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Full Year Results for the 12 Months Ended 30 September 2020

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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.

90-100% of our Adjusted EPS pa*
9% pa
45% of GAV

* Aim to pay out 90-100% of our Adjusted EPS each year, with a minimum payout of 85%. 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 a robust economic position 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

Growth in e-commerce is a highly significant driver of occupier demand, but only part of the story. In addition, occupiers are striving to increase their supply chain efficiencies and upgrade their logistics facilities from secondary product to modern well-located stock. This often results in a consolidation of space, into fewer, larger units, enabling occupiers to centralise and optimise their inventory management.

Increasing levels of centrally held inventory is driving demand for big box facilities. According to Prologis, each online retail sale typically requires up to three times more space than traditional in-store sales. The need for this space is exemplified by Amazon, which utilises some of the largest warehouses in Europe.

The advent and rapid adoption of new technology is also having a marked impact on the nature of occupier demand. Logistics operators across Europe have been relatively slow to adopt automation and smart technologies compared with some markets, but this is changing quickly. The combination of the wider spread adoption of automation and the growth in e-commerce are both driving demand for high quality warehouse and logistics facilities.

Occupiers are increasingly in search of specialised e-commerce fulfilment centres, with high-tech, flexible space, and with warehouse automation becoming more common, they are investing more heavily in their facilities. This creates the incentive for a longer-term commitment to their premises, due to prohibitively high relocation costs and the need to amortise capital outlay over a long time period. Indeed, there are many instances where automation costs exceed construction costs and in some cases, investment values. For investors, this can be seen as a strong commitment from the tenant.

Not all of the new demand is for the very largest of facilities. A location in close proximity to the consumer base is crucial and smaller logistics sites within, or just outside of the metropolitan centres will be increasingly important as businesses compete to drive down the cost and time of accessing these urban markets. Small-scale logistics sites within close proximity to consumers will remain highly desirable, as part of the “last-mile” element of the delivery chain.

Constrained market supply

Rising occupier demand for Grade A facilities, and the relative lack of speculative development over the last decade, has created significant supply shortages of high quality stock. Logistics operators are increasingly seeking to centralise their activities in modern logistics facilities. However, an aversion to risk of void on speculatively built space and the relative dearth of appropriate development finance (for schemes without pre-let conditions), combined with high construction costs has dampened speculative development activity in recent years, forcing occupiers to pursue pre-let or build-to-suit solutions.

While a lack of substitute locations will drive up rents, differing approaches to planning, along with availability of land mean that each market has a unique supply dynamic. Locations with tighter planning regulations or a lack of available land will be less able to respond to rising demand and this will push rents higher.

In general, there has been a reduction in the availability of land zoned for industrial land use, particularly around major urban centres, with developers preferring to convert aging industrial properties to higher land value uses such as residential. The reduction in land zoned for industrial use limits the supply response and with strong demand for these locations it is increasingly hard to find and assemble very large sites in some markets. This is feeding into rising land prices, and will ultimately help drive rental growth.

Rental growth

Across Europe, we expect online sales to account for a rising portion of retail trade. Based on the trajectory of the UK market, we estimate that the German market lags the UK by two to three years, while France, the Netherlands and much of Western Europe are around five years behind (based on e-commerce as a proportion of total retail sales). The markets of Southern Europe and CEE are around ten years behind on average (based purely on penetration rates). The future growth in e-commerce across Europe and occupiers drive towards modernisation of supply-chains, combined with the lack of stock, offer opportunities for rental growth.

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.