Tritax Big Box REIT said it was looking to recycle capital from the sale of specific assets in order to fund its development pipeline.
In a trading update, the group said it was targeting an average yield on cost of between 6% and 8% across its developments, well above the group’s current portfolio valuation yield of 4.5%.
Development assets now represent around 11% of the group’s gross asset value following the acquisition of developer db symmetry and the formation of Tritax Symmetry last year.
Tritax Big Box said it was making good progress on its development programme, having completed five pre-let forward funding developments, totalling 4.3m sq ft, and three new developments with Tritax Symmetry, totalling 0.4m sq ft, during 2019.
Its current pipeline includes two pre-let forward funded developments (2.3m sq ft) and three Tritax Symmetry developments (0.8m sq ft) – 92% of which are pre-let.
Its near-term development pipeline consists of 11.5m sq ft, which either has planning permission in place or applications pending. At the company’s development site in Littlebrook, Dartford, it said it was in advanced discussions with a potential occupier on a subject to planning basis.
Colin Godfrey, chief executive, said: “In 2020, our primary focus will be on delivering value to our shareholders through our in-house pre-let developments which we expect to fund primarily by recycling capital from the sale of specific investment assets, and disposal plans for the current year are already underway.”
“We continue to identify opportunities to add further value through acquiring new investment assets and forward funded developments,” he added.
The group’s portfolio grew in value in the second half of 2019 by 0.9% on a like-for-like basis, and now stands at £3.94bn. It has a portfolio of 58 assets that produces an annual rental income of £166.6m.
During 2019, the group settled seven rent reviews (comprising 15.4% of total rental income), adding £0.7m to its annual rental income at an average annual like-for-like uplift of 2%. The group also concluded two lease extensions during 2019, including an 18-year lease extension with Sainsbury’s to create a 25-year term and a lease extension of five years with Whirlpool to create a six-year term.
Godfrey added: “The market for very large Big Box logistics assets continues to display strong fundamentals for 2020 and the longer term. Structural tailwinds are supportive as occupiers upscale the size of their logistics assets to further increase efficiency, reduce costs and rationalise their supply chains, in the face of the rapid transition to omni-channel purchasing by consumers.
“This year, we see the potential for further sectoral yield compression after a largely static 2019, which was impacted by the uncertainty of Brexit and the general election. Investment volumes have the potential to increase, driven by activity from overseas investors and institutions continuing to re-weight their portfolios.
“Occupier take-up looks promising for 2020 with over 10 million sq ft of lettings reported to be under offer and carried over from 2019. Speculative supply has slightly decreased from 2018, but importantly reduced by c.50% for buildings over 500,000 sq ft, where demand continues to outstrip supply. Attractive levels of rental growth are therefore expected to continue, which when combined with 53% of our contracted rental income receiving fixed or minimum increases will support the group’s progressive dividend policy.”
BBOX : Tritax Big Box REIT eyes sales as focus shifts to development