The management team of Warehouse REIT has sounded a bullish note over the outlook for the sheds sector, telling investors that “the journey is far from over”.
The company posted revenue of £35.8m for the year to 31 March, up by almost a fifth from a year ago. Statutory profit, including gains on investment properties, surged from £20.7m to £123.1m. The portfolio valuation rose by almost a fifth to £792.8m.
Having raised close to £200m in equity issuances during the year, the company is now eyeing its next acquisitions. Deals struck during the past year made Amazon the REIT’s largest occupier, at 8.7% of the rent roll.
“We said we would grow the scale of the business when it was accretive to shareholder value, and we have had exceptional performance both from raising capital and deploying capital, buying at a blended net initial yield of 6%, which for good-quality stock looks almost historic at today’s pricing levels,” said Andrew Bird, managing director of Tilstone Partners, the REIT’s investment adviser.
“What we have not done is chased yield by buying tertiary locations. We have tried to remain focused on our strong geographies. That has been one of the key drivers for the revaluation, a key driver of the profitability. And that in turn links to the like-for-like rental growth of 2.9% and also like-for-like estimated rental value growth of 3.7%.”
Bird said the trends driving the outperformance of the sheds market are “here to stay”, particularly the adoption of e-commerce. “People are asking: is the high street going to rebound?” he said. “Yes, footfall will recover, but I think we have all learnt to love the convenience of online buying.”
He added: “For the sector, we are seeing vacancy levels at their lowest since 2016, and we are seeing constrained levels of development. It must put more pressure on rental growth and hence global capital looking to get a share of it. We said at IPO that we wanted to grow the scale of the business when it was accretive to do so by issuing equity, and we remain absolutely true to that ambition. We don’t need to grow for the sake of it, but we recognise that scale brings advantage through cost of capital and liquidity.”
The company now has up to £70m of capital to deploy in the near term. Bird said the Oxford-Cambridge Arc would remain in focus as “a geography that will outperform”, while multilet sites should continue to allow the REIT to “create value through active asset management”.
A new report from AEW suggests that Europe’s logistics sector will “continue its strong run as most European investors’ favourite asset class”, with yields expected to continue their downward trajectory, albeit at a slower pace. “Ultimately, calling the bottom on property yields has proven a difficult task over the last 10 years – especially in logistics,” AEW’s team wrote.
Bird points to sub-3% yields for the best prime assets in the UK. How much lower could they go? “If warehouses are to become the new prime sector, I guess we need to look at where shopping centres reached in terms of prime yields,” he said, adding that the rental outlook for sheds makes continued low yields sustainable for the long term – or at least for the next leg of the journey.
To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews
