Today’s featured company is a departure from the riskier and possibly sexier future opportunities and in many ways, Warehouse REIT (WHR) is a boring real estate investment trust, which is not known for its sex appeal or excitement. Sometimes, boring companies build wealth by stealth, as is the case with Warehouse REIT. It invests in and manages urban e-commerce, as well as being something of a specialist in commercial property and industrial warehouse assets in the UK. It has a history of capital growth and a progressive dividend, and the shortage in urban logistics space has driven consolidation within the sector and area. The company has been aggressively acquiring a diversified portfolio in strategic locations.
Since Warehouse REIT listed on AIM, just over four years ago, it has returned good capital growth, and more recently paid a nice 6.2 FY dividend. The only real blip to momentum was the COVID-19 crash most companies suffered. Since this V-Shape recover, the share price has gathered momentum.
As we know from news reports, there is a global supply chain issue. The UK is no different, with a shortage of HVG drivers, resulting in a report of occupational demand being highly favourable, with significant occupier demand driven by e-commerce and the need to reinforce supply chains, combined with increasingly constrained supply.
Warehouse REITs reported its Half-Year results ending 30th September. On 9th November, it reported that its total portfolio was valued at £907.1m at period end on 30th September, up from £792.8m at the end of March, with a like-for-like uplift of 9.4% at the end of the first half.
Its portfolio value consisted of £857.7m in relation to the investment portfolio of completed assets, and £49.4m of development property and land, compared to £751.9m and £40.9m on 31st March, respectively.
EPRA net tangible assets per share came in at 152.4p, rising from 135.1p, with the 12.8% growth said to have been primarily driven by a revaluation increase of 17.3p per share.
SharePad highlights an interesting aspect of growth compared to Warehouse REIT’s peers and the FTSE.
Warehouse REIT has an impressive portfolio of warehousing units cunningly located up and down the country in strategic locations in and around urban areas and close to the motorway access, catering for a wide range of small, medium and large businesses that require warehousing and storage facilities which would be expensive to facilitate outside their business models. Its occupiers include the strong covenants of John Lewis, Iron Mountain, Direct Wines, the Sytner Group, Amazon and others.
As well as lowering of footfall for the traditional high street retailers, the cost of warehousing and maintaining units has also become a financial burden for so many, all made worse with the growth of online sales. This has created an exciting opportunity for companies like Warehouse REIT. Due to retail store closures, some migrate to e-commerce and lose their storage facilities traditionally located within the department store. They therefore require storage, hence the growth we are seeing at Warehouse REIT.
Part of the company strategy is to expand its portfolio by acquiring established space, including five assets totalling 168,500 sq ft, plus adjacent development land, for £35m (including costs) at a blended net initial yield of 4.6% (excluding the development land), during the reported period, and historically; Midpoint Estate and other assets from Aviva. The facility consists of a multi-let estate of 20 high-quality, individual warehouse units on 29 acres in a strategic location off the M6 motorway in Middlewich, Cheshire for £15.5m, reflecting a net initial yield of 6.6%.
The Midpoint Estate totals 182,500 sq ft with its 20 individual units ranging in size from 2,300 sq ft to 31,600 sq ft, located within two miles of Junction 18 of the M6 motorway and approximately twenty-six miles south of Manchester.
Assets acquired from Aviva consist of a 1 million sq ft portfolio for £70m plus deferred pay of £5m by September 2023. The portfolio boasts annual rents of £5.38m and a yield of 7%.
All the assets are located close to major UK conurbations and on or near arterial routes: Reading and Gloucester in the South; Coventry, Leicester, and Nottingham in the Midlands; Grimsby and the Humber Docks in the Northeast; and Warrington in the Northwest.
One way Warehouse REIT boosts its returns is by refurbishing vacated units to raise rents adding c. £5+ per square foot in rental value, according to management.
Warehouse REIT submitted a planning application for phase two at Radway Green, Crewe, for approximately 1 million sq ft of new warehouse space on 60 acres of greenfield land. Securing this consent has the potential for a significant material uplift in value with an anticipated completed investment value in the region of £200 million when combined with phase one, for which planning permission was granted in March 2021.
As we can see, the company has been on an acquisition spree, as well as building its own book for the future. As previously stated, our shopping habits are changing. Yes, of course, we are creatures that like social contact, but we are also creatures of habit, and many of us are choosing to shop online more, and more. COVID-19 has increased the speed of our transition from walking around real estate and trying our goodies on. The consequence is bleak for high street stores. Conversely, there is rapid need for large warehousing, near motorways, or on edge-of-town sites, crucial to the “last-minute” stage in the journey of a parcel to our homes the next day.
According to a recent report by Savills; Every £1bn spent online requires about 900,000 square feet of shed space, which is the size of almost 12 professional football pitches. A record 50.1m square feet of warehouses were let in 2020, with Amazon alone accounting for 25% of demand. The leap this month in warehouse searches on Rightmove’s commercial section indicates the trend is set to continue.
Andrew Bird, investment manager of the AIM-listed Warehouse REIT, comments: “There is no new supply of units of 5,000 to 50,000 square feet because it’s more profitable for a developer to put up one massive box on a site, rather than ten of 10,000 square feet.”
This article is for educational purposes only. It is not a recommendation to buy or sell shares or other investments. Do your own research before buying or selling any investment or seek professional financial advice.