While driving somewhere close to Milton Keynes recently I was struck by the acres of enormous warehouse buildings that filled the landscape. These things look like you could fit several football pitches into the floor area of each one. And many of them are painted in the colour of the sky to make them less eye-catching and invasive.
Welcome, I thought, to the modern world of supply chain logistics, which has been pumped up by the growing trend of internet retailing to proportions that I’d liken to a bodybuilder on steroids. Wouldn’t it be interesting, I mused, to find a way of focusing an investment on these upcoming modern-day mega-structures?
A specialist sub-sector
Sometime later, I stumbled across Urban Logistics REIT (LSE: SHED). The firm focuses on a specialist sub-sector of the UK real estate market by investing in industrial and logistics properties. The key investment thesis behind the company is that e-commerce demands new infrastructure and modern distribution networks capable of handling the escalating demand for transporting, storing and delivering goods.
So Urban Logistics operates in a similar area as the owners of those massive buildings I’d seen and the firm is responding to a similar theme, but its operations are not an exact fit with my investing vision.
The website explains that the supply of urban logistics assets in the UK is constrained “by a variety of factors,” which together with the shift towards online commerce creates “heightened demand” for “well-located smaller-sized” warehouses, and that’s the area that the firm focuses on. Although some of its properties are still quite impressive in their proportions.
Encouraging results and a positive outlook
The firm started out in April 2016 and says on its website it is building a portfolio of “high-quality” assets with “strong” income and capital growth potential. The assets it owns attract a diverse range of tenants from various industries. As with many property firms, Urban Logistics is not content to merely buy and hold properties indefinitely and instead aims to buy and sell real estate at opportune times to enhance shareholder returns.
I find today’s full-year results report to be encouraging. Earnings per share rose almost 43% and the net asset value lifted by 13% to a smidgeon below 138p per share. Today’s share price close to 129p suggests the firm remains conservatively valued by the stock market. During the period, the company acquired seven logistics properties, spending £48m and disposed of £11.3m worth of property, saying it achieved an average total property return on the sold properties of just over 25%.
Meanwhile, the firm’s portfolio of property is “fully occupied,” and the directors see upside potential in ongoing rent reviews, which have been increasing average rents by a little under 40%. Chief executive Richard Moffitt said in the report: “Urban Logistics remain real estate’s top performing sub-sector.” And chairman Nigel Rich explained in the narrative that the fundamentals of the market “remain attractive and we are confident of continuing to deliver consistent returns for our shareholders.”
Top management appears to be united in its enthusiasm, and I reckon shares in Urban Logistics REIT are attractive.
