Urban Logistics rents lifted by Brexit and pandemic

Brexit, the pandemic and episodes such as the Suez Canal blockage have driven a shift “from a just in time delivery system, to a just in case” approach among traders, according to Urban Logistics' (SHED) chief executive Richard Moffitt. The industrial landlord has used this sentiment and a space shortage to its advantage, extending some leases at higher rents before the initial term is up. 

In the 12 months to March, strengthening demand fed through to a 6.5 per cent boost to like-for-like contracted income. New lettings, re-gears and rent reviews generated an average 14 per cent uplift in rents, which should allay any concerns that this a purely acquisition-led growth story.  

However, a goal to add an extra £100m to the group’s market cap within the next five years means the pace of acquisitions is unlikely to let up. Last year deals totalling £265m were agreed, funded via two equity placings in under six months. Further capital raising seems likely over the coming year. Yet a track record of putting funds to good use means shareholders might forgive any dilution to their holdings.  

Underlying valuation gains, together with a dividend that was ahead of market expectations, resulted in a total accounting return of almost 16 per cent last year. That was just north of the top end of management's annual target range. A further rise in contracted rent is anticipated by Panmure Gordon, which forecasts an adjusted NAV of 161p a share at the March 2022 financial year end, rising to 167p 12 months later.

In line with the broader sector, the shares have regained all ground lost – and more – following last March’s crash. However, they are without the sizeable premium, versus NAV, attached to those of larger peers such as Segro (SGRO) and LondonMetric (LMP). We think there is value on offer. Buy. 

Last IC view: Buy, 143p, 12 Nov 2020