Industrials Reit (MLI ), the only UK real estate investment trust focused on smaller, multi-let warehouses, is looking to raise more money from investors after completing the sale of its legacy portfolio.

Having sold its three remaining non-core assets in the last financial year, the £521m real estate investment is left almost wholly focused on the UK’s multi-let warehouse sector with a portfolio of 104 estates covering 7.2m square feet and housing over 1,500 small businesses.

Formerly known as Stenprop, Industrials has invested about £100m a year in the multi-let sector since moving its listing from South Africa to London four years ago, using proceeds from disposals to build its new empire.  

Chief executive Paul Arenson said he would aim to maintain or slightly exceed that level of investment, but would need to turn to shareholders and borrowers to raise the capital that could double the size of the company in the next four years.

Results for the year to 31 March show the new portfolio generated a strong 20.4% investment return, or 25% including dividends, as growing demand and limited supply saw rents rise 4.4%. Dividends rose 1.5% to 6.85p, covered by earnings, underpinning a 3.8% yield.

Over three years to 15 June, data from Numis Securities, Industrials broker, shows the Reit has generated a total return on net assets of 43.1%. Shareholders have enjoyed a return that is almost double that at 81.8% after the shares re-rated from a double-digit discount to their real value.

Like rivals competing in the ‘Big Box’ market, Industrials has benefited from the continued boom in e-commerce that started during the coronavirus pandemic, and from companies deciding to secure their supply chains by onshoring manufacturing.

Unlike the top-end of the warehouse market, rents in multi-let industrials remain comparatively low, offering more future upside. Arenson (above) said the trust’s average rents of £5.72 per square foot were ‘extremely affordable’.

‘It means our average unit of 3,500 square feet 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,’ said Arenson.

‘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.’

While he acknowledged risks of a recession had risen, he did not anticipate vacancy levels would surge to their levels in the 2008 and early 90s crashes.

‘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,’ he said.

Key to his plans is the recently upgraded Industrials Hive technology platform through which the fund manages its tenants. This could now administer new tenants more efficiently and at a fifth of the previous cost. This in time would cut the fund’s expense ratio as the business expanded.

‘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,’ he said.