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Market delivering for Urban Logistics

Landlord identifies acquisition pipeline equal to 60 per cent of its existing portfolio
November 12, 2021
  • £134m deployed since July’s fundraising
  • Last-mile landlord has £400m-plus pipeline

Intensifying demand for delivery services in cities, coupled with the sharpening effects of Brexit and Covid-19 on supply chains, is creating red-hot demand in a once unloved asset class.

Fortunately for Urban Logistics (SHED), this is its sweet spot. Chief executive Richard Moffitt speaks of “extremely strong tenant demand for mid-sized 'last mile/last touch' logistics assets across the country”. Whether this could eventually lead to herd-like investor interest remains to be seen, but with average rents of £5.87 per square foot across SHED’s portfolio, occupancy costs are affordable.

From the landlord’s perspective, these forces all translate to valuation uplifts and rental growth. In the six months to September, this meant a total accounting return of 10.7 per cent.

Accounts for the period include the cash benefit of July’s £108m fundraising, but not its deployment. Fortunately, progress on the latter score looks encouraging. Since the share sale, £134m has been committed or spent on schemes with net initial yields ranging from 5 to 8.2 per cent, while a pipeline of "over £400m of assets at strong yields" has been identified. That should help to stretch the loan-to-value ratio, currently at 16.9 per cent, to between 30 and 40 per cent over the medium term.

FactSet pegs consensus forecast dividends of 7.653p for the 12 months to March, rising to 8.823p the year after. Analysts also expect EPRA net asset value to overtake the current market price and hit 179.2p by March 2023.

With competition at the larger end of the logistics market continuing to ratchet, we think sector investors should concentrate on the urban warehouses that SHED or Warehouse Reit (WHR) specialise in. A premium rating befits those with the greatest liquidity and flexibility. Buy.

Last IC View: Buy, 161p, 9 Jun 2021

URBAN LOGISTICS (SHED)   
ORD PRICE:175pMARKET VALUE:£569m
TOUCH:175-180p12-MONTH HIGH:183pLOW: 140p
DIVIDEND YIELD:4.3%TRADING PROP:nil
PREMIUM TO NAV:6.6%NET DEBT:22%
INVESTMENT PROP:£672m   
Half-year to 30 SepNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20201419.805.203.25
202116450.317.63.25
% change+17+413+238-
Ex-div: 25 Nov   
Payment: 17 Dec