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Tritax EuroBox plc focuses on the structurally undersupplied Continental European logistics market, capitalising on Tritax Group’s extensive logistics experience and long-established network of key occupier, owner, developer and agency relationships.

The Company’s objective is to manage a well-diversified and environmentally sustainable portfolio of European logistics assets in order to deliver a secure dividend and an attractive capital return.

4.75%

The Company invests in continental European logistics real estate assets which deliver secure and growing levels of income.

On a fully invested and geared basis, Tritax EuroBox targets an initial Ordinary Share dividend yield of 4.75% p.a.¹ by reference to the Issue Price, which the Company expects to increase progressively through regular indexation events inherent in underlying lease agreements and by increased rents following the expiration of leases and the subsequent capturing or market rental value growth.

The Company pays dividends on a quarterly basis. Dividends are declared in Euro and paid, by default, in Sterling. However, Shareholders are able to elect to receive dividends in Euro.

The date on which the Euro/Sterling exchange rate is set will be announced at the time the dividend is declared and a further announcement will be made once such exchange rate has been determined.

1 Euro denominated returns, by reference to IPO issue price, on a fully invested and geared basis. These are targets only and not profit forecasts. There can be no assurances that these targets will be met and they should not be taken as indications of the Company’s expected or actual future results. Accordingly, potential investors should not place any reliance on these targets in deciding whether or not to invest in the Company and should decide for themselves whether the targets are reasonable or achievable.

9% pa

The Company invests in prime continental European logistics real estate assets which deliver an attractive capital return and secure income.

On a fully invested and geared basis, Tritax EuroBox is targeting a total return on Ordinary Shares in excess of 9% p.a.¹, by reference to the Issue Price over the medium term.

1 Euro denominated returns, by reference to IPO issue price, on a fully invested and geared basis. These are targets only and not profit forecasts. There can be no assurances that these targets will be met and they should not be taken as indications of the Company’s expected or actual future results. Accordingly, potential investors should not place any reliance on these targets in deciding whether or not to invest in the Company and should decide for themselves whether the targets are reasonable or achievable.

45% of GAV

Tritax EuroBox seeks to use gearing to enhance equity returns. The level of borrowing is on a prudent basis for the asset class, and seeks to achieve a low cost of borrowing, whilst maintaining flexibility in the underlying security requirements and the structure of both the portfolio and the Company.

The Company maintains a conservative level of aggregate borrowings with a medium term target of 45% of the gross asset value of the assets held or controlled by the Company at the time of borrowing and a maximum limit of 50% of the gross asset value of assets at the time of borrowing.

* On a fully invested and geared basis. The Dividend and Return targets stated above are targets only and not a profit forecast.
† A medium term target

The case for logistics in Continental Europe

Occupier demand for Continental European logistics assets is in the midst of a major long-term structural change principally driven by the growth of e-commerce. This is evidenced by technological advancements, increased automation and supply-chain optimisation, set against a backdrop of resurgent economic growth across much of Continental Europe.

Tritax Group believes that the current market dynamic in Continental Europe closely resembles market conditions in the UK prevalent approximately five years ago, when online retail penetration began to accelerate.

This rising demand for modern logistics assets is coupled with significant supply shortages in key markets, which provides a strong foundation for rental growth.

Occupier driven demand

Occupier demand is for Continental European logistics assets is undergoing a major long-term structural change principally driven by three dynamics:

Supply chain optimisation: Occupiers are strategically moving to fewer, larger and more modern distribution assets. This provides them with economies of scale and the opportunity to automate processes which would not be possible in smaller properties, helping them to improve their systems and reduce costs. Larger units also tend to be higher, allowing for mezzanine floors and more efficient automated racking and storage systems.

Meeting the needs of the modern consumer: Occupier demand for Continental European logistics assets is undergoing major long-term structural growth. Changes in the retail market and the move to online shopping are one of the key drivers of this. Faced with high costs of occupying shops and rising online retail spending, retailers are looking to consolidate their operations and have a combined in-store and online presence. Big Boxes are fundamental to this, enabling retailers to offer consumers access to their entire product range and then quickly, flexibly and cheaply deliver those orders and manage returns. Online sales are now increasing rapidly in many Continental European countries, following the trend seen in the UK, which began a similar growth trajectory around five years ago.

The need for sustainable assets: Modern Big Boxes help our Tenant Partners meet their sustainability objectives. By occupying assets built with state-of-the-art design and materials, and which incorporate initiatives such as low-carbon technologies and energy efficiency, they can minimise their environmental footprint and optimise their use of natural resources.

 

Constrained market supply

Unlike the UK market, where Big Boxes are located along logistics ‘corridors’ created by major motorways, in Continental Europe the prime logistics locations are typically close to densely populated conurbations. There are comparatively few sites in these locations which can accommodate very large Big Box facilities, which have a suitable and affordable labour supply, and which can also meet the requirements for power and transport links. In our experience, municipalities are often reluctant to zone for the largest properties, due to the associated traffic disruption, impact on local infrastructure and relatively lower level of job creation due to automation, instead preferring development of smaller units.

More generally, the amount of available land zoned for industrial uses has decreased, particularly around major urban centres, as developers have preferred to convert ageing industrial properties to higher-value uses such as residential. This, combined with a lack of speculative development over the last decade, is forcing occupiers to pursue pre-let or build-to-suit solutions. The consequence is that logistics vacancies in Continental Europe are at, or near, all-time lows.

Rental growth

The basic economics of the combination of strong occupational demand in areas of limited supply and inflating build costs would normally be expected to lead to rents rising. Historically the European industrial and logistics development market has been able to create supply through zoning more land for logistics use, thereby suppressing any rent rises. However, looking forward, we believe that the situation is likely to be different, particularly when considering the very largest buildings, and the sites on which they are built. The supply of these very large sites, in the locations where occupiers typically want to be, is extremely limited. Hence the developers who source these land parcels are having to pay ever higher prices.

In addition to land price inflation, the other key component of the development cost is the rising cost of construction. This is being caused by raw materials and labour costs inflating.

The combination of both of these factors is already leading to upward pressure on rents. It is worth noting that until recently these increasing input costs have not led to strong rental growth. The principal reason being that the values at which developers can sell the finished property have been rising, due to the falling investment yields in the sector. This has meant that developers have not needed to increase rents, as the higher costs have been offset by higher sale prices. However, investment yields in the sector are plateauing which means that developers are being forced to demand higher rents from occupiers to maintain their profitability on projects and cover the increased input costs.

Our competitive strengths

The Directors believe that the Company has the following key competitive strengths:

Key growth areas

The Company’s focus on distribution or logistics real estate assets in Continental Europe offers investors exposure to a key asset class driven by the continuing evolution of the retail sector in Europe. The countries targeted are Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Slovakia, Spain and Sweden.

Favourable demand/supply dynamic

The imbalance of occupational supply and demand remains favourable for landlords, pointing to the potential for rental growth;

Asset availability

The Company is confident that the Manager’s extensive contacts within the European logistics market, covering occupiers, developers and investors will continue to provide a top quality pipeline of assets for consideration;

Secure growing income stream

The Company’s dividend yield target will be met by rent generated from lease agreements with institutional-grade tenants, which incorporate indexation provisions, allowing the Company to benefit from a secure inflation protected income stream;

Extensive European expertise

The Manager has the necessary expertise to establish, manage and grow a logistics portfolio in Europe. Through a combination of Tritax Group staff who are experienced in the European real estate investment market and have extensive knowledge of the logistics sector and deep understanding of the intricacies of logistics operators, and strategic alliances with specialist logistics asset management platforms across Europe, the Manager will source and manage an expanding portfolio;

Development benefit with minimised development risk

The Company funds and acquires developments which are either pre-let or have the benefit of rental guarantees. The Company may invest in land zoned for logistics use which has the relevant permits and authorisations for constructing logistics assets. In all of these cases the Company will receive income from the developer. The level of income is determined by the amount of capital invested. This exposure allows the Company to access high quality new logistics assets in a way which reduces a number of the risks associated with development. Save for assets benefitting from rental guarantees, the Company will not undertake speculative development.