TIDMBBOX
RNS Number : 3213I
Tritax Big Box REIT plc
08 August 2019
THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE
INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU)
NO. 596/2014.
8 August 2019
Tritax Big Box REIT plc
(the "Group" or the "Company")
RESULTS FOR THE SIX MONTHSED 30 JUNE 2019
Tritax Big Box REIT plc (ticker: BBOX), the only real estate
investment trust dedicated to investing in very large logistics
warehouse assets ("Big Boxes") in the UK, is today reporting its
results for the Group for the six month period from 1 January 2019
to 30 June 2019.
Financial highlights
30 June 2019 30 June 2018 Increase/
Decrease
Dividend per share 3.425p 3.35p +2.2%
Adjusted earnings per share(1) 3.41p 3.38p +0.9%
Total return for the six months 0.42% 5.10% -4.68 pts
Operating profit before changes
in fair value(4) GBP60.7m GBP57.4m +5.7%
EPRA cost ratio 15.3% 13.7% +1.6 pts
30 June 2019 31 December Increase/
2018 Decrease
EPRA NAV per share(3) 150.08p 152.83p -1.8%
Portfolio value(2) GBP3.85bn GBP3.42bn +12.6%
Contracted rent roll GBP166.8m GBP161.1m +3.5%
WAULT 14.3 yrs 14.4 yrs -0.1 yrs
Investment portfolio let or
pre-let 99% 100% -1 pt
-- Dividends declared for the six-month period of 3.425 pence
per share (30 June 2018: 3.35p) +2.2%, putting the Company on track
to hit its full-year target of 6.85 pence(8) .
-- Adjusted earnings per share for the six-month period of 3.41p
pence per share, an increase of 0.9% over H1 2018.
-- Portfolio independently valued at GBP3.85 billion as at 30
June 2019 (31 December 2018: GBP3.42 billion), including all
forward funded development commitments. This reflected an increase
across the portfolio during the six-month period of 12.6%.
-- EPRA net asset value ("NAV") per share decreased by 1.8% to
150.08 pence as at 30 June 2019 (30 June 2018: 152.83 pence),
following the extraordinary costs incurred in relation to the db
symmetry acquisition. Absent these costs, the underlying EPRA NAV
growth was 0.7% during the six month period.
-- Total return for the period was 0.42% (30 June 2018: 5.10%).
Again, absent the extraordinary costs as noted above, the Total
Return would otherwise have been 2.90%.
-- Operating profit before changes in fair value of investment
properties has increased by 5.7% to GBP60.7 million(4) (30 June
2018: GBP57.4 million).
Operational highlights
-- The Investment Portfolio(5) comprised 58 assets, which are
well diversified by building size, geography and customer and
covers more than 30.9 million sq ft (31 December 2018: 29.8 million
sq ft)
-- At 30 June 2019, the weighted average unexpired lease term ("WAULT") was 14.3 years(6) .
-- At 30 June 2019, 99% of the Investment Portfolio was either let or Pre-let.
-- During the period ending 30 June 2019, the Group acquired an
87% economic interest in db symmetry (enterprise value for 100%:
GBP370 million(7) ). The Symmetry Portfolio is one of the UK's
largest land portfolios for logistics development, with the
potential to deliver c.38 million sq ft of logistics assets across
a geographically diverse range of key locations.
-- During the period ending 30 June 2019, the Group received the
first planning consents since the acquisition of the Symmetry
Portfolio:
o Biggleswade - full consent for a 661,201 sq ft Big Box pre-let
to The Co-operative Group
o Symmetry Park, Kettering - outline consent for up to 2.3
million sq ft of logistics space
-- The practical completion of the Pre-let asset at Corby and
the speculative developments at Bicester and Doncaster added 1.2
million sq ft to the Investment Portfolio.
-- Three rent reviews settled in the period, increasing our
passing rent by GBP0.34 million per annum, equating to an annual
uplift of 2.2% on the rent reviewed.
Development Highlights
-- 6.7 million sq ft of logistics assets under development, of
which 96% is either Pre-let or has been let during the course of
construction.
-- From our future pipeline of 2,800 acres we are targeting:
o 6-8%: Target yield on cost for the Development
Portfolio(8)
o 30%+: Target profit on cost(8)
Post balance sheet activity
-- A lease extension was agreed for an additional 18 years at
the Leeds asset let to Sainsbury's, creating a 25-year unexpired
term.
-- Practical completion of the 0.4 million sq ft Pre-let asset at Haydock, St Helens.
(1.) See note 7 of the financial statements for
reconciliation
(2.) 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
(3.) Net of 3.8p extraordinary costs following the February 2019
equity raise and costs associated with the db symmetry
acquisition
(4.) Operating profit before changes in fair value of investment
properties, share of profit from joint ventures and share based
payment charges, but excluding acquisition-related costs
(5.) The Group's Investment Portfolio comprises let or Pre-let
(in the case of Forward Funded Developments) assets as well as any
speculative developments that have reached practical completion but
remain vacant
(6.) Unexpired term of let or Pre-let properties weighted by
rental income and inclusive of licence fees received from Pre-let
Forward Funded Developments
(7.) Subject to certain adjustments in respect of cash, debt,
working capital, tax and other operational liabilities. Note: the
Group holds 100% of the ordinary share capital of db symmetry
(8.) This is a target only and not a profit forecast. There can
be no assurances that the target will be met and it should not be
taken as an indicator of the Company's expected or actual future
results.
Sir Richard Jewson KCVO, JP, Chairman of Tritax Big Box REIT
plc, commented:
"The long-term fundamentals of our market are positive. The
sector continues to benefit from the structural change in shopping
habits, as consumers switch from the high street to buying online,
creating ongoing demand for logistics space to fulfil these
orders.
With Brexit contributing to an uncertain economic environment
and making it more difficult for companies to grow their profits,
the operational efficiencies and cost savings offered by Big Boxes
remain compelling to occupiers. Businesses across industries have
signalled their intentions to invest in logistics infrastructure,
including new warehouse facilities as well as systems and
automation, to facilitate efficient supply chains. The
environmental impact of real estate also creates demand for modern,
energy efficient buildings like ours, which support our customers'
sustainability programmes.
The quality of our Portfolio and customer base means that,
irrespective of conditions in the wider economy, we are confident
of continuing to deliver secure and growing dividends to
Shareholders, as part of an attractive Total Return over the medium
term."
FOR FURTHER INFORMATION, PLEASE CONTACT:
Tritax Group via Maitland (below)
Colin Godfrey (Partner, Fund Manager)
Maitland (Communications Adviser) Tel: 020 7379 5151
James Benjamin tritax-maitland@maitland.co.uk
Jefferies International Limited Tel: 020 7029 8000
Gary Gould
Stuart Klein
Akur Limited Tel: 020 7493 3631
Anthony Richardson
Tom Frost
Siobhan Sergeant
The Company's LEI is: 213800L6X88MIYPVR714
NOTES:
Tritax Big Box REIT plc is the only listed vehicle dedicated to
investing in very large logistics warehouse assets ("Big Boxes") in
the UK and is committed to delivering attractive and sustainable
returns for Shareholders. Investing in and actively managing
existing built investments, land suitable for Big Box development
and developments predominantly delivered through a pre-let forward
funded basis, the Company focuses on large, well-located, modern
Big Box logistics assets, let to institutional-grade tenants on
long-term leases (typically at least 12 years in length) with
upward-only rent reviews and geographic and tenant diversification
throughout the UK. The Company seeks to exploit the significant
opportunity in this sub-sector of the UK logistics market owing to
strong tenant demand and limited supply of Big Boxes.
The Company is a real estate investment trust to which Part 12
of the UK Corporation Tax Act 2010 applies ("REIT"), is listed on
the premium segment of the Official List of the UK Financial
Conduct Authority 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
A Company presentation for investors and analysts will be held
at 10.30am today at:
Maitland
Havas Building
3 Pancras Square
London
N1C 4AG
Live conference call and on-demand recording of the Company
presentation
The presentation will also be accessible via a live conference
call and on-demand via the Company website:
http://tritaxbigbox.co.uk/investors/#results-centre.
CHAIRMAN'S STATEMENT
Investing for future performance
This was an important six months in the Group's strategic
evolution. The industrial logistics market remains favourable, our
underlying financial performance has been robust and we are on
track to pay a dividend of 6.85 pence per share for 2019(1) .
Market yields for prime investments have tightened considerably
over the last few years. In anticipation of slowing yield
compression, we amended our Investment Policy, with Shareholder
support, in May 2016 to allow us to commit capital to land assets.
The level of permitted investment was subsequently amended in
October 2018. Implementation of this strategy began with the
acquisition of Littlebrook, Dartford, in July 2017 and continued in
February 2019 when we completed the acquisition of db symmetry. We
now own one of the UK's largest and most geographically diverse
land portfolios for the development of Big Box assets and related
logistics facilities which can provide a long-term pipeline to
enhance the Group's existing strong asset base.
Development allows us to control the timing and quality of our
newly created investments. We seek to minimise development risk by
primarily undertaking developments which are Pre-let to a tenant.
By contrast, speculative developments are expected to be relatively
few (limited to 5% of GAV).
The db symmetry acquisition enables the creation of logistics
investments internally on a greater scale across key locations, at
an attractive yield on cost. This approach has the potential to
boost our earnings growth, thereby supporting our progressive
dividend policy, and is designed to generate enhanced total returns
for Shareholders for the next eight to 10 years. As a result of the
db symmetry acquisition, the Group's exposure to land assets and
speculative developments was c.11% of the Group's Portfolio Value
at the period end. Notably, therefore, the majority of our business
is unchanged.
Financing
Consideration for the Group's 87% interest in db symmetry was c.
GBP320 million. See the Acquisition consideration section of the
Manager's Report for further details.
In order to fund the acquisition, as well as certain
developments and potential further investments, we raised gross
proceeds of c. GBP250 million through the issue of 192,291,313
Ordinary Shares, at an issue price of 130 pence per share. Whilst
fully underwritten, these Ordinary Shares were entirely taken up by
existing Shareholders and the issue was significantly
oversubscribed. I would like to thank our Shareholders for their
strong support of our strategy. As previously noted, the share
issue and associated costs of the transaction resulted in dilution
to the Company's EPRA NAV of c.3.8 pence per share. The acquisition
of db symmetry was, however, a unique opportunity and we have
identified value within the Symmetry Portfolio which we believe
will more than compensate for this NAV dilution in the near
term.
We expect to fund a proportion of our developments from the sale
of selected Investment Assets at Net Initial Yields in the region
of 4-6%, allowing us to reinvest the proceeds at a target yield on
cost in the region of 6-8% for our Development Assets(2) . It is
anticipated that we will seek further debt and equity to fund site
acquisitions and the construction of future Development Assets.
We maintain a conservative level of gearing, with a period end
LTV of 29% (31 December 2018: 27%), albeit when taking into account
our level of committed capital expenditure, this moves closer to
our medium-term target of c.35%. Our credit rating with Moody's
remains at Baa1.
In June 2019, we announced that we had entered into a new GBP200
million unsecured revolving credit facility (RCF), with a syndicate
of our relationship lenders. The facility has an initial maturity
of five years and an attractive opening margin of 1.10% above
LIBOR. This will assist with financing our activities, providing
the flexibility we need to acquire further land, Pre-let Forward
Funded Developments and standing assets.
Development activity
As noted in our Operational Highlights, the acquisition of db
symmetry is already delivering benefits via planning and lettings,
and we are well set to capture further value in H2 2019 and through
into 2020.
Progress has continued at Littlebrook, Dartford, with demolition
and site preparation progressing as expected and the marketing of
the planned first phase development under way. There has been a
healthy level of occupational interest for both phases 1 and 2.
Turning to our Investment Portfolio and the developments we have
forward-funded, the construction of one of these completed during
the period whilst another was added as part of the db symmetry
acquisition leaving 6.4 million sq ft across seven Pre-let
buildings remaining in the course of construction at the period
end.
Portfolio and valuation
The Symmetry Portfolio activity described in the Manager's
Report meant that we added four assets to the Group's Investment
Portfolio during the period. These were the Biggleswade
development, pre-let to the Co-op, and three speculatively
developed smaller scale warehouses, which have either reached
practical completion or been let during the course of construction.
At the period end, the Portfolio therefore comprised 58 Investment
Assets and the Development Assets at Littlebrook, Dartford, and
within the Symmetry Portfolio.
We have separated the valuation appointments, such that CBRE
continues to value our Investment Assets and Colliers has been
appointed to value our Development Assets. The combined Portfolio
valuation was GBP3.85 billion(3) (31 December 2018: GBP3.42
billion), reflecting an increase of 12.6% across the Portfolio for
H1 2019.
Financial results
The main focus of the Group during the period was the absorption
and integration of db symmetry. As such we undertook no further
investment transactions.
The Group incurred GBP4.1 million of exceptional costs during
the period in relation to the db symmetry acquisition. Excluding
these exceptional costs, operating profit before changes in the
fair value of investment properties, share of profit from joint
ventures and share based payment charges increased by 5.7% to
GBP60.7 million (H1 2018: GBP57.4 million). Our cost base remains
low and transparent, with an EPRA cost ratio for the period of
15.3% (H1 2018: 13.7%). Adjusted Earnings per share were 3.41 pence
(H1 2018: 3.38 pence), an increase of 0.9%.
The EPRA NAV at the period end was 150.08 pence per share (31
December 2018: 152.83 pence). This reflected the dilutive effect of
the share issue noted above and the market remaining subdued
largely due to the uncertainty of Brexit, which resulted in our
Investment Portfolio valuation yield remaining broadly stable over
the period.
Dividends
The Board has declared two dividends of 1.7125 pence per share
each in respect of the period, to give a total for the six months
of 3.425 pence per share. We are therefore on track to pay a
dividend of 6.85 pence per share(1) for 2019, representing 2.2%
growth over the aggregate dividend for 2018 of 6.70 pence.
The Board
There were three changes to Board membership during the period.
On 1 February 2019, Mark Shaw retired from the Board. He made a
significant and valuable contribution to the creation of the Group
and its subsequent success, and we are grateful for his guidance.
Mark remains Chairman and a Partner of our Manager, and his
retirement means we now have a fully independent Board.
Alastair Hughes joined the Board as a Non-Executive Director on
1 February 2019. He is a chartered surveyor with more than 25
years' experience in the UK and international real estate markets,
most recently as CEO for the Asia Pacific region for Jones Lang
LaSalle. Alastair is a member of the Audit, Nomination and
Management Engagement Committees.
On 27 March 2019, Jim Prower resigned from the Board after more
than five years of service. On behalf of the Board, I thank him for
his counsel and expertise, as he helped to oversee our progress
since the IPO. Aubrey Adams replaced Jim as our Senior Independent
Director, with effect from the same date.
Looking ahead, our intention is to continue to strengthen the
Board with the appointment of an additional Non-Executive Director.
We are committed to having a balanced Board and will continue to
consider carefully the Board's diversity when recruiting, whilst
ensuring that we always appoint on merit.
Outlook
The long-term fundamentals of our market are positive. The
sector continues to benefit from the structural change in shopping
habits, as consumers switch from the high street to buying online,
creating ongoing demand for logistics space to fulfil these orders.
With Brexit contributing to an uncertain economic environment and
making it more difficult for companies to grow their profits, the
operational efficiencies and cost savings offered by Big Boxes
remain compelling to occupiers. Businesses across industries have
signalled their intentions to invest in logistics infrastructure,
including new warehouse facilities as well as systems and
automation, to facilitate efficient supply chains. The
environmental impact of real estate also creates demand for modern,
energy efficient buildings like ours, which support our customers'
sustainability programmes.
With UK interest rates currently forecast to stay low, prime
industrial logistics assets remain attractive, with prime assets on
15-year lease terms attracting a yield of around 4.5%. The
uncertainty posed by Brexit has, however, meant that prime yields
were broadly flat in H1 2019, as investors wait for the situation
to be resolved. This increases the importance of secure and growing
income streams and the ability to generate value internally.
It will take time for the Symmetry Portfolio to show its full
potential; our near-term priority for the remainder of the year
will be continuing to integrate the Symmetry Portfolio in
conjunction with the Symmetry ManCo management team to ensure that
we maximise the benefits from the acquisition. Our focus will
therefore be on achieving planning consents and securing
pre-lettings for our land assets and lettings for our speculatively
developed buildings.
We will continue to consider buying standing assets or Pre-let
Forward Funded Developments, on an opportunistic basis. Any
investment decision would take into account the timing of income
generation and the relative returns we can achieve from developing
our own product.
The quality of our Portfolio and customer base means that,
irrespective of conditions in the wider economy, we are confident
of continuing to deliver secure and growing dividends to
Shareholders, as part of an attractive Total Return over the medium
term.
Sir Richard Jewson KCVO, JP, Chairman
8 August 2019
(1.) This is a target only and not a profit forecast. There can
be no assurances that the target will be met and it should not be
taken as an indicator of the Company's expected or actual future
results.
(2.) 7-8% for the Symmetry Portfolio assets.
(3.) 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
Six Months in Brief
This was another busy and successful period for the Group, with
the key focus being the acquisition and integration of the Symmetry
Portfolio.
Operations and Asset Management
-- 1 February: Forward-Funded Development Pre-let to Eddie
Stobart at Corby reached practical completion.
-- 20 February: Completed the acquisition of an 87% economic
interest in db symmetry, with a total enterprise value of GBP370
million(1) , for a consideration of c. GBP320 million.
-- 25 March: Practical completion of a 163,664 sq ft speculative development at Bicester.
-- 29 March: Practical completion of a 152,038 sq ft speculative development at Doncaster.
-- 16 May: Obtained full planning permission for a 661,201 sq ft
regional distribution centre Pre-let to The Co-operative Group on a
20-year lease term at Biggleswade.
-- 28 May: Obtained outline planning consent for up to 2.3
million sq ft of logistics space at Kettering.
-- 20 June: Agreed a new 15-year lease with Global Infusion
Group of an 83,000 sq ft asset at Aston Clinton where speculative
development had commenced. Practical completion is targeted for
September 2019.
-- 28 June: Sale of the options over the fully consented 220
acre site in Lutterworth in accordance with the business plan for
the asset.
(1.) Subject to certain adjustments in respect of cash, debt,
working capital, tax and other operational liabilities
Board
-- 1 February: Appointed Alastair Hughes as a Non-Executive
Director. Mark Shaw retired from the Board.
-- 27 March: Jim Prower retired from the Board. Aubrey Adams
appointed Senior Independent Director.
Dividends
-- 6 March: Declared an interim dividend of 1.675 pence per
share, in respect of the three months to 31 December 2018.
-- 16 May: Declared an interim dividend of 1.7125 pence per
share, in respect of the three months to 31 March 2019.
-- 17 July: Declared an interim dividend of 1.7125 pence per
share, in respect of the three months to 30 June 2019.
Financing
-- 11 February: Raised gross proceeds of GBP250 million through
the substantially oversubscribed issue of 192,291,313 Ordinary
Shares at 130 pence per share, to fund the acquisition of db
symmetry and future investments.
-- 17 June: Entered into a new GBP200 million unsecured RCF,
with an initial maturity of five years and the option to extend to
seven years, to help support the next phase of our growth.
OUR PORTFOLIO
The right assets in the right locations
We have built a unique portfolio of 58 Investment Assets. These
buildings are typically modern, in prime locations and let on long
leases to investment-grade customers. In addition, we own a
portfolio of land and options over land with the potential to
develop c.41 million sq ft of logistics property. Our Portfolio is
well diversified by size, geography and tenant.
We believe these factors give us one of the best portfolios in
the UK quoted real estate sector. This underpins our objective of
delivering attractive, low-risk and growing income whilst
delivering capital growth primarily through asset management,
Pre-let developments and a modest amount of speculative
development.
As at 30 June 2019, our Land Assets extended to c.2,800 acres in
total, comprised of a combination of owned and optioned land and
other economic interests, such as development management
agreements.
Operational Highlights
-- GBP3.85bn: Portfolio Value(1)
-- GBP166.84m: Contracted rental income
-- 14.3 years: WAULT(2)
Investment Highlights
-- 4.5% NIY: Investment Portfolio valuation yield
-- 5.5% NIY: Investment Portfolio average net initial purchase yield(1)
-- 1%: EPRA Vacancy rate
Development Highlights
-- 6.7m sq ft: Logistics assets under development
-- 96% of current developments are Pre-let or let during construction
Future Pipeline
-- 6-8%: Target yield on cost for the Development Portfolio(3)
-- 30%+: Target profit on cost(3)
-- c.2,800 acres: Land Assets under control(4)
Our five largest tenants by contracted Rent Roll
Our five largest tenants as a percentage of the total Rent
Roll
Amazon Morrisons Howdens Co-op M&S
13.2% 6.8% 5.2% 4.8% 4.1%
---------- -------- ------ -----
(1.) Includes estimated development costs for Pre-let assets in
the course of construction
(2.) Unexpired term of let or Pre-let properties weighted by
rental income and inclusive of licence fees received from Pre-let
Forward Funded Developments
(3.) This is a target only, not a forecast. There can be no
assurances that the targets will be met and it should not be taken
as an indicator of the Group's expected or actual future
results
(4.) Includes assets not owned in which the Group holds economic
interests and land subject to development management agreements and
joint ventures
MANAGER'S REPORT
The Group's performance during H1 2019 reflected an evolution in
strategic emphasis, coinciding with a change in market conditions.
Our market remains attractive, despite Brexit uncertainty bringing
a slowdown in both occupational and investment activity. We made a
decision to increase the Group's allocation of capital to land
assets, in order that it can continue to create value over the long
term. The acquisition of db symmetry presents an exceptional and
transformational opportunity when combined with the Group's
existing business.
Our sector remains compelling
The Group's market remains highly attractive. There is a
continued imbalance between strong occupier demand and constrained
supply, particularly for new and very modern larger scale Big
Boxes. Investment yields have remained largely static during the
period but continue to offer an attractive, positive yield gap over
gilts.
The occupational logistics market
Occupier demand remains robust
Occupier demand is largely being supported by two main groups of
companies. These are:
-- established businesses wanting to support their growth and
transformation strategies, striving to deliver cost savings,
economies of scale benefits and efficiencies, whilst transitioning
and consolidating from disparate older logistics networks to larger
modern facilities; and
-- retailers, especially to serve their growing ecommerce
requirements, which are driving the need for larger, modern and
automated logistics facilities capable of holding full product
lines and processing orders and returns faster and more efficiently
than can be achieved by traditional supply chain methods.
Modern Big Boxes also contribute to occupiers' sustainability
agendas, as they are increasingly constructed using
state-of-the-art design, materials and construction practices and
often include renewable energy generation.
Whilst having fallen compared to 2018 - when a record 31.8
million sq ft of buildings of more than 100,000 sq ft were let
during the full year - occupier take up in the first half of 2019
was still robust at 12.9 million sq ft, in line with the five-year
average of 23.6 million sq ft per annum(1) . The dip in activity in
H1 2019 is not indicative of a lack of demand or need, but rather
of occupiers having adjusted their timings for making decisions as
a result of Brexit uncertainty. Notably, of the above figures,
lettings of buildings over 500,000 sq ft increased significantly to
13.9 million sq ft in 2018.
Constrained supply
A low level of supply has encouraged an increase in speculative
development. This is, however, still at modest levels compared with
the volumes developed in the mid-2000s and remains focused at the
smaller end of the building size range; only a few developers are
willing to take the risk of speculatively developing a very large
logistics warehouse in a single location. During H1 2019, two
speculatively developed buildings of between 520,000 sq ft and
550,000 sq ft were completed and construction commenced or
continued on three further buildings, each between 520,000 sq ft
and 540,000 sq ft in size (one of which is not expected to be
completed by the year end). In aggregate, these represent 2.3
months' supply of the 13.9 million sq ft of Big Box space taken up
last year according to research from CBRE.
Despite the increase in speculative development, there remains a
shortage of readily available Big Boxes to let of the right quality
and in key locations within the UK. This is because modern high-bay
warehouses that offer efficiency gains and volume flexibility
cannot easily be found vacant. As a result, many occupiers can only
meet their need for Big Boxes through "built-to-order" development,
where the occupier signs a pre-lease.
Rents continue to increase
With demand outstripping supply, rents continue to increase in
line with or ahead of the Consumer Price Index (CPI) across
locations in England: annualised prime headline logistics rental
growth to the end of June 2019 was 3.2% according to CBRE(2) ,
demonstrating a slowing in rental growth. One of the drivers of
rental growth has been the uplift in land values; according to
Colliers, nearly all locations tracked in England have seen growth
in land values in the past two years.
The investment logistics market
Logistics remains one of the most sought-after sectors for
commercial property investment. Investors continue to be attracted
by structural consumer trends and the long and growing income
offered by the best assets. Prime investment yields for logistics
property have remained stable at their keenest rates on record at
4.5%, according to CBRE, although investment volumes in H1 2019
have been somewhat subdued as a result of the current political and
economic environment. Total logistics property investment volumes
in H1 2019 are reported by Property Data to be down by a third
compared with the five-year average. Even so, yields on prime
distribution assets remain at an attractive premium to 10-year
government gilts.
Despite current political and economic uncertainties, both
internationally and domestically, we believe that there are good
arguments to be made for prime industrial logistics yields holding
up and potentially hardening further in 2020 by a modest amount.
Institutions worldwide, and particularly in the UK, are
re-weighting their portfolios, typically reducing exposure to
retail in favour of industrial logistics and it appears that this
process has a way to go.
Commentators are suggesting that UK interest rates will remain
low for some time to come. This is typically viewed as positive for
commercial property which offers an attractive premium to gilts and
can be geared for enhanced returns. International buyers,
particularly those from South East Asia and the USA, have large
pools of capital to deploy. Some are waiting for a resolution to
Brexit but UK investments have become increasingly appealing
following the weakening of Sterling which has fallen over 10% since
the spring of 2018.
Logistics market outlook
Whilst the political and economic uncertainty created by Brexit
has resulted in some challenges throughout H1 2019, occupier demand
remains robust. Market sentiment is that 2019 will likely see a
lower volume of space taken up compared with the record-breaking
take-up level of 2018 but that a healthy level of demand will be
crystallised as transactions when occupier strategies are
implemented as the uncertainty is resolved. Development,
particularly of larger Big Boxes, remains focused on purpose-built
space; although the supply of speculatively built space has
increased, it remains modest in the context of recent take-up
volumes and the majority of space being brought forward is smaller
scale. Market expectations are that the number of buildings and the
volume of floorspace that will be brought to market speculatively -
especially in the very large Big Box size bands - will be more
restrained beyond this year as developers focus on void periods and
absorption rates of existing speculative space before making
further significant commitments.
In addition, the planning system is expected to control the
supply of sites capable of accommodating larger logistics
facilities. Prime headline rental growth is expected to continue
over the next several years, which remains attractive to property
investors who are also awaiting resolution of the ongoing
uncertainty to deploy capital. Prime investment yields for
logistics assets are likely to hold up or even tighten as investor
demand for prime assets remains keen.
Investing for future performance - acquisition of db
symmetry
In February 2019, the Group acquired one of the UK's largest and
most geographically diverse land portfolios for the development of
Big Box assets and related logistics facilities.
The strategic rationale
Adapting to an evolving market
Demand has grown for logistics property investments over the
last few years, creating downward pressure on yields. Standing
investments (those which are built and income producing) have
become harder to acquire at attractive pricing as owners are either
increasingly not willing to sell or want to secure a premium price.
Prospective buyers have, therefore, found it more challenging to
identify attractively priced standing investments without adopting
additional risk and have consequently been driven to look for
better value through Pre-let Forward Funded Developments. By way of
example, in the Group's first full year of trading, we acquired 14
assets, of which one was a Pre-let Forward Funded Development. In
2018, we acquired eight assets, of which seven were Pre-let Forward
Funded Developments. Some larger-scale investors have sought to
short-circuit this route by acquiring development companies. This
is expected to reduce the amount of development product that would
ordinarily be offered to the market, once pre-let. In turn, this
could increase competition for the remaining development stock that
is subsequently offered to the market. Developing our own assets
ensures that we can be more efficient by avoiding competition.
As we expected, yield compression for prime logistics
investments has been slowing in recent years and in H1 2019 yields
generally remained flat. This is largely due to uncertainties
surrounding Brexit, which have served to subdue investment activity
and, to a lesser degree, suppress occupier demand. Brexit is
expected to remain unresolved until at least the end of October
2019 and businesses may well want to see how the UK economy starts
shaping up in the months thereafter before making major decisions
concerning their UK operations. Both take-up and traded investment
volumes may therefore witness an uptick shortly after the basis of
the UK's departure from the EU is clarified. If 2020 does deliver
further yield compression, we would expect this to be more modest
than in recent years. This is in part due to the concept of "lower
end yield resistance", where the market feels uncomfortable pushing
yields down to all-time lows at which level alternative investment
sectors start to become more appealing based on risk/reward
dynamics.
Maintaining a high-quality portfolio
The Company has assembled what we consider to be the highest
quality logistics portfolios in the UK. This quality is evident in
the calibre of our customers, a sector-leading WAULT of over 14
years and the modernity of our real estate assets. With a standing
portfolio, each year that passes naturally results in the WAULT
reducing and the buildings ageing. In order to combat this, the
Manager actively negotiates the lengthening of leases and continues
to acquire or create new assets which are initially let on leases
longer than the current portfolio WAULT. Additionally, new assets
or "built-to-order" assets tend to attract companies which offer
balance sheet strength. Developing assets internally can therefore
provide a number of attractive attributes which contribute to
maintaining the calibre of the Portfolio, including maintaining
building modernity, protecting the WAULT and reducing the risk of
tenant default.
Enhancing returns with risk controlled development
With slowing yield compression or stable yields, a static
portfolio's capital growth will be linked primarily to rental
growth, asset management and the ability to buy/sell
advantageously. This puts more onus on companies to create value
internally, by finding other ways to apply their expertise and
experience.
The process of development can deliver profit at two main
stages: achieving planning consent and securing a letting. These
key points of value-enhancement are crucial to producing higher
returns.
Typically, development is considered to be higher risk than
simply investing in income producing standing assets. As a
statement in isolation, this must be true, but if undertaken by an
experienced team, in a controlled manner and as part of a broader
portfolio fund management business plan, development can produce
attractive returns whilst minimising risk. This was the objective
behind the acquisition of db symmetry. We believe that, with the
application of a proven and highly rated "on-the-ground"
development team and an investment team also well versed in
development, we have the combined skills to enhance returns through
the creation of new assets internally whilst effectively managing
risk.
Several key factors support our belief regarding risk and
returns:
-- First, we are subject to a clear Investment Policy which
restricts the Group's land and development exposure to 15% of GAV,
of which speculative development can only comprise up to 5% of GAV.
Including Littlebrook, Dartford, land and development assets
comprised c.11% of GAV at the period end. This means that, by
value, c.89% of the Group's high quality Portfolio is income
producing and therefore much lower risk.
-- Second, we do not believe that investment in land, itself, is
high risk. Land suitable for logistics development is in short
supply, the planning system naturally restricts the rate at which
sites achieve planning consent and land values have been rising -
we believe that land values will remain supported by the structural
change currently benefiting UK logistics.
-- Third, we will typically develop on a Pre-let basis (i.e.
with a tenant pre-lease in place at the outset), thereby seeking to
minimise risk. Speculative development will be tightly controlled
and at the period end only comprised c.1% of GAV.
-- Fourth, whilst the acquisition of db symmetry included
holdings in land, much of the purchase price related to options
over land. This provides several benefits, the key one being that
the Group is not committed to acquire the land and so we retain
flexibility. The option cost for each site is low relative to the
value of the land with the benefit of planning consent. The
Symmetry ManCo team is responsible for progressing and achieving
planning consent at a rate which aligns with our business plan and
market conditions, following receipt of which the Group either
purchases the land at a pre-determined discount to the prevailing
market value (of typically 15-20%) or can alternatively take a
potential capital profit by selling the land with the benefit of
planning consent. To acquire a portfolio of outright owned land of
this quality would cost significantly more than the price paid for
db symmetry. The lower "in-price" reduces cash drag and helps
protect the Company's dividend.
-- Fifth, between the Manager and Symmetry ManCo, we have strong
existing tenant contacts to draw upon for cross-selling new
logistics facilities.
-- Finally, the db symmetry acquisition provides the Group with
the potential to sell investment stock at low yields and recycle
capital into similar calibre in-house produced investments at more
attractive yields.
The Symmetry Portfolio offers an estimated eight-10-year
pipeline of opportunities:
-- The ability to deliver over c.38 million sq ft of Big Box and
other logistics assets, complementing the Group's existing
Portfolio.
-- The potential to boost gross rental income to over GBP300
million per annum which would be accretive to both earnings and
dividends.
-- Targeted average yield on cost of 7-8%, well above the
Group's current Portfolio Valuation yield of 4.5% at the period
end, resulting in significant potential valuation gain and NAV
growth.
The "punching power" of these land assets could be significant
when considering the target profit on cost, because the options are
a very efficient way of controlling land and enhancing value whilst
tying up a modest amount of capital. This is particularly true in a
market where yields are static and opportunity for yield
compression is limited.
Given the 7-8% target yield on cost inflection point, the Tritax
Symmetry business plan is considered to be both defensive, due to
land holdings and the higher yield expectation, and accretive, in
that the target yield on cost has the potential to enhance the
Group's long-term earnings per share growth and therefore its
progressive dividend aspirations.
It is worth re-emphasising that while the acquisition offers
significant potential for the Group, it does not fundamentally
change our business model. The remaining c.89% of the Group's
property assets comprises an Investment Portfolio which is 99% let
and income producing as at the period end. This strong base offers
the Group security in times of uncertain economic conditions.
The Symmetry Portfolio
The 26 sites making up the Symmetry Portfolio have the potential
to add c.38 million sq ft of well-located Big Box and other
logistics assets to the Group's Portfolio, which totalled c.30
million sq ft prior to the db symmetry acquisition. The extent of
development will depend upon many factors, including planning,
whether new sites are added, tenant demand, investment demand and
general economic conditions. The Symmetry Portfolio is concentrated
around the core logistics locations of the M1, the M40 and the
North West's prime M6 and M62 corridors, plus sites in the North
East and South East. It was independently valued by Colliers
International at GBP372.75 million as at 31 December 2018,
supporting the total enterprise value attributed to db symmetry of
GBP370 million, subject to certain working capital adjustments at
completion.
Structure and corporate governance
Symmetry ManCo, the management company owned by the Symmetry
Management Shareholders, will develop the Symmetry Portfolio under
an exclusive, unassignable development management agreement with
Tritax Symmetry HoldCo. This allows the Group to continue to
contract with other developers, while Symmetry ManCo is only
permitted to contract with the Group.
As the Manager, we control all key decisions in respect of the
Symmetry Portfolio, such as strategy, construction, letting, land
acquisition and disposals, and whether the Group acquires further
land and land options. We also approve the management fee paid to
Symmetry ManCo under the development management agreement and will
review the fee on an ad hoc basis. Symmetry ManCo will receive a
fixed management fee of GBP4.8 million per annum. For accounting
purposes, 85% of Symmetry ManCo's costs are considered directly
attributable to the development of the Symmetry Portfolio and are
therefore capitalised, in accordance with international accounting
standards.
The Manager also takes responsibility for managing the assets
once they have reached practical completion and have been let, at
which point we will decide whether to retain these completed
developments. The Group will seek disposals to third parties of
assets which we deem unsuitable for retention and the capital
recycled.
Securing a highly experienced team
The transaction has secured the services of a highly experienced
team of 16 property professionals and a further 13 finance and
operational staff, led by the Symmetry Management Shareholders who
have retained a 13% economic interest in the assets of the Symmetry
Portfolio, through B and C Shares held in Tritax Symmetry HoldCo.
The B and C Shares align the interests of the Symmetry Management
Shareholders with the Group and incentivise delivery of the
development programme through a performance hurdle structure. A
portion of the C Shares will be issued to other key management
staff employed by Symmetry ManCo, thereby further aligning the
wider management team's interest with the Group over the long term.
The Group owns 100% of the A Shares in Tritax Symmetry, which
convey rights to all income and profits available for
distribution.
The Symmetry ManCo team has a track record of successful land
promotion and adding value across the development value chain. db
symmetry has delivered c.13 million sq ft of commercial projects
and achieved a high planning success rate on logistics land
promoted.
Acquisition consideration
db symmetry was owned by DV4 Properties (60%) and the Symmetry
Management Shareholders and Brit Investments S.A. (40%).
On completion, consideration for the acquisition was allocated
as follows:
-- c.GBP202.4 million in cash was paid in respect of 69.1% of
the equity value of db symmetry, of which c.GBP140.9 million was
paid to DV4 Properties and c.GBP61.5 million was paid to Symmetry
Management Shareholders and Brit Investments S.A.
-- c.GBP52.6 million was paid through the issue of new Ordinary
Shares in the Company in respect of 17.9% of the equity value of db
symmetry, of which GBP35 million was issued to DV4 Properties and
GBP17.6 million was issued to Symmetry Management Shareholders and
Brit Investments S.A. These Ordinary Shares were issued on
completion of the acquisition at 130p per share, equivalent to the
issue price of Ordinary Shares issued to Shareholders (see below).
These Ordinary Shares are subject to lock up restrictions for six
months, an orderly market arrangement for six months thereafter in
respect of the Ordinary Shares issued to DV4, and for up to five
years in respect of the Ordinary Shares issued to Symmetry
Management Shareholders.
-- c.GBP38.1 million was subscribed for through the issue of B
and C Shares in Tritax Symmetry HoldCo, in respect of 13% of the
equity value of Tritax Symmetry HoldCo issued to Symmetry
Management Shareholders. Certain elements of this value are
contingent on the future employment of the Symmetry Management
Shareholders and is thus not included as consideration for the
business combination.
-- The Company redeemed c.GBP67.7 million of deep-discounted
bonds advanced to db symmetry by DV4 properties through the
provision of a shareholder loan.
-- Other net working capital liabilities were acquired as part
of the transaction totalling GBP9.2 million (which is subject to
true-up six months following completion).
Financing the transaction and the business plan
To fund the acquisition and further investments, the Company
raised gross proceeds of approximately GBP250 million through an
issue of 192,291,313 Ordinary Shares at a price of 130 pence each.
The offer had been fully underwritten but, as it turned out, was
significantly oversubscribed by existing Shareholders.
In addition to equity available from the share issue, the Group
has available debt capital to draw upon for near-term commitments
to fund the development of the Symmetry Portfolio. This includes
the new GBP200 million RCF agreed in June 2019.
Thereafter, further capital requirements could be met from a
combination of capital recycling, both from the assets of the
Symmetry Portfolio which are considered "non-core" and selected
Investment Assets, along with further debt and equity.
Subject to market and economic conditions, we estimate a
cumulative total funding requirement of GBP500-600 million across
the first three years of the business plan (2019 - 2021) which
could be funded by a combination of recycling of capital from
investment sales, debt and new equity. We expect to utilise
approximately half of these funds to deliver up to 5 million sq ft
of logistics space over this period, the majority of this space is
likely to be delivered in 2021. The remaining balance, will be used
to acquire land and progress schemes as various stages of planning
and construction, which will be delivered in subsequent
periods.
Land and speculative development exposure
The Symmetry Portfolio primarily relates to options over land.
These are legal agreements which vary in duration between
landowners and the subsidiaries of Tritax Symmetry HoldCo to secure
exclusivity. They allow the subsidiaries of Tritax Symmetry HoldCo
to work up a planning consent on the optioned land before having to
acquire it. Typically, once planning consent is achieved Tritax
Symmetry HoldCo can acquire the land at c.15-20% discount to the
open market value, less costs incurred in securing planning and
associated infrastructure. Our approach is to optimise the use of
capital by minimising pre-planning capital commitments and exposure
to variable development costs, phase the drawdown of capital, and
avoid the impact of holding non-income producing assets for an
extended period.
The Group's Investment Policy limits its exposure to land and
options over land to 15% of GAV, of which up to 5% can be invested
in speculative developments. We will closely monitor the Group's
exposure to land, options over land and speculative developments,
to ensure it remains within the Investment Policy's parameters. At
30 June 2019, the Group's holdings in land and options over land
(including Littlebrook, Dartford) represented c.10% of GAV and
speculative development constituted c.1% of GAV, giving a total
exposure of c.11% of GAV.
Our Investment Portfolio
Secure and growing income
The Group's Investment Portfolio produces a diversified, robust
and long-term income stream with opportunity for growth, secured by
an exceptional base of 40 different customers. 78% (by income) of
our customers or their parent companies are members of major stock
market indices in the UK, Europe or USA, demonstrating the quality
of the covenants. Our customers operate in a wide range of
sectors.
At 30 June 2019, the Investment Portfolio's WAULT was 14.3
years(4) (31 December 2018: 14.4 years), ahead of the Group's
target of at least 12 years. The Group's core Foundation Assets had
a WAULT of 17.2 years at 30 June 2019. At the period end, just
10.2% of total rents were from leases which expire within five
years, with 48.4% of rents coming from leases with 15 or more years
to run.
The Group's contracted annual Rent Roll was GBP166.8 million at
the period end, an increase of c.20% on the GBP139.4 million at 30
June 2018. There remains good reversionary potential in the
Investment Portfolio, with CBRE independently assessing the ERV of
the Investment Assets at GBP178.5 million, equal to a 7.0%
reversion. ERV growth on a like-for-like basis was c.0.75% for the
period. The level of ERV growth is attributable to a portfolio
characterised by new lease commitments following development and a
broad geographic diversification.
Through careful selection, we have ensured that the timings of
rent reviews across the Investment Portfolio are balanced,
supporting both the potential for annual income growth and our
progressive dividend policy.
A diverse customer base (%) (By Income)
-- Online Retail, 20.5%
-- Food Retail, 17.6%
-- Homeware & DIY Retail, 9.8%
-- Other Retail, 8.0%
-- 3PL/Distribution, 7.4%
-- Fashion Retail, 7.3%
-- Other Manufacturing, 6.8%
-- Wholesale, 5.2%
-- Consumer Goods Manufacturing, 4.6%
-- Electricals Manufacturing, 4.3%
-- Automotive Manufacturing, 3.6%
-- Post and Parcels, 2.8%
-- Food Production, 2.0%
-- Service/Other, 0.4%
A balanced Investment Portfolio
The Group's Portfolio contains a good balance of Foundation
Assets, which provide its core low-risk income, Value Add Assets,
which offer opportunities to add value through asset management or
have been developed speculatively, and Growth Covenant Assets,
which provide the opportunity for capital growth through improving
customer accounts. Land Assets (which include speculatively
developed assets still under construction) provide scope for
enhanced capital returns at an attractive yield on cost.
During the period, the Group added four assets to its Investment
Portfolio, all of which came through the Symmetry Portfolio. These
were:
-- Biggleswade: A Big Box pre-let to the Co-op, which is an
existing customer. This will be a regional distribution centre for
the Co-op, with a GIA of 661,201 sq ft, eaves height of 15m and a
low site cover of c.35%. Construction is expected to start later
this year, with practical completion targeted for Q1 2021. The
20-year lease will be subject to five yearly upward only rent
reviews indexed to RPI (collared at 2% and capped at 4% per annum).
This is a Foundation Asset for the Group.
-- Bicester: A 163,664 sq ft speculatively developed building
and which is a Value Add Asset for the Group.
-- Doncaster: A 152,038 sq ft speculatively developed building
and which is a Value Add Asset for the Group.
-- Aston Clinton: A 83,000 sq ft building which originally
commenced construction on a speculative basis, has been let to
Global Infusion Group, prior to practical completion, for a 15-year
lease term, with five yearly RPI-linked rent reviews (collared at
2% and capped at 4% per annum). The building is expected to reach
practical completion by September 2019 and is a Foundation Asset
for the Group.
At the period end, Foundation Assets made up 67% of the overall
Investment Portfolio by valuation, with Value Add Assets and Growth
Covenant Assets making up 19% and 4% respectively, and the balance
comprising Land Assets.
Our portfolio by investment pillar (by valuation) (%)
-- Growth Covenant Assets, 4%
-- Land Assets, 10%
-- Value Add Assets, 19%
-- Foundation Assets, 67%
Continued progress with Pre-let developments
At the start of the period, the Group had reached practical
completion on nine projects since IPO and had a further seven under
construction, making it the leading funder in the UK Big Box market
over the preceding five years by investment value.
All the developments under construction are progressing broadly
on time and to budget, with the Big Box pre-let to Eddie Stobart in
Corby reaching practical completion in February 2019. One further
Big Box reached practical completion in July 2019, pre-let to
Amazon in Haydock, St Helens. The Pre-let to the Co-op in
Biggleswade became unconditional in May 2019 and construction is
due to start in October 2019, with delivery in Q1 2021.
17 Pre-let Developments
-- 10 completed developments totalling c.5.4m sq ft built to order
-- 5.4% average purchase yield for the ten completed assets
-- +23.3% gross uplift on acquisition price
-- 21.9 years weighted average term at acquisition
Good momentum with development
Littlebrook, Dartford
The Group continued to make good progress with the 114 acres of
gross land at Littlebrook, Dartford, which has the potential to
become one of London's largest Big Box logistics parks and is in a
core "last mile" location on the edge of London and inside the M25.
The Group is uniquely positioned to deliver highly automated Big
Boxes within striking distance of Central London; a rare last mile
solution for occupiers. Demolition and site preparation is
progressing on time and to budget, with a target completion date of
April 2020 across the whole site. Marketing is under way and there
has been good occupational interest for the planned first phase
development of 450,000 sq ft, for which the Group received planning
consent at the end of 2018.
Phase 2 is now cleared and the Company is in advanced
discussions with a potential occupier, subject to planning. On the
Phase 3 land, demolition of the main power station building is now
substantially advanced.
The Symmetry Portfolio
In May 2019, the Group received outline planning consent to
develop up to 2.3 million sq ft of logistics space at Symmetry
Park, Kettering. This is the first significant piece of planning
consent for the Symmetry Portfolio since its acquisition. The
development site totals 102 acres and is one of only a few in the
East Midlands that could accommodate a single Big Box of more than
1 million sq ft. The site has excellent transport connectivity and
a skilled and flexible labour supply. The Group holds this land
under option and will now begin committing the initial capital for
infrastructure and land drawdown in order to ready the site for
promotion on a Pre-let development basis.
Eight other Symmetry Portfolio schemes already have planning
consents(6) . Two of these are development management agreements,
which provide Tritax Symmetry HoldCo with fees and/or a profit
share. Five schemes are owned by subsidiaries of Tritax Symmetry
HoldCo, of which three have speculative developments of smaller
units either under way or completed, as shown in the table below.
These buildings are constructed to institutional specifications and
are being marketed with a view to letting them during construction
or shortly after completion. In addition, the Company has recently
undertaken a sub-sale of a 220 acre site at Lutterworth. This has
the potential to deliver both immediate and future income in line
with our business plan, with a continued economic interest in the
scheme, without the requirement for capital outlay by the Company.
One scheme (in addition to Kettering) has planning consent but the
land has not yet been drawn down under the option agreement.
The 152,038 sq ft unit at Doncaster reached practical completion
in March 2019. The 163,664 sq ft building at Bicester reached
practical completion in March 2019, with two potential tenants in
discussions. At Aston Clinton (comprising three units), the
contractor went into administration and was replaced shortly after
completion of the acquisition of db symmetry, resulting in a short
delay to practical completion. The 83,000 sq ft unit was let during
construction to Global Infusion Group for a 15-year lease term at a
healthy rental level and there is also occupational interest in the
second unit of 55,000 sq ft.
Speculative developments within the Symmetry Portfolio
Estimated potential rental
Size Estimated completion income
Location (sq ft) date GBPm Status
---------------------- --------- --------------------- -------------------------------- --------------------------
Doncaster 152,038 Mar 2019 0.8 Completed/Vacant
Bicester Unit 3 163,664 Mar 2019 1.2 Completed/Vacant
Aston Clinton Unit 1 83,000 Sep 2019 0.6 Under construction/Let
Aston Clinton Unit 2 55,000 Dec 2019 0.4 Under construction/Vacant
Aston Clinton Unit 3 110,000 Oct 2019 0.8 Under construction/Vacant
---------------------- --------- --------------------- -------------------------------- --------------------------
563,702 3.8
---------------------- --------- --------------------- -------------------------------- --------------------------
Asset management
We continue to review, identify and act upon opportunities on a
regular basis. These opportunities may be common to multiple assets
or occupier specific. However, all are designed to enhance the
quality and/or level of the Manager's Report Group's income. We
draw upon our sector-specific expertise and customer relationships
to enable us to initiate opportunities such as physical
enhancements to the assets, together with the negotiation of lease
events, such as rent reviews or lengthening of lease expiry
dates.
Our objective is for the Group to be the landlord of choice for
distribution space in the UK, which we regularly affirm to
customers. Following the acquisition of db symmetry, we have
conducted a series of meetings with a range of existing and
potential customer, to highlight the expansion in services which
the Group can offer through the ability to meet occupier
requirements for additional or replacement properties. We have
endorsed a flexible and lateral approach in delivering portfolio
models or space solutions for the Group's customers, which has been
well received, with active enquiries and discussions ensuing.
Income enhancement
Rent reviews within commercial leases in our sector are usually
every five years, thus across the Group's Investment Portfolio a
number of these are conducted each year. Additionally, the
Portfolio benefits from a number of leases which include annual
rent increases, reviewed on a fixed uplift basis or linked to RPI
or CPI, thus realising regular growth each year. The basis of all
types of review across the Investment Portfolio is upward-only, so
the rent level cannot decrease at review(7) .
c. 51% of the Group's contracted income benefits from a minimum
level of rental growth, either annually or five yearly, delivered
via either inflation-linked collars, fixed uplifts or minimum
growth levels within hybrid rent reviews. This helps provide the
Group with more visibility and certainty when forecasting base
levels of income growth for the purposes of growing dividends to
Shareholders.
The Group settled the following three rent reviews during H1
2019, adding GBP0.34 million to the annual passing rent. These
reviews provided an average annual increase of 2.2%.
Our Portfolio balanced rent reviews by type(8)
-- 36%: Open market rent reviews. These track the rents achieved
on new lettings and rent reviews of comparable properties in the
market, offering the potential to capture the continued healthy
rental growth in the market.
-- 10%: Fixed uplift rent reviews. Fixed rent reviews provide
certainty of income growth, at either 2% pa (one lease) or 3% pa
(four leases). By income of this review type, 62% of these leases
have five yearly reviews and 38% are reviewed annually.
-- 47%: RPI/CPI-linked. These provide a degree of inflation
protection. All are subject to caps, the highest at 5% pa. Over
GBP61 million of the Group's inflation-linked income is also
collared, which means it benefits from minimum uplifts. Of the 22
inflation-linked leases, 18 are reviewed five yearly, while four
provide annual rental increases.
-- 7%: Hybrid. Hybrid rent reviews can be an amalgamation of the
above, for instance to the higher of open market rents or RPI
(subject to a cap and collar). Such arrangements provide the Group
with the potential of enhanced income growth
Rent reviews concluded in the period:
Annual inflation indexed rent reviews
Morrisons, Tamworth: The annual rent review, which is linked to
CPI, resulted in an uplift to the annual passing rent of GBP95,582,
equal to a 1.8% uplift.
Morrisons, Sittingbourne: The annual rent review, which is
linked to RPI, with a cap of 2%, resulted in a 2% increase in
passing rent, equating to an increase to annual rent of
GBP115,771.
Annual fixed rent reviews
Argos, Burton-on-Trent: The annual rent review, which is fixed
at 3% pa, was reviewed in February 2019, and resulted in an uplift
in annual passing rent of GBP131,665.
Open market rent reviews
There were no open market rent reviews during the period.
There were three open market rent reviews that remained
unsettled and under negotiation at the period end. Once an open
market rent review is agreed, the customer is responsible for
paying back-rent from the review date, together with interest
thereon.
A further seven rent reviews are due in H2 2019. Three of these
reviews are five yearly open market reviews, one is an annual fixed
review, two are annual RPI-linked reviews and one is five yearly
RPI-linked.
Securing lease renewals and lengthening leases
Across the Investment Portfolio there are a number of
opportunities to elongate the period of secure income through the
negotiation of lease extensions, physical property extensions or
improvement projects. A number of proposals are currently with
customers for their consideration, with decisions anticipated over
the course of the next few months. Customers continue to contend
with the prolonged lack of clarity in respect of the impact and
requirements on cross-border operations of Brexit, understandably
citing this as a reason for delays to decisions. We continue to
work closely with customers, assisting with appraisals for
operational efficiencies and inclusion of temporary additional
storage solutions, to enable improved resilience and
flexibility.
Whilst there remains a shortage of appropriate distribution
space available for immediate occupation, we have continued to
support customers, such as 3PLs, with their corporate bids to
secure additional contracts. Brexit planning has generated an
increased number of enquiries for our 3PL customers, as companies
look to source solutions by way of short-term and flexible
arrangements, in preparation for meeting future requirements and
limiting any disruption to operational efficiency. This work
involves providing designs for expansion areas or proposals for
lengthened leases, so customers can demonstrate to their clients
that additional business can be accommodated for the duration of
the proposed new contract period.
Sainsbury's, Leeds: On 31 July 2019, we concluded an extension
of the lease by 18 years, so as to create a 25-year unbroken
unexpired term. The negotiations also enabled the five yearly rent
review basis to be changed from open market to CPI-linked, with a
cap and collar at 2-4%, respectively. In addition, the rent was
rebased to an open market level, an improvement from the previous
over-rented position. This initiative is not reflected in the June
valuation figures, as documentation had not completed at the
valuation date; however, the uplift will be evidenced in the
December 2019 valuation.
Improving property and enhancing value
Where appropriate, we look to implement physical improvements to
protect and capture rental growth, enabling assets to meet customer
requirements better.
Amazon, Chesterfield: Prior to letting the property to Amazon on
a new 15-year lease, the Group had commenced refurbishment works
which have recently completed. The customer is now finishing its
fit-out works, in order to commence operations in Autumn 2019.
Following completion of these works, the building's EPC rating will
improve from grade "D" to "C".
Monitoring the Group's customers
The customer portfolio is varied and well diversified. We are
mindful of the pressures on predominantly high street retailers and
regularly monitor the financial performance of both individual
customers and the sectors in which they trade.
New Look, Newcastle-under-Lyme: We continue to meet frequently
with representatives of New Look, the customer of the
Newcastle-under-Lyme asset, which represents c.1% of the Group's
annual contracted income, as it continues to operate under a
Company Voluntary Arrangement. We regularly inspect the asset and
the customer has implemented a number of revisions to operational
practices on site, which formed part of its restructuring plan. We
will continue to remain in regular contact with the senior
management team at New Look and monitor its trading performance as
it seeks to improve financial stability.
Our Environmental, Social and Governance (ESG) approach
The Group's ESG approach is led by senior members of the
Manager's team, who steer the CSR committee and aim to deliver
objectives representative of the principles of the Group's
Stakeholders. The CSR committee includes representatives from
various teams including asset management, investor relations and
HR.
The Group has recently subscribed to the Global Real Estate
Sustainability Benchmark Assessment, to demonstrate its ESG
performance. This is a peer-to-peer benchmarking exercise,
promoting sustainable practices, where evidencing of the
integration of sustainability through objectives, decision making,
procedures and practices is required. We intend to build on this
initial submission by developing existing practices and progressing
projects to support the further integration of the Group's ESG
objectives more widely across all operations of the business.
We have continued to work with customers on assessing
roof-mounted PV panels to provide renewable energy, reduce carbon
emissions and reduce consumption costs. We recently surveyed
customers to ascertain their appetite for additional installations,
such as electric vehicle charging points, rain water harvesting and
biomass boilers. This work extends to including such initiatives
into new building specifications.
The Group is working with local charities and communities to
align our ESG considerations, programmes, objectives and
commitments, to ensure that we drive lasting positive change
alongside the delivery of investment performance.
In March, we were pleased to be involved in the launch of the
British Property Federation research paper, titled "What
Warehousing Where?", which the Group also sponsored.
In June, the Group sponsored the Industrial Agent Society's
"Women in Industrial Property" Event. This was a seminar dedicated
to addressing opportunities to improve gender balance and
inclusivity in industrial property.
Financial Review
The condensed financial information is prepared under IFRS where
the Group's subsidiaries are consolidated at 100%, with the
exception of interests in joint ventures which are equity accounted
for.
The Board continues to consider Adjusted EPS to be the most
relevant measure when assessing dividend distributions. Adjusted
Earnings is based on the Best Practices Recommendations of the
European Public Real Estate Association (EPRA), with adjustments
made to earnings to exclude additional items considered to be
exceptional, not in the ordinary course of business or supported by
cash flows, but inclusive of the developer's licence fees the Group
receives on Forward Funded Developments.
db symmetry - Business combination
The Symmetry Portfolio, which includes Pre-let assets, assets
under construction, land, land options and other arrangements such
as development management agreements or profit share arrangements,
has the potential to enhance the Group's earnings profile
materially, whilst delivering significant capital value growth over
the long term.
The Group's acquisition of an 87% economic interest in db
symmetry, which is not representative of a minority interest
holding (see "B and C Shares") has been accounted for as a business
combination and recognised as such in the Group consolidated
financial statements, in accordance with IFRS 3. The Group has,
therefore, as at the date of acquisition, recognised the fair value
of the identifiable assets acquired and liabilities assumed from
the transaction. Along with the acquisition of the identifiable
assets and liabilities, the Group has secured the services of a
development management team, transferred into Symmetry ManCo under
an exclusive, unassignable development management agreement
established between Tritax Symmetry HoldCo and Symmetry ManCo.
Negative goodwill
Negative goodwill has arisen on acquisition due to the fair
value of the consideration for db symmetry being lower than the
aggregate of the fair value of the net assets acquired. The
negative goodwill or gain on bargain purchase of GBP7.1 million has
been recognised in full in the Statement of Comprehensive Income
during the period. See note 21 for further details.
B and C Shares
The B and C Shares issued to Symmetry Management Shareholders
are treated as a combination of both contingent consideration for
the acquisition of 13% economic interest in the development assets
of the Symmetry Portfolio and compensation for post combination
services rendered by Symmetry ManCo to the Group under the
development management agreement. This is as a result of certain
vesting conditions attached to the B and C Shares, over the first
five years of the development management agreement.
As a result, any value derived by Symmetry Management
Shareholders through holding the B and C Shares, over and above
that which would have been derived regardless of vesting
conditions, capped at the completion NAV, is considered
remuneration to the B and C Shareholders for post acquisition
services and is accounted for separately, appearing as a share
based payment expense, under IFRS 2.
As a result of the Company's intention to settle the B and C
Share obligation in cash, the value due to the B and C Shareholders
for post combination services is accounted for as a cash settled
share-based payment and recognised as a liability in the Group
Statement of Financial Position. The liability is fair valued at
each reporting date with a corresponding share-based payment charge
recognised in the Statement of Comprehensive Income over the
vesting period. The 13% economic interest is not representative of
minority interest due to the B and C Shareholders not having normal
voting rights nor the right to secure income distributions, whilst
they have a put option right from years Manager's Report three to
eight, subject to performance provisions, under the Shareholders'
agreement. See notes 2.1, 20 and 21 of the financial statements for
further details.
Investment in joint ventures
As part of the db symmetry acquisition, the Group acquired two
sites at Middlewich and Northampton that were subject to 50:50
joint venture arrangements relating to land and land options. These
two sites will be equity accounted for and appear as a single line
item on the Statement of Comprehensive Income and Statement of
Financial Position.
Other property assets
The Symmetry Portfolio has a number of other property assets
where income and profit will be generated without any legal
ownership of the land, usually through Development Management
Agreements (DMAs) and Land Promotion Agreements. Under a DMA,
Tritax Symmetry HoldCo enters into an agreement with a third party
to deliver a development on its behalf. Tritax Symmetry HoldCo will
usually receive a percentage of the construction cost as a fee
during construction, and a profit share on completion/letting set
against agreed profitability hurdles. The DMA partner funds the
costs of planning and construction throughout the project.
Land promotion agreements are utilised in relation to
residential land where a subsidiary of Tritax Symmetry HoldCo puts
in place a legal agreement with land owners to secure residential
consent on the land owners' behalf at Tritax Symmetry HoldCo's cost
and risk, in return for a share of the net proceeds of sale of the
residential land to a residential developer, upon receipt of
planning consent. These are entered into as part of a wider
planning discussion to secure a large commercial consent so as to
have control over the wider planning area and therefore increase
the chances of planning success.
These other property assets are recognised at cost, less
amortisation and any charges for impairment.
Portfolio growth
Following the db symmetry acquisition, CBRE will independently
value all assets that are pre-leased or leased, or that have
reached practical completion but remain vacant. Colliers will
independently value all optioned land, owned land and assets under
construction which are unlet. The investment property assets will
be recognised in the Group Statement of Financial Position at fair
value. The value of land options and any other property assets will
be recognised at cost, less amortisation and any charges for
impairment.
The total Portfolio Value at 30 June 2019 is GBP3.85 billion
(including Forward Funded commitments and share of JVs), which is a
12.6% increase on the Portfolio Value of GBP3.42 billion (including
Forward Funded commitments) at 31 December 2018. The total
Portfolio Value is allocated as follows:
GBPm
-------------------------------------------------- --------
Investment Property 3,341.6
Other property assets 13.9
Land options (at cost) 220.8
Share of Joint Ventures 30.0
Remaining Forward Funded Development commitments 241.1
-------------------------------------------------- --------
Portfolio Value 3,847.4
-------------------------------------------------- --------
The gain recognised on revaluation of the Group's investment
properties was GBP25.8 million (H1 2018: GBP62.1 million). The
like-for-like valuation increase for the 54 assets and the
Littlebrook land which were held throughout the period was GBP28.4
million or 0.8%, excluding any additional capital costs incurred on
those assets in the period. The valuation yield for the Portfolio
remained stable at 4.46% at 30 June 2019.
At the period end, the Group had total commitments relating to
Pre-let Forward Funded Developments, asset management initiatives
and other development related activity of GBP251.2 million (31
December 2018: GBP366.0 million).
Financial results
Net rental income for the period was GBP69.2 million (H1 2018:
GBP66.1 million), an increase of GBP3.1 million or 4.7%. This
reflected the benefit of rent reviews settled in 2018 and H1 2019
and the practical completion and rent commencement on our asset in
Corby. The contracted annual Rent Roll at 30 June 2019 was GBP166.8
million across 58 assets, up from GBP139.4 million across 50 assets
as at 30 June 2018.
The Group incurred exceptional costs of GBP4.1 million in the
period, in relation to the acquisition of db symmetry. Excluding
these exceptional costs, operating profit before changes in the
fair value of investment properties, share of profits from joint
ventures and share based payments was GBP60.7 million, an increase
of 5.7% (H1 2018: GBP57.4 million). This growth reflects the
increase in rental and other income which is partially offset by an
increase in administrative and other expenses in the period.
Administrative and other expenses, which include management fees
and other costs of running the Group, totalled GBP10.5 million in
the period (H1 2018: GBP8.7 million). The Group has agreed to pay
Symmetry ManCo a development management fee equal to GBP4.8 million
per annum, to cover its running costs. Symmetry ManCo is not set up
to be a profit-making function. From the fee, 85% will be
capitalised as costs directly attributable to the development
projects, with the remaining 15% expensed through the income
statement and therefore impacting on Adjusted Earnings and the
Group's cost ratios. This is treated in accordance with IFRS.
The Group's low and transparent operating costs resulted in an
EPRA cost ratio for the period of 15.3%, (H1 2018: 13.7%). This
increase predominantly relates to the increased capital allocation
to non-income producing Land Assets, on which an Investment
Management fee is payable, as well as the expensed element of the
Symmetry ManCo fee, with no immediate increase to gross rental
income. We do, however, expect this increase in cost ratio to be
short-term. The Symmetry Portfolio gives the Company the ability to
reduce its cost ratio over the medium term to a level that would
not otherwise have been possible without the acquisition as gross
rental income from the Symmetry Portfolio grows relative to
operating costs.
Share-based payment charge
The structure of the db symmetry transaction has led to the B
and C Shareholders' value being split between contingent
consideration, which is determined by the leaver provisions under
the shareholder agreement between Tritax Symmetry HoldCo and the
Symmetry Management Shareholders' and a share based payment charge,
which is the compensation the B and C Shareholders will receive for
their ongoing management services. During the period, GBP1.4
million (H1 2018: GBPnil) was charged to the Group Statement of
Comprehensive Income in respect of share based payment charges.
Financing costs
Net financing costs (excluding capitalised interest) for the
period were GBP15.9 million (H1 2018: GBP11.5 million), excluding
the reduction in the fair value of interest rate derivatives of
GBP4.4 million (H1 2018: GBP0.9 million). The Group's average cost
of debt has remained consistent over the period.
Tax
The Group has continued to comply with its obligations as a UK
REIT and is therefore exempt from corporation tax on its property
rental business. The tax charge for the period was therefore GBP0.2
million (H1 2018: GBPnil), being the accrued tax payable on
non-property profits.
Profit and earnings
Profit before tax for the period was GBP67.7 million (H1 2018:
GBP107.1 million). This resulted in basic EPS of 4.08 pence (H1
2018: 7.62 pence) and basic EPRA EPS of 2.62 pence (H1 2018: 3.27
pence). Earnings per share for the period were affected by the
increase in the number of shares in issue during the period.
Adjusted EPS for the period was 3.41 pence (H1 2018: 3.38
pence), an increase of 0.9%. Adjusted EPS takes EPRA EPS, adds the
developers' licence fees the Group receives on Forward Funded
Developments and excludes exceptional items and other earnings not
supported by cash flows. The Board continues to consider Adjusted
EPS to be the most relevant measure when assessing dividend
distributions. Adjusted EPS supports the total dividend in respect
of the period of 3.425 pence per share, more details of which are
set out below. Further information on the calculation of Adjusted
EPS can be found in note 7.
Dividends
The Group is targeting a dividend of 6.85 pence per share for
2019(9) , an increase of 2.2% over the 2018 total dividend of 6.70
pence. Since 1 January 2019, the Board has declared the following
interim dividends:
-- 6 March 2019: 1.675 pence per share, in relation to the three
months to 31 December 2018, which was paid on 28 March 2019;
-- 16 May 2019: 1.7125 pence per share, in relation to the three
months to 31 March 2019, which was paid on 17 June 2019; and
-- 17 July 2019: 1.7125 pence per share, in relation to the
three months to 30 June 2019, which will be paid on 15 August 2019
to Shareholders on the register on 26 July 2019.
Dividends declared in respect of the six months ended 30 June
2019 therefore total 3.425 pence per share, meaning the Group is on
track to pay a target dividend for the full year of 6.85 pence per
share(8) .
Net assets
The EPRA NAV per share at 30 June 2019 was 150.08 pence (31
December 2018: 152.83 pence). This excludes the fair valuation of
interest rate derivatives that are reported under IFRS. The
movement in the NAV reflects the dilution of 3.80 pence per share
resulting from the share issue and associated costs of the
acquisition of db symmetry during the period, as was signalled at
the time of the 2018 Annual Results in March 2019. Excluding this
extraordinary cost, underlying EPRA NAV has grown by 0.7% over the
six-month period, supported by a 0.8% increase in the like-for-like
property values and the positive impact from the gain on bargain
purchase recognised following the db symmetry acquisition. We have
identified near-term value within the Symmetry Portfolio that will
more than offset this extraordinary transaction cost.
The Total Return, equating to the growth in EPRA NAV plus
dividends paid, was 0.42% for the six-month period. Again,
excluding the extraordinary costs as noted above, the Total Return
performance would otherwise have been 2.90%.
Equity capital
On 11 February 2019, the Company raised gross proceeds of
c.GBP250 million, through the issue of 192,291,313 Ordinary Shares
at a price of 130 pence each. The open offer was significantly
oversubscribed, with the result that an equity underwriting was not
utilised.
These gross proceeds were used to part fund the acquisition of
db symmetry, along with the issue of 40,450,234 new Ordinary Shares
on 22 February 2019, also at a price of 130p, as further part
consideration to the vendors in the form of shares.
Debt capital
Towards the end of 2018, the Company put in place longer-term
finance by issuing its first unsecured loan notes in the private
placement market, in two tranches totalling GBP400 million. The
funds were drawn on 28 February 2019, at which point the Company's
existing GBP250 million 12-month RCF was cancelled in full.
In June 2019, the Company entered into a new, unsecured GBP200
million RCF, providing further evidence of the strength of its
banking relationships, its lenders' support for its strategy and
the continued attraction of the logistics sector. The facility will
give the Group flexibility to help it to pursue the next phase of
its growth, allowing it to commit to further land acquisitions and
Pre-let Forward Funded Developments.
The syndicate for the new RCF comprises Banco Santander, S.A.,
London Branch; Barclays Bank PLC; BNP Paribas, London Branch; The
Royal Bank of Scotland International Limited, London Branch; Wells
Fargo Bank, N.A., London Branch; and HSBC UK Bank plc. Barclays
Bank PLC acts as agent for the facility. The new RCF has an initial
maturity of five years, which can be extended to a maximum of seven
years with lenders' consent. It also contains an uncommitted GBP100
million accordion option. The opening margin is 1.10% over
LIBOR.
Of the Group's debt commitments, 64% is arranged at fixed
interest rates. The Group's hedging strategy for its variable rate
debt is to use interest rate caps which run coterminous with the
respective loan. These allow the Group to benefit from historically
low current interest rates, while minimising the effect of a
significant increase in interest rates in the future. Combined with
the fixed-rate debt, the Group's derivative instruments hedge 99%
of its drawn debt.
As a consequence of the fixed-rate debt and hedging policy, the
Group has a capped cost of debt of 2.68% (31 December 2018: 2.73%).
The all-in running cost of borrowing at the period end was 2.26%
(31 December 2018: 2.63%).
At 30 June 2019, the Group had the following borrowings:
Amount drawn at 30 June
Loan commitment 2019
Lender Asset security Maturity GBPm GBPm
----------------------------- --------------------------- ---------- ---------------- ----------------------------
Loan notes
2.625% Bonds 2026 None Dec 2026 249.18 249.18
2.86% Loan notes 2028 None Feb 2028 250.00 250.00
2.98% Loan notes 2030 None Feb 2030 150.00 150.00
3.125% Bonds 2031 None Dec 2031 246.92 246.92
----------------------------- --------------------------- ---------- ---------------- ----------------------------
Bank borrowings
RCF (syndicate of seven
banks) None Dec 2023 350.00 -
RCF (syndicate of six banks) None Jun 2024 200.00 -
Helaba Ocado, Erith Jul 2025 50.87 50.87
PGIM Real Estate Finance Portfolio of four assets Mar 2027 90.00 90.00
Canada Life Portfolio of three assets Apr 2029 72.00 72.00
----------------------------- --------------------------- ---------- ---------------- ----------------------------
Total 1,658.97 1,108.97
---------------------------------------------------------------------- ---------------- ----------------------------
At 30 June 2019, the Group's debt had an average maturity of 7.8
years (31 December 2018: 8.7 years).
Loan to value (LTV)
The Company has a conservative leverage policy, with a
medium-term LTV target of 35% and a maximum of 40%. At the period
end, the LTV was 29% (31 December 2018: 27%).
The Group also has commitments under Forward Funded Development
contracts (see note 19). Taking these commitments into account,
along with other operational liabilities, LTV would increase to
c.35%.
Credit rating
The Company has a Baa1 long-term credit rating and stable
outlook from Moody's, which is unchanged in the period.
Tritax Management LLP, Manager
8 August 2019
1. Source: CBRE
2. Logistics units in excess of 120,000 sq. ft in England
3. The information in these diagrams has been included to
provide an indication of the potential impact of the db symmetry
acquisition on the Group and is subject to a number of assumptions
and inherent uncertainties. Nothing in these charts constitutes a
profit forecast and there can be no assurance that the actual
impact of the acquisition will reflect the illustrative figures
provided
4. Unexpired term of let or Pre-let properties weighted by
rental income and inclusive of licence fees received from Pre-let
Forward Funded Developments
5. 5.8% excluding the two vacant investment properties
6. Excluding schemes in which the Group has an ongoing economic interest
7. Excluding final day rent reviews as part of reversionary lease terms.
8. Calculated as a percentage of contracted rental income.
9. This is a target only and not a profit forecast. There can be
no assurances that the target will be met and it should not be
taken as an indicator of the Company's expected or actual future
results.
KEY PERFORMANCE INDICATORS
Our objective is to deliver attractive, low-risk returns to
Shareholders, by executing the Investment Policy. Set out below are
the key performance indicators we use to track our progress.
KPI and definition Performance
---------------------------------------------------------- ----------------------------------------------------------
1. Total Return (TR) 0.42%
TR measures the change in the EPRA net asset for the period to 30 June 2019 (30 June 2018: 5.10%)
value over the period plus dividends paid.
---------------------------------------------------------- ----------------------------------------------------------
2. Dividend 3.425p/share
Dividends paid to Shareholders and declared in for the six months to 30 June 2019 (30 June 2018: 3.35p
relation to the period. per share). We are on track to pay
our target dividend of 6.85p per share for 2019 *
---------------------------------------------------------- ----------------------------------------------------------
3. EPRA NAV per share 150.08p
Diluted NAV adjusted for mark-to-market at 30 June 2019 (31 December 2018: 152.83p) Reflecting
valuation of derivatives. the 3.8p dilutive cost of financing
the db symmetry acquisition
---------------------------------------------------------- ----------------------------------------------------------
4. Loan to value ratio (LTV) 29%
The proportion of our gross asset value at 30 June 2019 (31 December 2018: 27%)
(including cash) that is funded by borrowings.
---------------------------------------------------------- ----------------------------------------------------------
5. Adjusted Earnings per share (EPS) 3.41p/share
Post-tax adjusted EPS attributable to for the six months to 30 June 2019 (30 June 2018: 3.38p)
shareholders adjusted for other earnings not
supported
by cash flows. See note 7.
---------------------------------------------------------- ----------------------------------------------------------
6. EPRA Cost Ratio 15.3%
Administrative and operating costs (including for the six months to 30 June 2019 (30 June 2018: 13.7%).
and excluding costs of vacancy) divided by Both the 2019 and 2018 ratios include
gross vacancy costs. The ratio excluding vacancy costs is 15.3%
rental income. (2018: 13.7%)
---------------------------------------------------------- ----------------------------------------------------------
7. Weighted average unexpired lease term 14.3 years
(WAULT) at 30 June 2019 (31 December 2018: 14.4 years)
The average unexpired lease term of the
Investment Portfolio, weighted by annual
passing rents.
---------------------------------------------------------- ----------------------------------------------------------
* This is a target only and not a profit forecast. There can be
no assurances that the target will be met and it should not be
taken as an indicator of the Company's expected or actual future
results
Unexpired term of let or Pre-let properties weighted by rental
income and inclusive of licence fees received from Pre-let Forward
Funded Developments
EPRA PERFORMANCE INDICATORS
KPI and definition Purpose Performance
-------------------------------------- -------------------------------------- --------------------------------------
1. EPRA Earnings (Diluted) A key measure of a company's GBP43.40m / 2.60p per share
Earnings from operational activities underlying operating results and an for the six months to 30 June 2019
(which excludes the licence fees indication of the extent (30 June 2018: GBP45.90m /3.26p per
receivable on our Forward to which current dividend payments share)
Funded Development assets). are supported by earnings.
-------------------------------------- -------------------------------------- --------------------------------------
2. EPRA NAV (Diluted) Makes adjustments to IFRS NAV to GBP2.56bn / 150.08p per share
Net asset value adjusted to include provide stakeholders with the most as at 30 June 2019 (31 December 2018:
properties and other investment relevant information on GBP2.25bn / 152.83p per share)
interests at fair value the fair value of the assets and
and to exclude certain items not liabilities within a true real estate
expected to crystallise in a investment company
long-term investment property with a long-term investment strategy.
business.
-------------------------------------- -------------------------------------- --------------------------------------
3. EPRA NNNAV Makes adjustments to EPRA NAV to GBP2.51bn / 146.79p per share
EPRA NAV adjusted to include the provide stakeholders with the most as at 30 June 2019 (31 December 2018:
fair values of: relevant information on GBP2.26bn / 153.14p per share)
(i) financial instruments; the current fair value of all the
(ii) debt; and assets and liabilities within a real
(iii) deferred taxes. estate company.
-------------------------------------- -------------------------------------- --------------------------------------
4.1 EPRA Net Initial Yield (NIY) This measure should make it easier 4.49%
Annualised rental income based on the for investors to judge for themselves as at 30 June 2019 (31 December 2018:
cash rents passing at the balance how the valuation 4.37%)
sheet date, less nonrecoverable of two portfolios compare.
property operating expenses, divided
by the market value of the property,
increased with (estimated)
purchasers' costs.
-------------------------------------- -------------------------------------- --------------------------------------
4.2 EPRA 'Topped-Up' NIY This measure should make it easier 4.67%
This measure incorporates an for investors to judge for themselves as at 30 June 2019 (31 December 2018:
adjustment to the EPRA NIY in respect how the valuation 4.68%)
of the expiration of rent-free of one portfolio compares with
periods (or other unexpired lease another portfolio.
incentives such as discounted rent
periods and step rents).
-------------------------------------- -------------------------------------- --------------------------------------
5. EPRA Vacancy A "pure" (%) measure of investment 1.4%
Estimated Market Rental Value (ERV) property space that is vacant, based at 30 June 2019 (31 December 2018:
of vacant space divided by ERV of the on ERV. 0.0%)
whole portfolio.
-------------------------------------- -------------------------------------- --------------------------------------
6. EPRA Cost Ratio A key measure to enable meaningful 15.3%
Administrative and operating costs measurement of the changes in a for the six months to 30 June 2019
(including costs of direct vacancy) company's operating costs. (30 June 2018: 13.7%). Both the 2019
divided by gross rental and 2018 ratios include
income. vacancy costs. The ratio excluding
vacancy costs is 15.3% (2018: 13.7%)
-------------------------------------- -------------------------------------- --------------------------------------
PRINCIPAL RISKS
The Audit Committee, which assists the Board with its
responsibilities for managing risk, considers that the principal
risks and uncertainties, were unchanged during the period. This is
not to say that certain risks have not increased or decreased in
probability or impact during the period.
Property Risk
-- The default of one or more of our customers would reduce
revenue and may affect our ability to pay dividends.
-- The performance and valuation of the Portfolio is affected by
the market; a reduction in revenue could affect our ability to pay
dividends, or lead to a breach of our banking covenants, due to a
change in property valuations.
-- Our ability to grow the Portfolio may be affected by
competition for investment properties in the Big Box sector.
-- Our property performance will depend on the performance of
the UK retail sector and the continued growth of online retail.
-- Development activities are likely to involve a higher degree
of risk than that associated with existing and built investments.
This could include general construction risks, delays in the
development or the development not being completed, cost overruns
or developer/contractor default. Inaccurate assessment of a
development opportunity or a decrease in tenant demand,
particularly in relation to any speculative developments, could
result in the development remaining vacant.
-- The purchase of land may involve a higher degree of risk than
that associated with existing and built investments or development
activities. Land purchases may or may not have existing planning
consent and failure to receive planning consent may reduce the
value of the land and incur irrecoverable costs; they may also
require further financial investment to prepare and ready the site
for development, especially where environmental risks require
remedial work. There is also a risk that the site may not attract a
tenant to sign a Pre-let agreement or that a speculatively
developed and completed building may not be let. The postponement
or cancellation of a development may result in the Group holding
too much development land which may dilute returns due to capital
being invested into non-income producing assets.
Financial Risk
-- Our use of floating rate debt will expose the business to
underlying interest rate movements.
-- A lack of debt funding at appropriate rates may restrict our ability to grow.
-- We must be able to operate within our banking covenants and
failure to do so could lead to default and our bank funding being
recalled.
Corporate Risk
-- As an externally managed company, we rely on the Manager's
services and its reputation in the property market.
Taxation Risk
-- We are a UK REIT and have a tax-efficient corporate
structure, with advantageous consequences for UK shareholders. Any
change to our tax status or in UK tax legislation could affect our
ability to achieve our investment objectives and provide favourable
returns to Shareholders.
Political/Economic Risk
-- The continuing uncertainty relating to the world economy,
including Brexit, have resulted in political and economic
uncertainty that could have a negative effect on the performance of
the Group over both the short and longer term.
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors confirm that to the best of their knowledge this
condensed set of financial statements has been prepared in
accordance with IAS 34 as adopted by the European Union and that
the operating and financial review includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8 of the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority namely:
-- an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed financial statements and a description of the principal
risks and uncertainties for the remaining six months of the
financial year; and
-- material related party transactions in the first six months
of the financial year as disclosed in note 17 and any material
changes in the related party transactions disclosed in the 2018
Annual Report.
Shareholder information is as disclosed on the Tritax Big Box
REIT plc Website.
For and on behalf of the Board
Sir Richard Jewson KCVO, JP, Chairman
8 August 2019
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
Note GBPm GBPm GBPm
Gross rental income 69.2 66.5 133.9
Service charge income 2.0 1.8 3.9
Service charge expense (2.0) (2.2) (5.0)
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Net rental income 69.2 66.1 132.8
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Other operating income 2.0 - -
Administrative and other expenses (10.5) (8.7) (18.1)
Acquisition related costs (4.1) - (1.0)
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Operating profit before changes in fair value of
investment properties, share of profit from
joint ventures and share-based payment charges 56.6 57.4 113.7
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Impairment of intangible and other property assets (0.5) - -
Share-based payment charge 20 (1.4) - -
Share of profit from joint ventures after tax 12 - - -
Changes in fair value of investment properties 10 25.8 62.1 163.0
Gain on bargain purchase 7.1 - -
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Operating profit 87.6 119.5 276.7
Finance income 4 0.2 0.1 0.2
Finance expense 5 (16.1) (11.6) (23.1)
Changes in fair value of interest rate derivatives (4.4) (0.9) (1.2)
Changes in fair value of amounts due to third
parties 0.5 - -
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Profit before taxation 67.8 107.1 252.6
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Tax on profit for the period 6 (0.2) - -
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Profit and total comprehensive income 67.6 107.1 252.6
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Earnings per share - basic 7 4.08p 7.62p 17.54p
Earnings per share - diluted 7 4.06p 7.62p 17.54p
----------------------------------------------------- ----- ----------------- ----------------- ------------------
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At At At
30 June 2019 30 June 2018 31 December 2018
Note GBPm GBPm GBPm
Non-current assets
Intangible assets 2.5 - -
Investment property 10 3,341.6 2,754.7 3,038.3
Investment in land options 11 220.8 - -
Investment in joint ventures 12 30.0 - -
Other property assets 13.9 - -
Interest rate derivatives 14 2.0 5.6 5.2
------------------------------------------ ----- -------------- -------------- ------------------
Total non-current assets 3,610.8 2,760.3 3,043.5
Current assets
Trade and other receivables 15.2 30.9 42.3
Cash at bank 9 177.5 105.3 48.3
------------------------------------------ ----- -------------- -------------- ------------------
Total current assets 192.7 136.2 90.6
------------------------------------------ ----- -------------- -------------- ------------------
Total assets 3,803.5 2,896.5 3,134.1
------------------------------------------ ----- -------------- -------------- ------------------
Current liabilities
Deferred rental income (28.1) (27.5) (30.2)
Trade and other payables (69.3) (25.6) (42.5)
Tax liabilities 6 (41.1) - -
------------------------------------------ ----- -------------- -------------- ------------------
Total current liabilities (138.5) (53.1) (72.7)
Non-current liabilities
Bank borrowings 13 (205.8) (207.2) (327.8)
Loan notes 13 (891.1) (492.4) (492.7)
Deferred tax liabilities 6 (1.9) - -
Amounts due to third parties 22 (20.0) - -
------------------------------------------ ----- -------------- -------------- ------------------
Total non-current liabilities (1,118.8) (699.6) (820.5)
------------------------------------------ ----- -------------- -------------- ------------------
Total liabilities (1,257.3) (752.7) (893.2)
------------------------------------------ ----- -------------- -------------- ------------------
Total net assets 2,546.2 2,143.8 2,240.9
------------------------------------------ ----- -------------- -------------- ------------------
Equity
Share capital 15 17.1 14.8 14.8
Share premium reserve 16 446.8 1,085.0 153.6
Capital reduction reserve 1,246.6 421.4 1,304.4
Retained earnings 835.7 622.6 768.1
------------------------------------------ ----- -------------- -------------- ------------------
Total equity 2,546.2 2,143.8 2,240.9
------------------------------------------ ----- -------------- -------------- ------------------
Net asset value per share - basic 18 149.17p 145.49p 152.00p
Net asset value per share - diluted 18 149.10p 145.42p 152.00p
EPRA net asset value per share - diluted 18 150.08p 146.22p 152.83p
------------------------------------------ ----- -------------- -------------- ------------------
CONDENSED GROUP CASH FLOW STATEMENT
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
Note GBPm GBPm GBPm
Cash flows from operating activities
Profits for the period (attributable to the
Shareholders) 67.6 107.1 252.6
Add: tax charge 0.2 - -
Add: changes in fair value of amounts due to third
parties 0.5 - -
Add: finance expense 16.1 11.6 23.1
Add: changes in fair value of interest rate
derivatives 4.4 0.9 1.2
Add: Share-based payment charges 1.4 - -
Less: impairment of intangible and other property
assets (0.5) - -
Less: changes in fair value of investment properties (25.8) (62.1) (162.9)
Less: gain on bargain purchase (7.1) - -
Less: finance income (0.2) (0.1) (0.2)
Share of profit/(loss) from equity accounted joint
ventures - - -
Accretion of tenant lease incentive (3.1) (6.3) (11.1)
Increase in trade and other receivables 17.5 (15.6) (14.1)
(Decrease)/increase in deferred income (2.1) (0.2) 2.6
Increase/(decrease) in trade and other payables (0.5) 4.1 3.3
Cash received as part of asset acquisitions - - (0.1)
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Cash generated from operations 68.4 39.4 94.4
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Taxation paid (0.1) (0.4) (0.4)
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Net cash flow generated from operating activities 68.3 39.0 94.0
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Investing activities
Purchase of investment properties (139.8) (97.2) (283.2)
Purchase of land options (3.1) - -
Licence fees received 11.5 3.9 16.5
Interest received 0.3 0.1 0.2
Amount transferred out of restricted cash deposits - 3.3 5.2
Acquisition of subsidiary, net of cash acquired (189.6) - -
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Net cash flow used in investing activities (320.7) (89.9) (261.3)
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Financing activities
Proceeds from issue of Ordinary Share Capital 250.0 156.4 157.4
Cost of share issues (6.8) (2.7) (2.6)
Bank borrowings drawn 62.0 59.3 180.3
Bank and other borrowings repaid (250.7) (69.3) (69.3)
Amounts received on issue of loan notes 400.0 - -
Loan arrangement fees paid (3.2) (0.4) (1.2)
Bank interest paid (11.4) (11.1) (21.8)
Interest rate cap premium paid (1.3) (4.5) (4.5)
Dividends paid to equity holders (57.1) (46.2) (95.5)
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Net cash flow generated from financing activities 381.5 81.5 142.8
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Net increase/(decrease) in cash and cash equivalents
for the period 129.1 30.6 (24.5)
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Cash and cash equivalents at start of period 9 47.4 71.9 71.9
----------------------------------------------------- ----- ----------------- ----------------- ------------------
Cash and cash equivalents at end of period 9 176.5 102.5 47.4
----------------------------------------------------- ----- ----------------- ----------------- ------------------
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Six months ended 30 June Share capital Share premium Capital reduction reserve Retained earnings Total
2019 (unaudited) GBPm GBPm GBPm GBPm GBPm
1 January 2019 14.8 153.6 1,304.4 768.1 2,240.9
---------------------------- -------------- -------------- -------------------------- ------------------ --------
Profit and total
comprehensive income - - - 67.6 67.6
---------------------------- -------------- -------------- -------------------------- ------------------ --------
Issue of Ordinary Shares
Shares issued in relation
to equity issue 1.9 248.1 - - 250.0
Shares issued in relation
to equity consideration 0.4 51.9 - - 52.3
Share issue costs - (6.8) - - (6.8)
Share-based payments - - - 1.1 1.1
Transfer of share-based
payments to liabilities to
reflect settlement - - - (1.1) (1.1)
Dividends paid:
Fourth interim dividend for
the period ended 31
December 2018 (1.675
pence) - - (28.6) - (28.6)
First interim dividend for
the period ended 31 March
2019 (1.7125 pence) - - (29.2) - (29.2)
---------------------------- -------------- -------------- -------------------------- ------------------ --------
30 June 2019 17.1 446.8 1,246.6 835.7 2,546.2
---------------------------- -------------- -------------- -------------------------- ------------------ --------
Six months ended 30 June
2018 (unaudited)
---------------------------- -------------- -------------- -------------------------- ------------------ --------
1 January 2018 13.7 932.4 467.9 515.5 1,929.5
---------------------------- -------------- -------------- -------------------------- ------------------ --------
Profit and total
comprehensive income - - - 107.1 107.1
---------------------------- -------------- -------------- -------------------------- ------------------ --------
Issue of Ordinary Shares
Shares issued in relation
to equity issue 1.1 154.5 - - 155.6
Share issue costs - (2.7) - - (2.7)
Shares issued in relation
to management contract - 0.8 - - 0.8
Share-based payments - - - 1.0 1.0
Transfer of share-based
payments to liabilities to
reflect settlement - - - (1.0) (1.0)
Dividends paid:
Fourth interim dividend for
the period ended 31
December 2017 (1.60 pence) - - (21.8) - (21.8)
First interim dividend for
the period ended 31 March
2018 (1.675 pence) - - (24.7) - (24.7)
---------------------------- -------------- -------------- -------------------------- ------------------ --------
30 June 2018 14.8 1,085.0 421.4 622.6 2,143.8
---------------------------- -------------- -------------- -------------------------- ------------------ --------
Six months ended 31 December 2018 (audited)
------------------------------------------------------------------------- ----- -------- -------- ------ --------
1 January 2018 13.7 932.4 467.9 515.5 1,929.5
------------------------------------------------------------------------- ----- -------- -------- ------ --------
Profit and total comprehensive income - - - 252.6 252.6
------------------------------------------------------------------------- ----- -------- -------- ------ --------
Issue of Ordinary Shares
Cancellation of share premium account - (932.4) 932.4 - -
Shares issued in relation to equity issue (April 2018) 1.1 154.5 - - 155.6
Associated share issue costs - (2.7) - - (2.7)
Shares issued in relation to management contract - 1.8 - - 1.8
Share-based payments - - - 2.0 2.0
Transfer of share-based payments to liabilities to reflect settlement - - - (2.0) (2.0)
Dividends paid:
Third interim dividend for the period ended 31 December 2017 (1.60
pence) - - (21.8) - (21.8)
First interim dividend for the period ended 31 December 2018 (1.675
pence) - - (24.7) - (24.7)
Second interim dividend for the period ended 31 December 2018 (1.675
pence) - - (24.7) - (24.7)
Third interim dividend for the period ended 31 December 2018 (1.675
pence) - - (24.7) - (24.7)
------------------------------------------------------------------------- ----- -------- -------- ------ --------
31 December 2018 14.8 153.6 1,304.4 768.1 2,240.9
------------------------------------------------------------------------- ----- -------- -------- ------ --------
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 Basis of preparation
The condensed consolidated financial statements for the six
months ended 30 June 2019 have been prepared in accordance with the
Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority and with IAS 34, Interim Financial Reporting, as adopted
by the European Union.
The condensed consolidated financial statements for the six
months ended 30 June 2019 have been reviewed by the Company's
Auditor, BDO LLP, in accordance with International Standard on
Review Engagements 2410, Review of Interim Financial Information
Performed by the Independent Auditor of the Entity and were
approved for issue on 8 August 2019. The condensed consolidated
financial statements are unaudited and do not constitute statutory
accounts for the purposes of the Companies Act 2006.
The comparative financial information presented herein for the
year to 31 December 2018 does not constitute full statutory
accounts within the meaning of Section 434 of the Companies Act
2006. The Group's Annual Report and accounts for the year to 31
December 2018 have been delivered to the Registrar of Companies.
The Group's independent auditor's report on those accounts was
unqualified, did not include references to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report and did not contain a statement under section 498(2) or
498(3) of the Companies Act 2006.
Going concern
During the period the Group raised gross proceeds of GBP250
million from the issue of new equity and GBP200 million through the
arrangement of a new revolving credit facility. The Group had a
cumulative GBP550 million of undrawn commitments under its senior
debt facilities as at the period end, and GBP100 million in short
term deposits, of which GBP251.2 million was committed under
various development contracts along with a further GBP40.9 million
of capital costs falling due as at 30 June 2019 and contingent
liabilities of GBP42 million. The RCF facilities also contain an
uncommitted GBP300 million accordion available through two separate
options. Another GBP400 million was raised from Private Placement
loan notes arranged in November 2018 but drawn in February 2019. At
the period-end date the Group's loan to value ratio stood at 29%,
with an average maturity term of approximately 7.8 years.
In respect of the loan to value covenant testing, the LTV
default position is set at a minimum of 60% across certain Group
loan facilities. There is currently significant headroom across all
Group loan facilities in respect of financial covenants, while the
Group has been compliant with each loan facility during the period
and post the period end.
With the exception of the land at Littlebrook, Dartford and
certain assets held within the Tritax Symmetry Limited
subsidiaries, the Group's investment property assets are either let
or pre-let to tenants that are predominantly of institutional-grade
covenant strength and all of the leases are subject to upward only
rent reviews. The Group acquired a number of land options during
the period which it is in the process of agreeing planning consents
across various sites.
The Directors are therefore satisfied that the Group is in a
position to continue in operation for the foreseeable future.
2 Significant accounting judgements, estimates and
assumptions
The preparation of the Group's condensed consolidated financial
statements requires management to make judgements, estimates and
assumptions that affect the reported amounts of revenues, expenses,
assets and liabilities, and the disclosure of contingent
liabilities, at the reporting date. However, uncertainty about
these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of the asset
or liability affected in future periods.
2.1 Judgements
In the process of applying the Group's accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the consolidated
financial information:
Business combinations
The Group acquires subsidiaries that own property. At the time
of acquisition, the Group considers whether each acquisition
represents the acquisition of a business or the acquisition of an
asset. The Group accounts for an acquisition as a business
combination where an integrated set of activities is acquired in
addition to the property that are capable of being conducted and
managed for the purpose of providing a return in the form of
dividends, lower costs or other economic benefits directly to
investors or other owners, members or participants. Where such
acquisitions are not judged to be the acquisition of a business,
they are not treated as business combinations. Rather, the cost to
acquire the corporate entity is allocated between the identifiable
assets and liabilities of the entity based upon their relative fair
values at the acquisition date. Accordingly, no goodwill or
deferred tax arises. The fair value of assets and liabilities are
established using industry leading third party professionals,
instructed by the Company.
On 19 February 2019, the Group completed the acquisition of db
symmetry Group Ltd and db symmetry BVI Limited together with their
subsidiary undertakings and joint venture interests ("db
symmetry"). The Directors have reviewed the terms of the
acquisition and determined that a business, as defined by IFRS 3,
was acquired. In the context of the db symmetry acquisition the
principal consideration was whether substantive processes were
acquired. As part of the acquisition a management agreement was
entered in to with the management shareholders of db symmetry
allowing for the management team to continue to manage the
development activities of db symmetry. These activities are
determined to be substantive processes.
Goodwill
Goodwill represents the excess of the cost of a business
combination over the Group's interest in the fair value of
identifiable assets, liabilities and contingent liabilities
acquired. As it is a balancing figure of the assets and liabilities
acquired, it is an estimate, as a result of the fair value of some
of the other assets and liabilities acquired also being estimated.
The fair value of assets and liabilities are established using
industry leading third party professionals, instructed by the
Company.
Land options
Measurement
Land options, and other non-financial assets, are initially
capitalised at cost and considered for any impairment indication
annually. The impairment review includes consideration of the
resale value of the option, likelihood of achieving planning
consent and current recoverable value as determined by an
independent valuer. At period end, no indication of impairment was
noted.
Classification
A number of land options were acquired as part of the db
symmetry acquisition. These were bought for the potential to
exercise the option and develop the land into a pipeline of
foundation assets. The Directors have considered whether the land
options meet the definition of investment property and concluded
that as the options do not represent a direct interest in land they
cannot be classified as investment property and carried at fair
value. The Directors have concluded that the land options should be
classified as a non-financial asset and measured at cost less
provision for impairment in accordance with IAS 36.
B and C Shares
As part of the acquisition of db symmetry, shares were issued in
Tritax Symmetry Limited ("Tritax Symmetry HoldCo") to the
management shareholders of db symmetry ("Symmetry Management
Shareholders") in the form of B and C shares (the "B and C
Shares"). The terms of these shares are complex and as a result the
Directors have had to make a number of judgements in order to
conclude on the appropriate accounting treatment. The significant
judgements applied in relation to the B and C Shares were as
follows:
1. Subject to remaining in continued employment these shares
entitle the holders to 13% of the Adjusted NAV of Tritax Symmetry
HoldCo. Were an individual to leave employment and be deemed a bad
leaver, the amount payable is the lower of the value of the shares
on the completion date and 50% of Adjusted NAV. The Directors have
therefore concluded that the unconditional amount payable to the B
and C Shareholders, being 50% of the value of the B and C Shares on
acquisition, should be treated as contingent consideration in
accordance with IFRS 3. Any additional amounts paid to the B and C
Shareholders are a result of their continued service is accounted
for as payment for the provision of post-combination services.
2. These shares have put options in place at various points in
time over an eight-year period from completion, along with a put
and call option at the end of eight years from the completion date.
The B and C Shares are also not considered to represent a present
ownership interest in the Group as an element of the amount due to
the B and C Shareholders is dependent on them continuing to provide
services to the Group. Therefore, the Directors have concluded that
the B and C Shares do not represent a non-controlling interest and
the amounts owed to the B and C Shareholders will instead be
presented as a financial liability.
3. When settled the B and C Shares are settled 25% in cash with
the remaining 75% settled in either cash or shares at the
discretion of the Company. Both elements are considered to
represent share-based payments as the amounts due are based on the
Adjusted NAV of the underlying business of Tritax Symmetry
HoldCo.
4. The Directors have considered how the B and C Shares will be
settled once they become due to the Symmetry ManCo directors and
management. The Company has the legal option of settling the
share-based payment either via cash or equity, with a minimum of
25% being settled in cash. The Directors have a current intention
to maximise the cash element of the settlement as they believe this
would prevent any potential dilution to existing Shareholders along
with acting as the most effective incentive towards the Symmetry
Management Shareholders. The Directors will endeavour to settle all
of the B and C Shares in cash, subject to sufficient funds being
available to the Group at the time of settlement without adversely
impacting the operations of the Group. In accordance with IFRS 2
this is accounted for as a cash settled share-based payment. In
conformity with the requirements of IFRS 2 for cash settled
share-based payments, the share-based payment charge is the fair
value of the settlement value of the B and C Shares in Tritax
Symmetry HoldCo, established by a Monte Carlo simulation model and
reassessed at each reporting date. The share-based payment charge
is expensed to the Condensed Group Statement of Comprehensive
Income with a corresponding liability recognised in the Condensed
Group Statement of Financial Position.
2.2 Estimates
Fair valuation of investment property
The market value of investment property is determined by an
independent property valuation expert (see note 10) to be the
estimated amount for which a property should exchange on the date
of the valuation in an arm's length transaction. Properties have
been valued on an individual basis. The valuation expert uses
recognised valuation techniques and the principles of both IAS 40
and IFRS 13.
Investment property is initially measured at cost, including
transaction costs. After initial recognition, investment property
is carried at fair value.
The valuations have been prepared in accordance with the RICS
Valuation - Global Standards July 2017 ("the Red Book"). Factors
reflected include current market conditions, annual rentals, lease
lengths and location.
3 Summary of significant accounting policies
The accounting policies adopted in this report are consistent
with those applied in the Group's condensed consolidated financial
statements for the year ended 31 December 2018 and are expected to
be applied consistently during the year ending 31 December 2019.
The following accounting policies have been adopted during this
period and apply to new transactions and circumstances.
3.1 Joint arrangements
The group is a party to a joint arrangement when there is a
contractual arrangement that confers joint control over the
relevant activities of the arrangement to the Group and at least
one other party. Joint control is assessed under the same
principles as control over subsidiaries.
The group classifies its interests in joint arrangements as
either:
Ø Joint ventures: where the group has rights to only the net
assets of the joint arrangement
Ø Joint operations: where the group has both the rights to
assets and obligations for the liabilities of the joint
arrangement.
In assessing the classification of interests in joint
arrangements, the Group considers:
Ø The structure of the joint arrangement
Ø The legal form of joint arrangements structured through a
separate vehicle
Ø The contractual terms of the joint arrangement agreement
Ø Any other facts and circumstances (including any other
contractual arrangements).
The Group does not have any joint operations.
Joint ventures are initially recognised in the Consolidated
Statement of Financial Position at cost. Subsequently joint
ventures are accounted for using the equity method, where the
Group's share of post-acquisition profits and losses and other
comprehensive income is recognised in the Consolidated Statement of
Comprehensive Income.
Profits and losses arising on transactions between the Group and
its joint ventures are recognised only to the extent of unrelated
investors' interests in the associate. The investor's share in the
joint venture's profits and losses resulting from these
transactions is eliminated against the carrying value of the joint
venture.
Any premium paid for an investment in a joint venture above the
fair value of the Group's share of the identifiable assets,
liabilities and contingent liabilities acquired is capitalised and
included in the carrying amount of the investment in joint venture.
Where there is objective evidence that the investment in a joint
venture has been impaired the carrying amount of the investment is
tested for impairment in the same way as other non-financial
assets.
3.2 Goodwill
Goodwill is capitalised as an intangible asset, with any
impairment in carrying value being charged to the Consolidated
Statement of Comprehensive Income. Where the fair value of
identifiable assets, liabilities and contingent liabilities exceed
the fair value of consideration paid, the excess is credited in
full to the Consolidated Statement of Comprehensive Income on the
acquisition date as a gain on bargain purchase or negative
goodwill.
In relation to the purchase of db symmetry, a gain on bargain
purchase has arisen. Please see note 21, Business Combination for
further details.
3.3 Impairment of intangible assets
Impairment tests on goodwill and other intangible assets with
indefinite useful economic lives are undertaken annually at the
financial year end. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Where
the carrying value of an asset exceeds its recoverable amount (ie
the higher of value in use and fair value less costs to sell), the
asset is impaired accordingly.
Where it is not possible to estimate the recoverable amount of
an individual asset, the impairment test is carried out on the
smallest group of assets to which it belongs for which there are
separately identifiable cash flows; its cash generating units
("CGUs"). Goodwill is allocated on initial recognition to each of
the Group's CGUs that are expected to benefit from a business
combination that gives rise to the goodwill.
Impairment charges are included in profit or loss, except to the
extent they reverse gains previously recognised in other
comprehensive income. An impairment loss recognised for goodwill is
not reversed.
3.4 Land options
Land options are carried at cost and are tested for impairment
whenever events or changes in circumstances indicate that their
carrying amount may not be recoverable. Where the carrying value of
an asset exceeds its recoverable amount (ie the higher of value in
use and fair value less costs to sell), the option is written down
accordingly.
3.5 Business combination
The Group acquires subsidiaries that own investment properties.
At the time of acquisition, the Group considers whether each
acquisition represents the acquisition of a business or the
acquisition of an asset. Under IFRS 3, a business is defined as an
integrated set of activities and assets that is capable of being
conducted and managed for the purpose of providing a return a
return in the form of dividends, lower costs or other economic
benefits directly to investors or other owners, members or
participants. A business will usually consist of inputs, processes
and outputs. Therefore the Group accounts for an acquisition as a
business combination where an integrated set of activities is
acquired in addition to the property.
Where an acquisition is considered to be a business combination
the consolidated financial statements incorporate the results of
business combinations using the acquisition method. In the
Statement of Financial Position, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. Any excess
of the cost of a business combination over the Group's interest in
the fair value of identifiable assets, liabilities and contingent
liabilities acquired is treated as goodwill. Where the fair value
of identifiable assets, liabilities and contingent liabilities
acquired exceeds the fair value of the purchase consideration, the
difference is treated as negative goodwill and credited to the
Consolidated Statement of Comprehensive Income. The results of
acquired operations are included in the Consolidated Statement of
Comprehensive Income from the date on which control is obtained
until the date on which control ceases.
Where such acquisitions are not judged to be the acquisition of
a business, they are not treated as business combinations. Rather,
the cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based upon their
relative fair values at the acquisition date. Accordingly, no
goodwill or additional deferred tax arises.
Where amounts payable for the acquisition of a business are
subject to a contingent consideration arrangement in which the
payments are automatically forfeited if employment terminates, the
amounts are treated as remuneration for post-combination services
rather than consideration for the acquisition of a business.
3.6 Share-based payments
The Company has entered in to an agreement with certain selling
shareholders of the db symmetry group where the amounts payable are
based on the Adjusted NAV of the underlying business and subject to
certain provisions around continuing employment. 25% of the amounts
payable are to be settled in cash with the remaining 75% settled in
cash or shares at the discretion of the Company. Where the Company
has a present obligation to settle the amounts in cash, either
through its stated intention or past practice, the Company accounts
for the amounts as cash settled share-based payments. The fair
value of the cash settled obligation is recognised over the vesting
period and presented as a liability in the Statement of Financial
Position. The liability is remeasured at each reporting date with
the charge to the Statement of Comprehensive Income updated over
the vesting period updated to the extent that the remeasurement
relates to future services.
3.7 Standards in issue and effective from 1 January 2019
IFRS 16 - Leases (effective 1 January 2019)
The Group does not hold any material operating or leasehold
agreements as lessee. The impact of IFRS 16 is immaterial.
4 Finance income
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Interest received on bank deposits 0.2 0.1 0.2
------------------------------------ ----------------- ----------------- -------------------
5 Finance expenses
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Interest payable on bank borrowings 3.2 3.0 6.0
Interest payable on loan notes 11.1 7.1 14.4
Commitment fees payable on bank borrowings 0.7 0.6 1.3
Swap interest payable - 0.1 0.1
Amortisation of loan arrangement fees 1.1 0.8 1.3
-------------------------------------------- ----------------- ----------------- -------------------
16.1 11.6 23.1
-------------------------------------------- ----------------- ----------------- -------------------
There were no finance costs capitalised in the periods reported
above.
6 Taxation
Tax charge in the Group Statement of Comprehensive Income
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
UK corporation tax 0.2 - -
------------------- ----------------- ----------------- ------------------
As a REIT, the Group is exempt from corporation tax on the
profits and gains arising from its property investment business,
provided it continues to meet certain conditions under the REIT
regulations. For the period ended 30 June 2019, the Group had
non-qualifying profits subject to corporation tax in the form of
development management services provided. The corporation tax
charge for the period was GBP0.2 million (June 2018: GBPnil;
December 2018: GBPnil).
Upon acquisition of the Symmetry Portfolio, a deferred tax
liability of GBP42.7 million arose as a result of management's
intention for the portfolio changing from trading to being held for
investment purposes, in respect of the trading assets within the
portfolio. Immediately following acquisition certain assets were
formally appropriated resulting in GBP40.9 million of the deferred
tax liability crystallising and therefore being presented as a
current tax liability as at 30 June 2019.
7 Earnings per share
Earnings per share (EPS) are calculated by dividing profit for
the period attributable to ordinary equity holders of the Company
by the weighted average number of Ordinary Shares in issue during
the period. As there are dilutive instruments outstanding, basic
and diluted earnings per share are shown below:
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Net attributable to Ordinary Shareholders
Total comprehensive income (GBPm) 67.6 107.1 252.6
Number of Ordinary Shares (1) - basic earnings 1,655,653,780 1,405,598,226 1,440,012,547
------------------------------------------------------------ ----------------- ----------------- ------------------
Basic earnings per share (1) (pence) 4.08p 7.62p 17.54p
------------------------------------------------------------ ----------------- ----------------- ------------------
Adjustment for dilutive shares:
Dilutive shares in respect of management fee 703,883 672,608 -
Dilutive shares in respect of B and C shares (3) 10,038,930 - -
Total dilutive shares in respect of Earnings and EPRA
Earnings: 1,666,396,593 1,406,270,834 1,440,012,547
Adjustment for dilutive shares:
Dilutive shares in respect of management fee 703,883 672,608 -
Total dilutive shares in respect of Adjusted Earnings: 1,656,357,663 1,406,270,834 1,440,012,547
Diluted earnings per share (2) (pence) 4.06p 7.62p 17.54p
------------------------------------------------------------ ----------------- ----------------- ------------------
Total comprehensive income (GBPm) 67.6 107.1 252.6
Adjustments to remove:
Changes in fair value of investment properties (GBPm) (25.8) (62.1) (163.0)
Changes in fair value of interest rate derivatives (GBPm) 4.4 0.9 1.2
Costs associated with a business combination (GBPm) 4.1 - 1.0
Negative goodwill and impairment of intangible contract
(GBPm) (6.6) - -
------------------------------------------------------------ ----------------- ----------------- ------------------
EPRA earnings (GBPm) 43.7 45.9 91.8
------------------------------------------------------------ ----------------- ----------------- ------------------
EPRA earnings per share (1) (pence) 2.62p 3.27p 6.37p
------------------------------------------------------------ ----------------- ----------------- ------------------
EPRA diluted earnings per share (2) (pence) 2.60p 3.26p 6.37p
------------------------------------------------------------ ----------------- ----------------- ------------------
EPRA earnings (GBPm) 43.7 45.9 91.8
Adjustments to include:
Licence fee receivable on forward funded developments
(GBPm) 12.9 2.4 10.3
Finance costs capitalised (GBPm) (see note 5) - - -
Fixed rental uplift adjustments (GBPm) (2.2) (1.6) (4.3)
Share-based payments charges 1.4 - -
Fair value movements in contingent consideration (0.5) - -
Amortisation of loan arrangement fees and intangibles
(GBPm) (see note 5) 1.1 0.8 1.3
------------------------------------------------------------ ----------------- ----------------- ------------------
Adjusted earnings (GBPm) 56.4 47.5 99.1
------------------------------------------------------------ ----------------- ----------------- ------------------
Adjusted basic earnings per share (1) (pence) 3.41p 3.38p 6.88p
------------------------------------------------------------ ----------------- ----------------- ------------------
Adjusted diluted earnings per share (2) (pence) 3.41p 3.38p 6.88p
------------------------------------------------------------ ----------------- ----------------- ------------------
1. Based on the weighted average number of Ordinary Shares in issue throughout the period/year.
2. Based on the weighted average number of Ordinary Shares in
issue throughout the period/year, plus potentially issuable
dilutive shares.
3. Relates to dilutive shares in respect of contingent
consideration and share-based payment charges.
Adjusted earnings is a performance measure used by the Board to
assess the Group's dividend payments. The metric reduces EPRA
earnings by interest paid to service debt that was capitalised and
removes other non-cash items credited or charged to the Statement
of Comprehensive Income, such as fixed rental uplift adjustments
and amortisation of loan arrangement fees. Licence fees received
during the period are added to earnings on the basis noted below as
the Board sees these cash flows as supportive of dividend payments.
The Board compares the Adjusted earnings to the available
distributable reserves when considering the level of dividend to
pay.
The adjustment for licence fees receivable is calculated by
reference to the fraction of the total period of completed
construction during the period, multiplied by the total licence fee
receivable on a given forward funded asset. Licence fees will
convert into rental income once practical completion has occurred
and therefore rental income will flow into EPRA and Adjusted
earnings from this point.
Fixed rental uplift adjustments relate to adjustments to net
rental income on leases with fixed or minimum uplifts embedded
within their review profiles. The total minimum income recognised
over the lease term is recognised on a straight-line basis and
therefore not supported by cash flows during the early term of the
lease, but this reverses towards the end of the lease.
Share-based payment charges and fair value movements in
contingent consideration both relate to the movement in the value
due to B and C Shareholders. Whilst impacting on earnings, this
value is considered a capital value from the prospective it relates
to an equity holding in Tritax Symmetry HoldCo. It is therefore
removed from Adjusted Earnings.
In relation to the dilutive shares to be issued in respect of
the B and C Shares, the Directors have indicated a current
intention to settle these 100% in cash. We therefore consider it
inappropriate to assume the shares as equity settled for the
purpose of Adjusted diluted earnings per share, therefore these
have been ignored.
8 Dividends paid
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
--------------------------------------------------------- ----------------- ----------------- ------------------
Fourth interim dividend for the period ended 31 December
2017 - 1.60 pence per Ordinary Share - 21.8 21.8
First interim dividend for the period ended 31 December
2018 - 1.675 pence per Ordinary Share - 24.7 24.7
Second interim dividend for the period ended 31 December
2018 - 1.675 pence per Ordinary Share - - 24.7
Third interim dividend for the period ended 31 December
2018 - 1.675 pence per Ordinary Share - - 24.7
Fourth interim dividend for the period ended 31 December
2018 - 1.675 pence per Ordinary Share 28.6 - -
First interim dividend for the period ended 31 December
2019 - 1.7125 pence per Ordinary Share 29.2 - -
--------------------------------------------------------- ----------------- ----------------- ------------------
Total dividends paid 57.8 46.5 95.9
Total dividends paid in respect of the period/year 1.7125p 1.675p 5.025p
Total dividends unpaid but declared in respect of the
period/year 1.7125p 1.675p 1.675p
--------------------------------------------------------- ----------------- ----------------- ------------------
Total dividends declared - per share 3.425p 3.350p 6.70p
--------------------------------------------------------- ----------------- ----------------- ------------------
On 6 March 2019 the Company announced the declaration of an
interim dividend in respect of the period 1 October 2018 to 31
December 2018 of 1.675 pence per share payable in March 2019.
On 16 May 2019 the Company announced the declaration of an
interim dividend in respect of the period 1 January 2019 to 31
March 2019 of 1.7125 pence per share payable in June 2019.
On 17 July 2019 the Company announced the declaration of an
interim dividend in respect of the period 1 April 2019 to 30 June
2019 of 1.7125 pence per share payable in August 2019.
9 Cash and cash equivalents
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Cash and cash equivalents to agree with cash flow 176.5 102.5 47.4
Restricted cash 1.0 2.8 0.9
----------------------------------------------------------- ----------------- ----------------- -------------------
Cash at bank per Condensed Group Statement of Financial
Position 177.5 105.3 48.3
----------------------------------------------------------- ----------------- ----------------- -------------------
Ring-fenced cash included within cash and cash equivalents
represents amounts relating to future rent-free periods on certain
assets within the portfolio or rental top-up amounts.
Restricted cash is cash where there is a legal restriction to
specify its type of use, i.e. this may be where we have a joint
arrangement with a tenant lender on asset management
initiatives.
10 Investment property
The investment properties have been independently valued at fair
value by either CBRE Limited ("CBRE") or Colliers International
Valuation UK LLP (Colliers"), accredited independent valuers with a
recognised and relevant professional qualification and with recent
experience in the locations and categories of the investment
properties being valued. The valuations have been prepared in
accordance with the RICS Valuation - Global Standards January 2017
("the Red Book"). The valuers have sufficient current local and
national knowledge of the particular property markets involved, and
have the skills and understanding to undertake the valuations
competently.
The valuation models prepared in accordance with those
recommended by the International Valuation Standards Committee have
been applied.
In accordance with the Group's accounting policies, it has
treated the acquisition of db symmetry as a business combination.
All other acquisitions during the period are treated as asset
purchases rather than business combinations as they were judged to
be acquisitions of properties rather than businesses.
Investment properties
Investment properties Investment properties under
freehold long leasehold construction Total
GBPm GBPm GBPm GBPm
As at 1 January 2019 2,053.8 635.5 349.0 3,038.3
Acquisition of assets
under construction from
business combination - - 128.4 128.4
Property additions (1) 3.7 0.7 141.7 146.1
Tenant lease incentives
(2) 2.1 0.9 - 3.0
Transfer of completed
property to investment
property 122.7 - (122.7) -
Change in fair value
during the period (0.6) 0.2 26.2 25.8
-------------------------- ------------------------- ------------------------- -------------------------- --------
As at 30 June 2019
(unaudited) 2,181.7 637.3 522.6 3,341.6
-------------------------- ------------------------- ------------------------- -------------------------- --------
As at 1 January 2018 1,924.3 612.4 62.5 2,599.2
Property additions (1) 40.5 - 46.6 87.1
Tenant lease incentives
(2) 5.4 0.9 - 6.3
Change in fair value
during the period 23.9 10.7 27.5 62.1
-------------------------- ------------------------- ------------------------- -------------------------- --------
As at 30 June 2018
(unaudited) 1,994.1 624.0 136.6 2,754.7
-------------------------- ------------------------- ------------------------- -------------------------- --------
As at 1 January 2018 1,924.3 612.4 62.5 2,599.2
Property additions (1) 42.5 - 222.4 264.9
Tenant lease incentives
(2) 9.4 1.8 - 11.2
Change in fair value
during the year 77.6 21.3 64.1 163.0
-------------------------- ------------------------- ------------------------- -------------------------- --------
As at 31 December 2018
(audited) 2,053.8 635.5 349.0 3,038.3
-------------------------- ------------------------- ------------------------- -------------------------- --------
1. Property additions are stated net of licence fees deducted
from the cost of investment property under construction totalling
GBPnil million in the period (31 December 2018: GBP35.0
million)
2. Included within the carrying value of investment property is
GBP40.0 million (31 December 2018: GBP37.0 million) in respect of
accrued contracted rental uplift income. This balance arises as a
result of the IFRS treatment of leases with fixed rental uplifts
and rent-free periods, which requires the recognition of rental
income on a straight-line basis over the lease term. The difference
between this and cash receipts change the carrying value of the
property against which revaluations are measured
The table below reconciles between the fair value of the
Investment Property per the Condensed Group Statement of Financial
Position and Investment Property per the independent valuation
performed in respect of each period and year end.
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Value per independent valuation report 3,581.0 2,896.0 3,418.2
Less:
Capital commitments (234.3) (135.1) (361.6)
Licence fee receivable (6.9) (5.3) (18.3)
Additional capital work accrued 3.5 - -
Acquisitions since last valuation (1.7) - -
Ring fenced cash - (0.9) -
----------------------------------------------------------- ----------------- ----------------- -------------------
Fair value per Condensed Group Statement of Financial
Position 3,341.6 2,754.7 3,038.3
----------------------------------------------------------- ----------------- ----------------- -------------------
Capital commitments represent costs to bring the asset to
completion under the developer's funding agreements, which include
the developer's margin. These costs are not provided for in the
Condensed Group Statement of Financial Position, refer to note
17.
Licence fee receivable represents amounts that have been billed
but not received from the developer in relation to the property and
are included within trade and other receivables. The valuation
assumes the property to be income generating and therefore includes
this receivable in the fair value.
The ground rents payable to all head leaseholders are nominal,
therefore no liability has been recognised in respect of the
present value of the future cash flows.
11 Land Options
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Opening balance - - -
Land options acquired in business combination 217.4 - -
Acquisitions in the period 2.0 - -
Costs capitalised in the period 1.4 - -
---------------------------------------------- ----------------- ----------------- -------------------
Closing balance 220.8 - -
---------------------------------------------- ----------------- ----------------- -------------------
12 Investment in joint ventures
As at 30 June 2019 the Group has two joint ventures which have
been equity accounted for. There were no equity accounted joint
ventures prior to the acquisition of db symmetry in February
2019.
Six months Six months
Ended ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
At beginning of period - - -
Acquired from business combination acquisition 30.0 - -
----------------------------------------------- -------------- -------------- -------------------
At period end 30.0 - -
----------------------------------------------- -------------- -------------- -------------------
Acquired from business combination acquisition 60.0 - -
----------------------------------------------- -------------- -------------- -------------------
Net Assets 60.0 - -
----------------------------------------------- -------------- -------------- -------------------
50% share 30.0 - -
----------------------------------------------- -------------- -------------- -------------------
The joint ventures have a 31 January year end. The aggregate
amounts recognised in the Consolidated Statement of Financial
Position and Statement of Comprehensive Income are as follows:
Statement of Financial Position
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) Group's share (unaudited) (audited) Group's share
GBPm GBPm GBPm GBPm GBPm
Non-current assets 60.1 30.1 - - -
Current liabilities (0.1) (0.1) - - -
--------------------- ----------------- -------------- ------------------- ------------------ ----------------
Net assets 60.0 30.0 - - -
--------------------- ----------------- -------------- ------------------- ------------------ ----------------
The Group's share of contingent liabilities in the joint
ventures is GBPnil (June 2018: GBPnil; December 2018: GBPnil).
13 Borrowings
A summary of the bank borrowings drawn in the period are shown
below:
Bank borrowings
Six months Six months
ended ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
At the beginning of the period/year 333.9 222.9 222.9
Bank borrowings drawn in the period 62.0 59.3 180.3
Bank borrowings repaid in the period (183.0) (69.3) (69.3)
-------------------------------------- -------------- --------------- --------------------
Total bank borrowings drawn 212.9 212.9 333.9
-------------------------------------- -------------- --------------- --------------------
The Group had available headroom of GBP550 million under its
bank borrowings (30 June 2018: GBP350 million, 31 December 2018:
GBP879 million).
Any associated fees in arranging the bank borrowings that were
unamortised as at the period end are offset against amounts drawn
on the facilities as shown in the table below:
Six month Six months
ended ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Bank borrowings drawn: due after more than one year 212.9 212.9 333.9
---------------------------------------------------------------- -------------- --------------- -------------------
Total bank borrowings 212.9 212.9 333.9
---------------------------------------------------------------- -------------- --------------- -------------------
Less: unamortised costs (7.1) (5.7) (6.1)
---------------------------------------------------------------- -------------- --------------- -------------------
Total bank borrowings per the Condensed Group Statement of
Financial Position 205.8 207.2 327.8
---------------------------------------------------------------- -------------- --------------- -------------------
Loan notes
Six months Six months
ended ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
2.625% Bonds 2026 249.2 249.0 249.1
3.125% Bonds 2031 246.9 246.7 246.8
2.860% USPP 2028 (1) 250.0 - -
2.980% USPP 2030 (1) 150.0 - -
------------------------ -------------- --------------- ------------------
896.1 495.7 495.9
Less unamortised costs (5.0) (3.3) (3.2)
------------------------ -------------- --------------- ------------------
891.1 492.4 492.7
------------------------ -------------- --------------- ------------------
1. A private placement of GBP400 million new senior unsecured
loan notes with a number of Institutional Investors (the "Loan
Notes") comprised of two tranches with a weighted average coupon of
the fixed rate notes equating to 2.91% and a weighted average
maturity of 9.8 years was drawn on the 28 February 2019.
On 17 June 2019 the Company announced that it had agreed a new
GBP200 million unsecured revolving credit facility with a syndicate
of relationship lenders. The new facility has an initial maturity
of five years and can be extended (subject to consent) by two
further years to a maximum of seven years. The new facility also
has a GBP100 million accordion option and has an opening margin of
1.10% per annum over LIBOR.
As part of the acquisition of db symmetry the Group acquired
GBP67.7 million of Deep Discounted Bonds, which were immediately
redeemed post-acquisition as per note 21.
14 Interest rate derivatives
The Group uses interest rate derivatives to mitigate exposure to
interest rate risk. The fair value of these contracts is recorded
in the Condensed Group Statement of Financial Position and is
determined by assessing the probability that interest rates will
exceed strike rates and discounting the future cash flows of the
interest rate derivatives at the prevailing market rates as at the
period end date. There have not been any transfers of assets or
liabilities between levels of fair value hierarchy in the
period/year.
Fair value measurements at each reporting date are below:
Level 1(1) Level 2(2) Level 3(3) Total
GBPm GBPm GBPm GBPm
Assets
30 June 2019 interest rate derivatives (unaudited) - 2.0 - 2.0
30 June 2018 interest rate derivatives (unaudited) - 5.6 - 5.6
31 December 2018 interest rate derivatives (audited) - 5.2 - 5.2
------------------------------------------------------ ------------ ------------ ------------ -------
1. Valuation is based on unadjusted quoted prices in active
markets for identical financial assets and liabilities
2. Valuation is based on inputs (other than quoted prices
included in Level 1) that are observable for the financial asset or
liability, either directly (ie as unquoted prices) or indirectly
(ie derived from quoted prices)
3. Valuation is based on inputs that are not based on observable market data
15 Share capital
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Issued and fully paid at 1 pence each
At beginning of period 14.8 13.7 13.7
Shares issued in relation to equity issue 1.9 1.1 1.1
Shares issued in relation to acquisition 0.4 - -
Shares issued in relation to management contract - - -
-------------------------------------------------- ------------- ------------- -----------------
17.1 14.8 14.8
-------------------------------------------------- ------------- ------------- -----------------
The Company had 1,706,974,948 shares of nominal value of 1 pence
each in issue at the end of the period (30 June 2018:
1,473,556,950, 31 December 2018: 1,473,556,950).
On 8 February 2019, the Company announced that 192,291,313 new
Ordinary Shares were issued via an Open Offer for Subscription at
an issue price of 130.00 pence per Ordinary Share, raising gross
proceeds of GBP250 million.
On 19 February 2019, the Company announced that 40,450,234 new
Ordinary Shares were issued as part of the consideration for the
acquisition of db symmetry for an issue price of 130.00 pence per
Ordinary Share.
16 Share premium
The share premium relates to amounts subscribed for share
capital in excess of nominal value less costs directly attributed
to share issuances:
30 June 2019 30 June 2018 31 December 2018
-------------------------------------------------------
(unaudited) (unaudited) (audited)
-------------------------------------------------------
GBPm GBPm GBPm
------------------------------------------------------- ------------- ------------- -----------------
Balance at the beginning of the period 153.6 932.4 932.4
Transfer to capital reduction reserve - - (932.4)
Share premium on the issue of Ordinary Shares 248.1 154.5 154.5
Share issue costs (6.8) (2.7) (2.7)
Share issue in relation to acquisition 51.9 - -
Share premium on Ordinary Shares issued to management - 0.8 1.8
------------------------------------------------------- ------------- ------------- -----------------
446.8 1,085.0 153.6
------------------------------------------------------- ------------- ------------- -----------------
17 Transactions with related parties
The fees calculated and payable for the period/year to the
Investment Manager was as follows:
Six months Ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Tritax Management LLP 8.6 7.4 15.3
----------------------- ----------------- ----------------- ------------------
The total amount outstanding at the period/year end relating to
the Investment Management Agreement was GBP4.4 million (30 June
2018: GBP3.8 million, 31 December 2018: GBP4.0 million).
Throughout the period SG Commercial LLP ("SG Commercial") has
provided general property agency services to the Group. SG
Commercial has been paid fees totalling GBPnil (30 June 2018:
GBPnil, 31 December 2018: GBP0.3 million) in respect of agency
services for the period/year. Of the four controlling Members of
the Manager, namely Mark Shaw, Colin Godfrey, James Dunlop and
Henry Franklin, all except Henry Franklin are also the controlling
Members of SG Commercial. There were no fees outstanding at the
period end (30 June 2018: GBPnil, 31 December 2018: GBPnil).
Mark Shaw, who was a Director of the Company during the period,
resigned on 1 February 2019. He is also a Member of the Manager. He
did not receive a fee for his role as a Director.
In accordance with the development management agreement between
Tritax Symmetry HoldCo and Symmetry ManCo, the Group has paid a fee
of GBP2.0 million in the period for the provision of development
management services.
There have been no other related party transactions during the
half year to 30 June 2018 that have materially affected the
financial position or performance of the Group. All related party
transactions are materially consistent with those disclosed by the
Group in its financial statements for the year ended 31 December
2018.
18 Net asset value (NAV) per share
Basic NAV per share amounts are calculated by dividing net
assets in the Condensed Group Statement of Financial Position
attributable to ordinary equity holders of the parent by the number
of Ordinary Shares outstanding at the end of the period/year. As
there are dilutive instruments outstanding, basic and diluted NAV
per share are shown below.
Net asset values have been calculated as follows:
30 June 2019 30 June 2018 31 December 2018
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Net assets per Condensed Group Statement of Financial Position 2,546.2 2,143.8 2,240.9
Mark-to-market adjustment of derivatives 16.7 11.9 12.2
EPRA NAV 2,562.9 2,155.7 2,253.1
---------------------------------------------------------------- -------------- -------------- -----------------
Ordinary Shares:
Issued share capital (number) 1,706,974,948 1,473,556,950 1,474,233,401
---------------------------------------------------------------- -------------- -------------- -----------------
Basic NAV per share 149.17p 145.49p 152.00p
---------------------------------------------------------------- -------------- -------------- -----------------
Basic EPRA NAV per share 150.14p 146.29p 152.83p
---------------------------------------------------------------- -------------- -------------- -----------------
Diluted share capital (number) 1,707,678,831 1,474,229,558 1,474,233,401
---------------------------------------------------------------- -------------- -------------- -----------------
Diluted NAV per share 149.10p 145.42p 152.00p
---------------------------------------------------------------- -------------- -------------- -----------------
Diluted EPRA NAV per share 150.08p 146.22p 152.83p
---------------------------------------------------------------- -------------- -------------- -----------------
19 Capital commitments
The Group had capital commitments of GBP251.2 million in
relation to its forward funded investments, asset management
initiatives and commitments under development land, outstanding as
at 30 June 2019 (30 June 2018: GBP135.1 million, 31 December 2018:
GBP371.1 million).
20 Share-based payment
As explained in note 21, the symmetry management shareholders
have retained an interest in Tritax Symmetry through their holding
of B and C Shares. The B and C Shares vest over a period of five
years and include a put and a call option at the end of year eight
over the entire shareholding. In accordance with IFRS 3 "Business
Combinations" the requirement to remain in continued employment in
order to realise the full value of the B and C Shares has resulted
in the excess value (over and above the amount recognised as
contingent consideration) being accounted for as payments for post
combination services. The amount due to Symmetry Management
Shareholders is based on the adjusted NAV of Tritax Symmetry HoldCo
and is settled in cash to the value of 25% with the balance settled
in either cash and/or shares in the Company, at the sole discretion
of the Company. This amount has therefore been accounted for in
accordance with IFRS 2 "Share Based Payments".
The Directors have considered how the B and C Shares will be
settled once they become due to the Symmetry ManCo directors and
management. The company has the legal option of settling the
share-based payment either via cash or equity, with a minimum of
25% being settled in cash. The Directors have a current intention
to maximise the cash element of the settlement as they believe this
would prevent any potential dilution to existing shareholders along
with acting as the most effective incentive towards the Symmetry
Management Shareholders. The Directors will endeavour to settle all
of the B and C Shares in cash, subject to sufficient funds being
available to the Group at the time of settlement without adversely
impacting the operations of the Group.
The fair value of the B and C Shares has been calculated using a
Monte Carlo simulation model, for the cash settled element of the
liability. As at 30 June 2019, GBP1.4 million has been accrued for
in relation to the share-based payment liability. See note 22 for
further information.
21 Business combination
On 19 February 2019, the Group acquired an 87% economic interest
in db symmetry, a development group with ownership of a combination
of land and land options. The portfolio has the potential to add
approximately 38 million sq ft of logistics assets to the Group's
existing portfolio. The portfolio also allows the Group to develop
a pipeline of assets at an attractive yield on cost which is
expected to be in the region of 7-8%. The structure of the deal,
mostly consisting of land options, minimizes cash drag and allows
the Group to bring each site forward at a time that suits the Group
and wider market conditions. The portfolio was acquired for a cash
consideration of GBP202.4 million (of which GBP5 million was
retained for six months and is classified as a liability as 30 June
2019), share consideration in the Company with a fair value of
GBP52.3 million and contingent consideration of GBP19.1 million. At
the point of completion of the acquisition the Group also redeemed
in full deep discounted bonds with a value of GBP67.7 million.
The B and C Shares issued to Symmetry Management shareholders
are treated as a combination of both contingent consideration for
the acquisition of 13% economic interest in the Symmetry Portfolio
and compensation for post combination services rendered by Symmetry
ManCo to the Group under the development management agreement. This
is as a result of certain vesting conditions attached to the B and
C Shares over the first five years of the contract.
As a result any value derived by Symmetry Management
Shareholders through holding the B and C Shares over and above that
which would have been derived had these shares reached full vesting
based on the completion NAV is considered remuneration to the B and
C Shareholders for post-acquisition services and would be accounted
for separately under IFRS 2.
The value due to the B and C Shareholders for post combination
services is recognised as a liability of GBP1.4 million in the
Group Statement of Financial Position. The liability is fair valued
at each reporting date with a corresponding share based payment
charge recognised in the Statement of Comprehensive Income over the
vesting period.
No non-controlling interest has been recognised at the
acquisition date for the 13% economic interest held by the Symmetry
Management Shareholders due to the put and call options attached to
the shares issued, which are expected to be exercised by the eighth
anniversary of the acquisition at the latest. This results in a
lack of existence of a non-controlling interest, and instead the
fair value of the Symmetry Management Shareholders' interest is
held as an amount due to third parties on the Condensed Group
Statement of Financial Position.
Details of the fair value of the assets and liabilities acquired
and the resultant gain on bargain purchase are as follows:
Fair value
GBPm
Investment property 128.4
Investment in land options 217.4
Investment in joint ventures 30.0
Other property assets 14.3
Development Management Agreement 2.6
Cash and cash equivalents 7.8
Other items (9.2)
Deep discounted bonds (repaid on acquisition) (67.7)
Deferred tax liabilities (42.7)
--------------------------------------------------------------- -----------
Fair value of acquired interest in net assets of subsidiaries 280.9
--------------------------------------------------------------- -----------
Gain on bargain purchase (7.1)
--------------------------------------------------------------- -----------
Total purchase consideration 273.8
--------------------------------------------------------------- -----------
The acquisition-date fair value of the total consideration
transferred is GBP273.8 million. The bargain purchase is a result
of the fair value determined for the assets purchased exceeding the
fair value of consideration transferred. The gain on bargain of
GBP7.1 million purchase has been recognised in the Statement of
Comprehensive Income. The gain on bargain purchase has arisen due
to the accounting treatment, which is detailed in note 22, of
amounts due in respect of B and C Shares. This accounting treatment
has resulted in GBP19.1 million recognised as contingent
consideration, and included within liabilities on acquisition in
line with IFRS 3 "Business Combinations" with the remaining balance
treated as payments for future services in accordance with IFRS
2.
Acquisition costs of GBP4.1 million have been included In the
Statement of Comprehensive Income.
The revenue included in the Condensed Group Statement of
Comprehensive Income from Tritax Symmetry HoldCo is GBPnil. The
total loss for Tritax Symmetry HoldCo since acquisition included in
the Condensed Group Statement of Comprehensive Income is GBP0.3
million.
Had the Tritax Symmetry HoldCo been part of the Group since the
1 January 2019, the combined revenue for the Group at the 30 June
2019 would have been GBP69.2 million; the combined total profit for
the Group would have been GBP67.6 million.
22. Amounts due to third parties
Amounts due to third parties comprise the fair value of the
contingent consideration element of B and C shares along with the
fair value of the obligation under the cash settled share-based
payment element of B and C shares.
As part of the acquisition of db symmetry, the Symmetry
Management Shareholders retained an interest in Tritax Symmetry
through their holding of B and C Shares. The B and C Shares entitle
them to, subject to certain conditions, 13% of the adjusted net
asset value ("NAV") of Tritax Symmetry HoldCo. The B and C Shares
vest over a five-year period and require the Symmetry Management
Shareholders to, amongst other things, remain in the employment of
the Symmetry ManCo for the vesting period. The value of the amount
due, in the event of being classified as a "bad leaver" is the
lower of 50% of the adjusted NAV at the date of leaving and the NAV
at the completion date. In accordance with IFRS 3 "Business
Combinations" the unconditional amount due under the bad leaver
clause is accounted for as contingent consideration and shown as a
liability at fair value in the Statement of Financial Position. The
liability is remeasured at each reporting date to fair value with
movements recognised in the Statement of Comprehensive Income. The
amounts earned through continued service that are accounted for as
a cash settled share-based payment are measured at fair value,
charged over the vesting period and presented as a liability in the
Statement of Financial Position. See note 20 for further
details.
Contingent Consideration Share-based payment Fair value GBPm
Contingent consideration recognised on
acquisition 19.1 - 19.1
Fair value movement recognised (0.5) - (0.5)
Cash settled share-based payment charge - 1.4 1.4
-------------------------------------------------- ------------------------- -------------------- -----------------
Closing balance 18.6 1.4 20
-------------------------------------------------- ------------------------- -------------------- -----------------
23. Subsequent events
On 17 July 2019, the Company declared an interim dividend of
1.7125 pence per share, in respect of the three month period ended
30 June 2019.
24. Contingent liabilities
As at 30 June the Group had an obligation to deliver a building
on one of its sites. The independent estimate for the cost of this
obligation is GBP42.0 million as at 30 June 2019 which will not be
confirmed until the contract is agreed. The expected timing of cash
flows is over the duration of the contract, between December 2019
and December 2020.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LLFIATFIDIIA
(END) Dow Jones Newswires
August 08, 2019 02:01 ET (06:01 GMT)
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