Results for the six months ended 30 June 2024

Results for the

six months ended

30 June 2024

7 August 2024

Attractive earnings growth - extensive opportunities - strengthening market

H1 2024 key figures 

Completion of strategic acquisition of UK Commercial Property REIT Limited (UKCM)

·      High-quality urban logistics portfolio complements existing strategy to broaden client offer and increases income and capital growth potential with 41% rental reversion.

·      Delivers cost savings supporting immediate earnings growth and enhances balance sheet strength by reducing leverage.

·      Non-strategic assets provide enhanced scope for capital recycling with first disposals expected in Q4 2024.

Higher net rental income and DMA contribution supporting Adjusted EPS growth

·      10.4% increase in Adjusted EPS to 4.35 pence (H1 2023: 3.94 pence) driven by net rental income growth and Development Management Agreement (DMA) income. Adjusted EPS excluding additional DMA income grew 4.1% to 4.10p (H1 2023: 3.94p).

·      34.7% increase in contracted annual rent to £303.4 million (31 December 2023: £225.3 million) driven by UKCM acquisition, rent reviews and asset management.  

·      EPRA cost ratio of 12.5% (H1 2023: 12.6%), expected to reduce further over near term with realisation of UKCM synergies.

Future earnings growth supported by record logistics portfolio reversion

·      27.2% increase in total portfolio value to £6.40 billion (31 December 2023: £5.03 billion), following the acquisition of UKCM, with equivalent yield remaining broadly stable at 5.7% (31 December 2023: 5.6%).  

·      1.9% Like-for-like Estimated Rental Value (ERV) growth across logistics portfolio for the period.

·      Record 25.5% logistics portfolio reversion provides potential to capture £68.2 million of additional rent, of which £43.4 million is subject to lease events by the end of 2026, supporting future earnings growth.  

Growing rental income through active management and investment acquisition

·      £8.0 million added to annual contracted rent through rent reviews and asset management initiatives:

o  10.7% increase in passing rent across rent reviews and lease events in H1 2024. 

o  17.4% of the portfolio is subject to lease events during the remainder of the financial year.  

o  £46.0 million acquisition of 0.5 million sq ft East Midlands cold store let to Co-Op, with 7.3% reversionary yield.

·      5.1% annualised rental growth across all leases subject to rent review in period (H1 2023: 3.3%). EPRA like-for-like rental growth of 2.1% (H1 2023: 3.6%) over the period, reflecting lower number of rent reviews in period. 

Developing best in class logistics assets to drive future earnings growth

·      Over 1.8 million sq ft of lettings in solicitors' hands with potential rental income of £18.1 million.

·      £1.3 million added to annual contracted rent from 0.1 million sq ft of new development lettings in period.  

·      £7.4 million added to passing rent from 0.8 million sq ft of development lease completions.  

·      0.9 million sq ft of construction starts, of which 0.4 million pre-sold under DMA:

o  DMA income guidance increased - £25.0 million expected in FY24; £10.0 million expected in FY25.

·      As expected, targeting lower end of development start guidance range of 2-3 million sq ft for FY 2024 (inclusive of DMA activity), and average yield on cost of c.7.0%.

Strong balance sheet well positioned to support our strategy

·      29.9% LTV at 30 June 2024 (31 December 2023: 31.6%) and Net Debt/EBITDA⁵ of 7.1x (31 December 2023: 8.2x). 

·      3.0% weighted average cost of debt (31 December 2023: 2.93%), with 95% of drawn debt either fixed or hedged.

o  UKCM RCF refinanced post period end, with margin reduction of 70bps.

·      Over £550 million of available liquidity as at 30 June 2024, and 5.0 year average debt maturity. 

·      Upgrade from Moody's of credit rating outlook to Baa1 (positive) from Baa1 (stable).

Aubrey Adams, Chairman of Tritax Big Box REIT plc, commented: 

"This has been a transformational half year for Tritax Big Box. The completion of the UKCM transaction and increased investor optimism in the logistics real estate sector provide the Company with further opportunities. Capturing record reversion in our investment portfolio and delivering new logistics buildings from our land platform provide clear drivers to deliver attractive earnings growth for shareholders. Together, these give us the potential to add £121 million to rents in the nearer term and the opportunity to more than double our rental income over the longer term. We believe both the occupational and investment markets are at an inflection point, with the potential to both accelerate and amplify opportunities to drive shareholder returns. We expect this change in environment to result in greater leasing activity in the second half of the year and into 2025.

"The integration of the UKCM portfolio is proceeding well and we look forward to driving additional value from UKCM's logistics assets. We continue to see high-levels of interest in the non-strategic assets in the portfolio and expect to complete on our first sales in the second half.

"Looking forward, in addition to the growth from within our investment and development portfolios, we continue to explore additional ways of leveraging our expertise into near adjacencies, including power and datacentres, where we are actively progressing potential opportunities."

Presentation for analysts and investors 

A Company presentation for analysts and investors will take place via a webcast with live Q&A at 9.00am (BST) today and can be viewed at: https://stream.brrmedia.co.uk/broadcast/668522a6e51f6490a5ef0b28

If you would like to ask a question verbally rather than through the webcast viewer, please join the presentation conference call:

UK: +44 (0) 33 0551 0200

US: +1 786 697 3501

Password: Tritax Big Box

The presentation will also be accessible on-demand later in the day on the Company website: https://www.tritaxbigbox.co.uk/investors/results-and-presentations/ 

Notes 

1.     Operating profit before FV movements and other adjustments. 

2.     See Note 7 to the financial statements for reconciliation. 

3.     The anticipated run rate for Development Management Agreement (DMA) income is £3.0-5.0 million per annum over the medium term. Adjusted EPS is 4.10p when excluding DMA income above this anticipated run rate ('additional' DMA income). £12.2 million of DMA income is included in the 4.35p Adjusted earnings per share in H1 2024 (H1 2023: £0.0 million included in 3.94p Adjusted earnings per share). 

4.     The Portfolio Value includes the Group's investment assets and development assets, land assets held at cost, the Group's share of joint venture assets and other property assets. 

5.     Calculated based on pro-forma EBITDA inclusive of full twelve months contribution of UKCM.

6.     An alternative performance measure. The Group uses a number of financial measures to assess and explain its performance, some of which are considered to be alternative performance measures as they are not defined under IFRS. For further details, see the Financial review and Notes to the EPRA and other key performance indicators section, as well as definitions in the Glossary.

For further information, please contact: 

Tritax Group 

Colin Godfrey, CEO                                                                            Tel: +44 (0) 20 8051 5060 
Frankie Whitehead, CFO                                                                   [email protected] 
Ian Brown, Head of Corporate Strategy & Investor Relations 

Kekst CNC 

Neil Maitland/Guy Bates                                                                    Tel: +44 (0) 7971 578 507 

+44 (0) 7581 056 415 

Email: [email protected] 

The Company's LEI is: 213800L6X88MIYPVR714 

Notes: 

Tritax Big Box REIT plc (Tritax Big Box or the Company) is the UK's specialist in logistics real estate with the UK's largest investment portfolio and largest logistics-focused land platform. Tritax Big Box is committed to delivering attractive and sustainable returns for shareholders by investing in and actively managing existing built investments and land suitable for logistics development. The Company focuses on well-located, modern logistics assets, typically let to institutional-grade tenants on long-term leases with upward-only rent reviews and geographic and tenant diversification throughout the UK. The Company seeks to capture the significant opportunity provided by long-term global structural drivers, together with the imbalance between strong occupational demand and constrained supply of modern logistics real estate in the UK. 

The Company is a real estate investment trust to which Part 12 of the UK Corporation Tax Act 2010 applies, is listed on the premium segment of the Official List of the UK Financial Conduct Authority (Ticker: BBOX) and is a constituent of the FTSE 250, FTSE EPRA/NAREIT and MSCI indices. 

Further information on Tritax Big Box REIT is available at www.tritaxbigbox.co.uk 

Chairman's statement

Quality underpins performance

Our business is founded on the principle of quality in everything we do. The Group has a portfolio of outstanding assets, locations and clients and exceptional market intelligence and insight. This is the result of being one of the biggest players in the UK logistics market and owning the largest development land platform for these assets. These factors support our performance, helping the Group to deliver another solid set of results in H1 2024, whilst positioning us well for future growth.

Broader offer, increasing scale and maintaining logistics focus

Our focus on quality supported our decision to acquire UK Commercial Property REIT Limited (UKCM), which completed on 16 May 2024. The strategic rationale is compelling. UKCM's portfolio of over £700 million of logistics assets has increased our exposure to key logistics markets and broadened our client offer by building size and location. The logistics assets have strong income growth potential, including an embedded 41% reversion, and we have identified numerous asset management opportunities to help accelerate this capture. Having acquired UKCM at an attractive point in the market cycle, these initiatives are also expected to drive increased capital values. We also benefit from UKCM's high-quality portfolio of non-strategic assets. Liquidating this portfolio, targeted over an approximate 24 month time horizon, will generate proceeds to fund our development programme for around two years, effectively allowing us to exchange non-strategic buildings for brand new higher-returning logistics assets. The Manager has significant experience of integrating assets into the Group and this is progressing well.

Following the combination, with gross assets of £6.4bn we are now one of the UK's largest REITs, at the date of this report. This increased scale offers the potential for lower cost of capital, improved share liquidity and an enhanced credit rating and puts us on the cusp of FTSE 100 inclusion. I want to thank our shareholders for their strong support for the transaction and welcome UKCM's former shareholders to our register.

Clear opportunities to drive earnings growth, accelerated and amplified by improving market conditions

We have clear and attractive drivers within our market and growth opportunities embedded within our business. Key is our specialist ability to unlock these opportunities and maximise returns through investment and asset management, land assembly, navigating the complex UK planning regime, managing a low-risk approach to development and understanding the increasingly important impact of power networks. We are excited by the prospect of unlocking value from:

·      Record reversion:  Capturing the record reversion we now have within our investment portfolio by diligently undertaking asset management;

·      Our unique and market leading land portfolio: Developing our profitable land portfolio into best-in-class logistics assets, delivering a 6-8% yield on cost, and which offers the opportunity to more than double rental income;

·      The market inflection point: With asset pricing seemingly at a turning point, taking advantage of our reputation and relationships in the market to selectively acquire attractive assets in the investment market and sell non-strategic assets; and

·    Near adjacencies:  Exploring additional ways of leveraging our expertise into near adjacencies including power and data centres, where we are actively progressing potential opportunities.

Based upon our interactions with clients, other investors and property investment agents, we believe that both the occupational and capital markets are exhibiting signs of improvement. This positive sentiment is supported by market data and increased activity. We are well placed to use improving market conditions to both accelerate and amplify the opportunities we have to drive shareholder returns.

Resourcing for growth

The Manager, Tritax Management LLP, has a long track record of adding skills and experience to support the Group's growth. This continued in the first half of 2024 and reinforced several key functions, notably in asset management. Importantly, the Manager has also agreed a six-month transitional arrangement with the abrdn team that previously managed UKCM, giving it access to valuable knowledge as it integrates the assets and builds relationships with new clients. The Manager has expertise across the non-strategic sectors in the UKCM portfolio and additionally is working with specialist agents to maximise the value of those assets.

We believe Tritax Management was the first major manager of logistics real estate to hire a dedicated power specialist nearly three years ago. Recruiting the former Head of Strategy and New Product Development of National Grid, Tritax now has an established power team identifying ways to enhance power opportunities. We believe this knowledge will be critical in both ensuring our existing assets and development pipeline are future proofed in terms of power requirements but also in opening up new opportunities in power intensive sectors such as datacentres.

Strengthening our Board 

On 30 July 2024 the Company announced it had further strengthened its Board via the appointment of Kirsty Wilman. Kirsty will become a member of the Audit and Risk and Management Engagement Committees and brings a wealth of experience having held senior operations and finance roles in the real estate industry.

Performance supports progressive dividends

The quality of our investment portfolio and the benefits of our asset management and development programmes result in a progressive and well-covered dividend. The Board has declared two interim dividends totalling 3.65p per share, up 4.3% on H1 2023 and 89% covered by Adjusted earnings (excluding additional DMA income).

Carefully managing the balance sheet and deploying our capable resources to implement our strategy are a major focus for us. The LTV reduced from 31.6% to 29.9% across the period, supported by continued stability in asset valuations and benefiting from UKCM's low gearing. We continue to have significant headroom in our debt facilities, allowing us to be opportunistic in the market, while our development programme is highly flexible, so we can adapt quickly to any changes in market conditions.

Significant earnings growth opportunities supported by a positive outlook

Record rental reversion embedded within our enlarged portfolio and our development pipeline provide considerable opportunities to drive earnings growth. We have greater visibility on capturing this growth as we undertake asset management activity or secure lettings on new assets from the development pipeline. The combination of record rental reversion and a significant development pipeline gives us the capability to more than double our rental income over the long-term, and in the nearer term the potential to secure approximately £121 million of incremental rental income. This significant opportunity to capture incremental rental income from within our business supports our earnings growth and, in turn, our ability to continue to pay an attractive and progressive dividend to shareholders. Additional DMA income secured though selective freehold-sales enhances our earnings further, boosts development related returns and provides incremental funding to our business.

With 7.7% of the portfolio reviewed in H1 2024, and a further 17.4% scheduled to be reviewed in H2 2024, rent reviews and operational leasing activity is set to be second half weighted. We expect, inclusive of DMA activity, to be at the lower end of our guidance range of 2-3 million sq ft of starts in 2024, at a yield on cost in the middle of our 6-8% guidance range. With a growing level of 'active engagements' across our development land portfolio and 1.8 million sq ft of lettings currently in solicitors' hands, we view the second half of this year and into 2025 with optimism.

Speculative construction starts fell back sharply across the market in 2023, which is now limiting the supply of new space coming on stream. Our active discussions with potential clients reflect considerable pent-up demand, while the conclusion of the General Election and expectations of further interest rate cuts are likely to increase business confidence and crystalise occupier leasing decisions. These green shoots bode well for a more buoyant occupational market into late 2024 and 2025, with reducing vacancy and a continuation of rental growth.

The outlook for the capital market is also positive. We believe substantial amounts of capital is looking to deploy into UK logistics given its attractive, and structurally supported characteristics. Combined with improving capital market conditions, we see prospects for yield compression in the medium term.

Aubrey Adams

Chairman

Manager's report

Market review

Increasing requirements converting to take up

H1 2024 has seen 11.7 million sq ft of take up across the UK, up from 10.0 million sq ft in H1 2023¹. Leasing deals continue to take time to complete, but second quarter activity (7.3 million sq ft of take up across 25 deals) was particularly strong with several large commitments closing.

Market activity remains broad-based across both building size and occupier type. Demand has been supported by 11 transactions greater than 300,000 sq ft (H1 2023: 10)1. Occupier demand is diverse with retailers (both online and omnichannel) and 3PLs active in the market. Manufacturing demand remains prominent, accounting for 25% of activity in the last 12-months1.

Alongside the increase in take up, both space-under-offer and requirements (which reflect potential near-term demand) remain healthy. CBRE reported 12.1 million sq ft under offer at Q2 2024, up from 11.1 million at Q4 2023. Savills' requirements index has increased with an uptick in enquiries for large units². Meanwhile, our own occupier enquiry hub remains close to record levels with a mix of interest by size, sector and location. Companies continue to look to evolve their supply chain networks. In doing so, they are generating new and additional demand for logistics buildings.

In addition to the structural drivers (growth of ecommerce, supply chain resilience and optimisation, and ESG) that continue to support our sector, the improving macroeconomic backdrop is expected to lead to increased levels of take up going forward. The new government's ambition is to kickstart economic growth and focus on housebuilding. This has the potential to positively impact us as firstly, logistics will be an important enabler of UKs economic growth and secondly, with Savills research suggesting new housing creates additional demand for logistics space, and the UK government aiming to deliver 1.5 million new homes over the next five years, we believe this could further support demand in the sector.  

New supply continues to decline

Market vacancy, which reflects ready-to-occupy space, stood at 5.6% at the end of the period, up from 5.1% at Q4 20231. Vacancy comprises both second-hand space and developments that complete on a speculative basis. Here, the trend remains positive with speculative space under construction declining further across H1 2024 and new speculative starts remaining well below 2021/2022 levels.

Total space under construction, which also includes build-to-suit projects, stood at 18.9 million sq ft at H1 2024, down from 21.4 million sq ft at Q4 20231.

Resilient rental growth

Prime headline rents increased across the period but at a lower rate than in recent years. Prime big box rents in the East Midlands for example increased by 25p to £10.00 per sq ft1. From a portfolio perspective, MSCI UK Distribution Warehouse ERVs increased by 2.0% in H1 2024 (H1 2023: 4.0%).

Logistics real estate capital markets remain open but subdued

CBRE prime market yields remained flat across the period at 5.25%, but Savills have in recent weeks moved their prime yield in by 25bps to 5.0%3.

H1 2024 transaction volumes totalled £2.5 billion (H1 2023: £4.1 billion)4. Market activity picked up in Q2 2024 following a quiet first quarter, but there has been a general lack of stock available to purchase and an absence of large or portfolio deals. Investor conviction in the sector remains high with surveys continuing to highlight logistics as a favoured destination for capital5. Existing owners are, however, choosing to hold onto logistics assets given their ongoing conviction in the sector and attractive returns available following a period of repricing.

A consistent and successful strategy focused on UK logistics

Our strategy has three interlinked components. Together, they aim to deliver sustainable income and capital growth, robust performance through the economic cycle and an attractive and progressive dividend. Careful management of risk and a well-defined approach to ESG issues are intrinsic to each element.

The three elements of the strategy are:

1) High-quality assets attracting world-leading clients - delivering long-term, resilient and growing income.

2) Direct and active management - protecting, adding and realising value.

3) Insight driven development and innovation - creating value, future proofing and capturing occupier demand.

Information on how we implemented the strategy during the period is set out in the following sections.

Unless otherwise stated, all metrics and KPIs in the Manager's report exclude the non-strategic elements of UKCM which represent 7.6% of the total investment portfolio. Disclosures related to non-strategic assets are on page 11.

1) High-quality assets attracting world-leading clients

Our total portfolio comprises:

·      The investment portfolio. These are logistics assets with a lease or agreement for lease in place. We believe the investment portfolio is the strongest in Europe in terms of asset quality, client financial covenant strength and lease length.

·      The development portfolio. This comprises land, options over land and buildings under construction, generating best-in-class brand-new logistics assets for the investment portfolio (see insight driven development and innovation below).

·      Non-strategic assets. These are modern, high-quality non-logistics assets acquired with UKCM, which we intend to divest to provide funding for our higher returning development programme.

Unless otherwise stated, the commentary in the remainder of this section relates only to the logistics portfolio.

Investment portfolio key figures

Resilient portfolio with embedded opportunities for value creation

The investment portfolio is split between:

·      Foundation assets, which provide attractive, lower-risk and resilient long-term income; and

·      Value Add assets, which offer opportunities for capital or income growth through asset management.

Assets can move between these categories, as our asset management turns Value Add assets into Foundation, or as Foundation assets become Value Add, for example as a lease nears expiry.

At 30 June 2024, our total portfolio comprised:

The total portfolio value at 30 June 2024 was £6.40 billion (31 December 2023: £5.03 billion). The increase largely reflects the addition of the UKCM assets. On a like-for-like basis, the portfolio value was 0.7% higher, with asset values remaining stable, further development gains and the benefits of our active asset management, including 1.9% like-for-like ERV growth over the six months.

A broad and well-located client offer

While "big boxes" make up most of our portfolio, over recent years our investment strategy and development programme have both increased the range of building sizes we can offer our clients. UKCM has further broadened the portfolio, adding 4.2m sq ft of logistics space across 19 estates.

At the period end, the logistics portfolio contained the following mix of building sizes:

The logistics portfolio is well-diversified geographically:

Secure client base underpins income generation

The Group's diversified client base includes some of the world's most-important companies, with 63.6% being part of groups included in major stock market indices, such as the DAX 30, FTSE All Share, SBF 120, NYSE and S&P 500.

The number of clients increased from 61 to 212 during the period, as the UKCM acquisition further diversified our client base. The occupiers of the acquired assets include major corporations, such as existing Group clients Ocado, Iron Mountain and GXO, as well as a range of smaller businesses. This offers us greater scope to engage with clients and meet their evolving needs through new developments or any vacancy that may arise over time.

Logistics portfolio vacancy at the period end was 3.8% (31 December 2023: 2.5%). 

The table below lists the Group's top ten clients:

Upward-only rent reviews provide attractive income growth

The majority of our logistics leases benefit from upward-only rent reviews. Of total contracted rents for logistics assets:

·      16.5% are reviewed annually; and

·      82.7% are reviewed in five-yearly cycles, with the timings staggered so there are reviews taking place each year.

The table below shows the rent review types across the logistic portfolio at the period end:

Logistics leases with inflation-linked reviews specify minimum and maximum rental growth, which average 1.6% and 3.6% respectively; in tandem with fixed rent reviews, this provides certainty on the minimum rental increases within the portfolio. We supplement this through open market and hybrid rent reviews, which can capture uncapped market rental growth, and other forms of active management to increase rental income. Approximately 76.5% of contracted rent from the UKCM logistics assets is subject to either hybrid or open market review which is another attractive feature of its portfolio. This has allowed us to increase our open market/hybrid portfolio weighting to 45.3%.

Due to the balance of open market and inflation-linked rent reviews, and the growing rental reversion in the portfolio (see below), we remain positive about continuing to deliver attractive, long-term income growth from our investment assets.

Information on rent reviews in the period can be found in the direct and active management section below.

Increasing ERVs provide a substantial and embedded opportunity to grow rental income

At each valuation date, the valuer independently assesses the ERV of each asset in the investment portfolio. This is the rent the property would be expected to secure through an open market letting at that date.

At 30 June 2024, the total portfolio ERV was £373.0 million (31 December 2023: £277.0 million), which is £69.6 million or 22.9% (31 December 2023: 23.0%) above the contracted rent. The portfolio reversion across the logistics assets stands at 25.5% and is supported by the significant reversionary potential of the UKCM logistics assets. The increase in the portfolio ERV reflects the rental reversion extant within the UKCM portfolio plus 1.9% of like-for-like ERV growth across the logistics assets during the period.

We have opportunities to capture the reversionary potential across the investment portfolio through open market rent reviews, lease renewals, new leasing across vacant units or lease regears.

We believe, therefore, that there is around £43.4 million (64%) of reversionary rental potential subject to lease events by the end of 2026 (inclusive of current vacancy).

Long duration, full repairing and insuring leases minimise capex and enhance income security

At the period end, the logistics portfolio's WAULT was 10.4 years (31 December 2023: 11.4 years), with the Foundation assets having a WAULT of 14.0 years (31 December 2023: 15.0 years).

Of total rents:

·      23.9% is generated by leases with 15 or more years to run; and

·      27.9% comes from leases expiring in the next five years, providing near-term opportunities to capture the growing rental reversion within the portfolio (see above).

UKCM's logistics portfolio had a WAULT of 6.7 years on acquisition creating opportunities to capture the reversionary potential of these assets over the coming years.

Most of our leases are full repairing and insuring (FRI), equivalent to "triple net" leases in the United States. This means our clients are responsible for property maintenance during the lease term and for dilapidations at the end of the lease. This minimises our irrecoverable property costs, which resulted in 99.8% conversion of gross to net rental income for the period. Rotating the non-strategic UKCM assets into FRI leases, should deliver direct property cost savings over the medium term, in addition to the immediate cost savings we have quantified (see the financial review for more information).

Non-strategic assets of UKCM

The 18 assets in this element of the UKCM portfolio cover leisure, hotels, student housing, retail warehouses, supermarkets and offices. All are in core markets across the UK, with a WAULT of 7.7 years at the period end, contracted rent of £36.1 million and an ERV of £37.5 million.

The non-strategic assets were valued at £487 million at 30 June 2024, broadly in line (net of capex) with December 2023 valuations used for the pricing of the acquisition. Given these assets are considered non-strategic, we have identified these for sale over an approximate two year period. We are already in advanced discussions across a number of these assets with regards to their disposal. Upon realising the non-strategic asset sales, this will provide us with the ability to fund around two years of our planned development capex. This will allow us to retain logistics assets we might otherwise have looked to sell to meet our funding needs, although we will still consider disposing of certain logistics assets that meet specific criteria and where we have a compelling opportunity to reinvest the capital.

The Manager has a track record of operating across multiple sectors of the commercial real estate industry, including managing separate vehicles' which, aside from logistics, have invested in retail warehousing, leisure, hotels and office. In addition, members of the Senior Management team of the Manager have expertise across all sectors within which the non-strategic assets operate.

2) Direct and active management

Realising value and recycling capital through disposals

Capital recycling is a key part of our business model. We have deliberately constructed the portfolio to ensure it contains highly attractive assets with good liquidity, enabling us to sell when we choose, reinvest the proceeds into higher-returning opportunities - such as our development pipeline - and thereby improve the quality and returns prospects for the overall portfolio.

We constantly review the portfolio, to identify assets where:

1) we have completed our asset management plans and maximised value;

2) the asset's investment characteristics no longer fit our desired portfolio profile; or

3) the asset's future performance may be below others in the portfolio or have more risk attached to it.

Following £327 million of asset disposals in 2023, which were achieved at or above their respective book value despite challenging investment market conditions, we did not dispose of any assets in the first half of 2024 as we focused on the acquisition of UKCM.

UKCM provides additional opportunity through disposal of the non-strategic assets over the next 24 months which will provide the Company with greater financial flexibility over the short-term. We have already received enquiries for the entire non-strategic portfolio and for individual segments within it. Our initial priority has been to fully assess each asset and determine which are ready for sale and which would benefit from some interim asset management, so they appeal to the widest range of purchasers and we can maximise their value. We will then look to dispose of the assets in an orderly and disciplined manner.

We continue to objectively evaluate assets within our investment portfolio and will seek to dispose of logistics assets where there is a compelling rationale to do so. These disposals would be incremental to any sales achieved on the UKCM non-strategic assets.

Subject to market conditions and opportunities to deploy the proceeds, our target in recent years has been to dispose of approximately £100-200 million of assets each year, primarily to rotate capital into the development programme. Given the opportunity for disposals within the non-strategic assets of the UKCM portfolio, we expect to be at the higher end of this range for FY24.

Acquiring investments with asset management potential

While development remains the primary focus of our capital deployment given the compelling returns it delivers, we continue to look for standing investments that complement our development activity and offer lower-risk, attractive returns and more immediate income.

In January 2024, we completed the acquisition of a 479,000 sq ft cold store facility in a key East Midlands location. The property is let to Co-Op, an existing Group client, and is a mission-critical facility on a lease with 8.7 years remaining and 3.7 years to the next rent review. The asset offers strong rental growth potential, with the purchase price of £46.0 million equating to a NIY of 5.75% and a reversionary yield of 7.3%.

Rent reviews expected to be second half weighted

Approximately 26.7% of the portfolio was subject to rent review in 2024 prior to the UKCM acquisition, with 7.7% falling into the first half resulting in a second-half weighting in 2024. During the period, we agreed 9 rent reviews, as summarised below.

In total, rent reviews and lease events increased passing rents by £3.4 million or 10.7% of the rent subject to lease events in the first six months of 2024.

In addition, we have £9.3 million of contracted rent (3.1% of portfolio contracted rent) subject to reviews that remain outstanding from prior periods.

H1 2024 Settled rent reviews and re-lettings

Lease events included:

a)   Agreeing a new 15-year agreement for lease with Greene King at the Stakehill asset, formerly occupied by Tesco, where we achieved vacant possession in December 2023, upon lease expiry to refurbish (targeting an EPC A with a solar PV scheme). The agreement for lease was signed with a rental increase of 38.1% against the previous passing rent resulting in a significant increase in the asset's valuation at 30 June 2024.

b)   Completing a 5-year lease extension at L'Oreal, Trafford Park, Manchester, at a rent of £8.50 psf (new record rent for Trafford Park). A rental uplift of c.£400k pa (22.15%) was agreed.

Other lease re-gears, lettings or renewals have been captured with a range of Clients, including New Look, Esken, Evri, Under Controls Instruments, Mayflex UK, and more recently on a retail asset with Sportswift. We have demonstrated our ability to increase revenue from recently purchased assets, with the Junction 6 and Enfield urban parks we acquired in July and August 2023 delivering 11.9% growth in rental income since purchase.

Alongside our existing investment portfolio assets, we are now also focused on capturing the reversionary potential of the assets acquired from UKCM, for which we have developed a comprehensive asset management plan as part of our due diligence, identifying short, medium and long-term initiatives and their potential impact on income and capital values. This included a detailed review of building EPC ratings and occupier covenant strength and corporate governance. We have continued to refine our business plans for each asset and remain confident executing asset management and investment sales in line with our underwrite.

EPRA Like for Like rental growth: driven by both rental levels achieved and proportion of portfolio subject to review

We reported EPRA LFL rental growth of 2.1% due to a smaller proportion of leases subject to review in the period of 6.2% (compared to 9.8% in H1 2023) and a greater proportion of inflation linked reviews. In our view, EPRA LFL rental growth is better suited to a portfolio constructed of annual rent reviews, as more commonly found in continental Europe, because it records annual growth rates across a portfolio which has typically been subject to rent review. The method is less well suited to five-yearly rent reviews, particularly in periods where a small proportion of total rents are reviewed. In the UK, where leases are commonly reviewed on a five-year basis, reported EPRA LFL rental growth is sensitive to the percentage of the portfolio reviewed in any given period and the composition of lease types. By way of comparison, our average rental growth, on an annualised basis, across all leases which have been subject to review in the period i.e. where we have had the ability to prove the rental tone, was 5.1% (H1 2023: 3.3%).   

Rent review profile provides significant opportunity to drive earnings growth

Most of our leases are reviewed on a five-yearly basis and are broadly split between open market and inflation linked. Given these five yearly review profiles, historical rental growth experienced in the market does not immediately flow through into income. This timing effect is captured within the portfolio reversion which compares our current passing rent with rents likely to be achieved if the building were relet ("Estimated Rental Value" or "ERV"). As at 30 June 2024, our logistics portfolio reversion stood at 25.5%, providing confidence in our ability to continue delivering attractive earnings growth as we work our way through rent reviews, or relet assets that have reached lease expiry, and capture higher market rental levels.

To assist in understanding our portfolio reversion, and the likely timing and quantum of its capture, we have provided additional disclosure in the tables below. These outline for each of the next three years the split between review type and frequency.

Enhancing ESG through integration, engagement and active management

We have integrated ESG considerations throughout the investment lifecycle, as well as our management of the Group's supply chain and engagement with our clients. By working in partnership with clients on ESG initiatives, we can increase rental income and capital values, while helping them make progress towards their ESG targets.

Our ESG strategy has four themes, as set out below. Achievements in H1 2024 included:

·      Sustainable buildings: We have continued to refine our integration of ESG criteria into the investment process, including engaging with our advisers to understand how ESG factors are influencing transactions in the market. We are also developing our approach to delivering our embodied carbon target of 400kg CO₂e per m², through engagement with our development teams and the suppliers of carbon-intensive materials such as steel and concrete.

·      Climate and carbon: To advance our net zero carbon delivery, we have appointed Mace to build a bespoke technology platform for us. This will allow us to import key decarbonisation data points into one system, so we can analyse our assets and refine our net zero pathway into a timetabled and costed programme at portfolio and individual asset levels. We will integrate this information with our asset and portfolio management strategies and use it to support our client negotiations and disposal decisions. We expect the platform to be populated by the end of the year. In addition, we are working with clients and other market participants to understand the evolution of transport electrification, particularly for heavy goods vehicles.

·      Nature and wellbeing: New biodiversity net gain regulations for developments came into force at the start of 2024. In common with other developers and local planning authorities, our development team is working with our supply chain to understand the practical impacts and ensure we deliver schemes that meet the new requirements. In addition, we continue to identify and implement biodiversity improvements across our standing assets.

·      Social value: We have put in place a new five-year social impact strategy for the Group, with a focus on improving educational outcomes and opportunities for young people. We are seeking to reach 250,000 young people over five years, by continuing to support the charity, Schoolreaders and working with organisations such as the Prince's Trust and the charity Education and Employers. The strategy is overseen by the Tritax Social Impact Foundation which was established in 2023, to be a centre of excellence and governance and to help us deliver and measure impact.

Resourcing our asset management team for success

The growth in the number and type of logistics assets in the portfolio has led us to invest further in our asset management team. We have brought into the dedicated BBOX team expertise from other parts of Tritax Management, from UKCM's former manager and through direct recruitment. The asset management team has been further complemented with additional property management, development and ESG resource. This investment by Tritax Management supports our hands-on approach to asset management, building strong relationships with our clients and identifying opportunities through regular engagement.

This will allow us roll out a blueprint for asset management ensuring a consistent and efficient approach. For example, the work we have done to refresh Junction 6, covering on-site amenities, landscaping, biodiversity, signage and colour schemes, can now be applied across the Group's other logistics parks, creating a brand standard.

3) Insight driven development and innovation

A carefully considered and low-risk approach to development

Development complements our investment portfolio by enhancing overall returns, as we target a yield on cost of 6-8% while carefully managing risk. We expect our 2024 schemes to achieve an average yield on cost of 7.0%.

We control the UK's largest land portfolio for logistics development. It has the potential to deliver approximately 41.5 million sq ft of new space through pre-let and speculative developments, which could more than double the size of our business. The pipeline is diversified geographically and is highly flexible, enabling us to match our clients' requirements from urban or last mile assets to "mega boxes". Once built and let these developments become investment assets for us; our portfolio will therefore continue to evolve, with a broader mix of building sizes and an attractive blend of lease profiles.

We hold most of the land portfolio through long-term options. These are capital efficient and reduce risk, as we typically only buy the land once we have received planning consent and have flexibility over the quantum and timing of our purchases. The options include a defined discount of typically 15-20% to prevailing land prices and we can offset much of the site's planning and infrastructure costs against the purchase price. This means we typically secure an attractive profit on drawdown and minimise the impact of changing land values over the longer term.

Given the current position in the market cycle, we are seeing opportunities to acquire sites with planning consent already in place and vendors who are motivated to sell. We will consider these opportunities where they will support delivery of our development objectives and offer attractive returns.

In line with our investment policy, and as expressed as a percentage of gross asset value, our development exposure was 7.0% and our exposure to speculative development was 1.9%.

Agile development platform capable of flexing to market conditions

Holding land under long dated option is both capital efficient and provides flexibility. This flexibility to ramp up or down development activity enables us to accurately match prevailing market conditions and ensures the delivery of new space is optimised to drive performance.

We continue to receive a high level of occupational interest in incremental logistics space. The more uncertain economic backdrop in 2023 and the first half of 2024 has, however, resulted in occupiers taking longer to commit to new buildings. With the rate of inflation in UK and other key economies beginning to decline, prospects of further interest rate cuts and the conclusion of the UK general election, we expect to see an uptick in letting activity in the second half of 2024 and into 2025. This includes the current 1.8 million sq ft of new development lettings we have in solicitors hands with an expected contracted rental income of approximately £18.1 million.

In the first half of 2024, we reached practical completion on 0.8 million sq ft of leased buildings, adding £7.4 million to passing rents. We remain on track to achieve our long-term guidance of 2-3 million sq ft of construction starts this year, with 0.9 million sq ft started in the first half. This included a 0.4 million sq ft unit we have pre-sold to Siemens Healthineers at Oxford under a DMA contract, enabling accelerated delivery of the rest of the site - by opening up the infrastructure and utilities to the site.

In addition to the progress outlined above, during the period we have also:

·      achieved 0.1 million sq ft of development lettings, increasing contracted annual rent by £1.3 million; and

·      obtained outline planning consent for a further 1.0 million sq ft, with a further 0.1 million sq ft submitted pending determination.

The UK's largest land portfolio for logistics development

We categorise our development portfolio based on the timing of opportunities:

1) Current development pipeline - assets under construction, which are either pre-let, let during construction or speculative developments. The Group owns these sites.

2) Near-term development pipeline - sites with planning consent received or submitted, and where we aim to begin construction in the next three years. The Group will own some of these sites, with others held under option pending planning consent or where we have achieved outline planning but have yet to acquire the land.

3) Future development pipeline - longer-term land opportunities, which are principally held under option, and which are typically progressing through the planning process.

1) Current development pipeline - assets under construction to be delivered in next 12 months

At 30 June 2024, the Group had the following assets in the current development pipeline. The total estimated cost to complete is £118.9 million and the assets have the potential to add £23.5 million to annual passing rents.

In H2 2023, we commenced construction on a 502k sq ft speculative asset at Kettering. Shortly after placing the groundworks contract, it became clear from discussions with other potential occupiers, that it would make more commercial sense to reconfigure part of this site. Having not yet placed the construction contract, we therefore decided not to proceed with this development. Instead, the reconfiguration resulted in us being under offer on a further significant pre-let opportunity and allowed us to capture a freehold DMA contract with Greggs - see DMA section below.

2) Near-term development pipeline - construction expected to commence in next 12 - 36 months

At the period end, the near-term development pipeline consisted of land capable of accommodating 8.8 million sq ft of logistics space and delivering £84.3 million of annual rent.

Of this:

·      4.5 million sq ft relates to land with planning consent; and

·      1.0 million sq ft relates to sites where we have planning submission pending or have submitted a planning application.

The Group was also awaiting decisions on planning applications totalling 9.9 million sq ft at 30 June 2024.

The table below presents the near-term development pipeline at the period end. Movements in the figures are driven by construction starts (which will move space to the current development pipeline), or changes in our view on the likely timing of starts, resulting in movements between the two categories below.

The ERVs shown below are based on current market rents and therefore assume no further rental growth before the schemes become income producing.

3) Future development pipeline

The future development pipeline is predominantly controlled under longer-term option agreements designed to remain live for at least one planning cycle. Most option agreements contain an extension clause, allowing us to extend the option expiry date where necessary.

The future development pipeline has sites at various stages of the planning process, with multiple sites being currently promoted through local plans. We have continued to replenish the pipeline by securing options over new sites.

At 30 June 2024, the future development pipeline comprised 1,457 net acres with the potential to support up to 31.2 million sq ft of development and generate around £279.8 million of contracted rent, again assuming no market rental growth.

Development Management Agreements (DMA) and DMA income

While our development programme primarily creates assets for the investment portfolio, we occasionally work with a client to develop an asset for freehold sale to them, where this may help us to gain planning, open up a site and accelerate our profit capture. Freehold sales, undertaken through a Development Management Agreement (DMA) contribute to DMA income, delivering a high-returning, capital light profit from this activity, which we can recycle into other development or investment activity. 

Under a DMA, the Group typically manages the development of an asset in return for a fee and/or profit share. The Group will not own the site during construction or the completed investment. DMAs are therefore excluded from the Group's asset portfolio.

DMAs can provide the Group with an attractive but variable source of additional income for shareholders, with no or limited capital funding requirements.

In the period 0.4 million sq ft was pre-sold and the Group commenced the construction of a unit for Siemens Healthineers at Oxford. A further 0.3 million sq ft DMA contract was exchanged subject to planning with Greggs, which is expected to commence construction in H2 24.

As a result, DMA income guidance has been increased for FY24 to £25.0 million and for FY25 to £10.0 million.

The treatment and impact of DMA income is further discussed in the Financial Review.

Financial review

Overview

A significant event in the period was the completion of the UKCM acquisition. The financial statements therefore include the UKCM operations from the date of acquisition, resulting in an approximate six-week impact to the Statement of Comprehensive Income and a full consolidation of all assets and liabilities within the Statement of Financial Position.

The Group delivered strong financial performance in H1 2024, which included growing net rental income by 16.7%. The contribution of UKCM alongside development completions and rent reviews contributed to this, which was partially offset by the impact of asset disposals taking place in H2 2023. The Group also recognised £12.2 million of DMA income in the period (H1 2023: £nil).

As a result, Adjusted EPS, grew by 10.4% to 4.35 pence (H1 2023: 3.94 pence). Adjusted EPS excluding addition DMA income also grew, by 4.1% to 4.10 pence (H1 2023: 3.94 pence) for the six month period (see note 7 for the calculation). The EPRA NTA per share at 30 June 2024 was 179.33 pence (31 December 2023: 177.15 pence), with growth driven by the £96.5 million (H1 2023: £29.9 million) change in fair value of investment properties.

The key constituents of Adjusted EPS growth in the period are shown in the table below:

The total dividend for the period was 3.65 pence per share (H1 2023: 3.50 pence), an increase of 4.3% and in line with the Group's dividend policy.

The business remains soundly financed as UKCM's comparatively low gearing, along with portfolio valuation growth helped to reduce the Group's overall LTV to 29.9% (FY23: 31.6%). We were pleased that shortly after the period end, Moody's Ratings upgraded the Company's credit rating outlook to Baa1 (positive) from Baa1 (stable) and reaffirmed its long-term corporate credit rating.

Combination with UKCM

The all-share offer for UKCM was completed by a Scheme of Arrangement on 16 May 2024 through the issue of 577.0 million new shares at a price of 166.9 pence per share. This reflected a consideration paid of £962.9 million, at an exchange ratio of 0.444 new ordinary shares in the Company for every UKCM share held, based on an NTA for NTA approach. The fair value of the net assets acquired was £1,016.1 million, as set out below.

The difference between the total consideration paid of £962.9 million and the fair value of the net assets acquired of £1,016.1 million, net of acquisition costs, was a gain of £53.2 million. This acquisition has been accounted for as an asset acquisition, resulting in its assets and liabilities initially being accounted for in the balance sheet at cost. The property assets have subsequently been revalued at the period end, in line with the Group's accounting policy and therefore this gain has been recognised within changes in fair value of investment property during the period. Please also see Note 9 to the financial statements.

Presentation of financial information

The financial information is prepared under IFRS. The Group's subsidiaries are consolidated at 100% and its interests in joint ventures are equity accounted for.

The Board continues to see Adjusted EPS¹as the most relevant measure when assessing dividend distributions. Adjusted EPS is based on EPRA's Best Practices Recommendations and excludes items considered to be exceptional, not in the ordinary course of business or not supported by recurring cash flows, but includes finance income received under interest rate derivative arrangements.

¹ Excluding additional development management agreement income

Financial results

Net rental income

Net rental income grew by 16.4% to £127.2 million (H1 2023: £109.3 million). Contracted annual rent at the period end was £303.4 million (31 December 2023: £225.3 million), with the movement reconciled below. The annual passing rent at the period end was £293.1 million (31 December 2023: £217.0 million).

Other operating income - Development Management Agreement (DMA) income

As described above, the Group earns DMA income from managing developments for third parties. This is attractive business as the third party funds the development, resulting in a high return on capital for us. We include DMA income within Adjusted earnings as it is supported by cash flows.

However, DMA income is more variable than property rental income and its timing can affect our earnings from period to period. Over the medium term, we expect the level of recurring DMA income to be at least £3.0-5.0 million in a typical year, and therefore this level is built into our recurring Adjusted Earnings. In 2023, the Group recognised no DMA income due to a timing delay on a project, with the anticipated income falling instead into this financial year and resulting in higher than usual DMA income in the current year. In H1 2024 we recognised £12.2 million of DMA income (H1 2023: £nil) and we currently expect FY24 DMA income of approximately £25.0 million and FY25 DMA income of £10.0 million. Reflecting this variability, we also calculate Adjusted earnings excluding DMA income above the typical run rate, to aid comparability across periods and to base our dividend from (see profit and earnings below).

The additional DMA income is therefore available to be recycled into further opportunities across our development pipeline and/or other investment opportunities.

Administrative and other expenses

Administrative and other expenses, which include all the operational costs of running the Group, were £15.6 million (H1 2023: £13.8 million). The Investment Management fee for the period was £11.4 million (H1 2023: £10.8 million), reflecting the increased capital base following the UKCM acquisition.

The EPRA Cost Ratio (including vacancy cost) decreased slightly to 12.5% (H1 2023: 12.6%).

We identified £4.0 million of immediate annual cost savings from the UKCM administrative expenses, comprising:

·      management fee savings of £2.6 million per annum, resulting from unifying investment management services; and

·      operational cost savings of £1.4 million per annum, resulting from the elimination of duplicate listing, administrative and other operational expenses

These savings will support near-term earnings growth and dividend progression and we expect to generate further savings from operational and financial synergies in the medium term.

Operating profit

Operating profit before changes in fair value and other adjustments was £123.8 million (H1 2023: £95.5 million).

Share-based payment charge and contingent consideration

Following the Group's acquisition of Tritax Symmetry in 2019, senior members of the Symmetry team became B and C shareholders in Tritax Symmetry Holdings Limited. The Group extinguished these shares in August 2023, resulting in no share-based payment or contingent consideration charges in H1 2024 (H1 2023: £2.5 million and £0.4 million respectively).

Financing costs

Net financing costs for the period were £28.9 million (H1 2023: £20.7 million), excluding the loss in the fair value of interest rate derivatives of £1.3 million (H1 2023: £2.9 million gain). The average cost of debt at the period end was 3.05% (31 December 2023: 2.93%), with 95% (31 December 2023: 96%) of the Group's drawn debt being either fixed rate or covered by interest rate caps (see hedging policy below).

The movement in net financing costs therefore reflects the higher average cost of debt and the increase in average drawn debt throughout the period, which stood at £1,763.2 million (H1 2023: £1,600.4 million), including the debt facilities acquired with UKCM (see below). £1.6 million of interest expense was capitalised (H1 2023: £2.1 million), reflecting the level of capital deployed into active development projects in the period.

The interest cover ratio, calculated as operating profit before changes in fair value and other adjustments divided by net finance expenses, was 4.3x (H1 2023: 4.6x). The net debt to EBITDA ratio was 7.1x¹ (31 December 2023: 8.2x).

¹ calculated on a pro-forma basis inclusive of a full 12 months contribution from UKCM

Tax

The Group has continued to comply with its obligations as a UK REIT and is exempt from corporation tax on its property rental business.

A tax charge of £3.1 million arose in the period, on profits not in relation to property rental business. In H1 2023, the Group incurred a tax charge of £1.7 million on the profit on disposal of an asset.

Profit and earnings

Profit before tax was £190.2 million (H1 2023: £102.4 million), with the movement between the two periods primarily reflecting a higher level of operating profit before changes in fair value and other adjustments alongside stronger valuations performance from investment property. Basic EPS was 9.14 pence (H1 2023: 5.39 pence). Basic EPRA EPS, which excludes the impact of property valuation movements, was 4.31 pence (H1 2023: 3.60 pence).

Adjusted EPS[7]for the six months was 4.35 pence (H1 2023: 3.94 pence) (see note 7 for the calculation). The metric we see as closest to recurring earnings is Adjusted EPS excluding DMA income above the anticipated run-rate, which was 4.10 pence for the period. The Group recorded no DMA income last year, resulting in this metric being the same as Adjusted EPS for H1 2023 (3.94 pence).

Dividends

We aim to deliver an attractive and progressive dividend. The Board's policy is for the first three quarterly dividends to each represent 25% of the previous full-year dividend, with the fourth-quarter dividend determining any progression. The aim is to achieve an overall pay-out ratio in excess of 90% of Adjusted earnings.

Following this policy, the Board has declared the following interim dividends in respect of H1 2024:

The total dividend for the period of 3.65 pence was a 4.3% increase on H1 2023 (H1 2023: 3.50 pence). The pay-out ratio was 89% of Adjusted EPS excluding additional DMA income.

The cash cost of the dividends in relation to the period was £84.3 million (H1 2023: £69.6 million), with the increase reflecting the new shares issued to acquire UKCM (see equity issuance below), which were eligible to receive both interim dividends for the period.

Portfolio valuation

CBRE independently values the Group's assets that are leased, pre-leased or under construction. These assets are recognised in the Group Statement of Financial Position at fair value. Colliers independently values all owned and optioned land. Land options and any other property assets are recognised at cost, less amortisation or impairment charges under IFRS.

The share of joint ventures comprises 50% interests in two sites at Middlewich and Northampton, relating to land and land options. These two sites are equity accounted for and appear as a single line item in the Statement of Comprehensive Income and Statement of Financial Position.

The total portfolio value at 30 June 2024 was £6.40 billion (31 December 2023: £5.03 billion), including the Group's share of joint ventures:

The gain recognised on revaluation of the Group's investment properties was £96.5 million (H1 2023: £29.9 million gain). This included a gain of £53.2 million on the total UKCM portfolio.

The logistics portfolio equivalent yield at the period end remained broadly stable at 5.7% (31 December 2023: 5.6%). This was supplemented by continued progress with the development programme and further growth in ERVs, which were 1.9% higher over the period.

Capital expenditure

Capital expenditure totalled £1,300.1 million in the period (H1 2023: £108.9 million). This included the acquisition of the UKCM portfolio which totalled £1,163.6 million which was funded via a share for share exchange. When excluding the UKCM portfolio, total capex was £136.5 million in the period, its deployment was focussed towards development. The Group acquired one standing asset for £46.0 million in the period.

Embedded value within land options

Under IFRS, land options are recognised at cost and subject to impairment review. As at 30 June 2024, the Group's investment in land options totalled £155.9 million (31 December 2023: £157.4 million). We continue to progress strategic land through the planning process. During the period we transferred £7.8 million of land held under option to assets under construction.

As the land under option approaches the point of receiving planning consent, any associated risk should reduce and the fair value should increase. When calculating EPRA NTA, the Group therefore makes a fair value mark-to-market adjustment for land options. At the period end, the fair value of land options was £35.4 million greater (31 December 2023: £26.5 million greater) than costs expended to date.

Net assets

The EPRA NTA per share at 30 June 2024 was 179.33 pence (31 December 2023: 177.15 pence). The table below reconciles the movement during the period:

The Total Accounting Return for the period, which is the change in EPRA NTA plus dividends paid, was 3.4% (H1 2023: 3.5%).

Equity issuance

In relation to the all-share combination with UKCM, the Company issued 576,939,134 new ordinary shares to UKCM's shareholders. These shares were admitted to trading on 17 May 2024. Following this, the Company had 2,480,677,459 ordinary shares in issue at 30 June 2024, an increase of 30.3% in the period.

Debt capital

At 30 June 2024, the Group had the following borrowings:

There were no changes to the Group's banking arrangements during the period. However, the Group acquired the following facilities through the UKCM transaction:

·      a £150.0 million revolving credit facility with Barclays Bank, which matures in January 2026 and carries a margin of 1.90% above SONIA, with £nil drawn on the facility at the period end;

·      a £100.0 million term loan with Barings Real Estate Advisers, at a fixed interest rate of 3.03% per annum. The loan matures in April 2027 and was fully drawn at the period end; and

·      a second £100.0 million term loan with Barings Real Estate Advisers, at a fixed rate of 2.72% per annum. The loan matures in February 2031 and was also fully drawn at 30 June 2024.

Since the end of the period, we have refinanced the above Barclays facility, reducing its cost, extending its term and transitioning from a secured to an unsecured framework. See post balance sheet events below for more information.

Debt maturity

At the period end, the Group's debt had an average maturity of 5.0 years (31 December 2023: 5.2 years). Following the refinancing of the Barclays RCF, the Group has no debt maturing prior to mid-2026.

Loan to value (LTV)

The Group has a conservative leverage policy. At the period end, the LTV was 29.9% (31 December 2023: 31.6%), reflecting, largely the benefit of UKCM's low LTV of 14.2% on acquisition at 16 May 2024.

Interest rates and hedging

Of the Group's drawn debt as at 30 June 2024, 77% was at fixed interest rates. For the majority of its variable rate debt, the Group uses interest rate caps which run coterminous with the respective loan and protect the Group from significant increases in interest rates. As a result, the Group had either fixed or capped rates on 95% of its drawn debt at the period end and the average cost of borrowing at 30 June 2024 increased to 3.05% (31 December 2023: 2.93%).

Net debt and operating cash flow

Net debt at the period end was £1,912.9 million (31 December 2023: £1,590.3 million), comprising £1,961.0 million of gross debt less £48.1 million of available cash held (31 December 2023: £1,626.7 million gross debt, £36.4 million cash).

Net operating cash flow was £84.4 million for the six months (H1 2023: £95.5 million).

Going concern

We continue to have a healthy liquidity position, with strong levels of rent collection, a favourable debt maturity profile and debt costs which are substantially fixed or hedged.

The Directors have reviewed our current and projected financial position over a five-year period, making reasonable assumptions about our future trading performance. Various forms of sensitivity analysis have been performed, in particular regarding the financial performance of our clients and expectations over lease renewals. As at 30 June 2024, our property values would have to fall by approximately 45% before our loan covenants are breached at the corporate level.

At the period end, we had £547 million of undrawn commitments under our senior debt facilities and £48.1 million of cash, of which £118.9 million (see note 19) was committed under various development and purchase contracts. Our loan to value ratio stood at 29.9%, with the debt portfolio having an average maturity term of approximately 5.0 years.

As at the date of approval of this report, we had substantial headroom within our financial loan covenants. Our financial covenants have been complied with for all loans throughout the period and up to the date of approval of these financial statements. As a result, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future, which is considered to be to 7 August 2025.

Credit rating

The Group has a Baa1 long-term credit rating and positive outlook from Moody's Investor Services, which was upgraded from Baa1 (stable) on 3 July 2024.

Alternative Investment Fund Manager (AIFM)

The Manager is authorised and regulated by the Financial Conduct Authority as a full-scope AIFM. The Manager is therefore authorised to provide services to the Group and the Group benefits from the rigorous reporting and ongoing compliance applicable to AIFMs in the UK.

As part of this regulatory process, Langham Hall UK Depositary LLP (Langham Hall) is responsible for cash monitoring, asset verification and oversight of the Company and the Manager. In performing its function, Langham Hall conducts a quarterly review during which it monitors and verifies all new acquisitions, share issues, loan facilities and other key events, together with shareholder distributions, the quarterly management accounts, bank reconciliations and the Company's general controls and processes. Langham Hall provides a written report of its findings to the Company and to the Manager, and to date it has not identified any issues. The Company therefore benefits from a continuous real-time audit check on its processes and controls.

Post balance sheet activity

On 26 July 2024, the Company refinanced the £150 million Barclays RCF via entry into a new £150 million two-year facility, split £75 million term loan and £75 million RCF. In doing so, the revised facility was provided on an unsecured basis and so all previous security was released, with a margin reduction from 190bps to it now falling in line with the Company's corporate RCF pricing. The facility has two separate, one-year extension options available to it (subject to lender consent).

Key performance indicators

Our objective is to deliver attractive, low-risk returns to Shareholders, by executing the Group's Investment Policy and operational strategy. Set out below are the key performance indicators we use to track our progress. For a more detailed explanation of performance, please refer to the Manager's Report.

¹ EPRA NTA is calculated in accordance with the Best Practices Recommendations of the European Public Real Estate Association (EPRA). We use these alternative metrics as they provide a transparent and consistent basis to enable comparison between European property companies.

EPRA performance indicators

The table below shows additional performance measures, calculated in accordance with the Best Practices Recommendations of the European Public Real Estate Association (EPRA). We provide these measures to aid comparison with other European real estate businesses.

For a full reconciliation of all EPRA performance indicators, please see Notes to the EPRA and other key performance indicators.