Tritax pushes past the £2bn portfolio mark as big box focus continues to pay dividends

By Paul Norman - Thursday, August 10, 2017 10:31

Tritax Big Box REIT, the UK Big Box logistics assets focused REIT, reported that its portfolio valuation had tipped the £2bn mark for the first time driven by heightened investor demand for the much in demand asset class and a string of asset management initiatives and acquisitions in interim results for the half year to 30 June 2017.

EPRA net asset value per share increased in the period by 4.30p or 3.3% to 133.30p as at 30 June 2017 (31 December 2016: 129p).

Profit before tax has increased by 49.9% to £80.53m (30 June 2016: £53.72m). The contracted annual rent roll increased to £108.65m (31 December 2016: £99.66m), including all forward funded development commitments.

The portfolio was independently valued at £2.10bn as at 30 June 2017, including all forward funded development commitments. Total return for the period was 5.78% compared to the FTSE EPRA/NAREIT UK REITs Index total return of 4.09%.

Tritax also highlighted further diversification of its sources of borrowing, with a new £90m, long-term, fixed-rate facility with PGIM signed.

The loan to value as at 30 June 2017 was 27% (31 December 2016: 30.0%).

The market capitalisation was approximately £2bn as at 30 June 2017.

Operational highlights included the acquisition of three Big Boxes with an aggregate purchase price of £142.47m, adding two new Customers to the portfolio.

There wre three forward funded prelet developments that reached practical completion in the year to date, with a total value of £155m.

The average net initial yield of the property portfolio at acquisition is 5.7%, against its period end valuation of 4.9% net initial yield, while At the period end, the portfolio comprised 38 assets, covering more than 19.6m sq ft of logistics space.

The portfolio was fully let, or pre-let and income producing, during the period.

At 30 June 2017, the weighted average unexpired lease term (“WAULT”) was 15.1 years, against a target of at least 12 years.

It raised £350m of equity in May 2017, through a substantially oversubscribed share issue.

Post the reporting period on 24 July 2017, it exchanged conditional contracts to purchase a 124 acre development site at Littlebrook, Dartford for £62.5m.

Colin Godfrey, Fund Manager of Tritax Big Box REIT, said: "Heightened investment demand and asset management have helped enhance the value of our portfolio and we consider that market values may improve further.

"Whilst our asset valuations have benefitted from compressed yields, the tightening investment market means that patience, capital pricing discipline and stock selection will be increasingly important in underpinning our future performance. Nonetheless, investments in the logistics sector remain attractive compared to other asset classes and the company is well positioned and well capitalised to take advantage with an identified, largely off-market, pipeline of opportunities. Looking forwards, maintaining the quality of our investment purchases will be key.

"The logistics market continues to dynamically influence the UK economy. We believe that the development of the Big Box logistics market remains in its infancy, with operational efficiencies and e-commerce likely to drive occupational demand for some time to come.

"Investors seeking robust values and income protection are drawn by long term lease commitments and strong market fundamentals, but also the possibility of maintaining the impressive levels of rental growth witnessed during the last couple of years. These positive attributes are expected to continue, underpinning our ambition to deliver attractive and growing, fully covered, dividends. We view the remainder of 2017 and 2018 with optimism."

Speaking to CoStar News Godfrey said the asset class was notably being impacted by the need for companies and retailers to increase efficiencies and cost savings post the referendum vote and the devaluation of pound as import costs have risen.

"To remain competitive businesses need to work out how they can subsume this cost price escalation and an untapped area often where they can hugely affect this is their logistics buildings. The right building in the right location can deliver very significant cost savings and efficiencies.

"A recent M&S report for instance showed that in upscaling to a national regional and distribution framework from a plethora of smaller buildings it had delivered a 70% lead time reduction in product delivery, a 33% inventory reduction and a 40% cost reduction."

Godfrey said at present there is only one building over 400,000 sq ft available to let in the market.

Facing up to this Tritax is continuing to diversify its offer, as highlighted by its recent acquisition of a site from Germany's RWE with the potential for as much as 1.7m sq ft of industrial at Littlebrook in Dartford.

"We do not speculatively develop and will not build a vacant building. But we are prepared to buy land limited to 10% of NAV while taking time to identify the best opportunities. It is another string to our bow. It helps us to get in a bit earlier in the process without taking on the risk of speculative development. We have already had some very interesting contact from well known companies who want to talk about the site."

Tritax's £350m equity raise has had the effect of reducing LTV to 27% but moving forward it is guiding mid 30s.

Godfrey said: "We think this is a prudent position given the quality of tenants and longevity of our income. We are also looking to diversify our lender pool and stagger the maturity point of the loan book.

"In that regard we are exploring the potential for UK sterling bonds and US private placement debt with a view to lengthening average expiries and delivering to shareholders the best pricing point to underpin a good positive margin in the context of income yield and also giving shareholders confidence in delivery of dividend growth."

Adding 35% debt to the £345m net of costs equity raise means Tritax has had £530m of deployable proceeds.

Taking into account acquisitions plus assets in solicitors hands or in the process of being bought Godfrey it had remaining geared proceeds of £260m of which about £185m is debt and £70m to £80m equity.

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