- NAV increases
- Dividends not forecast to increase until 2026
Warehouse Reit (WHR) investors can stop worrying about net asset value (NAV) per share falling and instead start considering dividend coverage.
In its results for the six months to 30 September, NAV rose 1.6 per cent, partly because it sold warehouses over the period to shore up its balance sheet, but also because buyer demand for warehouses returned due to easing interest rate forecasts. Market-wide data on warehouse values show buyers, typically pension funds and private equity firms, rate their long-term prospects better than offices or retail assets.
While asset offloading is good news for NAV, it's bad news for earnings per share (EPS). Gross rental income sunk by 4.2 per cent, with net rental income falling 3.1 per cent as the landlord reduced costs. The valuation bump bolstered its IFRS pre-tax profit, meaning IFRS EPS of 5.2p covered its 3.2p dividend, but the rental income drop means EPRA EPS and its in-house EPS did not.
As such, the dividend was flat this year, with the company focused on "rebuilding dividend coverage" over the coming years. Letting activity should help with that, with the company stating the leases it has signed over the period came in at 31.8 per cent ahead of previous rents. So far, though, the overall impact has been minimal, with like-for-like rental income increasing just 1.7 per cent.
What's more, the company says it intends to continue selling assets to reduce its gearing. It's an arguably wise move, but one which will probably reduce its rental income further, which is likely why analyst Shore Capital is not forecasting a dividend increase until 2026. Even then, it's an annual increase of 0.1p. We downgrade our rating. Hold.
Last IC view: Buy, 164p, 9 Nov 2021
| WAREHOUSE REIT (WHR) | ||||
| ORD PRICE: | 85.7p | MARKET VALUE: | £364mn | |
| TOUCH: | 84.6-88.7p | 12-MONTH HIGH: | 120p | LOW: 68.0p |
| DIVIDEND YIELD: | 7.5% | TRADING PROP: | N/A | |
| PREMIUM TO NAV: | -32.2% | NET DEBT: | 53% | |
| INVESTMENT PROP: | £825mn | |||
| Half-year to 30 Sep | Net asset value (p) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
| 2022 | 124 | -46.4 | -10.9 | 3.20 |
| 2023 | 126 | 22.0 | 5.20 | 3.20 |
| % change | +2 | - | - | - |
| Ex-div:* | 14 Nov | |||
| Payment:* | 29 Dec | |||
| *Quarterly payment of 1.6p | ||||
