Warehouse REIT braces for ‘higher for longer’ as it sells assets to reduce debt

The logistics owner has made £94.3m of disposals in the past year as it aims to reduce the variable rate element of its debt.

UK logistics owner Warehouse REIT has sold £94.3 million (€107.7 million) of assets since November 2022, including £39.6 million since March, in a bid to reduce  borrowings, it announced in its half-year earnings this week.

“In June we set out a plan to drive earnings by capturing portfolio reversion, selling non-core assets to reduce expensive debt and progressing Radway Green [development in Crewe],” said Neil Kirton, chairman at Warehouse REIT.

“Our focus on multi-let industrials where demand is resilient and supply is tight has supported further leasing momentum; we have delivered asset sales significantly ahead of book value and strengthened the balance sheet with 88 percent of our debt now hedged.”

The UK real estate investment trust sector has faced a turbulent period in the last 18 months as 14 consecutive rate rises led to an increase in the cost of debt. This prompted REITs to begin selling assets to reduce leverage – including removing expensive revolving credit facilities – and applying hedging tools to counter the higher cost of debt.

As well as selling assets to reduce debt, Warehouse REIT has also refinanced existing borrowings. It said £320 million of debt was refinanced in June with more favourable covenants, and additional interest rate caps of £50 million have been acquired. The new financing comprised a £220 million term loan and a £100 million RCF.

The debt, which was provided by four banks – HSBC, Bank of Ireland, NatWest and Santander – replaced the firm’s previous £320 million debt facility and extends the tenure from January 2025 to June 2028.

The minimum interest cover is 1.5 times, compared to 2 times under the previous facility, and the maximum LTV has been extended from 55 percent to 60 percent. Both the term loan and the RCF have a margin of 2.2 percent plus SONIA for an LTV below 40 percent or 2.5 percent if the LTV is above 40 percent.

Plan for 2024

In the reporting period, the firm paid off £21 million of debt, it said. It has also set a plan to pay down more of debt in 2024. Its total borrowing currently stands at £285 million – a reduction from its March total of £306 million.

It is currently evaluating a sale of its Radway Green project in Crewe, UK, to further ease borrowing, either by a total sale or a partial sale of the scheme, which is being developed by European logistics specialist Panattoni.

The REIT said 87.7 percent of debt is hedged against interest rate volatility with no major refinancing events until 2028. Its LTV ratio stands at 34 percent, which remains below its 40 percent covenant.

“A consensus is emerging that interest rates will remain ‘higher for longer’ and we are managing our business accordingly,” Kirton said.