or indirectly, in warehouse assets located in the UK;

· no individual warehouse property will represent more than 20% of the last published GAV of the Group at the time of investment;

· the Group will target a portfolio with no one tenant accounting for more than 10% of the gross contracted rents of the Group at the time of purchase. In any event, no more than 20% of the gross assets of the Group will be exposed to the creditworthiness of any one tenant at the time of purchase;

· the portfolio will be diversified by location across the UK with a focus on areas with strong underlying investment fundamentals; and

· the Group will not invest more than 10% of its gross assets in other listed closed-ended investment funds.

Interest rate risk

Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates to its variable rate bank loans. In order to address interest rate risk, the Group has entered into interest rate cap instruments, details of which are set out in note 16.

Credit risk

Credit risk is the risk that a counterparty or tenant will cause a financial loss to the Group by failing to meet a commitment it has entered into with the Group.

All cash deposits are placed with approved counterparties, The Royal Bank of Scotland International Limited and HSBC Bank plc.

In respect of property investments, in the event of a default by a tenant, the Group will suffer a shortfall and additional costs concerning re-letting of the property. The Investment Manager monitors the tenant arrears in order to anticipate and minimise the impact of defaults by occupational tenants.

The following table analyses the Group's exposure to credit risk:

Liquidity risk

Liquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Exposure to liquidity risk arises because of the possibility that the Group could be required to pay its liabilities earlier than expected. The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank deposits and loans.

The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments:

26. Subsidiaries

1. Indirect subsidiaries.

2. Registered office: Beaufort House, 51 New North Road, Exeter EX4 4EP.

3. Registered office: IOMA House, Hope Street, Douglas, Isle of Man IM1 1AP.

The principal activity of all the subsidiaries relates to property investment.

Accounting policy

Where property is acquired, via corporate acquisitions or otherwise, management considers the substance of the assets and activities of the acquired entity in determining whether the acquisition represents the acquisition of a business.

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

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree.

For each business combination, the acquirer measures the non-controlling interest in the acquiree at fair value of the proportionate share of the acquiree's identifiable net assets. Acquisition costs (except for costs of issue of debt or equity) are expensed in accordance with IFRS 3 Business Combinations.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

Contingent consideration is deemed to be equity or a liability in accordance with IAS 32. If the contingent consideration is classified as equity, it is not re-measured and its subsequent settlement shall be accounted for within equity. If the contingent consideration is classified as a liability, subsequent changes to the fair value are recognised either in profit or loss or as a change to other comprehensive income.

27. Capital management

The Group's capital is represented by share capital, reserves and borrowings.

The primary objective of the Group's capital management is to ensure that it remains within its quantitative banking covenants and maintains a strong credit rating. The Group's capital policies are as follows:

· the Group will keep sufficient cash for working capital purposes with excess cash, should there be any, deposited at the best interest rate available whilst maintaining flexibility to fund the Group's investment programme;

· borrowings will be managed in accordance with the loan agreements and covenants will be tested quarterly and reported to the Directors. Additionally, quarterly lender reporting will be undertaken in line with the loan agreement; and

· new borrowings are subject to Director approval. Such borrowings will support the Group's investment programme but will be subject to a maximum 50% loan to value. The intention is to maintain borrowings at a loan to value ratio of between 30% and 40%.

During the period, the Group did not breach any of its loan covenants, nor did it default on any other of its obligations under its loan agreement.

28. Related party transactions

Directors

The Directors (all Non-Executive Directors) of the Company and its subsidiaries are considered to be the key management personnel of the Group. Directors' remuneration for the period totalled £110,000 (31 March 2018: £54,000) and at 31 March 2019, a balance of £nil (31 March 2018: £nil) was outstanding. Further information is given in note 5 and in the Directors' remuneration report in the Annual Report.

Investment Advisor

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

For its services to the Company, the Investment Advisor receives an annual fee at the rate of 1.1% of the NAV of the Company.

During the year, the Group incurred £1,888,000 (31 March 2018: £792,000) in respect of investment management fees. As at 31 March 2019, £465,000 (31 March 2018: £409,000) was outstanding.

Subsidiaries

As at 31 March 2019, the Company owned a 100% controlling stake in Tilstone Holdings Limited, Tilstone Warehouse Holdco Limited, Tilstone Industrial Warehouse Limited, Tilstone Retail Warehouse Limited, Tilstone Industrial Limited, Tilstone Retail Limited, Tilstone Trade Limited, Tilstone Basingstoke Limited, Tilstone Glasgow Limited, Quantum North Limited, CHIP (One) Limited, CHIP (Two) Limited, CHIP (Three) Limited, CHIP (Four) Limited, CHIP (Five) Limited, CHIP (Ipswich) One Limited and CHIP (Ipswich) Two Limited.

29. Ultimate controlling party

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

30. Post balance sheet event

On 2 April 2019, the Company raised gross proceeds of £76.5 million through a placing, open offer and offer for subscription. In total, the Company issued 74,254,043 new ordinary shares at 103.0 pence each.

A fourth interim dividend in respect of the year ended 31 March 2019 of 1.5 pence per share will be payable on 28 June 2019 to shareholders on the register on 31 May 2019. 

Unaudited supplementary notes not part of the consolidated financial information

For the year ended 31 March 2019

6Ground rent expenses included within administration expenses such as depreciation of finance leases 

Glossary 

Adjusted earnings per share ("Adjusted EPS")

EPRA EPS adjusted to exclude non-recurring costs, divided by the weighted average number of shares in issue during the year

Admission

The admission of Warehouse REIT plc onto the London Stock Exchange on 20 September 2017

AGM

Annual General Meeting

AIC

The Association of Investment Companies

AIFM

Alternative Investment Fund Manager

AIFMD

Alternative Investment Fund Managers Directive

AIM

A market operated by the London Stock Exchange

Contracted rent

Gross annual rental income currently receivable on a property plus rent contracted from expiry of rent-free periods and uplifts agreed at the balance sheet date less any ground rents payable under head leases

EPRA

The European Public Real Estate Association, the industry body for European REITs

EPRA cost ratio

The sum of property expenses and administration expenses as a percentage of gross rental income calculated both including and excluding vacant property costs

EPRA earnings

IFRS profit after tax excluding movements relating to changes in fair value of investment properties, gains/losses on property disposals, changes in fair value of financial instruments and the related tax effects

EPRA earnings per share ("EPRA EPS")

A measure of EPS on EPRA earnings designed to present underlying earnings from core operating activities based on the weighted average number of shares in issue during the year

EPRA guidelines

The EPRA Best Practices Recommendations Guidelines November 2016

EPRA NAV

The value of net assets, adjusted to include properties and other investment interests at fair value and to exclude items not expected to be realised in a long-term property business, such as the fair value of any financial derivatives and deferred taxes on property valuation surpluses

EPRA NAV per share

The NAV per share figure based on EPRA NAV divided by the number of shares outstanding at the balance sheet date

EPRA net initial yield ("EPRA NIY")

The annualised passing rent generated by the portfolio, less estimated non‑recoverable property operating expenses, expressed as a percentage of the portfolio valuation (adding notional purchaser's costs), excluding development properties

EPRA vacancy rate

Total open market rental value of vacant units divided by total open market rental value of the portfolio

EPS

Earnings per share

Equivalent yield

The weighted average rental income return expressed as a percentage of the investment property valuation, plus purchaser's costs

ERV

The estimated annual open market rental value of lettable space as assessed by the external valuer

FCA

Financial Conduct Authority

GAV

Gross asset value

Group

Warehouse REIT plc and its subsidiaries

IASB

International Accounting Standards Board

IFRS

International Financial Reporting Standards adopted by the European Union

IFRS earnings per share ("EPS")

IFRS earnings after tax for the year divided by the weighted average number of shares in issue during in the year

IFRS NAV per share

IFRS net asset value divided by the number of shares outstanding at the balance sheet date

IPO

Initial public offering

LIBOR

The basic rate of interest used in lending between banks on the London interbank market and also used as a reference for setting the interest rate on other loans

Like-for-like rental income growth

The increase in contracted rent of properties owned throughout the period under review, expressed as a percentage of the contracted rent at the start of the period, excluding properties undergoing refurbishment

Like-for-like valuation increase

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

Loan to value ratio ("LTV")

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

NAV

Net asset value

Net initial yield ("NIY")

Contracted rent on investment properties at the balance sheet date, expressed as a percentage of the investment property valuation, plus purchaser's costs

Net rental income

Gross annual rental income receivable after deduction of ground rents and other net property outgoings including void costs and net service charge expenses

Net reversionary yield ("NRY")

The anticipated yield to which the net initial yield will rise (or fall) once the rent reaches the estimated rental value

Occupancy

Total open market rental value of the units leased divided by total open market rental value of the portfolio, equivalent to one minus the ERPA vacancy rate

Passing rent

Gross annual rental income currently receivable on a property as at the balance sheet date less any ground rents payable under head leases

Property income distribution ("PID")

Profits distributed to shareholders which are subject to tax in the hands of the shareholders as property income. PIDs are usually paid net of withholding tax (except for certain types of tax-exempt shareholders). REITs also pay out normal dividends called non-PIDs

QCA

Quoted Companies Alliance

Real Estate Investment Trust ("REIT")

A listed property company which qualifies for, and has elected into, a tax regime which is exempt from corporation tax on profits from property rental income and UK capital gains on the sale of investment properties

RCF

Revolving credit facility

RPI

Retail price index

Total accounting return

The movement in EPRA NAV over a period plus dividends paid in the period, expressed as a percentage of the EPRA NAV at the start of the period

Total costs ratio

EPRA cost ratio excluding non-recurring costs calculated both including and excluding vacant property costs

Weighted average unexpired lease term ("WAULT")

Average unexpired lease term to first break or expiry across the investment portfolio weighted by contracted rent