# Tritax Big Box REIT Well-positioned to deliver strong long-term income

- Link: https://www.directorstalkinterviews.com/tritax-big-box-reit-well-positioned-to-deliver-strong-long-term-income/412804591
- Published: 2020-02-03T07:39:02+00:00
- Author: Amilia Stone

**Tritax Big Box REIT plc** (LON:BBOX) has today provided the following trading 
update ahead of the publication of the Company’s results for the year ended 31 December
2019, which are expected to be published on 17 March 2020.

**HIGH QUALITY, MODERN PORTFOLIO DELIVERING STRONG, LONG-TERM INCOME**

·      An unaudited total portfolio value, comprising Investment Assets^(2) and 
Development Assets^(3), (the “Portfolio”) of £3.94 billion as at 31 December 2019(
30 June 2019: £3.85 billion), including all forward funded development commitments
^(4)

o  Like-for-like valuation uplift across the Portfolio of 1.8% during the 12-month
period to 31 December 2019 (0.9% during the six-month period to 31 December 2019)

o  Weighted average purchase yield since inception of 5.5%^(5), against a valuation
yield of 4.5% as at 31 December 2019

o  Weighted average unexpired lease term across the Portfolio as at 31 December 
2019 of 14.1 years^(5,6)

·      58 Investment Assets let or pre-let to 40 institutional quality tenants with
contracted annual rental income of £166.6 million as at 31 December 2019

o  As at 31 December 2019, the Company’s largest tenant exposure was to Amazon, 
representing 13.1% of the Company’s total contracted rental income (30 June 2019:
13.2%)

o  All leases provide for upward only rent reviews, of which 50% are RPI/CPI-linked,
37% are open market, 11% are fixed and 2% are hybrid^(7)

o  Within the different types of rent review, 53% have rental income which provides
for a contracted fixed or minimum level of increase at the point of rent review

o  The blended fixed or minimum level of increase across this 53% of contracted 
rental income is 1.8% per annum

o  A low portfolio vacancy rate of 1.3% as at 31 December 2019 (as a result of the
recent completion of two speculatively developed assets)

**GOOD PROGRESS ON DEVELOPMENT AND PRE-LET DEVELOPMENT PROGRAMME**

·      The Company continues to target an average yield on cost of 6-8% across its
entire portfolio of Development Assets, well above the Group’s current Portfolio
valuation yield of 4.5% at the year end

·      Plans for selective Investment Asset disposals are already underway for the
current year, with a view to recycling capital efficiently into the Company’s development
portfolio

·      Good levels of occupational interest, active discussions are ongoing with
prospective occupiers across a number of schemes within the near-term pipeline

·      At Littlebrook in Dartford, the Group’s distribution development site on 
the edge of London and inside the M25, the demolition and clearance of Phases 1 
and 2 has been completed, with demolition of the remainder of the site on track 
to complete in Q2 2020. A healthy level of occupational interest has been received
for both Phases 1 and 2. The Company is also in advanced discussions with a potential
occupier on Phase 2, on a subject to planning basis

·      During 2019, the Company completed five pre-let forward funded developments
totalling 4.3 million sq ft, along with three Tritax Symmetry developments totalling
0.4 million sq ft

·      As at the year end, the current development pipeline of assets under construction,
which consists of projects expected to reach practical completion within the next
12 months, includes:

o  Two pre-let forward funded developments totalling 2.3 million sq ft

o  Three Tritax Symmetry developments totalling 0.8 million sq ft

o  92% of the above developments are pre-let

·      Strong progress with Near term development pipeline, consisting of sites 
with either planning consent received or planning applications submitted prior to
31 December 2019, comprising 11.5 million sq ft. 2019 highlights include:

o  Land held or controlled with planning consent now totals 5.3 million sq ft. This
includes planning consent received during the year for 2.3 million sq ft of high-
quality logistics space at Kettering

o  Land held or controlled with planning applications submitted to Local Planning
Authorities totals 6.2 million sq ft, of which 2.9 million sq ft was submitted during
the year

**ACTIVE ASSET MANAGEMENT**

·      The Group settled seven rent reviews during 2019, comprising 15.4% of the
Group’s total contracted annual rental income. This added £0.7 million to the contracted
annual rent, at an average annual like-for-like increase of 2.0%

·      The Group concluded two lease extensions during 2019, including an 18-year
lease extension with Sainsbury’s to create a 25-year term, and a lease extension
of five years with Whirlpool to create a six-year term

·      Committed to a sustainable development programme, with an objective of developing
net zero carbon logistics facilities, starting with a pilot net zero development
in 2020

**FINANCE**

·      Successful, significantly oversubscribed c.£250 million equity issue in February
2019

·      £1.7 billion of committed debt financing in place, of which £1.2 billion 
was drawn as at 31 December 2019. 87% of committed debt is financed on an unsecured
basis

·      30% LTV as at 31 December 2019. An additional £130 million is allocated against
existing development commitments as at the same date

·      Weighted average term to maturity of debt facilities of 7.5 years as at 31
December 2019 (7.8 years as at 30 June 2019)

·      Weighted average capped cost of debt of 2.68%^(8), primarily comprising fixed
rate debt (2.68% as at 30 June 2019)

**PROGRESSIVE DIVIDEND POLICY**

·      The Company continues to target an aggregate dividend of 6.85 pence per share
for the year ended 31 December 2019^(9) (of which 5.1375 pence per share has already
been paid for the nine months ended 30 September 2019)

·      The Company intends to maintain its progressive dividend policy during 2020,
and thereafter

**Notes **

_1)     Based on Take-Up during the period and Under Offer at the period end for
buildings of over 500,000 sq ft_

_2)     The Group’s “Investment Assets” comprise let or pre-let (in the case of 
forward funded developments) assets which are income generating, as well as any 
speculative development assets which have reached practical completion but remain
unlet_

_3)     The Group’s “Development Assets” comprise its property assets which are 
not Investment Assets, including land and options over land as well as any assets
under construction on a speculative basis_

4)     The Portfolio value includes investment property, other property assets (
including development management agreements), land options (at cost), shares of 
joint ventures and remaining forward funded development commitments

5)     Excludes development site at Littlebrook, Dartford and Tritax Symmetry land
assets

_6)     To the earlier of lease expiry or break option_

_7)     Based on contracted annual rental income as at 31 December 2019_

_8)     Based on gross debt, excluding commitment fees_

9)     The target dividend is a target only and not a forecast. There can be no 
assurance that the target will be met and it should not be taken as an indication
of the Company’s actual or expected future results

> **Colin Godfrey, Tritax Big Box REIT CEO, Fund Management, said:**
> “The market for very large Big Box logistics assets continues to display strong
> fundamentals for 2020 and the longer term. Structural tailwinds are supportive
> as occupiers upscale the size of their logistics assets^(1) to further increase
> efficiency, reduce costs and rationalise their supply chains, in the face of the
> rapid transition to omni-channel purchasing by consumers.
> This year, we see the potential for further sectoral yield compression after a
> largely static 2019, which was impacted by the uncertainty of Brexit and the general
> election. Investment volumes have the potential to increase, driven by activity
> from overseas investors and institutions continuing to re-weight their portfolios.
> The all-property yield gap versus 10-year Gilts is wide at nearly 400bps.
> Occupier take-up looks promising for 2020 with over 10 million sq ft of lettings
> reported to be under offer and carried over from 2019. Speculative supply has 
> slightly decreased from 2018, but importantly reduced by c.50% for buildings over
> 500,000 sq ft, where demand continues to outstrip supply. Attractive levels of
> rental growth are therefore expected to continue, which when combined with 53%
> of our contracted rental income receiving fixed or minimum increases will support
> the Group’s progressive dividend policy.
> Following the acquisition of db symmetry (since rebranded Tritax Symmetry), Development
> Assets represent c.11% of our GAV and we now control one of the UK’s largest logistics
> landbanks, providing the opportunity for internal growth at attractive yields.
> In 2020, our primary focus will be on delivering value to our shareholders through
> our in-house pre-let developments which we expect to fund primarily by recycling
> capital from the sale of specific Investment Assets, and disposal plans for the
> current year are already underway. We continue to identify opportunities to add
> further value through acquiring new Investment Assets and forward funded developments.”

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