It was a year of two halves for Tritax EuroBox, which reported a large fall in EPRA net tangible assets (NTA) over the year to 30 September 2023 driven by falls in the value of its portfolio in the first half of its financial year.
The value of the group’s European logistics portfolio fell by 14.5% during the year, the vast majority coming in the first half and just a 0.3% fall in the second half – indicating that values have stabilised following a large yield shift at the back end of 2022 and at the start of 2023 due to higher interest rates.
The group’s EPRA NTA was €1.02 per share at 30 September 2023 (Sept 2022: €1.38), while its portfolio was valued at €1,561.9m (Sept 2022: €1,765.6m).
Earnings up 30%, fully covering dividend
On the operational side, the company reported robust results. Rental income was up 17.6% to €68.1m, reflecting the full-year effect of prior year acquisitions, rent indexations, asset management and development activity.
Like-for-like rental growth was 4.5% (7.8% including new income from the Barcelona and Strykow extensions).
Adjusted earnings per share was up 30% 5.51 euro cents per share, fully covering (110.2%) its dividend of 5.00 euro cents.
Asset management, indexation and development added €6.3m to annualised rental income. The company completed a 109,083 sqm extension in Barcelona, adding €2.3m to annual rent, and commenced an 8,841 sqm extension in Poland, increasing the annual rent by €0.5m.
Meanwhile it signed three new leases totalling €4.3m of annual rent, an increase of €0.6m above previous rent or guarantees.
The growth in income and a lower management fee meant that adjusted EPRA cost ratio was down to 24.2% (Sept 2022: 29.5%), in line with its target range of 20-25%.
More rental growth to come
The portfolio has rent reversion potential of 17.6% or €13.4m, reflecting a like-for-like increase in portfolio estimated rental value (ERV) of 6.5%. 97% of leases subject to annual rental increases, with 81% linked to inflation.
The company has an EPRA vacancy rate of 5.5% reflecting the completion of speculative forward fundings in Sweden and Italy, and a lease expiry in Poland.
Disposal strategy going well
The company previously outlined plans to sell €150m of assets. It has sold around €140m of assets (including post-period end sales).
It sold an asset in Hammersbach, Germany, in August for €65m and, post period end, two assets in Bochum, Germany, and Malmö, Sweden, for €47m and €28m respectively. All three were either broadly in line or above book value.
The company said the disposals will have an impact on earnings next year (but should be offset by new lettings and other asset management), and is continuing to target a fully covered dividend at the same level.
Robust balance sheet with low cost of debt
The sales proceeds are being used to reduce debt. Following the post-period end sales, the group’s loan to value (LTV) was 44%. 100% of debt is at fixed rates or with caps in place, with an average cost of debt of 1.30%. The weighted maturity was 3.5 years, with the earliest refinancing in the fourth quarter of 2025 – its RCF facility that the company said should be fully undrawn by the time of refinancing.
The company has plenty of headroom on its debt covenants with the LTV covenant of 65% and interest cover of 4.8x, versus a covenant of 1.5x.
Robert Orr, chairman of Tritax EuroBox plc, commented:
“Over the past 12 months we have made good progress on delivering the strategic priorities we outlined a year ago. We have generated strong rental income growth and our cost ratio is now within our target range. This improved operational performance has led to a substantial increase in adjusted earnings and a fully covered dividend for the year.
“We have not been immune to the rapid increase in interest rates, which has adversely impacted our portfolio valuation over the year. However, the marginal decline in the second half and pricing of recent sales broadly in line with book values, indicates some market stabilisation. Further planned disposals are expected to reduce leverage as we move through 2024.
“While mindful of the ongoing challenging geo-political and macro-economic backdrop, our high-quality portfolio and strong customer base mean the Company remains well placed to benefit from the structural tailwinds and favourable underlying market dynamics in the European logistics sector.”
EBOX : Tale of two halves for Tritax EuroBox as values stabilise