Annual Report 2022
The Power of Space
Welcome to the Industrials REIT
2022 Annual Report
Who We Are
the Premium Segment of the Main Market
of the London Stock Exchange (“LSE”)
and the Johannesburg Stock Exchange
(“JSE”). Wespecialise in the ownership
and operation of multi-let industrial (“MLI”)
estates in the United Kingdom (“UK”).
Find out more at https://www.industrialsreit.com/
Our Story
Industrials REIT is a business on a mission. In 2018, we
identified an opportunity in the MLI market in the UK for
a landlord who can provide SMEs with what they really
need – flexibility and quality customer service – akin to
what they might expect to find in serviced offices and self-
storage. To achieve this, we disposed of mixed use assets
across Europe and invested to become a focused UK MLI
business, while simultaneously building a class-leading,
digital-first operating platform called Industrials Hive. With
those two fundamental building blocks now in place and
a highly diversified and evolving customer base, we are
pushing forward with delivering a differentiated customer
experience, driven by operational excellence and efficiency
through our Industrials Hive platform.
Highlights
Overview
Highlights 01
About us 02
At a glance 04
Space that matters 08
Our MLI portfolio 10
The value we create 12
Strategic Report
Chairman’s statement 16
Chief Executive’s statement 18
Marketplace 21
Our business model 26
Industrials Hive platform 28
Our culture 30
Our strategy 32
Key performance indicators 36
Property report and investment 38
Financial review 44
Risk management 49
Section 172 statement and stakeholder engagement 56
Task Force on Climate-related Financial Disclosures 60
Our approach to sustainability 64
Space that matters: unlocking energy efficiencies 70
Our people 72
Streamlined energy and carbon reporting 74
EPRA sustainability best practices
recommendations reporting
77
Governance
Our Board of Directors 86
Corporate governance overview 89
Audit and Risk Committee report 94
Nomination Committee report 97
Remuneration Committee report 100
Social and Ethics Committee report 116
Directors’ report 118
Financial Statements
Independent auditor’s report 122
Consolidated statement of comprehensive income 127
Consolidated statement of financial position 128
Consolidated statement of changes in equity 129
Consolidated statement of cash flows 130
Notes to the consolidated financial statements 131
Additional Disclosure
Alternative performance measures 180
EPRA investment assets 186
Additional portfolio information 187
Other Information
Shareholder diary 190
Corporate information 191
Glossary 192
Shareholder notes 194
Contents
36.79p
18.57p
5.44p
13.89p
8.35p
2022 2021 2020 2019 2018
£1.78
£1.48
£1.37
£1.36
£1.36
2022 2021 2020 2019 2018
Total accounting
return (TAR)
Diluted
IFRS EPS
Diluted IFRS NAV
per share
Dividends
per share
EPRA NTA
per share
Group
loan-to-value
Read about Our
KPIs on p. 36 to 37
for further detail
25.0%
11.4%
5.7%
9.8%
5.4%
2022 2021 2020 2019 2018
6.85p
6.75p
6.75p
8.00p
6.75p
2022 2021 2020 2019 2018
£1.77
£1.47
£1.38
£1.37
£1.37
2022 2021 2020 2019 2018
25.6%
28.1%
26.2%
46.2%
35.2%
2022 2021 2020 2019 2018
01
Annual Report 2022
02
Annual Report 2022
/ Overview
About us
Unlocking The Power of Space:
Read about
Our Culture
on p. 30
Read about
Our Governance
on p. 86 to 119
Read about
Our Financials
on p. 127 to 177
Read about
Our MLI Portfolio
on p. 10 to 11
Read about
Our Marketplace
on p. 21 to 25
Read about
Our Performance
Review
on p. 38 to 39
Read about
The Value we create
on p. 12 to 13
Read about
Our Industrials
Hive Platform
on p. 28 to 29
Sector
Supply and demand
fundamentals drive
rental growth
Space that matters
We deliver value and growth
opportunities for all of our
stakeholders
Platform
Our unique cloud-based,
mobile-friendly and
highly scalable operating
platform is operated by our
dedicated team
Structure
Our REIT structure, strong
governance, financial
strength and management
alignment
The Power
of Space
Read about
ESG at Industrials
on p. 64 to 83
Our Values
01
02
03
04
01
Ensuring a positive impact through
focused action
We understand The Power of Space and how
we make a difference in our marketplace.
We set out to make an impact to ensure
we achieve the best for our Company, our
customers and our investors.
02
Contributing to the success of others
Individuals operating as one team, we speak
our minds to ensure we weigh up every idea
and option. We work with our customers to
help achieve their ambitions, just as we work
with our local communities with mutual goals
in mind.
03
Creating space for success
The Power of Space is not just physical
space for our customers and their clientele.
It is also the space we provide to our talent,
with the time and opportunities for learning
and development, improving wellbeing and
providing the possibilities for giving back to
their communities or our charity of the year.
04
Finding the smarter way
We got to where we are today by finding a
smarter way to pursue our vision and goals.
Everyone in our business can play a role in
making continual improvements, no matter
how big or small.
Read about Our
Culture on p. 30
Why How What
Why Industrials
REIT exists
We believe in The Power of
Space. Space to work, to think,
to evolve, to grow and
to succeed.
Space that matters to our
customers, employees and
communities.
This is The
Power of Space
How we unlock
The Power
of Space.
Through a combination of
technology and personal
connection, we focus on
delivering a quality experience
for our customers. We do this
by creating a straightforward,
supportive, transparent and
frictionless process.
What we do
We deliver value and growth
opportunities for all our
stakeholders by utilising our
Industrials Hive platform and
Smart Lease product.
Read about Our Industrials Hive
Platform on p. 28 to 29
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Annual Report 2022
At a glance
Our operating company
We are a specialist owner and operator of multi-let industrial
properties, leasing them out to small and medium-sized businesses
across the UK. We have a strong internal management system, enabled
by our unique operating platform, Industrials Hive.
What is MLI?
Multi-let industrial estates typically comprise 5-50 units of
1,000 – 20,000 sq ft each and are let to a wide range of businesses.
Each unit is similar, comprising a large open space and a small amenity
area with toilets and a kitchen and/or office, depending upon the size.
The unit is accessed via a large roller-shutter door and often a separate
pedestrian door, while outside there is parking and a yard area with
good access for large vehicles. Each estate will have common parts
which are usually secure and landscaped, and include a common yard
and road areas. The cost of maintenance is shared by the occupiers via
a recharged service or maintenance charge.
MLI estates are typically located in and around densely populated
urban areas, providing occupiers with access to a large local market
and a ready labour supply. Demand for MLI units has grown since the
turn of the century, largely due to e-commerce impacting upon the type
of space most SMEs require, while supply has been constrained due to
the lack of available land and high build costs.
Our customers:
Our customers operate in a diverse range of sectors. Demand for MLI
space is growing, with new occupiers who never previously occupied
MLI units seeking space. This is as a direct result of the advances in
communications and technology, and the e-commerce revolution which
is creating new industries (e.g. last mile grocery delivery) and changing
the types of space that businesses choose to operate from (led by the
shift to online sales compared to traditional retail).
Why invest in MLI?
MLI offers a unique opportunity to invest in an asset class where
there is an ongoing structural shift in demand driven by the growth of
e-commerce and the adoption of technology, while supply is severely
constrained by high build costs and a lack of available land across
towns and cities in the UK. We believe that this imbalance of demand
and supply will lead to sustained rental growth over a long period
of time.
Furthermore, we believe that the SME occupier market is poorly
served by existing MLI landlords, who operate a traditional out-
sourced management model which fails to meet their needs for greater
flexibility and a simpler leasing proposition. By moving away from a
traditional approach to management, we believe that we can deliver
the power of space using a “serviced industrial” product which provides
a step change in meeting the needs of SMEs, while simultaneously
operating with greater efficiency and superior margins. Furthermore,
the market dynamics above have contributed to industrials becoming
the best performing real estate sector for the last five years.
Key features of an MLI asset
Under single
ownership
Comprised of
different sized
units let to
multiple occupiers
Located near
urban areas
Affordable, flexible
space for a wide
range of activities
Annual total returns for the three main property sectors
over the full 21-year history of the Monthly Index
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
-30
-20
-10
0
10
20
30
%
total return %
Best to Worst Gap Retail Office Industrial
Source: CBRE
Our structure
Industrials REIT has a primary listing on the main market of the
London Stock Exchange and a secondary listing on the main board
of the Johannesburg Stock Exchange. The Company is a Real Estate
Investment Trust (“REIT”), meaning that under UK law it is exempt from
paying tax on UK property rental income profits and gains. A REIT must
distribute 90% of tax exempt income profits (not capital gains) as a
property income distribution. These features ensure strong corporate
governance, high levels of transparency and enhanced liquidity in
Industrials REIT shares.
Industrials REIT also benefits from strong management alignment,
with an internalised management structure and a high level of shares
owned by the Directors of the Company (>7% of issued share capital).
Along with market standard incentive packages, which align to our
corporate KPIs, this ensures that the management team think and act
like investors, rather than being motivated by third-party management
fees, performance fees or assets under management.
Finally, as a listed business with long-term horizons, Industrials REIT
can invest in building an efficient, scalable and sustainable operating
platform built upon strong asset fundamentals. This differentiates
the Company in a marketplace dominated by short-term investors
and delivers the opportunity to capitalise on a business model which
generates customer value and long-term growth over short-term gains.
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Annual Report 2022
/ Overview
The Power of Space: space to grow
Buildings owned by Industrials REIT
are comparatively simple by design.
“ Our need for more space has been driven by organic
business growth combined with significant investments in
machinery and facilities. Coningsby Business Park works
for us given its location and access to a skilled local labour
market. It has afforded us the opportunity to grow and
take more space in newly refurbished and high-quality
industrial accommodation”.
Andrew Kennedy
Managing Director for Hera Beauty
A steel frame is not only long-lasting, suffering low levels of
obsolescence, but it also offers a high degree of flexibility.
Open plan space can cater for a wide variety of needs and
helps us maintain a diverse customer base to build things,
store things maintain things and sell things, all from the
same type of space.
Simple design also helps us cater for changing customer
requirements. Our space is very versatile, capable of being
reconfigured by some simple design changes.
Hera Beauty specialise in the manufacture of cosmetics and
personal care. The Company originally took its first unit from
us in Coningsby Business Park, Peterborough in early 2019.
The business continued to flourish, and in September 2020,
it doubled its footprint and expanded into space
next door.
As Hera Beauty continued to create
new product lines and build
its customer base, their
appetite for more
space was obvious. Our team of Customer Engagement
Managers remained alive to its needs and have successfully
supported its expansion into further space in March 2022.
Simple modifications to our space, such as removing
walls and creating new openings, have helped us
create a fully integrated solution for Hera
Beauty across a combined area of
27,000 sq ft.
05
Annual Report 2022
,
At a glance continued
Our compelling customer
proposition
We invest in a diversified
portfolio of UK MLI properties
and provide quality customer
service on a cost-efficient
basis that is driven by our
Industrials Hive platform.
Our operating model is designed to deliver
“serviced industrial” accommodation to our
customers, something possible on small unit
multi-let industrial properties, which is more
difficult to offer on single-let larger assets
on full repairing and insuring terms with no
common services. We believe this benefits
Industrials REIT by:
01
Providing customers with
a simpler, flexible and
transparent leasing proposition
that better meets their needs,
helping to make the properties
more attractive, command
higher rents and operate with
lower levels of vacancy;
02
Simplifying the process of
leasing via the Smart Lease
which cuts transaction times
by using short form and digital
documentation. This cuts the
dead time between agreeing a
letting and occupation taking
place, thereby generating more
revenue and cutting costs for
all parties;
03
Increasing the barriers to exit to
existing customers by offering
a service level that is difficult
to replicate elsewhere. This
enhances the lease renewal
rate, driving down vacancy and
the cost of new leasing, and
04
Opening up opportunities
to potentially add revenue
streams and enhance operating
margins through the delivery
of additional products, services
and value to our customers.
Working relentlessly to
unlock The Power of Space
Industrials REIT has been transforming itself into a focused
MLI operator.
Over the past four years, much of the narrative around our transition into a specialist MLI
business has surrounded the recycling of capital into MLI assets. However, behind the scenes,
a similarly significant transition has been taking place with material investment in the people,
processes and technology necessary to support our aspirations of being a true MLI operating
business.
Over the last 12 months, we have made several changes to our Industrials Hive platform and
operational capabilities.
01
Internalisation of billing and management accounting. Billing and credit control
are key touchpoints in the customer lifecycle, while the close management of
financial data improves reporting and the flow of financial information back to
customers.
02
Implementation of a new finance and operating platform. Our new Microsoft
Dynamics Finance and Operations system acts as the centre of our technology
platform, providing accurate and real-time data across all business areas, while
also introducing necessary controls and rigour. The system is integrated with our
sales and marketing platform and all systems share a common data architecture,
which provides advanced business analytics capability.
03
Consolidation of our Stockport office. Approximately half of all office-based
staff are now located in Stockport, with representation across all departments,
including a significant proportion of senior management. The office has
provided the Company with a much wider pool of prospective talent, while
also giving staff the opportunity to locate in either the north or south of the
country. Stockport also provides ready access to a large proportion of our assets,
increasing the connection to customers.
04
Evolution of our sales & marketing function. We have given greater
independence to our sales team to conclude lettings with smaller customers,
freeing up time for our asset management team to work with larger occupiers.
We have also streamlined our lead generation process, optimising digital
marketing expenditure and speeding up taking vacant properties to market.
These changes, along with countless smaller initiatives, are designed to enhance the quality
and consistency of service we deliver to our customers, while also enabling us to generate
higher revenues at a lower cost. Over the next 12 months, we intend to consolidate and
evolve the Microsoft Dynamics technology platform we have put in place, while also
internalising the facilities and property management of our portfolio. These steps will see
the completion of the next phase of our platform strategy, with full internalisation of critical
business services and the implementation of an end-to-end digital platform for managing
MLI within a single digital architecture. This will position the business for growth and profit
maximisation, while also unlocking potential economies of scale when adding further MLI
estates to the portfolio.
/ Overview
Annual Report 2022
06
Our unique operating platform
The delivery of a serviced industrial product
requires an operating platform that supports
the operating procedures, infrastructure and a
range of products and services that we already
provide, or are planning to do so.
Some elements of our serviced industrial
offer are:
Strong branding under our industrials.co.uk name
that drives enquiries and acts as a mark of quality for
customers;
Face-to-face customer service driven by our network of
on-the-ground customer engagement managers;
Transparent pricing where all costs are known up front
to give clarity and confidence on expenditure over the
period of a customer’s lease;
Simplified leasing options and reduced transaction
times with our Smart Lease product and clear customer
journey mapping;
A proactive approach to environmental, social and
governance (“ESG”) issues for the benefit of our
customers and the wider community. This highly scalable
operating platform drives efficiencies through enhanced
customer experience and data collection;
Multi-channel communications including live chat, our
0800 call centre and web forms; and
Direct access to empowered staff by removing
third-party advisers, agents and brokers through the
internalisation of key customer-facing activities such as
billing, maintenance and leasing.
Read about Our Industrials Hive Platform on p. 28 to 29
The power of technology and personal
connection:
Building a sustainable
competitive advantage
Our new finance and operating system, which went live on
1 April 2022, provides a scalable, end-to-end, unified and
integrated digital system of software applications, which is able
to run multiple business processes.
Microsoft D365 is at the core of the software, providing the
finance functionality required for our day-to-day operations
and month-end reporting. It is integrated with Flexproperty
software specialising in property management and all leasing
elements. There is a further integration between our customer
relationship management (“CRM”) module and Flexproperty.
Thisintegration removes duplication of effort, improves efficiency
and reduceserrors.
Other software integrations have been designed to improve
operational efficiencies across banking, budgeting, billing and
collections, as well as reporting; with functionality which, in some
cases, is unique to Industrials.
With this unified system and our skilled, integrated team,
Industrials REIT is structured for growth and fully focused on
improving operational efficiencies, collection rates and billing
accuracy, while delivering an industry-leading customer service
and real-time centralised reporting.
07
Annual Report 2022
Space that matters
The Power of Space: space to work,
to evolve
Plattsville Bakehouse
– Compass Industrial
Park, Liverpool
“Plattsville Bakehouse is a micro-bakery producing artisan
breads. We bake mainly sourdough, as well as a number of other
speciality breads including baguettes, focaccia, banh mi, hoagie
rolls and classic bloomer loaves.
The business was born in the lockdown of April 2020. Having
lost all my work as a freelancer in the adventure activity industry,
I started a local community bake scheme in an effort to do
something nice for our neighbours and help lift spirits in tough
times. I couldn’t believe how well the idea was received! The
neighbours were amazingly supportive and word spread really
fast. Neighbours and other locals would come to collect the bread
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Annual Report 2022
from our make-shift bread stall on the front of our terrace house.
After only a few months, I was baking six days a week from the
home kitchen, putting our oven through its paces and churning
out around 40 loaves each day! By this stage, I had a number
of restaurant and deli clients interested, which prompted me to
secure a space with Industrials in September 2020. I installed
proper bread ovens, a 60L spiral mixer and a big fridge and was
ready to take things to the next level. Just over a year later and
things have not slowed down. I now employ two other bakers.
We bake for a number of local independent restaurants, cafés
and delis across south Liverpool. Having outgrown our original
unit with Industrials, we have just this month moved into a bigger
space on the Compass site and are absolutely loving it!
It’s really exciting to have room to grow again. Who knows
where we’ll be in another year’s time!”
Customer: Andy Cook (Founder, Plattsville Bakehouse)
/ Overview
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Annual Report 2022
The Power of Space: space to succeed
Briggs Automotive Company’s expansion
at Compass Business Park
It is safe to say Briggs Automotive Company (“BAC”)’s story
is one of remarkable success: how an unconventional driving
dream became reality in Britain before taking all four corners of
the world by storm. First launched in 2011, the BAC Mono is the
realisation of two brothers’ vision of a road vehicle that offers
the most authentic and pure driving experience possible, while
implementing the very latest racing technology.
BAC approximately doubled their original floor space at our
Compass Business Park estate, to 21,400 sq ft in 2018. It has
proudly called Liverpool home for almost a decade, adding
to the city’s reputation as a centre of automotive excellence
and innovation. The company and its products have become
synonymous with Liverpool itself and BAC takes every
opportunity to give back to the city, while continuing to fly the
flag around the world. Every single BAC Mono to have been
delivered across 45 countries globally started its life in the city of
Liverpool within the BAC Manufacturing and Innovation Centres.
In terms of manufacturing, BAC has been responsible for a
number of world-firsts in the car industry that have brought
about impressive performance and weight-saving enhancements
on the Mono. BAC was the first company in the world to develop
hybrid carbon-composite wheels in collaboration with British
performance wheel manufacturer, Dymag. The brand remains
true to its British roots. In fact, of the 1,250 bespoke components
used to build Mono from 100 suppliers, 95% are based in the
UK – 45%, meanwhile, are from local companies in Liverpool
and the North West region.
/ Overview
Property size
0-50k sq ft
50-100k sq ft
100k+ sq ft
Key Statistics:
MLI as a % of total
portfolio
95%
Read about our transactions on p. 42
No single tenant
accounts for more than
2%
of rent
94%
occupied
1,512
tenants
20.8%
increase in like-for-like
MLI portfolio property
value from
31 March 2021
Our MLI portfolio
10
Annual Report 2022
The largest six business sectors of our
customers
27.3%
Wholesale and
retail trade; repair
of motor vehicles
and motorcycles
23.2%
Manufacturing
10.9%
Administrative
and support
service activities
6.8%
Construction
6.5%
Private individuals
6.0%
Professional,
scientific and
technical
activities
Annual Report 2022
11
“ Our portfolio is fully diversified
in terms of the number of
tenants, their business sectors
and its geographical spread
across the UK.”
Paul Arenson
CEO
Top 10 tenants by contractual rent
Geographic breakdown by contractual rent
Geographic breakdown by floor area
Contractual rent £ pa by industry type
Thames Water
Restore Plc
JD Sports Gyms Limited
Pharmapac (U.K.) Limited
Siemens
Rexel UJ Limited
Booker Ltd
Unifrax Emission Control Europe Limited
Kerry Ingredients (UK) Limited
Jigsaw Foods Limited
Remaining
89%11%
1%
1%
1%
1%
1%
1%
1%
1%
1%
2%
North West
Yorkshire & Humber
East of England
Scotland
West Midlands
North East
South East
South Wales
East Midlands
North Wales
South West
23%
14%
12%
10%
10%
9%
8%
5%
4%
2%
2%
9,367,385, 23%
5,802,958, 14%
4,905,408, 12%
4,124,332, 10%
3,938,315, 10%
3,452,479, 9%
3,048,743, 8%
1,871,028, 5%
1,800,510, 4%
1,007,221, 2%
968,513 2%
North West
Yorkshire & Humber
South East
Scotland
East of England
West Midlands
North East
South Wales
East Midlands
South West
North Wales
23%
14%
12%
10%
10%
9%
8%
5%
4%
2%
2%
1,941,584, 26%
1,098,405, 15%
748,118, 10%
723,696, 10%
670,264, 9%
551,987, 8%
521,493, 7%
370,226, 5%
311,121, 4%
228,013, 3%
180,490 2%
Wholesale and Retail Trade;
Repair of Motor Vehicles and
Motorcycles
Manufacturing
Construction
Administrative and Support
Service Activities
Private Individual
Professional, Scientific and
Technical Activities
Arts, Entertainment and
Recreation
Transportation and Storage
Other
27.3%
23.2%
10.9%
6.8%
6.5%
6.0%
4.4%
2.7%
12.2%
The value we create
For Shareholders
Our value proposition
Favourable market dynamics
e-commerce has driven a structural shift in
the demand for MLI units across the UK, while
supply is constrained by lack of available land
and prohibitively expensive new-build costs. This
imbalance is leading to strong rental growth,
with little potential for new supply in the short to
medium term.
Outperforming asset class
Total return generated by the industrial sector has
outperformed other property classes such as retail
and office, over the last 35 years.
Well-positioned for capital and
earnings growth
We can acquire existing fully-let MLI properties
for less than replacement cost. We believe that
they will generate strong and stable income as
a significant proportion of total return, while our
scalable Industrials Hive operating platform brings
efficiency savings and opens up further revenue
streams.
10% + Target TAR
Efficiencies from operating platform
Our cloud-based, mobile-friendly operating
platform offers an enhanced customer experience,
and puts relevant data in the hands of sales and
customer-facing staff. Highly scalable with growth,
we constantly update it with the latest innovations
from Microsoft and other providers.
Healthy capital structure
We have a Group LTV of 25.6%. At 31 March
2022, the portfolio had a loan-to-value covenant
headroom of 45% and average debt expiry of
4.0years. The loan structure is ring-fenced across
different lenders offering scope for efficiencies
through consolidation and refinance as the
portfolio grows.
Aligned and proven management team
A high level of shares are owned by the Directors
who have a strong record of identifying value
in property. The Directors have overseen the
execution of our MLI transition in four years and,
in that time, disposed of £592.7 million of assets
at an average 8.0% premium to valuation, and
reduced Group LTV to 25.6%.
Permanent capital
Listed, tax-efficient REIT with long-term
investment horizons, resulting in strong corporate
governance, high levels of transparency and
enhanced liquidity.
We are here to unlock
The Power of Space.
Platform
Annual Report 2022
12
/ Overview
Sector
Space that matters
Structure
The Power
of Space
See p. 64 to 83 to read
more about Our ESG
strategy
For Society
• A sustainable asset class – MLI assets
are long-lasting and suffer low levels of
obsolescence.
• High impact potential – Through building
energy efficiency enhancements, such as
installation of solar panels and LED lighting,
there is potential for wide-reaching impact
over the property-related carbon footprint
of hundreds of SMEs. Read more in our EPC
upgrade assessment on pages 70 and 71.
• Delivering value and growth opportunities –
By utilising our Industrials Hive platform
and Smart lease product, we provide the
opportunity for all our stakeholders to grow
and succeed.
• Providing flexible space, and flexibility
within lease terms – Our Smart Lease
product allows businesses to sustainably
evolve. This appeals to a wide range of new
user types.
• Customer engagement – By using a
combination of our Industrials Hive platform
and personal connection, we work with
businesses to support them in their growth.
• Regional business for our people – We
provide rewarding and stimulating careers,
opportunities for growth, learning and
development with offices in both Stockport
and London to people across the UK.
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Annual Report 2022
Contents
Chairman’s statement 16
Chief Executive’s statement 18
Marketplace 21
Our business model 26
Industrials Hive platform 28
Our culture 30
Our strategy 32
Key performance indicators 36
Property report and investment 38
Financial review 44
Risk management 49
Section 172 statement and stakeholder engagement 56
Task Force on Climate-related Financial Disclosures 60
Our approach to sustainability 64
Space that matters: unlocking energy efficiencies 70
Our people 72
Streamlined energy and carbon reporting 74
EPRA sustainability best practices
recommendations reporting 77
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Annual Report 2022
Strategic Report
15
Annual Report 2022
Chairman’s statement
Richard Grant
Independent Non-Executive Chairman
“ Our plans for the future are based on
building from the strategic competitive
advantages which we already hold.”
This is my fourth chairman’s statement
since I became chairman of what was then
Stenprop Limited in May 2018. At that time
we set ourselves a considerable challenge,
to transform the Company’s entire business
over a three to four-year period. This would
involve the complete disposal of the existing
commercial property portfolio and the creation
of a new operating property business focused
on multi-let industrial estates within the
United Kingdom. It also required adoption
of the UK REIT tax regime and the transition
of our primary stock market listing from the
Johannesburg Stock Exchange to the London
Stock Exchange.
It is obviously most pleasing to be able to start
my statement this year by acknowledging
that we have effectively completed this
major business transition, and I would like
to congratulate the management team on
driving forward this transition to a successful
conclusion.
At 31 March 2018, our portfolio was valued
at £734 million and comprised approximately
50commercial property assets across a
variety of sectors located in the UK, Germany
and Switzerland, together with our first
portfolio of 25 multi-let industrial estates
in the UK. At 31 March 2022, our property
portfolio is valued at £685.8 million, and
includes 104 multi-let industrial estates
providing a total of just over 7,600,000 sq
ft of lettable space in England, Scotland and
Wales. Apart from our residual joint venture
holding in four German care homes, the
portfolio has been completely transformed.
The four-year transformation included a
strategy to steadily reduce leverage as we
repositioned the portfolio. Accordingly, the
business now has a stronger balance sheet
and we are pleased to be reporting a loan-to-
value ratio of 25.6%, down from 46.2% at
31 March 2018.
Since our initial listing on the London
Stock Exchange in June 2018, the market
capitalisation of the company has increased
from £334 million to £579 million at
31 March 2022 and this increase in value was
achieved with no issues of new equity. During
this period the number of our employees has
more than doubled from 20 to 52 and we
have introduced a completely new and unique
technology-based operating platform, which
enables us to manage and operate a business
which now has 2,011 units and 1,512
customers.
In addition to all the challenges posed by
such a substantial business transformation,
a significant portion of this period has been
impacted by the COVID-19 pandemic. I am
pleased to say that COVID-19 now seems
to be largely behind us in the UK and for the
most part the nation is learning to live with
the virus. Overall, I believe that Industrials
has navigated its way successfully through
the pandemic and, while it has inevitably
presented many challenges and difficulties, I
believe that it has accelerated some economic
and behavioural changes, which have
ultimately benefited Industrials’ business.
It is most pleasing to report that the financial
results for the year just ended have continued
to confirm the strategic rationale behind the
business transformation. It is also reassuring
to be able to report continued progress on our
day-to-day operations, which is evident from
the key metrics highlighted below. Of possibly
more significance, the market fundamentals
of the business continue to improve and these
will support the opportunities which we seek
to enhance returns from the business through
further acquisitions and greater scale.
The two most significant financial highlights
of last year’s results are the 4.4% annual
growth in rent levels and the 25.0% total
accounting return delivered by the business.
This is truly an exceptional level of return and
obviously cannot be expected to continue at
the same heightened level in future years.
It largely reflects the substantial investment
rerating of the industrial property sector,
driven particularly by high levels of demand
for MLI space in the UK economy.
I would also mention the improvement in
our debt collection performance. Successive
lockdowns during the early and middle
phases of the pandemic inevitably created
great concern among all businesses regarding
the ability to collect revenues. I mentioned
in my report last year that these challenges
had consumed much management time
and required varying degrees of flexibility,
compassion and firmness when dealing with
customers. I am pleased to report that thanks
16
Annual Report 2022
// Strategic Report
to these efforts, the ultimate outcome is
looking not nearly as pessimistic as we might
have feared in the depths of the pandemic.
We are now reasonably optimistic that
collection levels will return much closer to
traditional norms during the remainder of this
financial year.
The continuing strong financial performance
enabled us to increase our covered dividend
and helps us to confirm our intention to
achieve a rising and progressive level of
dividends.
Looking forward, it is difficult not to be
concerned about the continuing geo-political
situation, most obviously the war in Ukraine,
but also other global challenges, notably
tensions between the US and China and the
continuing fallout from Brexit. Such issues
are behind rising inflation and interest rates
in most Western economies, but these
challenges often provide opportunities for
entrepreneurial businesses such as Industrials,
and for many of its customers.
As explained in more detail in Paul Arenson’s
Chief Executive’s report, the key favourable
market dynamics, which attracted the old
Stenprop to the UK multi-let industrial market
four years ago, not only continue in prospect
but have also been supplemented by other
developments which play into our hands.
Most significant of these are the continuing
transition of retail sales from bricks and
mortar to online retailing, the widespread
need for greater control over the supply
chain and stock levels and the continuing
supply and demand imbalance for small-scale
industrial space.
These external market dynamics are
supplemented by our own strategic initiatives
which are intended to improve our competitive
position and maximise Industrials’ financial
returns. In particular, and as explained in
greater detail elsewhere in this report, our
Industrials Hive platform provides us with
the technological capability to carry out all
aspects of property marketing, letting and
management in the most cost-effective and
efficient manner. No other provider of small
scale industrial space has this advantage.
Our plans for the future are very much based
on building from the strategic competitive
advantages which we already hold. Our
management platform has the capability
to enable us to broaden the number and
range of services which we can provide to
our customers. This will not only provide
opportunities for us to enhance our revenue
streams, but will also assist in minimising
tenant turnover and vacancy rates.
Probably of more significance to our future
growth and development will be our ability to
add scale to our operations. We have already
developed most of the infrastructure which
we will need to run a larger MLI business and
the fragmented nature of ownership of MLI
estates in the UK should continue to provide
us with sufficient opportunities to grow
through acquisition.
I look back on the achievements of the last
four years with great pride and also believe
that we have put Industrials in the best
possible position to continue to generate
further growth and attractive returns for the
foreseeable future. Looking both forwards
and backwards, I am extremely grateful to
the management team within the business at
all levels whose hard work and commitment
have contributed to the Company’s success
and to the positive outlook for the Company’s
continuing progress. I should also like to
place on record my thanks for the advice and
support which I have received from both the
executive and non-executive members of the
board and the senior management team over
the last year.
Richard Grant
Independent Non-Executive Chairman
9 June 2022
17
Annual Report 2022
Chief Executive’s statement
Paul Arenson
Chief Executive Officer
I am pleased to be reporting another strong
year of progress for Industrials REIT. This
year marks the end of our four-year transition
strategy into a fully-fledged multi-let industrial
(MLI) owning and operating business. Going
forward, investors will experience the full
impact of owning and operating a portfolio of
£653.5 million (7.3 million sq ft) of purpose-
built MLI, situated in and around numerous
towns and cities across the UK.
During this year, our MLI portfolio continued
to perform strongly delivering like-for-like
rental growth of 4.4% for the year.
We remain confident our underlying rental
growth rate of between 4% and 5% per
annum is likely to continue for a number of
years, particularly as we have delivered over
5% rental growth in each of the previous
two years. Our confidence is based on the
following factors:
• Demand for MLI space remains strong
and is increasingly diverse. More
importantly, the demand is coming
from a large variety of non-industrial
businesses which have never previously
occupied MLI space. This is as a direct
result of the advances in communications
technology and the resulting e-commerce
revolution, which has enabled many
businesses to operate from MLI units and
use the internet to access suppliers and
customers in a way that could not be done
before. Traditional industrial occupiers
are simultaneously experiencing a revival,
with less inclination for businesses to
outsource manufacturing offshore due to
increased transport costs and less reliable
security of supply, resulting in more local
production and increased stock levels. We
believe the trends of e-commerce and
deglobalisation are both likely to continue
for the foreseeable future.
• Supply of new MLI units remains
constrained. MLI units need to be situated
in and around densely populated towns
and cities and what little land is currently
available in those locations tends to be
developed for residential. Furthermore,
even where industrial is the most
viable use, it tends to be for single-let
distribution units leased to strong tenants
on long leases. An additional supply
constraint is the fact that in all but very
few locations, were a developer minded
to build small MLI units speculatively,
the level of current MLI rents and yields
achievable relative to build costs would
likely result in development losses. We
estimate MLI build costs (excluding land)
to be around £120 per sq ft compared
to the current independent valuation of
our portfolio of £90 per sq ft. For the
foreseeable future, we continue to be
able to buy MLI estates at around 70% of
replacement cost.
• Our average rents of £5.72 per sq
ft are extremely affordable. It means
our average unit of 3,500 sq ft costs
approximately £20,000 in annual rent
which in relative terms is roughly the
same amount most of our customers
would pay some of their junior employees.
Our research estimates the rent typically
represents between just 1 and 3% of
customer turnover and, in our view,
occupiers can comfortably absorb rental
growth.
• MLI does not suffer from design or
functional obsolescence. There is little
extra utility for an occupier between
a new unit and an old one, with those
having been built thirty years ago being
virtually the same as those that would
be built today. This makes the buildings
highly sustainable with long economic
lives, reducing the need and benefit
of redevelopment and benefiting the
investors, who can enjoy attractive returns
over a long period with low levels of
additional capital expenditure.
These factors have been driving rental growth
of approximately 4-5% per annum on our MLI
portfolio for the last four years. We believe
this growth rate will continue for so long as
supply remains constrained and demand
continues. We estimate that at current yields
and current build costs, development of new
MLI units is only feasible if rents are at or
above £10 per sq ft. Our current average rent
is £5.72 per sq ft. At the current 5% rental
growth, we estimate it will take between five
to ten years for meaningful development to be
feasible, assuming the unlikely eventualities
“ Our people are passionate about Industrials
REIT being a force for positive change, and
we are excited about the potential for the
business to make a positive difference to the
1,500+ SME companies that call our buildings
their home.”
18
Annual Report 2022
// Strategic Report
of there being no future increases in build
costs, no land becoming available or adverse
shifts in investment yields/multiples and/or a
significant reversal in demand.
As a result of these fundamentals, we are
confident we will be able to deliver on
our total accounting return (TAR) target
of a minimum of 10% per annum for the
foreseeable future. TAR is the aggregate
of the dividend paid plus the increase in
net asset value we expect to achieve, as a
percentage of the NAV at the start of the
year. This year, we have delivered a TAR of
25% made up of dividends paid in the year
of 6.75p plus an increase in NAV per share
of 30p.
Our current EPRA cost ratio is 40.9%. This
reflects the intensely operational nature of the
MLI asset class. It also reflects the fact that we
are internally managed and could potentially
manage significantly more MLI assets with the
platform we have in place. The MLI asset class
is very management-intensive, as it comprises
a large number of diverse individual occupiers
on relatively short leases spread over a wide
geographic area.
We have in excess of 1,500 different tenants
in our portfolio, none of whom represent more
than 2% of our annual rent roll, which gives
the business fantastic income diversification
but also makes management more onerous.
Our average lease is approximately four years
in duration and we turn over approximately
25% of all our leases each year. It is clear
that risk and efficiency needs to be managed
through scale.
It is also clear that scale cannot be achieved
efficiently without a technology-enabled
management platform, an asset which we
have been steadily building over the past four
years as we transitioned from being a passive
allocator of capital to being an MLI operating
company. We believe that by utilising this
platform (assuming all other aspects remain
constant) every additional MLI unit that we
acquire, will come in at an EPRA cost ratio
of approximately 20%, meaning that as the
business grows in size, the EPRA cost ratio
will fall.
The next phase of our strategy is to seek
to enlarge our portfolio with further MLI
acquisitions of approximately £100 million
to £125 million per annum, enabling us to
approximately double its size over the next
four years. On this basis, all other things
being equal, we estimate that our blended
cost ratio should reduce from 40.9% to 30%
with scope for further reductions as we
increase the size of the portfolio further. We
are well-positioned to achieve this, having
built our management platform and having
Read about
Our performance
on p. 38 to 39
demonstrated an ability to buy approximately
£100 million of additional MLI per annum,
while remaining disciplined in our investment
criteria and only purchasing properties which
are accretive investments in their own right
(see our property investment report for more
details on page 42).
Over the last four years, acquisitions have
been funded through the sale of non-MLI
assets and from debt. Going forward, the
funds will need to come from a combination
of new equity issuance and debt. Any future
equity raises will be dependent on securing a
suitable pipeline of acquisition opportunities
which meet our criteria. More importantly,
we are not in a position where we need to
make acquisitions to deliver returns. We are
confident we can still deliver a TAR in excess
of 10% per annum based on the fundamental
growth inherent in our existing portfolio
without any new acquisitions. The additional
acquisitions are more about enhancing
earnings through the efficiency of a lower
overall cost ratio by defraying many central
costs over a larger asset base.
We expect further benefits to flow from
our management platform through overall
efficiency savings and increases in revenue
by streamlining the leasing process through
our digital and smart leasing activities and
enhancing our customer service offering.
These improvements will help cut the
structural vacancy in the portfolio, which
is created by the gaps between customers
vacating and new customers taking
occupation. It also cuts the costs of each
lease by reducing the transaction fees paid
to agents and lawyers. In a business which
renews or relets 25% of all leases each year
and relatively short lease terms, these friction
cost savings are critical and can only be
achieved with a scalable operating platform.
A further anticipated revenue stream, which
also demonstrates the power of an MLI
operating platform, is the ability to show
that the MLI asset class can be efficiently
managed for third-party capital providers. At
present, there is almost no ability for investors
to access specialist MLI operating platforms,
and as such the MLI asset class remains the
highest yielding in the industrial sector, as it
is perceived to have high leakage costs and is
cumbersome to manage. We anticipate that
once operating platforms become available
in the MLI sector, the sector itself will re-rate
just as other management-intensive sectors
like student accommodation and self-storage
have in the past. Listed operating companies
in these sectors with proven management
platforms and an ability to scale typically
trade on significant premiums to NAV,
while the underlying assets also trade on
significantly lower yields than before the
advent of the management platforms.
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20
Annual Report 2022
// Strategic Report
As our portfolio grows, so will the
diversification of our rental income which will
further stabilise cash flows in much the same
way as self-storage or residential operators,
where cash flows are valued based upon their
consistency rather than the underlying lease
terms and covenant strengths. There is great
strength in income granularity and occupier
diversity, which coupled with strong demand
for space relative to supply, should deliver
secure and consistent revenue growth over
the long term. An added benefit is that such
cash flows are evergreen in the sense that
there is never a cliff edge of lease expiries, as
the operational nature of frequent lease churn
ensures a consistent unexpired lease length.
We recognise the critical role that “ESG”
factors play in delivering operational and
financial performance. In this respect, we also
understand that monitoring and disclosing the
performance of our portfolio is fundamental
to delivering value to our stakeholders and
meeting their expectations around ESG.
As you will see later in this report, during
2021, we continued to enhance the way
sustainability is incorporated into business
activities, with a strong emphasis on the
social, wellness and diversity aspects. We also
spent time gaining a better understanding
of our carbon footprint, what can be done
to improve the energy efficiency of our
buildings and how climate change is likely
to impact our business going forward. Our
people are passionate about Industrials REIT
being a force for positive change, and we are
excited about the potential for the business
to make a positive difference to the 1,500+
SME companies that call our buildings their
home. There is still a lot of work to be done in
this rapidly evolving landscape, and we are
working hard to both enhance our reporting
and implement practical initiatives across our
business.
Despite the positive long-term trends we are
seeing in MLI, as we move into the financial
year ending 31 March 2023 we are cognisant
of several challenges that are emerging which
will require us to be vigilant.
The first of these is the cost inflation being
seen across the entire economy, to which
we are not immune. From our perspective,
operating costs are increasing primarily
because of wage inflation, which is significant
across all disciplines but especially within the
industrial property and technology skillsets.
As an internally managed entity, this can
impact overall EPRA cost ratios. Similarly,
the cost of maintaining or building MLI
units is also going up. We have very limited
development exposure but estimate that the
cost of building a new MLI unit has increased
by over 20% in the last 18 months.
This further reduces the likelihood of any new
supply coming on stream and should therefore
be positive for future rental growth, which
over time we also expect to occur in any case
as a result of inflation.
The second challenge is central banks’
response to these inflationary pressures
through increasing interest rates and
withdrawing quantitative easing. This is
having a material impact on borrowing
costs. Eighteen months ago, we were able to
borrow at an all-in fixed rate for seven years
at 1.66%. Now, five-year all-in fixed rate
borrowings are costing approximately 3.75%.
This means interest costs are now getting
close to net initial yields (after operating
leakage) and are no longer enhancing cash
flow at the time of acquisition. Leveraged
returns are becoming dependent on future
rental growth and/or yield compression to
provide enhanced returns. In this environment,
we need to be more prudent on debt and LTV
levels and are likely to target lower overall
debt levels of around 30% rather than 40%.
We would also seek lower levels of leverage
on new acquisitions.
If top line revenue growth is unable to keep
up, these increases in operating costs are
likely to dampen earnings. However, we
believe the potential for revenue growth
remains strong due to the demand/supply
imbalances and other factors in the MLI
market referred to above. These give us
the potential of passing on increased costs
through higher rents and mitigating cost
increases through future scale savings from
our platform.
In this changing economic environment,
there is a risk of a fall in GDP and a possible
recessionary environment for a period. Under
such conditions, we do not anticipate that
vacancy levels will rise to levels experienced
in previous severe economic downturns such
as in 2008 and in the early 90s. Our thesis
is that the structural change in the nature of
demand from e-commerce related businesses
has created a whole new class of businesses,
who now need MLI space compared to
the past where it was only the industrial
manufacturing and service businesses. This
growth in the universe and type of occupiers
has taken place at a time of no new supply
due to cost and land availability constraints.
In our view, the existence of this additional
new group of occupiers will go a significant
way to offsetting the impact of vacancies due
to a downturn. We saw this in the downturn
caused by the pandemic, although we
appreciate that the specifics of that downturn
caused an acceleration of the growth in
demand for online solutions.
Chief Executive’s statement continued
Read about
Our performance
on p. 38 to 39
Notwithstanding these challenges, I remain
excited and passionate about the prospects
for Industrials REIT and its stakeholders.
MLI is an asset class which offers significant
potential and is a big beneficiary of several
important structural and societal changes
taking place in the world around us. It is an
asset class where we believe our operational
platform-based approach to management
provides us with a clear competitive
advantage. We benefit from the combination
of an aligned internalised management
team with significant skin in the game and a
long-term approach through our permanent
capital structure. This enables us to invest in
the technology, systems and staff required
to deliver the platform. It also needs a team
with vision to do things differently and be
passionate about changing the way an
industry operates with a focus on delivering
the customer service and systems this
requires. We have all of these in place and are
building on our brand and vision. In executing
our strategy, I am confident we will deliver
superior returns with low risk over a long
duration and growth opportunities and value
for all of our stakeholders.
I take this opportunity to thank all of our
stakeholders and our Board for their support.
In particular, I wish to thank our people who
have been so instrumental in executing on our
vision and in managing the relationships with
our customers and our suppliers throughout
the year.
Paul Arenson
Chief Executive Officer
9 June 2022
20
Annual Report 2022
Marketplace
Internet sales as a percentage of total retail sales (ratio) (%)
Nov 2006
Nov2007
Nov2008
Nov 2009
Nov 2010
Nov 2011
Nov 2012
Nov 2013
Nov 2014
Nov 2015
Nov 2016
Nov 2017
Nov 2018
Nov 2019
Nov 2020
Feb 2022
0
Internet sales as a percentage of total retail sales (ratio) (%)
10
20
30
40
%
Source: ONS
Increase in small and
medium-sized enterprises
e-commerce
The number of SMEs in the UK grew 73% between 2000 and 2020.
MLI units have long been the home of many SMEs, leading to growing
demand. The proliferation of SMEs has in part been attributed to the
growing ability for small businesses to operate competitively due to the
enhancements in communications and digital technology.
The move to online retailing is driving demand for MLI space.
e-commerce has brought new users into the MLI market such as dark
kitchens and grocery delivery, while it has also pushed many traditional
high street occupiers into the sector too. Furthermore, online trade has
grown the available market for many regional businesses, leading them
to expand. MLI demand is highly correlated to e-commerce penetration
in the UK. While internet sales have fallen back from their peak in the
midst of the pandemic, it did prompt an acceleration in the change that
had been evident for the last 15 years.
Contribution of different sized businesses to total number
of UK businesses, employment and turnover
Businesses Employment
Turnover
99.2%
47.7%
48.1%
35.7%
0.6%
0.1%
12.9%
39.4%
16.2%
0
50
Small Medium Large
100
%
Source: ONS
A structural shift in demand for MLI space, driven by macroeconomic factors
Since the turn of this century, there has been a structural shift in the level of demand for multi-let industrial units across the UK. Prior to this
period, the predominant occupier base of the MLI market was manufacturing and service businesses, the former of which had been in decline
for several decades as production moved offshore. However, with the advent of computing and other modern technologies (such as GPS),
new entrants emerged who found that MLI’s inherent characteristics of being in densely populated areas with a ready market of customers
and workers, while also being highly flexible in nature, made them ideal for their modern business models. In addition, access to distribution
channels created by e-commerce have enabled customers previously tied to traditional retail, to utilise MLI space. Over the past few years,
this trend has accelerated, meaning that today, there is a deeper and more diverse occupier base for MLI units than ever before.
The key macroeconomic demand-side drivers for MLI are as follows:
21
Annual Report 2022
// Strategic Report
Marketplace continued
New technologies which favour MLI
Government policy and Brexit
The internet and e-commerce has made MLI more relevant, as it can
provide a place to make, store, process, sell and distribute products sold
online. In addition, technologies like satellite navigation have played
an important role, making MLI estates more accessible to consumers,
opening estates up to new users from the leisure and retail sectors.
Looking forward, new technologies such as virtual reality, electric and
autonomous vehicles, data storage, power storage and grid balancing
and 3D printing may find MLI highly suitable and drive further new
demand for space.
The opening up of new markets and the closing of old ones looks
likely to drive growth in localised supply chain management and
manufacturing. Consumer preferences have also changed since
Brexit, with greater emphasis on British designed and made products.
Levelling Up is providing more investment in regional infrastructure
and creating new jobs in local communities. Finally, Government
policy towards meeting the UK’s sustainability objectives will further
encourage local supply chains over potentially less environmentally
friendly/transport heavy alternatives.
Gentrification
COVID-19
MLI estates are more open to a wider range of users than ever
before. It is common to find traditional users (e.g. vehicle repair, light
manufacturing) occupying units alongside new breed occupiers (e.g. play
centres, medical facilities, recording studios). This has made the assets
more accessible, opening up the asset class to even more occupier
types. Some of these are symbiotic in nature (e.g. trade counter, leisure
or automotive occupiers), and can lead to excess demand in certain
locations as customers seek to cluster together. Overall, the breadth and
diversity of occupiers within the MLI sector is increasing, leading to more
demand and greater income resilience for landlords.
There are several long-lasting trends which have resulted from the
pandemic which positively impact demand for MLI space around the
UK, including the acceleration of e-commerce penetration, the move
towards “just-in-case” inventory management (rather than “just-in-
time”), onshoring of manufacturing to reduce supply chain risk and
greater workplace flexibility allowing individuals and companies to
relocate to the regions and away from London.
Proportion of floorspace occupied by “modern” occupiers
70
%
65
60
55
50
45
40
35
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
London and the South East Rest of UK
Source: Gerald Eve
22
Annual Report 2022
Growing MLI demand from new occupiers is suppressing vacancies
Vacancy rates for MLI outside of London are currently below 8%, the
lowest level since data collection began in 2012 (source: Gerald Eve,
2022). This is coupled with the strongest annual rental growth seen
since 2008 at 7.2% in the year to 31 December 2021.
Even with strong rental growth, we estimate, based on research
we have undertaken within our portfolio, that rents remain highly
affordable for most of our tenants and typically account for between
1 and 3% of turnover. This is further evidenced by MLI rents in Greater
London, which on prime space is now close to £40 per sq ft, more than
six-times the average rent across the Industrials REIT portfolio.
A key part of the rental growth story is the gentrification of the occupier
base, meaning that there is now a more diverse range of occupiers
competing with the traditional MLI customer base. The proportion of
floorspace occupied by tenants considered more “modern” in their
business activities has increased substantially over the past 12 years,
as illustrated in the graph on the previous page.
Void rates by major geography
2012 2013 2014 2015 2016 2017 2018 2019 2020 Q1
2021
Q2
2021
Q3
2021
Q4
2021
20
18
16
14
12
10
8
6
4
2
0
%
London & the South East Rest of UK
Source: Gerald Eve
MLI Occupiers across the UK (Outside of London)
Source: Gerald Eve
23.0%
Trade counters/
Wholsalers
6.7%
Retail and
business storage
8.2%
Logistics
4.2%
Food
manufacturing
23.3%
General
manufacturing
4.1%
High tech
engineering
10.4%
Off-site
services
3.7%
Individuals
3.9%
On-site
servicing
2.2%
Leisure
10.4%
Quasi office/
archiving
Rest of UK
traditional users modern occupiers
All-grades ERVs by major geography
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
14
13
12
11
10
9
8
7
6
5
4
%
London & the South East Rest of UK
£13.75 (9.9% annual growth)
£8.83 (7.2% annual growth)
Source: Gerald Eve
23
Annual Report 2022
Marketplace continued
Supply remains inelastic and under
pressure
MLI estates are typically located in and around towns and cities across the
UK. In these locations, the supply of available land is very tight, planning
is challenging, and high value uses (such as residential) compete for
available sites. This heavily restricts the number of sites where industrial
development is feasible. Furthermore, MLI assets are expensive to build
(with many walls, utilities and doors), difficult to pre-let, and difficult to
finance on a speculative basis, meaning that most industrial land is used
to build larger single-let units where these issues are less acute. This
constricts supply and means that demand looks likely to outstrip supply
until rents have significantly increased from current levels.
According to a recent report by the Industrial Land Commission,
industrial land availability has fallen in many regions across the UK,
especially in the West Midlands, Greater Manchester and Tyne and
Wear, all areas where we have assets in our portfolio. This reduction in
supply, coupled with strong demand, is driving rental growth.
Industrial floorspace in 2000/01 and 2020/21,
selected counties and regions
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Thousand square metres (m2)
% change
West Midlands
(Met County)
Greater
Manchester
(Met County)
Tyne and
Wear
(Met County)
South East
Region
East
Region
London
2000/01 2020/21 % Change 2000/01 to 2020/21
-19%
-20%
-14%
4%
4%
-24%
Source: VOA (2021). Non-Domestic Rates. Table FS4.1: Industrial sector
– total floorspace by administrative area, data to 31 March 2021.
When there is surplus demand and limited supply, it would be normal
to expect new stock to be developed. However, in the MLI market,
build costs are high due to the additional complexity of the buildings.
Furthermore, there has been significant build cost inflation over recent
years, with material prices rising by 6.3% in the September quarter
of 2021 and by 16.9% compared with a year earlier (source: BCIS).
On top of this there are acute labour shortages, with site rates having
risen sharply by 10% in the September 2021 quarter compared with a
year earlier (source: Hays/BCIS All-in Site Wage Cost Index). This puts
upward pressure on tender prices, and labour shortages may take over
from material shortages as the major factor affecting costs over the next
few years. (source: RICS)
Based on recent tenders received on our own development projects,
build costs for small unit MLI schemes are c. £120-175 per sq ft,
depending on location, quantum and specification. This excludes any
cost of land or finance. This means it is necessary to secure rents in
excess of £10 per sq ft on most schemes to make them viable, an
increase of 50% on the average passing rent of our existing portfolio
which is already of good quality and offers similar utility to customers
when compared to a new build. All the above factors mean that scant
new MLI is being developed across the UK.
This makes it attractive to continue to buy, rather than build income
producing stock. The average cost of investments acquired by Industrials
in the 12 months to 31 March 2022 was £77 per sq ft, reflecting a
discount of approximately 50% to replacement cost when land costs are
included.
Strong demand and inelastic supply is
driving rental growth
Market rental growth for MLI assets for the last 3-5 years has been
around 5% per annum across the UK. This period includes the COVID-19
pandemic, a time during which the demand for MLI units significantly
grew due to enhanced adoption of e-commerce across the country.
The graph below splits this growth rate out across the UK regions over
the last five years.
ERV average annual growth rate, rest of the UK,
2015–2020
0
3
2
1
East Midlands
South West
West Midlands
East of England
Yorks/Humber
North West
North East
Scotland
Wales
7
5
6
4
%
Source: Gerald Eve
The MLI investment market
In the 12 months to 31 December 2021, there was continued
downwards pressure on MLI investment yields right across the UK,
driven by a weight of capital inflows from property companies, UK
institutions and overseas investors: all net investors into the sector.
Prime multi-let yields set against a year ago
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
Inner London
Greater London
South East
North West
South West
Yorkshire and
The Humber
Eastern
East Midlands
West Midlands
North East
Scotland
Wales
Q4 2020 Q4 2021
3.00%
%
3.25%
3.50%
3.75%
3.75%
4.00% 4.00% 4.00% 4.00%
4.50% 4.50%
5.00%
Source: Gerald Eve
24
Annual Report 2022
// Strategic Report
The combination of attractive rental growth and investment yield
compression has led to very strong returns and out-performance
against other real estate sectors, even eclipsing the returns seen in
distribution warehouse investment since 2019.
Average annual return by sector
20
15
10
5
0
-5
-10
Office Retail
Multi-let Distribution warehouse
2.7%
(4.5%)
2019-2021 2022-2024
18.0%
17.7%
6.4%
8.1%
9.3%
9.8%
%
Source: Gerald Eve, MSCI
In 2021, total returns from Industrial property were three to four
times higher than those recorded in the retail and office sectors
(source: CBRE).
CBRE UK monthly index snapshot: 2021
Copy
All
Property Office
Central
London
Office Retail Industrial Other
Total
Return 19.9% 9.0% 10.6% 14.2% 41.3% 10.7%
Capital
Value
Growth 13.8% 4.3% 6.7% 6.3% 35.6% 4.7%
Rental
Value
Growth 2.5% 0.7% 0.2% (1.7%) 9.0% 0.3%
UK Multi-let capital flows in 2021
Investment volume by investor sub-domicile
£980.5m
North American
49.2%
of overseas
investment
£540.2m
German
27.1%
of overseas
investment
£226.5m
European
11.4%
of overseas
investment
£197.2m
Middle East
9.9%
of overseas
investment
£48.3m
Other
2.4%
of overseas
investment
Private
investors
Property
companies
Multi-let
£1.87bn £670.2m
£136m £735.4m
£95.4m £1.58bn
£1.95bn£218.4m
£123.2m
£2.05bn
£430.1m£1.11bn
Occupier
UK
institutions
Overseas
investors
Undisclosed
Source: Gerald Eve, Property Data
25
Annual Report 2022
Our business model
Our culture
Our focus on “Why” we exist (Our purpose-led approach)
Inputs (key resources)
01
People and talent
Our skilled, experienced and
motivated workforce is at the
heart of the business with a
strong alignment of interests.
02
Industry knowledge
Focus, and deep experience in
MLI and an understanding of
our customers’ needs drives
strategy and decisions.
03
Technology
The deployment of a
comprehensive and integrated
platform required to operate
an MLI business, including
a financial and operating
system, customer relationship
management system, and
business intelligence solutions
will drive efficiencies and
maximise scalability potential.
04
Our assets
Resilient and sustainable
assets well-located in densely
populated urban areas provide
flexible space to serve the
evolving needs of a diverse
occupier base in the long-term.
05
Permanent capital
Long-term investment
horizons are underpinned by
the liquidity of Industrials REIT
shares, and strong long-term
relationships with lenders.
06
Our brand (reputation)
Our strong branding under
the Industrials.co.uk name
differentiates us from our
competitors.
Read about
Industrials Hive platform
on p. 28 to 29
Read about
Our values
on p. 3
Read about
Our Culture
on p. 30
Read more About us
on p. 2 to 3
Platform
Our platform provides
us with a competitive
advantage. It lets us offer
a consistent, efficient
and comprehensive
service to potential and
existing customers,
capture additional revenue
streams, and scale our
business costs effectively.
What we do
We deliver value and growth
opportunities for all our stakeholders
by utilising our Industrials Hive
platform and Smart Lease product.
Our values
Unlocking
The Power
of Space
26
Annual Report 2022
// Strategic Report
Our focus on “space that matters” (Our ESG strategy)
What we deliver
Our shareholders
A minimum 10% total
accounting return each year
as a target.
Our people
An attractive and caring work
environment, with rewarding
career opportunities and
development.
Our customers
We provide simple leases
on flexible and transparent
terms, and appropriate, quality
premises – all designed to
provide our customers with a
best-in-class experience.
Our business partners,
lenders and suppliers
Long-term, transparent
and mutually beneficial
relationships with quality
operators across our business
– aiming to be their partner of
choice.
Local communities
A positive community
influence through our
expanding ESG policy and
environmental initiatives.
The environment
We recognise the need for us
to operate more sustainably
in order to reduce our impact
on the planet and have the
opportunity to assist our
customers and communities
do the same.
Read about
Our people
on p. 72
Read about Our
sustainability strategy
on p. 68 to 69
People
Our highly skilled and
multi-disciplinary
team enables growth
and the execution of
our operating platform
and business strategy.
How we unlock The
Power of Space
Through a combination of technology
and personal connection, we focus
on delivering a quality experience
for our customers. We do this
by creating a straightforward,
supportive, transparent and frictionless
experience.
27
Annual Report 2022
Industrials Hive platform
Industrials Hive is our operating platform. As a
business, we sell leases over industrial space,
and Industrials Hive manages this process,
while maximising the revenue generated and
minimising the costs incurred.
The Industrials Hive platform comprises three
constituent parts:
1. Process and Policy
This element governs how we operate our
business, the rules we stick to and the policies
we have in place as to how we respond to
specific circumstances. For example, within
this element of our platform we would
include our marketing and sales strategy,
building maintenance policy, lease pricing
methodology, debt policy and customer
lifecycle strategy. This is the “how to” guide
for managing MLI estates and dictates the
experience that a customer will have when
occupying Industrials REIT’s premises.
2. Systems and Technology
This element covers all the software and
hardware that are required to operate our MLI
business, including our finance and operating
system, customer relationship management
system, content management platform,
websites, apps, third-party integrations, data
model and business intelligence system.
These critical pieces of software help govern
and implement the processes and policies,
while also capturing, cataloguing, and
surfacing business data for users. Most of the
technology in our stack is built by Microsoft,
specifically the Dynamics applications, which
provide an end-to-end digital environment for
the leasing and management of leases all the
way through to the consolidation and financial
reporting at a corporate level.
How does it work?
Enhanced Revenue
Lower Cost,
Better Data
Physical Infrastructure
System and Technology
Process and Policy
Properties
and Products
3. Physical Infrastructure
These are the tangible elements of the
platform that are required to operate,
such as our UK-wide network of customer
engagement managers, the on-site
branding or our maintenance regime. For our
customers, these are the visible elements that
differentiate an industrials estate from our
competitors.
Why do we need a platform?
The challenges managing MLI property
include:
• The number of customers/tenants is
high (typically 15 per asset), while the
leases are relatively short (averaging four
years), so on average we turn over 25%
of our units each year (c. 350 leasing
transactions annually).
• Each property is likely to have a service
charge which the landlord must
administer, invoice and report upon, while
also delivering other services (such as
utilities) in some locations.
• The properties are geographically
diverse, making it challenging to be onsite
regularly and resulting in a workforce who
are often distributed across the UK.
• Problems inevitably occur and, with a
high number of customers, being able
to capture, process and resolve issues
quickly and efficiently, is not always
straightforward.
These issues are common amongst all MLI
landlords, and so those which are able to
overcome them the best can out-perform their
competitors, both in terms of a lower cost of
management and higher levels of revenue
through offering a better customer service
and proposition.
What has changed over
the last year?
The Industrials Hive platform has evolved
materially over the past year, but the most
notable new functionality in the year to
31 March 2022 was:
1. The completion of our new ERP system
(Microsoft Dynamics). This new system
replaces three existing finance systems,
and can bill rents, manage service
charges, manage banking and complete
financial reporting at all levels. The system
is also fully integrated with our banking
and CRM systems for the first time,
providing a single digital ecosystem for
managing the full life cycle of a lease.
2. Internalisation of property accounting.
With the new ERP system, we were
able to internalise our finance and
property accounting functions from two
outsourced partners. Internalising these
critical customer-facing roles will enhance
customer service and efficiencies across our
organisation, while materially improving our
core financial and asset data.
3. Launch of the “Vault”. The Vault is a
bespoke marketing tool which integrates
our internal property data with the online
marketing sites where we advertise units
to let (e.g. industrials.co.uk, zoopla.com
etc). The Vault enables us to control all
our online listings in a centralised place,
manage our marketing collateral (text,
images, drone footage etc), enhance
the quality of our listings and bring
units to market as soon as they become
available to help cut wasted time from the
marketing process.
The changes made over the last 12 months
have consolidated several systems into one,
reduced complexity and cost, improved data
quality and availability, and enhanced the
ability for the platform to manage significantly
more MLI assets at minimal additional cost.
The next year will see further enhancements
to reduce the complexity of the platform, while
improving functionality and the internalisation
and onboarding of our facilities management
functions.
How does our platform
add value?
Industrials Hive adds value to our core
stakeholder groups as follows:
Our customers
Industrials Hive delivers an enhanced
customer service. This means you can find
new space more easily, transact more quickly
with fewer costs, or easily request a copy of
your most recent rent invoice. It all adds to
enhancing the customer experience.
28
Annual Report 2022
// Strategic Report
Our people
Our Industrials Hive platform empowers our people to spend less time
completing administrative tasks and more time to spend on rewarding
work and/or with our customers. It also puts the information you need
where you need it, allowing our team to make better decisions in
less time.
Our investors
By speeding up the leasing process, improving customer renewal rates
and removing unnecessary administration, our Industrials Hive platform
is designed to cut the costs of managing MLI and to maximise revenue.
This will deliver growth without purely relying upon the underlying
market dynamics, helping Industrials deliver sustainable and growing
earnings in the long term.
The environment
Our Industrials Hive platform is designed to capture a lot more data than
a traditional property system. This is increasingly important for, amongst
other things, ESG reporting and helps monitor, measure and manage
carbon emission and other environmental metrics (such as biodiversity).
Furthermore, by being a digital-based, it reduces the waste created by
Industrials REIT, and has saved 2,039 kg of carbon and 141 kg of waste
through the use of digital signatures in the last year alone.
Unlocking The Power of Space:
Platform driving
efficiency with our
enquiries data
In around 55% of leasing situations, new customers come directly
to Industrials via one of our direct marketing channels, such as our
0800 number or website. When these in-bound enquiries arrive,
we capture them in our Industrials Hive platform as open leads,
before disqualifying anywhere the prospective customer is not
suitable (such as when they fail to pass our ESG criteria or are not
seeking the kind of quality or space we provide).
Where we have an appropriate unit and the prospective customer
is a suitable occupier, we then qualify the enquiry and arrange
a viewing. We recently enhanced this process by introducing a
new outbound lead management team, who work alongside our
existing inbound team. Where we receive leasing enquiries where
we do not have units available at the time, we store these in a
waiting list for that location, property or unit for future reference.
These waiting list customers now account for approximately
75% of all open leads in the system, giving us a large dataset
of prospective future customers. When a suitable unit becomes
available our outbound lead team gets back in contact with the
waiting list for that unit to see who is still looking. We have been
surprised at how successful this has been, with nearly 20% of
people we call from the waiting list booking in for viewings, and
in several instances, we have been able to arrange block viewings
with multiple waiting list customers before we have even taken an
available unit to market. This has resulted in shorter vacancy times
and enables us to maximise the value of every enquiry we receive
into Industrials Hive.
Combined with the Vault, these changes have reduced the time
taken to re-let units by applying a mixture of technology solutions,
intelligent processes and the right human resources to maximise
revenue and cut costs.
The Power of the Platform:
SmartLeases
We created the Smart Lease to make leasing quicker and easier,
with no hidden costs or hidden clauses and with the automated
process entirely taking place online. This means that companies
looking for space can secure a short or long-term lease in as
little as 48 hours, with no legal fees. All tenancy facilities costs
– such as insurance and maintenance – are included at a fixed
price. The average Smart Lease takes less than 14 days to
complete from start to finish, compared to more than 6 weeks
for a traditional letting using lawyers.
The three-page Smart Lease document uses short, clear
sentences and everyday words without unnecessary legal
jargon. It has hence become a popular choice for customers as
its simple terminology makes it easy for them to understand their
rights and obligations, with most opting not to use a lawyer as a
result. This helps deliver a frictionless experience by saving time
and delivering a significant up-front cost saving, which makes
securing space quicker and more affordable. Most notably, the
ability to transact electronically has helped Industrials REIT’s
customers lease space more quickly and efficiently by being able
to sign their Smart Lease online from the convenience of their
PC or smart phone.
This was an important feature during the COVID-19 lockdown
restrictions, when tenants had to secure space to support
business operations, without being able to conduct viewings.
The Smart Lease allowed Industrials REIT to operate remotely
very quickly, with the Company being able to market its
space digitally and engage efficiently online with prospective
customers.
This unique approach to tenant engagement has enabled
Industrials REIT to generate more value from its assets by
maintaining high occupancy levels, while also better meeting
customer needs.
Read about Plattsville Bakehouse who
utilised the Smart Lease on p. 8
May 2021 Jul 2021 Sep 2021 Nov 2021 Jan 2022 Mar 2022
150
100
50
0
200
Other direct channels
Property portals Industrials website
Number of leads
29
Annual Report 2022
Our culture
The Company changed its name from Stenprop Limited to Industrials REIT Limited on 10 September 2021 to align its corporate identity with
its Industrials operating brand (industrials.co.uk) and investment strategy. Our Company culture captures our identity, and has been refined in
consultation with our people to demonstrate our Group’s strengths and value creation within the MLI landscape.
We are a friendly team, where everyone
receives a warm welcome in a sociable
environment and where even the most senior
members are approachable and accessible.
At Industrials it is natural to be genuinely
inclusive and supportive – understanding,
encouraging and reassuring each other,
and looking for ways to nurture and inspire
colleagues when they need help. This is the
basis of wellbeing within our organisation.
We care, and we show we care.
A collaborative approach prevails, with
an emphasis on trust, transparency,
and accountability, supporting clear
communication and effective co-operation.
A problem shared is a problem halved. All our
work is teamwork.
We take pride in what we do, showing
resilience and determination when the going
may get tough. We do what we say we will
do, which earns us credibility, externally and
internally.
In everything we do, we aim to be innovative,
using imagination and forward thinking
to develop original, progressive – even
unconventional – projects and initiatives.
We are results-driven, always motivated
to improve our performance and achieve
the best possible outcome for us and our
customers.
We often need to find new ways of working,
which means we must be inquisitive – always
learning new skills, gaining more knowledge
and absorbing new ideas. This is how we
grow and evolve, as individuals and as a
business.
Above all, we are ambitious. We see clearly
where we are heading and remain orientated
towards our targets and goals.
Our values
Ensuring a
positive impact through
focused action
Creating space
for success
Contributing to the
success of others
Finding the
smarter way
Read about Our
values on p. 3
01
02
03
04
Read about Our
people on p. 72
Read about Employee
Engagement on p. 93
Read about s172
Stakeholder Engagement
on p. 57
30
Annual Report 2022
// Strategic Report
The Power of Space: space to work, to think, to evolve, to grow and to succeed
Enhancements to our office space
As the return to the office now looks more permanent and we look to embed new
working practices into our daily lives, the lease expiry in our London office and growth
in Stockport provided an opportunity to enhance our office space in both locations.
We undertook a workplace consultancy study in June 2021
to ensure we make the most out of our new space and
encourage engagement and innovation of design from our
people. The key themes that were highlighted as part of
this study and subsequently incorporated into the office
design are:
• Promotion of collaboration and social interaction;
• Creation of uniformity between London and Stockport
offices;
• Technology to support hybrid working;
• Efficient use of space; and
• Active promotion of our culture.
We partnered with Arke Creative to initially deliver our
new space in London having decided to renew the existing
lease at 180 Great Portland Street. The new space was
designed to deliver an agile work set up in line with the
workplace study, providing numerous different types of
space from fixed desks, hot desks, a collaborative café hub
space through to meeting rooms and booths, lounge area
and a quiet room. The variety of different types of space
was designed with collaboration and employee wellness
in mind, promoting frequent movement around the office
and social interaction. The provision of high-quality
meeting rooms with Teams-focused audio
visual equipment help deliver a more
seamless hybrid working
set up and enhance
communication
between our
offices.
We sought to reuse as many materials as possible together
with existing office furniture to reduce waste. We also
incorporated energy efficient features where possible such
as LED lighting, automatic lighting and air conditioning
controls. As far as possible any waste generated has been
recycled.
We have developed a group of “office champions” to
promote the new agile work model and to meet regularly to
ensure we continue to evolve how the office is used. We
have agreed heads of terms on a new office in Stockport
which we expect to move into in the second half of 2022
and which will mirror the design and utility of our office in
London. Our Stockport office will be set up to mirror the
London office ensuring familiarity with space layout
and consistency of experience.
Read about
ESG and employee
wellbeing on p. 72
Read more about
our Hybrid Working model
on p. 58
31
Annual Report 2022
// Strategic Report
Our strategy
Strategy overview
Our strategy is to invest in MLI due to its favourable, sustainable dynamics and
deliver value and growth opportunities for all our stakeholders by utilising our
Industrials Hive platform and Smart Lease product.
We have four strategic pillars. They give us the focus to relentlessly pursue our purpose to
provide space to work, to think, to evolve, to grow and to succeed; space that matters to
our customers, employees and communities.
Our objectives are driven by these four strategic pillars.
01 Sector 02 Platform 03 Structure 04 Our approach to sustainability
Quality
properties
Investing in
our specialist
operating platform
Structured
for growth
Space that
matters
Supply and demand fundamentals drive rental growth.
Acquisitions
We own and acquire buildings that work for our customers. These
are in secure urban locations, with a regular layout and offer value for
money. This enables us to maximise demand and convert this into
higher occupancy and rents.
Demand and supply
MLI offers a unique opportunity to invest in an asset class where
there is an ongoing structural shift in demand driven by the growth of
e-commerce and the adoption of technology, while supply is severely
constrained by high build costs and a lack of available land across
towns and cities in the UK. We believe that this imbalance of demand
and supply will lead to sustained rental growth over a long period
of time.
Our unique cloud-based, mobile-friendly and
highly scalable Industrials Hive operating platform is operated by our
dedicated team.
Technology
We have built a scalable and sustainable operating platform for
our business to operate more efficiently. It is flexible in meeting our
customer’s daily needs, while enabling our business to grow at a
reduced marginal cost.
Customer experience
We deliver a quality experience for our customers. This experience is
driven by making the process of leasing space simple and frictionless.
Our REIT structure, strong governance, financial
strength and management alignment.
Permanent capital
With a long-term investment horizon, the Company provides the
opportunity to capitalise on a business model which generates
customer value and long-term growth over short-term gains. We
believe that the fundamentals of UK MLI should enable us to grow
rents and values by 4–5% a year, which, after modest leverage, should
achieve our target of a minimum 10% total accounting return.
Listed REIT
Being a listed REIT facilitates strong corporate governance, high levels
of transparency, a 90% distribution of tax exempt income profits and
enhanced liquidity in Industrials REIT shares.
Our people
Corporate and personal goals are aligned with an internalised
management structure and >7% of issued share capital owned by
management. Market standard incentive packages are aligned to the
Company’s corporate KPIs.
We provide space that matters to our customers, employees and
communities.
Customers
We have a unique opportunity to promote sustainable working
practices to over 1,500 SMEs servicing 104 communities across
the UK.
Our space
The MLI asset class has good green credentials, which can unlock
opportunities in the short term, with the correct management and
focus.
Our ESG focus
We aim to be a responsible, sustainable business that achieves its
financial targets while balancing the needs of, and creating value for,
all of our stakeholders.
Link to FY23 objectives:
A B
Link to FY23 objectives:
C D
Link to FY23 objectives:
D F
Link to FY23 objectives:
E F
32
Annual Report 2022
01 Sector 02 Platform 03 Structure 04 Our approach to sustainability
Quality
properties
Investing in
our specialist
operating platform
Structured
for growth
Space that
matters
Supply and demand fundamentals drive rental growth.
Acquisitions
We own and acquire buildings that work for our customers. These
are in secure urban locations, with a regular layout and offer value for
money. This enables us to maximise demand and convert this into
higher occupancy and rents.
Demand and supply
MLI offers a unique opportunity to invest in an asset class where
there is an ongoing structural shift in demand driven by the growth of
e-commerce and the adoption of technology, while supply is severely
constrained by high build costs and a lack of available land across
towns and cities in the UK. We believe that this imbalance of demand
and supply will lead to sustained rental growth over a long period
of time.
Our unique cloud-based, mobile-friendly and
highly scalable Industrials Hive operating platform is operated by our
dedicated team.
Technology
We have built a scalable and sustainable operating platform for
our business to operate more efficiently. It is flexible in meeting our
customer’s daily needs, while enabling our business to grow at a
reduced marginal cost.
Customer experience
We deliver a quality experience for our customers. This experience is
driven by making the process of leasing space simple and frictionless.
Our REIT structure, strong governance, financial
strength and management alignment.
Permanent capital
With a long-term investment horizon, the Company provides the
opportunity to capitalise on a business model which generates
customer value and long-term growth over short-term gains. We
believe that the fundamentals of UK MLI should enable us to grow
rents and values by 4–5% a year, which, after modest leverage, should
achieve our target of a minimum 10% total accounting return.
Listed REIT
Being a listed REIT facilitates strong corporate governance, high levels
of transparency, a 90% distribution of tax exempt income profits and
enhanced liquidity in Industrials REIT shares.
Our people
Corporate and personal goals are aligned with an internalised
management structure and >7% of issued share capital owned by
management. Market standard incentive packages are aligned to the
Company’s corporate KPIs.
We provide space that matters to our customers, employees and
communities.
Customers
We have a unique opportunity to promote sustainable working
practices to over 1,500 SMEs servicing 104 communities across
the UK.
Our space
The MLI asset class has good green credentials, which can unlock
opportunities in the short term, with the correct management and
focus.
Our ESG focus
We aim to be a responsible, sustainable business that achieves its
financial targets while balancing the needs of, and creating value for,
all of our stakeholders.
Link to FY23 objectives:
A B
Link to FY23 objectives:
C D
Link to FY23 objectives:
D F
Link to FY23 objectives:
E F
Key objectives for the year ending 31 March 2023
A
Cut time and cost from the leasing process
B
Generate new MLI acquisitions
C
Enhance customer service
D
Improve operational efficiencies
E
Embed sustainability into all business activities
F
Refine and develop our organisational culture
Read more about our objectives for the
year ending 31 March 2023 on p. 35
33
Annual Report 2022
// Strategic Report
Our strategy continued
Review of objectives set for the financial year to 31 March 2022
The financial year ended 31 March 2022 was the final year of our four-year transition into a specialist MLI operating company.
We are pleased that the transition has been substantially delivered on time and plan, while also delivering on our goal to build a market-leading
MLI operating platform, which will deliver long-term, sustainable growth for our business. Our future objectives will therefore move away from
transition and be more focused on operational performance as we seek to maximise the value which can be delivered from our MLI assets through
Industrials Hive.
The business performed well against the financial year ended 31 March 2022 objectives, as follows:
Objectives
01
Complete transition
to 100% MLI
02
Maintain dividend
03
Industrials Hive
operating platform
As at 31 March 2021, the portfolio comprised
78% multi-let industrial and urban logistics
assets, with a target to reach 100% by
31 March 2022. This was to be achieved
through acquiring £100 million of new MLI
assets and selling £127.2 million of existing
holdings in Switzerland, Germany and
Guernsey. By 31 March 2022 we had acquired
£97.6 million of new MLI assets and sold
£92.8 million of existing assets at a 2.4%
premium to March 2021 valuations, but are
still holding an interest in the Care Homes
portfolio in Germany via a joint venture, valued
at £32.3 million. Therefore, we finish the year
with MLI holdings representing 95.3% of the
total portfolio.
The target dividend for the year was 6.75p
in line with previous transition years, and this
has been increased to 6.85p for the financial
year ended 31 March 2022. Furthermore, the
dividend remained fully covered.
We achieved our platform goals for the year
of rolling out our new integrated ERP platform
and data architecture, while simultaneously
evolving our sales and marketing processes
and customer service functionality. See our
Industrials Hive platform section on page
28 for further information on progress on
Industrials Hive in the financial year ended
31 March 2022.
Link to KPIs:
10 11
03 090705 08
Link to risks:
01 04
Link to KPIs:
01 100402 09
11
Link to risks:
01 06 090403 05
Link to KPIs:
01 100402 06
11
Link to risks:
02 07 0908 100503 06
04
Liquidity and brand
05
Sustainability
We completed our goals of moving the
Company from the Specialist Fund Segment
to the Premium Segment of the Main Market
of the London Stock Exchange, while also
changing the status of our JSE listing from
Primary to Secondary. We also successfully
rebranded the Company from Stenprop to
Industrials REIT, helping to clarify our strategic
direction and create greater alignment with our
Industrials.co.uk customer-facing brand.
We made significant progress during the year
with our ESG strategy, including achieving
a Bronze Award for reporting in line with
the EPRA Sustainability Best Practice
Recommendations (“sBPR”), and an EPRA
sBPR award for Most Improved company.
Our disclosures were consistent with the
Task Force on Climate-related Financial
Disclosures (“TCFD”). We calculated our scope
3 emissions as part of an exercise to better
understand our carbon footprint, and identified
our key climate risks and opportunities and
how these impact our business. Several ESG
initiatives were rolled out across the Company
as detailed in our Sustainability section. Much
remains to be achieved, and we look forward
to pushing ahead with our ESG strategy to
deliver value and growth opportunities for all
our stakeholders over the coming years.
Link to KPIs:
07 1009 11
Link to risks:
01 0702 08
Link to KPIs:
Link to risks:
02 1005
12
34
Annual Report 2022
Our objectives for the financial year ending 31 March 2023
are driven by our four strategic pillars:
Objectives for the next financial year
A
Cut time and cost from
the leasing process
B
Generate new MLI
acquisitions
C
Enhance customer
service
We have made significant strides in this area
with our Smart Lease, which has drastically
reduced the complexity, time taken and cost
of leasing, on over half of our transactions.
The objective for the financial year ending
31 March 2023 is to roll this concept out
across more complex and larger lettings
by standardising and limiting the scope of
traditional leases.
With the transition largely complete and
Industrials Hive functional, Industrials is well-
positioned to scale the business to achieve
economies of scale. However, any growth
needs to be predicated on a strong investment
pipeline of potential opportunities. We
have recently increased capacity within our
investment team to support this.
A key to quality customer service is managing
the touch points with customers through their
life cycle with Industrials. At the end of the
financial year ended 2022, we internalised
all property accounting and billing activities
with a view to generate efficiency savings
and deliver enhanced customer service in
the management of customer contracts. The
next stage of this process is to internalise our
facilities and property management functions,
which will allow us to deliver a better-quality
service with regards to building maintenance
and management, while also generating
efficiencies through greater alignment in
our workforce. Our new Head of Facilities
Management started in March 2022 with
a view to in-sourcing this work during the
second half of the financial year ending 2023.
Link to KPIs:
1101 0602 09
Link to strategic pillar:
Link to risks:
05 0806 09
01
Link to KPIs:
07 0801 0302 04
Link to strategic pillar:
Link to risks:
01 1004
01
Link to KPIs:
01 0902 11
Link to strategic pillar:
Link to risks:
02 090605 07
10
02
D
Improve operational
efficiencies
E
Embed sustainability
into all business
activities
F
Refine and develop
our organisational
culture
Having built an operating business over
the last four years, the focus is now upon
optimising how the organisation functions
on a day-to-day basis. This year, we are
undertaking a process mapping exercise
which will streamline and improve the
most important and repetitive activities,
while helping to identify and implement
opportunities for technology to improve them.
Bringing awareness to all of our stakeholders
around thinking sustainably, is an important
facilitator of change. During the year ending
31 March 2023, we will be looking to
identify key targets to focus this thinking
and prioritise our actions, particularly around
environmental initiatives. We will continue
to embed sustainable thinking into all our
business activities from our engagement
and procurement, to our capital expenditure
programmes in order to implement solutions
that deliver value and growth opportunities for
all our stakeholders. Read more on our focus
for 2023 in ESG Strategy on pages 68 and 69.
Business culture requires constant effort
and improvement if it is going to support
the wider ambitions of the business. We
recently redefined our core cultural goals, and
have identified a number of initiatives for the
financial year ending 31 March 2023 in order
to deliver upon them, including providing
a working environment that reflects and
promotes our culture.
Read about Our culture on p. 30
Link to KPIs:
1211
0601 02 09
Link to strategic pillars:
02 03
Link to risks:
0702 0504 06 08 09
Link to KPIs:
Link to strategic pillar:
Link to risks:
0702 0504 06
04
12
Link to strategic pillars:
03 04
Link to risks:
02 1006
35
Annual Report 2022
Key performance indicators
Financial KPIs
01 Adjusted earnings per share (pence) 02 Dividends per share (pence)
6.88p
6.78p
6.88p
9.09p
8.84p
2022 2021 2020 2019 2018
Definition
Calculated as EPRA earnings after Company-specific
adjustments. Adjusted earnings per share provides
an indication of underlying operating earnings that
support dividend payments. It excludes components
not relevant to core earnings performance of the
portfolio such as property and derivative fair value
adjustments and gains/losses on disposals. This
earnings measure is applied against all dilutive share
options (see note 14 to the financial statements).
Year ended 31 March 2022 review
Despite the continued headwinds of COVID-19, we
reported strong adjusted earnings of 6.88 pence per
share, an increase from 6.78 pence a year earlier.
6.85p
6.75p
6.75p
8.00p
6.75p
2022 2021 2020 2019 2018
Definition
The total dividends per share that Industrials REIT
makes to shareholders in respect of the financial year.
Dividends are paid twice yearly.
Year ended 31 March 2022 review
The 2022 full year dividend of 6.85 pence per share
(2021: 6.75 pence) is fully covered by adjusted
earnings and reflects a yield of 3.9% on the year end
EPRA NTA of £1.77p per share.
Link to FY22 strategic objectives:
02 03
Link to risks:
08 1001 060403 05
Link to FY22 strategic objectives:
02 03
Link to risks:
08 1001 060403 05
03 EPRA Net Tangible Assets (NTA)
per share
04 Total accounting return %
£1.77
£1.47
£1.38
£1.37
£1.37
2022 2021 2020 2019 2018
Definition
EPRA NTA is aligned with IFRS NAV in that it includes
deferred tax liabilities with regard to properties
classified as held for sale. EPRA NTA per share
represents the net assets, as calculated by IFRS, but
excludes the mark-to-market on derivative financial
instruments, the carrying value of intangibles and
deferred taxation in relation to fair value adjustments
of investment property and financial instruments not
held for sale. EPRA NTA is adjusted for the dilutive
impact of share options.
Year ended 31 March 2022 review
The annual increase in NTA of 20.4% reflects the
increase in value of our MLI portfolio which increased
by £94.7 million (20.8%) on a like-for-like basis since
31 March 2021.
25.0%
11.4%
5.7%
9.8%
5.4%
2022 2021 2020 2019 2018
Definition
Total accounting return is the ratio of growth in EPRA
NTA per share plus dividends paid (cash and scrip) as
a percentage of opening EPRA NTA per share.
Year ended 31 March 2022 review
The total accounting return is driven by the EPRA
NTA increase of 20.4%. We target a total accounting
return in excess of 10% per annum.
Link to FY22 strategic objectives:
01
Link to risks:
03 0704
Link to FY22 strategic objectives:
02 03
Link to risks:
07 1001 060403 05 08
05 Like-For-Like MLI valuation increase % 06 EPRA cost ratio %
20.8%
10.1%
3.6%
n/a
7.4%
2022 2021 2020 2019 2018
Definition
The growth in property valuations of our MLI
properties, owned throughout the current and
previous periods under review.
Year ended 31 March 2022 review
Our like-for-like MLI portfolio valuation increased
substantially as a result of the capitalisation of strong
yield compression (80%) and growth in rents during
the year (20%). The MLI asset class has performed
well, driven by the fundamentals of strong demand
and limited supply.
40.9%
41.6%
35.3%
31.8%
28.0%
2022 2021 2020 2019 2018
Definition
Administrative and operating costs expressed as a
percentage of gross rental income.
Year ended 31 March 2022 review
The EPRA cost ratio has decreased marginally over
the year. As we continue to grow the MLI portfolio,
the costs associated with our platform and people
will grow in smaller increments. We expect our EPRA
cost ratio to continue to decline going forward.
Link to FY22 strategic objectives:
01
Link to risks:
09 1001 080605 07
Link to FY22 strategic objectives:
02 03
Link to risks:
09 1001 080504 06
36
Annual Report 2022
// Strategic Report
Key to Risks
01
Macroeconomic and political
uncertainty, including the
impact of the COVID-19
pandemic
Key to FY22 strategic objectives
01
Complete transition to 100% MLI
02
Maintain dividend
03
Industrials Hive Operating Platform
04
Liquidity and brand
05
Sustainability
Operational KPIs
07 MLI portfolio % 08 Group loan to value (LTV) %
95.3%
74.3%
58.0%
20.1%
42.7%
2022 2021 2020 2019 2018
Definition
The percentage of Industrials REIT’s total property
portfolio reported in sterling as represented by MLI
properties.
Year ended 31 March 2022 review
We continued on our transition to being fully invested
in UK MLI property. We acquired £97.6 million of UK
MLI property and divested £92.8 million of non-UK
MLI property. The only non-UK MLI asset remaining
is the German care homes joint venture, which we
expect to sell in the next financial year.
25.6%
28.1%
26.2%
46.2%
35.2%
2022 2021 2020 2019 2018
Definition
The Group LTV is the ratio of the principal value of
gross debt, less unrestricted cash, to the Group’s
aggregate value of properties.
Year ended 31 March 2022 review
The Group LTV at 31 March 2022 was 25.6%. The
reduction in LTV during the year reflects valuation
increases as well as acquisitions of MLI properties
unencumbered by debt.
Link to FY22 strategic objectives:
01 04
Link to risks:
03 1004
Link to FY22 strategic objectives:
01
Link to risks:
03 0504 06
09 MLI occupancy % 10 Like-for-like MLI rental growth %
93.6%
93.7%
91.1%
84.7%
89.8%
2022 2021 2020 2019 2018
Definition
Occupancy of the MLI portfolio as a percentage of
total lettable area.
Year ended 31 March 2022 review
Occupancy remained stable at 93.6% (2021: 93.7%)
driven by our strategy to reduce transaction times
and introduce fixed pricing into leases, with our
Smart Lease.
4.4%
5.6%
5.6%
n/a
4.8%
2022 2021 2020 2019 2018
Definition
The growth in the passing rent of the MLI portfolio
owned at the start of the financial year.
Year ended 31 March 2022 review
Like-for-like rental growth was 4.4% for the year,
despite a small reduction in occupancy of 0.3%.
Much of this growth was captured in the first and last
quarters of the year which saw strong take up of units
and high levels of leasing activity.
Link to FY22 strategic objectives:
01 0302 04
Link to risks:
1001 090605 07
Link to FY22 strategic objectives:
01 0302 04
Link to risks:
1001 070502 06
11 MLI Lease renewal rate % 12 Average Energy Performance
Certificate (“EPC”) rating
n/a
79.3%
79.9%
79.3%
79.8%
2022 2021 2020 2019 2018
Definition
The percentage of tenants who have chosen to
remain in occupation post a contracted lease expiry
or break option, during the current financial year.
Year ended 31 March 2022 review
Tenant retention remained flat for the year, driven by
a combination of quality customer service from the
Industrials Hive platform and a lack of supply in the
market, illustrating how resilient MLI has been to the
economic shocks created by the pandemic.
n/a
n/a
n/a
n/a
83
2022 2021 2020 2019
2018
100
80
60
40
20
0
Energy performance asset rating
D
C
B
A
Definition
The average energy performance certificate (“EPC”)
score across all leased MLI units within our portfolio.
Year ended 31 March 2022 review
The average EPC rating of our MLI portfolio is
currently a D with a score of 83 for non-domestic
buildings. The Company has implemented this
as a KPI for the first time in order to track our
portfolio’s efficiency and compliance with future EPC
regulations, with a view to implement measures to
improve this rating in the short term.
Link to FY22 strategic objectives:
01 0302 04
Link to risks:
1001 090605 07
Link to FY22 strategic objectives:
05
Link to risks:
02
02
Complete the transition into 100%
focused MLI business
03
Bank covenant
04
Availability and cost of finance
05
Costs of development of the
Industrials Hive operating platform
06
Inability to operate the Industrials
Hive operating platform
07
Asset management
08
Information security and cyber threat
09
Reliance on service providers
10
People
11
Climate-related risks
37
Annual Report 2022
MLI performance overview
Performance of the MLI portfolio over the
12 months to 31 March 2022 was strong
and in-line with expectations, driven by
constrained supply and growing demand
for multi-let industrial units across the UK.
Occupancy across the portfolio was stable (93.6% vs. 93.7%
in March 2021), maintaining upward pressure on rents for
available units and giving existing customers limited options upon
lease renewal. Consequently, we have witnessed strong rental
growth, rental incentives remaining at historically low levels and
competitive tension for new lettings, as new entrants into the MLI
market compete for limited available space. During the year we
signed 265 new leases on over 1 million sq ft of space, delivering
an average uplift in rent of 22% when compared to the previous
passing rent.
During the year, we continued with our strategy of reducing
transaction times and introducing fixed pricing into leases with
our Smart Lease, which will help reduce overall vacancy levels
and deliver guaranteed growth of c. 3% per annum in rents
during the lease term. This strategy will deliver contractual uplifts
of 5.5% from current passing rents during the remainder of
existing leases. Furthermore, the average passing rent remains
13% below the estimated rental value of currently leased units,
giving plenty of baked in future rent growth when leases come to
expiry if occupancy levels remain stable.
Overall, passing rents grew 4.4% during the year and remain
highly affordable at £5.72 per sq ft. The overall ERV of the
portfolio grew by a similar 4.3% over the year, and again remains
affordable at £6.41 per sq ft providing plenty of potential for
further rental growth in the future.
// Strategic Report
Property report
and investment
Portfolio overview
Over the 12 months ended March 2022, the total income
from the MLI portfolio increased by £7.9 million, of which
approximately £4.7 million was from new acquisitions. The total
occupancy of the portfolio remained broadly stable over the year,
finishing the year at 93.6%, peaking in the June 2021 quarter at
94.9%.
During the year, we let or renewed 265 leases, one of which
resulted in the reletting of space previously occupied by our
largest tenant to multiple smaller occupiers. As a result, the
portfolio is now even more diversified, with no single tenant
accounting for more than 2% of total revenue and the top
ten tenants accounting for just 11% of total revenue. This
diversification also extends to the geographies where the
properties are located and the types of occupiers within the
portfolio, where again there is no significant reliance on any
one area, industry or customer type. We continue to see further
diversification within the customer base as traditional occupiers
are displaced by new entrants into the market, largely trading via
successful and growing e-commerce platforms.
The graph below shows the cumulative growth in rental income
achieved through the 12 months ended March 2022 from lease
renewals, new lettings and the leasing up of vacant space on a like-for-
like basis (hence excluding new acquisitions). The yellow line shows
portfolio vacancy at each period end.
Rental uplifts – cumulative rental growth (like-for-like)
4 quarters against target of 4-5%
5%
6%
Cumulative like for like rental growth
Occupancy
4%
3%
2%
1%
0%
95.0%
95.5%
94.5%
94.0%
93.5%
93.0%
92.5%
3M to June
2021
3M to Mar
2021
6M to Sept
2021
9M to Dec
2021
12M to Mar
2022
Cumulative change
Occupancy
Rents
Like-for-like rental growth was 4.4% for the year, despite a small
reduction in occupancy of 0.3%. Much of this growth was captured in
the first and last quarters of the year which saw strong take up of units
and high levels of leasing activity. The majority of leases signed during
the year included 3% annual uplifts in rent, which is now translating
into average contractual uplifts within all leases of 5.5% during the
remainder of the lease term.
ERVs grew by 4.3% during the year resulting in a 12.6% premium
between the passing rent and the ERV on currently occupied units,
providing baked-in future revenue growth so long as rents remain at
the current levels. The total ERV on the portfolio offers a further 6.5%
growth from this level, which would be captured through the leasing up
of space currently held vacant.
The graph below shows the potential rental growth achievable from
current passing rent through securing contractual uplifts within existing
leases, uplifts to ERV on existing leases and uplifts to ERV across all
units (including currently vacant space).
Rent Bridge as at 31 March 2022
£39,000,000
£44,000,000
£49,000,000
£34,000,000
£29,000,000
£24,000,000
Current
Passing
Rent
Rent free
periods &
fixed
uplifts
Contractual
Rent
Portfolio
Reversion
Occupied
ERV
Vacant
Space
ERV
£38,248,888
£40,304,892
£43,072,007
£45,871,684
5.5%
6.7%
6.5%
38
Annual Report 2022
Average uplifts in rent from previous passing rent upon
new lettings and renewals
This graph shows the weighted average uplift in rent vs the previous
passing rent across all renewals and/or relettings during the period.
1.2
1
0.8
0.6
0.4
0.2
0
40
%
35
%
30
%
25
%
20
%
15
%
10
%
5%
0%
Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22
Businesses Employment Turnover
0.6%
0.1%
47.8%
39.5%
12.6%
15.4%
99.3%
47.8%
36.8%
0
50
Small Medium Large
100
%
Average uplift in rent from previous passing rent (all lettings and renewals)
Renewals – average uplift in rent from previous passing rent
New Lettings – average uplift in rent from previous passing rent
Average lease terms (years) and incentive (months)
This graph shows the average lease term to expiry or first break option
during each period, and the average rental incentive given to sign a
lease in months rent.
Smart lease vs. traditional leases
The number of Industrials Smart Leases signed vs Traditional Leases
signed in each period.
Tenant retention 2019-2022
This graph shows the % of units where there were lease events during
the period (lease break or expiry) where tenants remained in situ,
where tenants had vacated and the unit had been re-let, or where the
tenant had vacated and the unit was vacant at period end.
6.0
5.0
4.0
3.0
2.0
1.0
0.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22
Businesses Employment Turnover
0.6%
0.1%
47.8%
39.5%
12.6%
15.4%
99.3%
47.8%
36.8%
0
50
Small Medium Large
100
%
Average term to earliest lease break and average term
Average incentive granted (m)
Average term to
earliest lease break
Average term Average rent
free incentive
100
90
80
70
60
50
40
30
20
10
0
Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22
Businesses Employment Turnover
0.6%
0.1%
47.8%
39.5%
12.6%
15.4%
99.3%
47.8%
36.8%
0
50
Small Medium Large
100
%
Smart lease Traditional Leases
36
30
25
28
35
25
46
40
100
90
80
70
60
50
40
30
20
10
0
H1 FY19 H2 FY19 H1 FY20 H2 FY20 H1 FY21 H2 FY21 H1 FY22 H2 FY22
Businesses Employment Turnover
0.6%
0.1%
47.8%
39.5%
12.6%
15.4%
99.3%
47.8%
36.8%
0
50
Small Medium Large
100
%
Tenant retained at period end Re-let in period Vacant at period end
75.4%
10%
83% 76.3% 82.6% 77.8% 82% 84% 76%
10%
9%
4%
12%
6%
5%
13%
14%
9%
14%
13%
10%
12%
11%
11%
Demand and leasing activity
Overall demand for space in financial year ended 31 March 2022 was
up approximately 50% on the previous year as the positive impacts
of the pandemic on customer demand took hold (see our marketplace
section on page 24). In addition, we made significant improvements to
the quality of the enquiries generated through Industrials Hive resulting
in greater efficiency through the leasing process (see case study:
platform driving efficiency with our enquiries data on page 29).
On completed new lettings and renewals, we saw rents rise on average
by 21.9% from the previous passing level. Increasingly strong new
lettings drove this performance with an average uplift of 26.1% vs.
18% for renewals, a sign of the high levels of competitive tension in
the market from new occupiers who are often able to pay higher rents
than incumbent businesses. Strong new lettings of vacant units on an
estate also set a new rental tone which can then be rolled out across
the remaining units at lease renewal, illustrating how important a
controlled level of structural vacancy is for driving rental growth.
Lease terms remained consistent through the year at c. 4.5 years with
a break after 3.5 years, while rent incentives remain very low at one
month rent free (normally taken as two months half rent) for signing
a new lease. Smart Lease transactions accounted for 53% of all new
lettings and renewals and continue to transact significantly quicker than
traditional leases thereby shortening void periods and cutting costs.
Despite the impacts of COVID-19, tenant retention remained flat
at 79% for the year illustrating how resilient MLI has been to the
economic challenges created by the pandemic. After a strong first six
months of the year, tenant retention fell marginally in the second half of
the year to 76%, but this was counteracted by strong leasing activity
to new occupiers on vacant space, which took the overall retained or
re-let percentage to a normal level of 89%. Some of the tenants leaving
over this period were victims of the pandemic as it became clear that
their businesses were no longer viable in the post-COVID-19 economy,
but the speed that these same units were relet to counteract their
departure illustrates the depth of demand for MLI space from new
entrants with more modern and profitable business models.
39
Annual Report 2022
// Strategic Report
Property report
and investment
continued
Unlocking The Power of Space:
Enhancing the sustainability and quality
of our space – Brasenose Industrial
Estate, Bootle
Our customers want to source space online, view and move
in, often within very short time frames. To enable this we take
the friction out of the leasing process and deliver high-quality
space that is ready to move into, straight away.
Our digital marketing platform at industrials.co.uk provides
rich and high-quality content and an immersive experience
for prospective customers when browsing for suitable space
online.
Our Smart Lease is tried and tested in its effectiveness to
enable our customers to sign up to lease space without fuss
or hassle.
To deliver best-in-class product, our team of experienced
Asset Managers identify opportunities to enhance both
quality and the utility of our space. By delivering best-in-class
product, we are able to obtain the best price for that space.
We identified an extensive capital improvement scheme at
Brasenose Industrial Estate in Bootle, a strategic location less
than three miles from Liverpool city centre.
The income profile reflected a discount to the market rate for
better quality space. This was the result of an historic lack
of investment prior to our ownership – an issue that was
compounded by many occupiers seldom understanding or
adhering to their repairing obligations.
As the original leases approached their natural expiry, it
unlocked an opportunity to grow rents significantly by
investing in the fabric of the asset via a capital investment
programme. The scheme covered c. 42,000 sq ft of space
across 15 units and comprised of an upgrade to cladding
on the roofs and elevations as well as the replacement of a
number of roller shutter doors and windows.
The new cladding improved thermal performance of the
space, while new GRP roof lights provided increased levels
of natural light into the space. To further enhance energy
efficiency, any units that became vacant benefitted from a
full internal refurbishment including the installation of more
efficient LED lighting.
Demand for the newly refurbished space has been significant
and competitive tension has helped us secure further growth
in rents. As the scheme draws nearer to completion, seven
new letting or lease renewal transactions have already
concluded at levels in line with, or in excess of, ERV. This has
secured almost 50% of the additional revenue stream initially
targeted, all in advance of taking practical completion of the
works.
Moreover, the upgrade to the external cladding is delivered
with a 15-year insurance backed guarantee. With each new
lease agreed being on an internal repairing and insuring
basis, our customers will contribute to maintenance and
repair via our fixed maintenance charge, but we will retain
ultimate control to ensure it remains operationally effective
and in good condition via a planned repair and maintenance
regime. This removes the repairing burden for our customers
so they can focus on running their business, while giving us
control to care for our property directly.
The drive to offer better quality space has also meant that we
have seen the customer base gentrify, as new demand seeks
well-presented and functional space to call home for their
business.
We have since let space to specialists in bespoke furniture
and e-commerce. In addition, a last-mile grocery delivery
business decided to let a space from us due to the site’s
close proximity to Liverpool city centre and the significant
residential catchment in the immediate vicinity.
Read about the
platform driving
efficiency with
our enquiries
data on p. 29
40
Annual Report 2022
Unlocking The Power of Space:
Converting risk to opportunity
Industrials REIT’s portfolio is diverse by nature. We have
over 1,500 customers occupying 2,011 units with no single
customer contributing to more 2% of annual rent.
In March 2022, a lease expired to our largest customer by
square feet let and annual rent payable. This lease was held
at Dana Trading Estate, Paddock Wood in Kent.
Dana Trading Estate is strategically located close to London’s
orbital M25 Motorway. The property comprises of over
198,000 sq ft of industrial accommodation spread over
14 units. The property also features a further 11,000 sq ft of
office space arranged in two self-contained units and several
small office suites.
The entire property was held on a single lease which
commenced in 2002 and followed a sale and leaseback
arrangement where our customer continued to lease the
property as a manufacturing facility.
During the lease term, the property became surplus to
requirements and was sublet in its entirety to a range of
different occupiers and users of the space, each on contracts
which had been due to expire in line with the main lease.
This presented a complex challenge, with one single lease
expiring on a significant floor area to the largest single
contributor to annual income across our MLI portfolio.
This required a
suitable strategy
that sought to
address two key
issues:
1. Repair risk –
The return of the
property in the
condition required
2. Income risk –
The income risk
due to the single
lease expiry event.
Our strategy sought to ensure that the property was returned
to us in the condition required under the lease. It sought to
hedge the income risk through the early implementation of
our digital marketing campaign to capture new demand,
leads and opportunities, while also engaging with each
sub-tenant to ascertain who wished to continue to lease
space on site.
To manage the repair risk, a series of repair notices were
issued specifying the works that were required to be
remedied prior to lease expiry. This was an alternative
approach to dilapidations by using landlord self-help rights
enforceable under the lease. This approach allowed us to
enforce physical improvements across the property prior to
lease expiry.
To manage the income risk, we engaged with each sub-
tenant to audit their business, their need for the space
and their wider lease requirements. This enabled us to
be selective, and review how our space would be used in
future by continuing to partner with businesses who use our
buildings in ways that we find acceptable.
This strategic approach meant that we could enforce certain
repairing requirements to safeguard and enhance the quality
of the asset but ultimately position us to agree to an early
surrender in return for a suitable financial settlement to offset
outstanding liabilities for breach of repair. It was also agreed
that a future dated option to acquire the freehold title would
be brought forward and was successfully executed.
We have since re-let or agreed terms on 98% of the property
by floor area, while capturing over 24% of rent reversion
when compared to previous passing rent.
Our selective approach to customer engagement yielded
just one vacant unit. This empowered us to test the market
and work with the existing occupiers to generate a waitlist
of demand and use competitive tension to drive best price
on the open market. Crucially, it aligns this asset to our
business model – diversified income delivered by a varied
customer base.
41
Annual Report 2022
Property report
and investment
continued
Transactions: acquisitions
During the financial year to 31 March 2022,
we completed £97.6 million of acquisitions
across 14 separate transactions. The graphs
below illustrate the geographic split in assets
right across the UK. We continue to be
disciplined in our approach to investment,
and all acquisitions meet our strict investment
criteria of only buying purpose built MLI
estates in densely populated urban areas. It
is common in the market to find portfolios
trading at a 10% premium to individual asset
values, so we have concentrated on acquiring
single assets to maximise returns utilising a
wide network of regional and London-based
agents. One third of our acquisitions were
acquired “off market”, where we did not need
to enter into a competitive bidding situation.
We acquired £27.2 million of assets without
an agent advising us.
ESG is an important aspect of our acquisition
due diligence process. We undertake
environmental and flooding surveys and assess
for ESG risks including building age and year
of construction, asbestos, EPCs (age and
rating), proximity to social infrastructure and
greenfield / brownfield land. The leases are also
scrutinised for unfair or restrictive covenants or
clauses and tenant ‘Blacklist Activities’.
Summary of MLI acquisitions made over last four years
Purchase Price GIA Cap Val
NIY (inclusive of
guarantees)
assuming
6.5% costs
Rent (inclusive of
guarantees)
at acquisition
£ per sq ft
FY18/19 £103,519,650 1,689,498 £61.27 6.90% £4.75
FY19/20 £38,181,770 503,691 £75.80 6.85% £5.98
FY20/21 £91,535,000 1,087,625 £84.16 6.64% £6.21
FY21/22 £97,620,000 1,268,676 £76.95 6.44% £5.50
Total/Average £330,856,420 4,549,490 £72,72 6.67% £5.44
Transactions: sales
We completed the sale of Trafalgar Court,
Guernsey in September 2021, for a
consideration which valued the property at
£55 million by way of the sale of all of the
issued share capital of an SPV. This was an
important transaction and represented the
last major sale in our transition of properties
where we have a 100% stake. This sale
increased the proportion of our portfolio that
was MLI by 9%, and we have subsequently
re-invested the proceeds in-line with our
investment strategy.
Non-MLI: joint venture
We continue to be in negotiations for the sale
of the Group’s interest in the joint venture
holding of a care homes portfolio in Germany.
In the meantime, the independent valuation
of the Care Homes Portfolio has increased
from €38.9 million at 31 March 2021 to
€39.1 million at 31 March 2022. For so long
as we continue to hold our share of this
portfolio, we earn a 10% preferred return
on our investment.
The value in this investment represents
approximately 4.7% of the Group’s total asset
value at 31 March 2022.
42
Annual Report 2022
// Strategic Report
Name
Company
Purchases made by vendor marketing method
Off Market £36,060,000
Open Market £61,560,000
Total: £97,620,000
Off Market 6
Open Market 12
Total: 18
Acquisitions by region in the 12 months to 31 March 2022
£35,000,000
£30,000,000
£25,000,000
£20,000,000
£15,000,000
£10,000,000
£5,000,000
£0
North West Yorkshire &
Humber
North East Scotland South Wales East
Midlands
Businesses Employment Turnover
0.6%
0.1%
47.8%
39.5%
12.6%
15.4%
99.3%
47.8%
36.8%
0
50
Small Medium Large
100
%
Acquisition value by vendor type in the 12 months to
31 March 2022
Property company (£70,870,000, 73%)
Institutional Investor (£18,850,000, 19%)
Private Investor (£7,900,000, 8%)
Summary of MLI acquisitions made over the last 4 years
£120,000,000
£100,000,000
£80,000,000
£60,000,000
£40,000,000
£20,000,000
£0
7.00%
6.90%
6.80%
6.70%
6.60%
6.50%
6.40%
6.30%
6.20%
Average Net Initial Yield paid
FY19 FY20 FY21 FY22
Businesses
Employment
Turnover
0.6%
0.1%
47.8%
39.5%
12.6%
15.4%
99.3%
47.8%
36.8%
0
50
Small Medium Large
100
%
Average Net Initial Yield paid Total value of acquisitions in each year.
Institutional Investor (£18,850,000, 19%)
Private Investor (£7,900,000, 8%)
Unlocking The Power of Space:
Acquisition of
Bradley Hall
We acquired Bradley Hall, Wigan in July 2021 for £20.6 million,
reflecting a NIY of 6.4% and a capital value of £67 per sq ft.
This estate had a very granular income profile, with 120 leases
at acquisition. The site had a number of complex issues to deal
with and that, combined with the volume of leases, meant that
there were significant barriers to entry for interested parties.
Our efficient, scalable and sustainable operating platform made
this type and nature of acquisition viable and we anticipate
that our Industrials Hive operating platform and smart leases
will capitalise on a business model which generates customer
value and long-term growth over short-term gains. The estate
also presented a number of short, medium and long-term
development opportunities, to further enhance returns and
the energy efficiency of the buildings. We have employed an
experienced Senior Development Manager who is focusing on
opportunities like this across the portfolio and we have designed
the first phase of development at this estate, a 16,500 sq ft,
seven unit MLI scheme on an underutilised car park area.
Since acquisition, we have seen strong performance and high
occupancy levels, with less than 1% currently vacant. At the
most recent valuation, the asset was valued at £24.15 million,
representing an increase in value of £3.55 million and 17.2%
since acquisition date.
43
Annual Report 2022
Financial review
James Beaumont
Chief Financial Officer
Overview
We are pleased to be reporting strong results
notwithstanding the continued headwinds of
COVID-19. We delivered like-for-like rental
growth of 4.4% and like-for-like valuation
uplifts in our MLI portfolio of 20.8%. We
declared a final dividend of 3.475 pence per
share, taking the covered full year dividend
to 6.85 pence per share. Dividends paid in
the year were 6.75 pence per share, which,
together with a 20.4% increase in EPRA NTA,
resulted in a record total accounting return of
25.0%, up from 11.4% a year ago.
Rent collections and speed of payments have
continued to improve during the financial
year and we are confident that the impact of
the pandemic on collections is all but behind
us. We continued to see strong demand for
our space with like-for-like annual MLI rental
growth of 4.4% (2021: 5.6%) achieving our
target of 4%-5%, and occupancy of 93.6%
(2021: 93.7%). Information on our leasing
strategy can be found in our property report
on pages 38 to 39 and more information
can be found on the wider MLI market in our
marketplace section on pages 21 to 25.
We are also pleased to report that in March
2022 we completed the implementation
of a significant upgrade to our finance and
operations technology within the Industrials
Hive operating platform. We look forward to
unlocking the efficiencies that this will bring as
both it, and the business, evolves and grows
from here. More detail on Industrials Hive
can be found in our Industrials Hive platform
section on page 28. This achievement
signifies the formal commencement of in-
housing of all property accounting, billing and
credit control and allows us to build stronger
relationships with our customers. We aim to
have concluded the in-housing of property
and facilities management later this year so
all key operational roles will be controlled and
managed by Industrials REIT.
Presentation of financial
information
The consolidated financial statements are
prepared in accordance with IFRS. The
Group’s subsidiaries are consolidated at
100% and its interests in joint ventures
are consolidated using the equity method
of accounting. In addition to information
contained in the Group financial statements,
Alternative Performance Measures
(“APMs”), being financial measures, which
are not specified under IFRS, are also used
by management to assess the Group’s
performance. Definitions for APMs are
included in the glossary, with further
descriptions and the most directly comparable
IFRS measure identified on page 178.
Industrials REIT discloses APMs based on
EPRA Best Practice Recommendations, in
line with our peers in the real estate sector.
These include earnings and NAV metrics
which are referred to throughout this report
and which can also be seen in the EPRA key
performance measures table on page 178.
Industrials REIT presents adjusted earnings
per share as an APM to assess the Group’s
dividend distributions. The metric is based
on EPRA earnings, adjusted for significant
non-recurring items, such as the listing costs
incurred in the current year.
Income statement
Profit for the year doubled to £107.5million
(2021: £53.0million), driven by MLI
valuation uplifts of £89.5 million compared
with £26.9million in the prior year. The
increase was primarily driven by yield
compression as investors continue to rate
the strength of the MLI market, but also
included the impact of sustained rental
growth across our MLI portfolio where we
have seen annual like-for-like rental growth
of 4.4%(2021:5.6%). Diluted IFRS EPS
was 36.68 pence (2021:18.57 pence). After
EPRA adjustments and specific adjustments
associated with the finance and operating
system implementation, and the one-off costs
associated with transferring our listing to the
Premium Segment of the Main Market of the
LSE, adjusted earnings were 6.88 pence per
share (2021: 6.78 pence). A reconciliation of
IFRS profit to EPRA earnings and adjusted
earnings for the year is shown in note 14 to
the financial statements.
Net rental income for the year from continuing
operations was £32.8 million (2021:
£23.1 million) reflecting the impact of
acquisitions in the current and prior year and
the enlargement of our MLI portfolio.
“ We have delivered a record total accounting
return of 25.0% up from 11.4% a year ago.”
44
Annual Report 2022
// Strategic Report
2022 2021
Statement of comprehensive income
Dividend per share 6.85p 6.75p
Diluted IFRS earnings per share 36.68p 18.57p
Adjusted earnings per share
1
6.88p 6.78p
EPRA earnings per share
2
6.30p 6.62p
1
See note 14 for reconciliation to IFRS earnings per share. Adjusted earnings per share was previously
named “Diluted adjusted EPRA earnings per share”
2
Reduction in year due to one-off listing costs of £1.0 million (0.33 pence per share) relating to step-up to
Premium Segment of London Stock Exchange.
2022 2021
Statement of financial position
Portfolio valuation (incl. JV) £685.8m £582.3m
Like-for-Like portfolio valuation increase in year +19.4% +6.3%
Diluted IFRS NAV per share £1.78 £1.48
EPRA NTA per share
3
£1.77 £1.47
Loan-to-value ratio 25.6% 28.1%
3
See note 15 for reconciliation to IFRS NAV per share (and for all future references in this report to IFRS/
EPRA NTA).
FX rates in period
Average foreign exchange rates in the year: £1.00:€1.1758; £1.00:CHF1.2552
(2021: £1.00:€1.1202; £1.00:CHF1.2057)
Year-end foreign exchange rates: £1.00:€1.1816; £1.00:CHF1.2129
(2021: £1.00:€1.1738; £1.00:CHF1.2985)
Our continued focus on rent collections
resulted in a reduction in the bad debt
expense to £1.3 million (2021: 2.0 million).
We expect normalised bad debts to trend
towards pre-pandemic levels of c. 2% as we
progress through the remainder of 2022.
Management fee income was less than
£0.1million (2021: £0.7 million) and is
expected to fall away completely in the
coming year.
Operating expenses for the year, after
adjusting for the one-off £1.0 million cost
of transferring our listing to the Premium
Segment of the Main Market of the LSE,
were £12.4 million (2021: £9.7 million). The
increase to prior year includes £1.8 million
related to the staff remuneration costs. Half
of this figure reflects a provision recognising
future employer’s national insurance, due on
exercise of all previously vested share-based
payments awards. The other half is linked
directly to the increase in staff. The average
number of employees during the year was 46
(2021: 33), with office-based staff numbers
now split equally between our London and
Stockport offices. The coming year will see
the in-housing of all property and facility
management functions, the costs of which will
largely be recharged to customers as part of
normal service charge procedures. This final
phase of our resourcing plan will signify an
important evolution in Industrials REIT with all
major and customer facing operational roles
fully in-sourced. The finance and operating
ERP project expense associated with testing
and training increased by £0.3 million to
£0.7million as we completed the final stages
of the project prior to our formal go-live on
1 April 2022.
The EPRA cost ratio (including direct vacancy
costs) was 40.9% for the year ended
31 March 2022 (2021: 41.6%). Operational
gearing associated with managing MLI is
inherently high and reflects the granular
operational nature of our MLI business. Our
Industrials Hive platform allows us to manage
a high number of customers efficiently, while
also delivering quality customer service and
well-presented MLI units to lease. We are
confident that our platform, together with
the nature of our central cost base which has
been positioned for scale, will allow us to add
additional estates to our portfolio at a reduced
EPRA cost ratio of approximately 20%. This
is based on analysis of the direct and indirect
costs required for managing additional
estates and we expect to see a gradual
reduction in the Group EPRA cost ratio as the
portfolio grows.
Finance costs for the year were £3.9 million
(2021: £4.5 million). The reduction of
£0.6 million reflects the impact of the two
refinancing events that were concluded in
December 2020, most notably the seven-year
£66.5 million fixed rate facility with ReAssure
with an all-in rate of 1.66% compared to 3.2%
on the previous facility. We are now seeing
big changes in the interest rate environment
and with the Bank of England increasing rates
to 1.0% in May 2022, and further increases
anticipated, the cost of debt is becoming more
expensive. Industrials REIT has maintained
its conservative policy of fixing or hedging
against interest rate exposure in relation to at
least 75% of its debt. Notwithstanding this,
all future refinancing activities will inevitably
be at higher all-in rates of interest and an
increase in finance costs is to be expected.
Dividends
The total dividend for the year was
6.85pence per share, comprised of a final
dividend of 3.475 pence per share for the six
months ended 31 March 2022 and an interim
dividend of 3.375 pence per share. The
dividend is fully covered by adjusted earnings
per share of 6.88 pence (2021: 6.78 pence)
and can be taken as a cash payment or scrip
share alternative. A further announcement
informing shareholders of the salient dates
and tax treatment of the dividend will be
released in due course.
The dividend of 6.85 pence per share
represents a dividend yield of 3.8% on the
share price at 6 June 2022 of £1.80, and a
yield of 3.9% on the EPRA NTA per share at
31 March 2022 of £1.77.
Net asset value
The IFRS basic and diluted net asset value
per share at 31 March 2022 was £1.79 and
£1.78 respectively (2021: basic £1.49; diluted
£1.48) (see note 15). The increase in the year
was driven by like-for-like valuation increases
of our MLI portfolio of £94.7 million, offset by
£6.0 million acquisition costs of purchasing
£97.6 million of new MLI in the year. At
year end, Industrials REIT owned 104 MLI
properties valued at £653.5 million.
The EPRA NTA per share at 31 March 2022
was £1.77 (2021: £1.47). A reconciliation of
this against IFRS NAV is shown in note 15
to the accounts. The EPRA NTA excludes
£3.5 million of intangible assets related to the
development of our Industrials Hive operating
platform, £1.9 million in relation to the fair
value of derivative financial instruments and
the deferred tax liability of £1.6 million in
respect of the care homes joint venture.
45
Annual Report 2022
Financial review continued
0.58
0.06
Gross rental
revenue
Property
operating
expenses
Admin and
other operating
costs
Income from JVs
(including EPRA
adjustments)
Finance cost
Other
Diluted
EPRA EPS
12.66
0.68
0.52
1.46
6.88
4.68
6.30
Company -
specific
earnings
adjustments
Adjusted
EPS
Pence
14.00
12.00
10.00
8.00
6.00
4.00
2.00
Businesses
147
EPRA NTA
31 March 2021
195
185
175
165
155
145
135
125
Pence
Adjusted
earnings
Portfolio
revaluation
(incl Carehomes)
MLI acquisition
costs
Capital
Expenditure
Other gains and
Losses
FX Translation on
balance sheet
Dividend
Other
adjustments
EPRA NTA
31 March 2022
2.05
1.00
0.80
6.88
33.20
1.44
0.05
6.75
Businesses
177
EPRA earnings per share (pence) year to 31 March 2022 (refer to note 14)
EPRA NTA per share (pence) movement since 31 March 2021
Portfolio valuation
As at 31 March 2022, the Group’s investment properties were valued at £685.8 million (31 March 2021: £582.3million). On a like-for-like basis,
excluding the impact of additions and disposals in the year, the valuation of the portfolio since 31 March 2021 increased by 19.4%.
Combined Portfolio
(including share of joint ventures)
Market value
31 March
2022
(£’000)
Portfolio
by market
value
(%)
Properties
(number)
Area
(sq ft)
Annualised
contracted
gross rental
income
(£’000)
Net initial
yield
(Weighted
average)
(%)
Voids
by
area
(%)
UK multi-let industrial 647,460 94.4 103 7,120,135 37,530 5.5 6.4
UK multi-let industrial – Held for sale 6,015 0.9 1 30,176 718 11.2 –
Total – wholly owned 653,475 95.3 104 7,150,311 38,248 5.5 6.4
Share of joint ventures 32,285 4.7 4 208,066 2,477 7.2 –
Market value total 685,760 100 108 7,358,377 40,725 5.6 6.2
46
Annual Report 2022
// Strategic Report
United Kingdom MLI
portfolio
We acquired a further 18 assets during the
year for a total consideration of £97.6 million
and at year end, the MLI portfolio, comprising
104 industrial estates and approximately
7.3 million square feet of lettable space,
was independently valued at £653.5 million.
On a like-for-like basis, the valuation of
the portfolio increased by £94.7 million, or
20.8%, on the valuation at 31 March 2021.
We calculate that yield compression is driving
approximately 80% of this change, with the
residual 20% being due to the capitalisation
of continued rental growth achieved in the
portfolio. Like-for-like rental growth was
4.4%(20215.6%)following another strong
year of leasing transactions and associated
average uplifts in passing rent. Refer to pages
38 and 39 for more detail on our leasing
activities in the year.
Joint venture
The Care Homes portfolio in Germany,
comprising four care homes, was
independently valued at €39.1 million,
an increase of €0.3m compared with the
31 March 2021 valuation.
Debt
Total borrowings at 31 March 2022 were
£196.2 million with an LTV ratio of 25.6%
compared with 28.1% at 31 March 2021. The
reduction in LTV was driven by the valuation
gains recorded in the year together with the
effects of disposals in the year, offset by a
reduction in unrestricted cash held at year end.
In the current economic climate, the Group is
likely to target a level of borrowings at around
30% of its gross asset value, rather than 40%.
Group debt metrics
(including share of joint ventures)
31 March
2022
£m
31 March
2021
£m
Nominal value of debt (196.2) (214.5)
Unrestricted cash 20.7 50.7
Net debt (175.5) (163.8)
Market value of investment property 685.8 582.3
LTV (%) 25.6 28.1
Weighted average debt maturity (years) 4.0 3.9
Weighted average interest rate (%) 2.16 1.93
Loan facilities hedged / fixed (%) 76 76
At the start of the year, Industrials REIT held
approximately £50 million of unrestricted
cash, the majority of which was earmarked
for deployment in acquiring MLI property.
We acquired £36.5 million of MLI in the
first half of the year, while also banking
proceeds of approximately £42 million from
the sale of our Guernsey office asset and
Hermann retail centre in Berlin. These sale
proceeds allowed us to continue purchasing
MLI without drawing on the NatWest debt
refinancing which completed in September
2021. The NatWest tranche of £29.0 million,
subsequently drawn in January 2022 resulted
in an all-in interest rate of 2.66% across the
whole facility at year end. The facility matures
in November 2025. At the end of the financial
year, Industrials REIT held £20.7 million of
unrestricted cash.
Subsequent to year end, on 13 May 2022,
we completed two further loans with
NatWest as follows:
• A new £27 million tranche was concluded
at a margin of 175 bps and loan maturity
in November 2025. An interest rate
swap coterminous with loan expiry was
purchased in relation to this loan at a rate
of 2.206%.
• The revolving credit facility (“RCF”)
provided by Investec Bank was not used
in the year and expired in May 2022. The
facility was replaced with a new NatWest
£25 million RCF on 13 May 2022, with
expiry in November 2025. The NatWest
RCF has a commitment fee of 1.13% and
a margin of 2.25%.
47
Annual Report 2022
Financial review continued
When considered in isolation, our MLI
portfolio has a weighted average debt
maturity of 4.2 years, with the next maturity
occurring in February 2025. We will continue
to proactively manage our debt maturity
profile as well as reviewing and diversifying
our lender base as we grow the UK MLI
portfolio. Our MLI all-in contracted weighted
average cost of debt was 2.19% at 31 March
2022, compared with 1.97% at the previous
year end. This reflects the increase in interest
costs on our floating interest rate debt and is
expected to move further out as we progress
through the financial year ending
31 March 2023.
As part of our debt finance strategy, we
actively discuss our ESG programme with
our lenders and keep under review the
opportunity to incorporate green frameworks
into our facility agreements.
Industrials REIT has been in full compliance
with its lending covenants throughout the year.
Cash flow
Industrials REIT acquired £102.7 million of
assets in the year inclusive of acquisition costs
and received net sales proceeds of £46 million
from the disposal of the final three wholly
owned non-MLI assets. The balance required
to complete these acquisitions came from
opening unrestricted cash balances of £50
million and debt drawn in the year of
£29 million.
At year end Industrials REIT held unrestricted
cash balances of £20.7 million and on 13 May
2022 concluded the drawdown of a further
£27 million tranche of debt. It remains our
strategy to deploy cash as swiftly as possible
on new MLI assets, while also maintaining
our disciplined underwriting criteria on
acquisitions.
Conclusion
We have reported another set of strong
financial results for the year ended 31 March
2022, demonstrated by a record total
accounting return of 25.0%. We have also
largely completed our repositioning into a fully
focused MLI operating business. Demand for
our space remains strong and further evolution
of Industrials Hive will allow us to capitalise on
efficiencies and initiatives.
We are seeking to deliver similar levels of MLI
rental growth in the coming year assuming
the supply/demand fundamentals remain
favourable. These sustained fundamentals
are due to supply constraints with build costs
not justified by current MLI rent levels, and
high demand from the increasingly diverse
customer base who are competing to occupy
our flexible space. However, the UK economy
is experiencing inflationary pressures and
increasing interest rates look set to continue
for some time which will impact consumers
and businesses. We remain confident that
the structural switch of occupiers to MLI as a
result of e-commerce trends is likely to be a
strong counterbalance to these headwinds as
the universe of occupiers expands. We remain
confident that our existing MLI portfolio will
continue to perform well and still deliver on
our targeted total accounting return hurdle of
at least 10% for the coming year.
We commence the new financial year
with enthusiasm as we aim to build on our
achievements in transitioning into an MLI
operating business. We are particularly
focused on capitalising on our operating
platform and look forward to our next four-
year goal of doubling our MLI portfolio such
that we can benefit from scaling our operation,
reducing our cost ratio, and growing our
dividend for investors.
James Beaumont
Chief Financial Officer
9 June 2022
48
Annual Report 2022
// Strategic Report
Risk management
49
Annual Report 2022
Effective risk management is
fundamental to how we do
business. It is an integral part
of our strategy and culture
and will ensure the long-
term sustainable success and
resilience of the Group.
In last year’s report, we explained that a
review of our risk management framework
would be conducted during the reporting
period to ensure that it remained robust
and effective in light of our transfer to the
Premium Segment of the LSE’s Main Market,
transition from a traditional real estate
business to a fully operational business and
continued growth. Following this review, we
refined our approach to risk identification
and management with a formal top-
down strategic review of risks combined
with a bottom-up operational review.
We also enhanced our risk governance
framework with the nomination of risk
champions across all areas of the business.
It is through the application of this risk
management framework that we ensure
The Board/Audit and Risk Committee/Social
and Ethics Committee
Set risk appetite
Continuously review and assess strategic and emerging risks and opportunities
monitor key risk indicators
Challenge risks identified through the bottom-up review and review the
effectiveness of the risk management and internal control processes
Executive and senior teams/Operations Committee
Identify and assess principal and emerging risks
Responsible for operational application of the risk management framework and
delivery of strategic actions
Risk champions/all staff
Identify, assess and mitigate operational and more technical risks such as
IT risks, security, business continuity, financing and treasury
Produce risk matrices for each business area and specific projects
Execute strategic actions
effective implementation of our five-step risk
management plan and the early identification
of risks, including emerging risks, their
assessment, management and monitoring.
Our approach is not intended to eliminate
risk entirely, but to manage risk exposure
across the business, while making the most of
business opportunities that have the potential
to create value.
Roles and responsibilities
The Board has overall responsibility for the
oversight of risks and maintaining sound risk
management and internal controls systems. It
also reviews and determines the Group’s risk
appetite, bearing in mind the opportunities
that often accompany risks and can drive
performance.
The Audit and Risk Committee is responsible
for providing oversight and advice to the
Board in relation to current and potential
future risk exposures of the Group. It routinely
considers risk at each quarterly meeting,
reviews the risk profile of the Group and
the significant risks identified alongside
mitigating factors and action plans. The
Board is also supported by the Social and
Ethics Committee, which complements the
Audit and Risk Committee with a particular
emphasis on reviewing and discussing
ESG-related risks. The responsibilities of the
Social and Ethics Committee also include
ensuring compliance with legal and regulatory
requirements associated with ESG matters
such as applicable rules and principles of
corporate governance and applicable industry
standards.
The Executive Directors are responsible for
delivering the Group’s strategy and manage
risk in accordance with the risk management
framework and the risk appetite set by the
Board. They are assisted by the Operations
Committee which meets once a month and
routinely discusses and assesses principal and
emerging risks as parts of its activities.
Detailed discussions are held at operational
levels and risk matrices are produced for each
business area and specific projects with the
support of the executive team, the Company
Secretary and Group General Counsel and
the Risk Champions. The effective day-to-
day identification and management of risks is
embedded within all operations and forms an
integral part of all activities; new and existing
risks are identified, assessed and managed
by all staff with a focus on operational and
technical risks such as information technology,
business continuity, GDPR, treasury, etc.
Annual assessment of risk
At the Board meeting in June 2022, the Board
completed its annual assessment of risks.
This followed the Audit and Risk Committee’s
formal assessment of risks and their review
of the effectiveness of internal controls. The
Board concluded that an effective system of
risk management remains in place.
More information regarding the work of
the Board, the Audit and Risk Committee,
the Social and Ethics Committee and
the executive and senior teams on risk
management during the year ended
31 March 2022 can be found in the Corporate
Governance Overview from page 89.
Risk management framework
Top-down strategic review Bottom-up operational review
49
Annual Report 2022
Culture
The Board and the Executive Directors
promote a risk awareness culture coupled
with an open and accountable culture
in which employees at all levels of the
organisation are encouraged to participate in
the risk identification process and to maintain
an open dialogue with their colleagues and
managers, as opposed to a blame culture.
This ensures the early identification and
management of risks.
Our risk focus and risk
appetite
The Company took a proactive and pre-
emptive approach to managing the business
in response to the continuous challenges
linked to the pandemic, particularly regarding
customers and the impact of the pandemic
on their business, and the wellbeing and
safety of staff. The Board received updates on
certain key indicators to monitor these risks
throughout the period, such as rent collection
levels, voids and employee engagement and
satisfaction. Other key risk indicators regularly
reviewed by the Board include updates on
MLI acquisitions and anticipated pipelines,
updates on budget, valuations, banking
covenants, and key operational projects
and financial metrics. Areas of focus in the
reporting period included IT risks and disaster
recovery/business continuity and sustainability
and climate-related risks and opportunities.
The Company’s overall risk appetite during
the year broadly remained unchanged. The
long-term strategic objectives of the Group
remain unchanged, and the Group’s financial
model will continue to be used to assess the
impact of key decisions on its prospects with
appropriate sensitivity analysis. This will guide
and form the basis of any changes in the
Group’s risk appetite. At the time of preparing
this report, the Board is carefully considering
the changing economic environment including
raising inflation and interest costs and a
more prudent approach to risks compared to
FY2022 is being considered.
More information on the assessment of
prospects and viability undertaken by the
directors in accordance with provision 31 of
the 2018 UK Code is set out on page 51.
Robust assessment of
principal risks
The Board has carried out a robust assessment
of the principal and emerging risks facing the
Group. These are the risks that would threaten
its business model, strategic objectives and
future performance, solvency and liquidity. The
process for how the Board reviews these risks
is explained above and the key risks identified
are presented on pages 52 to 55, including
an assessment of their potential impact and
controls and mitigating factors.
1
Economic outlook and political
risk, pandemic, Brexit and the
war in Ukraine
2
Climate-related risks
3
Bank Covenants
4
Availability and cost of funding
5
Poor performance of the
Industrials Hive platform
6
Poor performance of the asset
management team
7
Major health and safety
incident at an MLI site
8
Information security and
cyber threat
9
Reliance on technology
partners
10
Employment and retention of
key personnel
Low
Perceived
likelihood High
LowPotential Impact High
Businesses
1
5
6
7
2
3
4
8
9
10
Risk heat map
Risk
increasing
Risk management
Five-step risk
management plan
Risk
stable
Risk
decreasing
01 Identify
Risk identification is supervised by the
Executive Directors and senior managers
but involves every individual staff
member in the Group.
02 Assess
All risks identified are assessed on a
continuous basis. They are awarded
an inherent risk rating which may lead
to the implementation of controls/
actions to mitigate them. Risks are then
assessed and awarded a residual risk
rating after considering the adequacy
and effectiveness of such controls, the
financial and non-financial impact, as well
as the probability of occurrence of a risk.
03 Manage
Identified risks can be avoided, transferred,
accepted or mitigated. The executive team
will assess risks against potential benefits
when considering how to manage risks.
Decisions and actions are recorded and
identified, weaknesses are highlighted and
rectified with the aim of bringing the risk
back within an acceptable limit.
04 Monitor
Risks and the effectiveness of the
corresponding actions to manage these
risks are monitored on an ongoing basis by
management and reviewed on a quarterly
basis by the Audit and Risk Committee.
05 Report
Significant risks, key controls, details
of risk management decisions and
all relevant management actions
implemented as part of the risk
assessment process are reported to
the Audit and Risk Committee on a
quarterly basis. Key risks which may
have a material impact on the ability of
the Company to achieve its strategic
objectives are routinely reviewed and
considered by the Board.
50
Annual Report 2022
// Strategic Report
Some of these risks have changed since
the last report. Now that the transition
to a fully focused UK MLI business is
complete, potential challenges in sourcing
MLI acquisitions are no longer perceived
by the Board as a principal risk. The Board
believes that, although further acquisitions
would enable the business to benefit from
economies of scale, the Company has the
ability to deliver a TAR in excess of 10% per
annum based on the fundamental growth
inherent in the existing portfolio without new
acquisitions.
In addition, excessive reliance on external
property accounting and property
management functions are no longer a key
risk to the Group. On the other hand, with
the launch of the Industrials Hive platform,
reliance on technology partners for the
efficient operations of the business has
increased and remains an area of scrutiny for
the Board and the executive team. With the
internalisation of the property and facilities
management functions expected to complete
over the next few months, health and safety is
another priority.
Finally, the Board is mindful of the growing
number of environmental, social and
governance (ESG) risks in general and the
critical nature of climate-related risks in
particular, which have been categorised as
strategic and market risks. During FY 2022,
the Company partnered with sustainability
specialist Carbon Intelligence to implement
the recommendations of the Task Force
on Climate-related Financial Disclosures
(“TCFD”). To date, we have completed a
comprehensive assessment of material
climate-related risks and opportunities.
The findings can be found in our TCFD
disclosure on page 60. Next, we will take
the top material climate-related risks and
opportunities through scenario analysis. The
Company intends to set a science-based
emissions reduction targets before the end of
the next financial year, developing a clearly
defined path to reduce emissions in line
with the goals of the Paris Agreement and
has completed its second ESG materiality
assessment, engaging with both internal and
external stakeholders to identify the most
material issues to them and confirm that these
are addressed by our ESG policy and strategy.
Our internal ESG Steering Group, comprised
of senior leaders from across the business,
meets regularly to ensure progress against
our ESG strategy and compliance with our
ESG policy. Please see page 64 to page 71
for additional information on our ESG strategy
and policy.
Viability statement
In accordance with provision 31 of the UK
Corporate Governance Code, the Directors
have assessed the prospects of the Group for
a period of five years to 31 March 2027. The
Board considers this period to be appropriate
as the Group’s financial review and business
plan forecasts cover a five-year look forward
period.
The Group’s five-year plan is supported by a
detailed financial model which considers the
effects of the Group’s business model and
strategy on earnings and dividends, taking
appropriate account of the Group’s principal
risks. See pages 52 to 55 of the report for
further details on the business model and
strategy of the Group.
The forecast model is kept under regular
review by management and the Board and is
updated at least on a quarterly basis against
actual performance.
Consideration of significant risks and
uncertainties faced by the Group
The principal risks and uncertainties faced
by the Group are outlined on pages 52 to
55. The Directors have carefully considered
the significant risks and uncertainties within
the context of the Group’s viability and
prospects, with specific emphasis placed on
the challenges posed to the business and the
Group’s occupiers as a result of the pandemic,
and other economic risks, such as rising
interest costs and inflation.
The model was subjected to sensitivity
analysis including a 20% reduction in
income across the portfolio resulting from
softening of demand and expenses subject
to a 10% increase above base case inflation
assumptions. The sensitivities were
designed to be severe but realistic and to
take into account the likely effectiveness
of mitigating actions that the Group would
have at its disposal. The significant risks
and uncertainties identified as relevant to
the Group and its ability to continue to meet
its obligations as they fall due, relate to the
timing and quantum of acquisitions and
disposals, financing of acquisitions, debt
maturity and compliance, the increasing cost
of debt, high inflation, rental growth rates,
void periods and REIT obligations.
Assumptions
The Group has cash resources at the start of
the look forward period of £20.7 million which
is a key factor in assessing the viability of the
Group.
Key assumptions underlying the base-case
scenario of the model were as follows:
• The Group has no refinancing
requirements until 2025 and has utilised
interest rate swaps/caps (or fixed rate
borrowing) to fix or hedge 75% of
borrowing, thus lowering exposure to a
volatile interest-rate environment. It has
been assumed that debt facilities can be
refinanced as required in normal market
lending conditions,
• Despite the disruption in the economy
caused by COVID-19 and the uncertain
economic outlook with high inflation
and increasing interest rates, we do not
expect the risk of default under our debt
facilities to have increased and no breach
cures have been assumed in the forecast
model. This is considered appropriate
in light of the strong relationships with
our facility providers, and, at the time
of publishing this report, significant
headroom for all interest cover ratio and
loan to value ratio covenants.
• The assessment has considered the
downturn in the economic outlook, in
part as a result of the war in Ukraine,
as well as the potential impact of Brexit
and wider global recessionary concerns.
The effect of increased voids, lower
rental growth and increased costs would
suppress operational performance,
although the strong fundamentals within
the MLI sector and the diversity of our
customer base are expected to mitigate
the potential negative business impact.
• In respect of the pandemic, we believe
that the demand for MLI space will remain
strong and that we will ultimately collect
the majority of rents due as shown by our
rent collection trends since the start of
the pandemic. The model anticipates that
bad debts will fall back to pre-COVID-19
levels of c.2.0%. We believe that the
scenarios included in the model suitably
address the low impact of COVID-19 on
our business.
Viability statement
In light of this review the Directors have a
reasonable expectation that the Group will
be able to continue in operation and meet its
liabilities as they fall due over the five-year
period of their assessment.
51
Annual Report 2022
Risk management continued
Principal
risk
Potential
impact
How we monitor
and manage the risk
Movement in
the period Trend
Link
to KPIs
Strategic and market risks
1
Economic outlook
and political risk,
including rising
inflation and
interest rates,
the impact of
the COVID-19
pandemic, Brexit
and the war in
Ukraine
Link to FY23
strategic objectives
A B D
Macroeconomic conditions can
impact both the delivery of
our strategy and our financial
performance. The economic
disruption resulting from the
COVID-19 pandemic affected
some of our tenants and
impacted our rent collection
levels, although not in a material
manner. However, significant
political events, including decisions
related to Brexit and the economic
sanctions imposed on Russia
following the war in Ukraine,
could further impact the health of
the UK economy, contributing to
rising inflation and interest rates,
affecting both our tenants and our
business with higher operating
costs and borrowing costs.
The Board considers economic
conditions and political uncertainty
when setting strategy, as
well as when overseeing the
implementation of the strategy and
setting the Group’s risk appetite. It
remains prudent when considering
debt and LTV levels and maintains
a policy of hedging against interest
rate exposure at least 75% of its
debt. The executive and senior
teams are highly experienced
and have a strong track record
of understanding the property
market. It ensures effective
forecasting and scenario planning
as well as the maintenance of
appropriate liquidity levels.
The impact of the pandemic on
the business has not been as
severe as originally feared and rent
collection levels are trending back
to pre-pandemic levels.
However, our customers could be
affected by the changing economic
environment, and an increase in
both operational and financing
costs is to be expected for the
Group.
01
06
10
04
02
09
11
05
2
Climate-related
risks
Link to FY23
strategic objectives
C D E
The inability to efficiently assess,
monitor and report on the impact
of the Group’s activities on the
environment with a view to limit
that impact over time is expected
to impact investors’ and other
stakeholders’ confidence in the
Company, and ultimately impact on
its ability to deliver on its long-term
strategic goals. Climate change
risks also include regulatory risks
(ongoing development of climate-
related regulations), physical risks
(the impact of extreme weather
events) and transition risks
(associated with the transition to a
low-carbon economy).
We worked with our sustainability
partner, Carbon Intelligence who
have performed a risk assessment
in line with TCFD guidelines. See
pages 61 for further information
on the results of that assessment.
In the current financial year, we
intend to embed the results of this
risk assessment into our business
operations, set scientific led targets
for a reduction in our carbon
emissions and improve further
on the quality of our reporting. In
addition, ESG metrics have been
incorporated into performance
targets for the purpose of our
long-term incentive plan. See page
115 for additional information.
We acknowledge that risks
associated with the impact of
carbon emissions and climate
change continue to increase
and that businesses that are not
responding to these risks are
likely to experience financial and
reputational damage.
10 12
52
Annual Report 2022
// Strategic Report
Principal
risk
Potential
impact
How we monitor
and manage the risk
Movement in
the period Trend
Link
to KPIs
Financial risks
3
Bank covenants
Link to FY23
strategic objectives
B
This may result in the acceleration
of the Group’s obligations to repay
borrowings and the disposal of
assets at discounted values.
Loan facilities usually incorporate
covenant headroom and cure
provisions. Management closely
monitors compliance with bank
covenants and continuously
assesses the likelihood of future
breaches based on valuation and
rental income.
We believe that this risk is
increasing due to the rapidly
changing economic environment.
However, we continue to maintain
significant headroom for loan
covenants. See page 47 for Group
debt metrics.
01
07
03
02
08
04
4
Availability and
cost of funding
Link to FY23
strategic objectives
B
The inability to raise adequate
funding in the form of equity or
debt finance, or refinance existing
facilities, would impact the ability
of the Group to grow the MLI
portfolio and increase the costs of
borrowing.
The Group maintains strong
relationships with investors and
top-rated financial institutions. We
operate a conservative gearing
policy with gearing equal to 28.1%
as at 31 March 2022 and we
continue to proactively manage our
debt maturity profile and reviewing
and diversifying our lender base.
Our MLI portfolio has a weighted
average debt maturity of 4.2 years,
with the next maturity occurring
in February 2025. However, our
all-in contracted weighted average
cost of debt has increased over the
period (2.19% at 31 March 2022
v. 1.97% at 31 March 2021) and is
expected to increase further in the
current financial year.
08
01
06
03
02
07
04
Operational risks
5
Poor performance
of the Industrials
Hive platform
(including property
accounting and
marketing)
Link to FY23
strategic objectives
A C
D E
Operational inefficiencies and
increased costs, including impact
on billing, rent collection and poor
marketing, reducing earnings or
preventing growth.
We have designed the platform
with industry experts. Following
the strategic decision to internalise
the property accounting function,
we have hired a team of
professionals, who, together with
our experienced and dedicated
team of asset managers and
marketing experts, bring deep
expertise in managing MLI
properties. They are supported
internally by our in-house tech
team and data analysts, and
externally by our technology
partners.
We have successfully launched our
new ERP system on 1 April 2022.
We perceived this as an increased
area of risks as we implement
new systems and processes.
However, we are confident that
we have the appropriate controls
in place to mitigate this risk and
have recruited the right team of
professionals. See pages 28 and
29 of this Report for additional
information.
09
11
10
01
06
04
02
08
05
Key to Trend
Increase Decrease No change
Link to KPIs
01
Adjusted earnings per share (pence)
02
Dividends per share (pence)
03
EPRA Net Tangible Assets (NTA) per share
04
Total accounting return %
05
Like-for-like MLI valuation increase
06
EPRA cost ratio %
07
MLI portfolio %
08
Group loan to value (LTV) %
09
MLI occupancy %
10
Like-for-like MLI rental growth %
11
MLI Lease renewal rate %
12
Average Energy Performance Certificate (“EPC”) rating
Link to FY23 Strategic Objectives:
A
Cut time and cost from the leasing process
B
Generate new MLI acquisitions
C
Enhance customer service
D
Improve operational efficiencies
E
Embed sustainability into all business activities
F
Refine and develop our organisational culture
53
Annual Report 2022
Risk management continued
Principal
risk
Potential
impact
How we monitor
and manage the risk
Movement in
the period Trend
Link
to KPIs
Operational risks
6
Poor performance
of the asset
management team
Link to FY23
strategic objectives
A C D E
This may result in the inability
to meet rental growth targets,
increased voids and leakage costs
and negatively impact earnings.
The Group relies on an
experienced team of professionals
who actively engage with tenants
and monitor payments. All
prospective tenants go through a
robust credit check and deposits
are usually required. In addition,
the MLI platform focuses on a
high-quality customer service
culture. With the development
of the Industrials Hive platform,
the interaction with the tenants
is increased, potential difficulties
spotted early, solutions discussed
and remedial actions taken early,
reducing arrears and irrecoverable
expenditure.
See pages 28 to 29 of this Report
for additional information on our
MLI operating platform.
09
11
10
01
06
04
02
08
05
7
Major health and
safety incident at
an MLI site
Link to FY23
strategic objectives
C F
A major health and safety incident
at one of our MLI sites would affect
our customers, contractors and
employees and cause reputational
damage to our industrials.co.uk
brand and loss of trust.
All health and safety matters
are currently outsourced to our
property manager for UK MLI
estates and closely monitored by
our internal asset management
team. Going forward with the
planned in-housing of property
and facilities management, we
intend to partner with a health and
safety expert to increase health
and safety compliance and service
delivery to our customers.
Despite the challenges of the
pandemic and changes in building
regulations, this risk is deemed to
have remained constant during
the period with no major incidents
reported. However, the Board is
aware of the challenges presented
by the planned in-housing of
facilities management and for
this reason is closely monitoring
existing and future planned
practices.
03
10
05
04
11
09
8
Information
security and
cyber threat
Link to FY23
strategic objectives
A C D
This could lead to disruptions
in effective asset management,
impeded access to systems for
tenants and business partners,
loss of business or confidential
data and reputational damage.
The Group engages external
information technology experts
to ensure the systems operate
effectively and that the Company
responds adequately to the
evolving IT security environment.
IT systems are audited and tested
periodically, and a comprehensive
business continuity and disaster
recovery plan is in place. All staff
receive regular training and we
have improved awareness for
employees on information risks of
working from home.
This risk is increasing due to
the increased reliance of the
Group on technology as part of
the Group’s long-term strategy
and due to recent changes in
working practices as a result of the
pandemic.
01
06
04
02
05
// Strategic Report
Annual Report 2022
54
Principal
risk
Potential
impact
How we monitor
and manage the risk
Movement in
the period Trend
Link
to KPIs
Operational risks
9
Reliance on
technology
partners
Link to FY23
strategic objectives
A C D
Although the Group’s strategy is to
in-house key operational functions
such as property accounting
and property and facilities
management, it is now more
heavily dependent on external
technology partners for continued
successful and effective operations
and financial reporting.
Our in-house technology team
vets all technology partners before
they are engaged and works in
close collaboration with them to
ensure an appropriate level of
oversight.
This risk is also increasing due
to the increased reliance of the
Group on technology which sits
at the core of the Industrials Hive
operating platform.
11
0905
10
Employment and
retention of key
personnel
Link to FY23
strategic objectives
B C E F
The departure of key individuals
and the inability to recruit suitable
replacement could negatively
impact the ability of the Group to
develop and operate its Industrials
Hive platform. It could impact
performance and earnings.
The Company maintains policies
and procedure to support and
develop all employees. See page
30 for additional information
on our corporate culture, page
72 on our people as well as the
Remuneration Committee Report
on pages 100 to 115 for additional
information on the Company’s
remuneration policy and incentive
schemes.
This risk has increased during the
period. The Company is proud of
its caring working culture, which
focuses on the wellbeing of its
employees as well as results.
It continues to promote team
working, trust and accountability,
learning and innovation, and
offers a supportive environment
in which all employees are able to
develop and make a meaningful
contribution to the success of the
Company. However, it is widely
recognised that the employment
market in the sector is currently
employee-led and highly
competitive.
11
10
01
09
0706
04
02
05
Key to Trend
Increase Decrease No change
Link to KPIs
01
Adjusted earnings per share (pence)
02
Dividends per share (pence)
03
EPRA Net Tangible Assets (NTA) per share
04
Total accounting return %
05
Like-for-like MLI valuation increase
06
EPRA cost ratio %
07
MLI portfolio %
08
Group loan to value (LTV) %
09
MLI occupancy %
10
Like-for-like MLI rental growth %
11
MLI Lease renewal rate %
12
Average Energy Performance Certificate (“EPC”) rating
Link to FY23 Strategic Objectives:
A
Cut time and cost from the leasing process
B
Generate new MLI acquisitions
C
Enhance customer service
D
Improve operational efficiencies
E
Embed sustainability into all business activities
F
Refine and develop our organisational culture
55
Annual Report 2022
Section 172 statement
and stakeholder
engagement
On 11 June 2021, the Board announced its intention to transfer
the Company’s listing on the LSE from the Specialist Fund
Segment to the Premium Segment of the Main Market (the “LSE
Transfer”).
The Board considered that the LSE Transfer would reflect the
Company’s transition to a focused UK MLI operating business
and the rotation of its shareholder register to primarily UK and
EEA investors. The Board also anticipated that the LSE Transfer
would broaden the Company’s share register, enhance access to
capital and allow the Company to focus on being an operational
real estate company under Chapter 6 (commercial company) of
the FCA’s Listing Rules.
The LSE Transfer took effect on 20 December 2021. Additional
matters were discussed and decided by the Board during the
reporting period, all closely linked to the LSE Transfer. They
included the rebrand from Stenprop to Industrials REIT, also
believed to promote the long-term success of the Group, the
constitution of the Disclosure Committee to assist the Board
with its obligations with respect to the disclosure of information
to the public, and the launch of the Industrials REIT ShareSave
Scheme.
The Industrials REIT ShareSave Scheme is accessible to all
employees at all levels and allows them to save monthly over
three years with the option to acquire shares of the Company at
a discount at the end of the three-year saving period. The Board
considers that the scheme provides better long-term alignment
between the interest of all employees and those of other
shareholders. With the LSE Transfer, it also provides employees
with liquid assets at a discount and allows them to participate in
the success of the Group.
Section 172(1) matters considered in these decisions:
(a) the likely consequences in the long term;
(b) the interests of the Company’s employees;
(c) the desirability of the Company maintaining a reputation for
high standards of business conduct; and
(d) the need to act fairly between members of the Company.
Case Study:
Transfer to the
Premium Segment
of the LSE’s Main
Market
Read about our corporate
governance overview on
p. 89 to 93
The Board understands and believes that the long-term success of
the Company is intrinsically linked to the interests of its stakeholders.
Asummary of how we engage with our stakeholders is provided
on page 57 with examples and additional information disseminated
throughout this report.
When making decisions, the Board is committed to complying with the
duty set out in section 172(1) of the UK Companies Act 2006 (“Section
172(1)”) which imposes a statutory obligation on each Director to act
in the way that they consider, in good faith, would be most likely to
promote the success of the Company for the benefit of its stakeholders
as a whole having regard to certain factors. As required by the 2018
UK Corporate Governance Code, we explain in the case studies below
how the Directors considered the matters set out in Section 172(1)
when discharging their duties to the Company and its stakeholders by
reference to some of the key activities and strategic decisions made
during the year.
Additional information on the operation of the Board and its key
activities during the year are also set out on pages 89 to 93.
Section 172(1) statement
The Board confirms that, during the year under review, it has
acted to promote the long-term success of the Company for
the benefit of its Shareholders, while having due regard to the
matters set out in section 172(1)(a) to (f) of the Companies Act
2006, being:
(a) the likely consequences of any decision in the long term;
(b) the interests of the Company’s employees;
(c) the need to foster the Company’s business relationships with
suppliers, customers and others;
(d) the impact of the Company’s operations on the community
and the environment;
(e) the desirability of the Company maintaining a reputation for
high standards of business conduct; and
(f) the need to act fairly between members of the Company.
// Strategic Report
Annual Report 2022
56
57
Annual Report 2022
Why we engaged How we engaged What we did following engagement
Shareholders
Our value proposition includes
delivering consistent total returns to
our investors, while meeting investors’
expectations around sustainability,
social responsibility and governance.
• Release of annual and half-year results as well as
quarterly trading updates, each followed by webinars
with Q&A sessions
• Investor meetings and presentations
• 2021 annual general meeting and February 2022
general meeting
• Property tours
• ESG materiality assessment (see page 66)
• Publication of Industrials REIT news and regular
updates via RNS and SENS, Industrials REIT website,
social media and press articles
• Analyst/investor reports
• Feedback from corporate brokers
• Dedicated shareholder email address
Feedback from our shareholders has influenced decision-
making in general, with the following as particular examples:
• We transferred the Company’s listing to the Premium
Segment of the LSE’s Main Market and rebranded the
Company to Industrials REIT
• We continued our engagement with our sustainability
partner, Carbon Intelligence and are implementing our
ESG strategy, which includes the setting of science
based targets for carbon emissions
Our customers
We want to understand our
customers, their needs and
expectations. This is key to delivering
a high-quality experience to them and
delivering the vision of The Power of
Space, providing space that matters.
• Network of regional customer engagement managers
who, together with our asset managers and in-house
property accounting team, continue to interact and
transact directly with our customers
• Customer surveys
• Dedicated multi-channel communications including live
chat, our 0800 call centre and web forms
We have continued our Smart Lease roll-out in England and
Wales, as well as Scotland.
We constantly and proactively adjust our sales and
marketing strategy based on feedback received. We have
also made the strategic decision to inhouse property and
facilities management to enhance customer service and have
provided flexibility on rental payments where appropriate.
Our people
Our people are at the heart of our
business. The Power of Space is also
providing space that matters for them,
to allow them to grow and thrive. We
strive to promote a strong culture
where they feel proud, passionate and
motivated to be part of the Industrials
REIT journey.
• Weekly live updates from our CEO, MD and CFO
including presentations on strategy and goals
• Annual and semi-annual performance review interviews
• Employees surveys and working groups on various
subjects such as culture, ESG, hybrid working and
the new offices, as well as an annual “Have Your
Say” survey
• Presentation by our dedicated NED for employee
engagement, including a discussion on the results of the
2022 Have Your Say survey, and opportunity for one-
on-one private discussions
We launched a new hybrid working
policy and reviewed and refined our
culture. We also launched the Industrials
REIT ShareSave Scheme, improved the
structure of the weekly live updates
from the executive team, and expanded
on the content and training materials
made available on our intranet via our
Employee Hub.
For information on the presentation by
our dedicated Non-Executive Director for
employee engagement and the outcome of
that presentation, see page 93.
Read more
on hybrid
working
on p. 58
Business partners, lenders and suppliers
We understand the importance of
building trusted relationships with
our business partners, lenders and
suppliers to deliver on our strategic
goal and promote the long-term
sustainable success of the Group.
• Close and constructive relationships with our business
partners, lenders and suppliers
• Clear and transparent reporting on key metrics and
targets, both from us to them and them to us
• ESG materiality assessment (see page 66)
We constantly review and adjust our processes to increase
efficiencies and reduce costs for us and our partners. In
September 2021, we successfully concluded a NatWest
debt refinance and throughout the reporting period we
have continued and developed our partnership with our
technology partners to support Industrials Hive.
Local communities
We believe in The Power of Space to
support local communities. It is part
of our values and culture to contribute
what we can to their development
and growth, and we believe that they
contribute to our long-term success.
• Engagement with our charity partner for the year We continued to support our Charity of the Year, via
marketing initiatives and social media campaign to increase
awareness amongst our people, customers, partners and
the community, as well as various fundraising initiatives
throughout the reporting period (see page 73).
The environment
We understand that our long-term
success is dependent on our ability
to operate sustainably, identify and
mitigate climate risks while taking
advantage of the opportunities they
present.
• Engagement with Carbon Intelligence to analyse
and improve our understanding of climate risks and
opportunities
• Engagement with key stakeholders to understanding
their primary concerns around sustainability
• Work towards understanding our carbon footprint
and pathways to improving the energy efficiencies of
our space
Our ESG steering group continued its work for the promotion
of ESG actions across the Group throughout the reporting
period, under the oversight of the Social and Ethics
Committee and the Board. See page 116 for additional
information on the work of the Social and Ethics Committee
and pages 64 to73 for additional information on our
approach to sustainability and planned areas of focus for the
current financial year.
57
Annual Report 2022
Section 172 statement and
stakeholder engagement
continued
Case study:
Hybrid working
In the summer and autumn of 2020, a workgroup was
constituted with employee representatives from all
departments and levels, to discuss the advantages and
disadvantages of working from home versus working from
the office, as experienced in the first stages of the pandemic.
Building on the results of this consultation, transforming
the way we work to align to our employees’ needs while
supporting the operations of the Group, our customers,
partners and shareholders and with the long-term success
of the Group in mind, has been a key priority during the
reporting period. The Board, supported by the Social and
Ethics Committee, oversaw the process that led to the
adoption of a new hybrid working policy of the Group.
A “test and learn” approach was adopted, prioritising safety
and wellbeing throughout. The Company trialled three
forms of hybrid working during the year, each with varying
degrees of flexibility given to staff to choose when to work
from the office and when to work from home. All employees
were asked to feedback on their experience following each
trial and comment on how their work and personal life were
impacted.
The feedback received was carefully considered and a new
hybrid working policy, giving greater flexibility to employees
than the three models trialled during the year, was rolled out.
The Board noted the need to ensure that all employees are
treated equally, whether they are working from one of the
Company’s offices or remotely, and that hybrid working is
carried out safely and in accordance with Company policies
and current legislation. With the new model, the Board also
considered the evolving culture and values of the Group
(see page 3 and page 30), how to enhance workplace
collaboration when working in the office to promote
innovation, connection and providing a sense of belonging
(see case study on the enhancements made to our office
space on page 31), staff wellbeing more generally and the
impact on customers and suppliers.
Section 172(1) matters considered in this decision:
(a) the likely consequences in the long term
(b) the interests of the Company’s employees
(c) the need to foster the Company’s business relationships
with suppliers, customers and others
(d) the impact of the Company’s operations on the
community and the environment
(e) the desirability of the Company maintaining a reputation
for high standards of business conduct
(f) the need to act fairly between members of the Company.
58
Annual Report 2022
// Strategic Report
Read more on our Why,
How and What section
on p. 03
Read more on
understanding our
stakeholders on p. 66
Case study:
Facilities management
Following the roll-out of our new integrated ERP platform
and the in-housing of the property accounting function,
the Board made the strategic decision during the reporting
period to cease outsourcing the facilities management
operations for the entire MLI portfolio.
The Group has recruited a Head of Facilities Management
who will manage the implementation of this decision during
the current financial year. It is expected that a network of
regional facilities managers will be recruited to oversee our
portfolio, region by region, and that customers will benefit
from a better customer service provided by Industrials’ own
staff unlocking The Power of Space. It is also expected
that suppliers will be required to complete Industrials’
own vetting and onboarding programme ensuring that
they adhere to the Group’s values and high standards of
business conduct. Other factors considered by the Board
included the evolving requirements and expectations of all
our stakeholders in relation to sustainability and climate
risks. By creating and nurturing direct relationships with our
suppliers, we can ensure that they support our ESG strategy
and work with us to reduce the environmental impact of our
operations.
Section 172(1) matters considered in this decision:
(a) the likely consequences in the long term
(b) the need to foster the Company’s business relationships
with suppliers, customers and others
(c) the impact of the Company’s operations on the
community and the environment
(d) the desirability of the Company maintaining a reputation
for high standards of business conduct.
59
Annual Report 2022
In accordance with Listing Rule LR 9.8.6 (8),
Industrials REIT discloses its alignment with
the Task Force on Climate-related Financial
Disclosures (“TCFD”) Recommendations.
This marks our second TCFD disclosure and is
the culmination of in-depth risk identification
and assessment with climate risk experts
Carbon Intelligence. Below, we set out our
progress against the four pillars of the TCFD
framework.
1. Governance: How we ensure robust
governance of climate-related risks and
opportunities
2. Risk management: What the actual and
potential impact of climate-related risks
and opportunities are in our business,
strategy and financial planning
3. Strategy: How we identify, assess
and manage climate-related risks and
opportunities
4. Metrics and targets: How we measure
progress in reducing our greenhouse
gas (GHG) emissions and address other
climate-related risks and opportunities.
We continue to improve and align our internal
processes and public disclosures with the
TCFD’s recommendations on climate-related
financial disclosures.
Governance
Board Oversight
The Board of Industrials REIT has overall
responsibility for climate-related risks and
opportunities.
The Board monitors climate-related risks
alongside other business-specific risks
through its Audit and Risk Committee. This
committee meets at least four times a year
and reports to each Board meeting. The
committee monitors and reviews climate
risk using the Company’s risk matrix and the
risk management plan, where it has been
considered a strategic and market risk for the
business.
On behalf of the Board, the Social & Ethics
Committee reviews and approves strategy
and policy for climate and ESG. The
committee also monitors implementation of
this strategy and policy. This committee meets
at least twice a year.
Further information on our risk matrix can
be found in the Risk Management section on
p.52 to 55.
Management Role
At management level, the CEO has overall
responsibility for Industrials REIT’s response
to climate-related risks and opportunities. On
a day-to-day basis, the cross-functional ESG
Steering Group is responsible for identifying,
assessing and managing climate-related
risks and opportunities. The Head of Debt
and Special Projects chairs the group and
members include the Managing Director,
General Counsel and Company Secretary,
Head of Investment, a Senior Finance
Manager, the Head of Facilities Management
and an Asset Manager. The group meets and
reports to the Social and Ethics Committee of
the Board on a quarterly basis.
At an investment level, both the CEO and
Managing Director consider climate risks
and opportunities during the underwriting of
potential acquisitions.
Risk management
Identification, Assessment and
Management
Industrials REIT considers climate change to
be a principal risk which could impact multiple
areas of the business and has incorporated
this within the risk management framework.
The top five climate-related risks identified as
potentially material to the Group have been
included in the Company’s risk register. We
regularly review risk registers to ensure that
all relevant risks and changes to risks are up
to date and that necessary mitigation plans
have been put in place.
We identify and assess climate and other
risks using our risk framework. Risks are
classified as low, medium or high, based on
the likelihood of occurrence and materiality of
impact. Based on this, we decide whether to
mitigate, transfer, accept or control climate-
related risks. Any risk that could lead to a
potentially material impact triggers a detailed
review.
During the reporting period, workshops with
our specialist sustainability consultant have
taken place with stakeholders across the
business to further understand the potential
physical and transition risks of climate
change. This is an evolving area of focus.
At asset level, the relevant asset manager
is responsible for reviewing climate-related
risks. In addition to climate-related risk
management, our ESG Policy guides the
processes of investment decisions and
ongoing asset management; it also informs
procurement decisions, asset review forums
and forward-looking business plans.
In addition to being a principal risk to
Industrials REIT, climate change also presents
certain opportunities. The Company plans to
leverage the most significant climate-related
opportunities.
Overall Risk Management
Evaluation of climate-related risks and
opportunities is integrated into core areas of
the Industrials REIT business. This includes
safeguarding assets; operation of adequate
and effective systems; internal and financial
control processes; preparation of materially
accurate financial reporting information and
statements in compliance with all applicable
legal and regulatory requirements and
accounting standards; and oversight of the
external audit appointments and internal
audit function.
Further information on our risk management
process can be found in the Risk Management
section on p. 49
Strategy
Risks, Opportunities and Impact
In early 2022, Industrials REIT conducted
a materiality assessment of climate risks
and opportunities. First, we developed a
comprehensive list of risks and opportunities
based on an in-depth data review. We then
engaged internal stakeholders across the
Industrials REIT business to review these
risks and opportunities and assess their
potential impact.
This process yielded a long list of 33 material
climate risks and opportunities. The risks
included physical risks (both acute and
chronic) as well as transition risks (legal,
current and emerging regulation, technology,
market, reputation and services).
To narrow down these risks and opportunities,
we assessed their likelihood and impact on
our business over three time frames: short
(current financial year), medium (1-5 years)
and long term (risks over the asset lifetime of
30+ years). These time frames correspond
to our capital planning and the life of our
main assets. Using multiple time frames also
challenges our business to consider climate
risk over the long term.
Task Force on Climate-related
Financial Disclosures
Unaudited
60
Annual Report 2022
// Strategic Report
As a result of this process, we developed a list of the top six risks related to climate change and the top four opportunities. These can be found in
the tables below.
Risk type Description Potential impact Timeframe
How we monitor and manage
this risk *
Transition: Policy
and Regulations
The rise in regulations (e.g.
new requirement of an EPC C
rating by 2027) and increasing
pressure to disclose further on
environmental performance
(e.g. SBT, TCFD, CDP) pose
costs to our business and even
risks to assets.
Meeting evolving regulatory
requirements could lead
to growing resourcing and
operational costs. The rise
of regulations poses a risk to
assets potentially becoming
stranded.
Short term: 2022 We are working towards
improved EPC ratings and
continuously monitor and review
legal requirements, working with
Auditors and Sponsors to fulfil
growing expectations. We also
seek legal advice on regulations
regarding premium listing
requirements.
Transition: Market
Environmental performance
requirements of premium-
listed companies could rise.
Real or perceived poor climate
performance could influence
Industrials access to capital,
ratings scores and negatively
impact investor relations.
Concerns around Industrials’
business model and pace of
migration to a more sustainable
business and products could
negatively influence Industrials’
ability to attract new investors
or funding from equity and
debt markets. As preference
in ESG capital allocation
increases, access to debt
facilities might be hampered.
Long term:
2028-2050
Although we do not currently
use green-badged financing, we
actively consider all available
opportunities in the market.
Transition:
Reputation
Despite rising expectations for
climate and ESG performance,
Industrials may not successfully
implement our ESG strategy.
We may also fall behind our
peers in ESG performance.
Failure to meet stakeholder
expectations of our emissions
reduction strategy and ESG
performance could damage
Industrials’ ESG ratings
and rankings. This could
influence market valuation,
decrease stock price and
damage investor relations,
ultimately impacting Industrials’
reputation and credibility.
Medium term:
2023-2027
We are developing metrics to
track and communicate our
key performance and progress
towards targets. We are also
committed to implementing
green solutions to facilitate low-
carbon performance where it is
feasible.
Transition:
Reputation
If customers have significant
carbon footprints, this could
jeopardise Industrials’ ability
to meet our own performance
targets.
Customer electricity
consumption and GHG
emissions could affect
Industrials’ performance and
progress towards our targets.
This could have a negative
impact on our reputation.
Medium term:
2027-2035
We have recently conducted a
customer engagement survey to
understand our customer needs
and will be looking to enhance
our customer engagement
programme over the course
of 2023.
Physical: Acute
Increasing intensity and
frequency of floods and storms
in the UK could damage
Industrials’ estates, leading
to asset loss and/or damage.
Simultaneously, it could affect
customers by damaging leased
space and inventory, disrupting
their business continuity.
Damaged or lost assets and
operational disruptions could
lead to financial losses from
void units and write downs
to asset value. Loss of rent
could result due to customer
business disruption.
Long term:
2028- 2050
We undertake an environmental
survey and flood assessment at
the point of acquisition and have
insurance on our assets. Where
perceived flood risks exist, we
collaborate with local authorities
to ensure that mitigating controls
are in place.
Physical: Acute
A rise in extreme weather
events may make insurance
conditions less favourable.
Having a higher number of
assets affected by these events
could increase the costs of
insurance premiums or render
assets uninsurable.
Long term:
2028-2025
We undertake an environmental
survey and flood assessment at
the point of acquisition. Where
perceived flood risks exist, we
ensure that mitigating controls
are in place.
* Carbon Intelligence has not reviewed these controls at the time of publication.
61
Annual Report 2022
We continue to review and expand our climate-related risk controls. In
addition to those described in the table above, other controls include:
• Products and services: We are developing and evaluating more
sustainable solutions to improve the energy efficiency of our
buildings and reduce the impact of our estates on the environment.
Read more about the environmental performance of our space on
page 74 to 76. Typical solutions include the incorporation of LED
lighting to reduce energy usage, investigation of rooftop PV and
provision of EV charging points. We also seek to improve the fabric
of our buildings to enable us to offer better insulated and flexible
space, while also enhancing the building’s lifespan.
• Operations: We continue to embed ESG considerations into our
day-to-day business to ensure that we stay abreast of rising
stakeholder expectations and reputational risks. Examples include
consideration of ESG factors upon acquisition of new buildings and
incorporation of ESG targets into our personal KPIs.
• Supply chain: Climate-related risks and opportunities in our
investment value chain are increasingly considered as part of
day-to-day operations as we align our business with like-minded
service providers.
Task Force on Climate-related
Financial Disclosures
continued
Unaudited
Opportunity Type Description Potential Impact Timeframe
Resilience Industrials could generate our own
electricity with on-site solar panels.
On-site solar panels could increase
Industrials’ energy security, reduce the cost
of energy and generate additional revenue.
It could also meet customer demand for
low-emissions and low-cost tenancy while
helping to reduce Industrials’ Scope 3
emissions.
Medium term:
2023-2027
Resource Efficiency Industrials could benefit from energy
efficiency projects on assets.
Energy efficiency projects could lower GHG
emissions and bring financial gain, while
proving attractive to tenants.
Short term: 2022
Markets By becoming a low-carbon business,
Industrials could take advantage of
green finance and preferential borrowing
conditions.
Doing so would expand our access to green
financing opportunities. We could also
receive preferential borrowing conditions
linked to sustainability performance: interest
rates, sustainability-linked bonds and green-
badged loans.
Medium term:
2023-2027
Products & Services Industrials could advance our offering of
low-emission products and services.
Industrials has the potential to offer
supporting products and services to help
customers decarbonise and achieve their
ESG goals. New offerings could include
refurbishment, retrofitting, EV charging
infrastructure or renewable energy.
Medium term:
2023-2027
• Asset management: Climate considerations have been integrated
into a number of asset management processes. In addition, our ESG
Policy establishes processes of integrating climate considerations
across our investment processes including origination, due
diligence, approval, reporting and engagement.
Opportunities
We also assessed the potential opportunities for Industrials REIT that
may result from climate change. Since Industrials REIT has more than
1,500 occupiers, we could leverage our scale to help these small to
medium-sized enterprises reduce their emissions. This would also help
our assets retain value and be more resilient over the longer term, as
well as meet growing requirements from investors, insurance providers
and regulators.
Our top four opportunities related to climate change can be found in the
table below.
62
Annual Report 2022
// Strategic Report
Resilience
To enhance our approach to climate-related risk and opportunity and
further comply with the disclosure recommendations of the TCFD, we
will consider undertaking more in-depth analysis on the impact of climate
change on our business activities, e.g. scenario analysis. As a result, we
will gain a better understanding of how our business and assets may
be impacted, allowing us to implement further mitigation measures to
enhance our resilience.
Metrics and targets
Industrials REIT reports Scope 1 and 2 emissions in accordance with
the Greenhouse Gas Protocol. We also report our Scope 3 emissions,
following a gap analysis to identify applicable emissions categories
and reporting requirements. Our emissions for the reporting year are
reported on page 75. The emissions data collated during the course of
the year will form the baseline for future reporting.
As we continue to integrate ESG deeper into our business, we intend
to set Science Based Targets. These will help us to prioritise activities
and deliver maximum impact in the short and medium term. We
are committed to improving our data collection through customer
engagement and awareness programmes.
We are committed to reducing our carbon footprint. In light of the UK
government goal for all commercial leased buildings to reach an EPC
rating of at least a C by 2027, we are conducting a study to identify
the specific measures and targets which will further enhance the
energy efficiency of our buildings. Average EPC rating for our MLI
portfolio is included as an operational KPI for Industrials in March
2022. More information can be found on page 37. We continue to
work on other environmental issues such as biodiversity and waste
and water efficiency. In addition, our new developments will target
a BREEAM “Very Good” rating. We also aim to incorporate other
proven environmental measures in areas where we can bring about
meaningful impact. We report in line with EPRA Sustainability Best
Practices Recommendations for sustainability reporting; the EPRA
tables can be found on pages 78 to 83. Our SECR report is located on
pages 74 to 76.
63
Annual Report 2022
Our approach to sustainability
Key statistics:
67%
total electricity
consumption across
the portfolio came from
renewable sources
Scope 3 emissions
make up
99%
of our total footprint
Ability to influence
positive change on over
1,500
businesses and
104
local communities
Space that matters
Our focus shapes our ESG activities
The pandemic has accelerated a number of emerging trends around the way we live and work,
and brought increased focus on ESG and climate change. It has highlighted the need for us to
operate more sustainably in order to reduce our impact on the planet, to live and operate in an
increasingly populous society and deliver value to all our stakeholders beyond just a financial
return. Our ESG strategy and policy seeks to address these challenges, while also taking
advantage of the opportunities they present.
For
Suppliers
For
Shareholders
For
Lenders
For
Employees
For
Partners
For
Customers
For the
Environment
For
Communities
Space
that
matters
// Strategic Report
64
Annual Report 2022
ESG – identifying and managing risk and
exploiting opportunities
Over the last 12 months we have continued
to enhance the way ESG is incorporated
within our business activities both internally
and externally. There has been a strong
emphasis on the social, wellness and diversity
aspects. We have worked hard on our culture,
developed a hybrid working model and are
in the process of enhancing our workplace
model to ensure our people have the tools
and environment to innovate and excel. The
enhanced ESG governance model, established
in early 2021 by our ESG Steering Committee
has helped increase awareness of ESG issues
within our business processes and we are
continually looking to improve this.
Environmental initiatives and
carbon emissions
ESG is constantly evolving and therefore
prioritising our efforts is extremely important.
Over the course of the year, our carbon
emissions have risen due to the growth in the
size of the portfolio, and greater occupancy
and energy usage, as a result of the relaxation
of pandemic restrictions. We are committed
to the reduction thereof and a detailed study
has been undertaken on how best to improve
our building efficiency by, for example, the
installation of LED lighting and solar panels.
Read more on our EPC upgrade assessment
on pages 70 to 71. The implementation of the
Industrials Hive platform will
assist in enhancing the quality
and analysis of our emissions
data, going forward.
We worked with Carbon
Intelligence, our sustainability
partner, to help us better understand our
carbon footprint and to identify key impact
areas for our business. The findings of the
emissions assessment for the period ended
31 March 2021 are illustrated below. The
largest part of our carbon footprint comes
from our customers’ energy emissions (83%).
This is reported as Scope 3 emissions as it
falls outside of our direct control due to the
nature of our business. We have continued
to move our landlord supplies to green energy
but these utilities represent only part of the
total portfolio’s usage.
Customer engagement
A customer engagement survey was sent
to over 1,500 customers in March 2022, to
understand our customers’ requirements and
better address their needs. The number of
responses was encouraging. A big focus for
the next few years will be to engage with our
customers on key ESG issues to encourage
the procurement of renewable energy and
find smart ways to reduce overall usage as
well as improve data collection.
TCFD
We undertook a formal assessment of how
climate change is likely to affect our business
in the short to long term using the TCFD
framework, the findings of which are set out
more fully in the TCFD disclosure section. We
will be looking to better manage these risks
and embrace the opportunities in our day-to-
day operations, over the coming year.
Read about our TCFD disclosure on
p. 60 to 63
Read about our Risk Management on
p. 49 to 55
“ Making The Power of Space
work for our stakeholders,
sustainably.”
Preliminary modelling shows that Industrials REIT Scope 3
emissions make up over 99% of its total footprint. Scope 1
emissions from onsite fuels account for 0.1% and Scope 2
emissions (from electricity consumed on site) account for the
other 0.2% of the total footprint and both are considered de
minimis.
Scope 3 consists of predominately purchased goods and
services, capital goods and downstream leased assets. This is
the first year of reporting Scope 3 emissions; therefore, there
is a high proportion of estimated data. Figures may change as
quality improves.
Industrials REIT total emissions
Downstream
Leased Assets – 23,738
tC0
2
e (83%)
Employee Commuting – 695
tC0
2
e (2.4%)
Capital Goods –
1,079 tC0
2
e (3.8%)
Electricity –
53 tCO
2
e (0.2%)
Direct
emissions –
9 tCO
2
e (0.1%)
Purchased goods
and services –
2,844 tC0
2
e (10%)
Fuel and energy
related activities –
157 tC0
2
e (0.6%)
Scope 1 Scope 2
Scope 3
Industrials REIT total emissions
65
Annual Report 2022
// Strategic Report
We listen to our stakeholders.
Understanding our stakeholders
Low Importance to stakeholders
High
Low Importance to business High
1
2
3
14
13
12
11
5
9
4
6
7
8
10
Economic/
Governance
Environment
Social
Top 14 material issuesMateriality matrix
Stakeholder responses informed where the issues were plotted on the
y-axis. The x-axis was guided by the SASB risk matrix, with scores
based on our 2020 materiality assessment and industry averages.
We enhanced our materiality assessment
survey this year to include our external
stakeholders for the first time. The survey
covered environmental, social and governance
issues, with a focus on external issues. Our
people remain our number one priority, being
the engine that drives our business, where
staff surveys have been conducted to assess
employee satisfaction and canvass opinion.
We approached our major stakeholder groups
to complete the survey namely our people,
customers, lenders, key suppliers and key
investors and were encouraged by the strong
response we received. We also incorporated
a number of ESG-related questions into our
customer satisfaction survey this year which
helped supplement the materiality analysis.
The overarching finding was the marked
shift in thinking of all stakeholders to the
importance of carbon emission reductions and
climate-related issues.
Collaboration is key for society to make a
meaningful impact on our environmental
and social obligations and it was therefore
encouraging to confirm that our larger
partners demonstrated a willingness to work
with us on these issues. Our customers
demonstrated strong interest in exploring
ways to reduce energy usage/costs, improve
recycling and incorporate electric vehicle
(“EV”) charging points on our estates. The
survey also confirmed that there is more we
can do to engage with our customers on this
topic to help bring greater understanding of
ESG issues.
Read more about
Our stakeholder
engagement
on p. 57
01
GHG emissions
02
Energy efficiency of operations
03
Setting emissions reduction targets
04
ESG/reputation
05
Customer health and wellbeing
06
ESG/return on investment
07
Creation of jobs
08
Local supplier sourcing
09
Supplier screening (ethics)
10
Local community engagement
11
Water
12
Biodiversity
13
Waste reduction
14
Customer waste reduction
Our approach to sustainability continued
66
Annual Report 2022
Our approach to sustainability continued
“Energy cost reductions
are high priority due to high
charges.”
Customer
“ ESG performance is
critical to the Company’s
long-term value and should
be considered as
a top priority.”
Lending partner
“This is a hugely
important topic, but one
that is still evolving, so each
step needs to be considered
carefully. I think being slow to
act on this topic will see any
business begin to fall behind
the market.”
Lending partner
“As a landlord,
providing energy efficient
space is the most important
thing we can do. This is our core
product and is the place where
we can make the greatest
difference.”
Non-Executive
“Energy cost reductions
are high priority due to
highcharges.”
Customer
“It is very
important but as a
long-term investor we
are happy to see steady
improvements year on year
rather than try to accelerate
to unrealistic targets which
potentially damage returns in
the short run.”
Investor
“Tackling
global climate
change is now
imperative to the future
of the planet. All businesses,
people, countries
and continents must
play their part.”
Professional services
provider
“ESG performance is critical
to the company’s long-term
value and should be considered
as a top priority.”
Lending partner
Key comments
from stakeholders
67
Annual Report 2022
Our approach to sustainability continued
Our sustainability strategy
Our ESG strategy and policy have been developed in line with Industrials’ overarching vision to provide space that matters to
our customers, employees and their communities. The strategy strives to take a proactive stance on managing future climate
risk and opportunities to ensure that Industrials is able to achieve its vision, while supporting the transition to a lower carbon
and sustainable future through market leadership and engagement
01 02 03 04 05 06
Direction
Industrials is committed to putting in place
stretching targets across all three areas of
ESG. These targets will provide focus and
a detailed plan to prioritise resources over
the near to longer term.
Governance
The Board of Industrials REIT has overall
responsibility, with the Social and Ethics
Committee reviewing and approving ESG
strategy and policy. The ESG Steering
Group are accountable for the delivery and
communication of Industrials’ ambitions.
Data
Data plays a crucial role, with the
Industrials Hive platform forming a crucial
link to enable engagement and carbon
reduction across the business. Industrials
are committed to continually improving
the quality and breath of our data to track
progress and continually improve our
strategy.
Engagement
Empowering our people, our customers
and communities will enable us to drive
longer-term change. We do this through
continued engagement to ensure we
deliver on what matters most.
Performance
The Group will develop a programme of
works to drive down consumption and
carbon across the portfolio in line with
Science Based Targets, reducing both
physical and reputational climate risk.
Reporting
In order to demonstrate leadership,
disclosure and transparency, Industrials
will aim to continuously enhance its
annual reporting disclosure, considering
recommendations from GRI Standards and
TCFD as guidance.
ESG in action
• We undertook an EPC upgrade
assessment to better understand the
likely cost and revenue implications
of compliance with future EPC
regulations in line with tightening
legislation. We will be looking to
embed the findings into our Capex
programme.
• We reported our MLI portfolio’s
average EPC rating as a business KPI
for the first time.
Read about EPC upgrade assessment
on p. 70
ESG in action
• Strategy is owned at Board level and
managed via the ESG steering group
with board-level representation.
Read about our Governance
on p. 89
• Risks and opportunities are articulated
in the risk register in line with the
TCFD recommendations.
Read about our Risk Management
on p. 49 and Climate-related risks on p.52
• ESG-linked remuneration
Read our Remuneration Committee
Report on p. 100 to 115
ESG in action
• We have identified our carbon footprint
(Scope 1, 2 and 3) emissions, and
established our annual reporting
programme.
Read about carbon footprint emissions
on p. 65 and greenhouse gas emissions on
p. 75 to 76
ESG in action
• Employee satisfaction surveys
Read about
Investing in our People
on p. 72 and our s172 Stakeholder
Engagement on p. 56
• Enhanced materiality assessment with
internal and external stakeholders
Read about this on page 66.
• Customer engagement survey
Read more on page 65.
ESG in action
• Implemented ESG acquisition criteria
to ensure we are building a resilient
portfolio
Read about Transactions: acquisitions
on p. 42
• Implemented an EPC review to
establish anticipated costs to enhance
portfolio in line with future MEES
ratings, and identify a roadmap to
achieve this.
Read about EPC upgrade assessment
on p. 70
ESG in action
• Annual reporting of ESG in line with:
SECR and TCFD disclosure
requirements.
Read about TCFD disclosure
on p. 60
Read about SECR disclosure
on p. 74
• Most Improved award for disclosure
in line with EPRA Sustainability
Best Practices Recommendations
and Bronze award from EPRA for
sustainability reporting.
Focus for 2023
• Industrials REIT intends to establish
Near-Term Science-Based Targets, to be
validated by the Science Based Targets
Initiative (SBTi) within 24months.
• Further refine our ESG strategy keeping
it relevant and focused on material
issues, taking account of stakeholder
concerns and aspirations.
Focus for 2023
• Continue to analyse and improve
pathways for managing climate change
across the portfolio.
• Continue to integrate sustainability
criteria into lease clauses.
Focus for 2023
• Continue to use Industrials Hive to
improve our data capture, measurement
and reporting, ensuring greater visibility
and access to data for our stakeholders.
• Continue to model our key identified
risks and opportunities, and the financial
impact thereof.
Focus for 2023
• Investigate pathways to strengthen
engagement with customers and local
communities.
• Enhance learning and awareness of
key ESG issues amongst our people
and customers, empowering them to
operate more sustainably.
Focus for 2023
• Embed EPC review findings into our
asset expenditure programmes to
improve energy efficiency of buildings in
a sustainable manner.
• Keep up to date with the evolution
of renewable technology, evaluating
mature technologies appropriateness for
our business.
• Ensure new development is undertaken
sustainably.
Focus for 2023
• Further enhance annual reporting
disclosures, in line with TCFD and
including the setting of targets.
Read about
our strategy
on p. 32 to 35
68
Annual Report 2022
// Strategic Report
69
Annual Report 2022
Industrial’s ESG Strategy has been drawn up following a detailed programme of works assessing Industrial’s current, and aspirational ESG rankings
against the 6 dimensions of Carbon Intelligence’s strategic framework developed in partnership with the World Business Council for Sustainable
Development.
01 02 03 04 05 06
Direction
Industrials is committed to putting in place
stretching targets across all three areas of
ESG. These targets will provide focus and
a detailed plan to prioritise resources over
the near to longer term.
Governance
The Board of Industrials REIT has overall
responsibility, with the Social and Ethics
Committee reviewing and approving ESG
strategy and policy. The ESG Steering
Group are accountable for the delivery and
communication of Industrials’ ambitions.
Data
Data plays a crucial role, with the
Industrials Hive platform forming a crucial
link to enable engagement and carbon
reduction across the business. Industrials
are committed to continually improving
the quality and breath of our data to track
progress and continually improve our
strategy.
Engagement
Empowering our people, our customers
and communities will enable us to drive
longer-term change. We do this through
continued engagement to ensure we
deliver on what matters most.
Performance
The Group will develop a programme of
works to drive down consumption and
carbon across the portfolio in line with
Science Based Targets, reducing both
physical and reputational climate risk.
Reporting
In order to demonstrate leadership,
disclosure and transparency, Industrials
will aim to continuously enhance its
annual reporting disclosure, considering
recommendations from GRI Standards and
TCFD as guidance.
ESG in action
• We undertook an EPC upgrade
assessment to better understand the
likely cost and revenue implications
of compliance with future EPC
regulations in line with tightening
legislation. We will be looking to
embed the findings into our Capex
programme.
• We reported our MLI portfolio’s
average EPC rating as a business KPI
for the first time.
Read about EPC upgrade assessment
on p. 70
ESG in action
• Strategy is owned at Board level and
managed via the ESG steering group
with board-level representation.
Read about our Governance
on p. 89
• Risks and opportunities are articulated
in the risk register in line with the
TCFD recommendations.
Read about our Risk Management
on p. 49 and Climate-related risks on p.52
• ESG-linked remuneration
Read our Remuneration Committee
Report on p. 100 to 115
ESG in action
• We have identified our carbon footprint
(Scope 1, 2 and 3) emissions, and
established our annual reporting
programme.
Read about carbon footprint emissions
on p. 65 and greenhouse gas emissions on
p. 75 to 76
ESG in action
• Employee satisfaction surveys
Read about
Investing in our People
on p. 72 and our s172 Stakeholder
Engagement on p. 56
• Enhanced materiality assessment with
internal and external stakeholders
Read about this on page 66.
• Customer engagement survey
Read more on page 65.
ESG in action
• Implemented ESG acquisition criteria
to ensure we are building a resilient
portfolio
Read about Transactions: acquisitions
on p. 42
• Implemented an EPC review to
establish anticipated costs to enhance
portfolio in line with future MEES
ratings, and identify a roadmap to
achieve this.
Read about EPC upgrade assessment
on p. 70
ESG in action
• Annual reporting of ESG in line with:
SECR and TCFD disclosure
requirements.
Read about TCFD disclosure
on p. 60
Read about SECR disclosure
on p. 74
• Most Improved award for disclosure
in line with EPRA Sustainability
Best Practices Recommendations
and Bronze award from EPRA for
sustainability reporting.
Focus for 2023
• Industrials REIT intends to establish
Near-Term Science-Based Targets, to be
validated by the Science Based Targets
Initiative (SBTi) within 24months.
• Further refine our ESG strategy keeping
it relevant and focused on material
issues, taking account of stakeholder
concerns and aspirations.
Focus for 2023
• Continue to analyse and improve
pathways for managing climate change
across the portfolio.
• Continue to integrate sustainability
criteria into lease clauses.
Focus for 2023
• Continue to use Industrials Hive to
improve our data capture, measurement
and reporting, ensuring greater visibility
and access to data for our stakeholders.
• Continue to model our key identified
risks and opportunities, and the financial
impact thereof.
Focus for 2023
• Investigate pathways to strengthen
engagement with customers and local
communities.
• Enhance learning and awareness of
key ESG issues amongst our people
and customers, empowering them to
operate more sustainably.
Focus for 2023
• Embed EPC review findings into our
asset expenditure programmes to
improve energy efficiency of buildings in
a sustainable manner.
• Keep up to date with the evolution
of renewable technology, evaluating
mature technologies appropriateness for
our business.
• Ensure new development is undertaken
sustainably.
Focus for 2023
• Further enhance annual reporting
disclosures, in line with TCFD and
including the setting of targets.
69
Annual Report 2022
Space that matters:
unlocking energy efficiencies
EPC upgrade assessment
What
We have undertaken a desktop project to
understand the likely cost to Industrials REIT
of compliance with future Energy Performance
Certificate (EPC) regulations in the UK. The
project looks at what improvement works
would be required to maintain compliance and
the likely cost of implementing them across
the Industrials REIT portfolio.
Why
Across the UK all commercial buildings are
required to have an EPC when they are
constructed, sold or let which gives tenants,
owners or prospective buyers information on
how energy efficient the property is. An EPC
assessment is a complex calculation which is
based upon several factors, including:
• the type of construction;
• whether different parts of the building are
used for different purposes;
• the heating, cooling, ventilation and hot
water systems used; and
• the lighting used throughout the property.
EPC Certificates provide a score which
translates into a grade from A-G, with A
being the most efficient and G being the
least efficient. At present, a commercial
EPC Certificate lasts for ten years from the
assessment date.
At present, landlords in the UK cannot
complete a new letting of a building with an
EPC rating of less than an E. In addition, from
April 2023, to obtain a new EPC assessment,
landlords will be obliged to carry out
improvement works on any buildings with an
EPC rating of less than an E, meaning that the
requirement to improve buildings will extend
to buildings already let rather than just at the
point of letting.
However, the Government is currently in
consultation on several additional measures
aimed at improving the energy performance
of the UK’s commercial building stock.
These include a phased implementation of
requirements which preclude the letting of a
unit with an EPC of less than a C from April
2025 to 2027, and a subsequent phased
tightening of this requirement to no less than
a B from April 2028 to April 2030.
Furthermore, as part of its package of future
measures, the Government intends to alter
legislation so that a building must always
have an up-to-date EPC during the whole
time that it is let. This would cover cases
of lease renewal where current guidance
suggests that an EPC is not necessary where
an existing tenant is renewing its lease.
Considering this tightening legislation, it is
important for Industrials REIT to understand
the likely cost and revenue implications of
compliance with future EPC regulations,
specifically in relation to upgrading the
existing portfolio to a minimum level of a C by
2027 and a B by 2030.
How
We completed a sample set of 136 EPC
assessments on existing units to establish
what improvements would be required to
secure an EPC rating of at least a B. The
sample set covered approximately 5% of
our total portfolio by floor area and 10%
by unit count, meaning that it represented
typically smaller units which are normally
disproportionately expensive to maintain/
improve. The average current rating of those
units assessed was 93, reflecting an EPC
score of D, which is broadly reflective of the
average EPC rating within our total portfolio
which currently stands at 83 points and a D
grade.
The assessments were limited to the
following set of practical improvement works,
many of which we already regularly undertake
when refurbishing MLI buildings:
1. installation of solar panels;
2. installation of LED lighting;
3. removal of old and inefficient heating
equipment;
4. installation of air source heat pumps in
offices; and
5. installation of additional roof insulation.
The works would be either implemented as
individual items or combinations of the items
from the list above.
Despite the limited set of works options, every
building assessed would achieve a rating of
no less than a B through implementation of
one or more of these work items, with some
units even achieving a rating of A+ reflecting
a rating of net zero carbon emissions. Overall,
the average unit would improve from a
score of 93 to a score of 36, reflecting an
improvement from a relatively poor Grade D to
a relatively good Grade B.
Sample: Current EPC Rating
Grade Count Average Score
C 31 67
D 58 88
E 44 116
F 3 145
Total/Average 136 94
Sample: Post works EPC Rating
Grade Count Average Score
A+ 7 (17)
A 10 13
B 119 41
C or higher 0 N/A
Total/Average 136 36
Having completed this exercise, we priced
up the likely cost of completing the works
required to deliver the EPC improvements.
Given the units within our portfolio are all
relatively uniform (being purpose-built MLI of
standard construction), the cost of the works
identified is relatively consistent. In addition,
given the high frequency with which we
complete these types of work, the costs were
well-known and likely to be accurate. The
individual items ranged from around £2 per sq
ft for new lighting up to c. £9 per sq ft for new
solar panels on the roof.
70
Annual Report 2022
// Strategic Report
Conclusions
It is important to note that this is a preliminary and high-level desktop
appraisal of the impact of compliance with proposed EPC regulations
in 2030. These regulations are still in consultation, and hence they, and
the methodology behind calculating EPCs, are likely to be subject to
change in the future. In addition, the method used is an extrapolation
from a sample and is hence not a detailed appraisal of each unit in the
portfolio, while the indicative costs used are estimates. Therefore, it
is intended to give an indicative view of the likely cost of compliance
and may be subject to change in future as more detailed analysis is
completed and greater clarity on future regulations is given.
Having taken these limitations into consideration, based upon the
analysis undertaken, we have derived the following conclusions:
• Across the sample taken, the estimated spend to meet an EPC
of B or better was £2.3 million across 380,000 sq ft of space
assessed, reflecting an investment of £6 per sq ft or 7% of average
asset value;
• Some improvement measures were more cost effective than others,
with new LED lighting delivering an average improvement of
50EPC points for a low average cost of £2.17 per sq ft;
• Solar panels alone delivered an average EPC improvement of
40points across a sample of 9 units, at an average cost of £9
per sq ft;
• Across the 26 examples where new LED lighting and solar panels
were installed, the average EPC improved by 65 points, equivalent
to the total gain required to move the average EPC rating across
our whole portfolio to a B or better;
• Solar panels are expensive and can be complicated to install, but
we believe that these factors are outweighed by the potential
revenue benefits available from selling green energy to customers.
As a result, it is reasonable to assume that an investment in solar
panels across the portfolio would be profitable, or cost neutral at
worst;
• If it is assumed that solar installations are cost neutral, the average
cost of the remaining package of works required to improve the
EPCs to B grade or higher was approximately £2.70 per sq ft.
• If you apply the same pro rata investment of £2.70 per sq ft across
the whole portfolio, this would result in an investment between
now and 2030 of c. £21.6 million, reflecting c. 7.5p per share.
• However, for the past three years, we have been installing LED
lighting in all vacant units as part of our basic refurbishment
specification and have installed solar panels on three estates. In
most instances, enhancement works have resulted in material
uplifts in rent which have more than justified the investment, as
customers have been willing to pay a premium rent for higher-quality
refurbished space with lower running costs. Therefore, any upgrade
costs are likely to be offset by the premium rental levels achieved.
Most importantly, it is encouraging that all units assessed were
capable of being upgraded to meet future EPC targets at an acceptable
economic cost, and that some can even be improved to net zero levels.
This clearly illustrates how sustainable MLI assets are, with limited
physical and design obsolescence giving them long lives with low
levels of capital expenditure. These characteristics also materially
reduce the lifetime carbon emissions of MLI properties, which in the
future is likely to become a key barometer for building sustainability
as greater scrutiny is placed upon the emissions generated during
the development phase and hence more onus is placed upon the
refurbishment of existing building stock. Moving forward, as we look to
set a Science Based Target, we will be incorporating the findings from
this piece of work within our roadmap, ensuring it remains at the core
of both compliance and target setting.
Space that matters:
Driving energy
efficiency through
EPC improvement
:
In December 2021, Industrials instructed a minor works scheme
to four units totalling just over 44,500 sq ft at St Peter’s Industrial
Estate, located in Huntingdon, Cambridgeshire. The scheme
consisted of a full roof overclad as well as extensive external
redecorations to all elevations.
As the terrace included one of our largest vacant units at just
over 13,000 sq ft, we commissioned a full internal refurbishment
of the space. Environmental performance was central to our
refurbishment specification, to actively seek ways to enhance the
EPC rating from a current grade of D.
A MEES (Minimum Energy Efficiency Standards) report was
prepared which identified a number of improvements that would
enhance energy efficiency by integrating cost effective and low
disruption improvement works.
An improvement from D-83 to B-49 was modelled by simply
ensuring that all spaces within the unit had a minimum spec of
LED lighting (120 lumens per watt+). This was incorporated as
additional detail into our specification.
The unit was let immediately upon completion of works, on a new
10 year lease at a rent reflecting a 26% uplift on the previous
passing rent.
71
Annual Report 2022
Our people
Investing in our people
The Power of Space
Creating space that matters, is also about creating the space our people
need to strive and succeed on a long term sustainable basis.
The wellbeing of our people has always been a pillar of our culture
and drives many of our social initiatives. The importance of providing
a caring, supportive and inclusive environment to our staff has
increased during the pandemic, and we have continued to build on the
investments made in that area over the past two years.
We have developed our employee engagement programme, with
a wide range of staff surveys and workgroups seeking employees’
views and feedback on a variety of subjects, from culture and values
and hybrid working to sustainability. We want to give our employees
an opportunity to be part of the conversation and we are committed
to listen. We believe that this is a driver of productivity and efficiency,
and that, with each individual bringing unique skills and perspective,
tapping into this diverse pool of thinking does not only improve
employees’ satisfaction but is also a great driver of innovation.
With the support and contribution of our people, we launched a
new hybrid working model, and are proud to report on the opening
of our new London office. Feedback received has confirmed that the
workplace is an important place for our people to connect socially and
we intend to increase social engagements over the coming year.
Breakdown of female vs. male employees as at
31 March 2022:
46%
54%
Male
Female
Training and development
We continue to evaluate training needs in line with business objectives.
We take both a company-wide and department specific approach
to training, with an emphasis on both technical and soft skills. We
are currently sponsoring several employees to study towards the
Assessment of Professional Competence to enable them to become
qualified Charted Surveyors (“MRICS”). We have also provided
assertiveness and confidence skills training, as well as time and priority
management training to certain staff over the reporting period. We
encourage all employees to make full use of the training opportunities
we provide, and to come forward with details of any specific training
programme they would like to undertake.
Health and wellbeing
We subscribe to an employee assistance programme so employees can
seek free confidential advice at times when they may require additional
support. We promote wellbeing through a number of additional
benefits, including private medical insurance and travel insurance for
all employees, a cycle to work scheme and various policies supporting
families and a healthy work-life balance. We have recently updated
or launched many of these policies, including new policies on hybrid
working, flexible working, adoption leave, maternity and paternity leave
and parental leave.
Supporting the local community
We actively encourage our staff to engage and support local
communities. We offer four half-days per calendar year of paid time off
to each employee for them to volunteer their time and knowledge for a
charitable initiative of their choice. We also operate a matched-giving
policy and will match every pound raised by our people for registered
charities of their choice. During the reporting period, we are proud
to have supported Dementia UK as our charity partner. This year, our
People have voted again and have chosen to support The Wellspring, a
charity local to our Stockport office.
Read about the charities we
support on p. 73
Read about our hybrid working
model on p. 58
Read about Enhancements to our
office space on p. 31
We also launched bi-annual engagement sessions with Patsy Watson,
our designated Non-Executive Director for employee engagement. We
are looking forward to continuing with this programme.
With over 63% of our employee population as at 31 March 2022
recruited in the previous 24 months, being able to attract and retain
talent is critical to our success and growth. We offer a competitive
remuneration and benefits package and strive to be a great place to
work. Wellbeing, equal opportunities, training and development and
investment in ESG principles are also all key elements to this success.
Equality and diversity
Our Equal Opportunities Policy is available on our website. We have
already achieved an equal balance in our gender diversity statistics
across our employee population, and are committed to promoting
diversity and equal opportunities in employment, via our blind hiring
process, partnerships with recruitment agencies and continuous
training of our people. We understand that diversity of backgrounds
promotes diversity of thought and will contribute to our long-term
sustainable success.
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Annual Report 2022
// Strategic Report
Dementia UK:
our charity partner
for the year ended
March 2022
Industrials REIT supported Dementia UK from April 2021 until
March 2022. A total of £18,588 was contributed to the charity
through a combination of fundraising initiatives and donations
from the Company. This amount will help Dementia UK increase
the number of specialist dementia nurses across the UK, so fewer
people have to face dementia alone.
Dementia UK is the specialist dementia nurse charity. Its nurses,
known as Admiral Nurses, provide life-changing support for
families living with all forms of dementia – including Alzheimer’s
disease. For families affected by dementia, they can be a lifeline.
Throughout the year, we have worked closely with our Corporate
Partnerships Executive at Dementia UK, Maria Shirlin, who has
continuously provided us with information about upcoming
fundraising events as well as unique and simple ideas for raising
money. The fundraising initiatives undertaken throughout the year
included a Halloween Bake Sale, raising a total of £800 across
both the London and Stockport offices. In December, we also
created our 12 Days of Christmas campaign where we invited
some of our key trading partners to make a donation to Dementia
UK and be featured on our Company LinkedIn page. We raised a
fantastic £2,450 from our trading partners and we also matched
this donation.
Although this year remained tough in terms of taking on bigger
fundraising challenges due to COVID-19 restrictions, we are
pleased we have still been able to support Dementia UK by
raising vital funds and awareness for families facing dementia.
Investing in our communities
The Wellspring
charity
For our new financial year, we welcomed our new and
exciting charity partner, The Wellspring.
The Wellspring supports the people of Stockport who are
homeless or at risk of losing their home. They provide the
resources, understanding, and care that their users need
inside the community that we all share. Professional staff
and dedicated volunteers at The Wellspring are there to
understand the complex and individual challenges of every
service user and help them make positive changes to their
lives.
The current strategy of the charity is built around the lives
of people they help every day. This means responding to
a combination of issues surrounding housing, physical &
mental health, domestic violence, substance misuse, debt,
unemployment, illiteracy, and social exclusion. It is often
simple pieces of advice and support, interventions at the
right time, giving professional guidance, and most of all
positive engagement that can make a difference. The charity
provides educational courses, computer courses, art classes,
and other activities such as football, walking groups and
gardening courses. Alongside this, they provide health
services, including a drop-in service from a GP, and referrals
to other specialist support services.
The Wellspring offers the hope that things can, and do,
change.
The Wellspring is local to our Stockport office, and we are
looking forward to getting involved, volunteering, raising vital
funds and raising awareness of the incredible work they do
and their impact on the local community.
73
Annual Report 2022
Streamlined energy and
carbon reporting
Unaudited
Environmental performance and strategy
Industrials REIT is a United Kingdom (“UK”) Real Estate Investment
Trust, which is listed both on the Premium Segment of the Main Market
of the London Stock Exchange (“LSE”) and the Johannesburg Stock
Exchange (“JSE”).
This statement has been prepared in accordance with our regulatory
obligation to report greenhouse gas (GHG) emissions pursuant to
the Companies (Directors’ Report) and Limited Liability Partnerships
(Energy and Carbon Report) Regulations 2018 which implement the
government’s policy on Streamlined Energy and Carbon Reporting.
During the reporting period 1st April 2021 to 31st March 2022,
our measured Scope 1 and 2 emissions (location-based) totalled
195tonnes CO
2
e.
This report for the financial year ending 31 March 2022 marks our
second Streamlined Energy and Carbon Reporting (“SECR”) submission
and summarises our environmental performance which includes
our consumption of fuels, electricity and water, waste generation
and business travel. These impacts have been calculated from both
landlord-obtained and tenant-obtained consumption.
Industrials has worked hard to improve the quantity and quality of
environmental data during the reporting period. The increase in metres
from 137 to 332 in the past year means that the data on which the
emissions are calculated now represents a larger proportion of our MLI
portfolio’s total floor area. Further sustainability-related information can
be found in our EPRA report on page 77.
As at 31 March 2022, the Group operates across the UK and holds an
interest in a care homes portfolio in Germany through a joint venture.
As management intends to dispose of this joint venture by March 2023,
and focus solely on the MLI portfolio in the UK, consumption data from
the joint venture has been excluded.
The table below shows the number of properties and the floor area
of our portfolio. Consumption data for environmental performance is
reported on the UK MLI portfolio, which is owned 100% by the Group.
By value, the UK MLI portfolio makes up 95.3% of the Group’s total
portfolio and 97.5% of the total floor area of our portfolio. During
the reporting period, the floor space of UK MLI increased by 29%
(1.7million sq ft ) due to new acquisitions. In addition, the UK MLI
portfolio now includes five assets which were previously classified as
UK urban logistics in 2021. To provide a more comprehensive view of
our environmental performance, consumption data reported below also
includes our corporate leased offices: our head office in Great Portland
Street, London and our regional office in Stockport. Together, these two
offices cover 4,758 sq ft.
Combined
portfolio
Area in sq ft (incl. long
leaseholds)
Number of
properties
Area in sq mIncrease since
prior year
Increase in
floorspace since PY
UK MLI 104 18% 8,131,427 755,876 29%
Joint venture 4 – 208,066 19,330 –
Total 108 18% 8,339,493 775,206 29%
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Annual Report 2022
// Strategic Report
Greenhouse gas emissions
During the reporting period, we acquired further assets, leading to a 29% increase in MLI floor area. Together with the lifting of COVID-19
restrictions and return to work, this inevitably led to a considerable rise in GHG emissions over the past year. A breakdown of our GHG emissions
(Scope 1, 2 and 3) for the reporting year ending 31 March 2022 is provided below, followed by an overview of the Company’s absolute energy
consumption. Our emissions intensity calculation is based on floor area relative to the Scope 1, 2 and 3 emissions.
Greenhouse gas emissions
12 months up to
31 March 2022
12 months up to
31 March 2021
Based on 88 assets
and leased office
space
Based on 104
assets and leased
office space
Scope 1 Landlord fuel consumption (kWh)
46,793 kWh 1,251,070 kWh
Greenhouse gas emissions (tCO
2
e) 9 tCO
2
e 47 tCO
2
e
Scope 2
(market-based) Landlord electricity consumption (kWh)
210,675 kWh 778,162 kWh
Greenhouse gas emissions (tCO
2
e) 49 tCO
2
e 0
Scope 2
(location-based) Landlord electricity consumption (kWh)
228,562 kWh 778,162 kWh
Greenhouse gas emissions (tCO
2
e) 53 tCO
2
e 165 tCO
2
e
Total Scope 1 & 2 emissions (market-based) (tCO
2
e) 58 tCO
2
e 29 tCO
2
e
Total Scope 1 & 2 emissions (location-based) (tCO
2
e) 62 tCO
2
e 213 tCO
2
e
Scope 1 & 2 (market-based) emissions intensity (tCO
2
/m
2
/yr)
*
0.002 tCO
2
e/m
2
yr 0.001 tCO
2
e/m
2
yr
Scope 1 & 2 (location-based) emissions intensity (tCO
2
/m
2
/yr)
*
0.002 tCO
2
e/m
2
yr 0.005 tCO
2
e/m
2
yr
Scope 3 Tenant fuel consumption (kWh)
5,063,208 kWh 4,931,030 kWh
Tenant electricity consumption (kWh)
3,341,795 kWh 7,830,007 kWh
Water consumption (m
3
) 16,665 m
3**
21,566 m
3**
Water diverted from landfill (tonnes) 13 tonnes 63 tonnes
Water sent to landfill (tonnes) 0 0
Business travel (tonnes) 4 tonnes 13 tonnes
Total Scope 3 emissions (tCO
2
e) 1,641 tCO
2
e 2,664 tCO
2
e
Scope 3 emissions intensity (tCO
2
e/m
2
/yr)* 0.02 tCO
2
e/m
2
yr 0.004 tCO
2
e/m
2
yr
Gross Scope 1, 2 and 3 emissions (market-based) (tCO
2
e)
1,690 tCO
2
e 2,162 tCO
2
e
Gross Scope 1, 2 and 3 emissions (location-based) (tCO
2
e) 1,694 tCO
2
e 2,859 tCO
2
e
* Scope 1 & 2 (market-based) emissions intensity (tCO
2
e/ m
2
/year) against total landlord floor area
** Currently, we only report disposal route data for the offices we lease. Where we have cost data associated with waste disposal from the MLI Portfolio, we have
reported associated emissions of 66 tCO2e although we can not yet state the waste type or disposal route.
75
Annual Report 2022
Streamlined energy and
carbon reporting
continued
Unaudited
Performance
Industrials REIT is committed to improving energy efficiency and
reducing GHG emissions in our portfolio. Our ESG strategy includes
reduction targets for Scope 1 and 2 emissions and our next step is to
develop a Science Based Target. This will commit Industrials to reducing
GHG emissions in line with a 1.5 degree future.
We continue to implement energy efficiency projects across our
business, such as LED lighting upgrades, so that all assets achieve an
EPC rating of at least a C by 2027. For further information, please see
our EPC improvement case study on page 71.
We are also increasing our share of energy from renewable sources.
During the reporting period, 67% of total electricity consumption across
the portfolio came from renewable sources, thereby reducing our
footprint under market-based reporting. Our on-site generation is still
limited but we feel there is an opportunity to increase this. To date, five
sites have on-site solar panels. We used 1,016 MW of solar electricity
generated on-site during the reporting period, thereby avoiding
215tonnes of CO
2
e emissions (“tCO
2
e”).
For the 12 months ending 31 March 2022, energy consumption across
landlord and tenant controlled sites totalled 14,818 MWh, while
energy intensity was 0.004 kWh/m
2
. This was based on available data
coverage (19% for electricity and 13% for gas). During the same period,
there was a significant increase in GHG emissions. This is largely due to
the 29% growth of our MLI portfolio, together with the return to work
after the lifting of COVID-19 restrictions. During the reporting period,
our Scope 1, 2 and 3 emissions (location-based) totalled 3,088 tCO
2
e.
Scope 3 emissions account for 93% of this and derive from water
consumption, waste production, as well as tenant fuel and electricity
consumption. Our Scope 1, 2 and 3 emissions intensity (location-based)
amounted to 0.004 tCO
2
e/m
2
.
The table below shows the breakdown of energy consumption across
our portfolio.
Absolute energy
consumption
Year ended
31 March 2021
Year ended
31 March 2022
Fuels Landlord 46,793 kWh 262,760 kWh
Tenant 5,063,208 kWh 4,931,030 kWh
Total Fuels 5,110,001 kWh 5,193,790 kWh
Electricity Landlord 228,562 kWh 778,162 kWh
Landlord
generated 1,016,074 kWh
Tenant 3,341,795 kWh 7,830,007 kWh
Total
Electricity 3,570,356 kWh 9,624,243 kWh
Total Energy
Consumption 8,680,358 kWh 14,818,033 kWh
Methodology
We measure and report our organisational greenhouse gas emissions
using the Greenhouse Gas Protocol. Consumption data is collated by
our sustainability consultant, Carbon Intelligence, then converted into
carbon dioxide equivalent (CO
2
e) using the UK Government 2021
Conversion Factors for Company Reporting to calculate emissions
from corresponding activity data. We follow the approach of the
European Public Real Estate Association (“EPRA”) towards floor area
in calculating emissions intensity. This report includes data for our
absolute greenhouse gas (“GHG”) emissions and energy use, as well as
our water consumption, waste generation and business travel for the
financial year ending 31 March 2022.
In accordance with the GHG Protocol’s guidance, we report Scope
2 emissions using both location-based and market-based methods.
The Scope 2 market-based figure reflects emissions from electricity
purchased by Industrials REIT (landlord obtained). When following the
market-based method, we use a supplier-specific emissions factor,
where available. If unavailable, the location-based grid emissions factor
is used. In addition, we voluntarily disclose a selection of our Scope 3
emissions deemed material, namely water and waste emissions, as well
as tenant consumption emissions and business travel.
Reporting boundaries and limitations
The sources of GHG emissions within our operational boundary are:
• Scope 1: Natural gas combustion within boilers, gas oil combustion
within generators, fuel combustion within owned and leased
vehicles
• Scope 2: Purchased electricity for Industrials’ use
• Scope 3: Water, natural gas and electricity consumption, waste
generation from tenants, and our business travel.
This data not only helps us identify opportunities for emissions
reductions; it also serves as a valuable basis for our plans to set a
Science Based Target.
As part of the Group’s strategy, we focus efforts on improving
emissions reporting for continuing operations. Non-MLI properties
earmarked for sale have not been included in emissions reporting. As of
31 March 2022, this relates to the Germany Care Homes portfolio held
via a joint venture.
We report the data available for our leased office space and our MLI
portfolio (which accounts for 97.5% of our total portfolio by floor area).
At present, we are unable to obtain data for 100% of our UK MLI
portfolio; however, we aim to report data for 100% of our portfolio in
the next financial year, increasing the coverage of data associated with
this floor area over time through tenant engagement initiatives.
Assumptions and estimations
In instances where data is missing, we have made estimations.
These are calculated by extrapolating from available data for the
reporting period. Details of all estimates can be found in our reporting
evidence pack.
For assets acquired during the reporting period, we report data starting
from when we took ownership of the asset. This ensures that we report
only emissions generated under our ownership.
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Annual Report 2022
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EPRA
sustainability best
practices
recommendations
reporting
Unaudited
As a member of the European Public
Real Estate Association (“EPRA”),
Industrials REIT aims to report the
Company’s sustainability performance
comprehensively and transparently. We
follow the EPRA Sustainability Best Practices
Recommendations (sBPR, 3rd version, 2017),
since these recommendations are designed
to improve sustainability reporting in the
European real estate sector and are widely
used in the industry.
Following our first report last year, we are
working to enhance Industrials’ sustainability
reporting. We continue to improve the
quantity and quality of the data we report
while EPRA’s sBPR recommendations help
us to improve the quality of our reporting. The
recommendations also facilitate comparison of
our performance with that of our peers.
We conduct regular materiality analyses to
ensure that our ESG strategy and reporting
address the most material issues. During our
most recent assessment, GHG emissions
and energy efficiency were deemed the two
most critical ESG priorities for our business by
every stakeholder group, including investors,
customers, suppliers and professional service
providers, lenders, employees and non-
executives. These findings further confirmed
our priorities for our ESG strategy and
reporting for 2023 and beyond.
Overarching recommendations
This year we have made a concerted effort to implement all of the overarching
recommendations into our reporting, as can be seen in the table below.
Overarching
recommendations
How we integrate
these recommendations
Operational
boundaries
Our approach to operational boundaries is based
on financial control of our portfolio and leased
management office space.
Coverage
We are currently able to report electricity data for
19% of our portfolio, natural gas data for 13%,
and water for 39%. We aim to increase this to
100% overtime through engaging with tenants and
improving our data collection processes.
Estimation of
landlord-obtained
utility consumption
9%. Data is estimated in line with the GHG Protocol
requirements.
Third party assurance
We have not yet sought third-party assurance. We
are committed to credible and transparent reporting
in line with our peers and listings regulations, so this
will remain under careful review.
Boundaries
We report on all landlord data and available tenant
data where we manage and/or recharge.
Normalisation
We use kWh per square metre to measure intensity.
Segmental analysis
This report covers 104 properties classified as
multi-let industrial (MLI) estates. Although our MLI
portfolio is spread across the UK, it is relatively
uniform in terms of building age, materials and
design, while geographic distribution of assets is
reasonably similar in terms of climate exposure.
There are circa 1,500 tenants, primarily small and
medium size enterprises which engage in a wide
range of businesses to serve the needs of customers
in their local communities or across the country.
As part of developing our approach to environmental
reporting, we will provide a deeper segmental
analysis of our MLI portfolio in the next reporting
period. For more information, please see Our
Portfolio on page 10. Further information on MLI can
be found on page 4.
Disclosure on
own offices
Our corporate head office in Great Portland Street,
London and our regional office in Stockport are
included in consumption data on page 76.
Narrative on
performance
We provide an overview of each topic in this report
as well as signposting further sources of information.
Location of EPRA
Sustainability
Performance
Measures
EPRA Sustainability Performance Measures are
included in the tables on the following pages.
Reporting period
Financial year ending 31 March 2022
Materiality
Industrials REIT conducted a materiality assessment
in early 2022 to identify and prioritise ESG issues.
The methodology and results can be found on
page 66.
77
Annual Report 2022
Performance measures
During 2021/22, we continued to integrate climate and other sustainability considerations into the Industrials REIT business. We are proud of the
progress we have made, as evidenced in ESG in Action on page 64. We document how we will continue to advance our ESG ambitions in Focus for
2023 on page 68 to 69.
We are also working to enhance the data that we collect and report, with a particular focus on environmental data. As a result, we have been able
to report against 23 of the 28 Performance Measures in this report. All data and text in this report relate to our performance during the 12 months
ending 31 March 2022.
Environmental performance
Reducing our environmental impacts is a key focus for Industrials REIT. During the reporting period, our main focus areas were to
improve our environmental data, especially on greenhouse gas (GHG) emissions and energy efficiency across our portfolio;
to identify our key climate-related risks and opportunities (see TCFD Disclosure on page 60) and to understand how to
improve our average EPC rating (see Average EPC Case Study on page 71).
We are committed to improving our data collection through customer engagement. The storage and
management of this data will be improved with our Industrials Hive platform. The environmental
data on which our emissions are calculated comes from electricity, natural gas, and water
consumption. It is recovered on 19%, 13% and 39% of the total floor area of our
portfolio respectively and provides a deeper analysis of tenant data.
In addition, we continue to work on other environmental issues,
EPRA sustainability best practices
recommendations reporting
continued
Unaudited
such as biodiversity, reducing waste and improving the efficiency
with which we use water. Below is a breakdown of
environmental data, followed by more in-depth
analysis by topic.
EPRA code Environmental performance measures
% Change vs PY
Performance
Elec-Abs
Total electricity consumption 9,624,243 kWh 170%
Elec-Lfl
Like-for-like total electricity consumption * *
DH&C-Abs
Total district heating and cooling consumption None None
DH&C-Lfl
Like-for-like total district heating and cooling consumption None None
Fuels-Abs
Total fuel consumption 5,193,790kWh 2%
Fuels-Lfl
Like-for-like total fuel consumption * *
Energy-Int
Building energy intensity 20 kWh/m2 -83%
GHG-Dir-Abs
Total direct greenhouse gas (GHG) emissions 47 tonnes CO
2
e 450%
GHG-Indir-Abs
Total indirect greenhouse gas (GHG) emissions 2,829 tonnes CO
2
e 67%
GHG-Int
GHG emissions intensity from building energy consumption See breakdown below 152%
Water-Abs
Total water consumption 21,566 m
3
29%
Water-Lfl
Like-for-like total water consumption * *
Water-Int
Building water intensity 0.07 m
3
/m
2
/year 68%
Waste-Abs
Total weight of waste by disposal route See breakdown below N/A
Waste-Lfl
Like-for-like total weight of waste by disposal route * *
Cert-Tot
Type and number of sustainably certified assets See breakdown below
* Like-for-like calculations are not possible due to fluctuations in Industrials’ portfolio size and ongoing refurbishment programmes at each of the estates.
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Energy and GHG emissions
During the past year, we have calculated our initial Scope 3 footprint
to better understand the scale and sources of these emissions. We
also completed a Scope 3 gap analysis. Now that we have a deeper
understanding of our contribution to climate change, Industrials intends
to set a Science Based Target for emissions reductions. This was
identified by stakeholders as the third highest priority for our business
in our recent materiality assessment.
Another target is to achieve an EPC rating of at least C by 2027 in
line with government requirements (see our EPC upgrade assessment
case study on page 71). We therefore continue with our programme
to install LED lighting and will investigate the feasibility of rolling out
solar panels across the portfolio. Nevertheless, our GHG emissions rose
significantly during the past year, much of it due to the 29% increase
in our floor area that resulted largely from the significant number of
acquisitions during the same period.
With greater mapping of the portfolio -of metres to floor area -
combined with a maturing data programme, our data has improved
since prior year, both in terms of quantity and quality. As a result, the
energy use intensity figure dropped during the reporting period.
In addition to our contribution to mitigate the effects of climate change,
we must also address how climate change affects our business. As
we continue to implement the recommendations of the Task Force
on Climate-related Financial Disclosures, we conducted an in-depth
assessment of the risks and opportunities presented by climate change
(see TCFD Disclosure on pages 61 to 62).
Please see the next page for a further breakdown of our environmental
information.
79
Annual Report 2022
Indicator
Impact area EPRA code 12 months to 31 March 2022Indicator Metric
Energy Elec-Abs Electricity Total electricity consumption – landlord obtained 1,794,235 kWh
% of floor coverage 4%
Total electricity consumption – tenant obtained 7,830,007 kWh
% of floor coverage 16%
% of landlord-obtained electricity from renewable
sources 30%
% of tenant-obtained electricity from renewable
sources 37%
Total electricity consumption 9,624,243 kWh
% of floor coverage 19%
% of electricity estimated 18%
DH&C-Abs
District Heating &
Cooling Total heating & cooling – landlord obtained None
Total heating & cooling – tenant obtained None
% of heating & cooling from renewable sources –
landlord None
% of heating & cooling from renewable sources –
tenant obtained None
Fuels-Abs Fuels Total fuels – landlord obtained 262,760 kWh
% of floor coverage 13%
Total fuels – tenant obtained 4,931,030 kWh
% of floor coverage 12%
% of landlord obtained fuels from renewable sources 0%
% of tenant obtained from renewable sources 0%
Total fuel consumption 5,193,790 kWh
% of floor coverage 13%
% of fuels estimated 43%
Energy-Int Energy intensity Energy intensity per m2 20 kWh/m
2
Greenhouse gas
emissions GHG-Dir-Abs Direct Scope 1 47 tonnes CO
2
e
% of floor area coverage 0.4%
GHG-Indir-Abs Indirect Scope 2 165 tonnes CO
2
e
% of floor area coverage 4%
Scope 3 2,664 tonnes CO
2
e
% of floor area coverage 87%
GHG-Int
GHG emissions
intensity Scope 1 and 2 0.00003 tCO
2
e/m
2
/yr
Scope 3 0.00033 tCO
2
e/m
2
/yr
EPRA sustainability best practices
recommendations reporting
continued
Unaudited
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Water and waste
Industrials continues to drive down waste and divert waste from landfill. During the reporting period, we diverted 100% of waste from landfill for
our offices. This year we have reported emissions from the rest of the portfolio from financial data and will continue to improve our reporting.
We also understand the risks of growing water scarcity and its interconnectedness with climate change. Industrials are working to reduce both
water use and water intensity. Although our water usage increased by 29% this year, our floor coverage increased by 39% during the same period.
Our performance during the year is summarised in the table below.
Absolute portfolio – water and waste
Indicator
Impact area EPRA code 12 months to 31 March 2022Indicator Metric
Water Water-Abs Water consumption Total water consumption 21,566 m
3
% of floor area coverage 39%
% of water estimated 74%
Water-Int Water intensity Building water intensity 0.07 m
3
/m
2
/year
Waste Waste-Abs Total waste Total waste sent to landfill 0 t
Total waste diverted from landfill 92 t
% of floor area coverage 0.1%
Waste-LfL
Proportion
of waste Proportion of waste sent to landfill 0% *
Proportion of waste diverted from landfill 100% *
*Waste-LfL covers data obtained from our leased offices only.
Sustainably certified assets
Industrials is preparing to achieve a minimum EPC rating of C by 2027, in line with the UK
government requirement. Below is a breakdown of current EPC ratings for our assets. We also
aim to achieve a BREEAM rating of ‘Very Good’ for all new developments. (Please see Average
EPC Case Study on page 71.)
Indicator
Impact area EPRA code 12 months to 31 March 2022Metric
Certifications Cert-Tot
No. of buildings with an
EPC Rating Certifications 1,923
A 12%
B 3%
C 26%
D 34%
E 21%
F 2%
G 2%
Social performance
Our people
As our business grows, so does our workforce. During the reporting period, the number of
employees in the Group tripled.
We aim for our employees to be able to achieve their full potential in their career with Industrials.
To facilitate this, all employees receive performance appraisals twice a year. Significant
opportunities for training and development are offered and during the reporting period,
employees received on average 28 hours each. We are encouraged by our high retention rate is
high, with only 7% turnover for the year. Further detail can be found in Our People on page 72.
Industrials is particularly keen to build a diverse workforce. To drive business growth, our
workforce and leadership must reflect our tenants and our communities. Across our business,
61% of employees are women, although this figure drops to 45% for line managers. We aim to
improve this and further information can be found in Corporate Governance on page 91.
Health and safety
A safe and healthy workplace is a
fundamental right for our employees, our
tenants, their employees and customers.
We have a safety management system in
place, with health and safety assessments
conducted annually for each site. During the
reporting period, both our injury rate and lost
day rate for our workforce were zero, while
our absentee rate was 5%.
Community
The success of our business depends on
a thriving local community. We aim to
contribute not only through our day-to-day
business but by actively promoting our
customers’ business activities within the
local community, too. In addition, we conduct
customer engagement surveys to understand
the needs of our tenants.
We also engage with our local communities
and support local charity initiatives.
Employees are encouraged to take four
half days paid time off each year to help an
identified charitable initiative. As part of our
matched giving programme, every employee
can raise up to £1,000 a year for their
chosen charity with Industrials providing an
equal sum.
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Annual Report 2022
An overview of our social performance can be found below, followed by a more detailed breakdown.
Indicator
EPRA code Social performance 12 months to 31 March 2022
Diversity-Emp Employee gender diversity 61% women; 39% men
Diversity-Pay Gender pay ratio Not yet reported
Emp-Training Employee training and development Average hours: 28/year
Emp-Dev Employee performance appraisals 100% of employees receive
Emp-Turnover New hires and turnover 15 new hires
7% turnover
H&S-Emp Employee health and safety Absentee rate: 5%
Injury rate: 0
Lost day rate: 0
Work-related fatalities: 0
H&S-Asset Asset health and safety assessments 85% of assets assessed or reviewed for
H&S impacts
H&S-Comp Asset health and safety compliance No incidence of non-compliance
Comty-Eng Community engagement, impact assessments, development programmes Partially reported below
Below is a more detailed breakdown of our social performance.
Indicator
Impact area EPRA code 12 months to 31 March 2022Indicator Unit
Diversity
Diversity-Emp Governance body % male 78%
% female 22%
Directors % male 100%
% female 0%
Line Managers % male 55%
% female 45%
Other Employees % male 39%
% female 61%
Employees
Emp-Training Employee training
and development
Average hours of training per male employee 28
Average hours of training per female employee 28
Emp-Dev Employee
performance
appraisals
Percentage of male employees with a regular
performance review
100%
Percentage of female employees with a regular
performance review
100%
Emp-Turnover New hires and
turnover: males
Total number of employee hires 7
Rate of employee hires 13%
Total number of employee turnover 7
Rate of employee turnover 8%
New hires and
turnover: females
Total number of employee hires 8
Rate of employee hires 15%
Total number of employee turnover 3
EPRA sustainability best practices
recommendations reporting
continued
Unaudited
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// Strategic Report
Indicator
Impact area EPRA code 12 months to 31 March 2022Indicator Unit
Health and
safety
H&S- Emp Employee health
and safety
Rate of employee turnover 6%
Injury Rate 0
Lost day rate 0
Absentee rate 5%
Work-related fatalities 0
H&S-Asset Asset health and
safety assessments
Percentage of assets of which H&S impacts are
assessed or reviewed
85%
H&S-Comp Asset health and
safety compliance
Number of incidents of non-compliance 0
Governance
Conducting our business in compliance with relevant laws, adhering to high ethical standards and integrating sustainability are fundamental to how
Industrials REIT is governed. We also work to ensure that our business partners share these same beliefs.
We aspire to practise the highest standards of corporate governance. To do so, we regularly review our governance structures and processes. Our
response to the EPRA indicators on governance can be found in the table below. Further information can be found in our Governance section on
page 89.
Indicator
EPRA code Governance performance measures 12 months to 31 March 2022
Gov-Board Composition of highest governance body Our Board of Directors currently comprises nine directors, six of whom are
Non-Executive Directors.
Gov-Selec
Process for nominating and selecting the
highest governance body
The Nomination Committee reviews the Board composition and recommends
changes. The committee also reviews the independence of directors and is
responsible for succession planning and annual board evaluation. Further
details can be found in the Nomination Committee Report on page 97.
Gov-Col
Process for managing conflicts of interest
Directors must avoid potential conflicts of interest. In the event of any conflict
of interest – potential, actual or perceived conflict – directors must notify
the Chairman and the Company Secretary as well as all outside interests
that may affect their role as directors of Industrials REIT. Directors’ interests
and any conflicts are reviewed and recorded by the Board at each meeting.
Further information can be found in the Governance section on page 92.
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Governance
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/// Governance
Our Board of Directors
Paul Arenson
Chief Executive Officer
James Beaumont
Chief Financial Officer
Julian Carey
Managing Director
Paul has been Chief Executive Officer of
Industrials REIT since October 2014.
Skills and expertise
Paul founded Stenham Property Limited,
a property fund management business
for the Stenham Group, in 1995 and was
its managing director from inception until
October 2014. In October 2014, the Stenham
Property business and a substantial part
of the assets under management were
transferred to a listed entity now known as
Industrials REIT. Paul was appointed as its
CEO. Industrials REIT was subsequently listed
on the LSE in June 2018. Prior to joining the
Stenham Group in 1995, Paul practised as a
UK corporate solicitor.
James was appointed Chief Financial Officer
in June 2019.
Skills and expertise
James was previously Industrials REIT Head
of Finance from June 2015, with responsibility
for all aspects of finance, financial control,
tax, accounting and reporting for the
Industrials REIT Group and funds managed
by Industrials REIT. He previously spent five
years as finance director of alternative asset
funds at Shore Capital Group Limited, where
his focus was on German real estate and
alternative investment funds. Prior to that, he
had eight years of experience in European
real estate and financial services through
senior finance roles at Cambridge Place
Investment Management and Genworth Plc,
a Fortune 500 company. James qualified as a
chartered accountant in 2002, after serving
articles with UHY Hacker Young, a firm based
in the City of London. He holds a BSc (Hons)
degree from the University of Leeds.
Julian joined Industrials REIT in July 2017 and
was appointed to the Board in May 2018.
Skills and expertise
Julian established C2 Capital Limited, a real
estate fund management business, in 2009 in
joint venture with the Ellis Campbell Group, a
UK Family Office. He subsequently acquired
the Ellis Campbell stake in the business in
2015 at the same time as C2 Capital launched
Industrials.co.uk, a joint venture with Morgan
Stanley Real Estate Investment focused on UK
multi-let industrial. Between 2015 and 2017,
the Industrials.co.uk portfolio grew to comprise
25 multi-let industrial estates and was sold
to Industrials REIT in June 2017, along with
C2 Capital. Julian previously worked in the
leveraged opportunity funds team at LaSalle
Investment Management from 2007–2009,
prior to which he worked at Jones Lang
LaSalle in the auction and private investment
team. He has extensive experience in asset
management, fund structuring, third-party
finance, real estate technology and investment.
Julian holds an MSc in real estate investment
from Reading University, is chairman of the
Investment Property Forum Tech Futures
Committee and is a qualified chartered
surveyor.
Executives
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Richard Grant
Independent Non-Executive
Chair of the Board
Philip Holland
Independent Non-Executive Director
Richard was appointed Chair of the Board
and Chair of the Nomination Committee in
May 2018.
Skills and expertise
Richard was the chief financial officer of
Cadogan Group Limited from 1994 until his
retirement in 2017. Cadogan is a property
investment business operating in Chelsea
and Knightsbridge in West London with a
holding extending to 93 acres, built on the
foundations of a traditional landed estate,
which has been in the ownership of the
Cadogan family since 1753.
Additional roles held
Richard is currently the non-executive
chairman of Helical plc, a UK property
investment and development company listed
on the London Stock Exchange. He is also the
chairman of Helical’s nominations committee.
He will be retiring from the board of Helical
plc in July this year, having completed ten
years as an independent non-executive
director. In addition, he is non-executive
chairman of Wittington Investments
Properties Limited, a private property
investment business.
Paul was appointed to the Board in
September 2016. He is the Senior
Independent Director and chairs the
Remuneration Committee.
Skills and expertise
Paul is a solicitor with over 25 years’
experience in cross-border mergers and
acquisitions, joint ventures, international
offerings, listed and unlisted funds and
governance and securities laws issues, with
a particular focus on the real estate sector.
Paul graduated from the University of Cape
Town with Bachelor degrees in Commerce
and Law. He built his career at Berwin
Leighton Paisner LLP (now Bryan Cave
Leighton Paisner LLP), where he was a senior
partner and led the capital markets team for
a number of years. He is now a director of
Everglen Capital Partners LLP and remains a
part-time consultant to Bryan Cave Leighton
Paisner LLP.
Additional roles held
Paul is a Director of Everglen Capital
Partners LLP, a London-based operational
management business servicing the interests
of its founders.
Philip was appointed to the Board in
May 2018. He chairs the Audit and
Risk Committee and the Social and Ethics
Committee.
Skills and expertise
Philip is a chartered accountant with
more than 24 years’ experience in board-
level finance roles in the property sector.
Between 2011 and 2017, Philip was finance
director and deputy managing director of
Primary Health Properties plc, a Real Estate
Investment Trust listed on the Main Market of
the LSE, and prior to that with Natixis Capital
Partners Limited, Atlas Estates Limited,
Teesland plc and Estates & General plc. Philip
is currently the chief investment officer at
Prime plc, the UK’s leading healthcare real
estate company, having joined the group in
April 2017.
Additional roles held
Philip was previously non-executive director
and chairman of the audit committee of TP
Group plc, an AIM listed specialist services
and advanced engineering company that
operates in the defence, industrial and
government sectors, standing down from
those positions in October 2021.
Non-Executives
Key
R
Remuneration Committee
A
Audit and Risk Committee
S
Social and Ethics Committee
N
Nomination Committee Chair of Committee
R
R R
N
A AN S N
Paul Miller
Senior Independent Director
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/// Governance
Our Board of Directors continued
Patsy Watson
Non-Executive Director and our
Designated Non-Executive Director for
Workforce Engagement
Richard Smith
Independent
Non-Executive Director
Louisa Bell
Independent
Non-Executive Director
Patsy became a Non-Executive Director on
5 June 2019. Prior to that, she was Chief
Financial Officer of Industrials REIT between
October 2014 and June 2019, having joined
Stenham Property Limited in May 2007 as
finance director.
Skills and expertise
Patsy holds Bachelor degrees in Commerce
and Accountancy from the University
of Witwatersrand in South Africa,
where she also completed a two-year
postgraduate course in taxation. She
qualified as a chartered accountant in
Johannesburg, after serving articles with
PricewaterhouseCoopers. Patsy joined the
project finance division of a South African
merchant bank for three years, prior to
becoming a founding partner in Neil Thomas
& Associates, a boutique firm of corporate
finance specialists in Johannesburg. There
she had 13 years of experience in corporate
finance and project structuring. Following a
move to the UK, Patsy spent three years as
finance director of a division of Regus before
leaving to join Stenham Property Limited.
Richard joined the Board in November 2020
as a Non-Executive Director.
Skills and expertise
Richard is a qualified Chartered Institute of
Management Accountant with over
25 years’ experience in finance, operations and
business leadership. Richard is currently the
chief executive of Unite Group Plc. Prior to
Unite, Richard spent 18 years in the transport
industry, working in the UK, Europe, Australia
and North America. This included 13 years
at National Express Group PLC where he
held a range of senior finance, strategy and
operations roles, including group development
director and chief financial officer, North
America.
Additional roles held
Richard is the CEO of Unite Group PLC, a
London stock exchange listed FTSE 250
business and the UK’s leading operator,
manager and developer of purpose-built
student accommodation.
Louisa joined the Board as a Non-Executive
Director in November 2020.
Skills and expertise
Louisa is a commercial and operational
specialist with a career spanning 25 years
primarily in the travel and transportation
industry. Since January 2021, Louisa has
worked for P&O Ferries joining initially
as Director of Operations – Dover/Calais
and becoming Chief Operating Officer in
April 2022.
Successful in driving business transformation,
she has previously held a number of
senior roles for Avis Budget Group, Cigna
Healthcare, Eurostar and British Airways.
Shehas experience in transforming
people-led, customer-focused businesses,
significantly improving customer and
employee satisfaction levels, as well as
developing new customer markets.
Non-Executives
S A AN R S R
Key
R
Remuneration Committee
A
Audit and Risk Committee
S
Social and Ethics Committee
N
Nomination Committee Chair of Committee
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Annual Report 2022
Corporate governance overview
Industrials REIT is a UK REIT registered under the Companies
(Guernsey) Law, 2008 (as amended).
On 20 December 2021, the Company transferred the listing of its
ordinary shares from the Specialist Fund Segment of the London
Stock Exchange’s Main Market (the “Main Market”) to the Premium
Segment of the Main Market (the “LSE Transfer”). In January 2022,
itsubsequently migrated the listing of its ordinary shares in South
Africa from a primary listing to a secondary listing on the Main Board of
the Johannesburg Stock Exchange (the “JSE”) (the “JSE Migration”).
The UK Corporate Governance Code 2018
(the “Code”)
For the financial year ended 31 March 2022, the Board considers that
the Company has complied with the provisions set out in the Code
except in relation to provisions (i) 36: formal policy for post-employment
shareholding requirements; (ii) 38: alignment of Executive Directors’
pension contributions with the workforce; and (iii) 41: engagement
with the workforce on the remuneration policy (see explanations on
page 103).
Details on how the Company has applied the principles of the Code can
be found throughout this Corporate Governance section of the Annual
Report. The table below also sets out where disclosure against the
principles of the Code can be found in this Corporate Governance Report.
Code section Pages
Board leadership and Company purpose 89 and 90
Division of responsibilities 90 and 91
Composition, succession and evaluation 90, 92 and 97 to 99
Audit, risk and internal control 92, 93 and 94 to 95
Remuneration 100 to 115
The Code can be viewed in full at FRC.org.uk
Sarah Bellilchi
Group General Counsel and Company Secretary
Board leadership: the Company’s purpose,
values and strategy
The Board is responsible for the Group’s purpose, values and strategy,
promoting its culture and for the promotion of its long-term sustainable
success for the benefit of all its stakeholders.
The Company’s purpose is to provide space that matters to our
customers, employees and communities; space to work, to think, to
evolve, to grow and to succeed. This is The Power of Space. This is the
reason Industrials REIT exists and helps articulate the short and long-
term strategy of the Group, its business model and operating principles
(read more on our business model on pages 26 and 27 and on our
strategy on pages 32 to 35). It also drives how and why the Company
engages with its stakeholders.
Following the rebranding from Stenprop to Industrials REIT in
September 2021, the Company’s values were reviewed and
redefined to ensure that they were aligned with The Power of Space
and provided the right framework for its sustainable growth and
development.
Our core values
Ensuring a positive impact
through focused action
Contributing to the success
of others
Creating space for success
Finding the smarter way
The Company also reflected on the impact of the pandemic on its
business and stakeholders as well as the rapid growth in its workforce.
It engaged with its employees to understand what they perceived the
Company’s culture to be. The results of this engagement were carefully
reviewed, and the Company’s culture also refined (see page 30).
The Power of Space does not only refer to the positive impact we can
have on our customers and the communities around our estates. It is
also about providing an environment where our employees can grow,
succeed and develop a sense of belonging. It is about supporting our
partners and delivering the returns they expect to our shareholders
whilst meeting their expectations around sustainability, social
responsibility and governance. This is all reflected in the Group’s values
and culture, and the Board is confident that they support and benefit all
our stakeholders.
Although the Board, as a whole, remains responsible for assessing and
monitoring workplace culture, certain activities have been delegated
to committees. For example, the Remuneration Committee plays a
key role in implementing a results-orientated culture via the setting
of corporate KPIs, whilst the Audit and Risk Committee monitors
performance and financial results. The Social and Ethics Committee
is responsible for the continuous review of employment policies and
practices with the wellbeing of employees in mind, as well as setting
the Company’s ESG strategy. The Board receives regular updates from
its committees and the management team on their discussions and
activities. It also receives direct feedback from its designated Non-
Executive for employee engagement on the results of that engagement
and employee satisfaction, suggestions and comments. The Board
itself works in an open and transparent manner with constructive
discussions and challenges, and promotes an open, inclusive and
supportive culture throughout the business.
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/// Governance
Corporate governance overview continued
Our governance and leadership structure
Board of Directors
Chairman: Richard Grant
Composition: Independent Chair of the Board, three Executive Directors, five Non-Executive
Directors (including four independent Non-Executive Directors)
Responsible for the Group’s purpose, values and strategy, and the promotion of its long-term
sustainable success. It develops and reviews the Group’s strategy and ensures that adequate
internal controls and risk management processes are in place. It is also responsible for
ensuring effective communication with all stakeholders.
Certain matters are reserved for the Board’s approval, with other matters delegated to the
committees of the Board or the Executive Directors as appropriate.
Audit and Risk
Committee
Nomination
Committee
Remuneration
Committee
Social and Ethics
Committee
Chair:
Philip Holland
Oversees the
external audit
process, financial
reporting, internal
controls and risk
management
framework, and
assesses the need
for an internal audit
function.
See the
Audit and Risk
Committee report on
p. 94 to 96
Chair:
Richard Grant
Reviews the Board
composition and
recommends
changes, reviews
the independence
of Directors,
responsible for
succession planning
and annual board
evaluation.
See the
Nomination
Committee report
on p. 97 to 99
Chair:
Paul Miller
Determines the
remuneration policy,
sets the Executive
Directors and senior
management’s
remuneration, and
approves annual
and long-term
performance
objectives and
awards.
See the
Remuneration
Committee report
on p. 100 to 115
Chair:
Philip Holland
Responsible for
sustainable, social
and economic
development,
responsible
corporate
citizenship and
labour and
employment
relationships.
See the
Social and Ethics
Committee report
on p. 116 to 117
Chief Executive and Executive Directors
Responsibility for the day-to-day management of the business. The Chief Executive is
responsible and accountable for the implementation of the approved strategy with specific
areas of the business managed by the other Executive Directors.
Operations Committee
An executive committee comprising all Executive Directors and certain members of senior
management. It focuses on the operational aspects of the effective management of the MLI
portfolio of the Group, including financial reporting.
Composition of the Board
The Board currently consists of the Chair,
three Executive Directors and five Non-
Executive Directors. The Board continues to
have a strong mix of experienced individuals
with a diverse range of skills and a wealth of
business experience in property, including
the MLI sector, finance and governance. They
provide strong and effective leadership.
More information on the composition of
the Board can be found in the Nomination
Committee Report on pages 97 to 99 of this
Annual Report, and brief biographies of the
Directors and their skills and experience are
set out on pages 86 to 88.
On the recommendation of the Nomination
Committee, all the Directors will offer
themselves for re-election at the 2022 annual
general meeting.
Independence
The Board considers four of its five Non-
Executive Directors to be independent. Patsy
Watson is not considered independent due
to her previous role as chief financial officer
of the Company. Accordingly, the Company
fully complies with the requirement of the
Code that at least half of the Board (excluding
the Chair) is made up of Independent Non-
Executive Directors. In addition, the Chair,
Richard Grant, was considered independent
on his appointment.
Role of the Board and
division of responsibilities
The Board has adopted a charter that sets
out the practices and processes it follows
to discharge its responsibilities. Certain
key decisions and matters are reserved for
the Board’s approval, including setting the
Group’s strategy and overseeing its delivery,
but also any changes to the Group’s capital or
corporate structure, significant transactions,
budgets and the regular review of the
financial position of the Group.
The Directors believe that there is a clear
balance of power and authority at Board
level, such that no one individual or block
of individuals can dominate the Board’s
processes and decisions. The Non-Executive
Directors constructively challenge the
executives and scrutinise the performance of
management in meeting their agreed goals
and objectives. During Board meetings, a
collaborative atmosphere allowing coherent
discussions is maintained, with all directors
given the opportunity to contribute to the
debate.
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There is a clear division of responsibilities
between the Chair of the Board, responsible
for the leadership and effectiveness of the
Board, and the Chief Executive, responsible
for the day-to day management of the
business. The Senior Independent Director
acts as a sounding board for the Chair.
The Board has established four committees,
the Audit and Risk Committee, the
Nomination Committee, the Remuneration
Committee, and the Social and Ethics
Committee, to which certain powers have
been delegated as detailed in the governance
and leadership structure overview on the
previous page. The reports of these four
committees, their key areas of responsibilities
and their activities in the year ended
31 March 2022 are set out on pages 94 to
117 of this report. In addition, in anticipation
of the LSE Transfer, the Board decided to
constitute a new Disclosure Committee to
assist the Board in fulfilling its responsibilities
in respect of the UK version of the Market
Abuse Regulations and disclosure
requirements under the FCA Listing Rules and
the JSE Listings Requirements. The members
of the Disclosure Committee are the Chief
Executive, the Chief Financial Officer, the
Managing Director, the General Counsel and
Company Secretary, and one Non-Executive
Director.
The Operations Committee composed of
all the Executive Directors and of certain
members of senior management continues
to oversee the MLI operations of the Group.
Its key role and objectives are to improve
efficiencies in the management of the MLI
portfolio and financial reporting.
The Board has direct access to the advice
and services of the Company Secretary,
Sarah Bellilchi, who is also general counsel
to the Group and a member of the senior
management team. The Company Secretary
provides guidance to the Board and individual
Directors on corporate governance matters.
She is responsible for ensuring that the Board
and committees’ procedures are followed
and that the Company meets its statutory
obligations.
Board meetings
and operations
Quarterly board meetings are scheduled
during the financial year with additional
meetings convened as necessary for
exceptional business. This year, we were
able to resume meetings in person as the
restrictions linked to the pandemic were lifted.
During the period under review, the formal
agenda of the quarterly board meetings
was modified to improve focus on key
strategic matters and improve the quality
and efficiency of the Board discussions.
The formal agenda includes a CEO report
providing a general business review and
updates on key operational and strategic
matters, targets, and risks and opportunities.
A finance section, which includes a detailed
CFO report, provides an overview of key
financial performance indicators and provides
the framework for discussion on financial
performance and budget. A governance
section provides an opportunity for each
committee chair to update the Board as to
the activities and recommendations of their
respective Board committees, and discuss
any legal and corporate governance update.
A corporate Board report with peer group
comparisons, share price and volume analysis
and share register analysis is also discussed
at each quarterly meeting. Supporting
documents and background information are
circulated to all the Directors in advance of
the meetings to allow sufficient time for the
Directors to familiarise themselves with the
business to be considered.
Directors
Meetings attended
during the relevant
Director’s tenure
Non-Executives
Richard Grant
(Chairman) 5/5
Paul Miller 5/5
Philip Holland 5/5
Patsy Watson 5/5
Louisa Bell 5/5
Richard Smith 5/5
Executives
Paul Arenson 5/5
James Beaumont 5/5
Julian Carey 5/5
n
Executive Director
n
Independent Chair of the Board
n
Independent Non-Executive Director
n
Non-Executive Director
Directors structure
1
3
4
1
n
Male
n
Female
Board gender split
7
2
4
3
2
n
40 to 49
n
50 to 59
n
60 to 69
Board member age
n
5 to 7 years
n
3 to 5 years
n
Less than 3 years
Tenure of Non-
Executive Directors
2
1
3
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/// Governance
Corporate governance overview continued
Key activities of the Board during the reporting period
Topic Areas of focus for the Board during the year
Strategy
• Review of Company purpose, goals and strategy following
executives’ off-site strategy discussion
• The LSE Transfer, rebrand from Stenprop to Industrials REIT and JSE
Migration
• Review of MLI acquisition pipeline and progress against
acquisition targets
• The sale of Trafalgar Court in Guernsey and the last remaining retail
and leisure assets in Germany and Switzerland respectively, and
strategic discussions on the proposed sale of the Company’s share of
the Care Home joint venture in Germany
MLI operations
• Regular updates on rent collection statistics and business/financial
performance
• Monitoring of the ERP project and budget
• Strategic decision to internalise the property and facilities
management functions
Financial
• Financial workstreams in relation to the LSE Transfer
• Approval of half-year and annual results
• Approval of a final dividend of 3.375p per share for the six months
ended 31 March 2021, and of an interim dividend of 3.375p per
share for the six months ended 30 September 2021
• Budget discussions
• Assessment of viability and going concern, including stress testing
and sensitivity analysis
• Refinancings
Governance
• Amendments to the Company’s articles of incorporation and board
governance documents as a result of the LSE Transfer, as well as
review and training with regards to the UK regulatory obligations for
companies listed on the Premium Segment of the LSE’s Main Market.
• Consideration of results of 2021 annual general meeting and 2022
general meeting
• Constitution of the Disclosure committee
• Review and increase of Non-Executive Directors fees
• Annual review and update of anti-slavery and human trafficking
statement, and other policies
Risk management
• Monitoring of the Group’s performance
• Review of principal risks and of the risk management framework
Sustainability
• Review of a report on carbon emissions, its conclusion regarding
scope 1, 2 and 3 emissions by Industrials REIT and consideration of
the roadmap to setting scientifically based targets for the Company
in relation to carbon emissions.
• Strategy on how to improve EPC ratings to a minimum of C
Our people
and culture
• Approval and launch of the Industrials REIT ShareSave Scheme
• Grant of awards under the Industrials STIP and Industrials LTIP
• Review of results of employees engagement and refining of
Company culture and values
Conflicts of interest
All the Directors are required to avoid
situations in which they may have potential
conflicts of interest. Any potential, actual
or perceived conflicts must be notified to
the Chair of the Board and the Company
Secretary, as well as all new outside interests
that may affect them in their role as Directors
of the Company. Directors’ interests and
conflicts are recorded and reviewed by the
Board at each meeting.
Board evaluation
The evaluation of the Board and its
committees for the reporting period was
conducted internally via performance
evaluation questionnaires and discussions led
by Richard Grant, as Chair of the Board, and
Paul Miller, as Senior Independent Director.
Information on the outcome of this process
can be found in the Nomination Committee
Report on page 99.
Risk management and
internal controls
The Board determines the extent and nature
of the risks it is prepared to take in order to
achieve the Company’s strategic objectives.
It carries out a robust assessment of the
principal and any emerging risks facing the
Group, including those that would threaten
its business model, future performance,
solvency or liquidity. For additional information
regarding the five-step risk management
process followed by the Company, the
principal risks facing the Group and how they
are being managed and mitigated, see the risk
management section on pages 49 to 55 of
this report.
The Directors also acknowledge that they are
responsible for establishing and maintaining
the Group’s system of internal controls and
reviewing its effectiveness. The Directors
promote a strong control environment.
The CFO and the Head of Financial
Operations assume overall responsibility for
the accuracy of financial reporting. The Group
employs a team of qualified finance managers
who work in close collaboration with asset
managers and property managers to ensure
the appropriate level of oversight and analysis
is provided to the financial reporting process.
The Operations Committee, composed of all
the Executive Directors and certain members
of senior management including the Head of
Financial Operations and the Head of Asset
Management, plays a key role in ensuring
adequate and effective control procedures.
The importance of accurate financial reporting
is emphasised at all levels of the organisation
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Annual Report 2022
and flows through to external property
managers and other service providers who are
monitored and reviewed with regard to the
accuracy of their output on a monthlybasis.
The key procedures established to provide
internal control and support the Directors’
review of the financial position and prospects
of the Group are set out below.
• Monthly management accounts are
prepared and presented to the Operations
Committee for review and discussion.
• Quarterly management accounts
including variances to prior periods,
budget and adequate narrative are
presented and explained in detail to
the Board.
• The Disclosure Committee reviews draft
financial information and considers, with
advice from the Company’s legal advisers
and sponsors, whether inside information
exists and the appropriate disclosure
requirements.
• Financial reporting standards are
considered for all transactions and, where
necessary, the Group’s Auditors are
consulted. Memos are produced for the
benefit of the Audit and Risk Committee
and the Board for material transactions
and accounting policy decisions.
The Board has reviewed the need for an
internal audit function and remains of the view
that it is not suitable for the Group considering
its size and structure. During the reporting
period, the Board has engaged with BDO
to perform some additional audit assurance
work. Further information on the scope of the
work undertaken can be found in the Audit
and Risk Committee Report on page 96 of
this report. The Board will continue to review
periodically whether an internal audit function
is desirable.
It should be noted that internal controls over
financial reporting are designed to provide
reasonable assurance regarding the reliability
of financial reporting. They can only provide
reasonable but not absolute assurance
against the risk of material misstatement
or loss.
Shareholder engagement
Industrials REIT issues quarterly trading
updates in addition to its interim and annual
results and the Chief Executive, Managing
Director and Chief Financial Officer have
delivered live quarterly presentations with
Q&A sessions with investors. They also
regularly attend analyst meetings and
are available to meet or talk to investors
if requested. Individual meetings and
conversations with shareholders also took
place throughout the year, as well as a tour
of some of the MLI units of the Group and
an opportunity for investors and analysts
to meet tenants, hear how Industrials REIT
supports their businesses and ask questions.
The feedback received and the outcome
of these meetings and conversations were
communicated to the Board.
All significant events and transactions, as
well as the Group’s financial performance, are
announced on a timely basis. Shareholders are
encouraged to attend the Company’s annual
general meeting, which all the Directors
normally attend, and which provides an
opportunity for shareholders to ask questions
and discuss matters with the Board.
Employee engagement
The Board recognises the importance of
engaging with all the employees of the
Group, providing a clear explanation of the
Company’s strategy and objectives as well as
a channel for feedback and raising concerns.
This year, the Company again held strategic
sessions with Executive Directors and all
members of senior management with the
goal of setting and clearly articulating the
Group’s strategic objectives for the short and
long term. The conclusions reached were then
presented to all staff, encouraging questions
and discussions to ensure buy-in from all
employees to the Group’s vision and values.
The Company sought feedback and consulted
with its workforce on various subjects
during the year, such as the advantages and
disadvantages of various hybrid working
models, and its culture and values. Employees’
views were carefully considered and taken
into account when refining the Company’s
culture and when deciding which hybrid
working model to adopt, noting that the vast
majority of employees enjoyed being back
in the office following the prolonged periods
of home working during the pandemic. They
recognised the advantages, both social and
professional, of meeting in person with their
colleagues, but also wished to maintain
flexibility with regard to working practices and
the ability to work from home (see page 58 for
additional information.
Patsy Watson continued in her role as
the designated Non-Executive Director
with responsibility for engagement with
employees. She remained available
throughout the year. In March 2022, she
led two face-to-face presentations to the
workforce, one in our London office and one
in our Stockport office, introducing herself and
the scope of her role to all new and existing
employees. As part of these presentations,
the results of an employee satisfaction
survey carried out in January 2022 were also
shared with all employees and constructive
discussions took place between Patsy,
HR representatives and all employees on
various subjects including culture, effective
communication, the impact of the pandemic
and the impact of the development of the
Industrials Hive platform on the workforce.
As a direct result of these discussions, the
executive team and the Board are considering
some new initiatives. These are expected
to include additional guidance and training,
direct feedback on activities of the Board and
the financial performance of the Group and
social events.
Philip Holland
Chair of the Audit and Risk Committee
/// Governance
Annual Report 2022
94
Audit and Risk Committee report
Dear Shareholders
I am pleased to present the report of the
Audit and Risk Committee for the year ended
31 March 2022.
Committee composition and governance
There have been no changes to the membership of the committee
during the reporting period. The committee is comprised of four
members, all of whom are independent Non-Executive Directors.
Themembers of the Audit and Risk Committee comprise two
qualified accountants, including myself as committee chair, and the
Board considers that all four members have relevant and appropriate
experience to fulfil their roles.
Detail regarding individual member experience can be found within the
director biographies on pages 86 to 88.
Philip Holland
Chair of the Audit
and Risk Committee
Paul Miller
Senior Independent Director
Louisa Bell
Independent Non-Executive
Director
Richard Smith
Independent Non-Executive
Director
Audit and Risk Committee Members
Role and responsibilities
The principal responsibilities of the committee are:
Oversight of external audit –
• Consider the appointment of the external Auditor, making
recommendations to the Board on their appointment or
dismissal and approving their terms of engagement and
remuneration.
• Review the work of the external Auditor.
• Monitor the external auditor’s independence and objectivity,
review their performance and effectiveness and set the policy
for non-audit services provided by the external Auditor.
Integrity of reporting – review and challenge key judgements
made by management, review and monitor the integrity of the full
and half-year financial statements, reports to shareholders and
any other announcements regarding the Company’s results or
other financial information to be made public, including statements
on going concern and risk and controls; and advise the Board
of its opinion whether, when read as a whole, such reports are
fair, balanced and understandable and provide the information
necessary for stakeholders to assess the Company’s position,
performance, business model and strategy.
Internal controls and risks – review the risk management
framework and ensure that risks are carefully identified and
assessed, and that systems of risk management and internal
control are in place.
Internal audit – consider annually whether there is a need for an
internal audit function and make recommendations accordingly to
the Board.
Other matters – including, but not limited to:
• Establish procedures to receive and review the Group’s
property valuations in relation to each reporting date and
meet with the Group’s valuers at least annually to discuss the
valuations.
• Give due consideration to all applicable legal and regulatory
requirements, in particular to the extent that such requirements
may have an impact on the Company’s financial statements.
• Review the expertise, resources and experience of the
Company’s finance function.
The terms of reference of the committee were reviewed and
updated during the year and are set out on the Company’s website.
Number of Meetings
4
Number of Meetings
Committee member Meetings attended
Philip Holland 4/4
Paul Miller 4/4
Louisa Bell 4/4
Richard Smith 3/4
Audit and Risk Committee Information
95
Annual Report 2022
All meetings are attended by the CFO
and the Company Secretary. In addition,
representatives of the external Auditor are
invited to attend part of specific committee
meetings. These attendees do not attend as
members and as such have no voting rights.
As committee Chair, I also hold separate
regular meetings with representatives of the
external Auditor and with representatives
of the external valuers and I meet privately
with the Chief Financial Officer to obtain a
good understanding of key issues affecting
the Group.
Key areas of focus for the
year under review
During the year ended 31 March 2022, the
committee met a total of four times. At those
meetings, the committee has:
• Received and considered the external
audit plan and subsequent completion
reports to the Audit and Risk Committee
from the external Auditor, BDO.
• Considered the effectiveness of the audit
process and the independence of BDO.
• Reviewed and discussed the Group’s
property valuations.
• Reviewed and recommended for
approval the interim and annual financial
statements and 2021 annual report.
Considered the appropriateness of
accounting treatment and areas of
significant judgment.
• Reviewed the financial position and
procedures report and working capital
report required for the transfer of the
Company’s listing from the specialist
fund segment of the Main Market of the
London Stock Exchange to the Premium
Segment of the Main Market.
• Assessed on an ongoing basis the risk
matrix and its approach to considering the
levels of risk tolerance, monitoring and
mitigation.
• Monitored on an ongoing basis the Risk
Management Plan and the communication
of issues to the Board.
• Considered and confirmed that it
was satisfied as to the expertise and
experience of the Chief Financial Officer.
• Considered the report from BDO covering
the additional IT systems and controls
procedures performed in relation to the
Dynamics 365 ERP implementation
design, testing and go-live processes.
• Reviewed the Company security report on
technology business continuity to ensure
that existing capabilities, and appropriate
enhancement plans, exist in relation to
security and disaster recovery.
Financial reporting
and significant areas of
judgment
The Audit and Risk Committee monitors
the integrity of financial information and
associated accounting policies and disclosures
in the Company’s results. It reviews the
content and messaging of the preliminary
results, annual report and half-year
results, and the key judgements made by
management in preparing the financial results.
The committee was satisfied that the
processes and assumptions used by
management in areas of judgment were
reasonable and applied appropriately. The
committee was further satisfied that areas of
judgement had been reviewed and discussed
with the external Auditor who agreed with the
accounting treatment adopted.
The committee has satisfied itself that the
controls over the accuracy and consistency of
the information presented in the annual report
are robust. It is also satisfied that appropriate
financial reporting procedures exist, are
working effectively and include consideration
of all Group’s entities.
The Directors are responsible for preparing
the 2022 annual report and accounts. The
committee confirmed to the Board that it
believes that the 2022 annual report was
fair, balanced and understandable and that
it provided the necessary information to
stakeholders to assess the Group’s position,
performance, business model and strategy.
Significant issues Description
Going concern
The appropriateness of adoption of the going concern
basis of preparing the financial Statements
The committee has considered the financial requirements of the Group for the
18months following 31 March 2022. It has concluded that management’s
assessment of going concern, the assumptions made and the report of the external
Auditor in recommending that adoption of the going concern basis is valid. Further
details can be found in note 2 of the financial statements.
Viability statement
Review of the assessment of the Group’s long-term
viability and confirmation that the period
of time used was appropriate
The committee reviewed and confirmed the appropriateness of the analysis
prepared to support the Board’s longer-term viability statement (please see
page 51)
Investment property valuation
The Group’s investment properties are stated at
estimated fair value, determined by Directors, based on
an independent external appraisal
The committee reviewed the independent valuation of the Group’s investment
properties and confirmed that judgments relating to assumptions and estimations
underlying the valuations were appropriate.
Assets held for sale and discontinued
operations
In executing the transition to become a 100% UK MLI business, certain assets have
been identified as held for sale in accordance with the criteria defined in
IFRS 5: Assets held for sale and discontinued operations (see note 4 of the financial
statements). At year end, the continuing operations of the Group consist of the
following segments: UK MLI, Group, and the Care Home properties in the German
joint venture.
96
Annual Report 2022
/// Governance
Audit and Risk Committee report continued
Independent and external audit
The committee has considered the level of non-audit services provided by BDO. The committee asked the Auditors to confirm their continued
independence and BDO has confirmed to the Board that it remains independent and has maintained the necessary internal safeguards to ensure
the objectivity of the audit partner and staff. The committee was satisfied that both the non-audit work performed by BDO and the level of non-
audit fees paid to it were appropriate and did not raise any concern in terms of BDO’s independence as Auditor to the Group.
Fees
2022
(£’000)
2021
(£’000)
Audit services
Group audit 233 205
Subsidiary audit 13 13
Total audit services 246 218
Non-audit services
Interim review 37 35
Reporting accountant* 125 –
Total non-audit services 162 35
Total fees
408 253
* During the year, BDO acted as reporting accountant to the Company on its transfer to a premium listing on the main market of the London Stock Exchange.
This engagement was considered by the Audit and Risk Committee, and, together with BDO’s confirmation, was agreed not to be a threat to the independence
of the Auditor. Reporting accountant work is an allowed non-audit service under the FRC Ethical Standard.
The committee has reviewed the
effectiveness of the Auditor during the year.
It considered the quality and scope of the
audit plan and reporting and concluded
that it was satisfied with the audit process
and BDOs effectiveness and independence
as an Auditor. BDO were first appointed
as auditor in September 2020 to audit
the financial statements for the year
ending 31March2021. The committee
recommended to the Board that BDO be
re-appointed as Auditor for the 2023 audit.
The lead partner is Christopher Young,
who has led the engagement since BDO’s
appointment.
Risk management and
internal controls
During the year, the Audit Committee has
reviewed and updated, where appropriate,
the Company’s risk matrix. This is considered
on an ongoing basis and is in line with the
Company’s Risk Appetite Statement. At every
quarterly meeting, the committee reviews
the Group’s principal risks, including any new,
emerging or project-specific risks and the
actions taken by management to manage
and mitigate them. Their potential effect on
the Group’s short and long-term results and
goals are considered and discussed. The risk
management policy and process of the Group
is detailed on pages 50 and 51 of this report.
The Committee reviewed the financial
position and procedures report required for
the transfer of the Company’s listing to the
Premium Segment of the Main Market of the
London Stock Exchange. This allowed the
Board to confirm that established control
procedures exist which provide a reasonable
basis to make proper judgements on an
ongoing basis as to the financial position and
prospects of the Company and the Group.
The need for the appointment of an internal
auditor is reviewed by the committee and the
Board at least once a year. The committee
remains of the view that the appointment of
an internal auditor is not justified considering
the size of the Company. However, the
Company does periodically make use
of external service providers to perform
extended assurance work.
During the financial year, the BDO technology
risk assurance team undertook and completed
extended audit work on the Dynamics 365
testing, training and go-live process controls.
The objective of the review was to provide
additional assurance on quality control of
testing and training and the safeguarding of
the go-live process.
Audit and Risk Committee
evaluation
The committee’s effectiveness was reviewed
and evaluated as part of the evaluation of
the Board’s performance for the year under
review. It was concluded that the committee
continues to operate effectively.
Philip Holland
Chair of the Audit and Risk Committee
9 June 2022
97
Annual Report 2022
Nomination Committee report
Richard Grant
Chair of the Nomination Committee
Dear Shareholders
I am pleased to present the nomination
committee report for the year ended
31 March 2022.
Committee composition
The members of the committee are Philip Holland, Paul Miller, Patsy
Watson and myself. The committee is composed of a majority
of independent directors, as required by the 2018 UK Corporate
Governance Code (the ‘Code’). Paul Arenson, although not a member
of the committee, joins some of the meetings of the committee by
invitation. The committee feels it is important that the input and views
of the Chief Executive Officer are considered when discussing Board
composition as well as succession planning. Other individuals may be
invited to attend meetings of the committee by invitation if considered
desirable by the members of the committee to assist them in fulfilling
their roles.
Richard Grant
Chairman of the Board and Chair
of the Nomination Committee
Paul Miller
Senior Independent Director
Philip Holland
Independent Non-Executive
Director
Patsy Watson
Non-Executive Director
Nomination Committee Members
Role and responsibilities
The principal responsibilities of the committee are:
• Board composition – keeping the structure, size and
composition (including the skills, knowledge, experience and
diversity) of the Board and its committees under review and
recommending changes to the Board
• Succession planning – considering succession planning for
the Board and the senior management team
• Independence and time commitment – reviewing the
independence and time commitment requirements of the
Non-Executive Directors
• Board evaluation – lead the annual evaluation of the
Board, its committees and individual directors and make
recommendations to the Board accordingly
The committee’s terms of reference are set out on the Company’s
website.
Number of Meetings
3
Number of Meetings
Committee member Meetings attended
Richard Grant (Chair) 3/3
Philip Holland 3/3
Paul Miller 3/3
Patsy Watson 3/3
Nomination Committee Information
98
Annual Report 2022
/// Governance
Nomination Committee report continued
Board composition,
succession and workforce
planning
Although no new Board appointments were
made during the reporting period, and no
changes were deemed necessary to the
composition of the various committees of the
Board, the committee continues to review the
Board composition and monitors the skills,
experience and knowledge at Board and
senior management levels. Training records
are regularly reviewed by the committee, the
Non-Executive Directors’ contribution to the
Board, and the performance of the Executive
Directors and senior team are assessed
regularly (see also the Board evaluation
section below).
Succession plans for Directors and members
of senior management have been reviewed
and updated by the committee, with an
emphasis on training needs and development
plans for each individual, taking into account
the transition of the business into a fully
focused UK MLI business and the rapid
growth in the workforce. The committee
was satisfied that plans remain sufficiently
robust to enable vacancies to be filled on
a short to medium-term basis without
significant disruptions to the business and
affairs of the Group. Our policies on the
promotion of diversity and equal opportunities
(also see below) are aligned with these
succession plans.
The committee believes that the Board as
well as the senior management team has
the correct balance of skills, experience and
knowledge to ensure the future success of
the Group.
Diversity
We recognise the benefits of having a diverse
board. The Board’s policy on the promotion
of diversity at board level, adopted in 2021
in line with the principles of the Code,
remains in force. The policy clearly states
that the Company is committed to promoting
broader diversity at board level, including
diversity of gender, race, social and ethnic
background, culture, age, field of knowledge,
skills and experience. The committee has
been mandated by the Board to implement
and manage this policy and is committed to
ensure that all future board appointments as
well as existing and future succession plans
are based on merit with this policy and the
promotion of diversity in mind. The committee
and the Board also recognise that a diverse
executive pipeline is important to increasing
diversity levels among senior positions.
Since November 2020, there are two female
directors on the Board, Patsy Watson and
Louisa Bell, representing 22% of the total
number of Directors. We have therefore
achieved our target initially set for March
2020 of having female Directors constituting
at least 20% of the total number of Directors,
but we recognise that we need to do more.
At the end of the financial year, only one
member of the senior management team
was female (representing 17% of the senior
management team), while 67% of their direct
reports and 56% of all other employees were
females. The committee supports the latest
recommendations on gender diversity of the
FTSE Women Leaders Review published in
February 2022 and recommendations of the
Parker Review that each FTSE 250 board
should have at least one director of colour by
2024. Although not a FTSE 250 company at
the time of this report, the committee is keen
to increase diversity at Board level over time
provided that this is consistent with other
skills and requirements. The committee is
also aware of the recent FCA amendments to
the UK listing rules requiring companies with
a premium listing to disclose in their annual
report whether they have met certain board
diversity targets on a ‘comply or explain’
basis and, if they have not met the targets,
why not. These changes will be applicable
for the financial years starting on or after 1
April 2022. We welcome the opportunity
to increase transparency for investors on
the diversity of boards and will review our
existing policies on diversity with the targets
introduced by the FCA in mind. We will
also continue to work with the Social and
Ethics Committee to encourage diversity and
inclusion at all levels of the organisation in line
with our values and culture.
99
Annual Report 2022
Constitution of the
disclosure committee
With the move of the Company’s listing to
the Premium Segment of the Main Board of
the LSE in December 2021, the committee
re-considered whether the Company would
benefit from the constitution of a separate
Disclosure Committee, and whom the
members of that committee should be. In light
of the move, but also due to the increased
activity and growth of the business, the
committee recommended the constitution
of the disclosure committee as a matter of
good corporate governance and to assist
the Company with compliance with the UK
Market Abuse Regulation.
Board evaluation
This year, I led an internal evaluation of the
effectiveness of the Board and its committees
via detailed evaluation and self-evaluation
questionnaires completed by all the Directors,
followed by individual discussions. Paul Miller,
in his capacity as senior independent Non-
Executive Director, reviewed my performance
as Chair of the Board and I focused in
particular on the review of Paul Arenson’s
performance as CEO of Industrials REIT. I also
conducted individual interviews with each
of the Executive Directors and the Company
Secretary.
With the restrictions relating to the pandemic
removed, we resumed board meetings in
person and social interactions between board
members and the senior management team.
Directors were also able to visit some of the
Company’s MLI sites. The feedback from
the internal evaluation was that the Board
and its committees continue to operate
effectively with improvements to the way it
operates during the reporting period, mainly
due to the simplification and focus of board
papers and the return to meetings in person.
Key additional recommendations for future
improvements included:
• Further improvements to the board
papers, with focused information on the
operating and financial performance of
the MLI portfolio and health and safety
matters to be included;
• Key operational information to be made
accessible to the Board on an ongoing
basis between quarterly Board meetings
(such as minutes of the meetings of the
operations committee).
• Further visits to MLI estates; and
• Additional strategy sessions with
the Board.
This is the second year that the evaluation is
conducted internally. In line with the principles
of the Code, the Board intends to appoint an
independent external firm to lead next year’s
board evaluation.
Independence and
re-election
The committee has assessed the time
commitment required of all Non-Executive
Directors and whether their re-appointment
would be in the best interests of the
Company, taking into account their individual
contributions to the Board and its committees,
their qualifications and experience. The
committee is of the opinion that each Non-
Executive Director continues to demonstrate
commitment to his or her role and discharges
their duties effectively.
The committee has also assessed the
continued independence of all Non-Executive
Directors in line with Code provision 10. We
re-assessed Paul Miller’s independence in
light of his continued involvement with Bryan
Cave Leighton Paisner LLP, corporate legal
advisers to the Company. The committee and
the Board remain of the opinion that Paul
Miller’s independence is not impaired. The
committee and the Board were able to reach
that conclusion mainly based on the following
factors:
• Paul Miller ceased to be an equity
partner more than six years prior to his
appointment to the Board and remains
engaged with Bryan Cave Leighton
Paisner LLP as a part-time consultant
with primary responsibility for matters
relating to international business
development, for which he receives a
fixed fee;
• he is not involved in any work carried
out by Bryan Cave Leighton Paisner LLP
for the Company and his remuneration
from them is not contingent on any such
work; and
• the scope of day-to-day work carried out
by Bryan Cave Leighton Paisner LLP for
the Company remains relatively limited
and the total fees paid to them by the
Company in the reporting period are not
deemed significant.
The committee and the Board also reviewed
and confirmed my independence and the
independence of Philip Holland, Louisa Bell
and Richard Smith. Although Patsy Watson
is not considered independent due to her
previous role as Chief Financial Officer of the
Company, she continues to make a valuable
contribution to the oversight of the Company’s
strategy and operations for the benefit of
all stakeholders. She also leads employee
engagement and plays a key role maintaining
direct line of communication between the
Board and the employee population (see
page 93).
The committee recommends that resolutions
to re-elect each of the Non-Executive
Directors be proposed at the 2022 annual
general meeting alongside resolutions to re-
elect the Executive Directors.
Accordingly, in accordance with the
recommendations of the committee and
in accordance with the Code, each of the
Directors in role at the date of this report will
offer themselves for re-election at the 2022
annual general meeting.
Richard Grant
Chair of the Nomination Committee
9 June 2022
/// Governance
100
Annual Report 2022
Remuneration Committee report
Letter from the Chair
Paul Miller
Chair of the Remuneration Committee
Paul Miller
Chair of the Remuneration
Committee
Richard Grant
Independent Chair of the Board
Philip Holland
Independent Non-Executive
Director
Louisa Bell
Independent Non-Executive
Director
Richard Smith
Independent Non-Executive
Director
Remuneration Committee Members
Role and responsibilities
The principal responsibilities of the committee are:
• Determine, agree with the Board, review and monitor
the general policy for the remuneration of the Company’s
chairperson, the Executive Directors and other senior
executives.
• Oversee that the implementation and execution of the
remuneration policy achieves the objectives of the policy.
• Determine targets for performance-related pay schemes.
• Determine individual awards under share incentive plans to
be made to Executive Directors and other senior executives.
• Approve the remuneration packages for the Company’s
chairperson, the Executive Directors and other senior
executives.
The committee’s terms of reference are set out on the Company’s
website.
Number of Meetings
5
Attendance
Committee member
Meetings attended during the
relevant member’s tenure
Paul Miller 5/5
Philip Holland 5/5
Richard Grant 5/5
Louisa Bell 5/5
Richard Smith 4/5
Remuneration Committee Information
Dear Shareholders
On behalf of the Board, I am pleased to present
our Remuneration Committee Report for the
year ended 31 March 2022.
As in previous years, this report is divided into three main sections:
• this letter, setting out some background to our policies and the
work of the Remuneration Committee during the reporting period;
• our remuneration policy; and
• the remuneration implementation report.
We have again also added a summary overview of Industrials REIT’s
remuneration policy and implementation report for additional clarity.
Please see page 104 of the report.
The remuneration policy and the remuneration implementation report
(set out on pages 105 to 115) will be subject to separate non-binding
advisory votes at the 2022 annual general meeting, to allow all
shareholders to express their views on the remuneration structures
adopted by the Company.
The year under review
The financial year ended 31 March 2022 marks the last year of our four-
year transition plan into a fully-fledged MLI operating business and another
successful year for Industrials REIT, despite the ongoing challenges and
uncertainties brought about by the pandemic. The Company was able to
meet most of its corporate objectives and continued to operate without
any need to furlough staff, to avail itself of any government loans or to
reduce its dividend.
101
Annual Report 2022
We successfully transferred the Company’s
listing to the Premium Segment of the LSE’s
Main Market and rebranded the Group from
Stenprop to Industrials REIT. We substantively
completed our transition to a fully focused
UK MLI business with the sale of our
Guernsey office building, the sale of our last
asset in Switzerland, and the completion of
£97.62million of MLI acquisitions (against a
target of £90 million to £115 million set for
the year).
From an operational perspective, we
completed the implementation of our
new ERP system, a key component of our
Industrials Hive platform. We continued
to support our customers and employees
through the pandemic, and launched a new
SAYE scheme for all staff. Financial highlights
included 6.88p adjusted earnings per share
(against a target range of 6.57p to 7.00p for
the year), as well as MLI like-for-like annual
rental growth of 4.4% (against a target range
of 3.75% to 5%).
In light of the above, Paul Arenson and
Julian Carey each received 74.73% of the
maximum available award under the annual
bonus scheme (2021: 100% each) and James
Beaumont received 68.73% of the maximum
available award under the annual bonus
scheme (2021: 90%). These outcomes took
into account scores achieved in respect of
personal objectives (see additional disclosures
on page 112 of this report).
LTIP awards made to Paul Arenson and
Julian Carey in June 2019 reached the end of
their performance period on 31 March 2022.
Despite the continued success and growth of
the Company, the ambitious targets for EPRA
earnings per share set out in 2019 were not
reached as at 31 March 2022 (7.43p minimum
target, up to 8.1p or more for the first tranche
of 25% of the maximum award). With MLI
constituting 95.29% of the total portfolio of
the Group as at 31 March 2022, 5.84% of the
second 25% tranche of the award successfully
vested. 59.85% of the third 25% tranche
vested due to FY 2022 actual net earnings
exceeding the targets set for the Group in
2019 by 6.01% and 100% of the last 25%
tranche vested reflecting growth above the
85th percentile of the total shareholder return
(TSR) European EPRA index for the three-year
performance period comfortably exceeding the
comparator benchmark. Overall this resulted in
41.5% of the maximum awards made to each
of Paul and Julian in June 2019 under the LTIP
vesting in June 2022.
Taken as a whole, the Remuneration
Committee is satisfied that overall pay
outcomes for the year ended 31 March 2022
are appropriate and demonstrate that the
Company’s remuneration policy is working
well, is aligned to the Company’s culture and is
driving appropriate management performance.
Accordingly, we have not applied any
discretion to the incentive outcomes
Remuneration policy and
implementation
Industrials REIT’s remuneration policy as set
out in the 2021 annual report was subject
to a non-binding advisory vote at the 2021
annual general meeting and was approved by
84.59% of shareholders who voted. The 2021
remuneration implementation report was
approved by 85.14% of shareholders who
voted. We are grateful for the support of our
shareholders.
Following last year’s strong performance
and the move to the Premium Segment of
the LSE’s Main Market, the committee was
keen to ensure that executive remuneration
remained competitive and aligned with best
practice. As indicated in last year’s report,
we mandated an independent consulting
firm, FIT Remuneration Consultants LLP
(“FIT”), to review our remuneration policy
and practices and have carefully considered
the recommendations presented to us.
Following that review, which included
market benchmarks looking in particular at
real estate sector peers and companies of
a similar market cap, it has become clear to
the committee that executive salary levels
(£285,800 for the CEO, £274,600 for the MD
and £182,100 for the CFO) were well below
market for an LSE premium listed company
of Industrial REIT’s size and complexity. The
talent market in our sector remains highly
competitive. The committee recognises
that above-inflation salary adjustments
for Executive Directors remain an area of
significant scrutiny. However, we believe that,
in order to avoid compounding this issue for
the future, and in the interest of fairness for
our strong performing executive team, an
above normal level of increase is warranted.
The committee therefore recommended base
salary increases of 15% for the CEO and MD,
and 5% for the CFO. These changes will be
implemented in June 2022 with retrospective
effect from 1 April 2022, as customary for all
staff salary reviews at Industrials REIT. The
recommended CFO’s base salary increase
is capped at 5% for FY 2023 (similar to
inflation salary increases implemented for
the wider employee population) to allow
James Beaumont to grow into the role given
that this is his first CFO role of a premium
listed company. Further salary increases
may be recommended in future years to
bring further alignment between Industrials
REIT policy and practices and other listed
operational businesses. However, any such
future increases will be subject to satisfactory
Group and individual performance during the
preceding financial year in line with investor
guidance and to additional consultation with
shareholders.
In addition, pension provisions for the CEO
and MD will be reduced from 10% to 7% of
base salary from 1 January 2023 in line with
the 2018 UK Corporate Governance Code
and investor guidance. The CFO’s pension
contributions will remain at up to 7% of base
salary.
For the financial year ending 31 March 2023,
the maximum annual bonus opportunity
will remain at 150% of salary. Targets will
continue to be challenging and will be based
on a range of financial, strategic and personal
targets which have been set to reflect our
strategic priorities for the current financial
year. LTIP awards for FY 2023 continue to
be over shares equal to no more than 200%
of salary with awards vesting three years
from grant subject to continued service and
performance targets measured over the three
years to 31 March 2025. As per prior years,
awards will be based on a combination of
Earnings Per Share, relative total shareholder
return, rental growth and cost ratio targets.
Targets in relation to total accounting returns
and ESG metrics have also been introduced.
Please see page 114 of this report for
additional information on targets.
This year, we have also launched a new
SAYE scheme, the Industrials REIT ShareSave
Scheme, to encourage the ownership of
shares in Industrials REIT among all staff.
See further information on this scheme in our
remuneration policy on page 107.
Apart from the above, the remuneration policy
remains unchanged this year. For ease of
reference it is included in full over pages 105
to 110.
The Industrials REIT ShareSave Scheme
was approved at the Company general
meeting held in February 2022 by 97.59%
of shareholders voting. In addition, the
committee conducted a detailed consultation
with Industrials REIT’s top 10 shareholders
and major representative bodies on the
increases to executive base salaries described
above and other key components of its
remuneration policy, and we would like to
thank those investors and individuals who
took the time to provide feedback. The
Shareholders consulted were supportive
of the proposals, noting however that they
reserved judgement on future substantial
increases to the executives’ salaries and
expected further consultation at the
relevant time.
102
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/// Governance
Remuneration Committee report continued
Letter from the Chair
The Remuneration Committee retains its
overriding discretion to modify the amounts
payable under the incentive schemes to
ensure that all awards are appropriate having
regard to the overall financial performance of
the Company. In addition, the Remuneration
Committee will review each individual’s role,
responsibility and performance and may alter
the terms of their participation in the annual
bonus scheme and/or long-term incentive
scheme on an individual basis, in each case
within the scope of the relevant scheme.
The Remuneration Committee believes
that its policy remains fair, appropriate and
market-related, and that it complies with the
five additional tests of simplicity, clarity, risk,
predictability and proportionality introduced
by the 2018 UK Corporate Governance Code.
Advisors to the committee
As mentioned above, the committee retained
the services of FIT to conduct a review
of Industrials REIT remuneration policy
and practices and to advise on executive
remuneration. FIT are members of the
Remuneration Consultants Group, and are
independent of both Industrials REIT Group
and its Directors. They did not provide any
other services to the Group during the
reporting period. As such, the committee
is satisfied that the advice received was
objective and independent. The cost of
the advice received amounted to £11,880,
charged on a time plus disbursements basis.
The 2018 UK Corporate
Governance Code (the
‘Code’)
We believe that the remuneration policy and
its implementation are aligned with the Code
in all material respect save in relation to Code
Provisions 36, 38 and 41, as further explained
below.
The Code sets out principles against
which the committee should determine the
remuneration policy for Executive Directors.
The table alongside includes a summary of
these principles, and how they are reflected in
Industrials REIT’s remuneration policy.
Principles
How it is being addressed by Industrials
Clarity – remuneration arrangements
should be transparent and promote effective
engagement with shareholders and the
workforce.
The remuneration policy is clearly set out in this report and the policy and the Board
determines clear metrics against which performance is measured which are communicated
to all stakeholders and explained externally and internally. The policy is subject to a separate
non-binding advisory vote at the AGM and shareholders are able to express their views on the
remuneration structures adopted by the Company. Industrials REIT has engaged with major
shareholders in relation to the planned increase in Executive Directors’ salary as set out in this
report. The Board is confident that these proposed increases are supported by shareholders.
Simplicity – remuneration structures should
avoid complexity and their rationale and
operation should be easy to understand.
Industrials REIT operates a market standard remuneration policy with the remuneration
package composed of a fixed pay element, an annual bonus and a long-term incentive plan.
Risk – remuneration arrangements should
ensure reputational and other risks from
excessive rewards, and behavioural risks that
can arise from target-based incentive plans,
are identified and mitigated.
The Remuneration Committee sets the corporate KPIs and personal goals of Executive
Directors so as to be stretching but achievable. It retains its overriding discretion to modify the
amounts payable under the schemes to ensure that all awards are appropriate having regard
to the overall financial performance of the Company and/or to the budget. The Industrials REIT
Deferred Share Bonus Plan and the Industrials REIT LTIP both incorporate malus and clawback
provisions.
Predictability – the range of possible values of
rewards to individual directors and any other
limits or discretions should be identified and
explained at the time of approving the policy.
The remuneration policy includes clear caps and the range of possible rewards to individual
directors is illustrated on page 108 of this report. The Remuneration Committee’s overriding
discretion to modify the amounts payable remains within the scope of the scheme.
Proportionality – the link between individual
awards, the delivery of strategy and the long-
term performance of the company should
be clear. Outcomes should not reward poor
performance.
The committee ensures performance metrics are aligned with Industrials REIT’s strategy each
year. Performance targets are set to be stretching, but achievable. Details of the committee’s
approach to target setting are set out on page 108 of this report.
Alignment to culture – incentive schemes
should drive behaviours consistent with
company purpose, values and strategy
The policy is designed to promote the long-term success of the Company. Rewards are based
on performance against corporate KPIs, which are aligned to Industrials REIT’s strategy, as well
as performance against individual goals, which are assessed each year taking into account a
competency framework which includes the behaviours that Industrials REIT wishes to promote
consistent with its purpose, culture and strategy. This competency framework includes skills in
relation to data and innovation, teamwork and leadership, communication and ESG.
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As noted above, the committee is aware
that the Company is not currently compliant
with Code Provision 38 according to which
the pension contribution rates for Executive
Directors, or payments in lieu, should be
aligned with those available to the rest of the
workforce, due to pension contributions for
each of Paul Arenson and Julian Carey (10%
of base salary) being in excess of pension
contributions generally made to the wider
employee population (up to 7% of base
salary). However, as indicated above, Paul
Arenson and Julian Carey have both agreed to
a reduction in pension contributions from 10%
to 7%. This change will become effective on
1January 2023 and will bring the Company in
full compliance with Code Provision 38.
The second issue of non-compliance, relating
to Code Provision 36, is that we have not
introduced a formal policy for shareholding
requirements for Executive Directors post-
employment. The remuneration policy as
currently structured already provides for
alignment between Executive Directors and
investors. For example, the three-year vesting
period and subsequent two-year post vesting
holding period in relation to nil-cost options
awarded under the Industrials REIT LTIP
ensure that all the Executive Directors have
a clear long-term interest in the performance
of the business. The two-year post vesting
holding period continues to apply following
cessation of employment, meaning that a link
to future performance remains beyond any
termination of employment. The committee
considered whether a formal policy regarding
both in-employment and post-employment
shareholding requirements for Executive
Directors should be adopted. However, it
noted that Executive Directors’ base salaries
remained below market average compared to
those of other listed operational businesses of
similar size and complexities even following the
increases mentioned above and that the equity
holdings of Paul Arenson and Julian Carey in
the Company were already very substantial.
It therefore concluded that it would not be
appropriate to impose further restrictions on
the Executive Directors until further alignment
of their remuneration package with those of
their peers. This position will be reviewed
annually.
Finally, while we acknowledge that we did not
formally consult with employees on executive
remuneration under Code Provision 41, the
Remuneration Committee took into account
the pay and benefits of all the employees of
the Group when reviewing the remuneration
policy. We noted the general increase in salary
proposed for all employees and levels of
incentive payments and performance, before
setting the remuneration of the Executive
Directors and members of senior management.
The committee is provided with data on the
remuneration structure for all staff and uses
this information to ensure consistency of
approach throughout the Group.
The year ahead
The Remuneration Committee remains
mindful of evolving best practice with respect
to executive remuneration. It considers
remuneration in the context of the overall
strategy of the business in order to promote
the Company’s strategic objectives, values and
its long-term sustainable success.
On behalf of the Remuneration Committee
and the Board, I thank you for your continued
support. I trust you find this report helpful and
informative. We are always looking to improve
our policies and practices and would welcome
any comments on the report, or any concerns
about our remuneration policy or the way we
have implemented it.
Paul Miller
Chair of the Remuneration Committee
9 June 2022
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Remuneration Committee report continued
Policy
Overview of remuneration policy and implementation
Remuneration in respect of the
financial year to 31 March 2022 Policy summary
Implementation for the
financial year to 31 March 2023
Base salary
Salaries increased by 1.5% in line with inflation
and the broader employee population effective
1April 2021, as follows:
CEO, Paul Arenson: £285,800
Managing Director, Julian Carey: £274,600
CFO, James Beaumont: £182,100
Salaries are normally reviewed annually to
ensure that they remain competitive and
market related.
Salaries increased with effect from 1 April 2022 as
follows:
CEO, Paul Arenson: £328,670 (+15%)
Managing Director, Julian Carey: £315,790 (+15%)
CFO, James Beaumont: £191,210 (+5%)
Pension and benefits
Pension contributions (or equivalent cash
allowance) of:
• CEO, Paul Arenson and Managing Director,
Julian Carey: 10% of base salary.
• CFO, James Beaumont: 7% of base salary.
Benefits in line with policy.
For all new appointments, pension
contributions will be at the level of the
wider employee population.
Executive Directors currently receive
private medical insurance, life assurance
and permanent health insurance. Other
benefits such as car allowance may be
provided where appropriate.
Pension contributions will be reduced to up to 7% of
base salary for each of Paul Arenson and Julian Carey
with effect from 1 January 2023.
Pension contributions for James Beaumont will remain at
up to 7% of base salary.
No change to benefits are proposed for the financial year
to 31 March 2023.
Annual bonus
CEO, Paul Arenson: 74.73% of the maximum
available award
Managing Director, Julian Carey: 74.73% of the
maximum available award
CFO, James Beaumont: 68.73% of the maximum
available award
The maximum level of annual bonus which
may be granted in respect of FY2021 is
equivalent to 150% of basic salary for
each of Paul Arenson and Julian Carey, and
100% of salary for James Beaumont.
An amount equal to 60% of salary for
each of Paul Arenson and Julian Carey, and
45% of salary for James Beaumont will
be paid in cash with the balance deferred
and satisfied by the award of nil-cost
options under the terms of the Industrials
REIT STIP.
The performance targets set for the financial year to
31March 2023 are:
• Growing adjusted earnings per share in a range
around the budget plan forecast (21% weighting)
• Completing £95 million to £125 million of MLI
acquisitions and/or capital expenditures (17.5%
weighting)
• 4% to 6% rental growth over the MLI portfolio
(17.5% weighting)
• 50% of the tranche to be awarded for achieving
the budgeted EPRA cost ratio for FY 2023, and the
second 50% for reducing the budgeted EPRA cost
ratio (7% weighting)
• Delivering a TAR between 10% and 12% (7%
weighting)
• Personal goals to each executive director (30%
weighting)
LTIP awards
For each of Paul Arenson and Julian Carey,
2019 Industrials REIT LTIP (performance period:
1April 2019 to 31 March 2022) vested at 41.5%
based on:
• Growth in sustainable EPRA EPS below
threshold (actual: 6.88p as opposed to
minimum target of 7.43p)
• MLI component of the portfolio at 95. 29%
(against target range of 95% to 100%)
• 6.01% increase on the FY 2022 budgeted
passing rent (against target range of
achieving budgeted passing rent and
increasing budgeted passing rent by 15%)
• TSR outperformance at 100% against
stretched target of 85th percentile of the TSR
European EPRA Index
Nil-cost options with a value equivalent
to 200% of base salary for each of Paul
Arenson and Julian Carey, and 100% of
salary for James Beaumont (at the time of
the grant).
Vesting at the end of a three-year period
subject to vesting conditions linked to
performance.
Additional two-year post vesting
holding period.
Awards equivalent to 200% of base salary for each of
Paul Arenson and Julian Carey and of 100% of salary for
James Beaumont made in June 2022.
Performance to be measured over the three-year period
ending 31 March 2025 against:
• Growth in adjusted EPS
• Rental growth on the MLI portfolio
• TSR targets
• Total accounting return targets
• Reduction in EPRA Cost Ratio for the MLI portfolio
• ESG targets
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Industrials REIT’s Remuneration Policy
Executive Directors’ remuneration policy
The remuneration policy ensures that a significant proportion of the remuneration of the executive and senior teams is linked to corporate and
individual performance. The policy is designed to promote the long-term success of the Company, via a fixed element, made up of a market related
salary with reasonable benefits, and a variable element, broken into short and long-term incentives, with KPIs and vesting conditions reflecting the
Company’s strategic goals.
The table below sets out the elements of the Executive Directors’ remuneration and how they operate.
Fixed remuneration
Purpose and operation Maximum opportunity Performance targets
Basic salary
To attract, motivate and retain high calibre executives
Salaries are normally reviewed annually to ensure
that they remain competitive and market-related.
The committee is required to obtain reliable, up-
to-date information about remuneration in other
comparable companies to confirm this is the case.
There is no automatic entitlement to an increase
each year.
Salary increases will typically be inflation or
market-linked increases.
Above inflation or market increases will typically
only be considered where the base salary is
below market or where the scope, role and/or
responsibility of the individual have increased in
a way that justifies such an increase.
Individual performance is a factor
when considering and reviewing
salaries.
Benefits
To provide market appropriate benefits as part of the total remuneration package
Executive Directors currently receive private
medical insurance, life assurance and permanent
health insurance. Other benefits such as car
allowance may be provided where appropriate.
While there is no maximum level of benefits for
Executive Directors, they are at the same level
as the wider employee population.
N/A
Pension or pension allowance
To provide appropriate retirement benefits (or cash allowance equivalent)
Pension benefits are provided via the Industrials
REIT pension scheme, although employees
including the Executive Directors, are entitled
to receive a contribution towards their personal
pension plan or a cash allowance instead of
contributions to the Industrials REIT scheme.
Paul Arenson and Julian Carey: currently up to
10% of base salary, but will decrease up to 7%
of base salary with effect from 1 January 2023
to align with the pension contribution available
to the wider employee population.
James Beaumont: up to 7% of base salary.
N/A
SAYE – the Industrials REIT ShareSave Scheme
To encourage the ownership of shares in Industrials REIT for all employees
An HMRC-approved scheme whereby employees
(including Executive Directors) may save up to the
maximum monthly saving limit (as determined by
prevailing HMRC guidelines) over a period of three
years. Options granted at up to 20% discount.
Savings are capped at the prevailing HMRC limit
at the time employees are invited to participate.
N/A
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Remuneration Committee report continued
Policy
Fixed remuneration
Purpose and operation Maximum opportunity Performance targets
Annual bonus – To encourage executive behaviour that improves Company performance, limits loss and promotes an ethical culture and
responsible corporate citizenship.
Awards based on performance are granted
following the financial year end when actual
performance over that year is measured.
A portion of the annual bonus (equal to up to 60%
of basic salary for Paul Arenson and Julian Carey,
and up to 45% of basic salary for James Beaumont)
is paid in cash with the balance (if any) satisfied by
the award of nil-cost options under the terms of the
Industrials REIT Deferred Share Bonus Plan (the
short-term incentive plan or the ‘Industrials REIT
STIP’).
The Industrials REIT STIP operates as follows:
• Vesting: 1/3 on the grant date, 1/3 on first
anniversary of year end; 1/3 on second
anniversary of year end, subject to participant
still being employed.
• Standard good leaver/bad leaver provisions:
the Board has absolute discretion to determine
that a participant is a good leaver (causing all
unvested options to vest in full) except in case
of gross misconduct.
• Reduction for malus provisions.
• Dividend equivalent payments in shares may
be made.
The maximum level of annual bonus which may
be granted is equivalent to 150% of basic salary
for each of Paul Arenson and Julian Carey, and
100% of salary for James Beaumont.
Performance targets are determined
each year by the Board following the
committee’s recommendation normally
at the beginning of the financial year.
They typically consist of a mixture of
corporate performance targets and
individual performance, although the
corporate performance targets usually
have a higher weighting. Metrics and
weightings may vary from year to year
according to strategy and the market.
See details on page 114 for the KPIs
agreed by the Board for the financial
year to 31 March 2023 and their
weighting.
Long term incentive plan
To align Executive Directors’ interests with the Company’s long-term strategic goal and the interests of the shareholders.
Executive directors are eligible to receive annual
awards of nil-cost options under the terms of
Industrials REIT’s Long Term Incentive Plan (the
‘Industrials REIT LTIP’). Nil cost options will vest at
the end of a three-year performance period subject
to certain performance metrics being met at the
end of the performance period.
• Vest on third anniversary of grant date or as
otherwise decided by the committee and the
Board (to allow sufficient time after the end of
the performance period to determine whether
the vesting conditions have been met). The
number of nil-cost options vesting depends
on the predetermined vesting conditions being
met. All options not vesting on the vesting
date automatically lapse. Vesting is subject to
participant still being in employment or office
but subject to Board discretion for good leavers.
• Two-year post vesting holding period following
vesting.
• Clawback provisions before vesting and during
the post vesting holding period.
• Dividend equivalent payments in shares may
be made.
Nil-cost options with a value equivalent to
200% of base salary for each of Paul Arenson
and Julian Carey, and 100% of salary for James
Beaumont (at the time of the grant, i.e. taking
into account any salary increase decided in
June the same year) to be granted automatically
(but vesting subject to vesting conditions
(performance targets).
Vesting conditions for nil-cost
options are typically determined by
the Board following the committee’s
recommendation in advance of awards
being made. The committee and the
Board retain full discretion to adjust or
set different performance measures
or targets where appropriate (e.g. to
reflect a change in strategy or market
conditions and/or to remain fair and
consistent). See page 115 for the
vesting conditions agreed by the
Board for the period to
31 March 2025.
Variable remuneration
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Annual Report 2022
Non-Executive Directors’ remuneration policy
The remuneration policy for the Chair and Non-Executive Directors should attract and retain individuals with the appropriate level of expertise and
experience, taking into account the time commitment and responsibilities of each role.
Purpose and operation Maximum opportunity Performance targets
Fees
The fee of the Chair of the Board is set by the
Remuneration Committee. Remuneration of
the Non-Executive Directors is a matter for the
Board as a whole. Fees are reviewed annually.
Fees are paid quarterly in cash. The Chair and
Non-Executive Directors do not participate in
any incentive, share schemes, benefits in kind or
pension arrangements.
No maximum or minimum fee increase is
operated although any increase will be guided
by the average increase awarded to Executive
Directors and other employees and/or general
movements in the market.
N/A
Other arrangements
The Company may reimburse expenses reasonably
incurred in fulfilment of the Company’s business.
The Company also provides the Chair and Non-
Executive Directors with Directors’ and Officers’
Liability Insurance.
The maximum reimbursement is expenses
reasonably incurred.
N/A
During the year under review, the Board conducted a review of Non-Executive Directors fees including benchmarks against non-executive
directors’ fees in LSE premium listed companies of similar size and complexity as the Company. It was noted that there had been no increases in
Non-Executive Directors’ fees since 2018. Following the review, the following changes were approved by the Board, with effect from 1 April 2022:
Current fees Proposed increase Proposed fees
Base fee
Committee
fee Total Base fee
Committee
fee Total Base fee
Committee
fee Total %
Richard Grant 58,000 – 58,000 7,000 – 7,000 65,000 – 65,000 12.1%
Philip Holland 35,000 8,000 43,000 10,000 (3,000) 7,000 45,000 5,000 50,000 16.3%
Paul Miller 35,000 5,000 40,000 10,000 (2,000) 8,000 45,000 3,000 48,000 20.0%
Patsy Watson 35,000 – 35,000 10,000 – 10,000 45,000 – 45,000 28.6%
Louisa Bell 35,000 5,000 40,000 10,000 (5,000) 5,000 45,000 – 45,000 12.5%
Richard Smith 35,000 5,000 40,000 10,000 (5,000) 5,000 45,000 – 45,000 12.5%
Total 233,000 23,000 256,000 57,000 (15,000) 42,000 290,000 8,000 298,000 16.4%
Remuneration policy for
other employees
Salary reviews across the Group are carried
out on the same basis as salary reviews
for Executive Directors. All employees are
entitled to substantially the same benefits as
Executive Directors and are currently entitled
to a pension contribution of up to 7% of their
basic salary.
The remuneration package of members
of senior management also includes the
same fixed and variable components as the
Executive Directors. Senior management are
eligible for an annual bonus with a proportion
payable in cash and the balance in nil-cost
options under the Industrials REIT STIP. The
performance targets for the annual bonus
are the same as those set for the Executive
Directors, except that personal goals have
historically had a heavier weighting when
reviewing the performance of members
of senior management as compared to
Executive Directors.
Members of senior management also
participate in the Industrials REIT LTIP but
are not entitled to nil-cost options under the
Industrials REIT LTIP. They typically receive
up to 100% of their salary in market value
options, which vest in three equal tranches
over a three-year period. The number of
market value options an individual is entitled
to receive is determined every year based
on the same performance metrics used for
rewards under the annual bonus scheme.
All other employees are also entitled to
an annual cash bonus based on individual
performance. During the review period, the
Company has sought to encourage and
broaden equity ownership amongst staff by
introducing an all-employee share incentive
scheme, the Industrials REIT ShareSave
Scheme. All employees at all levels are eligible
to participate following successful completion
of any probationary period. Under the scheme,
participants save monthly over three years
with the option to acquire shares of Industrials
REIT at a discount at the end of the savings
period. Currently, 57% of eligible employees
participate in the scheme.
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Remuneration Committee report continued
Policy
Principles followed by the committee when
making recommendations for KPIs, vesting
conditions and eligibility for each scheme
for the year ending 31 March 2023
In setting vesting conditions and eligibility for awards of nil cost options
under the Industrials REIT LTIP the committee applied the following
principles:
• In setting vesting conditions for nil cost options awarded
under the Industrials REIT LTIP, achieving the top end of the
performance range for any given condition should typically require
outperformance against the Company’s budgets and business plan.
Performance in line with budget and business plan should typically
result in vesting of 50% of the award.
• Vesting conditions for nil-cost options under the Industrials REIT
LTIP should comprise corporate goals only; and must be objective,
so that they do not require subjective determination by the
Remuneration Committee or the Board as to if, and the extent to
which, any of the conditions have been met.
In setting KPIs for the annual bonus element of the remuneration
package of Executive Directors and members of senior management,
the Remuneration Committee applies the following principles:
• all KPIs should be aligned with Industrials REIT’s objectives and
strategies;
• in setting financial and/or total return goals or targets, preference
should (other than in exceptional circumstances) be given to
measuring financial performance and returns relative to an
appropriate peer group;
• recognising the need to drive and reward individual performance,
KPIs for the annual bonus element should comprise a combination
of corporate and personal goals;
• the Remuneration Committee has determined to apply a weighting
of 70% for corporate goals and 30% for personal goals for Executive
Directors for the year ending 31 March 2023. The weighting
applied when determining the annual bonus for members of
senior management will be 65% towards corporate goals and
35% towards personal goals. The committee has also made all
participants aware of the discretion it has retained to adjust awards
to ensure they are appropriate in all the circumstances.
Illustration of application of the
remuneration policy to executive directors
The chart below provides an illustration of the potential future
remuneration for the executive directors in respect of the financial
year ending 31 March 2023, based on the current remuneration policy
outlined above and base salary effective 1 April 2022, showing the
potential split between the different element of the remuneration under
four different performance scenarios:
• ‘Minimum’
• ‘On-target’
• ‘Maximum’
• ‘Maximum +50% share price increase for LTIP’
Paul Arenson
Julian Carey
James Beaumont
£1,800,000
£1,600,000
£1,400,000
£1,200,000
£1,000,000
£800,000
£600,000
£400,000
£200,000
£
Minimum Maximum Maximum
+50% share
price inc.
for LTIP
On-target
100% 41% 26% 21%
32%
28%
40%
35%
50%
29%
Minimum Maximum Maximum
+50% share
price inc.
for LTIP
On-target
£1,800,000
£1,600,000
£1,400,000
£1,200,000
£1,000,000
£800,000
£600,000
£400,000
£200,000
£
Minimum Maximum Maximum
+50% share
price inc.
for LTIP
On-target
100% 41% 25% 21%
32%
28%
40%
35%
50%
29%
Minimum MaximumOn-target
£450,000
£400,000
£350,000
£300,000
£250,000
£200,000
£150,000
£100,000
£50,000
£
Minimum MaximumOn-target
100%
52%
32%
48%
68%
Salary, pension, benefits
Annual bonus
LTIP
109
Annual Report 2022
The ‘minimum’ scenario includes base salary, pension and benefits
only (i.e. fixed remuneration) which are the elements of the executives’
remuneration packages not linked to performance.
The ‘on-target’ scenario includes fixed remuneration as for the
‘minimum’ scenario, plus a bonus payout equal to half of the maximum
possible bonus for the period and Industrials REIT LTIP nil-cost
options vesting at 50% of the maximum award for the performance
period 1 April 2020 to 31 March 2023. Note that the Industrials REIT
LTIP awards for the period will only vest at the end of the three-year
performance period from the date of grant, and the projected value is
based on value at the grant date (June 2020), rather than vesting, i.e.
excluding the impact of any share price movement over the three-year
performance period. James Beaumont did not receive any Industrials
REIT LTIP awards for that period.
The ‘maximum’ scenario includes fixed remuneration and full payout of
all incentives (i.e. for each of Paul Arenson and Julian Carey: 150% of
salary under the annual bonus scheme and 200% of salary under the
Industrials REIT LTIP; and for James Beaumont: 100% of salary under
the annual bonus scheme). It excludes the impact of any share price
movement over the three-year performance period for awards made
under the Industrials REIT LTIP.
The final ‘maximum +50% share price increase for LTIP includes fixed
remuneration and full payout of all incentives. It also includes the
impact of a 50% increase in share price on the value of the Industrials
REIT LTIP, in effect valuing this element of the remuneration at 300% of
salary for each of Paul Arenson and Julian Carey.
110
Annual Report 2022
/// Governance
Remuneration Committee report continued
Implementation
Approach to recruitment
Industrials REIT’s approach to remuneration on recruitment follows the remuneration policy set out above. The salary of any newly appointed
executive director should reflect the individual’s skills and experience, the market rate for a candidate of that experience and the importance of
securing the relevant individual. Benefits, pension, annual bonus and participation in the Industrials REIT LTIP would be on the basis set out in the
remuneration policy table. In addition, the committee may offer additional cash and/or share-based elements to replace deferred or incentive pay
forfeited by an executive leaving a previous employer. It would seek to ensure, where possible, that these awards would be consistent with awards
forfeited in terms of vesting periods, expected value and performance conditions. For an internal appointment of an Executive Director appointment,
any variable pay element awarded in respect of the prior role will be paid out according to its original terms. For external and internal appointments,
the Company may agree that it will meet certain relocation and/or incidental expenses as appropriate.
Executive Directors’ service contracts
The committee reviews the Executive Directors’ service contracts on an annual basis. In June 2022, the service contracts of Paul Arenson and Julian
Carey were amended to confirm a decrease in pension contributions up to 7% of basic salary effective 1 January 2023.
Executive Director
Notice
period
Date of first
employment
Board
appointment
Date of
current contract
Paul Arenson Six months 2 October 2014 2 October 2014 1 June 2018
Julian Carey Six months 30 June 2017 1 May 2018 22 May 2018
James Beaumont Six months 1 June 2015 5 June 2019 10 June 2020
Policy on cessation of employment
There are no predetermined provisions for compensation within the Executive Directors’ service contracts in the event of loss of office. The
committee will consider all proposals for the early termination of the service contracts for Executive Directors and members of the senior
management team and would observe the principle of mitigation.
Service contracts of Executive Directors provide for termination of employment by giving six months’ notice or by making a payment of an
amount equal to six months’ basic salary and other contractual entitlements in lieu of notice. The general policy is that Executive Directors should
not be entitled to a notice or payment on termination in excess of the levels set out in his service contract. However, any payments made to a
departing Executive Director may include, without limitation, the payment of fees for outplacement assistance, the relevant individual’s legal and/
or professional advice fees in connection with the cessation of office or employment, compensation in respect of statutory rights under relevant
employment legislation and accrued but untaken holiday.
If termination is by the Company (other than for fundamental breach by the Executive Director), annual bonus may be payable with respect to the
period of the financial year served (including the notice period). If termination is by the Executive Director, the Executive Director will not normally
be entitled to any bonus that might otherwise have been due during the notice period. Share-based entitlements granted to an Executive Director
will be determined in accordance with the relevant plan rules. In certain circumstances such as death, ill-health, injury or disability, redundancy or
other circumstances at the discretion of the committee and the Board, awards made under the Industrials REIT STIP not yet vested at the cessation
of office or employment will vest in full and may be exercised for a period of 12 months from the date of vesting. The Board may determine in its
discretion that nil-cost options awarded under the Industrials REIT LTIP will vest subject to the satisfaction of the relevant performance conditions
and during such period as the Board may determine.
111
Annual Report 2022
Remuneration implementation report
The following section provides details of how Industrials REIT’s remuneration policy was implemented during the financial year ended 31 March
2022 and how it will be implemented during the financial year ending 31 March 2023.
Key activities of the committee during the financial year to 31 March 2022:
• Reviewed and approved the Executive Directors’ performance against the financial year to 31 March 2021’s KPIs; determined annual bonuses
payable to Executive Directors and number of nil-cost options awarded under the Industrials REIT LTIP vested in June 2021.
• Reviewed and approved annual bonuses for the senior management team for the financial year to 31 March 2021.
• Reviewed and approved salary increases for the Executive Directors and members of senior management for the financial year to
31March 2022.
• Approved the Directors’ remuneration report for the financial year to 31 March 2021.
• Determined corporate KPIs and the Executive Directors’ personal objectives for the financial year to 31 March 2022.
• Determined the vesting conditions for the awards of nil-cost options made in June 2021 under the Industrials REIT LTIP for the performance
period 1 April 2021 to 31 March 2024.
• Engaged with an independent consulting firm to review the Company’s remuneration policy and advise on any recommended changes to the
policy, and subsequent consideration of the recommendations received and remuneration market trends.
• Reviewed the terms of reference of the committee and considered corporate governance developments.
Application of the remuneration policy for the year ended 31 March 2022
Table of directors’ remuneration for year ended 31 March 2022 (audited)
Basic
salary
£’000
Pension
£’000
Other
benefits
£’000
Total
fixed
£’000
Annual
bonus
£’000
Long term
incentives
£’000
Total
variable
£’000
Total
remuneration
31 March
2022
£’000
Executive director
Paul Arenson 286 25 2 313 422 433 855 1,168
James Beaumont 182 12 1 195 121 – 121 316
Julian Carey 275 27 1 303 406 416 822 1,125
Salary increases
In June 2021, the Board approved increases of 1.5% to the base salary of the Executive Directors for the financial year to 31 March 2022, in line
with inflation. This is reflected in the above table. The remuneration of Non-Executive Directors remained unchanged compared to the prior year.
Table of non-executive directors’ remuneration for year ended 31 March 2022 (audited)
Fees
£’000
Pension
£’000
Other
benefits
£’000
Total
fixed
£’000
Cash
bonus
£’000
Vested
share
options
£’000
Total
variable
£’000
Total
remuneration
31 March
2022
£’000
Non-Executive director
Richard Grant 58 – – 58 – – – 58
Paul Miller 40 – – 40 – – – 40
Philip Holland 43 – – 43 – – – 43
Patsy Watson 35 – – 35 – – – 35
Richard Smith 40 – – 40 – – – 40
Louisa Bell 40 – – 40 – – – 40
112
Annual Report 2022
/// Governance
Remuneration Committee report continued
Implementation
Annual bonuses and awards under the Industrials REIT STIP made in respect of the financial year to 31 March 2022
Paul Arenson and Julian Carey were each eligible to earn an annual bonus of up to 150% of their basic salary, determined by considering
performance against the five KPIs set out in the table below. James Beaumont’s entitlement to an annual bonus was capped at up to 100% of his
basic salary.
KPI Weight Targeted KPI
Actual as at
31 March 2022
% of bonus
element achieved
Growing adjusted earnings per
share
21% Range between 6.57p (achieving 50%
of that bonus element) and 7.00p (for
100% of that bonus element)
6.88p 86%
MLI acquisitions 21% Completing between £90 million
(achieving 50% of that bonus element)
to £115 million of MLI acquisitions (for
100% of that bonus element)
£97.62 million 65%
MLI like-for-like rental growth 21% Growth in passing rent ranging from
3.75% (0% of that bonus element) to
5% (100% of that bonus element) on
the FY 2021 passing rent on UK MLI
assets owned as at 31 March 2021
4.4% 76%
Sale of all remaining non-MLI
assets
7% No sliding scales – all sales to be
exchanged or notarised to achieve
100% of this bonus element
Not achieved 0%
Personal goals 30% Personal goals specific
to each individual
Individual performance
against personal goals
90% for each of
Paul Arenson and
Julian Carey
70% for James
Beaumont
The ratings on the personal goals were based on an appraisal of personal KPIs set at the beginning of the year relative to performance over the
year. Personal KPIs were set for each executive around evolving the Industrials Hive platform and operating system. A significant KPI for all was to
successfully go live on the Finance and Operations component of the ERP and all the designing, testing and managing around that project. Other
KPIs related to the re-brand and the transfer of the business to the Premium Segment of the LSE. A number of KPIs related to evolving the ESG
agenda for the Company, evolving the digital marketing capabilities, identifying ways of simplifying business processes, improving various controls,
budgeting and forecasting processes as well as other data driven information and generally positioning the business for future scale and efficiency.
There were also personal KPIs set around the building of team and business culture. The Remuneration Committee assessed the individual
performance of each executive against their personal goals within this framework.
On 8 June 2022, the Board approved bonuses for the Executive Directors and members of senior management in line with the recommendations
of the committee. Paul Arenson and Julian Carey each received a bonus equal to 112.10% of their basic salary, or 74.73% of the maximum annual
bonus they could receive under the scheme. James Beaumont received a bonus equal to 68.73% of his salary, also representing 68.73% of the
maximum bonus available to him. Paul Arenson and Julian Carey will each receive an amount equal to 60% of their basic salary in cash, with the
balance of their bonus (52.10% of their basic salary) in nil-cost options under the Industrials REIT STIP. The cash element of the bonus payable to
James Beaumont will be equal to 45% of his basic salary, with the balance of his bonus (equal to 23.73% of his basic salary) also awarded in nil-
cost options under the Industrials REIT STIP.
Executive
Overall outcome
(% of maximum)
Overall outcome
(% of salary)
Overall
outcome (£)
Cash
amount (£)
Deferred element
under the STIP
(value in £ as at June
2022)
Paul Arenson 74.73% 112.10% £320,368 £171,480 £148,888
Julian Carey 74.73% 112.10% £307,814 £164,760 £143,054
James Beaumont 68.73% 68.73% £125,158 £81,945 £43,213
113
Annual Report 2022
The Industrials REIT LTIP – Conditional awards made for the performance period 1 April 2021 to 31 March 2024
In June 2021, conditional awards of nil-cost options were made to the Executive Directors for the three-year period ending 31 March 2024. Each
of Paul Arenson and Julian Carey received conditional awards with a value equivalent to 200% of their basic salary, and James Beaumont received
conditional awards with a value equivalent to 100% of his basic salary. Vesting of these nil-cost options is subject to achievement of the following
vesting conditions over the three-year period, each having a 1/4 weighting:
Growing adjusted earnings per share in a range around the budget plan forecast;
• Achieving between 3.75% and 5% rental growth per annum over the performance period over the MLI portfolio of the Group as at
31March 2021
• Reducing the EPRA cost ratio in relation to the MLI assets of the Group at 31 March 2021 by 5 to 10 percentage points; and
• Achieving a total shareholder return that results in the total shareholder return of the Company being between the 48th and 75th percentile of
the total shareholder return of the European EPRA index.
Any awards vesting at the end of the three-year performance period will be subject to an additional two-year holding period.
Vesting of nil-cost options under the Industrials REIT LTIP - Performance period 1 April 2019 to 31 March 2022
On 8 June 2022, the Board, on the recommendation of the Remuneration Committee, determined that 41.5% of the awards of nil-cost options
under the Industrials REIT LTIP in respect of the three-year period ended 31 March 2022 had vested.
The table below shows the number of nil-cost options that vested for each of Paul Arenson and Julian Carey as a result:
Original awards % vested
No. of nil-cost
options fully vested
Paul Arenson 491,631 41.5% 204,027
Julian Carey 472,541 41.5% 196,105
Nil-cost options which did not vest as per the above lapsed and will not be capable of exercise. All nil-cost options vested on 10 June 2022 are
subject to an additional two-year holding period.
The table below shows how the Company performed over the three-year performance period against each of the four objectives initially set as
vesting conditions (each with a weight of 25%):
Vesting condition Target
Actual as at
31 March 2022
% of vesting
condition
achieved
Weighted
average
Growth in adjusted EPS Range between 7.43p (with 33% of that vesting
element achieved) and 8.1p (for 100% of that vesting
element achieved)
6.88p 0% 0%
Growth of the MLI portfolio MLI assets to constitute between 95% and 100%
of total portfolio (straight line basis between nil and
100% of that vesting element)
95.29% 5.84% 1.5%
The financial year to 31 March 2022
Actual Net Rent Receivable
Range from the targeted passing rent on the UK
MLI assets owned as at June 2019 (to achieve 33%
of that vesting element) up to a 15% increase on
the targeted passing rent (to achieve 100% of that
vesting element)
6.01% increase
on targeted
passing rent
59.85% 15%
Total shareholder return Range between 50th and 85th percentile of the TSR
European EPRA Index
100% 100% 25%
Total of vesting conditions achieved
41.5%
114
Annual Report 2022
/// Governance
We have set out below how the committee
intends to implement the remuneration policy
for the year ended 31 March 2023, including
the KPIs which the committee intends to use
to measure the performance of the Executive
Directors and senior management team over
the period, as well as the vesting conditions
which have been set for options awarded
under the long-term incentive plan in June
2022 for the period to 31 March 2025.
We note that the committee reserves the right
to apply discretion when determining the final
outcomes under the annual bonus scheme
and Industrials REIT LTIP awards.
Salary increases
As detailed on page 101 of this report,
following a detailed review and consultation
with the top 10 shareholders of the Company,
it was decided to approve increases of 15%
to the base salary of each of Paul Arenson
and Julian Carey, and 5% to the base salary of
James Beaumont, effective 1 April 2022.
Pension
Executive Directors will continue to
receive a pension scheme contribution,
a cash allowance of equivalent costs to
the Company or a combination of both.
However, the amount contributed by the
Company will decrease from 10% to up to
7% of base salary for each of Paul Arenson
and Julian Carey with effect from 1 January
2023, bringing alignment with the pension
contributions payable to the rest of the
workforce. James Beaumont will continue to
receive a contribution of up to 7% of his basic
salary.
KPIs for annual bonuses and awards
under the Industrials REIT STIP for
the year ending 31 March 2023
The following KPIs have been set by the
Remuneration Committee and will be used
to measure the performance of the Executive
Directors over the current financial year:
KPI Weighting
Growing adjusted earnings per share in a range around the budget plan forecast 21%
Completing £95 million to £125 million of MLI acquisitions and/or capital
expenditure 17.5%
Achieving between 4% and 6% rental growth over the MLI portfolio of the group
as at 31 March 2022 17.5%
Achieving/reducing the EPRA cost ratio of the Group in accordance with the
budget plan forecast 7%
Delivering a TAR between 10% and 12% 7%
Personal goals specific to each individual 30%
The same corporate KPIs will be used to
measure the performance of members of
senior management over the period, but with
a heavier weighting of 35% attributed to
individuals’ personal goals and the weighting
of the first five corporate KPIs adjusted
accordingly.
The above KPIs (with the weightings adjusted
so that personal goals account for 35% of the
total award) will also be used to determine
any awards of market value options to
members of senior management under the
Industrials REIT LTIP for the period ending
31March 2023.
The targets for the above corporate KPIs have
been set to be challenging relative to business
plan. Other than in relation to the EPRA cost
ratio, achieving the lower side of the range for
a corporate KPI will attract a nil bonus, while
achieving the upper end of the range will
attract up to 100% of the relevant tranche.
Achieving the budgeted EPRA cost ratio
for FY 2023, will result in 50% of that KPI
being deemed achieved, with the remaining
50% being achieved on a sliding scale for
reducing the budgeted EPRA cost ratio
between 0.01and 1 percentage point.
Targets for adjusted earnings per share and
budgeted EPRA cost ratio are deemed to be
commercially sensitive and will be disclosed
retrospectively in the 2023 Remuneration
Report. A portion of any bonus award for FY
2023 will be payable in cash (up to 60% of
basic salary for each of Paul Arenson and
Julian Carey and up to 45% of basic salary for
James Beaumont), with the balance (if any) in
deferred consideration over a two-year period
via the issue of nil-cost options under the
Industrials REIT STIP.
Remuneration Committee report continued
Implementation
Application of the remuneration policy for the year to 31 March 2023
115
Annual Report 2022
Conditional awards under Industrials REIT LTIP
On 10 June 2022, the Executive Directors received conditional awards of nil-cost options for the three-year period ending 31 March 2025
equivalent to 200% of their basic salary for each of Paul Arenson and Julian Carey and 100% of basic salary for James Beaumont. Vesting will be
subject to the conditions set out in the table below and assessed by the committee at the end of the performance period:
Vesting condition Weighting
Growing adjusted earnings per share in a range around the budget plan forecast 25%
Achieving between 4% and 6% rental growth per annum over the performance period over the MLI portfolio of the group as at
31 March 2022 25%
Achieving a total shareholder return that results in the total shareholder return of the Company being between the 48th quantile
and the 75th quantile of the EPRA Nareit Index. 25%
Delivering a TAR between 10% and 12% compounded per annum over the three-year performance period 10%
Reducing the EPRA cost ratio in relation to the MLI assets of the group at 31 March 2022 by 2 to 8 percentage points 10%
ESG metrics 5%
The Remuneration Committee and the Board
decided to include some ESG metrics in
the vesting conditions for these conditional
awards, as an additional incentive for the
Executive Directors to continue to promote
the ESG agenda of the Company in line with
recent efforts and activities of the Group.
These ESG targets include the following:
• creating a framework for incorporating
ESG principles into the Company’s
business strategy (including through the
identification of short and medium term
environmental targets and metrics);
• identifying how climate change may
impact the Group over the short, medium
and long term;
• embedding ESG principles into the
Company’s business strategy and day-to-
day business activities;
• establishing and implementing a
programme for improving the energy
efficiency of the MLI assets;
• ensuring the Company has appropriate
systems and processes in place to
accurately measure and report on ESG
targets to all stakeholders;
• developing a comprehensive customer
engagement programme to enable our
customers to thrive in their space;
• establishing a community engagement
programme;
• ensuring Industrials REIT continues to
be an employer of choice through the
promotion of diversity learning and staff
wellness;
• achieving a Gold EPRA sustainability BPR
award; and
• delivering a portfolio with at least 75%
EPCs at C standard or above by the end
of the performance period.
Any options vesting at the end of the
performance period will be subject to an
additional two-year holding period. Targets
for adjusted earnings per share are again
deemed to be commercially sensitive and will
be disclosed retrospectively.
/// Governance
116
Annual Report 2022
Dear Shareholders
I am pleased to present the Social and Ethics
Committee report for the year ended 31 March
2022
This committee was established in accordance with the requirements
of the King IV Report on Corporate Governance for South Africa
(“King IV”). Following the migration of the Company’s listing on the
Johannesburg Stock Exchange from a primary to a secondary listing
in January 2022, King IV is no longer applicable to the Company.
However, in light of the important work of the committee in monitoring
the environmental and social impact of the Group and ongoing
initiatives led by the committee, it was agreed that the committee
should remain in place and continue to advise the Board on how the
Company does business specifically having regard to ethical standards,
environmental, social and governance matters, all important principles
also highlighted by the 2018 UK Corporate Governance Code (the
“Code”).
Committee composition and governance
I chair the committee and the additional members are Louisa Bell,
Independent Non-Executive Director, Patsy Watson, Non-Executive
Director, Julian Carey, Managing Director, and James Wakelin, Head of
Debts and Special Projects and a member of the senior management
team. Louisa brings significant operational expertise and experience in
managing sustainability risks and opportunities, whilst Patsy Watson,
who is also the designated Non-Executive Director with responsibility
for engagement with employees, has a keen interest in employees’
relationship. Julian Carey and James Wakelin are both leading and
taking overall responsibility for all ESG matters.
Philip Holland
Chair of the Social and Ethics
Committee
Louisa Bell
Independent Non-Executive
Director
Patsy Watson
Non-Executive Director
Julian Carey
Managing Director
James Wakelin
Head of Debt and Special
Projects
Social and Ethics Committee Members
Role and responsibilities
The principal responsibilities of the committee include monitoring
the Group’s activity with regard to matters relating to:
• Social and economic development and good corporate
citizenship – including the promotion of equality and the
contribution to the development of local communities
• Sustainable development – the environment, health and
public safety including the impact of the Group’s activities
• Employment relationships – including the Group’s
contribution towards the development of its employees,
working conditions, the safeguarding of human rights and the
right to be free from slavery and servitude
The committee’s terms of reference are set out on the Company’s
website.
Number of Meetings
3
Number of Meetings
Committee member Meetings attended
Philip Holland 3/3
Louisa Bell 3/3
Patsy Watson 3/3
Julian Carey 2/3
James Wakelin 3/3
Social and Ethics Committee Information
Philip Holland
Chair of the Social and Ethics Committee
Social and Ethics Committee report
117
Annual Report 2022
Key activities during the
reporting period
We are proud of what we have achieved so
far following the launch of our ESG policy and
strategy in FY 2021. Last year, we received a
Bronze Award and a Most Improved Award
from EPRA in the sustainability category. ESG
principles are embedded in our values and
culture and form an integral part of our daily
business activities. We have continued our
efforts and are keen to improve further as our
business grows.
Our culture and people
Following the rebrand of the Group from
Stenprop to Industrials REIT, we were keen
to review our purpose, our values and our
culture. We asked all our people to describe
Industrials REIT with five key words, and to
explain what the Group represents from their
individual perspective. Taking the responses
received, building on our strategy and existing
culture but looking at the future of the Group,
we redefined our core purpose, our values and
our culture, as further detailed in the strategic
report (see pages 3 and 30). Key initiatives
undertaken during the year reflecting those
changes included the launch of our new
hybrid working policy and the opening of our
new office in London.
We know that social activities and interactions
are important to our people wellbeing. With
the end of the social restrictions brought by
the pandemic, we are hopeful that we will be
able to renew physical social engagements
and invest in exciting activities with our staff.
Sustainability
We have continued the work started in
2020 with our sustainability partner, Carbon
Intelligence. The focus this year has been on
understanding our carbon emissions (scope
1, 2 and 3) and TCFD reporting, including
identifying climate related risks relevant
to our Group. We will continue to work on
improving the quality and quantity of data
collection and set clear science based targets
for carbon emissions. Another area of focus
for the current financial year will be to use
the results of our climate risk analysis to
identify measures and further develop our
ESGstrategy.
I invite all our stakeholders to read more on
our ESG strategy and policy on pages 64 to
73 and to review the additional disclosures
made on pages 60 to 63 and 74 to 83.
Communities
The committee is proud of the support that
all Industrials REIT’s employees have given
to Dementia UK. Despite the difficulties
presented by the pandemic, a total of £18,588
was contributed to the charity through a
combination of fundraising initiatives and
company donations. It is again a great
testament to the dedication and commitment
of our employees.
We are excited to partner with The Wellspring
for the year ending 31 March 2023. This
is a great opportunity to contribute and
make a difference to the community local to
our Stockport office, and we look forward
to another great year of fundraising and
volunteering activities.
Philip Holland
Chair of the Social and Ethics Committee
9 June 2022
118
Annual Report 2022
/// Governance
Directors’ report
The Directors present their report and the
audited consolidated financial statements for
the year ended 31 March 2022.
Principal activities
The principal activity of the Group is that
of a property investment company. The
Company is a UK REIT and is incorporated in
is Kingsway House, Havilland Stree t , St Peter
of the Company is 180 Great Portland Street,
London, W1W 5QZ.
Results and dividends
The results of the Group for the year ended
31 March 2022, are set out in the
consolidated statement of comprehensive
income. A final dividend was declared on
9 June 2022 of 3.475 pence per share, which,
together with the interim dividend declared on
3 December 2021 of 3.375 pence per share,
results in a total dividend for the year ended
31 March 2022 of 6.85 pence per share
(2021: 6.75 pence per share).
Capital structure
Details of the authorised and issued share
capital are shown in Note 12 of the financial
statements. The Company has one class
of share; all shares rank equally and each
share carries the right to one vote at general
meetings of the Company.
Powers of Directors to buy
back the Company’s shares
The powers of the Directors are determined
by the Companies (Guernsey) Law, 2008
(as amended) and the Company’s Articles of
Incorporation. The Directors are authorised to
buy back shares subject to annual shareholder
approval at the AGM. Such authorities were
granted by shareholders at the 2021 AGM.
Itwill be proposed at the 2022 AGM that the
Directors be granted new authorities to allot
and buy back shares.
The Company did not repurchase any of its
ordinary shares during the year ended
31 March 2022 (2021: 3,476,265 shares). As
at 8 June 2022 (the latest practicable date for
inclusion in this report) the Company had an
unexpired authority to repurchase ordinary
shares up to a maximum of 43,174,343
ordinary shares.
Going concern
The financial statements of the Group have
been prepared on a going concern basis. At
the date of signing these accounts, the Group
has positive operating cash flow forecasts
and positive net assets. Management have
reviewed the Group’s cash flow forecasts
for the 18 months to 30 September 2023
and, considering this review and the current
financial position, they are satisfied that the
Company and the Group have access to
adequate resources to meet their obligations
and continue in operational existence for the
foreseeable future, and specifically the
12 months subsequent to the signing of these
financial statements. Further details are set
out in note 2 to the financial statements.
Directors
The Directors of the Company who served
during the year and to the date of this report
were as follows:
Executive Directors
• Paul Arenson
• Julian Carey
• James Beaumont
Non-Executive Directors
• Richard Grant (Chairman)
• Paul Miller
• Philip Holland
• Patsy Watson
• Louisa Bell
• Richard Smith
Independent Auditor
A resolution to reappoint BDO LLP as
independent Auditor will be provided at the
next annual general meeting.
Statement as to disclosure
of information to Auditors
So far as the Directors are aware, there is
no relevant audit information of which the
Group’s Auditors are unaware, and each
Director has taken all the steps that they
ought to have taken as a Director in order to
make themselves aware of any relevant audit
information and to establish that the Group’s
Auditors are aware of that information.
Statement of Compliance
The Company is in compliance with the
provisions of the Companies (Guernsey)
Law, 2008 (as amended) and operates in
conformity with its Memorandum and Articles
of Incorporation.
Statement of Directors’
responsibilities
The Directors are responsible for preparing
the financial statements in accordance
with applicable law and regulations. The
Companies (Guernsey) Law, 2008 (as
amended) requires the Directors to prepare
financial statements for each financial year.
Under that law, the Directors are required
to prepare the Group financial statements
in accordance with International Financial
Reporting Standards as issued by the
International Accounting Standards Board.
The financial statements are required to give a
true and fair view of the state of affairs of the
Group and of the profit or loss of the Group
for that period. In preparing these financial
statements, the Directors are required to:
• properly select and apply accounting
policies;
• present information, including accounting
policies, in a manner that provides
relevant, reliable, comparable and
understandable information;
• provide additional disclosures when
compliance with the specific requirements
in IFRS is insufficient to enable users
to understand the impact of particular
transactions, other events and conditions
on the entity’s financial position and
financial performance; and
• make an assessment of the Company’s
ability to continue as a going concern.
The Directors are responsible for keeping
proper accounting records which disclose
with reasonable accuracy at any time the
financial position of the Group and to enable
them to ensure that the financial statements
comply with the Companies (Guernsey) Law,
2008 (as amended). They are also responsible
for safeguarding the assets of the Group and
hence for taking reasonable steps for the
prevention and detection of fraud and other
irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in Guernsey
governing the preparation and dissemination
of financial statements may differ from
legislation in other jurisdictions.
119
Annual Report 2022
Responsibility statement
To the best of the Directors’ knowledge, the
financial statements, prepared in accordance
with IFRS; give a true and fair view of the
assets, liabilities, financial position and profit
or loss of the Company and the undertakings
included in the consolidation taken as a whole.
The Annual Report and Accounts includes
a fair review of the development and
performance of the business and the position
of the Group and Company, together with
a description of the principal risks and
uncertainties that the Group faces.
The Directors consider that the annual report
and accounts, taken as a whole, is fair,
balanced and understandable, and provides
the information necessary for shareholders to
access the Company’s position, performance,
business model, and strategy.
Approval of annual financial
statements
The consolidated annual financial statements
of Industrials REIT Limited were approved by
the Board of Directors on 9 June 2022 and are
signed on their behalf by:
Paul Arenson
Chief Executive Officer
James Beaumont
Chief Financial Officer
120
Annual Report 2022
//// Financial Statements
Contents
Independent auditor’s report
122
Consolidated statement of comprehensive income
127
Consolidated statement of financial position
128
Consolidated statement of changes in equity
129
Consolidated statement of cash flows
130
Notes to the consolidated financial statements
131
120
Annual Report 2022
121
Annual Report 2022
Financial Statements
121
Annual Report 2022
122
Annual Report 2022
//// Financial Statements
Independent auditor’s report
To the members of Industrials REIT Limited
Opinion on the financial statements
In our opinion the financial statements:
• give a true and fair view of the state of the Group’s affairs as at
•
• have been prepared in accordance with the requirements of the
Consolidated Statement of Cash Flows and notes to the financial
financial reporting framework that has been applied in their preparation
Basis for opinion
We conducted our audit in accordance with International Standards on
those standards are further described in the Auditor’s responsibilities
believe that the audit evidence we have obtained is sufficient and
Independence
the ethical requirements that are relevant to our audit of the financial
Conclusions relating to going concern
included:
• using our knowledge of the Group and its market sector together
with the current general economic environment to assess
management’s identification of the inherent risks to the Group’s
• obtaining an understanding of management’s process for
• obtaining management’s going concern assessment and:
• assessing the Group’s forecasts cash flows with reference to
assumptions in comparison to the current performance of
• testing the inputs into the forecasts for reasonableness based on
• agreeing the Group’s available borrowing facilities and the related
• obtaining covenant calculations and forecast calculations to test
•
•
the assumptions made using our knowledge of the business and
the financial statements relating to going concern to check that the
twelve months from when the financial statements are authorised for
respect to going concern are described in the relevant sections of this
Overview
Coverage
100% (2020: 100%) of Group profit before tax
100% (2020: 100%) of Group revenue
100% (2020: 100%) of Group total assets
2022 2021
Key audit
matters a a
Materiality
Group financial statements as a whole
1%) of Group total assets
123
Annual Report 2022
An overview of the scope of our audit
We scoped our audit in alignment with the operating segments as
were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of
including those which had the greatest effect on: the overall audit
Key audit matter
How the scope of our audit addressed
the key audit matter
Valuation of Investment Property
Refer to Note 3 (Significant Accounting Policies),
Note 4 (Key Sources of Estimation Uncertainty) and
Note 16 (Investment Property)
assumptions could give rise to a material misstatement of investment
audit procedures:
• We read the external valuation reports and checked that the
approaches used were consistent with the requirements of
•
•
our own range of expectations for the valuation of investment
We assessed the valuation for each of the investment properties
against our own expectation and challenged the external valuer
in respect of those properties where the valuations fell outside
of our range of expectation through discussion and inspection of
•
• We assessed whether the disclosures in the financial statements
are appropriate and in accordance with IFRS 13 Fair Value
•
Key observations:
and methodologies used to value the Group’s investment portfolio to
be appropriate and that the disclosures in the financial statements are
124
Annual Report 2022
//// Financial Statements
Independent auditor’s report continued
To the members of Industrials REIT
Group financial statements
2022 2021
Materiality
Basis for determining materiality
Group financial statements as a whole – 1% of total assets
Rationale for the benchmark applied
We determined that total assets would be the most appropriate basis for determining overall
Performance materiality
Basis for determining
performance materiality
•
assessment of the Group’s overall control
•
of the Group and our past experience of
•
assessment of the Group’s overall control
•
We also determined that for other classes of transactions and account
Reporting threshold
We agreed with the Audit Committee that we would report to them all
Other information
information comprises the information included in the Annual Report
Our opinion on the financial statements does not cover the other
the financial statements or our knowledge obtained in the course of the
we are required to determine whether this gives rise to a material
125
Annual Report 2022
Corporate governance statement
compliance with the provisions of the UK Corporate Governance Code
that each of the following elements of the Corporate Governance
Going concern
and longer-term
viability
•
to the appropriateness of adopting the
material uncertainties identified set out on
•
period is appropriate set out on page 51
Other Code
provisions
•
• Board’s confirmation that it has carried out
a robust assessment of the emerging and
• The section of the annual report that
describes the review of effectiveness of risk
• The section describing the work of the audit
We have nothing to report in respect of the following matters where
our opinion:
•
• the financial statements are not in agreement with the accounting
•
to enable the preparation of financial statements that are free from
concern and using the going concern basis of accounting unless the
Auditor’s responsibilities for the
audit of the financial statements
Extent to which the audit was capable of detecting irregularities,
including fraud
detailed below:
• Obtaining an understanding of the control environment in
monitoring compliance with laws and regulations and performing
our own checks of compliance with relevant requirements including
Johannesburg Stock Exchange filing requirements and the REIT tax
•
supporting documentation to assess compliance with those laws
• Enquiries of management and the Audit and Risk Committee as to
•
•
We identified specific fraud risks with respect to the valuation
matter and our audit response is set out in that section of our
to revenue recognition through new or amended leases and
•
• We communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members and
126
Annual Report 2022
//// Financial Statements
Independent auditor’s report continued
To the members of Industrials REIT
Our audit procedures were designed to respond to risks of material
not detecting a material misstatement due to fraud is higher than the
regulations is from the events and transactions reflected in the financial
A further description of our responsibilities is available on the Financial
The partner on the audit resulting in this independent auditor’s opinion
Use of our report
Christopher Young
Chartered Accountants and Recognised Auditor
9 June 2022
127
Annual Report 2022
Consolidated statement
of comprehensive income
For the year ended 31 March 2022
Note
31 March
2022
£’000
2021
£’000
Continued operations
Revenue 44,186 32,018
Expected credit losses (1,328 ) (2,042 )
(10,071 ) (6,916 )
Net rental income 32,787 23,060
44 747
Operating costs 7 (13,441 ) (9,729 )
Net operating income 19,390 14,078
Fair value gain on investment properties 89,509 26,891
(85 ) (9 )
1,707 61
17 (65 )
Profit from operations 110,538 40,956
Net gain from fair value of derivative financial instruments 1,948 1,815
Interest income 129 48
Finance costs 9 (3,899 ) (4,510 )
Profit for the year before taxation 108,716 38,309
Tax credit 10 13 42
Profit for the year from continuing operations 108,729 38,351
Discontinued operations
19 (1,265 ) 14,664
Profit for the year 107,464 53,015
Profit attributable to:
107,464 53,045
– (30 )
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
(2,148 ) (3,663 )
Total comprehensive income for the year 105,316 49,352
Total comprehensive income attributable to:
105,316 49,382
– (30 )
Earnings per share Pence Pence
From continuing operations:
EPS 37.27 13.54
37.12 13.43
From continuing and discontinued operations:
EPS 36.83 18.71
36.68 18.57
128
Annual Report 2022
//// Financial Statements
Consolidated statement
of financial position
For the year ended 31 March 2022
Note
31 March
2022
£’000
2021
£’000
ASSETS
Non-current assets
Investment properties 645,082 511,220
– 143
– 14,119
Intangible assets 3,542 1,784
1,864 138
Other debtors 20 6,543 8,670
35 314
Total non-current assets 657,066 536,388
Current assets
Cash and cash equivalents 21 31,526 53,781
Trade and other receivables 20 12,159 8,723
385 –
14,883 –
Other investments – 1,000
– 2,024
Assets classified as held for sale 19 6,015 39,208
Total current assets 64,968 104,736
Total assets 722,034 641,124
LIABILITIES
Current liabilities
Bank loans 23 – 4,489
1,844 1,706
22 19,549 16,516
Provisions 947 –
28 316
19 – 15,166
Total current liabilities 22,368 38,193
Non-current liabilities
Bank loans 23 177,823 176,655
– 430
7 26
Total non-current liabilities 177,830 177,111
Total liabilities 200,198 215,304
Net assets 521,836 425,820
EQUITY
Capital and reserves
Share capital and share premium 12 322,765 322,776
189 (10,058 )
Retained earnings 179,575 91,647
19,307 21,455
Total equity 521,836 425,820
£ £
Net asset value per share 15 1.79 1.49
Diluted net asset value per share 15 1.78 1.48
James Beaumont
Chief Financial Officer
129
Annual Report 2022
Consolidated statement
For the year ended 31 March 2022
Note
Share
capital
and share
premium
£’000
Equity
reserve
£’000
Retained
earnings
£’000
Foreign
currency
translation
reserve
£’000
Attributable
to equity
shareholders
£’000
Non-
controlling
interest
£’000
Total equity
£’000
Balance at 1 April 2021 322,776 (10,058 ) 91,647 21,455 425,820 – 425,820
– – 107,464 – 107,464 – 107,464
19 – – – (2,291 ) (2,291 ) – (2,291 )
Other comprehensive income for
– – – 143 143 – 143
Total comprehensive income for
the year – – 107,464 (2,148 ) 105,316 – 105,316
13 (11 ) 3,876 – – 3,865 – 3,865
11 – 6,371 (19,536 ) – (13,165 ) – (13,165 )
Total contributions and distribution
recognised directly in equity (11 ) 10,247 (19,536 ) – (9,300 ) – (9,300 )
Balance at 31 March 2022 322,765 189 179,575 19,307 521,836 – 521,836
Balance at 1 April 2020 322,993 (14,360 ) 57,490 25,118 391,241 95 391,336
– – 53,045 – 53,045 (95 ) 52,950
Other comprehensive income for
– – – (3,663 ) (3,663 ) – (3,663 )
Total comprehensive income for
the year – – 53,045 (3,663 ) 49,382 (95 ) 49,287
13 (217 ) 1,219 213 – 1,215 – 1,215
Repurchase of own shares – (4,110 ) – – (4,110 ) – (4,110 )
11 – 7,193 (19,101 ) – (11,908 ) – (11,908 )
Total contributions and distribution
recognised directly in equity (217 ) 4,302 (18,888 ) – (14,803 ) – (14,803 )
Balance at 31 March 2021 322,776 (10,058 ) 91,647 21,455 425,820 – 425,820
130
Annual Report 2022
//// Financial Statements
Consolidated statement of cash flows
For the year ended 31 March 2022
Note
31 March 2022
£’000
£’000
Operating activities
Profit from operations from continuing operations 110,538 40,955
Profit from operations from discontinued operations 19 (968 ) 17,808
7 294 274
(87,022 ) (35,109 )
763 (495 )
(1,707 ) (61 )
1 –
– (1 )
7 1,126 937
25 (2,291 ) –
25 2,375 (468 )
(176 ) 44
Increase in trade and other receivables (800 ) (274 )
4,371 (3,327 )
Cash generated by operations 26,504 20,283
Interest paid (3,647 ) (4,749 )
Interest received 729 1,707
Net tax paid 732 (96 )
Net cash from operating activities 24,318 17,145
22,475 6,842
1,843 10,303
Investing activities
(102,705 ) (96,363 )
(3,898 ) (1,617 )
(2,004 ) (1,377 )
35,894 52,849
(1,186 ) (9,174 )
Receipt of loans advanced under the Share Purchase Plan – 6,643
1,000 (1,000 )
25 (1 ) 4,543
25 25,223 7,738
25 (434 ) (348 )
Net cash used in investing activities (48,111 ) (38,106 )
(107,607 ) (93,612 )
59,496 55,506
Financing activities
New bank loans raised 23 29,121 89,558
23 (18,714 ) (77,926 )
Amortisation of loans 23 (33 ) (123 )
(10,011 ) (10,665 )
Withholding tax on dividends paid (2,320 ) (1,305 )
(331 ) (281 )
Repurchase of shares – (4,110 )
SWAP break fee – (1,895 )
Proceeds from issues of share options 2,738 106
Financing fees paid (891 ) (2,072 )
Net cash used in financing activities (441 ) (8,713 )
13,906 7,958
(14,347 ) (16,671 )
Net decrease in cash and cash equivalents (24,234 ) (29,673 )
Effect of foreign exchange losses (1,778 ) (1,933 )
Cash and cash equivalents at beginning of the period 53,982 85,588
Cash and cash equivalents at end of the period 31,526 53,982
29,813 32,372
1,713 21,610
131
Annual Report 2022
Notes to the consolidated
financial statements
1 General Information
2 Basis of preparation
Going concern
emphasis placed on the uncertainties posed to the business and the Group’s occupiers as a result of the potential microeconomic impact of the
Adoption of new and revised standards
• Amendments to IAS 1
Impact assessment of adopting new accounting standards
132
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
2 Basis of preparation continued
3 Significant accounting policies
Basis of consolidation
Joint ventures
Business combinations and asset acquisitions
133
Annual Report 2022
3 Significant accounting policies continued
•
•
•
Revenue recognition
Rental income
Tenant recharges
Other income
134
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
3 Significant accounting policies continued
Foreign currencies
Borrowing costs
Current tax
135
Annual Report 2022
3 Significant accounting policies continued
Investment properties
Investment properties are recognised as assets when:
•
•
•
Cash and cash equivalents
Expenditure
Financial instruments
classification of financial assets and financial liabilities depends on the nature and purpose of the instrument and is determined at the time of initial
follows:
Financial assets
136
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
3 Significant accounting policies continued
The amount of expected credit loss is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective
The Group classifies its financial assets at fair value through profit or loss where it has determined that the business model for managing the
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset have expired or have been transferred and
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial
Intangible assets
137
Annual Report 2022
3 Significant accounting policies continued
Segmental reporting
Earnings per share
Earnings per share is calculated on the weighted average number of shares in issue in respect of the current period and is based on the profit
Net asset value per share
Save As You Earn Share Plan, Deferred Share Bonus Plan and Long-Term Incentive Plan
Share Purchase Plan
The loans have full recourse to the participants and as such fall outside of the scope of IFRS 2 and are accounted for as financial instruments under
Repurchase of share capital (own shares)
138
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
Valuation of the property portfolio
Assets held for sale and discontinued operations
Classification of investment in joint venture bond
139
Annual Report 2022
5 Operating segments
Continuing operations Discontinued operations
For the year ended 31 March 2022
UK multi-let
industrial
£’000
Germany
^
£’000
Group
£’000
Guernsey
£’000
Germany
^
£’000
Switzerland
£’000
Total
£’000
Net rental income 32,704 – 83 – – – 32,787
Net management fee income – – 44 – – – 44
Fair value movement on investment
properties 89,509 – – – – – 89,509
liabilities 2,139 – (191) – – – 1,948
(85) – – – – – (85)
– 1,707 – – – – 1,707
Net finance costs (3,738) – (32) – – – (3,770)
(545) – (1,401) – – – (1,946)
Audit fees – – (272) – – – (272)
Administration fees (42) – (377) – – – (419)
– – (279) – – – (279)
Staff remuneration costs – – (5,945) – – – (5,945)
Operating costs (2) – (4,578) – – – (4,580)
Net foreign exchange gain – – 17 – – – 17
(see note 19) – – – (686) (855) 276 (1,265)
Tax credit 13 – – – – – 13
Total profit/(loss) per reportable segment 119,953 1,707 (12,931) (686) (855) 276 107,464
As at 31 March 2022
Investment properties 645,082 – – – – – 645,082
– 15,268 – – – – 15,268
Cash and cash equivalents 26,927 – 2,885 7 888 819 31,526
Other 17,446 – 4,235 – 2,396 66 24,143
Assets classified as held for sale 6,015 – – – – – 6,015
Total assets 695,470 15,268 7,120 7 3,284 885 722,034
Borrowings – bank loans 177,823 – – – – – 177,823
Other 17,629 – 3,962 1 745 38 22,375
Total liabilities 195,452 – 3,962 1 745 38 200,198
140
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
5 Operating segments continued
Continuing operations
industrial*
£’000
^
£’000
Group
£’000
£’000
^
£’000
£’000
Total
£’000
Net rental income – 75 – – –
Net management fee income – – – – –
Fair value movement on investment
properties – – – – –
liabilities (209) – – – –
(9) – – – – – (9)
– (1) – – –
– – – –
– – – –
Audit fees – – – – –
Administration fees – (251) – – – (277)
– – – – – – –
– – – – –
Staff remuneration costs – – – – –
Operating costs (2) – – – –
Net foreign exchange loss – – – – –
note 19) – – –
(7) – – – –
Investment properties – – – –
– 1 – – –
Cash and cash equivalents – –
Other – 772 –
Assets classified as held for sale – – – –
Total assets
Borrowings – bank loans – – – –
Other – –
classified as held for sale – – – –
Total liabilities –
141
Annual Report 2022
31 March
2022
£’000
2021
£’000
Rental income 35,260
Tenant recharges 8,625
Other income 301
Revenue 44,186
(10,071)
Expected credit losses (1,328)
Property expenses (11,399)
Total net rental income 32,787
7 Operating costs
31 March
2022
£’000
2021
£’000
1,946
Audit fees 234 229
Interim review fees 38
Administration fees 419 277
279
Staff remuneration costs 5,945
1,126 937
718
294
Corporate costs 762
IT costs 904
Other operating costs 776
Total operating costs 13,441
142
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
31 March
2022
£’000
2021
£’000
Wages and salaries 4,267
1,500
Pension costs 178
1,126 937
Total employee costs 7,071
were as follows:
Non-Executive Directors Appointed
Richard Grant (Chair of the Board)
5 Jun 2019
Richard Smith
Executive Directors Appointed
Paul Arenson (Chief Executive Officer)
James Beaumont (Chief Financial Officer) 5 Jun 2019
summarised below:
Non-Executive Directors
31 March
2022
£’000
2021
£’000
Richard Grant 58
43
35 35
40
40
Richard Smith 40
–
Total 256
143
Annual Report 2022
continued
Bonuses in respect of the year ended 31 March 2022
Executive Directors
Cash bonus
£’000
Deferred
share bonus
plan
£’000
Number of
share options
(estimated)
LTIP for
Executive
Directors
£’000
Number of
share options
(estimated)
Paul Arenson 171 149 82,800 657 365,000
165 143 79,400 632 351,200
James Beaumont 82 43 23,900 191 106,100
Total 418 335 186,100 1,480 822,300
Cash bonus
£’000
share bonus
plan
£’000
Number of
share options
Executive
£’000
Number of
share options
Paul Arenson 253 572
James Beaumont
Total
As at 31 March 2022:
1
Direct
number of
shares
% of shares
in issue
Indirect
number of
shares
% of shares
in issue
Number of
share options
held
% of shares
in issue
Paul Arenson (CEO)
2
– – %
James Beaumont (CFO) – – %
– – % – – %
Richard Grant (Chair of the Board) – – % – – %
– – % – – %
– – % – – % – – %
Richard Smith – – % – – %
1
2
144
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
continued
number of
shares
% of shares
in issue
Indirect
number of
shares
% of shares
in issue
Number
of share
options held
% of shares
in issue
Paul Arenson (CEO)
1
– – %
James Beaumont (CFO) – – %
– – % – – %
Richard Grant (Chair of the Board) – – % – – %
– – % – – %
– – % – – % – – %
Richard Smith – – % – – % – – %
1
9 Finance costs
31 March
2022
£’000
2021
£’000
Interest on loans and borrowings 3,015
884
Net finance costs 3,899
145
Annual Report 2022
10 Taxation
Real Estate Investment Trust regime (REIT regime)
•
•
•
(i) Tax recognised in statement of comprehensive income
31 March
2022
£’000
2021
£’000
Current tax – UK
– –
Current tax – Foreign
(13)
Total current tax credit (13)
– –
Total tax credit (13)
(ii) Reconciliation of tax charge for the year
31 March
2022
£’000
2021
£’000
Profit before taxation on continuing operations 108,716
20,656
36
(22,791)
(315) 55
Effect of tax losses 2,414
Tax provisions relating to prior periods (13)
Total income tax credit (13)
146
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
For the year ended
31 March 2022
Pence
per share £’000
3.375 9,721
3.375 9,815
Total dividends distributed 6.75 19,536
Scrip dividends issued during the period:
3.375 (3,573)
3.375 (2,798)
Total scrip dividends issued 6.75 (6,371)
576
(1,410)
Dividends paid as reported in the consolidated statement of cash flows 12,331
Pence
per share £’000
Total dividends distributed
Scrip dividends issued during the period:
Total scrip dividends issued
147
Annual Report 2022
12 Share capital
Authorised
Issued share capital
31 March
2022
(no. shares)
2021
Opening balance 298,775,175
Closing number of shares in issue 298,775,175
Authorised share capital £’000 £’000
Share capital 1 1
Share premium 322,764
Total share capital and share premium 322,765
Treasury shares
31 March
2022
(no. shares)
2021
Opening balance 12,866,950
Issue of scrip dividend shares (4,177,958)
–
(55,287)
(112,743)
Exercised shares from the Other Share Purchase Plan (2,000,000) –
Closing number of treasury shares 6,520,962
148
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
Save As You Earn (SAYE) share scheme
Share price at date of grant
3
Option price discount
Value per option
Date of grant
At
1 April 2021 Granted
Dividend
equivalents
Exercised/
Other
Outstanding
at
31 March
2022
Exercisable
at
31 March
2022
Fair value
at
grant date
in GBP
Exercise dates
From To
– – – – 1 November 2025
Weighted average exercise price of Save As You Earn share options
At
2022
At
2021
Exercisable –
£1.55
Weighted average remaining contracted life of Save As You Earn share options
At
2022
At
2021
Exercisable –
11 June 2021 are shown below:
Share price at date of grant
2
Value per option
149
Annual Report 2022
continued
Date of grant
At
1 April 2021 Granted
Dividend
equivalents
Exercised/
Other
Outstanding
at
31 March
2022
Exercisable
at
31 March
2022
Fair value at
grant date
in GBP
Exercise dates
From To
10 June 2015 – – 10 June 2015 10 June 2025
– –
7 June 2017 – – 7 June 2017 7 June 2027
– –
–
12 June 2020 – 12 June 2020 12 June 2030
11 June 2021 – 11 June 2021 11 June 2031
Weighted average exercise price of deferred share bonus plan share options
At
31 March
2022
At
2021
Exercisable £1.20
£1.59
Weighted average remaining contracted life of deferred share bonus plan share options
At
31 March
2022
At
2021
Exercisable 6.4 years
9.2 years
granted on 11 June 2021 are shown below:
Share price at date of grant
Exercise price at grant date
10
Value per option
Date of grant
At
1 April 2021 Granted
Dividend
equivalents
Exercised/
Other
Outstanding
at
31 March
2022
Exercisable
at
31 March
2022
Fair value
at
grant date
in GBP
Exercise dates
From To
– –
–
–
12 June 2020 – 12 June 2030
11 June 2021 – – 11 June 2031
150
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
continued
Weighted average exercise price of LTIP for senior management share options
At
31 March
2022
At
2021
Exercisable £1.14
£1.37
Weighted average remaining contracted life of LTIP for senior management share options
At
31 March
2022
At
2021
Exercisable 7.2 years
8.8 years
Share price
Exercise price at grant date
3+2
Value per option – market awards
Date of grant
At
1 April 2021 Granted
Dividend
equivalents
Exercised/
Other
Outstanding
at
31 March
2022
Exercisable
at
31 March
2022
Fair value
at
grant date
in GBP
Exercise dates
From To
– – –
– – 7 June 2021*
– – –
12 June 2020 – – – 12 June 2023* 12 June 2030
12 June 2020 – – – 11 June 2031
Weighted average exercise price of LTIP for Executive Directors’ share options
At
31 March
2022
At
2021
Exercisable – –
– –
Weighted average remaining contracted life of LTIP for Executive Directors’ share options
At
31 March
2022
At
2021
Exercisable – –
7.6 years
151
Annual Report 2022
continued
Other share options
Share price
Exercise price at grant date
5
Value per option
Date of grant
At
1 April 2021 Granted Exercised
Outstanding
at
31 March
2022
Exercisable
at
31 March
2022
Fair value
at grant
date in GBP
Exercise dates
From To
– – –
Share purchase plan
31 March
2022
2021
(number of shares) 5,392,536
(number of shares) – –
Share Purchase Plan shares redeemed (number of shares) –
(number of shares) 5,392,536
Stock price at advancement N/A
Share Purchase Plan loans advanced (including accrued interest) (see note 20) (£’000) 6,543
152
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
31 March
2022
£’000
2021
£’000
Reconciliation of profit for the period to adjusted EPRA
1
earnings
Earnings per IFRS statement of comprehensive income attributable to shareholders 107,464
1,265
Earnings per IFRS statement of comprehensive income from continuing operations attributable to shareholders 108,729
Earnings per IFRS statement of comprehensive income attributable to shareholders 107,464
Adjustments to calculate EPRA earnings, exclude:
Gain on fair value of investment properties (87,107)
(1,948)
(1,719)
776
Tax expense on disposal of properties 1,093
84 172
Adjustments above in respect of joint ventures:
(75)
Gain on fair value of financial instruments (210)
88 (51)
EPRA earnings attributable to shareholders 18,446
Further adjustments to arrive at adjusted earnings:
989 –
Costs associated with ERP implementation 711
Adjusted earnings attributable to shareholders
2
20,146
291,769,203
1,181,961
Diluted weighted average number of shares in issue 292,951,164
Earnings per share from continuing operations Pence Pence
IFRS EPS 37.27
37.12
Earnings per share from continuing and discontinued operations Pence Pence
IFRS EPS 36.83
36.68
EPRA EPS 6.32
6.30
6.88
1
2
153
Annual Report 2022
continued
Costs associated with ERP implementation
Reconciliation of profit for the period to headline earnings
31 March
2022
£’000
2021
£’000
Earnings per statement of comprehensive income attributable to shareholders 107,464
Adjustments to calculate headline earnings, exclude:
Gain on fair value of investment properties (87,107)
(1,719)
776
Tax expense on disposal of properties 1,093
84 172
Adjustments above in respect of joint ventures:
(75)
55 (57)
20,571
Earnings per share pence pence
7.05
7.02
154
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
15 Net asset value metrics per share – reconciliations and bridge
EPRA’s best practice recommendations are a set of guidelines for public real estate companies which enable investors and other users of annual
As at 31 March 2022
NAV EPRA NAV measures
IFRS
£’000
EPRA NRV
£’000
EPRA NTA
£’000
EPRA NDV
£’000
521,836 521,836 521,836 521,836
– (1,864) (1,864) –
– 1,557 1,557 –
Intangible assets – – (3,542) –
Purchaser's costs
1
– 44,125 – –
Net assets used in per share calculation 521,836 565,654 517,987 521,836
2
292,254,213 292,254,213 292,254,213 292,254,213
1,181,961 1,181,961 1,181,961 1,181,961
Diluted number of shares in issue 293,436,174 293,436,174 293,436,174 293,436,174
Net asset value per share
IFRS
£
EPRA NRV
£
EPRA NTA
£
EPRA NDV
£
Net asset value per share 1.79 – – –
1.78 1.93 1.77 1.78
1
2
155
Annual Report 2022
15 Net asset value metrics per share – reconciliations and bridge continued
NAV EPRA NAV measures
IFRS
£’000
EPRA NRV
£’000
EPRA NTA
£’000
£’000
Adjustments:
– –
instruments
1
– – –
– –
Intangible assets – – –
Purchaser's costs
2
– – –
Net assets used in per share calculation
3
NAV New measures
Net assets per share
IFRS
£
EPRA NRV
£
EPRA NTA
£
£
Net asset value per share – – –
1
2
3
156
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
31 March 2022
Investment
property
£’000
Assets held
for sale
£’000
Total -
wholly
owned
£’000
Investment
£’000
Assets held
for sale
£’000
owned
£’000
Opening balance 511,220 38,206 549,426
Acquisitions 102,705 – 102,705 –
Capitalised expenditure 3,796 102 3,898 103
Transfers to assets held for sale (62,148) 62,148 – – – –
– (92,807) (92,807) –
properties 89,509 (2,487) 87,022
Foreign exchange movement in foreign
operations – 853 853 –
Net carrying value 645,082 6,015 651,097
157
Annual Report 2022
continued
31 March 2022
Group
(excl. joint
ventures)
£’000
Joint
ventures
£’000
Combined
portfolio
£’000
Group
ventures)
£’000
Joint ventures
£’000
Combined
portfolio
£’000
Market value 653,475 33,099 686,574
– (814) (814) –
Portfolio Market value 653,475 32,285 685,760
(2,378) – (2,378) – – –
Net carrying value total 651,097 32,285 683,382
Combined portfolio
(including share of jointly controlled entities)
Market value
31 March
2022
(£’000)
Portfolio
by market
value
(%)
Valuer’s ERV
(range)
(£/sq ft)
Valuer’s ERV
(average)
(£/sq ft)
Net initial
Yield
(range)
(%)
Net initial
Yield
(average)
(%)
Investment properties
647,460 94.4 % 2.7-11.5 6.4 1.4-8.0 % 5.3 %
Assets held for sale
Rose Kiln Court – Reading 6,015 0.9 % 22.3 22.3 9.3 % 9.3 %
Total – wholly owned 653,475 95.3 % – 6.5 – 5.3 %
32,285 4.7 % 8.1-15.7 12.3 5.3-9.4 % 6.4 %
Market value total 685,760 100.0 % – 6.9 – 5.4 %
Combined portfolio
2021
(£’000)
Portfolio
value
(%)
Valuer’s ERV
(range)
Valuer’s ERV
(average)
Net initial
Yield
(range)
(%)
Net initial
Yield
(average)
(%)
Investment properties
UK urban logistics
Subtotal – –
Assets held for sale
– –
– –
158
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
continued
Investment property
Fair value at
31 March
2022
£’000
Impact on valuations Fair value at
2021
£’000
Impact on valuations
+5% ERV
£’000
-5% ERV
£’000
+10% ERV
£’000
£’000
653,475 27,591 (27,591)
Joint ventures 32,285 825 (825)
– – –
UK urban logistics – – –
– – –
– – –
Group property portfolio valuation 685,760 28,416 (28,416)
Investment property
Fair value at
31 March
2022
£’000
Impact on valuations
Fair value at
2021
£’000
Impact on valuations
+25 bps
£’000
-25 bps
£’000
+50 bps
£’000
-50 bps
£’000
653,475 (25,182) 27,094
Joint ventures 32,285 (1,288) 1,313
– – –
UK urban logistics – – –
– – –
– – –
Group property portfolio valuation 685,760 (26,470) 28,407
159
Annual Report 2022
17 Group companies
Name
Principal
place
of business Principal activity
% equity
owned by
Company Subsidiary
BVI incorporated entities with registered address:
Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, VG1110, British
Virgin Islands
England
England
Curaçao incorporated entities with registered address:
Wilhelminalaan 13, Curaçao
England
England
England
England
England incorporated entities with registered address:
180 Great Portland Street, London, W1W 5QZ
England
England
England
Guernsey incorporated entities with registered address:
Kingsway House, Havilland Street, St Peter Port, Guernsey GY1 2QE
England
England
England
England
England
England
Netherlands incorporated entities with registered address:
Fascinatio Boulevard 764, 2909 VA Capelle aan den IJssel, Netherlands
Netherlands
Netherlands
United States incorporated entities with registered address:
1209 Orange Street, Wilmington, Delaware 19801, USA
England
England
160
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
Name
Place of
incorporation Principal activity
% equity
owned by
subsidiary
Luxembourg incorporated entities with registered address:
fair value has been determined based on the net assets of the compartment which would be available to settle the outstanding bond and which is
161
Annual Report 2022
31 March
2022
£’000
Assets
33,099
Fixed assets 30
Cash and cash equivalents 382
Current assets 52
Total assets 33,563
Liabilities
Bank loans (16,183)
Bond (14,883)
(1,489)
(63)
Current liabilities (175)
Total liabilities (32,793)
Net assets of joint ventures 770
Group’s investment in joint venture bond 14,883
Group’s share of joint venture’s net assets 385
Profit and total comprehensive income from continuing operations
Revenue 2,470
Finance costs (1,769)
Net fair value loss (100)
Tax expense (316)
Profit and total comprehensive income 285
Group income from joint ventures represented by:
142
1,465
100
Income from joint ventures 1,707
continued
162
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
continued
£’000
Other
£’000
Total
2021
£’000
Assets
–
Fixed assets 31 – 31
Cash and cash equivalents 1
Current assets 9 – 9
Total assets 1
Liabilities
Bank loans –
Bond –
–
–
Current liabilities (122) – (122)
Total liabilities –
1
–
1
Loss and total comprehensive income from continuing operations
Revenue –
Finance costs –
Net fair value loss (2)
Tax expense (159) – (159)
(2)
Group income from joint ventures represented by:
(1)
–
–
(1)
163
Annual Report 2022
continued
statements:
31 March 2022
Bond Investment in joint ventures
Elysion
S.A.
£’000
Elysion
S.A.
£’000
Other
£’000
Total
£’000
Opening balance 14,119 142 1 143
– 242 (1) 241
Gain on fair value movement 1,465 – – –
Investment receipts (604) – – –
Foreign exchange movement in foreign operations (96) – – –
Closing balance 14,884 384 – 384
Bond
£’000
£’000
Other
£’000
Total
£’000
Opening balance 1
–
– – –
Investment receipts – – –
Foreign exchange movement in foreign operations –
Closing balance 1
19 Assets held for sale and discontinued operations
Note
31 March
2022
£’000
2021
£’000
Investment properties 6,015
Cash and cash equivalents – 201
Trade and other receivables –
Assets classified as held for sale 6,015
Bank loans 23 –
–
Tax credit –
– 151
Accruals –
Liabilities directly associated with assets classified as held for sale –
164
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
19 Assets held for sale and discontinued operations continued
discontinued operations were as follows:
31 March
2022
£’000
2021
£’000
Rental income 1,819
Tenant recharges 738
Other income 15
(261)
Net rental income 2,311
Operating costs (273) (902)
Net operating income 2,038
(2,402)
(678)
(2,375)
income 2,291 –
Net foreign exchange gain 158 22
(Loss)/profit from operations (968)
Net gain from fair value of derivative financial instruments –
Interest receivable – 309
Finance costs (375)
(Loss)/profit for the year before taxation (1,343)
Current tax (1,117)
1,195
(Loss)/profit for the year from discontinued operations (1,265)
165
Annual Report 2022
19 Assets held for sale and discontinued operations continued
20 Trade and other receivables
Non-current receivables
31 March
2022
£’000
2021
£’000
Other debtors 6,543
Total non-current receivables 6,543
Current receivables
31 March
2022
£’000
2021
£’000
Accounts receivable 8,761
(3,229)
Net receivables 5,532
2,378
(280)
Net lease incentives 2,098
Other receivables 3,854
675
Total current receivables 12,159
166
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
20 Trade and other receivables continued
31 March 2022
Accounts
receivables
£’000
Rate *
%
Loss
allowance
£’000
Net
receivables
£’000
Accounts
receivables
£’000
Rate *
%
allowance
£’000
Net
receivables
£’000
– – – – – – – –
3,596 20 % (476) 3,120 10 % (37)
702 38 % (180) 522 50 % (109)
462 50 % (121) 342 (99)
864 59 % (339) 525 90 % (323) 17
3,138 80 % (2,113) 1,025 100 %
Closing balance 8,761 – (3,229) 5,535 –
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade
The expected loss rates on accounts receivables and lease incentives are based on the Group’s historical credit losses experienced over the current
Loss allowance reconciliation
31 March
2022
£’000
2021
£’000
Opening balance 2,311
Remeasurement of loss allowance 1,328
Bad debts written off (130)
Closing balance 3,509
21 Cash and cash equivalents
31 March
2022
£’000
2021
£’000
Cash at bank 31,526
Total cash and cash equivalents 31,526
Restricted cash
167
Annual Report 2022
31 March
2022
£’000
2021
£’000
107
Accruals 7,088
Rental income received in advance 6,843
5,551
Total accounts payables and accruals 19,549
23 Borrowings
31 March 2022
Borrowings
£’000
Assets held
for sale
£’000
Total – wholly
owned
£’000
Borrowings
£’000
Assets held
for sale
£’000
owned
£’000
Opening balance 181,144 13,883 195,027
New loans 29,121 – 29,121 –
(4,496) (14,218) (18,714)
Bank loans associated with the disposal of
subsidiaries – (27,959) (27,959) –
Transfer of borrowings to assets held for sale (27,929) 27,929 – – – –
Amortisation of loans – (33) (33) – (123) (123)
Capitalised borrowing costs (791) – (791) (12)
Amortisation of transaction fees 774 37 811
Foreign exchange movement in foreign
operations – 361 361 –
Total borrowings 177,823 – 177,823
31 March
2022
£’000
2021
£’000
Amount due for settlement within 12 months –
49,318
63,052
65,453
Total borrowings 177,823
Non-current liabilities
Bank loans 177,823
Total non-current loans and borrowings 177,823
Current liabilities
Bank loans –
Total current loans and borrowings –
Total loans and borrowings 177,823
168
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
23 Borrowings continued
Entity Note Amortising
Loan
interest
rate Currency
Maturity
date
Nominal value Carrying value*
31 March
2022
£’000
2021
£’000
31 March
2022
£’000
2021
£’000
Continuing operations
United Kingdom - MLI
No GBP
66,500
65,453
No GBP
64,000
63,052
No GBP
49,898
49,318
No GBP
–
–
Stenprop Industrials
1 Yes GBP
–
–
–
Guernsey
No GBP
–
–
Total borrowings attributable to continuing operations 180,398
177,823
Discontinued operations
Switzerland
Yes
–
–
Germany
No EUR
–
–
Total borrowings attributable to discontinued operations and assets classified as held for
sale (note 19)
–
–
Total borrowings 180,398
177,823
1
31 March 2022
Continuing operations
Weighted
covenant
Weighted
actual
Weighted
covenant
Weighted
actual
57.2% 31.2%
Interest cover 2.3 5.4
31 March 2022
Discontinued operations
Weighted
covenant
Weighted
actual
Weighted
covenant
Weighted
actual
80.0% 51.5%
1.5 2.6
169
Annual Report 2022
Entity
Effective
date
Maturity
date
Swap
rate %
Notional
value
31 March
2022
£’000
Fair value
31 March
2022
£’000
Notional
value
2021
£’000
Fair value
2021
£’000
Continuing operations
UK – MLI
24,000 727
42,413 1,137
Total swaps 66,413 1,864 (292)
EUR forward contracts
– – –
Total forwards – – –
Assets maturing within 12 months – – –
– – – –
Assets maturing after 12 months – 1,864 –
– – –
Derivative financial instruments – on the statement of financial position – 1,864 –
Swaps included in investment in joint ventures
4,952 (13) (122)
4,899 (12) (121)
5,306 (23) (150)
3,395 (15)
ventures 18,552 (63)
170
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
31 March
2022
£’000
2021
£’000
Carrying value of net assets at disposal date
56,150
Trade and other receivables 301
Cash and cash equivalents 434 505
Borrowings (27,959)
(1,329)
1
Net assets disposed 27,598
Net disposal proceeds 25,223
Foreign exchange movement in foreign operations –
Net assets disposed (27,598)
(Loss)/profit on disposal of subsidiaries (2,375)
2,291 –
(84)
171
Annual Report 2022
Liabilities directly associated with assets classified as held for sale
31 March
2022
£’000
2021
£’000
Deferred tax liability opening balance 1,190
1
– 22
– 121
(1,196) –
Other movements – 25
Exchange movements 5 (122)
Movement in deferred tax (1,190)
Deferred tax liability closing balance –
27 Financial risk management
The Audit and Risk Committee participates in management’s process of formulating and implementing the risk management plan and it reports on
•
•
•
•
The Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the
172
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
27 Financial risk management continued
Capital risk management
Credit risk
31 March
2022
S&P Global
Ratings
31 March
2022
Fitch Ratings
2021
Ratings
2021
Fitch Ratings
BBB A BBB A–
Black Rock nil nil AA–
BBB+ N/A A– Withdrawn
< £1m < £1m BBB+
BBB+ A BBB+ A+
A– A+ BBB A
1
< £1m < £1m BBB A
1
173
Annual Report 2022
27 Financial risk management continued
Group operations
Less than one
month
£’000
One to three
months
£’000
Three to 12
months
£’000
One to five
years
£’000
Over five
years
£’000
Discount
£’000
Total
£’000
– – – –
–
– – – –
Accruals – – – –
2 2 7 – – 35
As at 31 March 2022 2
Group operations
month
£’000
One to three
months
£’000
Three to 12
months
£’000
One to five
£’000
Over five
£’000
£’000
Total
£’000
– – –
109
Financial liabilities – – – – –
– – – –
Accruals – – – – –
2 – –
111
174
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
27 Financial risk management continued
•
•
•
•
follows:
31 March 2022
Total financial
instruments
recognised at
fair value
£’000
Designated at fair value
Level 1
£’000
Level 2
£’000
Level 3
£’000
Assets
14,883 – – 14,883
1,864 – 1,864 –
Total assets 16,747 – 1,864 14,883
Total financial
instruments
recognised at
fair value
£’000
Designated at fair value
Level 1
£’000
Level 2
£’000
Level 3
£’000
Assets
– –
– –
Total assets –
Liabilities
– –
Total liabilities – –
175
Annual Report 2022
27 Financial risk management continued
Unobservable inputs
Fair value of financial instruments
Held at fair value
through profit or loss
£’000
Held at
amortised cost
£’000
Total carrying
amount
31 March 2022
£’000
Financial assets
Cash and cash equivalents –
–
Trade and other receivables –
–
Other debtors –
Total financial assets
Financial liabilities
Bank loans –
–
Total financial liabilities –
through profit or loss
£’000
amortised cost
£’000
£’000
Financial assets
Cash and cash equivalents –
–
Trade and other receivables –
–
Other investments –
Other debtors –
Total financial assets
Financial liabilities
Bank loans –
–
–
Total financial liabilities
176
Annual Report 2022
//// Financial Statements
Notes to the consolidated
financial statements
continued
27 Financial risk management continued
Assets
31 March
2022
£’000
2021
£’000
885
EUR 18,552
Liabilities
38
EUR 26
Impact of Sterling strengthening by 10%
Equity
£’000
Profit or loss
£’000
230
EUR
Total
The exchange rates against GBP during the reporting periods were:
Average rate
for year to
31 March
2022
As at
31 March
2022
Average rate
2021
As at
2021
0.8071 0.8245
EUR 0.8364 0.8463
Interest rate risk
177
Annual Report 2022
31 March
2022
£’000
2021
£’000
Continuing operations
31,708
24,033
35,057
19,126
Total 109,924
31 March
2022
£’000
2021
£’000
Discontinued operations
–
–
–
–
Total –
31 March
2022
£’000
2021
£’000
Continuing operations
29
6 20
–
– –
Total 35 350
30 Events after the reporting period
(ii) Share incentive awards
179
Annual Report 2022
Additional Disclosure
179
Annual Report 2022
180
Annual Report 2022
///// Additional Disclosure
Alternative performance measures
Unaudited
EPRA performance measures
The EPRA earnings measure is intended to show the level of recurring earnings from core operational activities with the purpose of highlighting the
EPRA performance measure
Nearest IFRS
measure
Reference in
document
31 March
2022
2021
EPRA cost ratio (excluding direct vacancy costs)
35.7 %
EPRA cost ratio (including direct vacancy costs)
Operating and
financial review
40.9 %
EPRA earnings
Earnings
£18.45
million
million
EPRA earnings per share
IFRS EPS
6.32p
EPRA earnings per share (diluted)
EPS
Operating and
financial review
6.30p
EPRA net disposal value per share
assets per
share
Note 15
£1.78
EPRA net reinstatement value per share
assets per
share
Note 15
£1.93
EPRA net tangible assets per share
assets per
share
Operating and
financial review
£1.77
EPRA NIY
Annualised rental income based on the cash rents passing at the reporting
5.0 %
EPRA “topped up” NIY
5.3 %
EPRA Like-for-like rental income growth
6.0 %
181
Annual Report 2022
EPRA performance measure
Nearest IFRS
measure
Reference in
document
31 March
2022
2021
EPRA vacancy rate
5.8 %
Like-for-like valuation growth
Operating and
financial review
19.4 %
Reversion
13.2 %
EPRA cost ratio
31 March
2022
£’000
2021
£’000
Operating costs per IFRS statement of comprehensive income (including discontinued operations) 13,714
2,297
Other income (316)
460 520
Costs (including direct vacancy costs) (A) 16,155
(2,074)
Costs (excluding direct vacancy costs) (B) 14,081
37,079
2,409
Gross rental income (C) 39,488
EPRA cost ratio (including direct vacancy costs) (A/C) 40.9%
EPRA cost ratio (excluding direct vacancy costs) (B/C) 35.7%
1
182
Annual Report 2022
///// Additional Disclosure
Alternative performance measures continued
Unaudited
31 March 2022
Group
(excl. joint
ventures)
£’000
Joint
ventures
(prorated)
£’000
Total Group
£’000
Acquisitions
1
–
2
– – –
Investment properties
3
Incremental lettable space – – –
No incremental lettable space –
Tenant incentives – – –
– – –
Capitalised interest (if applicable) – – –
Total capital expenditure –
Conversion from accrual to cash basis (15) – (15)
Total capital expenditure on cash basis –
1
2
3
Group
ventures)
£’000
Joint ventures
£’000
Total Group
£’000
Acquisitions
1
–
2
– – –
Investment properties
3
Incremental lettable space – – –
No incremental lettable space –
Tenant incentives – – –
– – –
Capitalised interest (if applicable) – – –
Total capital expenditure –
Conversion from accrual to cash basis –
Total capital expenditure on cash basis –
1
2
3
183
Annual Report 2022
Annualised gross rental income
1
31 March
2022
(£m)
2021
(£m)
Change
(£m)
Change
(%)
2
33.9
3
2.5
Total like-for-like 36.4
Acquisitions 6.4 –
Total 42.8
1
2
3
EPRA vacancy rate
31 March
2022
(£m)
2021
(£m)
Estimated rental value of vacant space (A) 2.8
Estimated rental value of the whole portfolio (B) 48.1
EPRA vacancy rate (A/B) 5.8 %
184
Annual Report 2022
///// Additional Disclosure
Alternative performance measures continued
Unaudited
31 March 2022
UK multi-let
industrial
(£m)
Joint
ventures
(£m)
Total
(£m)
Estimated purchaser's costs
Gross up completed property portfolio valuation (B)
Annualised current passing rental income
Annualised net rents (A)
EPRA NIY (A/B)
–
EPRA “topped-up” NIY (C/B)
31 March 2021
UK multi-let
industrial
(£m)
Guernsey
(£m)
Germany
(£m)
Switzerland
(£m)
Joint
ventures
(£m)
Total
(£m)
Estimated purchaser's costs
valuation (B)
Annualised current passing rental income
– –
Annualised net rents (A)
– – – –
185
Annual Report 2022
Other alternative performance measures
Other alternative performance measure
Nearest IFRS
measure Reference in document
31 March
2022
2021
Adjusted earnings
Earnings
£20.0 million
Adjusted earnings per share
Earnings per share
6.88p
Cost of debt
Operating and financial review
2.16%
Debt maturity
Operating and financial review
4.0 years
Dividend per share
Operating and financial review and note 30
6.85p
Headline earnings per share
Earnings per share
7.05p
Headline earnings per share – diluted
share
7.02p
Loan-to-value ratio (LTV)
Operating and financial review
25.6%
Total accounting return
Operating and financial review
25.0%
FX rates in period
186
Annual Report 2022
///// Additional Disclosure
EPRA investment assets
31 March 2022 - Unaudited
Portfolio at 31 March 2022
Portfolio
by market
value
(%)
Market
value
(£m)
Number of
properties
Area
(ft
2
)
Annualised
gross
rental
income
(£m)
Annualised
net rental
income
(£m)
ERV
(£m)
Vacancy
by ERV
(£m)
Average
rent
per ft
2
(£/ft
2
)
Continuing operations
94.4 % 647.5 103
^
7,120,135 37.5 31.8 45.3 0.1 5.5
Assets held for sale
0.9 % 6.0 1 30,176 0.7 0.7 0.6 – 23.8
Total - wholly owned 95.3 % 653.5 104 7,150,311 38.2 32.5 45.9 0.1 5.2
Joint ventures
4.7 % 32.3 4 208,066 2.5 2.3 2.2 – 11.9
Total 100.0 % 685.8 108 7,358,377 40.7 34.8 48.1 0.1 5.5
Portfolio at 31 March 2022
Passing rent
of leases
expiring
(£m)
ERV of leases
expiring
(£m)
Passing rent
review
(£m)
ERV of
passing rent
review
(£m)
Continuing operations
UK MLI
3.2 2.5 2.2 2.5
3.6 4.1 3.1 3.4
18.6 20.1 19.9 22.1
51.7 56.2 53.5 57.9
Total 76.1 82.9 78.7 85.8
To break
(years)
Continuing operations
1.9 2.8
7.6 7.6
187
Annual Report 2022
Additional portfolio information
Property Location Post code
Ownership
interest
%
Acquisition
date Sector
Ownership
structure
(freehold/
leasehold)
Lettable
building
space
(sq ft)
Vacancy
by ERV
(£’000)
UK
100% Freehold 72
Peterborough 100% Freehold
Bowthorpe Park Industrial
Estate
Norwich NR5 9JA 100% Freehold 79
Compass Industrial Park 100% Freehold 19
Paddock Wood 100% Freehold
Capital Business Park Cardiff CF3 2PZ 100% Freehold
Anniesland Business Park Glasgow G13 1BJ 100% Freehold 35
Junction One Industrial Estate 100% Freehold 23
Gainsborough Trading Estate Stourbridge 100% Freehold –
Redbrook Business Park S75 1JN 100% Freehold 19
100% Freehold 3
100% Freehold 29
Greenfield Business Park 100% Freehold
Riverside Industrial Park
Newcastle Upon
100%
Kirkstall Industrial Park 100% Freehold 21
Beacon Business Park 100% Freehold
Swindon 100% Freehold –
Brookfoot Business Park Brighouse 100% Freehold
Preston 100% Freehold 133
Park
100% Freehold 237
Top 20 total 3,242,597 1,239
Property Location Post code
Ownership
interest
%
Acquisition
date Sector
Ownership
structure
(freehold/
leasehold)
Lettable
building
space
(sq ft)
Vacancy
by ERV
(£’000)
Germany
50% Nursing
Freehold
Kappeln Kappeln 50% Nursing
Partial
leasehold
–
Braunschweig Braunschweig 50% Nursing
Freehold
Rehburg–
50% Nursing
Freehold 20
208,066 380
189
Annual Report 2022
Other Information
189
Annual Report 2022
190
Annual Report 2022
////// Other Information
Annual report posted June 2022
Annual general meeting September 2022
Announcement of results
30 September 2022 Interim results
Annual results June 2023
Paid
2022 Interim
2023 Annual June 2023 August 2023
Direct and indirect interest in the issued share capital of the Company greater than 5%
Percentage
%
Thames River Capital
abrdn
Paul Arenson
Total 32.52 %
191
Annual Report 2022
Corporate information
Sarah Bellilchi
United Kingdom
Broker and financial adviser
EC2V 7BF
United Kingdom
Independent Auditor
55 Baker Street
W1U 7EU
United Kingdom
St Peter Port
Computershare Investor Services
1st Floor
St Peter Port
Correspondence address:
2nd Floor
JE1 1ES
Channel Islands
South Africa
JSE sponsor
Java Capital Trustees and Sponsors
Johannesburg
South Africa
South African corporate adviser
Johannesburg
South Africa
SA transfer secretaries
Computershare Investor Services
Rosebank Towers
15 Biermann Avenue
Johannesburg
South Africa
192
Annual Report 2022
////// Other Information
Contractual rent
Cost of debt
Total dividend per share that Industrials REIT makes to shareholders in
EPRA
costs)
costs)
Administrative and operating costs expressed as a percentage of gross
EPRA earnings
EPRA earnings per share
Earnings from operational activities per share after considering dilutive
EPRA net disposal value per share after considering dilutive share
An EPRA NAV measure that represents the shareholders’ value under a
EPRA net reinstatement value (NRV)
A NAV measure that aims to represent the value required to rebuild
EPRA net tangible assets (EPRA NTA)
EPRA NRV per share
EPRA net reinstatement value per share after considering dilutive share
EPRA NTA per share
EPRA net tangible assets per share after considering dilutive share
EPRA “topped up” NIY
unexpired lease incentives such as discounted rent periods and
EPS
Earnings per share based on the weighted average number of shares
ERS
The annualised estimated market rental value of lettable space as
Estimated rental value (ERV)
EURIBOR
Gross rental income
193
Annual Report 2022
Group
Excluded from the headline earnings figure are profits or losses
IFRS
Interest cover
This represents the change in a measure (such as passing rent or
NAV
Net assets per share
Net rental income
Passing rent
Real estate investment trust (REIT)
from the corporate level to the investor level as investors are liable for
Restricted cash
Reversion
SONIA
Square metres (sq m)
The area of buildings’ measurement used in the emissions reporting
Total accounting return (TAR)
Total shareholder return (TSR)
Unrestricted cash
Valuer’s ERV
The annualised estimated market rental value of lettable space as
Voids
194
Annual Report 2022
////// Other Information
Shareholder notes
Industrials REIT
3rd floor
180 Great Portland St
W1W 5QZ