Tritax Big Box REIT plc

Good morning and welcome to our first half results presentation. I'm Ian Brown, Head of Corporate Strategy and Investor Relations for Tritax Big Box. I'm joined here this morning by Colin Godfrey, our CEO, and Frankie Whitehead, our CFO. As a reminder, after the presentation there will be an opportunity for investors and analysts to ask questions. To ask a question, please use the web chat feature, or if you prefer to ask your question verbally, please ensure you've dialled into the presentation using the details in this morning's announcement. Finally, a replay and a transcript will be made available on our website shortly after this morning's meeting. And with that, I'll hand over to Colin Godfrey.

Thanks, Ian. And good morning, everyone. I'm pleased to present the 2023 first half results for Tritax Big Box and to provide you with an update on our market and our positive operational progress. I'll start with a brief introduction. Frankie will run through our financial results for the first half, and I will then explain how our strategy is delivering attractive performance. And Ian will then wrap up with Q&A. In March this year, we reported strong operational performance for 2022 against the backdrop of weakening capital values. And despite continued macroeconomic uncertainty, I'm pleased to confirm that our strategy continues to deliver strong performance for our business. I want to start by highlighting four important factors from our first half. Firstly, we have continued our strong operational performance from last year, with all key metrics being positive. Our asset values have marginally increased, earnings per share are up, and our costs are down, resulting in a positive total return. Secondly, our high quality assets and customers not only insulate us against an uncertain economic future, but provide opportunity for value growth. There are clear asset management opportunities and significant development value to unlock going forwards. On top of this, we have a strong balance sheet providing flexibility to take advantage of the market opportunities that we're seeing. Thirdly, the market remains robust. Occupational demand has largely normalised and there have been some increases in near-term supply, but rental growth remains healthy and the powerful long-term structural drivers, deglobalisation, Brexit, cost efficiencies and supply chain challenges, all remain. And lastly, we're very well placed to take advantage of these market dynamics. There is already significant earnings growth baked into our business through our rental reversion and development rents, which have yet to start flowing. And on top of that, we have the UK's largest logistics-focused land portfolio that has the potential to drive strong income growth into the longer term. And all of this is before we factor in future rental growth, which will further enhance earnings. Frankie will now explain our financial performance. Frankie.

Thank you Colin and good morning everyone. Our 2023 first half results demonstrate a continuation of the strong operational performance that we delivered during the course of last year and includes further growth in adjusted earnings. Following the significant correction in asset values during the second half of 2022, encouragingly, investment yields have remained stable over the period, resulting in a return to NAV growth for this six months. And whilst we have been selectively deploying capital where we see attractive returns, our successful disposals have ensured our loan-to-value and liquidity levels remain prudently positioned, meaning that we can continue to take advantage of the opportunities that we are seeing. Turning to the key financial highlights for the first half. Our adjusted EPS has risen by 5.6% to 3.94 pence. In line with our policy, we have declared dividends equaling 50% of last year's total dividend, which is 3.5 pence per share, a 4.5% increase over the period. With our valuation yield stable, the EPRA NTA growth of 1.5% to 183 pence has been driven by the capitalised effect of underlying income growth. And as you can see from the bottom left-hand graph, we still have a significant level of income growth embedded within our portfolio. The rent secured within our development pipeline means that our contracted position rests 6% above today's passing rent, whilst the ERV of the portfolio now sits a further 21% ahead of today's contracted rental position. This provides us with good visibility over the future growth in earnings and I'll come back to this in a moment. So, as I said, we're continuing to deliver strong operational performance and we expect this to continue as we make our way through the second half of the year. Further good progress has been made in terms of delivering growth in net rental income. This has increased by 7.7% to £109.3 million for the first half. Once again, this was predominantly driven by development completions and like for like rental growth. The top right hand chart shows the moving parts behind contracted annual rent, which has opened and closed the period at £224 million, with any income growth being offset by our disposals. This recycling of capital will, however, be accretive to performance, and Colin will touch on this later in the presentation. As previously signalled, the EPRA cost ratio has reduced to our lowest ever recorded level to 12.6%. This reflects the lower investment management fee following the reduction to net asset values last December, which, despite the inflationary backdrop, has led to a 9.8% reduction to admin costs over the period. As mentioned, growth of 5.6% in adjusted earnings per share has positioned our earnings along with our dividend at 3.94 pence and 3.5 pence respectively. Our dividend payout ratio stands at 89%. So net rental income has grown and so has adjusted earnings, as you can see here. starting on the left hand side and the 2022 half one adjusted earnings of 3.73 pence. We've delivered 3.6% of like for like rental growth from the investment portfolio, along with the income growth coming from development and new lease completions, which was the biggest contributor, adding 0.4 pence to EPS. Our net disposal activity is offset by that reduction to admin costs, which includes a 14% reduction in the investment management fee. I will come on to talk about our debt profile in a moment, but the reduction to EPS from higher net finance costs relates to a 13% increase in the average level of net debt, rather than to any real change to the average cost of debt throughout the period. And finally, you will see that there was a further reduction due to the fact there was no DMA income recognised for this first half, when compared against the £2.6 million of DMA income recognised in the prior period. So in total, you can see the adjusted earnings grew to 3.94 pence per share, an increase of 5.6% over the period. Now turning to capital values. And with investor confidence starting to return as we progressed through the period, we saw our portfolio equivalent yield remain stable at 5.3%. ERV growth across the sector remains positive. As you can see from the middle chart, our own portfolio ERVs have increased by 3.9% across the six months. It's important to recognise that irrespective of the level of rental growth moving forwards from here, capturing the current level of portfolio reversion, which now stands at 21.3%, provides us with a great opportunity to grow our earnings attractively over the medium term. And you can see on the right, the stabilised yield positioning together with that income growth means that we have recognised a portfolio valuation surplus of 1% for the half. Moving on to slide 11, we demonstrate here how we continue to conservatively manage our balance sheet whilst enhancing returns. Looking at the left-hand side, we have been actively recycling capital into higher returning opportunities. Capital allocation has remained predominantly focused on our development programme, where we have deployed £109 million in the period. This is alongside one opportunistic purchase for £58 million, which Colin will walk you through shortly. And we've been very pleased with the progress made with disposals and the level of interest shown in a number of our assets. We completed or exchanged on £235 million of disposals in the period, which were all conducted at or above prevailing book values. Taking into account the activity that we expect to conduct through the second half, our net debt position should remain broadly level over the course of 2023, therefore leaving us well positioned to capture further opportunities that we may identify. Moving to the top right chart, we have maintained significant operating headroom under both loan to value and interest to cover covenants. Despite the 20% correction to values witnessed last year, values would need to fall by a further 45% before we encroach on covenant levels. And our net debt to EBITDA ratio remains strong at 8.3 times. And finally, the bottom right hand chart is an illustration of how our average cost of debt is expected to change over time. The illustration assumes that net debt remains static, applies our current hedging profile and assumes that all refinancing is done at today's marginal cost of debt. Given the limited refinancing events over this timeframe, any increase to our average cost of borrowing is minimal and remains beneath 3% over the period through to the end of 2025. Slide 12 shows that we have maintained a robust balance sheet, which continues to provide real certainty around our financing. As you can see, we have maintained many of our key metrics over the six months. Firstly, our available liquidity remains in excess of over half a billion pounds. Our average cost of debt remains unchanged at 2.6%. And the ratios that I walked you through on the previous slide have allowed Moody's to reaffirm our BAA1 positive credit rating during the period. In terms of our fixed to floating ratio, this is also unchanged with 83% of total drawn debt fixed and the balance 100% hedged. Looking at the upcoming debt maturities, we have a revolving credit facility due to mature in December 2024. We have commenced the refinancing process, which has so far indicated strong appetite from both existing and new lenders. This is a process that we hope to conclude in the coming months, at which point there will be no further maturities due for the next three years. And so bringing this all together, we have an extremely robust and liquid balance sheet, providing a stable platform from which to execute our strategy. Looking forwards, this rental income bridge illustrates the significant potential held within our future land pipeline. This provides us with an attractive organic development opportunity over the long term, which allows us to grow today's passing rent from £212 million, shown on the left-hand side, to potentially more than £600 million, shown on the far right. Moving from the left, this includes £12 million of rent, which is contracted in relation to assets under construction. The vast majority of this income will commence prior to the end of 2023. We have a further £8 million of potential rent within the current development pipeline, which is currently unlet, which we expect to deliver by mid 2024. and looking ahead to the anticipated starts over the next 12 months. We have a potential £25 million of rent attached to these schemes. The rent here is split broadly 50-50 between schemes that we expect to deliver through the second half of 2024 and those we expect to deliver during the first half of 2025. Further ERV growth has led to an improved mark-to-market rental position. with this rental reversion providing a further £48 million of opportunity. Putting all of this into the context of the medium term, this gets us to the green bar totalling £305 million, which is some 44% ahead of today's current passing rent. Moving further out, we continue to progress our near-term and future development sites through the planning process, And to remind you, this chart assumes no future rental income growth beyond today's ERV level. And so with our reversion and through our development pipeline, we have this highly accretive organic way to grow our income over the short, medium and long term. And finally from me, I want to finish by outlining some financial guidance. Our high quality investment portfolio underpins our core income return and we will be looking to maximise the opportunity inherent within the current portfolio reversion. Our prudent management and financial discipline, particularly over the last 12 months, puts our balance sheet in a strong position and it provides the business with good optionality around our future funding needs. We paused our disposal plans in half to 2022 due to market conditions. However, we have successfully executed on 235 million pounds of disposals over this six months. And we're targeting a further 100 to 200 million pounds of disposals during the second half of the year. And we continue to invest for growth. We expect our capital deployment to be focused on development And we maintain guidance for 2023 of £200 to £250 million deployed into development. And so looking forwards, my overall message is that a large part of our near-term income growth has already been secured through development lettings or is embedded within our existing reversion. And together with our balance sheet strength, this gives us good visibility on how we will drive both earnings and dividend growth into the medium term. And so that concludes the financial review, and I shall now hand you back to Colin.