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Tritax Big Box dives as it announces dilutive share issue

Tritax Big Box dives as it announces dilutive share issue – Tritax Big Box REIT has conditionally agreed to acquire an 87 per cent. economic interest in db Symmetry, which owns one of the UK’s largest strategic land portfolios for the development of Big Box real estate assets and related logistics facilities.

Created in 1996, db Symmetry has evolved to become one of the leading independent privately owned logistics development companies in the UK. The enterprise value attributed to db Symmetry by the Acquisition is GBP370 million, subject to certain adjustments in respect of cash, debt, working capital, tax and other operational liabilities. The portfolio of new assets includes both consented and strategic land, offering the company phased access to a total new land portfolio of over 2,500 acres which they believe will be capable of delivering approximately 38.2 million sq. ft. of Big Box assets across key logistics locations in the UK (subject to planning, as necessary). Under current plans, this equates to 26 schemes for the development of Big Box assets and related logistics facilities. Five assets totalling approximately 600,000 sq. ft. are currently under construction, all are due for completion within the next six months, with plans for the on-going development of the rest of portfolio extending out to the end of 2028.The existing portfolio comprises 29.8 million sq. ft. The board is targeting an average yield on cost for the new assets of approximately 7-8 per cent. (as compared to the valuation yield of the existing portfolio of 4.4 per cent. as at 31 December 2018).

Tritax will pay approximately GBP202.4 million in cash for 69.1% of db Symmetry and approximately GBP52.6 million in shares for another 17.9%. They will also repay GBP67.7 million of deep discounted bonds issued by db Symmetry. The balance (13%) will be held by db Symmetry’s senior management. The acquisition is expected to complete on 19 February 2019.

£250m dilutive issue

In order to fund the acquisition (and other investments), the company is proposing to raise approximately GBP250 million (before expenses) through a Placing and the Open Offer, of, in aggregate, 192,291,313 new ordinary shares at 130 pence per share. The issue price represents a discount of 6.3 per cent. to the closing price of 138.7 pence as at the close of business on 23 January 2019 and a discount of 9.6 per cent. to the unaudited Basic Net Asset Value of 143.75 pence as at 30 June 2018 (net of the interim dividend of 1.675 pence paid on 9 August 2018).

The new shares equate to 15.8 per cent. of the existing shares. Shareholders will experience a dilution to NAV of approximately 1.6 per cent. as a result of the issue. In the view of the board, the expected benefits significantly outweigh the dilutive effect of the issue.

The directors expect to continue to maintain a progressive dividend policy, with a target dividend of 6.7 pence for the year ended 31 December 2018, payable quarterly, representing a 4.7 per cent. increase in the total dividend of 6.4 pence declared for 2017, in excess of the rate of RPI inflation over the period from 1 January 2017 to 31 December 2017.

The new assets

The new assets are concentrated around the main motorway arteries of the UK and primarily around the core locations of the M1, the M40 and the North West’s prime M6 and M62 corridors. All pre-let sites will be developed on a built-to-suit basis and institutional specification ensuring that the completed buildings meet the occupiers’ individual needs whilst conforming with the wider institutional market requirements. Where any speculative development is undertaken, sites will be developed to an institutional specification so that such buildings can also be fitted out to meet occupiers’ individual needs.

The five assets under construction are located at Doncaster, Bicester and Aston Clinton.

[QD comment: Tritax’s shares have dropped by 3.5% on the news. Issuing shares below NAV is best avoided, it can create a worry in investors’ minds that the board, having got away with it once, will come back time and again for more money. Each time shareholders have to stump up cash or face being diluted. If the deal had been structured as a rights issue, this problem could have been avoided. The risk is that such an issue entrenches the discount. There is potential upside in this deal, however, if Tritax can build on the extra space and revalue the new properties in line with its existing assets.]

BBOX : Tritax Big Box dives as it announces dilutive share issue

 

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