Tritax Big Box REIT plc

Good morning and welcome to our results presentation for the six months ended 30 June 2024. I'm Liam Brown, the Head of Corporate Strategy and Investor Relations for Tritax Big Box. I will shortly hand over to Colin Godfrey, but first a few reminders. This presentation is being recorded and a replay and transcript will be made available on our website shortly afterwards. Secondly, there will be a live Q&A after the presentation, and as a reminder, there are two ways to ask questions. You can either use the chat tool on the webcasting portal to type your question, or if you prefer, you can speak to us over the phone using the dial-in details provided on this morning's announcement. We do find we receive many similar questions on the chat tool, so in the interest of time, we will try to aggregate them if possible. As always, if you have further questions, please do get in touch with us and our contact details are available on our website. Thank you.

Well, thanks, Ian, and good morning, everyone. Thank you for joining us. As usual, I will give a brief introduction and come back later to provide a strategic and market update after Frankie has run through the financial results and operational review. Ian will then coordinate Q&A. I'm pleased to say that this has been another busy and successful period for us and we remain very well positioned to drive growth and returns. We have produced another good set of results and we're on track to deliver attractive earnings growth this year whilst maintaining our strong balance sheet. It's been a busy period and considerable progress has been achieved through the combination and integration of UKCM, taking our GAV to £6.4 billion. Successful execution of our strategy through active asset management and development programme is producing value now and embedding future growth into our business. Following two years of a challenging macroeconomic backdrop, there are positive signs that our sector is at an inflection point in both the occupational and investment markets. We see growing occupational interest and expect this to drive increased lettings activity as the year progresses, against a backdrop of reducing supply. The significant opportunities in our investment portfolio and development pipeline, along with the positive tailwinds in our market, offer the potential to more than double our rental income in the long term, and underpins our confidence in delivering attractive earnings growth for shareholders. I'll cover all of this in more detail shortly, but now I'll hand you over to Frankie to talk through our financial performance in the first half. Frankie.

Thank you, Colin, and good morning. The UKCM acquisition was a significant transaction for us in the period. Our 2024 first half results incorporate the full consolidation of the UKCM portfolio from the middle of May. And so this is reflected in our operational performance for just six weeks of the first half of 2024. Now turning to the key financial highlights for the period, which demonstrate how implementation of our strategy continues to deliver attractive earnings growth alongside careful management of our balance sheet. Headline adjusted EPS has risen by over 10% to 4.35 pence per share. When excluding additional development management agreement income, adjusted EPS has risen by over 4% to 4.1 pence. In line with our policy, we have declared dividends equaling 50% of last year's total dividend, which is a 3.65 pence per share, a 4.3% increase. And with our valuations turning a corner during the period, We report growth in EPRA NTA per share of 1.2% to 179.3 pence. The UKCM acquisition contributed to a near 30% increase in our total portfolio value, which now stands at £6.4 billion. And our balance sheet remains strong, with the LTV reducing to just under 30%. So the headlines demonstrate that it's been a positive half for us. And as you'll hear later, with our market and operational momentum feeling as strong as they have done for some time, we also expect strong operational delivery as we move through the second half. Turning to look at income and earnings in more detail, you can see the further good progress we've made in delivering growth in net rental income. This has increased to over £127 million for the half. We've recognised £12.2 million of DMA income in the period. We also expect to start a second DMA project in the second half, which Colin will cover in more detail later in the presentation. Our operating costs have again shown further improvement on a relative basis. with the operational benefits of further scale resulting in our EPRA cost ratio reducing to 12.5%. And as in previous periods, we look through to our adjusted earnings excluding additional DMA income as the most appropriate measure for basing our dividend. On this basis, our dividends declared of 3.65 pence translates into a power ratio of 89%. And as the bottom right-hand chart shows, there is more to come. The rent already contracted plus the portfolio rental reversion means that our current portfolio ERVs sit a combined 27% ahead of today's passing rent. This provides us with great near-term visibility over the future growth in our net rental income. And now to look at the key drivers to growth in adjusted EPS. starting on the left-hand side and the half-won 2023 adjusted earnings of 3.94 pence. Net rental income growth has been generated by a number of factors, with the largest contribution to growth coming from asset management and development completions. When factoring in the contribution from UKCM and the impact of our net disposal activity from the previous year, net rental income growth has added 0.54 pence to earnings. The DMA income recognised represents a further 0.44 pence of benefit during the period. Higher absolute admin costs have also had a marginal impact on earnings. And I will come on to talk about our debt profile in a moment. But the impact on EPS from higher net finance costs relates to both the increase in average level of drawn debt, plus the fact that this has been drawn down at our higher marginal cost of borrowing. So all of this gets us to the 10.4% increase in adjusted earnings to 4.35 pence. And when excluding the additional DMA income, adjusted EPS becomes 4.1 pence per share. Turning to our operational performance in the period, we've outlined here results of the good progress we continue to make across asset management and development. Starting with asset management, performance is in line with expectation and we've grown our rental income by 8 million pounds. As the top left hand chart shows, our lease events this year are largely second half weighted, with a further 18% of the portfolio subject to review in half two, compared to just the 7.7% taking place in the first half. If we look at what we've delivered across all lease events in the period, the bottom left tables summarise this. the average passing rent has been increased by 10.7%, or 5.1% when annualised. And turning to development on the right-hand side, we continue to see significant strengthening across our lettings pipeline. We now have over £18 million of rent attached to development lettings which are in solicitors' hands, and we expect to see a pick-up in the speed of conversion through the second half of the year. These lettings spanning 1.8 million square feet are anticipated to be delivered at an average yield on cost of over 7%. In half one, we commenced 0.9 million square feet of development starts. Of this, 0.4 million square feet relates to a DMA contract where the freehold has been sold and we are now developing for the owner-occupier. As I touched on earlier, given our expectation to commence a second DMA project later this year, we are increasing our guidance for DMA income. We now anticipate £25 million of DMA income this year and a further £10 million in 2025. We will be looking to redeploy the majority of these profits back into the development pipeline or other investment opportunities. And so to conclude on our operating performance, we continue to make good progress in asset management and development. And we are well positioned for a busy second half of the year. Now turning to capital values, and with investor confidence starting to return, particularly over the last few months, we feel that we have reached an inflection point with respect to investment values. our portfolio equivalent yield remained broadly stable at 5.7%. ERV growth across the sector remains positive. As you can see from the middle chart, our own portfolio ERVs have increased by 1.9% across the six months. Whilst this growth has moderated against recent years, as has the inflationary environment. Colin will explain why we feel confident over the levels of rental growth moving forwards. But irrespective of the level of future ERV growth, capturing the current level of portfolio reversion, which now stands at 25.5% across the logistics assets, provides us with a great opportunity to deliver attractive earnings growth over the medium term. And finally on the right, you can see how our portfolio valuation movements have evolved over the last two years. I'm pleased to say that we are now back into positive territory, experiencing capital growth of 0.7% across the half year. And here, the NTA bridge provides more detail behind the growth in underlying NAV. As you can see, after operating profit, the development assets were the biggest contributor, generating 1.2 pence of NAV growth, followed by our investment assets and our land option portfolio. The UKCM acquisition was broadly NAV neutral, with dividends paid being the other constituent part to the overall growth in NTA of 1.2%. With regards to capital allocation, we have deployed broadly half of our £250 million annual target into development in this first half. And from an investment perspective, in addition to the UKCM portfolio, we have made one big box asset purchase for £46 million. With no disposals taking place during half one, we are targeting £150 to £200 million of disposals from our non-strategic assets during the second half. And we are already in advanced negotiations across a number of these assets. And alongside our strong operating performance, we have maintained a robust balance sheet with stability across our key financing metrics. Firstly, our available liquidity remains in excess of half a billion pounds. Our average cost of debt remains attractive at 3%, with 95% of the drawn amounts either fixed or hedged. And Moody's upgraded our credit rating outlook to positive in the period. And so we now stand with a BAA1 positive rating An additional benefit of the UKCM transaction was the company's attractive balance sheet, and this has contributed to a reduction in the group loan to value to 29.9%. The UKCM loan arrangements acquired were also attractive, and you can see the new debt profile on the left. we inherited two 100 million pound fixed term facilities, shown here in purple, with an average coupon of just 2.9%, and a 150 million pound RCF, highlighted in gold, which in the last few weeks we have refinanced. In doing so, we've already been able to implement some of the financing synergies available from the combination. by taking the facility from a secured to unsecured framework and benefiting from a 70 basis point reduction in margin. Looking at our debt maturities, we have two facilities shown by the dashed red lines with options to extend by up to two years, which if exercised in full would take our average maturity to over 5.2 years remaining. And so bringing this all together, our balance sheet continues to provide us with a robust and flexible position from which to execute our strategy. And finally, some thoughts from me around guidance, which underpins our confidence in delivering attractive and growing returns as we move forwards. Our high quality investment portfolio provides us with a significant inherent opportunity to drive 25% income growth through capturing its inbuilt reversion. With 64% available for capture via lease events occurring prior to the end of 2026. We are targeting the realization of 150 to 200 million pounds of non-core asset sales in the second half. This capital will be redeployed into our development pipeline, where we maintain guidance for 2024 of £250 million into development. Development is where we see significant opportunity, including crystallising the 1.8 million square feet of lettings currently in solicitors' hands. And encouragingly, we are seeing upward pressure on our development yield on cost target of 7% for these assets. And our continued financial discipline means our balance sheet remains in great shape. This has been further enhanced by the impact of the UKCM combination and means we have good optionality to support growth in the business as we move forwards. Finally, as I covered earlier, we have increased our DMA income guidance for financial years 24 and 25. And as Colin will explain, we have real visibility over 41% of growth to our current passing rental income. And stepping back, given the inflection point we are seeing in our markets, we expect to see greater total returns for shareholders, along with greater opportunity to deploy our capital over the next 12 months. And so that concludes the financial review, and I will now hand you back to Colin. Thank you, Frankie.