Is the Russia-Ukraine war affecting the real estate industry?

Urban Logistics REIT, a prominent logistics real estate investment trust in the United Kingdom, has recently announced a significant shift in its financial performance, reporting an annual loss attributed to the challenging market conditions within the property market.

The company disclosed a pretax loss of £82.7 million for the fiscal year ending on March 31, marking a significant decline from the previous year's profit of £171.8 million.

Urban Logistics REIT highlighted the adverse impact of Russia's invasion of Ukraine, coupled with the short-lived economic experiments undertaken by the UK government. These factors have reverberated through the global and UK economies, resulting in inflationary pressures that have subsequently shaped the monetary policies of central banks and significantly impacted the outlook for various sectors within the real estate market.

In terms of specific financials, Urban Logistics REIT faced a substantial loss of £121.1 million due to fair value changes in investment properties, a notable contrast to the £149.9 million boost recorded in the previous fiscal year. However, the company's portfolio valuation managed to increase by 9.9 per cent, reaching £1.23 billion compared to £1.12 billion the previous year, primarily driven by the acquisition of assets amounting to £176 million.

Net rental income experienced a noteworthy increase of 49.5 per cent, climbing from £40.7 million in the previous fiscal year to £60.9 million in the current period. Despite this positive development, the net tangible assets of Urban Logistics REIT, as reported by the European Public Real Estate Association, suffered a decline of 15.4 per cent, with the value dropping from 188.8 pence to 159.55 pence. Additionally, the company's net assets decreased by 15.4 per cent, falling from £892.6 million to £754.5 million.

The market responded to these financial reports, leading to a decline of 0.7 per cent in Urban Logistics REIT's share value, settling at 118.60 pence per share in London on Thursday morning.

Richard Moffitt, the chief executive of Urban's investment adviser, expressed his confidence in the resilience of the company's portfolio amidst the challenging market conditions. He emphasised the company's active asset management strategy, which involves rent adjustments, improvements in tenant covenants, and longer lease durations. This strategy has enabled Urban Logistics REIT PLC to add value to its assets while shielding the company from the negative effects of a shift in yield.

Despite the loss, Urban Logistics REIT maintained the previous year's total dividend per share at 7.60 pence, demonstrating the company's commitment to shareholders. Nigel Rich, the Chair of Urban Logistics, commented on the dividend, stating that with a full year of income from properties acquired in the previous year, along with ongoing asset management opportunities, the company expects to maintain the current dividend level throughout the current financial year.

Given the prevailing market volatility, Urban Logistics REIT has expressed concerns about its ability to raise funds through fundraisers for the foreseeable future, prompting the company to explore alternative strategies.

As part of its plan, Urban Logistics REIT intends to recycle assets that have reached their income potential and replace them with properties offering lease events. The company believes that this process of recycling and asset management will contribute to the enhancement of shareholder value, particularly during these uncertain times.

Urban Logistics REIT has experienced a significant financial loss in the wake of challenging market conditions within the property market. Despite these setbacks, the company remains committed to actively managing its assets and pursuing opportunities to add value while navigating the unpredictable nature of the market.

With a portfolio valuation increase, a notable rise in net rental income, and a steadfast dividend policy, Urban Logistics REIT strives to maintain stability and deliver long-term value to its shareholders.