Diversification strategy a winner for Tritax Big Box

Tritax Big Box updated the market on its trading ahead of its results for the year ended 31 December on Thursday, reporting that its portfolio of 54 ‘big box’ assets and 114 acres of prime London distribution development land was independently valued at £3.42bn as at year-end, including all forward funded development commitments.

The FTSE 250 real estate investment trust said that made for a like-for-like valuation uplift of 4.7% during the 12 month period, and 2.6% during the six months ended 31 December.

Its weighted average purchase yield since inception stood at 5.5%, against a valuation yield of 4.4% as at year-end.

Tritax said 86% of its portfolio assets were acquired off-market since inception, and reported a weighted average unexpired lease term across the portfolio of 14.4 years.

The portfolio was 100% let or pre-let to 39 institutional quality tenants, with contracted annual rental income of £161.1m, and all leases providing for upward-only rent reviews, of which 45% were RPI or CPI-linked, 37% were open market, 11% were fixed and 7% are hybrid.

As at 31 December, the firm’s largest tenant exposure was to Amazon, representing 13.6% of its total contracted rental income, up from 4.1% on 30 June.

On the investment front, Tritax acquired eight new big box investments in 2018, including seven pre-let forward funded developments, with an aggregate purchase price commitment of £641.5m.

It said the weighted average purchase yield of the eight investments was 5.1%, with a valuation uplift of 7.5% reported across the eight investments as at 31 December, compared to the aggregate purchase price commitment.

The weighted average unexpired lease term across the eight investments was 18.9 years at year-end.

Planning permission had been secured for the first phase of Tritax’s prime London distribution development site at Littlebrook in Dartford, comprising the proposed development of a 450,000 square foot logistics facility.

The company said it was targeting a yield on cost on the phase of at least 6.5%, explaining that the 114-acre Littlebrook site represented one of the capital’s largest big box logistics parks, located in a core South East ‘last mile’ location on the edge of London and inside the M25 orbital motorway.

Seven pre-let forward funded developments, totalling 6.6 million square feet, were under construction as at 31 December.

Looking at its asset management activity, the board noted the completion of a new 15-year lease at its distribution centre at Barlborough Links in Chesterfield, following the successful negotiation of a lease surrender with the previous tenant, reflecting an increase in annual rent of 25.4% from the previous passing level.

It also completed a 10-year lease extension with Kellogg's at its distribution centre at Trafford Park in Manchester, reflecting an increase in annual rent of 20.0% from the previous passing level.

Tritax achieved 2.0% average annual like-for-like growth in passing rent following the settlement of 10 rent reviews in 2018, representing 19.2% of the firm’s total contracted annual rental income at 31 December.

On the financial front, a US private placement of £400m in senior unsecured fixed rate loan notes was agreed in December, with a weighted average coupon of 2.91% and a weighted average maturity of 9.8 years.

The funds were set to be drawn on 28 February.

Tritax said the maturity date of its £350m unsecured revolving credit facility, with an uncommitted £200m accordion option, was extended by one year to December 2023, and reported that it had £1.46bn of committed debt financing in place.

Of that, £834m was drawn as at 31 December, representing 27% of its loan-to-value, and £386m was allocated against existing forward-funded commitments.

Its weighted average term to maturity of debt facilities stood at 8.7 years as at 31 December, down slightly from the 8.9 years posted a year earlier.

The company’s weighted average running cost of debt was 2.63%, which primarily comprised fixed rate debt.

Tritax also noted its “significantly oversubscribed” £155.6m equity issue in April.

The board said it was targeting an aggregate dividend of 6.7p per share for the year ended 31 December, payable quarterly.

Of that, 5.025p per share had been paid for the nine months ended 30 September 2018.

The company said it intended to maintain its progressive dividend policy during 2019 and thereafter.

“We have maintained a patient and disciplined approach to capital deployment throughout the year, investing £641.5m in eight off-market and attractively priced assets, including seven forward funded pre-let developments which are due for completion over the course of the next 18 months, each delivering effective income during the construction phase,” said Tritax partner Colin Godfrey.

“These new assets will help maintain the modernity of our portfolio and have enhanced our WAULT which now stands at 14.4 years.”

Godfrey said the addition of those assets had further diversified the company’s customer tenant base, and increased its weighting to high calibre companies in the e-retail, manufacturing and electricals sectors.

“Three of these important new assets are pre-let to Amazon, now our largest tenant by rental income.

“Planning consent for a 450,000 square foot logistics facility was secured at our 114 acre development site at Dartford, and we successfully repositioned two value add assets into foundation assets through the negotiation and delivery of new long-term leases.”

Godfrey added that, despite the ongoing uncertainty around Brexit, logistics lettings in 2018 reached near record high levels and market rents continued to grow even though speculative supply had increased.

“This occupier demand has been underpinned by the continued growth in e-commerce and occupiers seeking improved supply chain efficiency through the application of larger, flexible and automated logistics property solutions.

“Investment demand has also remained high, as evidenced by further yield compression during 2018.

“The outlook for our company remains positive and we expect UK logistics to remain a robust property investment sector during 2019.”

Tritax Big Box said it expected to publish its results for the year ended 31 December on or around 6 March.