Industrials REIT, the owner of multi-let industrial parks in the UK, saw 4.8% growth in passing rents buoyed by strong tenant demand, the London- and JSE-listed group said in its fourth-quarter trading statement on Friday.
The group recently received a 168 pence (almost R39) cash all-share offer from Blackstone, the world’s largest alternative asset management firm with $975 billion (almost R18 trillion) of assets under management. The offer is still subject to shareholder approval.
The share price stood at R37.87 on the JSE on Friday morning, and 167p on the London Stock Exchange, with the premium between the Blackstone offer and the share price narrowing sharply this month after the offer was received.
CEO Paul Arenson said that from January 1 to March 1 they had seen strong occupational conditions driven by high demand, limited supply, and affordable rents. He warned, however, that top-line growth might be eroded in the months ahead due to high interest rates and inflation.
“While the macroeconomic backdrop is challenging in the UK, our MLI portfolio has delivered on target, with 4.8% like-for-like growth in passing rents, and 10.6% growth in estimated rental values over the 12-month period,” he said.
The Industrial Hive platform continued to support the business by generating a strong pipeline of new lettings, enabling the business to transact with increasing efficiency.
During the quarter, 120 leasing transactions were done, taking the total for the financial year to 401, a 50% increase on the previous year.
“We saw average uplifts in rent of 27% on all lettings signed during the quarter, totalling a further ₤2.6 million (almost R60 million) of rent, with 73% of new lettings on smart-lease terms and conditions, and over 82% of leases including 3% per annum fixed uplifts.”
In the small number of instances where units were handed back due to tenant move-outs, insolvency or forfeiture, demand was such that occupancy levels were maintained and rental growth continued to be delivered.
The sale of the interest in a care homes joint venture in Germany was completed in April, representing the completion of the MLI disposal programme started in March 2018 that had followed the initial acquisition of 25 MLI estates in June 2017.
“This transaction released about ₤15 million in equity, which we intend to reinvest in MLI opportunities in the UK,” said Arenson.
He said the MLI occupational market remained supportive of rental growth.
“The business remains well positioned to weather the storm, with a low level of debt and a highly diversified customer base and portfolio,” he said.
The fourth quarter was the tenth successive three-month period of +20% average rental uplifts, and this was driven by unlocking the reversionary potential within the portfolio, with average passing rents lagging estimated market rental values on leased MLI units by 15.8% (previous quarter: 17.5%).
Lease terms remain unchanged, with the average lease signed during the quarter for 4.5 years with a tenant break option after 3.1 years and 0.9 months rent-free.
Some 73% of completed leases were contracted through Industrials REIT’s short-form digital “smart leases” (previous quarter: 73%). Portfolio occupancy was stable at 92.3%, versus 92.4% in the previous quarter.
An impressive 96% of rents due for the year ended March 31 had been collected by April 21.
BUSINESS REPORT