- Headline Adjusted EPS: Increased by over 10% to 4.35 p per share.
- Adjusted EPS (excluding additional DMA income): Increased by over 4% to 4.10 p per share.
- Dividends: Declared dividends of 3.65 p per share, a 4.3% increase.
- EPRA NTA per share: Growth of 1.2% to 179.3 p.
- Total Portfolio Value: Increased by nearly 30% to GBP6.4 billion.
- Loan to Value (LTV): Reduced to just under 30%.
- Net Rental Income: Increased to over GBP127m for the half.
- DMA Income: Recognized GBP12.2m in the period.
- EPRA Cost Ratio: Reduced to 12.5%.
- Dividends Payout Ratio: 89% based on adjusted earnings excluding additional DMA income.
- Portfolio ERVs: 27% ahead of today's passing rent.
- Net Rental Income Growth: Added 0.54 p to earnings.
- Operating Costs: Shown further improvement with operational benefits of further scale.
- Development Lettings: Over GBP18m of rent attached to development lettings.
- Development Starts: 0.9m sq ft commenced in H1.
- Portfolio Equivalent Yield: Remained broadly stable at 5.7%.
- Portfolio ERVs Growth: Increased by 1.9% across the six months.
- Capital Growth: 0.7% across the half year.
- Available Liquidity: In excess of half a billion pounds.
- Average Cost of Debt: 3% with 95% of the drawn amounts either fixed or hedged.
- Credit Rating: Moody's upgraded to Baa1 positive.
- UKCM Loan Arrangements: Inherited two GBP100m fixed term facilities with an average coupon of 2.9%.
- Development Pipeline Guidance: GBP250m into development for 2024.
- DMA Income Guidance: GBP25m for 2024 and a further GBP10m in 2025.
Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Headline adjusted EPS rose by over 10% to 4.35 p per share.
- Dividends increased by 4.3% to 3.65 p per share.
- EPRA NTA per share grew by 1.2% to 179.3 p.
- Net rental income increased to over GBP127m for the half.
- The UKCM acquisition contributed to a near 30% increase in total portfolio value, now standing at GBP6.4 billion.
Negative Points
- Vacancy rate in the market increased to 5.6%, up from 5.1% at the year-end.
- Higher absolute admin costs had a marginal impact on earnings.
- Impact on EPS from higher net finance costs due to increased average level of drawn debt.
- Speculative space under construction reduced significantly, indicating potential future supply constraints.
- Office sector assets from the UKCM acquisition may take longer to sell due to short unexpired lease terms and asset management initiatives.
Q & A Highlights
Q: Vacancy rate has ticked up in H1 for both market and the Big Box portfolio. How do you expect this number to trend in the second half and perhaps into 2025?
A: (Colin Godfrey, CEO) Vacancy in the market is currently 5.6%, up from 5.1% at year-end, aligning with pre-pandemic levels. We expect the vacancy rate to edge down slightly due to reduced construction starts and increasing positive sentiment from occupiers. For our portfolio, the 3.7% vacancy is due to the evolution of our business, including the UKCM acquisition and development activity. We expect vacancy levels to remain around these levels moving forward.
Q: Is DMA income part of the Board's dividend setting consideration, or should it be stripped out from modeling?
A: (Frankie Whitehead, CFO) DMA income is part of our overall earnings but can vary year to year. We strip out additional DMA income above a long-term run rate of GBP3-GBP5m from our dividend policy. For the EPS numbers, we base our dividend on the 4.1p EPS figure, excluding additional DMA income.
Q: What should we expect on UKCM? How are the core assets performing so far, and what is the progress and timeline on disposals of non-core?
A: (Colin Godfrey, CEO) We are delighted with the UKCM combination. We've integrated the assets into our systems and received positive feedback from new clients. We are implementing asset management initiatives to enhance value. For non-strategic assets, we aim to dispose of GBP450m worth over the next 24 months, with some sales expected by Q4 this year.
Q: On the development starts for this year, will part of the 1.8m sq ft in solicitors' hands close in 2025?
A: (Colin Godfrey, CEO) Some of the 1.8m sq ft in solicitors' hands could straddle the year-end. With a fair wind, we will be within the 2-3m sq ft range, but a major letting falling after December 31st could place us at the lower end of that range.
Q: Could you provide some color on the level of interest from the 1.6m sq ft of spec development in the current development pipeline?
A: (Frankie Whitehead, CFO) We have good interest in the assets under construction, with about 50% in solicitors' hands and strong interest in the balance. We undertake speculative construction only where we see high occupier demand and have identified prospective occupiers.
Q: Do you have any appetite to increase spec development as a percentage of gross asset value, given some of the tailwinds?
A: (Colin Godfrey, CEO) We are comfortable with our current level of spec development. We undertake speculative construction only where we see high occupier demand and have identified prospective occupiers, ensuring high letting levels.
Q: Given your low LTV, should we expect limited value growth as you capture existing reversion?
A: (Colin Godfrey, CEO) We should see incremental value growth as we capture the reversion, which is being topped up through market rental growth. We will continue to be opportunistic in acquisitions, particularly from motivated sellers.
Q: On non-core assets, are there any assets that concern you, and what is the value of those assets?
A: (Colin Godfrey, CEO) We have good interest in retail warehousing and supermarkets. The office sector may take longer to work through, but we believe the pricing of these assets is commensurate with market expectations.
Q: On the DMA Income, why is there a difference between the statement and the slides?
A: (Frankie Whitehead, CFO) The difference is due to the net of tax presentation in the slides.
Q: Will you look to allocate disposal proceeds to the acquisition or development of small mid-box assets to add to those acquired from UKCM?
A: (Colin Godfrey, CEO) We will continue to acquire assets in the small mid-box space where they add incremental value, but Big Box remains integral to our DNA.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
