Urban Logistics REIT plc

("Urban Logistics", the "Company" or the "Group")

Interim Results for the six months ended 30 September 2021

Transformative growth across the portfolio, as sector tailwinds underpin "last mile" logistics strategy

Proposed move to premium segment of the Main Market

Financial Highlights

·      EPRA net tangible assets ("NTA") of 164.30 pence per share (+7.9% since March 2021: 152.33 pence)

·      IFRS net assets of £533.6 million, +37.7% increase (March 2021: £387.5 million)

·      Dividend per share 3.25 pence (H1 2020: 3.25 pence)

·      Net rental income £16.0 million, +69.6% increase (H1 2020: £9.4 million)

·      Profit before tax £50.3 million, +412.8% increase (H1 2020: £9.8 million)

·      Adjusted earnings per share of 3.46 pence, +8.5% increase (H1 2020: 3.19 pence)

·      Total Property Return of 11.8% (H1 2020: 8.0%)

·      Total Accounting Return of 10.7% (H1 2020: 5.5%)

·      £108 million of equity raised in July 2021

Operational Highlights

·      99.7% of rents demanded collected in the period to 30 September 2021

·      Portfolio valuation £660.5 million, +91% increase (H1 2020: £345.9 million)

·      Portfolio like-for-like valuation growth of 11.3% (H1 2020: 5.0%)

·      EPRA vacancy rate of 0.6% (H1 2020: 3.0%)

·      Gross to net rental income ratio 96.0% (H1 2020: 98.4%)

·      WAULT of 7.9 years (H1 2020: 5.5 years)

·      EPC ratings of A-C across 80.1% portfolio (H1 2020: 72.8%)

·      Eleven logistics properties acquired

·      Committed to forward fund the development of six new assets during the period

·      Total portfolio of 91 assets, covering 5.8 million sq ft

Post-period end

·      The company has entered into the following transactions post period end:

o  A forward funding agreement to redevelop a 120,750 sq ft property for a total cost of £13.3 million. The target net initial yield (NIY) is 6.2%

o  A 121,078 sq ft vacant property near Andover. The property was purchased for £12.0 million, at a target NIY of 5.8%

o  A 239,867 sq ft warehouse near Spennymoor, Durham. The property was purchased for £8.7 million, at a NIY of 8.2%

o  A 137,962 sq ft warehouse in Driffield. The property was purchased for £8.4 million, at a NIY of 6.4%

o  A 27,366 sq ft property in Ashton in Makerfield, Wigan. The property was purchased for £2.7 million, at a NIY of 5.0%

·      The Company has committed or deployed £134 million of capital following its July equity raise

·      Substantial pipeline of approximately £400 million of new assets identified

Richard Moffitt, CEO, summarises the results:

"We continue to see extremely strong tenant demand for mid-sized 'last mile/last touch' logistics assets across the country, intensified by the structural shift towards e-commerce and the need for more resilient supply chains as a result of both Covid and Brexit. This is supporting strong rental growth albeit with an average rent of £5.87 psf across our portfolio overall occupancy costs remain affordable in the context of an essential part of the supply chain.

These sector tailwinds help propel a strategy of investing in, off-market acquisitions of 'last mile/last touch' assets, and driving value through active asset management. With our portfolio value now £661 million, we have grown to be a major player in the last mile/last touch logistics real estate business.

It has been a very successful first half for the Group, with significant growth across the portfolio, over 99% occupancy at the period end and over 99% of rents demanded collected in the period. Additionally, we completed an oversubscribed fundraise in July, deploying the capital swiftly across eleven value accretive logistics assets, providing additional income for shareholders.

We now look with confidence towards the future, with the Company moving from AIM to the Premium Segment of the Main Market, a considerable pipeline of high-quality assets which will help keep up the continued pace of our progress."

CHAIRMAN'S STATEMENT

Overview

The last six months have been dominated by the after‑effects of COVID-19 and Brexit on the economy, with disruption to supply chains globally leading to inflationary consequences. Fortunately, to date this has not had a negative effect on the Company, with its concentration on last mile logistics assets and tenants supplying everyday needs.

The market for such assets has in fact continued to strengthen, which is reflected in both the tighter yields at which we have had to acquire new assets, and in the valuation of our existing properties. However, Pacific, our Manager, remain able to source suitable properties with asset management opportunities enabling increased income in the near to medium term.

Fundraising and Main Market

In July we completed a successful equity raise of £108 million. These funds have almost all been deployed in the acquisition of assets, or commitments to acquire assets via forward funding agreements. Further investments will be made in the near future utilising the gearing made possible by the additional equity.

With our market capitalisation now almost £600 million, your Board feels it is the moment to move to the Main Market. A full listing and inclusion in the London stock market indices will broaden our appeal to investors, with greater liquidity in the stock. Our application to the London Stock Exchange has now been submitted.

In conjunction with the move, we are in discussions with our advisors and institutions about a further equity raise. Our managers have built a new pipeline of over £400 million worth of proposed acquisitions which would support such a raise.

Financial results

During the half year, demand for our properties remained strong and at the period end we had almost 100% of both occupancy and collections of rent due in the period. Our portfolio valuation increased to £661 million and EPRA NTA per share to 164.30 pence per share. On a like-for-like basis, excluding new acquisitions, the valuation increase was 11.3% (H1 2020: 5.0%). The increase was in part due to yield shift, but was mainly the result of active asset management generating rent increases and lengthening lease periods.

The net rental income for the period increased by 69.6% compared to H1 2020, driven by new acquisitions and rent increases. Adjusted EPS over the same period also rose, up to 3.46 pence, an increase of 8.5%. Our balance sheet remains strong with loan to value ("LTV") at 16.9%. The average interest rate remains low at 2.5%, but whilst most of our borrowing is at fixed rates, it is likely that rates will rise if inflation persists.

Dividends

We are proposing a first interim dividend of 3.25 pence per share payable on 17 December 2021 to shareholders of record on 26 November 2021. This is the same rate as the first interim dividend paid last year. We expect, subject to unforeseen circumstances, to pay a similar total dividend per share in respect of the full year as was paid in respect of last year.

Management and Board

Our management continue to perform at a high level, both in sourcing new properties and the active asset management thereof. With the increasing number of properties and scale of the business, the Manager has increased the size of the property management team and the skills of the support functions.

The ESG Committee, chaired by Heather Hancock, has been active in agreeing initiatives and actions to drive our ESG performance, specifically by improving the environmental ratings of our buildings.

We have started the process to find an additional independent non-executive director to broaden the experience on the Board.

Outlook

We remain confident that the market for logistics assets in key regions of the country will remain strong. The planning constraints on land for industrial use will restrict supply, which when combined with increasing demand, will tighten yields and will also result in increased rents. Our Manager has continued to build and rebuild the pipeline, and we look forward to moving to the premium section of the Main Market, and delivering further value to our shareholders.

Nigel Rich CBE

Chairman

10 November 2021

MANAGER'S REPORT

Overview

This half year has seen the UK tentatively begin to emerge from COVID-19 dominated life. While COVID-19 remains with us, and the possibility of further governmental restrictions is very real, we are beginning to be able to see the contour lines of a post-COVID-19, post-Brexit, UK economy.

The rise and rise of e-commerce has been well documented; in 2021 we hit 34% e-commerce penetration, a startling rise from 19% two short years ago (source: Savills). At the same time, businesses around the UK are looking to shorten supply chains and hold greater stock in the UK. Both of these translate to an increased demand for logistics space.

Throughout these changes our core investment thesis has proved to be robust, and our strategic goals of acquiring well-located, single-let last mile logistics properties has not changed. We have been highly active in the first half of the year, acquiring eleven assets for a combined consideration of £81.5 million (excluding purchaser costs) and committed to six forward funded developments with a combined maximum commitment of £56.6 million, of which £18.9 million had been advanced in the period. We continue to seek out off-market assets which offer good medium-term income opportunities, good environmental performance (or scope for improvement), and good asset management potential.

Driven by this investment thesis, we have remained consistent in our view that the fashion sector should be avoided and have instead focused on goods such as food and pharma and staple products which consumers and businesses consistently rely on. Our tenants are therefore usually third-party logistics operators, pharmaceutical companies or food retailers, with Culina Group, XPO logistics and the Unipart Group (NHS) as some of our largest tenants.

This served us well during the pandemic - all bar three of our buildings were open and operational, leading to over 99% of rents being collected on time. The three buildings which did close did so for less than two weeks.

It is our sector expertise, and our close relationship with our tenants, that allow us to uncover asset management opportunities within our portfolio which continue to drive performance. While we have purchased properties at very attractive pricing, it is our asset management post-acquisition which has driven the majority of our valuation increase. We believe that our existing portfolio still offers significant room for further valuation increases from asset management. We are currently engaged in a number of conversations with existing tenants to extend leases, increase rental levels or both.

The market

We have seen strong investor demand for exposure to logistics assets in the period, pushing yields down, but we remain able to source off-market acquisitions at attractive price points. We are a very sought out buyer thanks to our track record of deal execution, strong equity position and expertise in the sector.

Record demand

H1 was the busiest on record for take up of new space, at 24.4 million sq ft - 82% above long-term average. This beat the previous record set in 2020. Vacancies are down from 20% in 2010 to just 4% in 2021 (source: Savills). Our portfolio reflects this reality, with just 0.6% of the portfolio vacant.

The twin shocks of Brexit and COVID-19 revealed the extent to which supply chains in the UK had been optimised for cost, speed and efficiency, but not resilience. Shocks like the Evergreen Suez blockage, and port delays, dominated the first half of the year, while HGV driver shortages have led to empty shelves in supermarkets and dry petrol forecourts more recently. Supply chain management is often a trade-off between a lean supply chain (fast and at low cost) and a resilient supply chain (able to withstand shocks).

A recent McKinsey survey of supply chain executives found that 93% of them were focused on adding resilience to supply chains, which typically involves (among other things):

·      maintain higher stock levels in warehouses, to allow businesses to weather disruptions to deliveries without affecting their end customer; and

·      bringing manufacturing processes closer to home, to limit exposure to multinational risk. Savills research suggests that for each £1 billion in manufacturing investment, an additional 175,000 sq ft of warehouse space is required.

When we look at the e-commerce drivers of demand, Forrester research suggests that if their forecasts for e-commerce going forward are correct, an additional 64 million sq ft of warehouse space is required in the UK by 2025, just to cover retail alone. This is driven by research showing that for each additional £1 billion in e-commerce sales, an average of 775,000 sq ft of warehousing space is needed (source: Prologis). Given rapidly evolving consumer expectations about delivery times, we expect last mile assets like ours to be particularly in demand.

Supply bottlenecks

When we look at the available stock on the market today, we can see that supply is at its lowest ever level, at approximately 20 million sq ft. The majority of this supply is second-hand space, with grade A and new space making up only a small proportion of available stock (source: Savills).

The low current supply, especially of high grade space, has combined with the rising demand to spur speculative development, with 16.67 million sq ft under development (source: Savills) in the UK. This development is focused in the South East and Midlands, but can be seen across England and Wales, and is overweighted in the "big box" developments where there are significant economies of scale (source: Lambert Smith Hampton). Our end of the market is not seeing significant supply coming forward relative to the latent demand.

Despite this speculative development, construction is currently unable to meet demand, as it is constrained by the availability of suitable land, long lead times on planning in many areas, and a global shortage of labour and materials. To take just one example, the benchmark price for hot rolled steel is up by 233% between September 2020 and September 2021 (source: HRC Steel Futures quoted on Nymex). The Construction Leadership Council ("CLC") warns of "unprecedented" materials shortage delaying projects. This constraint on supply is keeping rental levels high, and vacancies low. In the first half of the year we have entered into a number of agreements with established developers, where the Company forward funds the construction process. We ensure that the developer takes on the risks around cost increases or delays, while we take the risk and opportunities around finding new tenants. Our ability to secure new buildings through developers with strong balance sheets and their ability to procure labour and materials is allowing us to outperform in this area.

Labour shortages also affect vacancies in other ways. We have noted that many occupiers are reluctant to move premises due to the difficulty in replacing employees who might choose not to relocate. For this reason, we have been working with our tenants to better utilise the space, as seen in a property we own in Northampton, where we added floor space to an existing building, allowing the occupier to remain in place.

Valuations and rental levels

It is no surprise to see that structural economic shifts, supply chain investment, low bond yields and occupier demand result in rental growth, reflected in our asset management performance. It has led to a weight of investment capital looking for sector opportunities and a tightening of yields.

Against this backdrop, the management team believes that smaller, last mile, £5-£15 million assets represent a class which requires greater sector knowledge, and requires a nimble, entrepreneurially run asset manager to extract value from.

Environmental, Social and Governance

ESG is a priority for the Company, and we believe it is the same for our tenants and investors. Following the establishment of our ESG Committee last year, we have put in place our ESG policy, which commits us to a number of clear goals and targets.

In 2020/21 we made our first foray into green finance, something we are currently reviewing with the potential to extend for future financing events.

While many elements of the ESG agenda will sit with our tenants, we will work closely with occupiers to help them reach their own goals. We have made a number of clear commitments towards our environmental policy, including:

·      all new leases will contain "Green Clauses";

·      developing individual ESG plans for each asset, shared with current or incoming tenants; and

·      all new developments to have an EPC A rating, and a BREEAM rating of Very Good or better.

We will also adopt the EPRA sustainability framework (EPRA sBPR) when it comes to reporting, allowing easier benchmarking of our ESG performance against our peers.

Property review

1.    As per CBRE independent valuation as at 30 September 2021.

2.    WAULT to first break is 6.2 years.

3.    30 September 2020 vs. 30 September 2021.

Buy well

In the period to 30 September 2021, the Group acquired eleven assets for a combined consideration of £81.5 million (excluding purchaser costs) and committed to six forward funded developments with a combined maximum commitment of £56.6 million, of which £18.9 million had been advanced in the period.

1.    For stabilised assets, this is stated as purchase price (excluding acquisition costs), and maximum commitment for forward funded developments.

2.    Yields for forward funded developments are based on expected rental values.

Case Study: Stretton Distribution Park, Warrington

In April 2021, the Group acquired a recently refurbished distribution warehouse in Warrington for a consideration of £8.5 million, representing a 6.1% NIY. The unit is let to Mark Thompson Transport, a subsidiary of The Kinaxia Group, on a ten-year lease.

Located in a prominent position on the Stretton Distribution Centre, which is within one mile of the M6/M56 interchange, it allows for direct access to the regional motorway network, bringing Manchester and Liverpool within a 30-minute drive time.

The unit was recently refurbished and has a gross internal area of 110,859 sq ft and the wider site extends to 5.8 acres. The building is specified with an eaves height of seven metres, eight dock level loading doors, two level loading doors and a 45-metre yard depth.

The headline rent currently reflects £4.94 per sq ft, which is subject to an open market rent review in 2025, with quoting rents of £7.00 per sq ft in adjacent sites, providing excellent reversionary potential.

The unit currently has an EPC rating of C, and asset management initiatives are ongoing to improve the rating. In addition, the tenant is installing new LED light fittings in the warehouse area, further improving energy efficiency.

Geographical locations for assets acquired during the period to 30 September 2021

Midlands | 52%

North West | 15%

South East | 12%

South West | 12%

Scotland | 9%

Manage well

The Group owns 91 assets, which have 103 different tenancies as at 30 September 2021. During the period, the Group successfully completed eleven new lettings, three lease re-gears and one rent review, which in total generated £1.6 million of additional rental income. At the period end, there are ongoing asset management initiatives with 46% of our existing portfolio that will result in either further growth in rent or longer leases, or in some cases, both.

Case study: St. Peters Road Industrial Estate, Huntingdon

On 2 December 2020, the Group acquired a 129,222 sq ft warehouse located on the St Peters Road Industrial Estate, the principal estate serving Huntingdon, for a consideration of £2.1 million. Simultaneously, the Group entered into an agreement for a lease with FedEx UK Ltd for a term of 15 years at an annual rent of £0.7 million.

As part of the leasing, the property underwent extensive refurbishment works, totalling £4.5 million, bringing the total cost of the project to £6.6 million. Our refurbishment programme included the installation of new LED lighting throughout the warehouse and overcladding of the roof, which improved the EPC rating of the building from a C to a B.

At the period end, the property was valued by CBRE at £9.1 million, representing an uplift of £2.5 million or 39% since practical completion in July 2021.

Forward funded developments

In the period, the Company committed to forward fund six new development sites, which comprise 13 high-quality logistics units and are expected to generate £4.5 million of additional rental income once fully let, representing an estimated yield on cost of 6.0%. We are targeting a BREEAM rating of Very Good or Excellent for all new sites.

Case study: Peterborough Gateway

In June 2020, the Group entered into an agreement to acquire a 3.08-acre site and forward fund a 46,000 sq ft unit and a 60-bay car park. Situated just south of Peterborough, it forms part of the well-established Peterborough Gateway industrial estate, providing excellent access to the A1 and A14, making Leicester, Nottingham and London accessible in around an hour's drive time.

The unit is specified with an eaves height of ten metres, four dock level loading doors, one ground level loading door, LED lighting, 250 KVA electrical supply and a 53-metre yard depth. The unit has an EPC rating of A and a BREEAM rating of Very Good.

Development of the warehouse unit completed in early 2021 and, in August 2021, a 15-year lease with Anglian Water was secured and is subject to an annual rent of £0.3 million, significantly ahead of our initial appraisal, highlighting the strength of the local occupier demand. The car park is let to DPD until 2040, which, when combined with the letting to Anglian Water, represents a 6.6% yield on cost.

At the period end, the warehouse and car park were valued by CBRE at £9.1 million, representing an uplift on gross development cost of 58% since practical completion.

Financial review

IFRS reported profit

Net rental income

In the financial period to 30 September 2021, the portfolio generated net rental income of £16.0 million, an increase of £6.6 million or 70% when compared to the prior period. The increase was largely driven by the acquisitions made following the October 2020 and July 2021 equity fundraises.

Property operating costs have increased by £0.3 million, largely due to vacant unit costs at one of the largest units in the portfolio, which was vacant for five months of the interim period. The unit was let on a 15-year lease in September 2021. As a result, our gross to net rental income of 96.0% (30 September 2020: 98.4%), whilst remaining high, was slightly lower than the prior period; however, we expect this to increase throughout the second half of this financial year given the portfolio's low EPRA vacancy rate of 0.6% at the period end.

Contracted annual rent roll at 30 September 2021 was £34.8 million (31 March 2021: £30.3 million), representing a £4.5 million increase over the six-month period. Of this increase, £2.8 million related to net acquisitions in the period, £1.6 million to letting of completed development properties and vacant units, and £0.1 million from settlement of rent reviews.

Administrative expenses

Administrative expenses, which include all operational costs of running the business, increased by £1.0 million to £2.9 million. This is primarily due to the growth in investment management fees following the October 2020 and July 2021 equity fundraises, and the increase in EPRA net tangible assets ("EPRA NTA").

Total cost ratio

We continue to monitor the operational efficiency of the Group through the total cost ratio, which reduced slightly to 20.1% (30 September 2020: 20.7%). The Group's total cost ratio is expected to reduce in future periods, which will benefit from a full period of rental income from acquisitions made in the year.

Net financial costs

The weighted average cost of debt for the period was 40bps lower than the previous period at 2.5% and the Group reported an interest cover of 4.4x (30 September 2020: 5.7x). The interest cover in the prior period was higher than ordinarily expected as a result of the March 2020 equity fundraise and corresponding debt not being drawn until August 2020. The weighted average debt maturity is 3.0 years (30 September 2020: 2.9 years), however our Barclays facility has an option to extend for a further two years, which if included, would increase the weighted average debt maturity to 4.5 years (30 September 2020: 4.9 years).

The net finance costs, excluding fair value movements of our interest rate derivatives, for the period were £3.3 million, an increase of £1.8 million from the prior period. This is explained by gross drawn debt increasing by £77.0 million.

IFRS profit and adjusted earnings

IFRS profit after tax for the year was £50.3 million (30 September 2020: £9.8 million), representing a basic and diluted earnings per share of 17.60 pence, compared with 5.20 pence for the prior period. The growth in earnings per share has been driven largely through valuation surplus across the portfolio.

Adjusted earnings for the period were £9.9 million, representing a £3.9 million increase when compared to the prior period. On a per share basis, adjusted earnings increased by 0.27 pence or 8.5%.

A full reconciliation between IFRS profit and adjusted earnings can be found in note 8 of the Financial Statements.

Dividend

With respect to the first half of the financial year ended 31 March 2022, the Company declared the following interim dividends:

IFRS net assets

At 30 September 2021, IFRS net assets attributed to Ordinary Shareholders were £533.6 million (31 March 2021: £387.5 million), representing a basic and diluted net asset value per share of 164.23 pence (31 March 2021: 151.92 pence).

The Group considers EPRA net tangible assets ("NTA") a key measure of overall performance. At 30 September 2021, EPRA NTA were £533.8 million (31 March 2021: £388.5 million), representing an EPRA NTA per share of 164.30 pence (31 March 2021: 152.33 pence), an increase of 7.9%.

On a per share basis, both IFRS and EPRA net assets increased over the financial period to 30 September 2021, primarily due to revaluation surplus as a result of value created through asset management initiatives crystallised in the period.

The Total Accounting Return ("TAR") for the period, which reflects growth in EPRA NTA plus dividends paid in the period, was 10.7% (30 September 2020: 5.5%). The average Total Accounting Return since IPO in 2016 has been 14.6%, in line with the Group's annualised target total return of 10-15%.

Portfolio valuation

The valuation of our portfolio at 30 September 2021, which includes forward funded developments, was £660.5 million. In the period, the Group invested £86.5 million in industrial and logistics properties and advanced £18.9 million across six forward funded development assets. In addition, the Group incurred capital expenditure of £4.3 million in the period, which principally related to two properties which have undergone extensive refurbishment works and are now fully let.

The Group recognised a valuation surplus of £40.6 million (30 September 2020: £4.3 million) upon revaluation of the portfolio. On a like-for-like basis, the portfolio generated a valuation surplus of £54.6 million, or 11.3% (30 September 2020: 5.0%).

The portfolio delivered a Total Property Return ("TPR") of 11.8% (30 September 2020: 8.0%) for the six months to 30 September 2021.

Financing

At 30 September 2021, the Group had two term loan facilities totalling £199 million. Our £151 million loan facility with Barclays, Santander and Lloyds was entered into in August 2020 and had a three-year term with an option to extend for a further two years. In March 2021, the Group entered into a £48 million green loan facility with Aviva Investors, which provided a seven-year term and came at a fixed cost of 2.34%. Of the total debt facilities, 69% is hedged and the blended all-in rate is c.2.50% (subject to movements in SONIA).

Cash and debt

At 30 September 2021, the Group's cash balance was £90.7 million, of which £4.6 million is restricted in the form of tenant rent deposits, and c.£53 million is earmarked for developments. In the period, net debt reduced by £30.3 million, to £111.4 million, representing a loan to value ("LTV") of 16.9%. The LTV will increase as we continue with our acquisition programme and draw further debt in the second half of this financial year. Our medium-term target is 30-40%.

Outlook

The world has changed over the last two years, and as our results show, we have seen those shifts validate our strategy of focusing on the last mile end of the supply chain within the logistics market. Looking forward, the fundamental dynamics of this market are unlikely to change negatively in the near term.

Aside from the fundamental dynamics of the market, we work hard to maintain our reputation among vendors as a straightforward and fleet-of-foot counterparty to do business with. Our reputation among tenants as the leader in single-let logistics assets is also important as we help them navigate the economic realities as the country emerges from COVID-19. We also value our growing reputation as an active partner with our tenants in our shared ESG goals.

Following our oversubscribed July equity raise we have now deployed this capital into a portfolio of assets, which we are actively managing and have already seen some encouraging early results.

We therefore remain ambitious to continue to grow the Company. During our raise in July 2021, we signalled our intention to move from the AIM to the premium section of the Main Market and we look forward to that move in the near future, which will increase liquidity for our investors, and allow the Company to access deeper pools of capital.

We see considerable scope for us to continue to purchase properties off market, and we have a pipeline of over £400 million of assets at strong yields, which would allow us to drive outperformance in terms of both NAV and earnings.

The Manager

10 November 2021

INDEPENDENT REVIEW REPORT TO URBAN LOGISTICS REIT PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the six months ended 30 September 2021 which comprise the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Cash Flow Statement, the Condensed Consolidated Statement of Changes in Equity and notes to the Interim Financial Statements. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing and presenting the interim financial report in accordance with the AIM Rules for Companies.

As disclosed in note 2, the annual financial statements of the Group will be prepared in accordance with UK-adopted International Accounting Standards. The condensed set of financial statements included in this interim financial report has been prepared in accordance with the presentation, recognition and measurement criteria of UK-adopted International Accounting Standards.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the six months ended 30 September 2021 is not prepared, in all material respects, in accordance with the presentation, recognition and measurement criteria of UK-adopted International Accounting Standards, and the AIM Rules for Companies.

Use of our report

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our review work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

RSM UK AUDIT LLP

Statutory Auditor

Chartered Accountants

25 Farringdon Street

London

EC4A 4AB

10 November 2021

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE INTERIM FINANCIAL STATEMENTS

1. Corporate information

Urban Logistics REIT plc (the "Company") and its subsidiaries (the "Group") carry on the business of property lettings throughout the United Kingdom. The Company is a public limited company incorporated and domiciled in England and Wales and listed on the AIM of the London Stock Exchange. The registered office address is 6th Floor, 65 Gresham Street, London EC2V 7NQ.

2. Basis of preparation

The interim financial information in this Interim Report has been prepared in accordance with UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006. The Group has chosen not to adopt IAS 34: Interim Financial Statements in preparing the interim financial information.

The Group's financial information has been prepared on a historical cost basis, except for investment property and derivative interest rate swaps which have been measured at fair value.

The functional currency of the Group is considered to be pounds sterling as this is the currency of the primary environment in which the Group operates.

Non-statutory financial statements

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The statutory accounts for the year ending 31 March 2021 have been delivered to the Registrar of Companies. The audit report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Going concern

The Directors have reviewed the current and projected financial position of the Group, making reasonable assumptions about future trading performance. As part of the review, the Group has considered its cash balances, its debt maturity profile, including undrawn facilities, and the long-term nature of the tenant leases.

As part of their going concern review, the Directors have carefully considered the impact on the Group of the COVID-19 pandemic. Management, who have transitioned to remote working without any issues, endeavours to engage with tenants on a quarterly basis and it is this hands-on relationship that is guiding the Group through the COVID-19 pandemic as the tenant-landlord relationships continue to remain constructive.

The Group has undertaken risk assessments in respect of the impact on key objectives and has appropriate response plans such as stress testing, monitoring of tenant performance and financial reviews. On the basis of this review, and after making due enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim Financial Statements.

3. Significant accounting judgements, estimates and assumptions

The preparation of the Interim Financial Statements in conformity with the generally accepted accounting practices requires management to make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the Statement of Financial Position date and the reported amounts of revenue and expenses during the reporting period.

Fair value of investment property

The market value of investment property is determined, by real estate valuation experts, to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. Each property has been valued on an individual basis. The valuation experts use recognised valuation techniques and the principles of IFRS 13. The valuations have been prepared in accordance with RICS Valuation - Global Standards January 2020 (the "Red Book"). Factors reflected include current market conditions, annual rentals, lease lengths and location.

4. Principal accounting policies

The principal accounting policies applied in the preparation of these Financial Statements are consistent with those applied within the Company's Annual Report and Financial Statements for the year ended 31 March 2021.

Basis of consolidation

The Financial Statements consolidate the accounts of the Company and all subsidiary undertakings drawn up to the same year end.

Investment in subsidiaries

Investments in subsidiaries are stated at cost less any provision for permanent diminution in value. Realised gains and losses are dealt with through the Statement of Comprehensive Income. A review for impairment is carried out if events or changes in circumstances indicate that the carrying amount may not be recoverable, in which case an impairment provision is recognised and charged to the Statement of Comprehensive Income.

Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit and loss over the borrowings period using the effective interest method.

Borrowing costs

Borrowing costs in relation to interest charges on bank borrowings are expensed in the period to which they relate. Fees incurred in relation to the arrangement of bank borrowings are capitalised and expensed on a straight-line basis over the term of the loan.

Segmental reporting

IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reported to the Board to allocate resources to the segments and to assess their performance. The Directors consider there to be only one reportable segment, being the investment in the United Kingdom into small logistics warehouses.

Investment properties

Investment properties comprises completed property that is held to earn rentals or for capital appreciation, or both, and development properties that are under development or available for development.

Investment properties are initially recognised at cost including transactions costs. Transaction costs include transfer taxes and professional fees for legal services. Subsequent to initial recognition, investment properties are carried at fair value, as determined by real estate valuation experts. Gains or losses arising from change in fair value are recognised in the Statement of Comprehensive Income in the period in which they arise.

Investment properties cease to be recognised when they have been disposed of. The difference between the disposal proceeds and the carrying amount of the asset is recognised in the Statement of Comprehensive Income. A disposal is recognised on exchange if the sale contract is unconditional; if the sale contract on exchange is conditional, the disposal is recognised on legal completion.

Financial instruments

Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

Trade receivables are held in order to collect the contractual cash flows and are initially measured at the transaction price as defined in IFRS 15, as the contracts of the Group do not contain significant financing components. Impairment losses are recognised based on lifetime expected credit losses in profit or loss.

Other receivables are held in order to collect the contractual cash flows and accordingly are measured at initial recognition at fair value, which ordinarily equates to cost, and are subsequently measured at cost less impairment due to their short-term nature. A provision for impairment is established based on twelve-month expected credit losses unless there has been a significant increase in credit risk when lifetime expected credit losses are recognised. The amount of any provision is recognised in profit or loss.

Financial liabilities

Financial liabilities, equity instruments and warrant instruments issued by the Group are classified in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Trade and other payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method.

Derivative financial instruments

Derivative financial instruments, comprising interest rate caps and swaps for hedging purposes, are initially recognised at cost and are subsequently measured at fair value, being the estimated amount that the Group would receive or pay to terminate the agreement at the period end date, taking into account current interest rate expectations and the current credit rating of the Group and its counterparties.

The gain or loss at each fair value measurement date is recognised in the Statement of Comprehensive Income. Premiums payable under such arrangements are initially capitalised into the Statement of Financial Position, subsequently they are remeasured and held at their fair values.

Hedge accounting has not been applied in these Interim Financial Statements.

Revenue recognition

Rental income and service charge income from operating leases on properties owned by the Group is accounted for on a straight-line basis over the term on the lease. Rental income excludes service charges and other costs directly recoverable from tenants.

Lease incentives are amortised on a straight-line basis over the term of the lease.

Leases

At inception, the Group assesses whether a contract is or contains a lease. This assessment involves the exercise of judgement about whether the Group obtains substantially all the economic benefits from the use of that asset, and whether the Group has the right to direct the use of the asset.

The Group recognises a right-of-use ("ROU") asset and a corresponding lease liability at the commencement date of the lease. The ROU asset is initially measured based on the present value of lease payments, plus initial direct costs and the cost of obligations to refurbish the asset, less any incentives received.

Lease payments generally include fixed payments and variable payments that depend on an index (such as an inflation index). When the lease contains an extension or purchase option that the Group considers reasonably certain to be exercised, the cost of the option is included in the lease payments.

Each lease payment is allocated between the liability and finance cost. The lease payments are discounted using the interest rate implicit in the lease if that rate can be readily determined or, if not, the incremental borrowing rate is used, which is the weighted average cost of debt. The finance cost is charged to profit or loss over the lease period so as to produce a constant rate of interest on the remaining balance of the liability for each period.

As the head leases meet the definition of investment property, they are initially recognised in accordance with IFRS 16, and then subsequently accounted for as if they were investment property in accordance with the Group's accounting policy. After initial recognition, the ROU head lease asset is subsequently carried at fair value and the valuation gains and losses recognised within "Changes in fair value of investment property" in the Statement of Comprehensive Income.

ROU assets are included in the heading "Non-current assets", and the lease liability included in the heading "Non-current liabilities", on the Statement of Financial Position.

Where the ROU asset relates to land or property that meets the definition of investment property under IAS 40, the ROU assets are included in the heading "Investment properties", and the lease liability in the heading "Non-current liabilities", on the Statement of Financial Position.

Long-term incentive plan

There is a long-term incentive plan ("LTIP") in place whereby Pacific Industrial LLP, an affiliate of PCP2 Limited (the "Manager") has subscribed for C Ordinary Shares issued in Urban Logistics Holdings Limited, a subsidiary of Urban Logistics REIT plc (the "Company"). Under the terms of the LTIP, the Company is obliged to acquire the C Ordinary Shares in Urban Logistics Holdings Limited, in return for services provided by Pacific Industrial LLP, subject to certain conditions.

The fair value of the share price element of the LTIP award is calculated at the grant date using the Monte Carlo model. The resulting cost is charged to the Statement of Comprehensive Income over the vesting period.

At each year end, the Directors make an assessment of the fair value EPRA NTA element of the LTIP award based on Company forecasts. The resulting cost is charged to the Statement of Comprehensive Income over the vesting period.

Further details have been provided in note 9.

Taxation

Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and deferred tax. Current tax is expected tax payable on any non-REIT taxable income for the period, using tax rates enacted or substantively enacted at the period end date, and any adjustment to tax payable in respect of previous years.

Dividends

Dividends on equity shares are recognised when they become legally payable. In the case of interim dividends, this is when paid. In the case of final dividends, this is when approved by the shareholders at the Annual General Meeting.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and short-term deposits with banks and other financial institutions, with an initial maturity of three months or less.

Standards in issue but not yet effective

At the date of authorisation of these Interim Financial Statements there were standards and amendments which were in issue but which were not yet effective and which have not been applied. The principal ones were:

·      amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform (effective 1 January 2021, endorsed 13 January 2021);

·      amendments to IFRS 4: Insurance Contracts - deferral of IFRS 9 (effective 1 January 2021, endorsed 15 December 2020);

·      amendments to IFRS 3: Business Combinations; IAS 16: Property, Plant and Equipment; IAS 37: Provisions, Contingent Liabilities and Contingent Assets and Annual Improvements 2018-2020 (effective 1 January 2022); and

·      amendments to IAS 1: Presentation of Financial Statements: Classification of Liabilities as Current or Non-current and Classification of Liabilities as Current or Non-current - Deferral of Effective Date (effective 1 January 2023).

The Directors do not expect the adoption of these standards and amendments to have a material impact on the Financial Statements.

In the current period, the following amendments have been adopted which were effective for the periods commencing on or after 1 January 2020:

·      amendment to IFRS 16: Leases COVID-19 Related Rent Concessions (effective 1 June 2020). The adoption of this amendment has not had a material impact on the Financial Statements.

5. Revenue

The Group is involved in UK property ownership and letting and is considered to operate in a single geographical and business segment. The total revenue of the Group for the year was derived from its principal activity, being that of property lettings. No single tenant accounted for more than 10% of the Group's gross rental income.

6. Changes in fair value of investment property

7. Finance expense

8. Earnings per share

The calculation of the basic earnings per share ("EPS") was based on the profit attributable to Ordinary Shareholders divided by the weighted average number of Ordinary Shares outstanding during the period, in accordance with IAS 33.

9. Long-term incentive plan

The Company has an LTIP, accounted for as an equity-settled share-based payment. At 30 September 2021, Pacific Industrial LLP, an affiliate of PCP2 Limited, has subscribed for 1,000 C Ordinary Shares of £0.01 each issued in Urban Logistics Holdings Limited, a subsidiary of the Company.

An independent valuation of the fair value of these shares was carried out at the grant date. The valuation was prepared in accordance with International Financial Reporting Standard 2 ("IFRS 2"): Share-based Payments. These shares were subsequently revalued at the modification date, in March 2020, with no material change. The Monte Carlo valuation model has been used to estimate the fair value of the share price element of the award.

The Directors have made an assessment of the EPRA NTA element based on Company forecasts. An assessment will be made at each year end, with any adjustment to expected value being charged as an expense in the Statement of Comprehensive Income.

From 7 February 2020 (the "Revised First Calculation Date") to 30 September 2023 (the "Second Calculation Date") the LTIP will be assessed as follows:

·      the EPRA NAV element is 5% of the amount by which the Company's EPRA NAV at the Second Calculation Date exceeds the Company's EPRA NAV as at the Revised First Calculation Date and an annualised 10% hurdle thereon (adjusted for any new issue of shares, all distributions including inter alia dividends and any returns of capital); and

·      the share price element is 5% of the amount by which the market capitalisation of the Company at the Second Calculation Date exceeds the market capitalisation of the Company as at the Revised First Calculation Date and an annualised 10% hurdle thereon (adjusted for any new issue of shares, all distributions including inter alia dividends and any returns of capital).

The LTIP payment is capped at three times the average annual management fees paid from 7 February 2020 to the Second Calculation Date.

If there is a change of control, the LTIP will be assessed by applying the relevant offer price to the EPRA NAV element and the share price element calculations at the date of the change of control.

The LTIP will be settled, at the Board's discretion, in either shares of Urban Logistics REIT plc, or cash, or a combination of both.

10. Dividends

On 29 June 2021, the Company declared an interim dividend for the second half of the financial year ended 31 March 2021 of 4.35 pence per Ordinary Share. The dividend was paid as a property income distribution on 2 July 2021 to shareholders on the register on 29 June 2021.

11. Investment properties

In accordance with IAS 40: Investment Property, investment property is carried at its fair value as determined by an external valuer. This valuation has been conducted by CBRE and has been prepared as at 30 September 2021, in accordance with the RICS Valuation - Professional Standards UK January 2020 (the "Red Book").

The valuations have been prepared in accordance with those recommended by the International Valuation Standards Committee and are consistent with the principles in IFRS.

Total rental income for the interim period recognised in the Condensed Consolidated Statement of Comprehensive Income amounted to £16.7 million (30 September 2020: £9.8 million).

Tenant lease incentives at 30 September 2021 totalled £3.55 million (30 September 2020: £0.6 million).

12. Bank borrowings and reconciliation of liabilities to cash flows from financing activities

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method.

On 7 August 2020, the Group entered into a new £151.0 million loan facility with Barclays Bank plc, Santander UK plc and Lloyds Bank plc, to replace the existing loan facility totalling £75.7 million, which was due to expire in 2022. This facility provides a three-year term, with the option to extend for a further two years. Interest is charged at a fixed margin of 2.10% plus GBP SONIA.

On 7 August 2020, the Group drew £122.4 million from the new loan facility. A further £25.0 million was drawn on 15 February 2021. On 26 February 2021, the remaining £3.6 million of loan facility was drawn. The £151.0 million facility is hedged by way of interest rate swaps, on a notional loan amount of £89.3 million.

On 12 March 2021, the Group entered into a new £48.4 million loan facility with Aviva Investors. This facility provides a seven-year term at a fixed cost of 2.34%. The loan facility includes an accordion, allowing the total loan facility to increase to a maximum of £200 million.

The bank borrowings from both facilities are secured over the investment properties owned by the Group.

13. Interest rate derivatives

The Group has used interest rate swaps to mitigate exposure to interest rate risk. The total fair value of these contracts is recorded in the Statement of Financial Position. The interest rate derivatives are marked to market by the relevant counterparty banks on a quarterly basis in accordance with IFRS 9. Any movements in the fair value of the interest rate derivatives are taken to finance expense in the Statement of Comprehensive Income.

14. Share capital

On 13 July 2021, the Company raised £108.3 million through the issue of 69,870,766 Ordinary Shares at an issue price of 155.0 pence per share.

15. Share premium

Share premium relates to amounts subscribed for share capital in excess of nominal value less any associated issue costs that have been capitalised.

16. Capital reduction reserve

17. Related party transactions

On 18 June 2021, Pacific Capital Partners Limited, a wholly owned subsidiary in the Pacific Investments group, novated its appointment as the Company's Alternative Investment Fund Manager ("AIFM") to PCP2 Limited, another wholly owned subsidiary in the Pacific Investments group. There has been no other change to the terms of the Investment Management Agreement ("IMA") and the Pacific Investments group has confirmed to the Company that there will be no changes to the team currently providing services to the Company, and that service levels will be uninterrupted by its internal reorganisation. During the interim period, the amount paid for services provided by PCP2 Limited (the "Manager") totalled £2,086,900 (30 September 2020: £1,246,722).

Long-term incentive plan

Under the terms of the Company's long-term incentive plan, at 30 September 2021 Pacific Industrial LLP, an affiliate of PCP2 Limited, has subscribed for shares in Urban Logistics Holdings Limited, a subsidiary of Urban Logistics REIT plc. Further details have been provided in note 9.

Acquisition of investment properties

During the interim period, the Group incurred fees totalling £1,352,801 (30 September 2020: £542,795) from M1 Agency LLP, a partnership in which Richard Moffitt is a member. These fees were incurred in the acquisition and letting of investment properties.

For the transactions listed above, Richard Moffitt's benefit is derived from the profit allocation he receives from M1 Agency LLP as a member and not from the transaction.

The Board, with the assistance of the Manager, and excluding Richard Moffitt, reviews and approves each fee payable to M1 Agency LLP, and ensures the fees are in line with market rates and on standard commercial property terms.

18. Net asset value per share

Basic NAV per share is calculated by dividing net assets in the Condensed Consolidated Statement of Financial Position attributable to Ordinary Shareholders by the number of Ordinary Shares at the end of the period.

Net assets have been calculated as follows:

19. Post balance sheet events

On 6 October, the Group entered into a forward funding agreement to redevelop a six-acre site in Golborne. The new warehouse will be 120,750 sq ft, and the total cost will be £13.3 million. The target net initial yield (NIY) is 6.2%.

On 22 October, the Group acquired a 121,078 sq ft vacant property near Andover. The cost was £12.0 million, at a NIY of 5.8%.

On 29 October the Group acquired a 239,867 sq ft warehouse near Spennymoor, Durham. The property was purchased for £8.7 million, at a NIY of 8.2%.

On 29 October the Group acquired a 137,962 sq ft warehouse in Driffield. The property was purchased for £8.4 million, at a NIY of 6.4%.

On 4 November the Group exchanged contracts to acquire a 27,366 sq ft property in Ashton in Makerfield, Wigan. The property was purchased for £2.7 million, at a NIY of 5.0%.

SUPPLEMENTARY INFORMATION

I. EPRA performance measures summary

II. Income statement

III. Balance sheet

In October 2019, the European Public Real Estate Association ("EPRA") published new best practice recommendations ("BPR") for financial disclosures by public real estate companies. The BPR introduced three new measures for reporting net asset value: EPRA net reinstatement value ("NRV"), EPRA net tangible assets ("NTA") and EPRA net disposal value ("NDV"). These new measures are effective for accounting periods starting on 1 January 2020 and have been adopted by the Group in reporting the financial position as at 30 September 2021.

The Group considers EPRA NTA to be the most relevant measure for its operating activities; therefore, it will be adopted as the Group's primary measure of net asset value, replacing previously reported EPRA NAV. A reconciliation of the three new net asset value measurements is provided in the table below.

IV. EPRA net initial yield and "topped up" net initial yield

V. EPRA vacancy rate

VI. EPRA cost ratio

1.    Property operating expenses are cost of sales. These typically include utilities, business rates, letting fees and other direct costs.

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