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Edited Transcript of BBOX.L earnings conference call or presentation 17-Mar-20 8:45am GMT

Full Year 2019 Tritax Big Box Reit PLC Earnings Call

West Sussex Mar 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Tritax Big Box REIT PLC earnings conference call or presentation Tuesday, March 17, 2020 at 8:45:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Colin Godfrey

Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP

* Frankie Whitehead

Tritax Big Box REIT plc - Director of Finance - Tritax Management LLP

* James Angus Dunlop

Tritax Big Box REIT plc - Investment Director Tritax Management LLP

* Petrina Austin

Tritax Big Box REIT plc - Partner of Asset Management - Tritax Management LLP

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Presentation

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Colin Godfrey, Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP [1]

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Good morning, ladies and gentlemen. May I extend a warm welcome to all of you joining us for the Tritax Big Box REIT results for 2019. Coronavirus closed our presentation venue at the end of last week. And as a result of this and concern for our guests and staff, we decided to make an audio presentation today. You'll be able to follow the slides on your screen as we progress.

Thank you for taking the time in your busy schedule and during this period of volatility. We intend to keep the presentation brief and allow good time for questions at the end. And you can submit questions by typing and sending them through the audio broadcast web platform. Questions will be answered in the order received, and we will endeavor to answer all questions.

The objective of today is to report our results but also to provide you with an understanding of how we see our business and the opportunities in our market. The presentation team this morning is James Dunlop, Frankie Whitehead and me, Colin Godfrey. We joined on the telephone by members of our non-Executive Board and a number of our colleagues, who will also be available for questions, including the Directors of Tritax Symmetry, but unfortunately, they can't talk live to us today because they can't be here in person due to the change in circumstances. So any questions that you have for the Symmetry team will be forwarded to them and answered subsequent to the presentation.

Looking at the agenda, I'll start with the highlights of 2019, and Frankie will explain the financial results, following which I will talk about our portfolio and the market before handing over to James, he will provide an investment and development update. I will then close with thoughts on the future.

Highlights. 2019 was a strategic year. In February, we raised GBP 250 million in an oversubscribed issue of new shares to acquire db Symmetry. We've since concentrated on integrating this exciting opportunity into our business in order to provide a future pipeline of investments at accretive yields.

This together, with a 1.8% like-for-like uplift in assets held throughout the year, contributed to an increase in our portfolio value to GBP 3.94 billion. Within which our investment properties were valued at a yield of 4.5%. EPRA NAV per share was a little down at 151.06p. And total return was 3.3%, which translates to 5.8% before the exceptional costs from the Symmetry transaction.

Despite a light -- sorry, a slight reduction in earnings, we paid a dividend of 6.85p, lightly uncovered for the year, and the Board has just announced a dividend target of 7p for 2020, an increase of 2.2%.

A 2% like-for-like increase in reviewed rents helped increase our contracted rent roll to GBP 166.6 million per annum. Maintaining an average -- an attractive lease term of over 14 years, we completed the construction of over 4.7 million square feet of developments in 2019. And our LTV remained within target being 30% at the year-end, with an attractive average cost of debt at 2.7% and with no loan facility expiries until 2024.

We saw little value in the logistics investment market last year and so did not transact. But we have prepared for investment sales, which we expect to undertake this year in order to fund new investments created from our Tritax Symmetry platform. They're passionate about ESG, and it's growing importance to the investment community.

During the year, we created several new roles, including the appointment of Helen Drury as sustainability lead. A number of further hires have strengthened our team, including [Camille Bonnel] as analyst and the new Director of Investor Relations.

I will now hand over to Frankie Whitehead, who will talk you through the financial results for the year.

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Frankie Whitehead, Tritax Big Box REIT plc - Director of Finance - Tritax Management LLP [2]

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Thank you, Colin, and good morning. Group's full year results include the consolidation of the Tritax Symmetry portfolio from its acquisition in February of '19.

Looking at our income statement. Group net rental income increased by 8.7% to GBP 144 million. 5 pre-let developments reached practical completion in the year, adding an additional GBP 9.7 million to gross income, while GBP 0.7 million was added to the annual rent roll through the settlement of 7 rent reviews. The portfolio's rental reversion has grown to 7.5% when comparing the GBP 167 million, contracted rent to its ERV of GBP 179 million.

The administrative costs have increased to GBP 21.7 million for the year. This increase is a function of the growth across both the overall portfolio and also the corporate structure. Please note that GBP 0.3 million of this increase relates to corporate rebranding costs, which we do not expect to incur moving forward.

This has had a short-term impact on our EPRA cost ratio, which has risen to 15.1% for the year. This, however, has the potential to reduce to approximately 14.5% by the end of 2020 when taking into account the 3 pre-let developments that remain under construction and is due for completion in 2020. This increase in admin costs is more than offset by GBP 4.1 million of other income. These other income receipts were due under development management contracts, and we guided to between GBP 2 million and GBP 4 million of other income for 2020.

Changes in revaluation of the investment property portfolio generated a gain of GBP 55 million across the 12-month period. The like-for-like increase in capital values was 1.8% and compared to 4.7% in 2018, and the valuation yield remained broadly flat at 4.5%. The net finance expense has increased to GBP 34 million, and this is due to a 45% increase in our average net debt throughout the period. These drawings have largely been used to finance the pre-let development program. And total dividends were declared at 6.85p per share, which is a 2.2% uplift on 2018 and this is supported by our adjusted earnings per share of 6.64p, reflecting a 97% covered position.

Moving on to the statement of financial position. The total portfolio carrying value, including land options and our proportionate share of JVs, increased to GBP 3.8 billion. The growth comes from a combination of securing the Symmetry portfolio plus approximately GBP 330 million of capital expenditure, mostly into pre-let development activity.

I would like to repeat something that I said at the half year results, which is that the land options are held in the balance sheet at cost, and therefore, potentially carry some embedded but unrealized value. The options only get recognized at fair value when we physically own the land following drawdown. So the sites such as Kettering, where planning consent was achieved during the year, but the land not yet drawn, the fair value of the option is now greater than its cost. And this creates a timing difference between actual value creation and the additional value being realized within the group NAV.

Our total level of drawn debt has increased to just under GBP 1.2 billion as of December, and the group had GBP 500 million of available commitments under its loan facilities at the year-end.

The group NAV grew to over GBP 2.5 billion at December, and this translates into an EPRA NAV per share of 151p. The fall in NAV against 2018 includes 3.8p of one-off transaction costs associated with the investments made into our future pipeline in the form of the Symmetry portfolio. If you take on the right-hand side of this slide, I highlight the underlying NAV growth and total return performance, excluding these one-off costs, these were 1.3% and 5.8%, respectively.

Moving on to the NAV bridge. As you can see, the underlying net growth reported of 1.3% or 2.1p has been driven by the valuation gains recognized across property portfolio. The closing EPRA NAV otherwise grew to just under 155p prior to factoring in the 3.8p of one-off transaction costs.

Turning on to our debt platform. This continues to be mostly financed on an unsecured basis. The principal activity in the year consisted of the drawdown in February of the GBP 400 million U.S. private placement proceeds split over 2 maturities in 2028 and 2030, and the arrangement of a new 5-year GBP 200 million revolving credit facility, which increases the level of flexible debt to support the future development program.

The average term to maturity across our loans stood at 7.5 years. As at the year-end, this is calculated on a full debt commitment basis. And amid the uncertain times of the last few weeks, it is reassuring there is no material refinancing events for approximately 4.5 years, and we have substantial headroom within our loan covenants. Cash cost of debt has remained stable at 2.68% and our loan-to-value at the year-end was 30%.

This slide shows the potential we have to grow our rental income stream through our existing investment portfolio and development pipeline. In terms of focusing solely on the immediate to short-term income opportunity, this sits in the form of the GBP 3 million of ERV attached to the newly completed but vacant assets within the portfolio. Alongside this, we have the opportunity to capture half of the GBP 10 million rental reversion via our upcoming reviews, which Colin will talk you through in a moment. But also included within our near-term development pipeline, which spans 11.5 million square feet, which is outside Littlebrook in Dartford. Subject to completion of an unconditional pre-let agreement, immediate income can be structured in the form of license fee income, and we therefore have the opportunity to capture GBP 16 million of potential income across this site in the short term.

Remainder, our near-term pipeline, which is split between land or options held with consent and land or options held with planning haven't been submitted, provides an opportunity to capture a further GBP 27 million and GBP 23 million of rental income, respectively, in the short term.

As we have said before, the pace of this development will be executed in a demand-led and controlled manner, whilst offering the company the chance to capture an attractive yield arbitrage over today's investment values, and James will come on to talk more about that in a moment. We've also provided some additional disclosure over the development pipeline, and this can be found on Pages 32 and 33 of today's presentation pack.

And the final slide from me, we have a track record of consistent dividend delivery since our IPO. As shown on the previous slide, there is huge opportunity to capture the income growth and grow our rental income stream through the development program. In order to secure that long term pipeline, 12 months ago, we took the decision to make a strategic investment and the 97% dividend cover level that we report for 2019 is reflective of this investment. For 2020, we have today increased our dividend target for the sixth consecutive year to 7p, and we are targeting a fully covered dividend for 2020.

I thought it was also worth drawing out the 250 basis point arbitrage between our income yield applied to our closing EPRA NAV at 4.6% and the current dividend yield on our subs of 7.1%.

So in summary, we have a reliable income stream, with over half of which has in-built resilience in the form of fixed or minimum guaranteed rental uplift. And this will help support our progressive dividend policy. We operate with a prudent capital structure, which provides us with flexibility to support the execution of our near-term pipeline, which we plan to do in a low risk way.

And I should now hand you back to Colin to talk about our portfolio.

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Colin Godfrey, Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP [3]

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Thank you, Frankie. So reviewing our portfolio, where we have an income-focused portfolio, investment assets comprise 89% of our portfolio. This will continue to provide us with long, stable and growing income supported by over 70% of our income being derived from foundation assets.

Our geographically diversified land and development platform comprises 11% of our asset value. Our investment policy restricts speculative development to 5% of gross asset value, and this will comprise only a small amount of small-scale buildings. In fact, those buildings which have been speculatively developed have been completed, and we do not envisage undertaking any further speculative development in the near term. First rebuild will, therefore, be largely pre-let and consequently control the risk.

Our land platform has the potential to provide high-quality future investments at attractive yields in order to grow earnings and support dividend growth. Quality is at the heart of what we do and what we own. We own large-scale logistics buildings. Approximately 70% of our buildings are over 500,000 square feet in size. And as I'll explain in the market section later, larger scale buildings are benefiting from favorable supply-demand fundamentals.

We own the buildings that are critical to supply chain operations because they offer cost savings and efficiencies. 92% of our properties are modern, having been constructed since the millennium, with 50% constructed since 2010. Maternity is why our portfolio is highly automated and alignment with e-commerce is strong. This investment by our customers is also the reason why we benefit from long-term predictable rental income. 62% of our leases are over 10 years unexpired, but we also have the opportunity to lengthen our income and increase capital value from the 13% of our leases expiring within 5 years.

We have purposely reduced exposure to open market rents and increased the level of fixed uplift and collars inflation-linked income to improve income predictability, as I will touch on later. And we also benefit from excellent geographic diversification with a good value balance across the country. We benefit from a secure and resilient customer base. This is an income-focused business with low-risk appetite.

Our assets have been individually selected with income resilience as a key objective. Over 40 -- sorry, our 40 customers include some of the strongest and most well-known brands in the world, as shown by the logos on the table in front of you. 80% of our rents were derived from members of major stock market indices. All of our investment assets are held -- sorry, that were held at the beginning of 2019 remains fully let and income-producing during the year. And notably, Amazon is our largest customer, providing 13% of our income, followed by Morrisons at 6.8%, Howdens -- Co-Op at 4.8% and then Tesco at 4.3%. So the top 5 combined producing 34.2% of our rent roll.

Embedded rental growth. As shown on the left-hand graph, 87% of our income is subject to rent review by December 2022, of which 39% is in 2021. And this high level is reflected in the blue -- solid blue line on the opposite graph on the right-hand side. In December 2015, 6 hybrid and inflation-linked rent reviews with collars comprised 42% of our rental income. We purposely sought to increase this. And as at December 31, 2019, the corresponding figure stood at 53%.

So looking at the right-hand graph and assuming that our tenants remain solvent, the dotted line shows the minimum level of rental growth that could be expected based on embedded growth only, i.e., ignoring any open market rent reviews. This represents income growth of GBP 5.4 million over the next 3 years, reflecting an annual straight line average of 0.1p per share or 1.55% growth per annum, giving transparency and confidence to income growth underpinning our dividend aspirations.

Our portfolio is currently reversionary by 7.5%. If we then add open market rent reviews and assume 2% growth per annum from the ERV, that are currently applying to our portfolio, this would result in solid blue line on the right-hand graph and an increase in rent of GBP 10.1 million over the 3-year period. This ignores the potential for rental capture from asset management and letting of newly constructed vacant buildings. And James will touch on that component a little later in the presentation.

Sustainability and asset management. ESG was a key work stream in 2019 and was the first year in which we had submitted data to the Global Real Estate Sustainability Benchmark from which we were awarded a green start. We received some positive feedback and helpful comments, highlighting where we could embed sustainability into our standard practices. We've also extended our reporting to include the EPRA sustainability requirements and greenhouse gas reporting.

We undertook a materiality survey of key stakeholders, which directed our ambition to: one, target the delivery of net 0 carbon development; two, increase biodiversity; and three, improve social value. Among other charitable and social initiatives, we continue to support school readers, a charity organizing volunteers to assist primary school teachers with reading practice for children in areas where our properties are located. 87% of our properties have an EPC rating of A to C, and we will continue to pursue projects that improve these ratings, including enhancements to welfare and amenity facilities.

We undertake stringent surveys before investment purchase and continue our governance system to ensure that our properties remain in good condition. Our full fire and clouding matrix is graded for risk by independent building surveys in consultation with our insurers, with no properties identified as medium or high risk. Despite the very wet winter, our properties have also remained flood free.

During the year, we settled 7 rent reviews, producing a 2% like-for-like rental growth. In 2019, we delivered 2 major asset management initiatives: the first with Whirlpool at Raunds, where we extended the lease by 5 years to provide a 6-year unexpired lease term and also increased the passing rent; the other involved our property at the Sainsbury's at Leeds, where we extended the lease by 18 years, creating a 25-year unbroken lease term and we amended the rent review basis from open market to the more favorable index-linked basis.

Very recently, concern over COVID-19 has made stock markets challenging. The virus is expected to impact on supply chain. And so we are regularly speaking with our tenant customers to understand the challenges that they may face and help us provide them with support if we can. But we are conscious that a large number of our properties are automated and can be operated with skeletal staffing.

I will now hand over to James, who will -- sorry, I'm going to continue now with the market section. So turning to our market. First, looking at the e-commerce facility -- sorry, opportunity. E-commerce sales grew 6% in 2019. And as at the year-end, comprised 19.2% of total retail sales.

CBRE has noted that for every GBP 1 billion spent online, this results in a requirement for nearly 900,000 square feet of new building logistics space. And in fact, some commentators suggest it's roughly 1 million square feet. This is in addition to non-online demand. There are various publicly available forecast for e-commerce growth. And in this graph, we have projected 3 potential scenarios for growth in e-commerce spend over the next 10 years. The blue line, the lower one assumes e-commerce sales growth of 6% per annum; the green line, 9% per annum; and the purple line, 11% per annum. And notably, you'll see an increase corresponding to those numbers of 30%, 40% and 50% over the 10-year time frame. The higher projection of the purple line is supported by retail economics forecast of 53% in e-commerce sales by 2028, so 2 years ahead of this time line. It is driven by an expectation that Millennials and Gen Z will comprise approximately half of the population of U.K. by 2030.

The right-hand column headed overall demand includes 18.5 million square feet per annum based on the previous 5-year average of non-online logistics take-up and assumes no growth. Online take-up as a percentage of overall take-up ranges from 25% to 45% based on these scenarios. Our land portfolio has the potential to deliver 39 million square feet of logistics space over the course of the next 8 to 10 years. So set against the figures on the chart, our developments will comprise only 10% to 15% of the projected overall demand that could be equated into the market.

I'm now turning to the market dynamics slide, on Page 21. The occupational markets for Big Boxes have been strong. The left-hand graph is a measure of market activity, combining take up during the year with those buildings under offer at the year-end. And you'll see that logistics buildings of over 0.5 million square feet have comprised an increasingly large share every year since CBRE began gathering this size band data and splitting it down to these size bands. This contrast with that for the 100,000 to 250,000 square-foot smaller size band category, where the corresponding figure has fallen in each of the last 4 years as a percentage of the total, indicating that larger scale buildings are becoming an increasingly large part of demand in the market. Also, of the 10.3 million square feet of logistics space under offer at the end of 2019, 8.84 million square feet related to logistics buildings of over 0.5 million square feet in size, so very much the lion's share.

Turning to the right-hand graph, the speculative supply buildings over 500,000 square feet fell by over 50% to 1 million square feet in 2 buildings at the year-end. This compares to take-up of buildings over 500,000 square feet of 8.81 million square feet. So demand was over 8x higher than speculative supply, difference being met by pre-let development. This has been the consistent story for many years and is why larger scale buildings are far less likely to suffer oversupply. A key measure is the number of months of supply measured against 12 months take-up. You will see on the right-hand graph that speculative new supply in 2019 was much lower for larger-scale buildings at only 1.4 months of supply compared to smaller scale buildings, with a much higher level of speculative supply at 10.6 months of supply.

2019 witnessed a subdued level of investment transactions with broadly static yields in the U.K. And whilst we did anticipate some yield compression during 2020, we'll have to watch very closely to see the effect of COVID-19 on the market, and we'll keep a close eye that as the year progresses.

I'll now hand over to James Dunlop, who will talk you through the investment and development update.

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James Angus Dunlop, Tritax Big Box REIT plc - Investment Director Tritax Management LLP [4]

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Thank you, Colin. 2019 was another progressive and dynamic year for the company, in which we continued to deliver reliable, well-secured, compounding income, all underpinned by the tailwinds of structural change, whilst maximizing both our capital efficiency and discipline.

In the year, we managed the construction of 8 pre-let forward funded developments totaling over 7.3 million square feet. 5 of these pre-let development located in Corby, Haydock, Darlington and Raunds were completed, totaling 4.3 million square feet and adding an additional GBP 21.9 million of contracted annual income to our portfolio. 43% of the GBP 21.9 million of that rental income across these schemes is secured against the Amazon covenant, and we are delighted to have added Box to our tenant roster.

The purchases reflected an average net initial yield of 5%, with an average unexpired lease term WAULT of 18.3 years and delivered 7.8% valuation uplift over the acquisition prices. All were conducted off-market with repeat counterparties yet again a testament to our continued relationship-driven model.

2 pre-let developments located at Durham and Raunds will reach practical completion during 2020, delivering a further 2.3 million square feet and GBP 9.2 million of contracted rental income added. These, again, are pre-let to Amazon and Howdens on 20- and 30-year leases, respectively.

In Q1 2021, the Co-Op scheme at Biggleswade will complete delivering 700,000 square feet, adding another GBP 4.7 million of contracted annual rental income on a 20-year lease with 5-yearly RPR increases of between 2 and 4. So the key message here is our pre-let model continues to deliver long, strong and growing income.

Turning to Littlebrook. Littlebrook is a true hybrid last journey, Big Box scheme inside the M25, which is uniquely positioned to service central London. This scheme is exceptionally strong on all 4 key drivers, which combine to attract best-in-class occupiers: namely location of its London transport connectivity, labor pool and power.

On the PowerPoint, given the site of the former power station, it has strong existing power connection infrastructure, alongside substantial power availability at very low-cost compared to other sites or London locations. In 2019, we managed a book and reserve 15 megawatts, a quantity which could support up to 5 million square feet of logistics base on our sites. This level of power book maximizes the occupational liquidity of this asset and scheme.

Littlebrook is poised to deliver substantial value for our 3 progressive triggers. First being land value upside. The site booked 47% increase in land value during 2019, reflecting both the progress made on-site and the acute London supply shortage, which won't change. We believe there is more land value to come as recent comparables reflect land prices with similar sizes as ours of anything between GBP 2 million and GBP 5 million an acre.

Planning consent. We received 450,000 square feet of detailed planning consent for Phase 1, the construction of which can now be completed within 26 weeks from the green light. The planning of Phase 2 is on track to target an enhancement of our initial scheme underwrite 1.7 million square feet. And we have detailed occupational discussions on Phase 2 on a subject to planning basis, and we are targeting a yield on cost.

As you can see from the before and after photos, we have come an awfully long way since we acquired the site in mid-2017. Demolition is now largely completed. A highly complex process safely delivered both on time and on budget. The scheme is also delivering many sustainability credentials. Highlights over the demolition period include 99% of materials recycled during demolition, equivalent of 2.0 million tonnes of CO2 saved to date. In addition, 65,000 cubic meters of [coal] has been crushed on site and reused on site. We believe Littlebrook is London's largest prime logistics site, providing approximately 94 acres of net lettable area. As such, we believe our carefully curated letting program will shortly validate this statement and will trigger the realization of the scheme's true value potential.

Turning to our development pipeline. Our whole model, and we will keep stressing this, is driven by pre-let. The integration of db Symmetry, now known as Tritax Symmetry, is now completed following the company's acquisition of the 87% economic interest in February 2019.

Tritax Symmetry currently represents only 8% of our overall portfolio in GAV. We are pleased to report that the delivery of planning consent ahead -- planning consent is ahead of schedule, 5.3 million square feet of planning consent were delivered by the year-end 2019 and a further 2 million square feet of consent was delivered post year-end. The company has, therefore, delivered close to 20% of planning consent business plan underwrite since February 2019.

During the year, we also submitted a further 6.2 million square feet of planning applications. The grant of outline consent is the critical catalyst to start the process to capture a pre-let. A scheme can only attract occupier interest once consent has been achieved and is only from that point in time they can overlay an occupational date into their operational business plans. We now have consent that are deliverable for pre-lets across 8 locations in the key occupational markets of London, along the M40 corridor, the core markets of midland and the northeast and the west. So the key question is how are we going to capture our pre-lets now that we have delivered the raw materials with planning consent.

The company has an unparalleled and deep understanding of key occupiers within our -- who are active within the Big Box requirement space through our existing -- 40 existing tenants with whom we have a proven track record of being both a stable financial partner and a critical service provider. In addition, we are targeting new occupiers with successful and valid business models. We see food and grocery and discount retailing alongside pure online are sectors which we will continue to be particularly active in. We have some very interesting dialogue progressing relating to these sectors.

We have divided our pipeline, as you'll see on this page is 3 key baskets, namely: current, which is 12 to 18 months; near term, 1 to 3 years; and future. Our current pipeline basket is targeting delivery of practical completion of 3.2 million square feet, which is currently under construction and is 92% pre-let. These are pre-let schemes at Durham, Biggleswade and Raunds pre-let respectively to Amazon, the Co-Op and Howdens. These combined will add GBP 13.9 million to our contracted portfolio over the next 12 to 18 months. And when the 2 units at Aston Clinton are let, and we currently have acceptable terms out to occupies on these units, these will add a further GBP 1.3 million of annual income.

Our near-term pipeline can deliver 11.5 million square feet. And our future pipeline can deliver approximately 27.5 million square feet. All held by legally controlled options agreements. Both near-term and future pipelines continue to target between 6% and 8% yield on cost.

Turning to the next page. I thought I'd like to explain a little bit about our value creation journey. Capital discipline and efficiency drive every aspect of our business. On this slide, we thought it would be useful to refresh how our model is working to highlight both the flexibility of that model and the cost efficiency embedded within it. There are 2 key value triggers, namely the green sections in the linear flow chart, gaining outlined planning consent and securing a pre-let.

An option journey from base land starts with achieving unemployment allocation, if we're following the linear within the local plan and then achieve an outlined planning consent. Phase 1 of the value journey triggered and captured. It's very interesting to note that this phase costs approximately GBP 1 for every foot of planning consent achieved. So at minimal cost, we have delivered value in a highly cost-efficient manner. We can also hold that consent at a low-cost until we draw down the land. When we draw down, it will be at a discount ranging between 15% and 20% to the market value over time. Where the land values go up or down, this discount to market value still applies, highly flexible. The detailed consent is normally received with a specific pre-let in [tow]. For example, the original planning consent of Biggleswade was granted for approximately 1 million square foot in 5 units. But once the Co-Op akin to commit to a large Big Box, detailed consent was then granted and the residue of the original planning gain is not lost, but is likely to be recyclable in the future to deliver an additional Big Box at a later stage.

Once the pre-let is secured and funding is in place, the construction contract is managed until practical completion and the lease rent commences. The company has the ability to sell an asset at any point along this journey, but maximum value will be centered around outlined planning consent and pre-lets being delivered. Assuming the company wishes to retain the asset, this is hiked up into the portfolio at a yield on cost, as I've already said, of between 6 and 8. Alternatively, the asset can be sold to recycle capital boosted by the development profit.

Below the flow diagram, you can now see depicted the milestones of key projects achieved in the year. Rugby moved from an unallocated option status to being allocated in the local plan. Kettering achieved outline planning consent. Biggleswade converted from outline to the detailed consent and the construction contract started in January, Winvic with its contractor with its robust balance sheet. And unit 1 Aston Clinton was let unlocking a profit on cost of 30% plus, in line with our business plan underwrite. Post period, Wigan received a resolution to grant for 1.4 million square feet and Darlington achieved outline consent.

Turning to my next slide. At the time of purchase of Tritax Symmetry, the company was committed to completing construction of 560,000 square feet in 5 units. These units are all now completed. The cost is behind us. One unit Aston Clinton is now less than a 15-year lease and has delivered, as I said, 30% plus profit on cost. And lettings on the remaining 4 units are all well advanced. We want to confirm here that the company will not undertake any more speculative unit until the investment value of these units have been captured either through lettings or perhaps sales to owner occupiers.

Our business plan for 2020 was always start to recycle and rejuvenate our asset base. Once we delivered a sufficient quantum of planning consent to fire up our pre-letting engine, we confirm that our business plan going forward will be largely self-funding. As I've confirmed previously, we are ahead of schedule on delivery of planning consent, 7.3 million square feet delivered in February '19 to date. We now have the raw materials to start capturing pre-let.

Our business plan underwrite was targeting a build out of 2 million to 3 million square feet a year, all triggered only on pre-let. Based on this level of build out rate, the company would need annual capital expenditure of between GBP 150 million to GBP 200 million. So the key question is how do we plan to fund this? We have an array of flexible funding tools at our disposal. Firstly, we are now committing to GBP 125 million to GBP 175 million of asset sales a year going forward. These will be a combination of standing asset sales, ancillary land or consented land sales once we've captured Phase 1 of our value journey. We also have GBP 500 million of undrawn debt, and we can leverage into development or land value profit that we have generated. All of these process -- proceeds will be deployed primarily to fund the construction of pre-let Big Box schemes, capturing yield on cost of 6% to 8%.

Recycling brings rejuvenation to our portfolio, adding brand-new best-in-class units, whilst extending our already strong WAULT of 14.1 years. The model will now build up value pressure whilst relieving the pressure of the overall business plan CapEx burden. We have started our asset disposal program, and we are making very good progress. More news on that throughout the year.

I will now hand you back to Colin to talk to you about our outlook.

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Colin Godfrey, Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP [5]

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Thank you, James. Just quickly to wrap up, with the outlook, there's in-build value growth potential in our development land platform, which will be pre-let driven. Our investment assets are of higher quality, producing long-term income from a diversified base of renowned customers providing and offering opportunity for significant income growth.

We have an experienced and growing team and a disciplined investment approach, enabling us to fulfill the occupation requirements of our customers. This has allowed us to develop strong and enduring customer relationships and a deep knowledge of the markets they operate in, which is particularly valuable in times of uncertainties, such as this, but it's also beneficial in the context of our Symmetry land platform.

The fundamentals of our market are strong. And despite the impact of COVID-19, we expect the trend towards e-commerce and the attractions of operational efficiencies to continue to drive a growth in demand for Big Box logistics into the long term.

That concludes our presentation for this morning. Thank you for joining us. If you would like to stay on the line, we will now take questions. So please do send the questions in if you haven't done already. And if you could just give us a few moments to prepare, then we will shortly answer the questions that you're able to provide. Thank you.

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Questions and Answers

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Colin Godfrey, Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP [1]

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Hello, everyone. Okay. So we have got some questions come in. Kirstin will ask the first question.

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Unidentified Company Representative, [2]

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Okay. The first question has come in from Robbie Duncan from Numis. Can you confirm that you're allowing for the beneficial impact on earnings of the capitalization of Symmetry overhead despite not giving yourself similar credit for capitalized interest? If this is the case, what would the dividend cover if the capitalization of Symmetry overhead were reversed?

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Frankie Whitehead, Tritax Big Box REIT plc - Director of Finance - Tritax Management LLP [3]

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I think that's probably one for me. Thank you, Robbie. Yes, you're correct. It's the same policy since the acquisition of Symmetry. We are capitalizing a proportion of demand overhead, and that cost is embedded within our yield on cost target that we quote of 7% to 8% on the Symmetry assets. And equally, we are not choosing to capitalize interest in respect to the development assets. So that is the basis for our statement this morning around a fully covered dividend for 2020. What I can say is that we expect to capitalize around GBP 4 million of management fee in 2020 and the status of the surplus above the dividend target would depend on, I think, my rental growth slide, how we get on with letting a vacant space, success through our rent review process, success at Littlebrook and what end of the range we end up at in respect of the other income that I talked about, the GBP 2 million to GBP 4 million of other income.

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Unidentified Company Representative, [4]

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Okay. Second question coming in from Poonam from Numis. With leverage coming into focus across the market in light of the recent COVID-19 advancements, what is the LTV on a committed basis, please, reflecting the stated development capital commitment of GBP 129.9 million?

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Colin Godfrey, Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP [5]

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Perhaps, Frankie, if you could take that one?

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Frankie Whitehead, Tritax Big Box REIT plc - Director of Finance - Tritax Management LLP [6]

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So the LTV at December, as we said, was 30%. We do have GBP 130 million of capital expenditures committed across 5 buildings, 2 of those have reached PC since December. There are 3 that are due to complete during the remainder of 2020. And taking that capital expenditure into account, the net LTV position moves to about 32%, moves out to 32%.

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Colin Godfrey, Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP [7]

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Okay. Thank you, Frankie. Hopefully, that answers that question. On to -- if we get another question, Kirstin.

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Unidentified Company Representative, [8]

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The third question is from Chris from Sanlam. Can you remind us of the debt covenant ceilings, please, in LTV terms or otherwise?

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Colin Godfrey, Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP [9]

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Frankie?

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Frankie Whitehead, Tritax Big Box REIT plc - Director of Finance - Tritax Management LLP [10]

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That's one for me. It's coming my way. We also have a broad range of debt facilities. At the lower end, we have one that has an LTV that kicks in at 60%, but all of the rest are at 70%. So with effects in LTV, we all see stress test the business twice a year. And we have substantial headroom, as I mentioned, within those covenants.

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Colin Godfrey, Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP [11]

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I think just to mention is an important point, given the volatility in the stock market, we have checked in with our valuer only yesterday morning to discuss the nature of the market. And the view was that our values today will be as, at the end of December last year, they see no reason to change the values. The values are looking very carefully at the impact of COVID-19 on other sectors, though, particularly the hotel sector, leisure, and not surprisingly, the retail sector. And so there could potentially be some caveats on valuations being issued in the coming months. But logistics, in particular, prime logistics is definitely viewed by the valuation team as being a good place to be right now.

Okay. That rests that question, Kirstin.

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Unidentified Company Representative, [12]

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Next one, can you provide some commentary on what general topics are on occupants' minds from your conversation with them over the last few weeks?

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Colin Godfrey, Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP [13]

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Perhaps that something that I can hand over to you, Petrina.

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Petrina Austin, Tritax Big Box REIT plc - Partner of Asset Management - Tritax Management LLP [14]

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Yes, mate, of course. So prior to last fortnight, power and labor have been the main items of conversation when we've been meeting with our occupiers, both on-site and also in their head offices. And we've been working very hard to provide solutions through their license, through looking at renewable energy, improvements to community space and working with them on their upskilling programs so that they have the resource that they need for the future requirements.

Lastly, obviously, looking at the continued use of the building through the virus, and we're very impressed that the number of the occupiers that we are expecting to have put in place very stringent measures to contain or prepare if they get an incident on-site how they're working within their management team and on site, obviously, keeping that supply chain going, and is for the payment important.

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Colin Godfrey, Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP [15]

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Thank you, Petrina. And on to the next question, Kirstin.

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Unidentified Company Representative, [16]

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Next question. At the half year, you mentioned that you were likely to build out smaller warehouses on the Symmetry sites first to prove sites viability before moving on to larger big boxes. Seeing a smaller warehouse is a typically built speculatively as potential occupiers prefer to see completed assets. How does your statement today that will be building impact to your plans to build out the Symmetry pipeline? What percentage of the Symmetry pipeline falls within the 100,000 to 500,000 square foot category?

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Colin Godfrey, Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP [17]

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Okay. Well, I'll probably double out with James on this answer, but I'll let James start.

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James Angus Dunlop, Tritax Big Box REIT plc - Investment Director Tritax Management LLP [18]

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As I said in the presentation, we inherited 560,000 square feet of smaller units in 5 years when we acquired the economic interest. These are -- these units are now all completed and the cost is behind us. And we've had one letting and very positive progress on the other 4 units. We will not undertake any more speculative units until we have either let or sold these and release the investment value. So our strategy still remains very much the same. That hasn't changed. The only amendment is that we're committing to not start any more speculative units until we have made the progress that is forthcoming on those 5. You are right that when you have a Big Box scheme, it has a mixture of smaller and mid-box units. And traditionally, that is the -- that's the focus of where the speculative element is. We don't see that changing going forward, but we will not start on-site on a speculative basis until we have resolved our 5 smaller units that we inherited.

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Colin Godfrey, Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP [19]

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Yes. I mean, just to pick up on that, I think the first thing to say is that those 4 speculative buildings are either under offer or are in negotiation. So we are confident about the delivery of those. One of the things that the speculative buildings do provide or can provide to us in the event, for instance, that we were to convey a capital inducement to a tenant rather than a rent-free period is early income delivery, and that's something we're looking to in 2020. And that currently -- those spec buildings currently comprise around about 3% of GAV, and we're comfortable at that level. Remind you, we have a 5% GAV limit to spec development. And as James said, it will really be more a case of refreshing those buildings subject to how we're seeing the market. Obviously, we've been very cognizant of market risk at the moment.

The other thing to note is the part of the question relating to the relationship in large and small buildings. When we profiled the Symmetry platform, it was on the basis of approximately 2/3 of large-scale buildings and 1/3 smaller-scale buildings. We can, of course, flex that as a subject to market demand. And in some locations, there will be greater demand for smaller-scale buildings, by the way of example. And in that circumstance, it might move to say 50-50, but it is important to recognize that some sites are -- have executed to different building sizes due to topography or the configuration of the site. And obviously, we would look to deliver those buildings, which are delivering best value for shareholders and which are true to the fundamentals of our platform primarily focusing on the larger scale buildings because we believe the fundamentals of those are very strong in the longer term. Hopefully, that answers that question. Any further questions, Kirstin?

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Unidentified Company Representative, [20]

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Next question. Is the dividend being just covered in 2020 enough headroom given what is unfolding right now?

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Colin Godfrey, Tritax Big Box REIT plc - Partner & Fund Manager of Tritax Management LLP [21]

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Well, I'll probably sort of cover this together with Frankie. I think the first thing to say is that we've done our projections for 2020. There are a number of upside potential benefits that would lead to giving us increased level of headroom and to give you comfort on that particular point. Of course, we don't know how long COVID-19 is going to last and the impact is likely to have on the economy. And that's something we need to keep under close scrutiny, but we do expect it to be a relatively short-term impact. And one of the key components, I think, underpinning our relative confidence in the dividend in 2020 is the quality of our rental income streams, the caliber of the tenant customers paying those rental income streams and the transparency that we have and confidence in fixed and minimum level uplift in the rent reviews that we have during the course of the year, which I show -- I covered on the previous slide, you'll recall the bar graph. Any other comment, Frankie. I think, Frankie, thinks that is enough.

Okay. Well, it appears that we are at the end of the question. And we are now just under an hour since we started. So thank you so much for all joining today. I'm sorry, we couldn't be with you in person, but we do appreciate your continued support and interest in the company. We'll, therefore, close the presentation for today. If you have any other follow-up questions that you'd like to issue to us personally, and then you've got our contact details, and we'll be delighted to reply to those over e-mail or over a call at a later date. Thank you for your time this morning. Bye-bye.