Tap into Warehouse Reit's takeover potential

Warehouse Reit's shares were launched on London’s junior market in late 2017, raising £150m for management to invest in warehouse assets in urban areas. The portfolio is focused on small- to medium-sized warehouses with good transport links, catering to tenants carrying out so-called ‘last mile’ delivery services. It also looks for buildings that offer long-term flexibility, such as the ability to subdivide larger units or the potential to change permitted use.

During its first full year as a quoted company, Warehouse Reit made a total return of 13.3 per cent, ahead of the 10 per cent target at its flotation, thanks to a 7.4 per cent rise in adjusted net asset value (NAV) and a generous 6p a share in annual dividends. One way Warehouse Reit boosts its returns is by refurbishing vacated units to raise rents. That can add between £5 and £7 per square foot (sq ft) in rental value, according to management. The company aims to spend 0.75 per cent of its gross asset value on capital expenditure each year, with a target return of at least 10 per cent. Last year, 62 lettings of vacant space were completed for rents 13 per cent more than expected, which generated an additional £2.1m in rental income.

Lease renewals also help boost like-for-like rental income – last year 46 were completed at an average 14.6 per cent above previous rents or 6 per cent ahead of estimated rental values. Since March, demand has remained strong. For example, at the start of the month Warehouse agreed a 10-year lease renewal with the distribution arm of Walgreens Boots Alliance on 113,000 sq ft of distribution space at a 42 per cent uplift to the previous rent paid.