Tritax Big Box REIT plc
Aberdeen House
South Road
Haywards Heath
West Sussex RH16 4NG
www.tritaxbigbox.co.uk
Tritax Big Box REIT plc Annual Report 2014
Thinking Big Box
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Tritax Big Box REIT plc Annual Report 2014
Tritax Big Box REIT plc is the only real estate investment trust dedicated to
investing in very large logistics warehouses in the UK, known as “Big Boxes”.
We believe Big Boxes are currently one of the most exciting asset classes in
the UK market. We invest in Big Boxes to provide an attractive, growing
and secure income for our shareholders, together with the opportunity for
capital appreciation.
Since listing in December 2013, we have been successful in implementing
our investment policy having met our short-term targets and have made
strong progress towards our medium-term objectives. At 31 December
2014, we owned and managed 14 modern and well-located Big Boxes, let or
contracted to institutional-grade tenants including Marks & Spencer, Tesco,
Sainsbury’s, Morrisons, DHL, Wolseley UK, Rolls-Royce and Next.
The Company will continue to seek to exploit the significant opportunity in
this sub-sector of the UK logistics market owing to strong tenant demand
in high growth areas of the economy and limited stock. Through our
track record, experience and established network of contacts, we are
well-placed to continue sourcing attractive new opportunities, whilst
remaining disciplined in our investment approach.
Operational highlights:
• The net proceeds from the IPO and the equity fundraisings
in May and July 2014 were fully invested, on time and in line
with our stated objectives. During the period, we acquired
14 Big Box assets let to some of the UK’s largest retailers,
global logistics companies and renowned manufacturers.
• The properties in our portfolio are in strong distribution
locations and provide UK geographic diversification.
• We benefit from a diverse covenant spread, with all
properties leased to institutional-grade tenants.
• Our weighted average unexpired lease term across the
portfolio was 13.9 years as at 31 December 2014.
• Our portfolio was fully let or contracted and income
producing during the period.
Post Balance Sheet highlights:
•
In January 2015 we exchanged contracts, subject to
detailed planning consent, to provide £98.8 million of
forward funding for a new distribution warehouse pre-let
to Ocado, Erith.
•
In February 2015, we drew a further £13.17 million of senior
debt with a term to maturity of four years, hedged via a
coterminous swap.
Financial highlights:
• The IPO in December 2013 raised gross proceeds of
£200 million at an issue price of 100 pence per share. In July
2014, the Company’s shares moved to a premium listing and
trading on the London Stock Exchange Main Market.
• Further equity fundraisings in May, July and November 2014
raised a total of more than £280 million, at issue prices of
between 103 and 105 pence per share.
• We paid the first interim dividend of 1.85 pence per share in
August 2014, for the period to 30 June 2014, and the second
interim dividend of 1.50 pence per share in December 2014,
for the period from 1 July to 31 October 2014. A third interim
dividend of 0.80 pence per share will be payable in March
2015, for the period from 1 November to 31 December 2014.
In 2015, we are on track to achieve our initial target dividend
on the IPO issue price of 6 pence per share.
• The properties were independently valued as at
31 December 2014 at £619.28 million (including forward
funded commitments), an uplift of 9.3% over the aggregate
acquisition price (excluding acquisition costs).
• The net asset value (“NAV”) per share increased from
98.00 pence at the time of the IPO to 107.02 pence as at
31 December 2014, a rise of 9.2%.
• Annualised rent roll as at 31 December 2014 of £36.16 million
including forward funded commitments.
• Our loan to value (“LTV”) ratio was 32.9% as at
31 December 2014, with long-term debt drawn at the
period end of £203.64 million.
• The average debt margin payable across the portfolio is
1.76% over 3-month LIBOR; we have used interest rate
caps to limit our exposure to interest rate increases.
Tritax Big Box REIT plc Annual Report 2014 1
Contents
The Strategic Report contains information about the Group,
how we generate returns for our investors and how we run
the business. It gives an insight into our strategy, business
model and markets, as well as our approach to governance,
sustainability and risk management. It provides context for our
financial statements, sets out our key performance indicators
and analyses our financial performance.
Strategic Report
Our achievements in brief
Chairman’s statement
Our market
Our business model
Our objectives and strategy
Key performance indicators
EPRA performance measures
Manager’s Report
Our principal risks
Tritax Big Box Doncaster.
Acquired in June 2014 and
let to Next Group plc.
This section explains how the composition and organisation
of the Company’s governance structures supports the
achievement of the Group’s objectives. It also outlines how our
Board and Board Committees operate and perform.
“The Board and Manager
are confident of delivering
excellent returns for our
shareholders through a stable
and growing income stream,
coupled with the potential for
capital appreciation. ”
Richard Jewson Chairman
This section presents the financial position, performance
and development in accordance with applicable accounting
standards for both the Group and the Company. It also
contains the Independent Auditor’s Report.
In this section we
summarise other
information useful to
shareholders and set out
further details about the
Company including its
Directors and advisers.
Governance
Corporate Governance Statement
Leadership
Management Engagement Committee Report
The Board of Directors
The Manager of the Company
Effectiveness
Nomination Committee Report
Accountability
Audit Committee Report
Relations with Shareholders
Directors’ Remuneration Report
Directors’ Report
Directors’ Responsibilities Statement
Financial statements
Independent Auditor’s Report
Group Statement of Comprehensive Income
Group Statement of Financial Position
Group Cash Flow Statement
Group Statement of Changes in Equity
Notes to the Consolidated Accounts
Company Balance Sheet
Company Reconciliation of Movement in
Shareholders’ Funds
Notes to the Company Accounts
Additional information
Financial calendar
Company information
For further information go to: www.tritaxbigbox.co.uk
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Strategic ReportFinancial StatementsGovernanceAdditional Information 2 Tritax Big Box REIT plc Annual Report 2014
Our achievements in brief
Since we listed in December 2013, we have successfully
achieved our short-term investment aims and secured
the support of our shareholders through further equity
fundraisings. Set out below are our key achievements
during the period.
2013
9 December
The Company’s IPO raises
£200.00 million through a
placing of 200 million
Ordinary Shares at an issue
price of 100 pence per share
11 December
Acquisition of Sainsbury’s
Distribution Centre,
Leeds, West Yorkshire,
for £48.75 million
13 December
Acquisition of Marks &
Spencer East Midlands
Distribution Centre, Castle
Donington, Leicestershire,
for £82.58 million
2014
13 March
Acquisition of Tesco
Distribution Centre,
Chesterfield, Derbyshire,
for £28.64 million
4 April
Acquisition of Tesco
Distribution Centre, Didcot,
Oxfordshire, for £27.20 million
30 May
Oversubscribed placing of
19.98 million new Ordinary
Shares at an issue price of
104 pence per share, raising
£20.78 million to enable the
purchase of the Morrisons
Sittingbourne asset
20 August
Acquisition of DHL Distribution
Warehouse, Skelmersdale,
Lancashire, for £28.87 million
Acquisition of DHL Distribution
Warehouse, Langley Mill,
Nottingham, for £17.53 million
11 June
Acquisition of Next Distribution
Warehouse, Doncaster, South
Yorkshire, for £60.00 million
29 August
Acquisition of Wolseley
Regional Distribution Centre,
Ripon, North Yorkshire, for
£12.24 million
18 June
Acquisition of Morrisons
Distribution Centre,
Sittingbourne, Kent,
for £97.80 million
25 July
Oversubscribed Placing,
Open Offer and Offer for
Subscription of 145.63 million
Ordinary Shares at an issue
price of 103 pence per share,
raising £150 million
The Company moves to a
premium listing and trading
on the London Stock
Exchange Main Market
8 August
Paid first interim dividend of
1.85 pence per share, for the
period to 30 June 2014
29 September
Acquisition of forward
funding investment in new
technology and logistics
facility near Bognor Regis,
West Sussex, pre-let in its
entirety to Rolls-Royce
Motor Cars, at a price of
£37.00 million
13 November
Acquisition of The Range UK
National Distribution Centre,
Thorne, South Yorkshire, for
£48.50 million
28 November
Oversubscribed placing of
104.76 million new shares at an
issue price of 105.00 pence per
share, raising £110.00 million
28 November
Acquisition of Tesco
Distribution Warehouse,
Middleton, Lancashire,
for £22.45 million
8 December
Acquisition of Kuehne &
Nagel Distribution Centre,
Dove Valley Park, Derby,
Derbyshire, for £29.27 million
Acquisition of L’Oréal (UK)
Distribution Centre,
Trafford Park, Manchester,
for £25.83 million
17 December
Paid second interim
dividend of 1.50p per share
for the period 1 July to
31 October 2014
2015
29 January
Exchanged contracts
conditional on detailed
planning consent for the
forward funding investment
of a new logistics facility
at Erith, inside the M25,
pre-let to Ocado, at a price
of £98.80 million
Our portfolio: locations and valuations*
As at 31 December 2014
Tritax Big Box REIT plc Annual Report 2014 3
● Leeds, £57.16m
● Middleton, £23.375m
● Skelmersdale, £31.75m
● Manchester, £27.30m
● Derby, £30.50m
● Castle Donington, £90.55m
● Didcot, £31.56m
● Ripon, £13.21m
● Doncaster, £65.05m
● Thorne, £50.05m
● Chesterfield, £31.50m
● Langley Mill, £19.625m
● Erith, £98.8m
● Sittingbourne, £110.15m
● Bognor Regis, £37.50m
Big Box assets by property investment pillar
● Foundation assets
● Value add
●● Growth covenants
For information on our investment strategy, see page 14.
*With the exception of Erith which is stated at purchase price.
Strategic Report 4 Tritax Big Box REIT plc Annual Report 2014
Chairman’s statement
I am pleased to present the Group’s results for the period
from 1 November 2013 to 31 December 2014.
“This has been an exceptional period for the Group, during
which we believe we have been the most successful
investor in the UK Big Box market. The fundamentals of our
market remain attractive and we are confident of delivering
excellent returns for our shareholders.”
Overview
This was an extremely active period for the Group, during
which we consistently achieved our short-term objectives and
made strong progress towards our medium-term objectives.
The initial public offering (“IPO”) in December 2013 raised
gross proceeds of £200 million, with the Company’s shares
admitted to trading on the Specialist Fund Market (“SFM”) of
the London Stock Exchange and listed on the Official List of
the Channel Islands Stock Exchange Authority (“CISEA”).
Our investment manager, Tritax Management LLP (the
“Manager”), immediately began to put the net proceeds
from the IPO to use, purchasing high-quality Big Box assets
with institutional-grade tenants. The number of attractive
opportunities available to us was such that we had three further
equity issuances during 2014, raising an additional £280 million.
Each issuance was at a price above both the flotation price
and our published NAV at that time. We were pleased that our
shareholders recognised the attractiveness of our proposition,
resulting in each of these fundraisings being oversubscribed.
In July 2014, we moved from the SFM to a premium listing on
the Official List of the UK Financial Conduct Authority, with
the shares trading on the Main Market of the London Stock
Exchange. As a consequence, on 5 August 2014 we cancelled
the trading of our shares on the CISEA and our listing on the
CISEA’s Official List.
By the end of 2014, we had fully invested the proceeds from
the IPO and the fundraisings in May and July 2014. This
meant that, in little more than 12 months since the IPO, we
had built an excellent portfolio of 14 Big Boxes, with good
diversification both by geography and by tenant. The valuation
uplift of 9.3% (excluding acquisition costs) at 31 December
2014 is particularly creditable given that we had only owned
some of these assets for a matter of weeks at that date. This
performance is reflected in the total return we generated
during the period of 10.4%, which is ahead of our target of
more than 9%. This is measured as the growth in net asset
value over the period and including dividends paid, as set out
in our investment objectives.
The quality and breadth of our portfolio demonstrates the
Manager’s outstanding market knowledge, range of contacts
and ability to negotiate attractive off-market deals, which
offer good value for shareholders and meet vendors’ desire for
speed and certainty of execution. Over 80% of the assets we
acquired (by value) in 2014 were off-market transactions.
Financial results
We believe that specialisation and market forces have led
to outperformance and that this is reflected in our financial
results for the period.
Under International Financial Reporting Standards (“IFRS”) as
adopted by the European Union, our operating profit for the
period was £46.67 million, with total comprehensive income
of £41.84 million. Basic and diluted earnings per share for the
period were 15.10 pence, which includes the net valuation gain
of £29.09 million we recognised as a result of revaluing our
investment properties and derivative interest rate caps.
The NAV per share at 31 December 2014 was 107.02 pence,
prior to adjusting for the third interim dividend for the period of
0.80 pence per share. This compares favourably with the NAV
per share of 98.0 pence immediately following the IPO.
We have adopted European Public Real Estate Association
(“EPRA”) best practice recommendations and aim for the
Company’s shares to be included in EPRA’s investment indices
during 2015, which we expect to broaden the range of potential
institutional investors able to invest in our shares. Under EPRA’s
methodology, EPS for the period were 4.60 pence and the NAV
per share at 31 December 2014 was 107.57 pence. A full list of
our EPRA performance measures is set out on page 17.
The Group has a low and highly transparent cost base.
The total expense ratio of 1.13% compares favourably with
our peers.
Tritax Big Box REIT plc Annual Report 2014 5
Dividends
One of our key aims is to deliver a high-quality, low risk income
stream to shareholders. During the period, we paid two interim
dividends. The first, which we paid in August 2014, was
1.85 pence per share and related to the period from the IPO until
30 June 2014. In December 2014, we paid a second dividend of
1.50 pence per share, for the period from 1 July to 31 October 2014.
added to the weighted average margin payable on our debt
facilities of 1.76%, gives us an all-in running capped rate of
borrowing of 3.85%. While this is the maximum rate payable
under our existing loans, the average margin payable of 1.76%
over 3-month LIBOR gives an all-in rate payable at the period
end of approximately 2.32%.
The Board has also declared a third interim dividend of
0.80 pence per share. This will be paid on 18 March 2015, to
shareholders on the register at 6 March 2015.
Taken together, the second and third interim dividends mean
that we will have paid 2.30 pence per share for the second
half of 2014, which achieves the objective we set out at the
time of our July 2014 fundraising. Our target is to achieve an
annual dividend of 6 pence per share, based on the IPO price of
100 pence per share. We are on track to do so in 2015, provided we
successfully continue to implement our investment and financing
plans, with the objective of growing the dividend thereafter.
Financing
By December 2014, we had raised a gross total of nearly
£481 million of equity and drawn down nine senior debt
facilities totalling £203.64 million, with a further £13.17 million
of facilities undrawn at the period end. We have broadened our
banking arrangements during the second half of the calendar
year, adding Santander UK and Landesbank Hessen-Thüringen
Girozentrale (Helaba) to our initial relationship with Barclays.
The average unexpired term of the loans is 4.3 years, excluding
any options to extend. The portfolio’s LTV of 32.9% at 31 December
2014 is below both our initial objective of around 45% and our
medium-term target of 40%. This reflects the timing of our equity
fundraisings and subsequent property investments and we expect
to be at an LTV in line with our target once we are fully invested.
The prospectus published in July 2014 launching our share
issuance programme remains live until July 2015. Approximately
245 million shares remain available for issuance pursuant to
the Company’s Share Issuance Programme.
Hedging and loan interest
Managing risk is essential to delivering the quality of income stream
we are targeting for our shareholders. We have therefore protected
the Group from a potential significant rise in interest rates by
using derivative instruments to cap the interest rates on all nine
of the senior debt facilities we had drawn by the period end.
Outlook
The fundamentals of the Big Box market remain highly
favourable. With the economy continuing to recover, online
retail in the UK growing rapidly and companies wanting to
increase the efficiency of their distribution, occupier demand
for Big Boxes is set to stay strong. At the same time, the supply
of new Big Boxes is severely constrained and will not materially
increase in the short to medium term. With demand exceeding
supply, we expect to see rents continue to rise.
The expectation of rental growth and the important role Big
Boxes play in the UK economy has strengthened investment
demand and compressed yields during 2014. This presents an
opportunity for us to create additional supply, through forward
funded pre-let investments of securely let modern purpose-built
assets at a discount to their completed investment value.
The last year has shown our ability to source excellent
investments and to buy them at attractive prices. We believe
the Group is now one of the first ports of call for vendors and
their agents when looking to sell Big Boxes. This will help us to
continue to grow and diversify the portfolio.
In summary, we remain confident of delivering excellent
returns for our shareholders, through a stable and growing
income stream with the potential for capital appreciation.
Further equity fundraising
Further to the exchange of contracts on a new distribution
warehouse facility for Ocado announced on 29 January 2015,
the Company is currently in advanced negotiations for the
acquisition of three additional assets, each of which is under
offer in solicitors’ hands and subject to exclusivity agreements.
In addition, the Manager is engaged in detailed discussions
with the owners of a number of other suitable assets that
meet the Company’s Investment Policy. In order to assist in
the financing of these investment opportunities, the Company
is currently considering a further equity fundraising in the
near term pursuant to its Share Issuance Programme. Further
details will be published in due course.
The notional value of debt, as covered by interest rate caps
was £198.9 million at 31 December 2014, meaning that we had
effectively hedged 97.7% of our senior debt at that date. The
caps’ weighted average strike rate was 2.09%, which, when
Richard Jewson Chairman
23 February 2015
Strategic Report
6 Tritax Big Box REIT plc Annual Report 2014
Our market
We believe that the Big Box sector is one of the most
exciting asset classes in today’s UK property market. In
this section, we explain what a Big Box is and why we
believe the fundamentals of our market are so compelling.
Why commercial property?
We are part of a fast moving world economy. News and
information affect global stock markets almost instantaneously,
meaning that equity markets can respond quickly. Commercial
property has longer-term characteristics and shares some of
the features of bonds. Gilt yields recently reached an historic
low, with investors seeking a safe haven amidst global political
instability, world economic uncertainty and low inflation.
Commercial property investments have a very reassuring
feature, namely that they benefit from upward only rent
reviews. This means that as long as the tenant remains
solvent, the landlord’s income will not reduce during the
lease term. In addition, if the economy grows and rents rise,
landlords capture income growth. Some leases offer even
more certainty, through inflation-linked rent reviews, while
others can provide for fixed uplifts. Commercial property can
therefore offer a form of inflation-proofing.
Alongside the potential for attractive and growing income,
commercial property can deliver capital growth from yield
compression, rental growth (applied to a constant yield) and
asset management.
As a REIT our shareholders enjoy the longer-term features of
commercial property, diversification of risk and professional
management of a pool of properties, coupled with the liquidity
offered by our shares.
Why Big Boxes? The best of logistics
Big Box assets are very large and highly efficient distribution
centres and logistics hubs. Their primary function is to hold
finished goods for distribution, either downstream to other
parts of the supply chain or directly to consumers.
While Big Boxes are a sub-sector of logistics, they have
characteristics not evident in the rest of the logistics sector.
As a result, we believe Big Boxes should be viewed very
differently from smaller logistics buildings. Big Boxes as we
know them today did not exist in the UK before the early
1990s, when distribution buildings of more than 300,000 sq ft
were extremely rare. Most high quality Big Boxes have been
constructed over the past 15 years.
A Big Box typically has the following characteristics:
• a large floor area, generally between 300,000 and
1,000,000 sq ft;
• an eaves height of between ten and 25 metres, allowing for
the installation of racking or mezzanine floors to increase
the useable space;
• a strategic location, with close links to major roads,
(potentially also airports, sea ports or rail freight hubs), to
allow efficient goods inwards stocking and downstream
distribution;
• modern designs, making the building energy efficient and
able to accommodate the latest truck specifications;
• significant capital investments by tenants, as noted above;
and
• committed, institutional-grade occupiers, willing to sign up
to long leases with regular, upward-only rent reviews, either
with fixed increases or linked to an inflation index or open
market.
Tritax Big Box REIT plc Annual Report 2014 7
Big Boxes are exciting assets because:
•
they offer their occupiers economies of scale and cost
savings not available in smaller buildings;
logistics companies (“3PLs”), and other companies such as
manufacturers. The chart below shows the take-up of UK
logistics assets, including Big Boxes, by sector.
•
•
they act as the nucleus for distribution either at a national
or regional level;
they allow occupiers to store full product lines under one
roof, making management easier and more efficient;
• planning permission for Big Boxes is more difficult to obtain,
due to their scale and the extent of traffic movements,
which restricts supply and supports rental growth;
•
•
for non-food distribution, tall buildings allow for very high
racking and/or the accommodation of mezzanine floors –
attractive to tenants because rents are paid on the ground
floor area of a warehouse, not its volume;
in Big Boxes we see tenants making very significant
investment in respect of internal fit-out and automation,
which can, and typically does, eclipse the cost of the actual
building. With such high levels of investment, tenants are
usually prepared to commit to very long lease terms, which
are rarely seen in other sectors of commercial property; and
•
the rapidly growing area of e-retail distribution is typically
facilitated by Big Boxes, either as a dedicated e-retail
facility or alongside traditional formats.
Long lead times and barriers to new construction mean the
supply of Big Boxes will not materially increase in the short to
medium term. With strong occupier demand, this creates a
significant supply-demand imbalance that benefits asset owners.
Growing demand for Big Boxes
Demand for Big Box assets comes from three sources:
retailers (both conventional and online), third-party
UK logistics take-up by sector (%)
Occupiers use Big Boxes to improve their operational efficiency
and the growth of online sales has also been a major factor in
their uptake. As the 3PLs often use Big Boxes to support their
contracts with retailers, trends in the retail market are key
drivers of demand in the Big Box sub-sector. Overall, we believe
that the advent of Big Boxes is one of the most important
developments in the history of modern retailing.
Operational efficiency
In recent years, businesses have faced rising costs and a
difficult economic environment. This has accelerated the
attractiveness of Big Boxes because they offer previously
unavailable benefits in terms of efficiency, economies of scale,
flexibility and low cost of use. To drive operational efficiency,
occupiers are increasingly investing in technologically
advanced systems that allow them to stock automatically and
rapidly retrieve products within the warehouse.
Many companies are using Big Boxes to centralise their
previously dispersed distribution facilities into fewer, larger units.
This also helps them to optimise their stock management and
to expand their product range. Marks & Spencer, for example,
is in the process of consolidating its UK logistics network from
110 small warehouses for clothing, home and gift products into
four significantly larger distribution centres, including Castle
Donington, which is part of our portfolio.
3PLs are also increasingly focusing on Big Box assets to
centralise multiple contracts and achieve economies of scale.
By operating more flexibly and efficiently, Big Boxes allow
them to tender more competitively.
30%
45 %
25 %
Source: CBRE United Kingdom Logistics MarketView H1 2014
Retail
Third party
logistics/distribution
Other (manufacturing,
postal services,
construction, etc.)
Strategic Report 8 Tritax Big Box REIT plc Annual Report 2014
Our market
Retail trends
The growth in online retail has been a key driver of the
increased demand for Big Boxes. As the chart on page 9
shows, online sales growth has outstripped the UK’s total retail
market growth for a number of years.
In 2014, the Centre for Retail Research estimated that online
transactions in the UK would reach £45 billion during the
year, an increase of nearly 16% on 2013 and around 13.5% of
total retail sales. Growth in 2015 is expected to exceed 16%,
meaning that British online shoppers will spend more per head
than anywhere else in the world. This volume of sales and
rate of growth puts pressure on retailers to have large, highly
efficient distribution facilities that can fulfil orders quickly and
accurately. This is particularly the case as customers expect
ever-faster delivery, with next day and even same day delivery
increasingly becoming the norm.
Pure-play online retailers, such as Amazon, ASOS and Ocado,
have led the way in developing advanced facilities. However,
most of the UK’s largest online operations still belong to
traditional high street retailers. These hybrid retailers need to
combine the requirements of conventional and online retail
logistics. While some prefer to segregate their online and
offline operations, many co-locate them to achieve economies
of scale. As a result, both pure-play online retailers and hybrid
retailers increasingly rely on Big Box assets.
The retail market is also developing in other ways that favour
Big Boxes. The expense of renting, fitting out and running
high street stores means that retailers want to make the most
of that space. As a result, stores are carrying less stock and
aim to respond rapidly to customer demand for products,
by restocking only those items that are selling and being
able to do so quickly. John Lewis Partnership, for example,
has moved from a store framework of approximately 60:40
storage to sales space, to a new store format of 20:80 in
favour of sales space. Along with the rise of click-and-collect,
this means retailers need much greater control over the timing
and efficiency of deliveries to stores. Speed and reliability are
crucial, which is where Big Boxes come into their own.
As a consequence of these drivers, occupiers often use
Big Boxes as hybrid retail outlets. Making multiple use of the
same asset is highly attractive to occupiers, both in terms of
operational efficiency and in keeping abreast of consumer trends.
Computerised tracking of store sales and analysis of online
spending habits allow retailers not only to respond more quickly
to sales patterns and trends but also provide important data for
customer targeted marketing or specific product lines.
Tritax Big Box REIT plc Annual Report 2014 9
Occupational supply
The supply of logistics properties peaked in 2009, following
a spate of speculative development in the run up to the
economic downturn. The majority of well-located assets from
this supply peak are now occupied, with the last speculative
buildings from 2009 taken up in the third quarter of 2014.
During the recession the absence of suitable Big Boxes
available to let led some retailers to purchase land and
construct their own logistics facilities. A number of these have
since been sold and leased by the retailer; this is known as a
‘sale and lease back’.
While there is some speculative development of smaller
buildings, we are not aware of any properties of over
350,000 sq ft that are currently being speculatively built.
This is because of the significant capital commitment of
construction, and the difficulties of obtaining appropriate sites
and planning permissions and meeting the specification of
occupiers in this size band.
Limited supply and strong occupational demand mean there
is now a shortage of Big Boxes to let and some key areas of
the country currently have no new-build supply. We have,
therefore, seen an upturn in the amount of space acquired
through built-to-suit solutions, where the facility is built to the
tenant’s specification under an agreement for lease. This is
currently the only route for tenants looking to let a building of
more than 500,000 sq ft.
Increasing numbers of tenants are also actively looking for
built-to-suit opportunities in the right locations, as a means of
designing best-in-class Big Boxes with proprietary automated
stock picking and re-stocking systems. This helps occupiers to
maintain their competitive edge, in a market where consumers
often view reliability and speed of delivery as being equally
important as price.
The process of building new assets is both lengthy and difficult.
If a site already has outline planning consent and suitable
infrastructure, then a Big Box asset can take approximately
12 months to build. However, the difficulty of finding sites of
suitable size, with excellent transport links, sufficient power
supply and a suitable local workforce, means that new builds
can often take closer to three years to complete, assuming
that planning permission is received. Significant tenant fit out
of automated machinery can then take a further 12 months or
more, before the Big Box is fully operational.
While we expect the supply of Big Boxes to increase over time,
these dynamics mean that demand is likely to outstrip supply
for some time to come. This creates opportunities for rising
rents and increasing capital values for landlords
UK internet sales growth versus total retail sales growth
Built-to-suit take-up, and new build supply
2007-2014
450
400
350
300
250
200
150
100
100
80
60
40
20
0
7
6
5
4
3
2
1
0
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
UK total retail sales
1
UK internet retail sales
1
Source: ONS Retail Sales – September 2014
(1) Indexed to 100 at January 2008. Not seasonally adjusted
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
Built-to-suit as a % of new take-up New supply at year end (millions sq ft)
Source: CBRE Logistics data covers units of over 100,000 sq ft only
Strategic Report 10 Tritax Big Box REIT plc Annual Report 2014
Our market
Rising rents
Sustained demand and limited supply have inevitably led to
rental growth. Data from CBRE (see table below) for 2014
shows double digit annual rental growth for parts of the M25
motorway while growth in other key locations has outstripped
inflation.
ships that are increasingly used to import goods. According
to government forecasts, the market share of intermodal
container traffic between the country’s ports and its
hinterland is set to increase from the current level of around
30% to 63% by 2033.
This demonstrates that some local markets have seen rental
growth well above average, due to scarcity of supply and
strong competition for sites from other land uses. Growth
in rents is expected to become increasingly apparent in the
regions during 2015.
For Big Box units taken through a pre-let or D&B process, a
premium above the prevailing rent for an existing unit is typical
partly because the rent start date can be over a year later.
There is significant variation between deals, but in recent years
this premium has averaged around 15-20%.
The attractions of the UK logistics market
The UK economy was one of the fastest growing G7 economies
in 2014, as conditions improved across the main service
industries and in manufacturing. Looking forward, the most
recent predictions from independent forecasters indicate
that the rate of UK GDP growth will settle at around 2.5%
in 2015.
There are a number of factors that we believe make
the UK one of the best locations in the world for Big Box
distribution. These include the country’s mature transport
infrastructure, with excellent road, rail and air links, as well
as numerous ports that can handle the large container
In addition, the UK’s relatively small size and dense population
allows Big Box users to construct networks of regional
distribution centres that can cover the country, while
remaining within legal limits on driving times. This reduces
the risk of late or missed deliveries and cuts costs.
These factors have in turn facilitated the growth of online
retail. Figures from the Centre for Retail Research show that
the UK is the largest European market for internet shopping,
with estimated sales in 2014 more than one quarter higher
than in Germany, which is the next largest, and several times
higher than other economies such as Spain, the Netherlands
and Italy.
The UK is also a major adopter of mobile technology, which is an
increasingly important channel for online sales. The Centre for
Retail Research estimates that 17.6% of UK online sales were via
mobile devices in 2014, the highest proportion in Europe.
Retail versus industrial property yields
Historically, prime retail yields of c. 4% were the norm. This low
yield reflected the limited obsolescence of property fabric
and reliable growth in income from consistently rising rents.
Industrial property attracted higher yields of 6.5% or more, which
were greater than on retail property due to higher perceived
obsolescence and abundant land supply, which in turn suppressed
Prime logistics headline rents – selected locations
End 2014
LOCATION
M25 West
M25 North
M25 East
Milton Keynes
Birmingham
M1/M6 Interchange
Warrington
Wakefield
Source: CBRE
PRIME RENT (PER SQ FT)
ANNUAL GROWTH
£12.95
£9.50
£8.00
£6.50
£6.15
£6.00
£5.50
£4.75
12.6%
15.1%
6.7%
13.0%
7.0%
4.4%
6.8%
0.0%
Prime UK investment yields: retail versus industrial
8%
7%
6%
5%
4%
3
1
n
a
J
3
1
b
e
F
3
1
r
a
M
3
1
r
p
A
3
1
y
a
M
3
1
n
u
J
3
1
l
u
J
3
1
g
u
A
3
1
p
e
S
3
1
t
c
O
3
1
v
o
N
3
1
c
e
D
4
1
n
a
J
4
1
b
e
F
4
1
r
a
M
4
1
r
p
A
4
1
y
a
M
4
1
n
u
J
4
1
l
u
J
4
1
g
u
A
4
1
p
e
S
4
1
t
c
O
4
1
v
o
N
4
1
c
e
D
5
1
n
a
J
Prime shops
Prime distribution
Source: CBRE
Tritax Big Box REIT plc Annual Report 2014 11
rental growth. However, the relationship between retail and
industrial yields has been reversing, with high street retail under
attack from shopping centres and online, while prime logistics
are benefiting from online sales growth, lower obsolescence, tight
land supply and the cost savings delivered by scale. As a result,
prime yields in the two sectors are converging (see below graph).
Hardening investment yields
While volumes of investment transactions in 2014 are likely to
have been a little below the high watermark of 2013, overall
2014 was an above-average year for investment volumes.
This has led to lower yields. Prime logistics yields have reduced
from around 6.5% in January 2013 to 5.00% as at January 2015,
compared to prime shops which have improved very little over
the same period from 4.85% to 4.50%.
CBRE is forecasting that prime logistics yields will sharpen still
further. This is partly due to the belief that rental growth will drive
a large component of total returns. In addition, the sector has
witnessed significant allocation increases due to UK institutions
being underweight, with inflows reported at £3.82 billion raised
by these funds during 2014 (the highest for this asset class on
record), of which £1.78 billion was in the second half of the year.
At the same time, the UK logistics sector has become increasingly
attractive to overseas buyers seeking long leases to prime
covenants and a positive yield gap above the cost of borrowing.
open market reviews. The price paid for this investment of
circa £110 million reputedly reflected a yield of 4.6% although
this yield would now stand at around 4.25%.
Although yields have hardened for logistics, attractive
opportunities remain for investors, with CBRE stating that there
is still value at the prime end of the market. Despite hardening
yields, lower interest rates have allowed us to buy investments
at sharper yields without compromising on quality or our
dividend ambitions.
Although demand for prime logistics investments is outstripping
supply, the Manager continues to source a good number of high
quality investments, mainly off-market. Inevitably the paucity
of quality warehouses for rent is leading occupiers to sign pre-
lets on built-to-suit new build developments. The Manager is
sourcing an increasing number of forward funded opportunities
which can offer the benefit of yield arbitrage and we expect this
trend to continue in the near term.
The positive yield gap
Our business applies prudent gearing to amplify returns. This
is only possible when property yields are higher than the cost
of debt. As commercial property yields have reduced, interest
rates have also fallen, which has maintained an attractive
positive yield gap.
The ultra-prime benchmark for a distribution warehouse was
set in the second quarter of 2014, with L&G’s forward funded
purchase of Gazeley’s 938,449 sq ft development at Milton
Keynes, which is let to Waitrose for 30 years with RPI uplifts
of between 1.5% and 2.5% paid annually subject to five yearly
Our approach to gearing is flexible and we will adapt this
depending upon prevailing market influences from time to
time; in particular, the relationship between investment
yield, rents and rental growth, medium-term interest rates
and inflation.
Our portfolio – net initial yield at time of acquisition (%)
Average: 6.1%
8.0
6.0
4.0
2.0
20
0
■ Foundation assets ■ Value add ■ Growth covenants
Strategic Report 12 Tritax Big Box REIT plc Annual Report 2014
Our business model
What we do
We own and manage some of the highest-quality Big Boxes in
the UK. We aim to buy for value, by identifying and exploiting
market imperfections, using our experience and expertise to
build an asset portfolio that is well diversified by tenant and
geography. We prudently apply leverage to increase returns
and further expand and diversify our portfolio. We intend to
hold our assets for the long term but would consider selling
if we could unlock value and reinvest the proceeds in a more
attractive opportunity.
The value we add
The starting point for value creation is our ability to source
investments. This depends on the Manager’s close relationships
with key market players built up over many years. The Manager
also spends considerable time researching asset owners and
developing relationships with them. This means we often source
investments off-market, enabling us to buy at better prices.
Over 80% of the assets in our portfolio were acquired off-market.
This is achieved through a combination of a singular and clear
investment focus, impeccable track record of performance, and
an unparalleled network of investment agency, developer and
occupier contacts.
The Manager’s expertise means we give vendors a rapid
decision on whether we will proceed with an investment
opportunity. We can complete transactions quickly, but always
following a process of thorough due diligence. This speed
and certainty of execution is highly attractive to vendors and
often more important to them than simply securing the best
price. We can buy an asset directly or by acquiring the special
purpose vehicle that owns it. Purchasing the vehicle can
reduce costs in certain circumstances.
We have a clear investment policy (see page 14) but we are
also pragmatic. We typically look for assets of more than
400,000 sq ft and with at least 12 years left on the lease.
However, we will buy smaller assets or assets with shorter
leases where we consider that there may be opportunity to
add value. Buying smaller properties reduces the risk which
may be inherent in the investment, for example due to a near-
term lease expiry, but which we view as an opportunity to
add value.
The assets we buy are usually strategically important to our
tenants. We work with them to maximise their operational
effectiveness, for example by extending buildings or adding
mezzanine floors. This encourages tenants to sign long leases,
increasing the security of our revenues and increasing capital
values. Where we buy properties with the potential to add
value, we look to turn them into core foundation assets for our
portfolio through asset management. If, having added value, the
investment does not sit well within our portfolio, then we would
consider a sale in order to purchase a more suitable asset.
Sustaining our advantage
As a specialist investor in Big Boxes, we have already established
a reputation as one of the industry’s most forward-thinking
owners and managers. This makes us the obvious choice
for asset owners looking to sell Big Boxes. The consistency of
OUR SOURCE OF CAPITAL
THE VALUE WE ADD
OUR OBJECTIVES
OUTCOME
GOAL
SHAREHOLDER
CAPITAL
Our Shareholders’ investment in
the Company
OWN
SOURCE INVESTMENTS
Research
Relationship building
On/off-market acquisitions
EXECUTION
Expertise
Speed and certainty
INVESTMENT STRATEGY
Foundation assets
Value add
Growth covenants
DEBT FUNDING
Funds for investment raised
through bank borrowings
MANAGE
ASSET MANAGEMENT
Property extensions and alterations
Lease extensions
Rent reviews
INCOME
High quality rental stream paid to us
by tenants
GROWTH IN
INCOME
Buying rental income with in-built
growth and creating income growth
through asset management.
GROWTH IN
ASSET VALUE
The increase in the value of
our portfolio through our active
management and market changes
DIVIDEND
The returns we make to
shareholders through
dividend distributions
CAPITAL RETURN
The change in value of
our share price
TOTAL SHAREHOLDER
RETURN
DIVIDEND PAYMENTS
The total value of
the dividends paid
to shareholders
+
SHARE PRICE GROWTH
The increase in the value
of our shares
TARGET
6 pence
Annual dividend
on the IPO price of 100 pence
+9% pa
Net total return over the
medium term
Tritax Big Box REIT plc Annual Report 2014 13
the Manager’s team is also a substantial advantage. It helps
us to maintain our relationships in a market where changes in
personnel are common.
As our portfolio grows, we benefit from economies of scale,
increased diversification by geography, tenant and building
type, and a larger list of contacts, helping us to source
attractive investments off market. A larger portfolio also
gives us even greater insight into market developments
and more control over the evidence for rent reviews and
lease renewals.
Delivering returns
By buying high-quality properties with excellent tenants
and carefully managing our assets, we can deliver a robust,
low-risk rental stream, the growth of which will directly
contribute to rising dividends. We believe that these are
attractive attributes, particularly when viewed in the context of
the current low inflation and low interest rates in the UK. Our
asset selection and management approach also adds value
to our investments, allowing our shareholders to benefit from
attractive total returns.
In addition, our status as a REIT helps to create value for
shareholders. For example, as a REIT, we are not subject
to Corporation Tax on profits and gains in respect of our
qualifying property rental business. In addition, we can pay
dividends that qualify as a property income distribution
(“PID”), which offers tax advantages for certain UK
shareholders.
Asset management
Knowledge of our tenants’ business requirements allows us to
identify and execute asset management initiatives which can
grow our rental income and capital values. Asset management
opportunities tend to be linked to one or more of the following:
• The tenant’s need for an extension to the existing building,
an alteration to the unit’s layout or specification, an
additional unit on the same or adjacent site, or capital
investment to improve mechanisation, which we can
lever to enhance annual rent and/or the lease length. The
majority of our assets have low site cover.
• Lease extensions, which give the occupier an opportunity
to protect its logistic operations from the site and its capital
commitment within the properties. An extension of the
lease term not only increases long-term income but can
enhance the capital value of our investment.
• Rent reviews, which can deliver a significant rental uplift or
agree a lower rental increase in exchange for a lease term
extension.
• The tenant no longer requiring a unit, which may give
us the opportunity to negotiate a surrender premium,
whilst simultaneously re-letting the unit to a new occupier,
perhaps on improved terms. This can provide an enhanced
investment profile, while avoiding the risks and costs
of holding a vacant property.
• The tenant’s corporate responsibility objectives, which
may encourage capital expenditure for initiatives such as
installing solar panels to help the tenant achieve ambitious
environmental or staff welfare targets. This produces cost
effective energy for occupiers and can enhance the income
return to us.
OUR SOURCE OF CAPITAL
THE VALUE WE ADD
OUR OBJECTIVES
OUTCOME
GOAL
SHAREHOLDER
CAPITAL
Our Shareholders’ investment in
the Company
OWN
SOURCE INVESTMENTS
Research
Relationship building
On/off-market acquisitions
EXECUTION
Expertise
Speed and certainty
INVESTMENT STRATEGY
Foundation assets
Value add
Growth covenants
High quality rental stream paid to us
INCOME
by tenants
GROWTH IN
INCOME
Buying rental income with in-built
growth and creating income growth
through asset management.
GROWTH IN
ASSET VALUE
The increase in the value of
our portfolio through our active
management and market changes
DEBT FUNDING
Funds for investment raised
through bank borrowings
MANAGE
ASSET MANAGEMENT
Property extensions and alterations
Lease extensions
Rent reviews
DIVIDEND
The returns we make to
shareholders through
dividend distributions
CAPITAL RETURN
The change in value of
our share price
TOTAL SHAREHOLDER
RETURN
DIVIDEND PAYMENTS
The total value of
the dividends paid
to shareholders
+
SHARE PRICE GROWTH
The increase in the value
of our shares
TARGET
6 pence
Annual dividend
on the IPO price of 100 pence
+9% pa
Net total return over the
medium term
Strategic Report 14 Tritax Big Box REIT plc Annual Report 2014
Our objectives and strategy
Our objectives
We have set clear objectives, which reflect our aim of creating
value for shareholders. By investing in a diversified portfolio
of Big Box assets, we look to provide shareholders with long-
term, stable and increasing income streams and attractive
capital returns.
In particular, assuming the Company is fully invested and
geared, we aim to deliver the following targets:
• an annual dividend of 6 pence on the IPO price of
100 pence per share, with the potential to grow the
dividend through our long-term, upward-only (some
inflation protected) lease agreements; and
• a net total return (dividend paid plus growth in net asset
values) in excess of 9% a year, over the medium term.
We also have a longer-term ambition to grow our NAV to in
excess of £1bn. This scale will deliver a number of benefits
for shareholders, as described in our business model on
pages 12-13.
Our investment policy
To deliver these returns, we follow a rigorous investment
policy. Under this policy, we invest in assets that typically:
• are let or pre-let. We do not invest in speculative
developments and will only forward fund pre-let
opportunities where a tenant has already signed an
agreement for lease;
• have institutional-grade tenants, with sound business and/
or good growth potential;
• are in the right locations in the UK, with excellent transport
connections and good workforce availability;
• have modern units of a size, age and specification to meet
the requirements of major occupiers (where possible to
include expansion options);
• have leases to institutional standards, with regular upward-
only rent reviews and a typical unexpired lease length on
purchase of 12-25 years, to provide long-term and secure
income flows;
• show evidence that the site is strategically important to the
tenant, such as extensive investment in fitting-out the unit
or proximity to the tenant’s market or other key assets; and
•
there may be exceptions to our policy where we perceive
opportunity to deliver value for our Shareholders without
significantly upscaling aggregated portfolio risk.
We continue to target assets with a geared yield range of
approximately 5-7% and which offer value to our shareholders.
Our acquisition focus
In executing our investment policy, we typically acquire
property assets representing one or more of our three
investment pillars:
● Foundation assets – The quality and sustainability of our
rental income underpins our business. Foundation assets
provide our core, low-risk income. They are usually let on
long leases to tenants with excellent covenant strength.
The buildings are commonly new or modern and in prime
locations, and the leases have regular upward-only rent
reviews, often either fixed or linked to CPI or RPI indices.
● Value add – These assets are typically let to tenants with
strong covenants and offer the chance to grow the assets’
capital value or rental income. We do this using our asset
management capabilities and understanding of occupier
requirements. These assets are usually highly re-lettable.
●● Growth covenants – These are fundamentally sound
assets in strong locations, but let to tenants we perceive
to be undervalued and who have the opportunity to
improve their financial strength. Examples include young
e-retailers or companies that have strong growth prospects
as the UK economy continues its recovery, offering value
enhancement through yield compression.
More generally, we seek value and look to exploit market
imperfections, so we can deliver outperformance for our
shareholders.
Some properties within our portfolio have cross-over
characteristics and so fall within more than one of the ‘three
investment pillars’. The categorisation shown in the graph
below represents our view of the primary feature of the
investment.
Our portfolio: by asset value (%)
10%
11%
2%
8%
18%
4%
4%
24%
5%
11%
41%
£619.3m
15%
48%
3%
5%
5%
5%
6%
9%
66%
Tesco (Chesterfield) 5%
Foundation assets● Morrison 18%● Marks & Spencer 15%● Sainsbury's 9%● Rolls-Royce 6%● Tesco (Didcot) 5%● DHL (Skelmersdale) 5%● Kuehne & Nagel 5%● DHL (Langley Mill) 3%Value add● Next, 11%● ● Tesco (Middleton) 4%● L'Oréal 4%Growth covenants● The Range 8%● Wolseley 2% Tritax Big Box REIT plc Annual Report 2014 15
Our operational strategy
To help us deliver long-term and sustainable returns to our shareholders, we focus on the following strategic areas:
STRATEGIC AREA
IMPLEMENTATION AND BENEFITS
Management team
Recruit and retain a profoundly
knowledgeable and talented
management team, committed to
delivering value to shareholders.
Occupiers
Develop and maintain a deep
understanding of the businesses that
use our space, to create long-term
partnerships.
As an externally managed business, we depend on the Manager’s employees
for our success. The Manager therefore looks to employ the highest-calibre
professionals and has a team dedicated to running the Group, comprising highly
experienced people with a track record of successfully investing in the sector.
The Manager also draws on the skills and experience of its other employees.
We benefit from their professional expertise, the market knowledge they gain
from working on other investment business and the cost efficiencies of utilising
some of them part-time.
Building relationships with tenants is a key part of creating value. It enables us to
work collaboratively with them, to deliver asset management initiatives that meet
their business objectives and unlock value for shareholders.
Letting a number of properties to one tenant also creates opportunities for cross-
fertilisation strategies, for example by agreeing to limit rent increases on one
property in return for extending the lease term on another. This can benefit both us
and the tenant.
Operational excellence
Rigorously control costs and
operational efficiencies, while not
comprising growth or reputation.
As an externally managed business, we have a simple and transparent cost base,
which largely comprises the management fee, the directors’ fees, and accounting,
audit, legal and regulatory fees. This helps us to focus closely on cost control and
efficiency, with the result that our total expense ratio of 1.13% is one of the lowest in
our peer group.
Capital risk management
Achieve the right risk and return
balance of equity and debt, to finance
our business and enhance returns.
Corporate responsibility
Strive to assume our corporate
responsibilities towards society
and the environment, in every part
of our business.
The Group is financed through a combination of equity and medium-term debt.
Using debt increases returns to shareholders and allows us to diversify further
our investment portfolio. We look to invest the proceeds of any equity issuance
before drawing down debt, to limit the interest expense and to maximise returns
on equity. We are targeting an LTV of 45% initially during the growth phase of our
business and a medium-term LTV of 40%, which we believe is a conservative level
given the quality of our investments.
We have negotiated debt facilities with three banks to date, reducing the Group’s
dependence on any one lender. Debt is currently secured at the asset level, to limit
any default risk to the asset rather than across the Group, but we may consider
cross-collateralised arrangements where considered beneficial.
We aim to run the Group responsibly. This includes looking to buy buildings with
A, B or C Energy Performance Certificate ratings where possible. We also favour
tenants with strong corporate responsibility credentials and work collaboratively
with them to improve their performance, for example, by increasing the number
of roof lights in the building or by investing in or funding energy efficient initiatives,
such as power generation through solar panels or wind turbines.
Strategic Report 16 Tritax Big Box REIT plc Annual Report 2014
Key performance indicators
Our objective is to deliver attractive returns to shareholders,
by executing the investment policy described on page 14.
Set out below are the key performance indicators we will
report on each year, to track the progress we are making.
KPI AND DEFINITION
PERFORMANCE
1. Total return (TR)
In relation to our investment objective, TR measures the change in the net asset
value over the period plus dividends paid. As explained on page 14, we are targeting
a TR in excess of 9% per annum over the medium-term.
10.4%
Group’s TR for the period to 31 December 2014
2. EPRA NAV per share*
The value of our assets (based on an independent valuation) less the book value
of our liabilities, attributable to shareholders and calculated in accordance with
EPRA guidelines.
107.57 pence
EPRA NAV per share at 31 December 2014
The EPRA NAV per share at IPO was 98.0 pence.
This is an increase of 9.8%.
* EPRA earnings, EPRA NAV and EPRA EPS are alternate metrics to their IFRS equivalents that are calculated
in accordance with the Best Practices Recommendations of the European Public Real Estate Association (EPRA).
The Company uses these alternative metrics as they provide a transparent and consistent basis to enable a
comparison between European property companies
3. Loan to value ratio (LTV)
The proportion of the Group’s property portfolio that is funded by borrowings. Our
initial target LTV is 45% of the Group’s gross assets, with a medium-term target of
40%. The LTV will always be subject to a maximum of 50% of the Group’s gross
assets at the time of drawdown.
32.9%
LTV at 31 December 2014
This reflects the timings of our investments and
draw down of debt and will be in line with our target
once we are fully invested and geared
4. Dividend against target
Dividends paid and declared to shareholders in relation to the period
against the IPO price of 100 pence per share.
5. EPRA EPS*
Post-tax earnings that are attributable to shareholders, calculated in
accordance with EPRA guidelines.
4.15 pence per share
Dividend per share for the period to 31 December
2014
This was lower than our initial target due to the cash
drag experienced between the raising of equity
and full investment. We are on track to achieve our
initial target of 6 pence per share in 2015.
4.60 pence per share
EPRA EPS for the period to 31 December 2014
6. Total expense ratio (TER)
The ratio of total administration and property operating costs expressed as a
percentage of average net asset value throughout the period (from point of full
investment of IPO proceeds). Over the medium-term the Group is targeting a TER
of 1% or below per annum.
1.13%
TER for the period to 31 December 2014
This ratio is set to decrease further as the NAV of
the Group grows and associated overheads reduce
relatively through 2015 and beyond.
7. Weighted average unexpired lease term (WAULT)
The average unexpired lease term of the property portfolio, weighted
by annual passing rents.
13.9 years
WAULT at 31 December 2014
This compares well to our target of at least 12 years.
Following the acquisition of Ocado our WAULT has
increased to 15.3 years.
EPRA performance measures
Detailed below is a summary table showing the
EPRA performance measures (EPMs).
Tritax Big Box REIT plc Annual Report 2014 17
MEASURE AND DEFINITION
PURPOSE
PERFORMANCE
1. EPRA Earnings
Earnings from operational activities.
A key measure of a company’s underlying operating
results and an indication of the extent to which
current dividend payments are supported by
earnings.
£12.75 million/4.60 pps
EPRA earnings
as at 31 December 2014
2. EPRA NAV
Net asset value adjusted to include
properties and other investment interests
at fair value and to exclude certain items
not expected to crystallise in a long-term
investment property business.
Makes adjustments to IFRS NAV to provide
stakeholders with the most relevant information on
the fair value of the assets and liabilities within a true
real estate investment company with a long-term
investment strategy.
£506.12 million/107.57 pps
EPRA NAV as at 31 December 2014
3. EPRA NNNAV
EPRA NAV adjusted to include the
fair values of:
(i) financial instruments;
(ii) debt and;
(iii) deferred taxes.
4.1 EPRA Net Initial Yield (NIY)
Annualised rental income based on the
cash rents passing at the balance sheet
date, less non-recoverable property
operating expenses, divided by the market
value of the property, increased with
(estimated) purchasers’ costs.
4.2 EPRA ‘Topped-Up’ NIY
This measure incorporates an adjustment
to the EPRA NIY in respect of the
expiration of rent-free periods (or other
unexpired lease incentives such as
discounted rent periods and step rents).
Makes adjustments to EPRA NAV to provide
stakeholders with the most relevant information on
the current fair value of all the assets and liabilities
within a real estate company.
£503.53 million/107.02 pps
EPRA NNNAV as at 31 December 2014
All debt as at 31 December 2014 is
floating rate debt, which has been
valued at par. We believe that all
current margins payable would still
be achievable in the current market.
A comparable measure for portfolio valuations.
This measure should make it easier for investors to
judge themselves, how the valuation of portfolio X
compares with portfolio Y.
5.52%
EPRA NIY
as at 31 December 2014
A comparable measure for portfolio valuations.
This measure should make it easier for investors to
judge themselves, how the valuation of portfolio X
compares with portfolio Y.
5.56%
EPRA ‘Topped-Up’ NIY
as at 31 December 2014
After adding minimum stepped rent
increases of £226,263 to annualised
rental income used for EPRA NIY
5. EPRA Vacancy
Estimated Market Rental Value (ERV) of
vacant space divided by ERV of the whole
portfolio.
A “pure” (%) measure of investment property space
that is vacant, based on ERV.
0.00%
EPRA ERV
as at 31 December 2014
6. EPRA Cost Ratio
Administrative and operating costs
(including and excluding costs of
direct vacancy) divided by gross rental
income.
A key measure to enable meaningful measurement
of the changes in a company’s operating costs.
19.4%
EPRA cost ratio
as at 31 December 2014
This ratio is both inclusive and
exclusive of vacancy costs.
Strategic Report 18 Tritax Big Box REIT plc Annual Report 2014
Manager’s Report
This was a highly successful period, during which the
Group implemented its investment and financing strategies
as advised by the Manager and continued to position it for
further success.
Investment activity
The Group acquired 14 Big Box assets between the IPO and
31 December 2014, at which time the portfolio comprised the
properties in the table below.
These are high quality modern assets, with good geographical
spread and diverse tenants. The portfolio also presents a
variety of asset management opportunities, which have the
potential to provide income growth and capital appreciation.
Details of the portfolio are set out on pages 21 to 26.
Acquisitions after the period end date are described on page 26.
The average size of the properties in the portfolio at
31 December 2014 was 595,725 sq ft. The weighted average
unexpired lease term at the same date was 13.9 years.
The portfolio properties in the table below are listed
chronologically in order of acquisition.
Valuation and portfolio growth
CBRE independently valued the portfolio at 31 December
2014, in accordance with the RICS Valuation – Professional
Standards January 2014. The properties were valued
individually without premium/discount applying to the
portfolios as a whole. The portfolio’s market value was
£619.28 million including forward funded commitments,
compared with the assets’ combined purchase price of
£566.64 million, excluding purchase costs. This represents
an increase of £52.64 million or 9.3%, when compared to
the property purchase prices excluding acquisition costs.
The capital growth in our portfolio collectively reflects the
capital growth for each property since purchase. If the portfolio
in place at 31 December 2014 had been held throughout the
period, we calculate that the annualised capital growth would
have been 25.9%. This assumes that the growth in the period
since ownership was consistent. Whilst this is an artificial
measure, this does provide Shareholders with a more realistic
growth metric for comparison against stabilised alternative
property investments.
The valuation increase reflects the strong investment demand
for industrial logistics, which has resulted in yields hardening.
It also highlights our success in sourcing off-market deals at
attractive prices for the Group.
Property Tenancy Schedule
Tenant
Location
Month of
acquisition
Purchase
price (£)
NIY
(%)
Annual passing
rent (£)
Size (sq ft)
Rent per
sq ft (£)
Next rent
review date
Sainsburys Supermarket Ltd
Leeds
Dec 2013
48.75
6.65
3,295,716
571,522
5.77 May 2018
Marks & Spencer plc
Chart 2: UK Online Retail Sales and Forecast
Total Online Sales (£bn) % Share of Retail Sales
Castle Donington Dec 2013
82.58
5.20
4,351,723
906,240
4.80
Dec 2016
Tesco Stores Ltd
60
Chesterfield
Mar 2014
Tesco Stores Ltd
Next Group Plc
Wm Morrison Supermarkets plc
DHL Supply Chain Ltd
DHL Supply Chain Ltd
Wolseley UK Ltd
Didcot
50
Doncaster
40
Sittingbourne
30
Langley Mill
20
Skelmersdale
10
Ripon
Apr 2014
Jun 2014
Jun 2014
Aug 2014
Aug 2014
Aug 2014
28.64
27.20
60.00
97.80
17.53
28.87
12.24
Rolls-Royce Motor Cars Ltd
CDS (Superstores International)
Ltd (trading as The Range)
Tesco Stores Ltd
0
Bognor Regis
7
0
0
2
Thorne
8
0
0
2
Oct 2014
0
9
0
1
0
0
2
2
Nov 2014
1
1
0
2
2
1
0
2
36.98
3
1
0
2
48.50
4
1
0
2
Online sales Forecast % Retail Sales
Source: CBRE Report, May 2014 – Market Overview – Big Box Distribution
8.25
Dec 2014
22.45
Middleton
6.60
1,999,804
16
501,751
3.99 May 2015
6.90
1,920,000
14
288,295
6.66
Aug 2019
12
3,854,857
755,055
5.11 Mar 2018
10
8
6
4
2
0
6.07
5.20
6.50
6.50
6.73
5
1
0
2
6.25
7
1
0
2
6
1
0
2
6.10
5,419,974
919,443
5.89
Jun 2015
1,214,480
255,680
4.75
Aug 2019
2,000,000
470,385
4.25
Aug 2019
838,500
221,763
3.78
Sep 2016
2,379,481
313,220
7.23 Oct 2020
3,122,994
750,431
4.16
Oct 2017
1,959,767
302,111
6.49
Dec 2017
Kuehne & Nagel Ltd*
Dove Valley Park Dec 2014
L’Oréal (UK) Ltd
Trafford Park
Dec 2014
Total
* Guaranteed by Hays Plc
29.27
25.83
566.64
6.00
1,858,000
343,248
5.41
Apr 2017
7.13
1,947,231
261,959
7.45
Aug 2015
36,162,527 6,861,103
Tritax Big Box REIT plc Annual Report 2014 19
Thinking Big Box > modern asset
Big Boxes are a relatively new phenomenon. They allow companies to store and distribute
on a national and regional level and this has resulted in upscaling from older smaller and
less efficient buildings to a format increasingly important in the growth of global goods
transportation and sales.
Strategic Report 20 Tritax Big Box REIT plc Annual Report 2014
Manager’s Report – acquisition trajectory
Number of assets
Average NIY
WAULT
£150m raise (Jul-14)
6
5.8%
16.3 years
Interims (Aug-14)
8
5.9%
15.2 years
Period end (Dec-14)
14
6.1%
13.9 years
(Feb-15)
15
6.0%
15.3 years
Portfolio value, £718 million
8000
Erith ●
sq ft
99
700
7000
Derby ●
● Bognor Regis
31
600
6000
27
23
● Skelmersdale
50
● Manchester
● Sittingbourne
38
● Middleton
32
13
● Thorne
20
● Ripon
110
● Didcot
● Langley Mill
● Castle Donington
65
● Leeds
32
32
● Doncaster
91
● Chesterfield
57
Dec-13 Dec-14 Mar-14 Apr-14 Jun-14 Jun-14 Aug-14 Aug-14 Aug-14 Sep-14 Nov-14 Nov-14 Dec-14 Dec-14 Jan-15
● Foundation asset ● Value add ● Growth covenants
500
5000
400
4000
300
3000
200
2000
100
1000
0
■ Valuation as at 31 December 2014 (£m) ■ Acquisition price (£m) ■ Total lettable area (sq ft mm)0 Manager’s Report – our portfolio
Tritax Big Box REIT plc Annual Report 2014 21
Sainsbury’s, Leeds
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves height:
Built:
Lease expiry:
£48.75 million
6.65%
571,522 sq ft
13m
2000
November 2026
Tesco, Chesterfield
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves height:
Built:
Lease expiry:
£28.64 million
6.60%
501,751 sq ft
15m
2005
May 2020
• One of Sainsbury’s 13 main regional distribution centres in
the UK, strategically located near the A1(M) motorway, rail
and air links
• Core to Sainsbury’s operational needs, distributing food to
145 superstores and 45 local stores between Northampton
and Newcastle
• Low site density of circa 31% offers the opportunity to
accommodate expansion
• Potential asset management opportunities identified
• Developed to modern standards incorporating high eaves,
low site cover and cross docking
• Accessible location five minutes from Junction 30 of the
M1, providing excellent connectivity to wider motorway
network
• Rent passing off a low base of £3.99 per sq ft, which should
allow for an opportunity to capture growth at next review in
May 2015
• Tesco recently closed an 840,000 sq ft facility in Daventry
and transferred much of that operation to this warehouse
• Potential asset management opportunities identified
Marks & Spencer, Castle Donington
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves height:
Built:
Lease expiry:
£82.58 million
5.20%
906,240 sq ft
25m
2011
December 2036
Tesco, Didcot
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves height:
Built:
Lease expiry:
£27.20 million
6.90%
288,295 sq ft
11m
1989
July 2024
• Newly developed building bespoke for M&S, providing
modern design features such as very high eaves, energy
efficient systems and dedicated rail freight terminal and
sidings
• Strategically located in a core south east position, adjacent
to the A34 dual carriageway linking junction 13 of the M4
and junction 9 of the M40 motorways, as well as rail and air
connections
• Strategically located for transportation via road (M1), rail
and air, for central UK distribution for e-commerce
• M&S has committed significant capital expenditure to
the unit, creating multiple mezzanine floors and highly
sophisticated automated picking and handling equipment
• Rent is reviewed upwards only to open market value, with
a minimum increase equivalent to 1.5% per annum and
compounded five yearly, currently passing off a low base
rent which we believe is reversionary on the open market
• Low site cover of circa 41% gives potential for extension
and/or a rail terminal building
• Facility has integral cold store for Tesco’s food distribution,
serving in excess of 120 stores in a 60-mile radius, while
Tesco has also committed to developing a 100,000 sq ft
“dot-com” unit two miles away
• Low site cover of circa 45%
• Potential asset management opportunities identified
Strategic Report 22 Tritax Big Box REIT plc Annual Report 2014
Manager’s Report – our portfolio
Next, Doncaster
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves height:
Built:
Lease expiry:
£60.00 million
6.07%
755,055 sq ft
17.5m
2003, extended 2005
March 2023
DHL, Langley Mill
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves height:
Built:
Lease expiry:
£17.53 million
6.50%
255,680 sq ft
12m
2006
August 2024
• Unit was developed in 2003 and extended in 2005, to
accommodate Next’s expansion requirements
• Extension contains a fully automated stock picking system,
installed at considerable expense to the tenant
• Tenant further committed to the location, having submitted
planning for another 600,000 sq ft facility on an adjoining
parcel of land that will link via a connecting bridge to our
building
• Modern, high-specification distribution facility with ancillary
offices and extensive parking over 13.24 acres, plus low site
cover of circa 45%
• Well located, approximately eight miles north west of
Nottingham, and accessed from Junction 26 of the
M1 motorway
• Centrally located in the UK, to allow for optimum
distribution coverage within the maximum HGV drive time
• Excellent location for access to wider motorway network
via the M18, as well as rail and air links
• Potential asset management opportunities identified
• Tenant committed significant further capital expenditure to
fit the unit out, in order to fulfil a new national distribution
contract
Morrisons, Sittingbourne
DHL, Skelmersdale
Chart 1: UK Economic Outlook
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves height:
Built:
Lease expiry:
£97.80 million
5.20%
919,443 sq ft
12.2m
2009
June 2039
60
50
Chart 2: UK Online Retail Sales and Forecast
Total Online Sales (£bn) % Share of Retail Sales
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves height:
Built:
Lease expiry:
£28.87 million
6.50%
470,385 sq ft
12.75m
2003
August 2024
16
%
0.0
0.0
0.0
0.0
0.0
0.0
0
2010
2011
2012
UK
Euro area
US
Source: OECD Economic Outlook
• Unit was developed in 2009 and provides modern design
features
40
• Strategically located four miles from Junction 5 of the M2
30
and 28 miles south east of the M25 (approximately
30 minutes to City of London), and close to rail and
container port facilities
0.0
20
10
14
• Highly specified and fully fitted distribution facility, with
ancillary offices and extensive parking over 29.5 acres,
plus low site cover of circa 36%
10
12
• Strategically located approximately one mile from
Junction 4 of the M58 motorway and five miles from
Junction 6 of the M6
4
• Unit is Morrisons’ principal South East regional distribution
facility, supplying 85 superstores and 53 “M Locals” with
chilled, ambient and cold goods
2014
8
0
0
2
9
0
0
2
7
0
0
2
0
1
0
2
2013
1
1
0
2
0
2
1
0
2
2015
Forecast
• Port of Liverpool is approximately 14 miles away, where
3
1
0
2
construction is under way on a new container port capable
of bringing some of the world’s largest container ships to
the North West region
6
1
0
2
5
1
0
2
4
1
0
2
7
1
0
2
• Rent is reviewed to RPI capped at 2.0% and paid annually,
Online sales Forecast % Retail Sales
Source: CBRE Report, May 2014 – Market Overview – Big Box Distribution
which provides for long-term growth
• DHL has committed significant capital expenditure to fit
the unit out, in order to fulfil a new distribution contract;
the unit will also operate as a multi-contracted facility
• Low site cover of circa 42%
• Potential asset management opportunities identified
8
6
2
0
Tritax Big Box REIT plc Annual Report 2014 23
Thinking Big Box > high specification
Big Boxes have evolved into technologically advanced buildings. The specification will usually
include ground floor loading upwards of 50kN/m2, with laser level floated floors and loading doors
are designed to accommodate the latest truck specifications. Increasingly these facilities will have
high power supplies, sometimes dual power supplies or on-site standby generators. High speed
internet access is a must for e-commerce. Non-food buildings are getting taller, now up to 25m,
which provides for the possibility of high level racking and multiple mezzanine floors.
Strategic Report 24 Tritax Big Box REIT plc Annual Report 2014
Thinking Big Box > institutional-grade tenants
We believe that the Group has a very attractive spread of high calibre businesses as its tenants,
a number of which are FTSE 100 companies. The quality of these businesses reduces the risk of
our property rental income and thereby underpins confidence in shareholder dividends.
Manager’s Report – our portfolio
Tritax Big Box REIT plc Annual Report 2014 25
Wolseley, Ripon
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves height:
Built:
Lease expiry:
£12.24 million
6.73%
221,763 sq ft
12m
2001
September 2026
The Range, Thorne
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves height:
Built:
Lease expiry:
£48.50 million
6.10%
750,431 sq ft
15.8m
2006
September 2032
• Attractive initial yield and low passing rent
• High-specification property with ancillary offices and
extensive parking over approximately 10.9 acres, plus low
site cover of circa 46%
• High-specification property, providing a modern national
logistics distribution centre, with ancillary offices and
extensive parking over approximately 42.7 acres
• Low site cover of circa 40%
• One of five Wolseley regional distribution centres in the UK
• Prominent position adjacent to the M18 motorway and
• Conveniently positioned close to Junction 50 of the A1, it
serves the North of England, Scotland, and Northern Ireland
two miles from Junction 6, with easy access to the wider
motorway network of M1, A1(M) and M62
• Area is a major UK distribution location with good transport
links, supported by favourable demographics for a suitable
labour force
Rolls-Royce Motor Cars, Bognor Regis
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves height:
Built:
Lease expiry:
£36.98 million
6.25%
313,220 sq ft
10m
construction targeted to complete
in 2016
10 years from Practical
Completion, expected to expire
October 2025
Tesco, Middleton
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves:
Built:
Lease expiry:
£22.45 million
8.25%
302,111 sq ft
10.8m
1988
December 2023
• Pre-let forward funding investment for a new Technology
• High income return/attractive yield
• Located in Stakehill, an established 200-acre industrial
estate providing over 2.5 million sq ft of logistics space and
home to a critical mass of occupiers, including Sainsbury’s,
Aldi, Booker and several third-party logistics companies
• Situated just east of Junction 20 of the M62, with
Manchester approximately eight miles to the east and
Liverpool 42 miles to the west
• Very low site cover of circa 31%
• Potential asset management opportunities identified
and Logistics Centre for Rolls-Royce Motor Cars
• The Company benefits from income during the
development phase (under a developer’s licence) and fixed
increases equivalent to 3% compound realised five yearly
from lease commencement
• New centre to be built on 18.95 acres site and used as a
warehouse and distribution centre for inbound production
parts, a car body store and finished car store with
workshop for car preparation
• Site located on the Oldlands Farm Business Park and will
benefit from the new Bognor Regis Northern Relief Road,
due to open in 2015
• New facility lies eight miles from Goodwood, West Sussex,
Rolls-Royce Motor Cars’ historic home, headquarters and
principal UK assembly plant
• Low site cover of circa 37%
Strategic Report
26 Tritax Big Box REIT plc Annual Report 2014
Manager’s Report – our portfolio
Kuehne & Nagel, Dove Valley Park
L’Oréal (UK), Trafford Park
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves:
Built:
Lease expiry:
£29.27 million
6.00%
343,248 sq ft
12m
1997, extended 1999
March 2028
Key facts
Acquisition price:
Net initial yield:
GIA:
Eaves:
Built:
Lease expiry:
£25.83 million
7.13%
261,259 sq ft
10.2m
2004, extended 2013
August 2019
• Dove Valley Park is a major 200 acre industrial/distribution
estate situated in an established distribution location in
the North Midlands, close to East Midlands airport and
Birmingham Rail Freights, with direct access onto the
A50 dual carriageway linking the M6 and M1
• Property is leased to Kuehne & Nagel Limited and
guaranteed by Hays plc, a global recruitment company
• Low site cover of circa 43%
• Property located in one of Europe’s largest and most
successful business parks, with direct access to the M60
and the Manchester Ship Canal
• Trafford Park benefits from the North West’s largest rail
freight terminal, running straight through to mainland
Europe
• Potential asset management opportunities identified
• Rent reviewed annually, upwards only at 3% per annum
compound
• Tenant extension of 53,859 sq ft reflects 315,118 sq ft in
total equating to an underlying rent of £6.18 sq ft
• Low site cover of circa 45%
Group’s investment properties at the period end. This gain was
after accounting for all costs associated with asset purchases
during the period.
Administrative and other expenses, which include the Manager’s
fee and other costs of running the Group, were £3.60 million,
equivalent to 0.58% of the portfolio’s market value, as provided
by CBRE, at 31 December 2014. This compares very favourably
14
with the expenses of the Company’s peers.
12
16
Post period-end acquisitions
On 29 January 2015, the Company exchanged contracts
(subject to detailed planning consent) to provide forward
funding investment for a new distribution warehouse facility
inside the M25 at Crossdox, Bronze Age Way, Erith. The facility
is pre-let in its entirety to Ocado Holdings Ltd for 30 years and
guaranteed by Ocado Group Plc (“Ocado”). The investment
price is £98.8 million, reflecting a yield of 5.25% (net of
standard acquisition costs).
60
50
40
Chart 2: UK Online Retail Sales and Forecast
Total Online Sales (£bn) % Share of Retail Sales
30
Ocado has an option to introduce a third-party joint guarantor
to the lease on the later of 30 April 2015 and the date of
grant of detailed planning consent which, if exercised, would
increase the investment price to £99.9 million and reduce the
yield to 4.9% (net of standard acquisition costs). The lease
length would reduce to 25 years, the rent would reduce and
the rent review provisions would change slightly.
20
10
0
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
10
Net financing costs were £4.82 million for the period, including
a reduction in the fair value of interest rate derivatives of
£2.58 million. Further information on financing and hedging is
provided below.
8
6
4
2
Total profit before tax for the period was £41.84 million,
which resulted in earnings per share (basic and diluted) of
15.10 pence.
7
1
0
2
0
4
1
0
2
5
1
0
2
6
1
0
2
3
1
0
2
Online sales Forecast % Retail Sales
Source: CBRE Report, May 2014 – Market Overview – Big Box Distribution
Financial results
Operating profit under IFRS was £46.67 million for the period.
There were two principal drivers of this positive performance.
The first was the portfolio’s strong rental income, which
equates to a running yield based on book cost of 6.14%. The
results also benefited from the gain of £31.67 million, net
of property acquisition costs, recognised on revaluing the
Financing and hedging
During the period, the Group drew down nine senior debt
facilities, resulting in total long-term bank borrowings of
£203.64 million as at 31 December 2014. The weighted
average margin payable across these loans was 1.76% over
3-month LIBOR.
Tritax Big Box REIT plc Annual Report 2014 27
Thinking Big Box > sophistication
Increasingly Big Boxes have impressive environmental credentials with solar panels, wind
turbines and rain water harvesting to name a few examples. The specification can be enhanced
still further by the tenant and may include very sophisticated and expensive computerised
ordering and mechanised picking systems to stock and retrieve products quickly and efficiently.
Strategic Report 28 Tritax Big Box REIT plc Annual Report 2014
Thinking Big Box > prime location
Location is key for efficient market coverage and is commonly operated on a
regional framework. Access to major roads or motorway junctions is a must, but
alternative transportation routes via airports, sea ports or rail are increasingly
important for efficient goods inwards stocking and downstream distribution.
Manager’s Report
Tritax Big Box REIT plc Annual Report 2014 29
The LTV ratio at 31 December 2014 was 32.9%, which is lower
than the Group’s initial LTV target of 45%. The Group had
available undrawn debt facilities totalling £13.2 million at the
period end.
The Manager has successfully broadened the Group’s debt
funding relationships, adding Santander UK and Landesbank
Hessen-Thüringen Girozentrale (Helaba) to its initial
relationship with Barclays.
The Group’s medium-term target is an LTV ratio of 40% against
the Group’s gross asset value, which the Manager believes is a
conservative level given the quality of the Group’s investments.
All facilities, other than the facility for Wolseley, Ripon, contain
LTV covenants requiring an income sweep at 65% LTV and
a hard default level of 70% LTV. The Wolseley, Ripon facility
provides for an LTV covenant with an income sweep level at
55% and a hard default at 60%. The Group has also negotiated
for all facilities (other than Wolseley, Ripon and The Range,
Doncaster) margin ratchets linked to LTV covenants. As at
31 December 2014, the Group could afford to suffer a potential
fall in property values of 22.3% on the asset with least
headroom and 63.9% on the asset with most headroom, before
being in breach of its LTV covenants.
Each loan is interest only and secured against the associated
property and the shares of the entity that owns that property.
Each property-owning entity is either directly or ultimately
owned by the Company. None of the properties are cross-
collateralised and the debt is non-recourse to the Company.
This means that if a particular asset were to breach its banking
covenants, then the breach should not adversely affect the
Group’s other assets. This provides clarity and future visibility
on income available for distribution to our shareholders. The
Company may employ cross-collateralised debt arrangements
where considered beneficial.
The Group average term to maturity across its debt facilities
excluding extension options was 4.31 years as at the period end.
The Group has designed its debt strategy to minimise the
effect of a significant rise in underlying interest rates, through
a series of derivative interest rate cap instruments. During
the period, the Group entered into nine separate interest rate
caps, matching the tenor of each of the debt facilities, with
a weighted average strike rate secured for the debt portfolio
of 2.09%, which when combined with the average margin
equates to a capped all-in rate of borrowing of 3.85%.
The total aggregated premium paid during the period to
secure these caps was £4.96 million. By using interest rate
caps, the Group has effectively hedged 97.7% of its long-term
debt at 31 December 2014.
The Group obtains advice from JC Rathbone Associates for
advice on its hedging strategy and to review and monitor the
interest rates as they are booked by the lending bank. This
ensures that the Group benefits from specialist advice and
competitive pricing.
In February 2015, the Group drew an additional senior debt
totalling £13.17 million from Barclays against the asset let
to Kuehne & Nagel, Dove Valley Park. This newest facility
was agreed for a period of four years with an extension
option available of 12 months, and was hedged by way of
a coterminous interest rate swap.
The table below summarises each senior debt facility drawn in
the period.
Senior debt facilities drawn in the period
Asset
Sainsburys, Leeds
Lender
Barclays
Marks & Spencer, Castle Donington
Barclays
Tesco, Didcot
Next, Doncaster
Morrisons, Sittingbourne
DHL, Langley Mill
DHL, Skelmersdale
Wolseley, Ripon
The Range, Thorne
Total
Barclays
Barclays
Barclays
Helaba
Helaba
Santander UK
Barclays
Expiry date
June 20182
June 20192
June 20181
June 20181
June 20192
November 2019
November 2019
December 2019
November 20191
Long-term debt drawn
(£)
23,500,000
49,275,000
12,240,000
16,429,250
53,790,000
7,060,000
11,600,000
5,500,000
24,250,000
203,644,250
1 12 month extension option available 2 Extension option available of up to 24 months
Strategic Report 30 Tritax Big Box REIT plc Annual Report 2014
Manager’s Report
EPRA
The Company plans to qualify for the EPRA investment indices,
in terms of both analysis and reporting, from the end of the
first quarter of 2015. This should allow the Company to access
a broader investor base, devoted to investing in the European
listed real estate sector, from which it could seek future
investment.
Fundraising
We believe that there is a healthy pipeline of suitable new
investment opportunities. Further to the exchange of contracts
on a new distribution warehouse facility for Ocado announced
on 29 January 2015, the Company is currently in advanced
negotiations for the acquisition of three additional assets,
each of which is under offer, in solicitors’ hands and subject to
exclusivity agreements.
The Company looks to comply with EPRA’s best practice
recommendations, taking the view that EPRA metrics focus
on areas of reporting which are of greatest importance to real
estate investors and where they would like to see increased
consistency between companies.
The Group’s EPRA earnings per share for the period ended
31 December 2014 was 4.60 pence and EPRA NAV as at
the period end date was 107.57 pence. For a full list of EPRA
performance measures, please refer to page 17.
Dividend
On 8 July 2014, the Company declared its first interim dividend
of 1.85 pence per share, which it paid on 8 August 2014.
The Company declared its second interim dividend of
1.50 pence per share on 20 November 2014 and paid it on
17 December 2014.
In addition, the Manager is engaged in detailed discussions
with the current owners of a number of other suitable assets
that meet the Company’s Investment Policy. In order to
assist in the financing of these investment opportunities, the
Company is currently considering a further equity fundraising
in the near term pursuant to its share issuance programme.
Further details will be published in due course.
Alternative Investment Fund Manager (“AIFM”)
On 1 July 2014, Tritax Management LLP was authorised
and regulated by the Financial Conduct Authority as a full
scope AIF. As a result, the Manager is authorised to provide
its services to the Group and the Group benefits from the
rigorous reporting and on going compliance regime applicable
to AIFMs in the UK.
The Company has declared a third interim dividend for the
period of 0.80 pence per share. This will be paid on 18 March
2015, to shareholders on the register at 6 March 2015. See
note 14 on page 70.
Tritax Management LLP
Manager
23 February 2015
Our principal risks
The Board has overall responsibility for our risk management
and internal controls, with the Audit Committee reviewing the
effectiveness of our risk management process on its behalf.
We aim to operate in a low-risk environment, focusing on a
single sector of the UK real estate market and one of our
key aims is to deliver an attractive, growing and secure
income for shareholders, together with the opportunity for
capital appreciation. The Board therefore recognises that
effective risk management is key to the Group’s success.
Risk management ensures a defined approach to decision
making that seeks to decrease the uncertainty surrounding
anticipated outcomes, balanced against the objective of
creating value for shareholders.
Approach to managing risk
Our risk management process is designed to identify, evaluate
and mitigate (rather than eliminate) the significant risks we
face. The process can therefore only provide reasonable,
and not absolute, assurance. As an investment company, we
outsource key services to the Manager, the Administrator and
other service providers, and rely on their systems and controls.
Tritax Big Box REIT plc Annual Report 2014 31
At least twice a year, the Board undertakes a formal risk
review with the assistance of the Audit Committee, to assess
the effectiveness of our risk management and internal control
systems. During the course of these reviews, the Board has not
identified or been advised of any failings or weaknesses which
it has determined to be material.
Principal risks
Our principal risks and uncertainties are set out below. They
have the potential to affect materially our business, either
favourably or unfavourably. Some risks may currently be
unknown, while others that we currently regard as immaterial,
and have therefore not been included here, may turn out to be
material in the future.
PROPERTY RISK
Our property performance will depend on general real estate market conditions.
IMPACT
An adverse change in our property valuations
may lead to breach of our banking covenants.
Market conditions may also reduce the
revenues we earn from our property assets,
which may affect our ability to pay dividends
to shareholders. A severe fall in values may
result in us selling assets to repay our loan
commitments, resulting in a fall in our NAV.
MITIGATION
Our property portfolio is 100% let, with long unexpired weighted average lease terms and
an institutional-grade tenant base. All the leases contain upward-only rent reviews which
are either fixed, RPI/CPI linked or at open market value. These factors help maintain our
asset values.
We manage our activities to operate within our banking covenants and constantly monitor our
covenant headroom on LTV and interest cover.
Our ability to grow the portfolio may be affected by competition for investment properties in the Big Box sector.
IMPACT
Competitors in the sector may be better
placed to secure property acquisitions, as
they may have greater financial resources
or greater ability to borrow or leverage funds,
thereby restricting our ability to grow our NAV.
MITIGATION
We have extensive contacts in the sector and often benefit from off-market transactions.
We also maintain close relationships with a number of investors in the sector and some
developers, giving us the best possible opportunity to secure future acquisitions.
We are not exclusively reliant on acquisitions to grow the portfolio. Our leases contain
upward-only rent review clauses, which mean we can generate additional income and value
from the current portfolio.
Our property performance will depend on the performance of the UK retail sector and the continued growth of online retail.
IMPACT
Our focus on the Big Box sector means we
directly rely on the distribution requirements
of UK retailers. Insolvencies in the larger
retailers and online retailers could affect our
revenues earned and property valuations.
MITIGATION
Our investment policy limits our exposure to any one tenant to 20%, which prevents
significant single retailer exposure.
To mitigate geographical shifts in retailers’ focus, we invest in assets with a diverse spread
of location, with easy access to large ports and key motorway junctions. Before investing,
we undertake a thorough due diligence process, particularly over the strength of the
underlying covenant.
We select assets that have strong property fundamentals (good location, modern design,
sound fabric) and which should therefore be attractive to other occupiers should the current
occupier fail.
In addition, we focus on assets let to tenants with strong financial covenants.
Strategic Report
32 Tritax Big Box REIT plc Annual Report 2014
Our principal risks
FINANCIAL RISK
Our use of floating rate debt will expose the business to underlying interest rate movements.
IMPACT
Interest on our debt facilities is payable
based on a margin over LIBOR. Any adverse
movements in LIBOR could significantly
impair our profitability and ability to pay
dividends to shareholders.
MITIGATION
We have entered into interest rate derivatives to hedge our direct exposure to movements in
LIBOR. These derivatives cap our exposure to LIBOR rises and have terms coterminous with
the loans.
We aim, where reasonable, to minimise the level of unhedged debt with LIBOR exposure,
by taking out hedging instruments with a view to keeping variable rate debt approximately
90%+ hedged.
A lack of debt funding at appropriate rates may restrict our ability to grow.
IMPACT
Without sufficient debt funding, we may
be unable to pursue suitable investment
opportunities in line with our investment
objectives. If we cannot source debt funding
at appropriate rates, this will impair our
ability to maintain our targeted level of
dividend.
MITIGATION
Before we contractually commit to buying an asset, we enter discussions with our lenders to
get an outline heads of terms on debt financing. This allows us to ensure that we can borrow
against the asset and maintain our borrowing policy.
The Board keeps our liquidity and gearing levels under review. We only enter into forward
funding commitments if they are supported by available funds.
We have broadened our lender base in the second half of the period, entering into banking
facilities with two new lenders. This has created new banking relationships for us, with the
aim of keeping lending terms as competitive as possible.
The Big Box sub-sector should remain popular with lenders, owing to long leases and letting
to single tenants with strong financial covenants, that enable us to attract debt funding.
We must be able to operate within our banking covenants.
IMPACT
If we were unable to operate within our
banking covenants, this could lead to default
and our bank funding being recalled.
MITIGATION
We continually monitor our banking covenant compliance, to ensure we have sufficient
headroom and to give us early warning of any issues that may arise. We enter into interest
rate caps to mitigate the risk of interest rate rises and also invest in assets let to institutional
grade covenants.
CORPORATE RISK
There can be no guarantee that we will achieve our investment objectives.
IMPACT
Our investment objectives include achieving
the dividend and total returns targets set out
on page 14.
MITIGATION
At 31 December 2014, we had acquired 14 Big Box assets that meet our investment criteria.
The Manager’s significant experience in the sector should continue to provide us with access
to assets that meet our investment criteria going forward.
The amount of any dividends paid or total
return we achieve will depend on, among
other things, successfully pursuing our
investment policy and the performance of
our assets. Future dividends are subject
to the Board’s discretion and will depend,
among other things, on our earnings,
financial position, cash requirements, level
and rate of borrowings, and available profit.
Rental income from our current portfolio, coupled with our hedging policy, supports the
6 pence per share dividend target, a significant investment objective. Movement in capital
value is subject to market yield movements and the ability of the Manager to execute
successfully asset management strategies.
Tritax Big Box REIT plc Annual Report 2014 33
CORPORATE RISK
We are reliant on the continuance of the Manager.
IMPACT
We continue to rely on the Manager’s
services. As a result, our performance will,
to a large extent, depend on the Manager’s
abilities. Termination of the Investment
Management Agreement would severely
affect our ability to effectively manage our
operations.
MITIGATION
Unless there is a default, either party may terminate the Investment Management Agreement
by giving not less than 12 months’ written notice, which may not be given before the fourth
anniversary of the IPO. The Management Engagement Committee regularly reviews and
monitors the Manager’s performance.
In addition, the Board meets regularly with the Manager, to ensure we maintain a positive
working relationship.
TAXATION RISK
We operate as a UK REIT and have a tax-efficient corporate structure, with advantageous consequences for UK
shareholders. Any change to our tax status or in UK tax legislation could affect our ability to achieve our investment
objectives and provide favourable returns to shareholders.
IMPACT
If the Company fails to remain a REIT for UK
tax purposes, our profits and gains will be
subject to UK corporation tax.
MITIGATION
The Board is ultimately responsible for ensuring we adhere to the UK REIT regime. It monitors
the REIT compliance reports provided by:
•
•
the Manager on potential transactions;
the Administrator on asset levels; and
• our registrar and broker on shareholdings.
The Board has also engaged third-party tax advisers to help monitor REIT compliance
requirements.
The Strategic Report was approved on behalf of the Board by:
Richard Jewson Chairman
23 February 2015
Strategic Report
34 Tritax Big Box REIT plc Annual Report 2014
Corporate Governance Statement
Chairman’s introduction
Statement of compliance
This section of the Annual Report sets out the principles
of corporate governance that the Board has adopted. The
Board is committed to the highest standards of corporate
governance, which meet the statutory and regulatory
requirements for companies listed in the United Kingdom.
Richard Jewson Chairman
Between its initial public offering (“IPO”) in December 2013
and the period end on 31 December 2014, the Company
complied with the UK Corporate Governance Code 2012 (the
“UK Corporate Governance Code”), except as follows.
• A.4.1 – the appointment of a senior independent director:
due to the size of the Board and the Company, the Board
does not currently consider there to be any merit in
appointing a senior independent director;
• D.2.1 – remuneration of executive Directors: as an
externally managed investment company, the Board
does not include any executive Directors. As such, the
UK Corporate Governance Code’s principles in respect
of executive Directors’ remuneration are not applicable
and the Board therefore does not have a Remuneration
Committee;
• B.6.1 – annual assessment of the performance of the
Directors: since the Company’s operations only began
after its IPO in December 2013, the Board has not yet
undertaken a formal assessment of its own performance.
It will do so during the next financial year and on an annual
basis thereafter.
Governance framework
The Board has considered the principles and
recommendations of the AIC Code of Corporate Governance
(“AIC Code”) by reference to the AIC Corporate Governance
Guide for Investment Companies (“AIC Guide”), which is
published by The Association of Investment Companies
(the “AIC”). The AIC Code, as explained by the AIC Guide,
incorporates the UK Corporate Governance Code, as well
as setting out additional principles and recommendations on
issues that are specifically relevant to the Company. The Board
therefore considers that reporting against the AIC Code’s
principles and recommendations, and by reference to the AIC
Guide, will provide better information to shareholders.
The Company has complied with the AIC Code’s
recommendations and the relevant provisions of the UK
Corporate Governance Code, except as set out in the
statement of compliance above.
The UK Corporate Governance Code includes provisions
relating to:
the role of the chief executive;
•
• executive Directors’ remuneration; and
the need for an internal audit function.
•
Tritax Big Box REIT plc Annual Report 2014 35
For the reasons set out in the AIC Guide, and as explained in
the UK Corporate Governance Code, the Board considers that
these provisions are not relevant to an externally managed
investment company. In particular, all of the Company’s
day-to-day management and administrative functions are
outsourced to third parties. As a result, the Company has no
executive Directors, employees or internal operations. The
Company has, therefore, not reported further in respect of
these provisions.
The main principles of the UK Corporate Governance Code
have been applied as follows:
A. Leadership
A1 The Board’s role
The Board formally met 32 times during the year. There is a
clear schedule of matters reserved for the Board, together
with delegated authorities to the Manager.
B. Effectiveness
B1 The Board’s composition
The Nomination Committee regularly reviews the Board’s
composition. In making appointments to the Board, the
Committee considers the wide range of skills, knowledge and
experience required to maintain an effective Board.
B2 Board appointments
The Nomination Committee leads the appointment of new
Directors to the Board. Further details of the Committee’s
activities can be found on page 44.
B3 Time commitments
On appointment, Directors are notified of the time
commitment expected from them which, in practice, goes
beyond that set out in the letter of appointment. Additional
directorships must be agreed with the Chairman, as they may
affect the Directors’ time commitments.
A2 A clear division of responsibilities
The Chairman, Richard Jewson, is responsible for the Board’s
leadership and effectiveness. Colin Godfrey, the Company’s
lead fund manager, is responsible for leading the Company’s
day-to-day management, within the strategy set by the Board.
B4 Training and development
All Directors receive an induction on joining the Board and
their training and development needs are assessed as part of
the annual effectiveness evaluation.
A3 Role of the Chairman
The Chairman (in conjunction with the Manager and the
Company Secretary) sets the agendas for Board meetings,
manages the meeting timetable and facilitates open and
constructive dialogue during the meetings.
A4 Role of the non-executive Directors
The Chairman promotes an open and constructive environment
in the boardroom and actively invites the non-executive
Directors’ views. The non-executive Directors provide objective,
rigorous and constructive challenge to the Manager and
communicate regularly amongst themselves.
B5 Provision of information and support
The Chairman, in conjunction with the Company Secretary and
Manager, ensures that all Board members receive accurate
and timely information.
B6 Board and committee performance evaluation
As the Company is in its first period of operation, the Board
has not yet carried out a review of its effectiveness. The Board
intends to carry out its first annual review of effectiveness
during the next financial year and will report on it at that time.
B7 Re-election of the Directors
At each annual general meeting (“AGM”), one third of the
Directors (or, if their number is not a multiple of three, the
number nearest to but not exceeding one third) retire by
rotation. Richard Jewson will retire and stand for re-election
at the AGM in April 2015. Mark Shaw was re-elected at the
AGM in June 2014, as he is not an independent Director, he will
stand for re-election again at the AGM in April 2015 and each
year thereafter.
Governance 36 Tritax Big Box REIT plc Annual Report 2014
Corporate Governance Statement
E. Relations with shareholders
E1 Shareholder engagement
The Manager meets regularly with shareholders and the
Board receives periodic feedback on shareholder issues. The
Directors make themselves available at general meetings to
address shareholder queries and the Chairman makes himself
available, as necessary, outside of these meetings to speak to
shareholders.
E2 Constructive use of the annual general meeting
The AGM gives the Board an important opportunity to meet
shareholders, who are invited to meet the Board following the
meeting’s formal business.
In November 2014, the Company became a member of the
AIC and the Board has determined that, going forward, the
Company will comply with the AIC Code. Compliance with the
AIC Code is deemed to be compliance with the UK Corporate
Governance Code, as required by the Listing Rules.
The UK Corporate Governance Code is available at
www.frc.org.uk. The AIC Code and AIC Guide can be found at
www.theaic.co.uk.
C. Accountability
C1 Financial and business reporting
The Strategic Report is set out on pages 2 to 33 and provides
information about the Company’s performance, investment
policy, strategy and the risks and uncertainties relating to its
prospects.
C2 Risk management and internal control systems
The Board sets the Group’s risk appetite and reviews annually
the effectiveness of the Group’s risk management and internal
control systems. The Audit Committee assists the Board with
its responsibilities in relation to managing risk. Its activities are
summarised on pages 46 to 48.
C3 Role and responsibilities of the Audit Committee
The Board has delegated a number of responsibilities to the
Audit Committee, which oversees the Company’s financial
reporting processes, internal control and risk management
framework, and the external auditor’s work. The Audit
Committee chairman provides regular updates to the Board.
D. Remuneration
D1 Levels and elements of remuneration
The Board has not established a Remuneration Committee
as it has no executive Directors and the Company has no
employees. The Board, as a whole, is responsible for reviewing
the scale and structure of the Directors’ remuneration and
sets remuneration appropriately, so as to attract, retain and
motivate Board members.
D2 Development of remuneration policy and packages
Details of the remuneration policy can be found in the
Remuneration Report on pages 49 to 50.
Leadership
Tritax Big Box REIT plc Annual Report 2014 37
The Board
The Board determines the Company’s investment objectives
and investment policy and has overall responsibility for the
Company’s activities, including reviewing investment activity,
performance, business conduct and strategy, as well as
developing and complying with the principles of good corporate
governance. The Board is also responsible for controlling
and supervising the Manager, Tritax Management LLP (the
“Manager” or “Tritax”).
The Board consists of four non-executive Directors. All the
Directors are independent of the Manager with the exception
of Mark Shaw, who is a partner of the Manager. He does
not vote at any Board meetings on any matter in which he
may have a material interest or an actual or potential conflict
of interest.
Each Director has been appointed for a term of three years.
Following appointment to the Board, each Director must be
elected by shareholders at the Company’s AGM and submit
for re-election at every third AGM thereafter. As required by
the Listing Rules, any non-independent Director is subject to
annual re-election. Furthermore, at each AGM, one third of
the Directors (or, if their number is not a multiple of three, the
number nearest to but not exceeding one third) is required to
retire by rotation.
The Directors to retire by rotation include any Director who is
due to retire at the meeting by reason of age or who wishes to
retire and not to offer himself for re-election; the Director who has
been longest in office since his last re-election (determined by
agreement or lot if more than one Director was last re-elected on
the same day); and any Director who, in the absence of any such
retirement, would continue in office for a period in excess of three
years. A retiring Director is eligible for re-election. Any Director
who has served on the Board for more than nine years will be
subject to re-election at each subsequent AGM.
The Directors believe that the Board is well balanced and that
between the Directors it possesses sufficient breadth of skills,
variety of backgrounds, relevant experience and knowledge to
ensure it functions correctly and is not dominated by any one
Director. Biographical information on each Director is set out on
page 41.
The Board recognises that its composition is fundamental to
providing strong and effective leadership. It has, therefore,
formed a Nomination Committee to review its composition and
to assess whether the balance of skills, experience, knowledge
and independence is appropriate and enables it to operate
effectively. The Nomination Committee’s report is included on
page 44.
The Board has approved a schedule of matters reserved for its
consideration and approval. These matters include:
•
reviewing and approving Board membership and powers,
including the appointment of Directors;
• approving the budget, financial plans and annual and
interim financial reports; reviewing property valuations and
valuations of its interest rate derivatives;
• overseeing treasury functions;
• managing the Company’s capital structure;
• managing and controlling the Manager;
• approving the dividend policy; and
• approving all investment decisions.
The Manager
Under the Investment Management Agreement, the Board has
delegated day-to-day responsibility for running the Company
to the Manager. To ensure open and regular communication
between the Manager and the Board, the Manager is invited
to attend all Board meetings to update the Board on the
Company’s investments.
The Board formally reviews the Manager’s performance
each year, to allow the Board to state, if appropriate, that the
Manager’s continued appointment is in shareholders’ interests
and is in accordance with the Listing Rules.
Board meetings
The Board holds formal scheduled meetings each quarter,
with additional ad hoc meetings as required. These meetings
are typically held at the Manager’s office and are subject to a
quorum of two Directors.
During the period ended 31 December 2014, there were 32
Board meetings. The table on page 38 shows each Director’s
attendance. The Company is currently in its growth phase,
so the Board convened a substantial number of ad hoc
meetings during the period, to consider and implement equity
fundraisings and to consider investment opportunities.
The Board follows a formal agenda at its quarterly meetings,
which the Company circulates in advance of the meeting. This
agenda includes reviewing investment performance, assessing
the progress of new investment opportunities, reviewing
the Company’s strategy, reviewing the Company’s historical
financial performance and future forecasting, an update
on investor relations and an update on any regulatory or
compliance issues advised by the Manager or other advisers.
When considering investment opportunities, the Board reviews
detailed proposals prepared by the Manager and approves
investment decisions, as appropriate.
Governance 38 Tritax Big Box REIT plc Annual Report 2014
Leadership
Board committees
The Board has delegated a number of responsibilities to its
Audit, Nomination and Management Engagement Committees.
The Board reviews the terms of reference for each committee
as necessary but at least every two years. Copies are available
from the Company Secretary or the Company’s website.
Nomination Committee
The Nomination Committee comprises all four Directors,
with Richard Jewson as its Chairman. It meets at least once
a year. The Committee’s main function is to regularly review
the Board’s structure, size and composition and to consider
succession planning for Directors. The Committee’s report is
included on page 44.
The Board has not established a Remuneration Committee
as it has no executive Directors and the Company has no
employees. The Board as a whole is responsible for reviewing
the scale and structure of the Directors’ remuneration.
Details of the Directors’ remuneration for the period ended
31 December 2014 is included in the Directors’ Remuneration
Report on pages 49 and 50.
Audit Committee
For the period to 31 December 2014, the Audit Committee
comprised all four Directors, with Jim Prower as its Chairman.
In January 2015, Mark Shaw resigned from the Committee,
which now comprises only the three independent Directors.
The Audit Committee meets at least twice a year. It helps
the Board to meet its responsibility for ensuring that the
Company’s financial systems provide accurate and up-to-date
information on its financial position and that the Company’s
published financial statements are a true and fair reflection
of this position. It also helps the Board to ensure that the
Company has appropriate accounting policies, internal
financial controls and compliance procedures. The Committee
receives regular financial information from the Manager, along
with reports from the external auditor as part of the half year
review and full year audit. The Audit Committee’s report is
included on pages 46 to 48.
Management Engagement Committee
The Management Engagement Committee comprises all four
Directors, with Stephen Smith as its Chairman. It meets at
least once a year. As a partner of the Manager, Mark Shaw
does not vote at any meeting of the Management Engagement
Committee on any matter in which he may have a material
interest or an actual or potential conflict of interest.
The Committee’s main function is to review and make
recommendations on any proposed amendment to the
Investment Management Agreement, to review the Manager’s
performance and to examine the effectiveness of the
Company’s internal control systems. The Committee also
reviews the performance of the Group’s other key service
providers. The Committee’s report is included on page 40.
Attendance at Board and Committee meetings during the
period ended 31 December 2014
The following table shows the Directors’ attendance at Board
and Board Committee meetings, where they were eligible to
attend, during the period:
Attendance at Board and Committee meetings
For the period to 31 December 2014
Meetings held
Richard Jewson
Jim Prower
Stephen Smith
Mark Shaw
Colin Godfrey*
Henry Franklin*
(appointed 8 November 2013)
(appointed 8 November 2013)
(appointed 13 November 2013)
(resigned 8 November 2013)
(resigned 8 November 2013)
Board
meetings
eligible to
attend
Board
meetings
attended
Audit
Committee
Nomination
Committee
Management
Engagement
Committee
32
31
31
30
32
2
2
–
25
29
25
26
1
2
3
2
3
3
2
N/A
N/A
1
1
1
1
1
N/A
N/A
2
2
2
2
0**
N/A
N/A
* Colin Godfrey and Henry Franklin resigned prior to the formation of any of the Board committees.
** As a partner of the Manager, Mark Shaw did not attend the Management Engagement Committee meetings, given his conflict of interest.
Tritax Big Box REIT plc Annual Report 2014 39
All Directors are expected to attend all Board and Committee
meetings and to devote sufficient time to the Company’s
affairs to fulfil their duties as Directors. Where Directors are
unable to attend meetings, their comments are provided to the
Board before the meeting.
Because of the significant number of ad hoc meetings during
the period, it was not logistically feasible for all the Directors to
attend every meeting. The Nomination Committee is satisfied
that all the Directors, including the Chairman, have sufficient
time to meet their commitments to the Company.
Financial and business information
The Board is responsible for preparing the Annual Report. As
the Directors’ Responsibility Statement confirms, the Board
believes that this Annual Report, taken as a whole, is fair,
balanced and understandable, and provides the information
necessary to assess the Company’s performance.
Anti-bribery and corruption
The Board has a zero tolerance policy towards bribery and is
committed to carrying out business fairly, honestly and openly.
In considering The Bribery Act 2010, at the date of this report,
the Board had assessed the perceived risks to the Company
arising from bribery and corruption and to identify aspects of
business which may be improved to mitigate such risks.
Governance 40 Tritax Big Box REIT plc Annual Report 2014
Management Engagement Committee Report
The Management Engagement Committee met twice in the
period to 31 December 2014, primarily to review the Company’s
relationships with its main service providers and the terms
thereof. In particular, it considered the Company’s relationships
with the Manager and Tritax Securities LLP (the “Investment
Adviser”), in its capacity as the Company’s investment adviser,
from the IPO in December 2013 until July 2014.
The management fee paid each quarter is 25% of the amount
calculated, based on the information below.
For the period from the start of the Company’s operations to
30 June 2014, the Company paid the Manager an agreed fee
that recognised that the Company was in a ramp-up phase
and that there was no published NAV prior to 30 June 2014.
The Financial Conduct Authority (“FCA”) authorised the
Manager as an Alternative Investment Fund Manager (“AIFM”)
on 1 July 2014. Following the authorisation, on 2 July 2014 the
Property Management and Services Agreement between the
Company and the Manager was replaced by the Investment
Management Agreement, which permits the Manager to carry
out certain additional regulated activities necessary for the
Company’s management. As a result, the Investment Advisory
Agreement between the Company and the Investment Adviser
was terminated, pursuant to a deed of termination effective on
2 July 2014.
The Committee also met to reconsider the terms of the
Investment Management Agreement, to ensure it properly
reflected the commercial arrangements agreed between the
Company and the Manager. The Committee recommended
certain non-material amendments to the Investment
Management Agreement, which was revised via a deed of
amendment in December 2014.
Under the Investment Management Agreement, the Manager is
entitled to a management fee in consideration for its services.
This is payable in cash by the Company each quarter and is
calculated as a percentage of the Company’s Net Asset Value
(“NAV”), disregarding cash or cash equivalents, announced
before the end of the relevant quarter. If the Group buys or
sells any assets after the date at which the relevant NAV is
calculated, the NAV is adjusted pro rata for the net purchase or
sale price, less any third-party debt drawn or repaid.
The management fee as a percentage of NAV is as set
out below:
NAV
Relevant percentage
Up to and including £500 million
Above £500 million and up to and
including £750 million
Above £750 million and up to
and including £1 billion
Above £1 billion
1.0%
0.9%
0.8%
0.7%
During specified periods after publication of the Company’s
annual or half year results, the relevant members of the
Manager (and/or their connected parties) will use 25% of the
management fee (net of any VAT, personal taxation liabilities
and dealing costs, including stamp duty or stamp duty reserve
tax) (the “net cash amount”), to subscribe for Ordinary Shares
in the Company. The price will be equivalent to the prevailing
NAV per share, adjusted for any dividend declared after the
NAV per share is announced. Where this would result in the
Company issuing Ordinary Shares at a price below the NAV
per share, the Company’s broker will be instructed to acquire
Ordinary Shares in the market for those persons, to the value
as near as possible equal to the net cash amount.
On 9 October 2014, the Company issued 122,248 Ordinary
Shares in respect of the net cash amount, relating to the
period from commencement of operations to 30 June 2014.
The issue price was 100 pence per Ordinary Share, which
was the most recently published NAV of 101.85 pence per
share less the first interim dividend of 1.85 pence per share.
Following this, the relevant members of the Manager as at the
period end had the following beneficial interests:
Tritax Partner
Mark Shaw
Colin Godfrey
James Dunlop
Henry Franklin
Number of
shares held
172,821
134,185
134,185
106,057
Percentage of issued
share capital as at
31 December 2014
0.04%
0.03%
0.03%
0.02%
The Management Engagement Committee will meet in 2015,
after the end of the Company’s first full year of operation, to
review the continuing appointment of all of the Company’s
service providers and ensure they are in the best interests
of shareholders as a whole. To date, the Committee has not
identified any material weaknesses.
Stephen Smith
Management Engagement Committee chairman
23 February 2015
The Board of Directors
Tritax Big Box REIT plc Annual Report 2014 41
Richard Jewson Chairman
Richard has served as a non-executive director and chairman of a
number of public companies, following a long career at the helm of
Jewsons Limited and its holding group, Meyer International plc. Richard
is currently Chairman of Raven Russia Limited, which is listed on the
Official List of the UKLA and specialises in commercial real estate in
Russia, in particular high-quality class A warehouse complexes. He is
also senior non-executive director of Temple Bar Investment Trust plc,
where he chairs the audit committee.
Stephen Smith
Stephen brings to the Board a wealth of experience in real estate
investment. From 2010 to 2013, he was Chief Investment Officer of
British Land Company PLC, the FTSE 100 REIT, with responsibility for
the group’s property and investment strategy. He was formerly Global
Head of Asset Management and Transactions at AXA Real Estate
Investment Managers, where he was responsible for running a portfolio
of more than €40 billion on behalf of life funds, listed property vehicles,
unit linked and closed-end funds. Prior to joining AXA in 1999, Stephen
was Managing Director at Sun Life Properties for five years.
In 2014, Richard retired from Archant Limited after 32 years on the
board. He was Archant’s Chairman for 17 years and also chaired the
remuneration and nomination committees. His significant leadership
experience also includes 18 years on the board of Grafton Group plc,
ten years as the Chairman of Savills plc and 14 years as a non-executive
director and Deputy Chairman of Anglian Water plc.
Stephen is currently non-executive Chairman of Starwood European
Real Estate Finance Limited, a London listed closed-end investment
company. He is also a non-executive director of Gatehouse Bank plc,
a London-based wholesale investment bank that specialises in global
real estate.
Richard sits on all the Board committees and chairs the Nomination
Committee.
Stephen sits on all the Board committees and chairs the Management
Engagement Committee.
Jim Prower
Jim has worked in Industry and commerce since 1985, having qualified
in 1978 as a chartered accountant at Peat, Marwick, Mitchell & Co. He
has acted as Finance Director and Company Secretary at several public
companies; Minty plc (1987-1989), Creston Land & Estates plc (1989-
1995) and NOBO Group plc (1995-1997), before joining Argent Group in
the same roles.
Mark Shaw
Mark is Chairman of Tritax Management LLP, the Company’s Manager.
He has played a prominent role in developing and marketing property
investments benefiting from government sponsored tax reliefs, such
as enterprise zone property unit trusts, business premises renovation
allowances and capital allowances generally.
Since 2009, Jim has been involved with the development of King’s
Cross Central (a joint venture between London & Continental Railways,
DHL Supply Chain and Argent King’s Cross Limited Partnership), for
which he has been primarily responsible for raising debt for working
capital, development and investment. Since late 2012, Jim has been a
member of Argent (Property Development) Services LLP and Argent
Investments LLP, which acquired Argent Group’s property development
and management businesses.
He is highly experienced in a range of commercial, banking and
investment operations, which he gained while working as general
manager of a major Kuwaiti investment bank in the late 1970s and
1980s. Returning to the UK in 1985, Mark joined a team initiating
investment in the newly created enterprise zones, which in due course
became a subsidiary of London & Edinburgh Trust PLC. Mark later
established Collective Investments Limited to continue this activity,
which became the Tritax group in 1995.
Jim sits on all the Board committees and, given his financial background,
chairs the Audit Committee. Jim is also a non-executive director of
Empiric Student Property plc.
In January 2015, Mark stepped down from the Audit Committee but sits
on both other Board committees.
Governance 42 Tritax Big Box REIT plc Annual Report 2014
The Manager of the Company
The Manager provides all management and advisory
services to the Company, under the Investment
Management Agreement. The FCA authorised the Manager
as an AIFM on 1 July 2014.
The Manager is 100% owned by Mark Shaw, Colin Godfrey,
James Dunlop and Henry Franklin. Between them, this team
of property, legal and finance professionals has more than
140 years of experience in the real estate sector. They have
a track record of creating value for their clients by procuring
the right type of assets and by actively managing them. The
core management team (whose details are set out below) is
supported by a team of other accounting, marketing, public
relations, administrative and support staff.
Colin Godfrey BSc MRICS Partner, Fund Manager
Colin has overall responsibility for providing investment management
and advisory services to the Company and is the Manager’s lead
partner. He began his career with Barclays Bank before joining Conran
Roche in the late 1980s. Following this, he obtained a degree in Urban
Estate Management, before training with Weatherall Green & Smith
(now BNP Paribas Real Estate).
James Dunlop BSc MRICS Partner, Property Sourcing
James has overall responsibility for identifying, sourcing and
structuring investment assets for the Company. He read Property
Valuation and Finance at City University, before joining Weatherall
Green & Smith (now BNP Paribas Real Estate) where, in 1991, he
qualified as a chartered surveyor in its Investment Development and
Agency division.
After qualifying as a chartered surveyor, Colin specialised in portfolio
fund management, with particular responsibility for the £1 billion of
assets under management of the British Gas Staff Pension Scheme
and the property assets of the Blue Circle Pension Fund. In 2000,
Colin was a founding director of niche investment property agent SG
Commercial, along with James Dunlop, in which capacity he worked
closely with the Tritax group. In 2004, Colin became a partner in the
Tritax group and is responsible for investment selection and product
development. Colin is one of the Manager’s founding partners.
In 2000, James formed SG Commercial with Colin Godfrey, and
became a partner in the Tritax group in 2005. In his role with SG
Commercial, James is regularly in contact with all the leading firms
of agents and is retained by foreign and domestic institutions and
wealthy individuals to buy and sell commercial property investments.
James is responsible for identifying sectors and specific properties,
negotiating on approved opportunities and handling the disposal of
assets in due course. Along with Colin, James is one of the Manager’s
founding partners.
Henry Franklin BA CTA Partner, Structuring and Legal
Henry is responsible for structuring the Tritax group funds, providing
general legal counsel and overseeing compliance activities and
product development. He is a qualified solicitor, who completed his
articles with Ashurst LLP in 2001, specialising in taxation, mergers and
acquisitions.
Petrina Austin BSc MRICS Partner, Asset Management
Petrina is responsible for strategically managing the investment
portfolio, identifying and progressing value enhancing initiatives to
protect and maximise investor returns. She is also responsible for
managing third-party professionals engaged in the process of property
and asset management.
Henry also qualified as a chartered tax adviser in 2004 before moving
to Fladgate LLP in 2005, where he became a partner in 2007. At
Fladgate LLP, Henry specialised in structuring commercial property
funds and advised on the formation of funds in excess of £500 million.
Henry joined the Tritax group as a partner in 2008.
Following a degree in Estate Management from Reading University,
Petrina joined Carter Jonas to continue her professional training and
qualified as a chartered surveyor in 1998. Petrina moved to King
Sturge in 1999, to concentrate on institutional portfolio management.
As a partner at Knight Frank from 2002, she was responsible for the
team managing central London trophy assets. Her remit also included
development consultancy appointments, both in the UK and overseas.
Petrina joined the Tritax group in 2007.
Tritax Big Box REIT plc Annual Report 2014 43
Bjorn Hobart MA BSc (Hons) MRICS Partner, Property
Bjorn is responsible for identifying and sourcing suitable investments
for the Company, then financially modelling and appraising the returns,
to establish their validity within the context of the portfolio assets. He
also manages day-to-day due diligence during the acquisition process.
After completing a Geography degree from the University of Leeds in
2001, Bjorn started his career at Faber Maunsell (now AECOM). Having
gained exposure to large scale developments, Bjorn received an MA
in Property Valuation and Law at Cass Business School, London. He
undertook his professional training at Atisreal (now BNP Real Estate)
in London, where he qualified as a chartered surveyor in 2005. In 2007,
Bjorn joined SG Commercial, where he advised on large scale investment
and development transactions in excess of £500 million. During this
time, Bjorn worked closely with the Tritax group, advising on its portfolio
acquisitions and disposals. Bjorn joined the Tritax group in 2011.
Edward Plumley MBA MSc MRICS Assistant Fund Manager
Ed is responsible for assisting the Fund Manager with acquisitions
and disposals, transaction management, debt origination, financial
modelling and due diligence. He started his career at Knight Frank
on the graduate bursary scheme, after completing an MSc in Estate
Management at London South Bank University. He qualified as a
chartered surveyor in 2010 with Jones Lang LaSalle (now JLL).
Ed’s investment career began when he joined Ereira Mendoza in 2011,
advising on investment and development transactions. He joined
Tritax in May 2014, having completed an MBA with Distinction in
Construction & Real Estate from the University of Reading. Ed has
been a full member of the Investment Property Forum since 2012.
Frankie Whitehead ACA Fund Controller
Frankie joined the Tritax group in 2014 and is responsible for the
Company’s day-to-day financial matters, including all aspects of
financial accounting, monthly and year end reporting, and financial
compliance.
Frankie previously spent three years as Financial Controller at Primary
Health Properties PLC, a healthcare focused REIT, which had assets
under management of over £1 billion. He qualified as a chartered
accountant with PKF (UK) LLP, which subsequently merged with BDO
LLP, where he acted as Assistant Manager for a real estate focused
client base.
Governance
44 Tritax Big Box REIT plc Annual Report 2014
Effectiveness
Nomination Committee Report
Board performance and evaluation
As the Company has only just completed its first period
of operation, the Board has not yet reviewed its own
effectiveness. The Board intends to do this during the next
financial year, taking into account the Board’s balance of skills,
experience, independence, knowledge of the Company and
diversity, as well as how the Board works together as a unit
and other factors relevant to its effectiveness.
Development
The Board believes that the Directors should develop their
skills and knowledge by attending courses and by holding
other positions. The Chairman is responsible for reviewing and
discussing each Director’s training and development needs.
Upon appointment, all Directors took part in discussions
with the Chairman and other Directors to understand their
responsibilities and the Company’s business and procedures.
The Company also provides regular opportunities for the
Directors to obtain a thorough understanding of its business,
by meeting senior representatives of the Manager and other
service providers, both in person and by phone.
The Nomination Committee comprises all four Directors and is
chaired by Richard Jewson.
The Committee is responsible for reviewing the Board’s
structure, size and composition regularly, and for considering
succession planning for Directors. The Committee also
identifies and approves candidates to fill Board vacancies,
using external search consultants where appropriate.
Meetings and activities during the year
The Committee met once during the year, to consider the
Board’s structure. No changes were deemed necessary and
the Board is considered to have appropriate experience and
knowledge for the Company.
Appointment process
As no new Director has been appointed since the Company’s
launch and the Committee does not believe there is a gap to
fill, no appointment process has been formalised. However, the
Committee expects that the process will involve identifying
gaps in the Board’s composition, then reviewing the skills of
potential candidates. When renewing current appointments, all
Directors except the individual in question are able to vote at
the general meeting.
Board diversity
The Nomination Committee considers that, together, the
Directors have a balance of skills, qualifications and experience
which are relevant to the Company. The Committee supports
the recommendations of the Davies Report and believes in the
value and importance of diversity in the boardroom but does
not consider it appropriate or in the interest of the Company
and its shareholders to set prescriptive targets for gender or
nationality on the Board.
Richard Jewson
Nomination Committee chairman
23 February 2015
Accountability
Tritax Big Box REIT plc Annual Report 2014 45
Internal controls review
The Directors acknowledge their responsibility for maintaining
the Company’s system of internal control and risk management,
in order to safeguard the Company’s assets. This system
is designed to identify, manage and mitigate the financial,
operational and compliance risks that are inherent to the
Company. The system is designed to manage rather than
eliminate the risk of failure to achieve business objectives
and can only provide reasonable, but not absolute, assurance
against material misstatement or loss.
The Board and the Manager have together reviewed all financial
performance and results notifications. Non-financial internal
controls include the systems of operational and compliance
controls maintained by the Company’s administrator, Capita
Sinclair Henderson Limited (the “Administrator”), and by the
Manager in relation to the Company’s business, as well as the
management of key risks referred to in the Directors’ Report.
The Board has contractually delegated responsibility for
accounting services to the Administrator and for company
secretarial services to Taylor Wessing Secretaries Limited.
These entities have their own internal control systems relating
to these matters, which the Board has reviewed as part of its
Financial Position and Prospects Procedures memorandum.
Internal control assessment process
The Board regularly monitors the effectiveness of the
Company’s internal controls and ensures their adequacy.
This includes reviewing reports from the external auditor. The
Board will also conduct a formal risk assessment each year,
The Board confirms that, in accordance with the UK Corporate
Code and, going forward, the AIC Code and Guide, it has
established a continuing process for identifying, evaluating
and managing the risks the Company faces and has reviewed
the effectiveness of the internal control systems.
AIFM Directive
The Alternative Investment Fund Managers Directive became
part of UK law in 2013. It regulates AIFMs and imposes obligations
on managers who manage alternative investment funds
(“AIF”) in the EU or who market shares in AIFs to EU investors.
Under the AIFM Directive, the AIFM must comply with various
organisational, operational and transparency obligations.
On 1 July 2014, the FCA authorised the Manager as an AIFM.
The Manager can now provide all relevant management and
advisory services to the Company, including regulated activities.
AIFM Remuneration policy applied by the Manager
As a full scope AIFM, the Manager must apply a remuneration
policy in line with its business strategy, objectives, values
and interests, as well as those of the AIFs it manages or their
investors. The policy must include measures to avoid conflicts
of interest.
The Manager’s partnership board therefore meets at least
twice a year to discuss the remuneration of its entire staff.
Staff are remunerated in accordance with their seniority,
expertise, professional qualifications, responsibilities and
performance. They are paid salaries in line with market rates
and, in profitable years, awarded a discretionary bonus from
a bonus pool of 5% of the Manager’s profits. This means that
staff remuneration is predominantly fixed and the variable
element is determined by the Manager’s profitability, rather
than the performance of a particular AIF.
The Manager’s partners are entitled to their partnership
share of its profits and losses. None of the partners are
entitled to additional partnership drawings that depend on
the performance of any AIF managed by the partnership. The
partners’ remuneration therefore depends on the Manager’s
profitability, rather than the performance of the AIF. This
ensures that the partners have a vested interest in ensuring
the Manager remains financially sound.
The Company is the only AIF that the Manager is responsible
for. The annual fee paid by the AIF is based on a percentage of
NAV, as set out in the Management Engagement Committee
Report on page 40. In addition, the Manager’s partners are
required to invest 25% of that fee (net of tax and certain other
costs, as described on page 40 in the Company’s shares.
Those shares are subject to a 12 month lock-in period. This
aligns the interests of the Manager’s partners with the strategy
and interests of the Company.
Going concern
The Strategic Report on pages 2 to 33 describes the Group’s
financial position, cash flows, liquidity position and borrowing
facilities. The Group currently has substantial headroom
against its borrowing covenants, with a Group LTV of 32.9%
as at 31 December 2014. It also benefits from a secure income
stream from leases with long average unexpired terms, which
are not overly reliant on any one tenant. The Company’s cash
balance as at 31 December 2014 was £98.62 million, of which
£94.31 million was readily available, it also had an undrawn
four-year debt facility of a further £13.2 million. As a result, the
Directors believe that the Company is well placed to manage
its financing and other business risks. The Board is, therefore,
of the opinion that the going concern basis adopted in the
preparation of the Annual Report is appropriate.
Governance 46 Tritax Big Box REIT plc Annual Report 2014
Audit Committee Report
Composition of the Audit Committee
For the period to 31 December 2014, the Audit Committee
comprised all four Directors, including the Chairman of the
Board, to enable his greater understanding of the issues facing
the Company. The Committee was chaired by Jim Prower,
who is considered to possess recent and relevant financial
experience for the purpose of the UK Corporate Governance
Code. Details of Jim Prower’s experience can be found in his
biography on page 41. In January 2015, Mark Shaw resigned
from the Committee, which now comprises only the three
independent Directors, with Jim Prower as its Chairman.
External auditor
During the year, the Audit Committee considered the
appointment, compensation, performance and independence
of the Company’s external auditor, BDO LLP (“BDO”).
BDO was appointed as part of the IPO, following a formal
tender process. During the period, the Audit Committee met
key members of the audit team and BDO formally confirmed
its independence, as part of the annual reporting process. The
Audit Committee liaises regularly with the lead audit partner,
to discuss any issues arising from the audit as well as its cost
effectiveness.
Activities of the committee
The Audit Committee operates within defined terms of
reference, which are available on request from the Company
Secretary. The Committee met three times during the period.
These meetings were attended by Committee members, as well
as representatives of the Manager, the Company Secretary and
the external auditor.
During the period, the work undertaken by the Audit Committee
included:
The Committee acknowledges that, in some circumstances,
the external auditor’s understanding of the Company’s business
can be beneficial in improving the efficiency and effectiveness
of advisory work and, therefore, engaging the external auditor
for non-audit services has been considered. To ensure that
providing these services does not impair BDO’s independence
and objectivity, the Audit Committee has developed the
Company’s policy on this issue. The policy allows the external
auditor to provide routine tax compliance and advisory services.
• Reviewing the internal controls and risk management
systems. These systems were formalised in the Financial
Position and Prospects Procedures memorandum, which the
Board approved at IPO and updated in July 2014;
• Reviewing the historical financial information for the period
to 31 May 2014, which was included in the prospectus dated
8 July 2014;
• Reviewing the interim and audited financial statements,
including considering key accounting policies and areas of
significant judgement, compliance with statutory obligations
and accounting standards, and consistency throughout the
report;
In developing the policy, the Committee has considered the
Financial Reporting Council’s Ethical Standard Number 5
(revised). This relates to non-audit services provided to audited
entities and sets out the six principal threats to objectivity
and independence. For example, the auditor cannot act as
management or audit its own work. The Audit Committee has
reviewed the level of non-audit fees paid to BDO in the period,
which totalled £356,000. It has also reviewed the terms under
which BDO is able to perform non-audit services and has
acknowledged that tax advice and corporate due diligence
is provided by separate teams within BDO. The Committee is
therefore satisfied that the audit is independent, objective and
effective.
• Reviewing the process undertaken to ensure that the Board
can confirm that the annual financial statements are fair,
balanced and understandable; and
• Reviewing and approving the external auditor’s terms of
engagement, remuneration and tenure of appointment.
The Committee will keep this issue under constant review,
particularly at the time of new engagements, to ensure that the
auditor’s independence and objectivity is not impaired.
Tritax Big Box REIT plc Annual Report 2014 47
Of the £356,000 non-audit fees paid to BDO, the significant expenditure that was authorised in the year is outlined below:
Work undertaken
Rationale for using the external auditor
Reporting accountant on the
Company’s IPO
One-off piece of work. Low risk of self-interest and self-review threat,
as the work is not used in the audit of the financial statements.
Reporting accountant on the
Company’s secondary offering
Financial and tax due diligence on
the corporate acquisitions of Baljean
Properties Limited, The Sherburn
RDC Unit Trust, Sonoma Ventures
Limited and Tritax Ripon Limited
and advice on other acquisitions
Detailed knowledge and understanding of the business and the
requirements of the exercise, having completed the Company’s IPO.
Low risk of self-interest and self-review threat, as the work is not used
in the audit of the financial statements.
Detailed knowledge and understanding of the business and the
requirements of the exercises. The work was performed by a team
independent of the audit team. The audit team places no reliance on
these procedures.
Fee (£)
£100,000
£115,000
£81,000
The Audit Committee has recommended that a resolution to
reappoint BDO is proposed to shareholders at the next AGM.
Internal audit
Due to the Company’s size and structure and the nature of its
activities, the Audit Committee has concluded that an internal
audit function is unnecessary. However, the Committee
will consider the need for this function each year and make
recommendations to the Board as appropriate.
Financial reporting and significant judgements
The Audit Committee monitors the integrity of the financial
information published in the interim and annual financial
statements and considers the extent to which suitable
accounting policies have been adopted, presented and
disclosed. In assessing this, it considers whether management
has made suitable and appropriate estimates and judgements,
and seeks support from the external auditor to assess them.
Valuation of property portfolio
The Group had property assets of £586.18 million at
31 December 2014, as detailed on the Group Statement of
Financial Position. As explained in note 15 to the financial
statements, CBRE independently valued the properties in
accordance with IAS 40: Investment Property. The total
portfolio valuation including forward funded commitments at
the period end was £619.28 million. The Audit Committee has
reviewed the assumptions underlying the property valuations
and discussed these with management, and has concluded
that the valuation is appropriate.
Valuation of interest rate derivatives
The Group mitigates its exposure to interest rate risk by
entering into interest rate hedging arrangements. The Group
accounts for these instruments in accordance with IAS 39 and
makes additional required disclosures under IFRS 7 Financial
Instruments Disclosures. The valuations are provided by the
relevant institutions to which the loans are hedged. The Board
has reviewed and approved these valuations.
Revenue recognition
Revenue is the Group’s rental income arising from operating
leases on investment property and is recognised on a straight-
line basis. Any increases in rent following rent reviews are
recognised as and when the rent reviews are settled. Tenant
lease incentives are recognised on a straight-line basis over
the term of the lease.
Governance 48 Tritax Big Box REIT plc Annual Report 2014
Audit Committee Report
Conclusions in respect of the Company’s Annual Report
The production and audit of the Company’s Annual Report is
a comprehensive process, requiring input from a number of
contributors. To reach a conclusion on whether the Company’s
financial statements are fair, balanced and understandable, as
required under the UK Corporate Governance Code, the Board
has requested that the Audit Committee advise on whether it
considers that the Annual Report fulfils these requirements.
In outlining its advice, the Committee has considered the
following:
• The comprehensive documentation that outlines the
controls in place for the production of the Annual Report,
including the verification processes to confirm the factual
content;
• The detailed reviews undertaken at various stages of the
production process by the Manager, Administrator, joint
financial advisers, Auditor and the Audit Committee, which
are intended to ensure consistency and overall balance;
• Controls enforced by the Manager, Administrator and
other third-party service providers, to ensure complete and
accurate financial records and security of the Company’s
assets;
• The satisfactory control report produced by the
Administrator for the period ended 31 December 2013,
which has been reviewed and reported upon by the
Administrator’s external auditor, to verify the effectiveness
of the Administrator’s internal controls, such as the Audit
and Assurance Faculty (AAF) Report; and
• A letter provided by the Administrator that there have been
no changes to its control environment since 31 December
2013 and that all internal controls in place as at the time of
the last review remain active.
As a result of the work performed, the Audit Committee
has concluded and reported to the Board that the Annual
Report for the period ended 31 December 2014, taken as a
whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the
Company’s performance, business model and strategy. The
Board’s conclusions in this respect are set out in the Directors’
Responsibilities Statement on page 54.
Jim Prower
Audit Committee chairman
23 February 2015
Relations with Shareholders
Directors’ Remuneration Report
Tritax Big Box REIT plc Annual Report 2014 49
The Board recognises the importance of maintaining strong
relationships with Shareholders and the Directors place a
great deal of importance on communication. The Manager, the
Company’s broker and the Company’s joint financial adviser
regularly meet shareholders and take calls from them. The
Board also receives periodic feedback from its broker and joint
financial adviser on shareholder issues.
Annual statement
As the Board has no executive Directors, it does not consider
it necessary to establish a separate Remuneration Committee.
The Board as a whole is therefore responsible for discussions
regarding remuneration. The Directors’ remuneration is
disclosed in this Remuneration Report, which will be presented
at the AGM for shareholders’ consideration and approval.
Shareholders are encouraged to attend and vote at the
Company’s general meetings, so they can discuss governance
and strategy and the Board can enhance its understanding
of shareholders’ issues. The Board makes itself available at
the Company’s general meetings to answer any shareholder
questions and the Chairman makes himself available, as
necessary, outside of these meetings to speak to shareholders.
Directors’ remuneration policy
Under the Company’s Articles of Association, all Directors
are entitled to the remuneration set out in the Company’s
prospectus dated 8 July 2014, or as the Company may
determine by ordinary resolution. This remuneration will not
exceed an aggregate of £125,000 for the 12 months from
30 July 2014.
The Company ensures that any price sensitive information
is released to all shareholders at the same time and in
accordance with regulatory requirements. The Company’s
annual and interim results are dispatched to shareholders by
mail and are also available to download from the Company’s
website www.tritaxbigbox.co.uk.
Subject to this limit, the Company’s policy is to determine
the level of Directors’ fees with regard to those payable to
non-executive Directors in the industry generally, individual
Directors’ Board and Audit Committee responsibilities, and the
time each Director dedicates to the Company’s affairs.
No element of the Directors’ remuneration is performance
related, nor does any Director have any entitlement to
pensions, share options or any long-term incentive plans from
the Company.
Annual report on remuneration
Each Director has been appointed pursuant to a letter of
appointment dated 18 November 2013, except for Mark Shaw
whose letter of appointment is dated 8 November 2013. No
Director has a service contract with the Company, nor are any
such contracts proposed. The Directors’ appointments can
be terminated in accordance with the Articles and without
compensation.
Each Director, other than Mark Shaw, is entitled to receive
a fee from the Company at a rate determined in accordance
with the Articles. The Directors are each paid an annual fee
of £30,000 per annum, other than the Chairman (Richard
Jewson) who is currently entitled to a fee of £60,000 per
annum, and the Chairman of the Audit Committee (Jim
Prower), who is currently entitled to a fee of £35,000 per
annum.
Governance
Total Shareholder Return is the measure of returns provided by
a Company to shareholders reflecting share price movements
and assuming reinvestment of dividends.
Statement of Directors’ shareholding and share interests
At 31 December 2014, the Directors held the following
interests in the Company’s shares:
Number of
shares held
40,000
23,760
0
172,821
Percentage of issued
share capital as at
31 December 2014
0.01%
0.01%
n/a
0.04%
Richard Jewson
(Chairman)*
Jim Prower*
Stephen Smith
Mark Shaw
* The shareholdings of Richard Jewson and Jim Prower are not significant and, therefore, do not
compromise their independence.
Other items
The Company maintains Directors’ and Officers’ liability
insurance cover, at its expense, on the Directors’ behalf.
Richard Jewson
Chairman
23 February 2015
50 Tritax Big Box REIT plc Annual Report 2014
Directors’ Remuneration Report
The fees paid to the current Directors in the 14-month period
to 31 December 2014, which have been audited, are set out in
the table below. Colin Godfrey and Henry Franklin, who both
resigned as Directors on 8 November 2013, were not entitled
to receive a fee.
Richard Jewson (Chairman)
Jim Prower
Stephen Smith
Mark Shaw*
Total
£68,500
£39,180
£33,583
£0
£141,263
Director
* As Chairman of the Company’s Manager, Mark Shaw is not entitled to receive a fee.
In addition, each Director is entitled to recover all reasonable
expenses properly incurred in connection with performing his
duties as a Director. Directors’ expenses for the period to
31 December 2014 totalled £1,532. No other remuneration was
paid or payable during the year to any Director.
Statement of voting at general meeting
The Company is committed to ongoing shareholder dialogue
and takes an active interest in voting outcomes. Where
there are substantial votes against resolutions in relation to
Directors’ remuneration, the Company will seek the reasons
for any such vote and will detail any resulting actions in the
Directors’ Remuneration Report.
The AGM to be held on 15 April 2015 will be the first
opportunity for shareholders to vote on the Directors’
Remuneration Policy.
The following graph compares for the period since IPO, the
total shareholder return (as required by company law)
of the Company’s Ordinary Shares relative to a return on a
hypothetical holding over the same period in the FTSE 350.
Total Shareholder Return
20
15
10
5
0
-5
3
1
c
e
D
4
1
n
a
J
4
1
b
e
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4
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4
1
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4
1
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a
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4
1
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4
1
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4
1
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4
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S
4
1
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5
1
b
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F
4
1
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A
4
1
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e
S
4
1
t
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O
5
1
b
e
F
Tritax Big Box REIT plc
FTSE 350 Index
Directors’ Report
Tritax Big Box REIT plc Annual Report 2014 51
Introduction
The Directors are pleased to present their Annual Report,
including the Company’s audited financial statements as at, and
for the period ended, 31 December 2014.
Future developments
An indication of the likely future developments of the Company’s
business is set out in the Strategic Report on pages 2 to 33.
The Directors’ Report, together with the Strategic Report on
pages 2 to 33, comprise the ‘Management Report’, for the
purposes of Disclosure and Transparency Rule 4.1.5R.
Statutory information contained elsewhere in the
Annual Report
Information required to be part of this Directors’ Report can be
found elsewhere in the Annual Report and is incorporated into
this report by reference, as indicated in the relevant section.
Financial results and dividends
The financial results for the period can be found in the Group
Statement of Comprehensive Income on pages 58.
During the year, an interim dividend of 1.85p per share per
share was declared on 8 July 2014 and paid on 8 August 2014.
A further interim dividend of 1.50p per share was declared on
20 November 2014 and paid on 17 December 2014.
An additional interim dividend of 0.80p per share was declared
on 23 February 2015, to be payable on 18 March 2015 to
shareholders on the register on 6 March 2015.
Directors
The names of the Directors who served during the period are
set out on page 41, together with their biographical details.
The Company maintains Directors’ and Officers’ liability
insurance cover, at its expense, on the Directors’ behalf.
Directors’ interests in shares
The Directors’ interests in the Company’s shares are disclosed in
the Directors’ Remuneration Report on page 50.
Political donations
No political donations were made during the year.
Employees
The Group has no employees and therefore no employee share
scheme.
Financial instruments
Details of the Group’s financial risk management objectives and
policies, together with its exposure to material financial risks,
are set out in note 22 to the consolidated financial statements.
Share capital
As part of the Company’s IPO on 9 December 2013, the
Company issued 200,000,000 Ordinary Shares at a price of
100 pence per share. The shares were admitted to trading on the
Specialist Fund Market of the London Stock Exchange and the
Channel Islands Stock Exchange Authority Limited (“CISEA”) and
listed on the Official List of the CISEA. This was followed by the
placing of an additional 19,980,000 Ordinary Shares in June 2014.
On 30 July 2014, the Company’s shares were listed on the
premium segment of the Financial Conduct Authority’s Official
List and were admitted to trading on the Main Market of the
London Stock Exchange. The Company simultaneously issued
145,631,068 Ordinary Shares, approved a share issuance
programme under which the Company is authorised to issue
up to 350,000,000 Ordinary Shares between July 2014 and
July 2015, and approved the cancellation of its trading on the
CISEA and of its listing on the Official List of the CISEA, which
both took effect on 5 August 2014. Pursuant to the share
issuance programme, the Company issued 104,761,904 Ordinary
Shares in December 2014. As at 31 December 2014, there were
470,495,220 Ordinary Shares in issue.
Ordinary Shares
Balance at start of the period
Shares issued in December 2013
Shares issued in June 2014
Shares issued in July 2014
Shares issued to the Manager in October 2014*
Shares issued in December 2014
Balance at end of the period
* In line with the Manager’s remuneration policy.
Number
–
200,000,000
19,980,000
145,631,068
122,248
104,761,904
470,495,220
Gross proceeds (£)
–
200,000,000
20,779,200
150,000,000
122,248
110,000,000
480,901,448
Governance 52 Tritax Big Box REIT plc Annual Report 2014
Directors’ Report
Restrictions on transfer of securities in the Company
There are no restrictions on the transfer of securities in the
Company, except as a result of:
•
•
the FCA’s Listing Rules, which require certain individuals to
have approval to deal in the Company’s shares; and
the Company’s Articles of Association, which allow
the Board to decline to register a transfer of shares or
otherwise impose a restriction on shares, to prevent the
Company or the Manager breaching any law or regulation.
The Company is not aware of any agreements between
holders of securities that may result in restrictions on
transferring securities in the Company.
Securities carrying special rights
No person holds securities in the Company carrying special
rights with regard to control of the Company.
Greenhouse gas emissions reporting
The Board has considered the requirement to disclose the
Company’s measured carbon emissions sources under the
Companies Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013.
During the period ended 31 December 2014:
• Any emissions from the Group’s properties have been
the tenants’ responsibility rather than the Group’s, so the
principle of operational control has been applied;
• Any emissions that are either produced from the
Company’s registered office or from offices used to provide
administrative support are deemed to fall under the
Manager’s responsibility; and
• The Group has not leased or owned any vehicles which fall
under the requirements of Mandatory Emissions Reporting.
Going concern
The Directors believe that the Company is well placed to
manage its financing and other business risks. The Board
is, therefore, of the opinion that the going concern basis
adopted in the preparation of the Annual Report is appropriate.
Please refer to the Accountability section as covered within
Governance on page 45 for greater detail.
As such, the Board believes that the Company has no
reportable emissions for the period ended 31 December 2014.
Substantial shareholdings
As at 10 February 2015, the Company is aware of the following
substantial shareholdings, which were directly or indirectly
interested in 3% or more of the total voting rights in the
Company’s issued share capital:
Investor
Aviva plc
Quilter Cheviot Limited
East Riding of Yorkshire Council
Smith & Williamson Holdings Limited
Vestra Wealth LLP
Killik & Co LLP
Brooks Macdonald Group plc
CCLA Investment Management Limited
Baillie Gifford & Co Limited
Artemis Investment Management LLP
No. of Ordinary Shares
% holding of Issued Share Capital
47,011,022
26,251,375
26,097,353
25,096,720
21,862,215
21,512,256
18,608,622
18,260,520
17,616,000
15,256,711
9.99%
5.58%
5.55%
5.33%
4.65%
4.57%
3.96%
3.88%
3.74%
3.24%
Tritax Big Box REIT plc Annual Report 2014 53
Amendment of Articles of Association
The Articles may be amended by a special resolution of the
Company’s shareholders.
Powers of the Directors
The Board will manage the Company’s business and may
exercise all the Company’s powers, subject to the Articles, the
Companies Acts and any directions given by the Company by
special resolution.
Powers in relation to the Company issuing its shares
At a general meeting on 25 July 2014, the Directors were
granted authority to allot Ordinary Shares in accordance with
section 551 of the Companies Act 2006 inter alia, up to an
aggregate nominal amount of £3,500,000 (based on a
further 350,000,000 shares issued with a nominal amount of
£0.01 per share) pursuant to the share issuance programme
and for premium management purposes. The Directors were
also granted authority to issue those shares non-pre-emptively
and wholly for cash.
Change of control
Under the Group’s financing facilities, any change of control at
the borrower or immediate parent company level may trigger a
repayment of the outstanding amounts to the lending banks. In
certain facilities, the change of control provisions also include
a change of control at the ultimate parent company level.
Appointment and replacement of Directors
Details of the process by which Directors can be appointed or
replaced are included in the Corporate Governance Statement
on page 44.
Independent auditor
BDO LLP has expressed its willingness to continue as auditor
for the financial year ending 31 December 2015. A resolution
relating to this appointment will be tabled at the forthcoming
AGM.
Manager and service providers
The Manager during the period was Tritax Management LLP.
Details of the Manager and the Investment Management
Agreement are set out in the Management Engagement
Committee Report on page 40.
The Company’s administration was delegated to Capita
Sinclair Henderson Limited.
Disclosure of information to the auditor
The Directors who were members of the Board at the time
of approving the Directors’ Report have confirmed that:
• So far as each Director is aware, there is no relevant audit
information of which the Company’s auditor is not aware; and
• Each Director has taken all the steps that they ought to
have taken as a Director in order to make themselves
aware of any relevant audit information and to establish
that the Company’s auditor is aware of that information.
Annual general meeting
The Company’s AGM will be held at the offices of Taylor
Wessing LLP, 5 New Street Square, London EC4A 3TW at
10:00am on 15 April 2015.
This report was approved by the Board on 23 February 2015.
Events subsequent to the period end date
For details of events since the period end date, please refer to
note 32 on page 82.
Taylor Wessing Secretaries Limited
Company Secretary
23 February 2015
Governance 54 Tritax Big Box REIT plc Annual Report 2014
Directors’ Responsibilities Statement
The Directors are responsible for preparing the Annual Report
and the Group and parent company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare the Group and
Company financial statements for each financial year. The
Group financial statements have been prepared in accordance
with International Financial Reporting Standards (“IFRS”) as
adopted by the European Union and the Company financial
statements have been prepared in accordance with United
Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law). Under
company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and Company and
of the profit or loss for the Group for that period.
In preparing the financial statements, the Directors are
required to:
• Select suitable accounting policies and then apply them
consistently;
• Make judgements and estimates that are reasonable and
prudent;
• For the Group financial statements, state whether they
have been prepared in accordance with IFRSs as adopted
by the European Union, subject to any material departures
disclosed and explained in the Group financial statements;
• For the Company financial statements, state whether they
have been prepared in accordance with United Kingdom
Generally Accepted Accounting Practice, subject to
any material departures disclosed and explained in the
Company financial statements; and
• Prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Group
and the Company will continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Group and Company’s transactions and disclose with
reasonable accuracy at any time the financial position of
the Group and Company and enable them to ensure that its
financial statements comply with the Companies Act 2006
and, as regards the Group financial statements, Article 4 of the
IAS Regulation.
They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group
and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Directors’ Report, a Strategic
Report, a Directors’ Remuneration Report and a Corporate
Governance Statement that comply with that law and those
regulations. These can be found at pages 51, 49 and 34
respectively.
Website publication
The Directors are responsible for ensuring the Annual Report,
including the financial statements, is made available on a
website. Financial statements are published on the Company’s
website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial
statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Company’s
website is the responsibility of the Directors. The Directors’
responsibility also extends to the ongoing integrity of the
financial statements contained therein.
Directors’ responsibility statement
We confirm that to the best of our knowledge:
• The financial statements have been prepared in
accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union and
Article 4 of the IAS Regulation and, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation as a whole;
• The Strategic Report includes a fair review of the
development and performance of the business and the
position of the Company and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they
face; and
• The Annual Report and accounts taken as a whole is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s
performance, business model and strategy.
Signed on behalf of the Board by:
Richard Jewson
Chairman
23 February 2015
Independent Auditor’s Report
to the members of Tritax Big Box REIT plc
Tritax Big Box REIT plc Annual Report 2014 55
Opinion on financial statements
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the
state of the Group’s and parent company’s affairs as at
31 December 2014 and of the Group’s profit for the period
then ended;
the Group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards (‘IFRS’) as adopted by the European
Union;
the parent company financial statements have been
properly prepared in accordance with United Kingdom
Accounting Standards; and
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the
IAS Regulation.
The financial statements of Tritax Big Box REIT plc for the
period from 1 November 2013 to 31 December 2014 comprise
the Group Statement of Comprehensive Income, the Group
Statement of Financial Position, the Group Statement of
Changes in Equity, the Group Statement of Cash Flows, the
Company Balance Sheet and the related notes. The financial
reporting framework that has been applied in the preparation
of the Group financial statements is applicable law and IFRSs
as adopted by the European Union. The financial reporting
framework that has been applied in preparing the parent
company financial statements is applicable law and United
Kingdom Accounting Standards.
Respective responsibilities of directors and auditors
As explained more fully in the statement of Directors’
responsibilities, the Directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to
audit and express an opinion on the financial statements in
accordance with applicable law and International Standards
on Auditing (UK and Ireland). Those standards require us to
comply with the Financial Reporting Council’s (FRC’s) Ethical
Standards for Auditors.
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the Company’s members those matters
we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Our assessment of risks of material misstatement and
overview of the scope of our audit
A description of the scope of an audit of financial statements
is provided on the FRC’s website at www.frc.org.uk/
auditscopeukprivate.
Our Group audit was scoped by obtaining an understanding
of the Group and its environment, including the Group’s
system of internal control, and assessing the risks of material
misstatement at the Group level. Audit work to respond to
the assessed risks was performed directly by the Group audit
engagement team who performed full scope audit procedures
on investment property, the Group’s only component. We
identified the following risks that have had the greatest impact
on our audit strategy and scope:
Financial Statements 56 Tritax Big Box REIT plc Annual Report 2014
Independent Auditor’s Report
to the members of Tritax Big Box REIT plc
Risk
How the scope of our audit responded to the risk
Our audit work included, but was not restricted to:
•
reviewing the treatment of all property acquisitions, particularly those with
non standard arrangements, and confirming that these are being treated in
accordance with applicable accounting standards;
• meeting with the Group’s external valuer, who valued all of the Group’s
investment properties, to understand the assumptions and methodologies
used in valuing these properties and the market evidence supporting the
valuation assumptions;
• assessing the competency, independence and objectivity of the external valuer
which included making inquiries regarding interests and relationships that may
have created a threat to the external valuer’s objectivity;
• using our knowledge and experience to evaluate and challenge the valuation
assumptions, methodologies and the unobservable inputs used. This included
establishing our own range of expectations for the changes in valuation
of investment property based on externally available metrics, comparable
organisations and wider economic and commercial factors. We considered
whether the overall movement in the investment property valuation indicated
potential management bias to either overstate or understate the valuation.
We assessed the movement of all properties against our own expectation and
challenged those valuations which fell outside of our range of expectation.
Explanations received from the external valuer and management supporting
these valuations were corroborated to third party evidence where appropriate;
and
• agreeing the key observable valuation inputs used by the external valuer back
to source documentation, which included title deeds and lease agreements.
We carried out analytical and other substantive testing over rental income
including reviewing underlying lease documentation. We reviewed all leases.
For each lease incorporating an incentive we challenged the determination of
the period over which the incentive was being amortised and ensured that it
was based upon a reasonable assessment of the characteristics of the tenant
and lease.
The Group has acquired a portfolio of
properties which are held as investment
properties. Investment properties,
including those in the course of
development, are held at fair value in the
Group financial statements.
Determination of the fair value of
investment properties is considered
a significant audit risk due to the
subjective nature of certain assumptions
inherent in each valuation.
Each valuation requires consideration
of the individual nature of the property
and its location along with assumptions
including future rental income and
the appropriate discount rate. The
valuer also makes reference to market
evidence of transaction prices for similar
properties.
Rental income is recognised on a
straight line basis over the lease term.
The most significant accounting
estimate concerning revenue recognition
is management’s assessment of the
lease term over which incentives are
recognised.
The lease term is the non-cancellable
period for which a lessee has contracted
to lease a property together with any
further terms for which a lessee has an
option to continue to lease the property,
with or without further payment, when at
the inception or acquisition of the lease
it is reasonably certain that a lessee will
exercise the option.
Management assess the most
appropriate period over which to
recognise revenue based on their
assessment of lease terms and whether
lessees will exercise break options.
Tritax Big Box REIT plc Annual Report 2014 57
Matters on which we are required to report by exception
Under the ISAs (UK and Ireland), we are required to report to
you if, in our opinion, information in the Annual Report is:
• materially inconsistent with the information in the audited
financial statements; or
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Company acquired
in the course of performing our audit; or
is otherwise misleading.
•
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge
acquired during the audit and the Directors’ statement
that they consider the Annual Report is fair, balanced and
understandable and whether the Annual Report appropriately
discloses those matters that we communicated to the Audit
Committee which we consider should have been disclosed.
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
• adequate accounting records have not been kept by the
•
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
the parent company financial statements and the part of
the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit; or
• a Corporate Governance Statement has not been prepared
by the Company.
Under the Listing Rules we are required to review:
•
the Directors’ statement, set out on page 52, in relation to
going concern; and
the part of the Corporate Governance Statement relating
to the Company’s compliance with the ten provisions of the
UK Corporate Governance Code specified for our review.
Our application of materiality
We apply the concept of materiality both in planning
and performing our audit, and in evaluating the effect of
misstatements. For planning, we consider materiality to be
the magnitude by which misstatements, including omissions,
could influence the economic decisions of reasonable users
that are taken on the basis of the financial statements. In order
to reduce to an appropriately low level the probability that any
misstatements exceed materiality, we use a lower materiality
level, performance materiality, to determine the extent of
testing needed. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating
their effect on the financial statements as a whole.
The materiality for the Group financial statements as a whole was
set at £6m. This was determined with reference to a benchmark
of Group total assets (of which it represents 0.8%) which we
consider to be one of the principal considerations for members of
the Company in assessing the financial performance of the Group.
International Standards on Auditing (UK & Ireland) also allow
the auditor to set a lower materiality for particular classes of
transactions, balances or disclosures for which misstatements
of lesser amounts than materiality for the financial statements
as a whole could reasonably be expected to influence the
economic decisions of users taken on the basis of the financial
statements. In this context, we set a lower level of materiality
of £600,000 to apply to those classes of transactions and
balances which impact on EPRA earnings.
We agreed with the Audit Committee that we would report to the
Committee all individual audit differences in excess of £75,000.
We also agreed to report differences below these thresholds that,
in our view, warranted reporting on qualitative grounds.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
•
•
•
•
the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with the
Companies Act 2006;
the information given in the Strategic Report and Directors’
Report for the financial period for which the financial
statements are prepared is consistent with the financial
statements; and
the information given in the Corporate Governance
Statement set out on pages 34 to 36 with respect to
internal control and risk management systems in relation
to financial reporting processes and about share capital
structures is consistent with the financial statements.
We have nothing to report in respect of these matters.
Richard Levy (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
London
United Kingdom
23 February 2015
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Financial Statements 58 Tritax Big Box REIT plc Annual Report 2014
Group Statement of Comprehensive Income
For the period ended 31 December 2014
Gross rental income
Service charge income
Service charge expense
Net rental income
Administrative and other expenses
Operating profit before changes in fair value of investment properties and
interest rate derivatives
Changes in fair value of investment properties
Operating profit
Finance income
Finance expense
Changes in fair value of interest rate derivatives
Profit before taxation
Tax charge on profit for the period
Total comprehensive income (attributable to the Shareholders)
Earnings per share – basic and diluted
EPRA earnings per share – basic and diluted
For the period
1 November 2013
to 31 December
2014
£’000
Note
For the period
1 March 2013
to 31 October
2013
£’000
6
6
6
8
15
10
11
21
12
13
13
18,603
511
(511)
18,603
(3,603)
15,000
31,668
46,668
205
(2,452)
(2,577)
41,844
–
41,844
15.10p
4.60p
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Group Statement of Financial Position
As at 31 December 2014
Tritax Big Box REIT plc Annual Report 2014 59
Non-current assets
Investment property
Interest rate derivatives
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Deferred rental income
Trade and other payables
Total current liabilities
Non-current liabilities
Bank borrowings
Total non-current liabilities
Total liabilities
Total net assets
Equity
Share capital
Share premium reserve
Capital reduction reserve
Retained earnings
Total equity
Net asset value per share – basic and diluted
EPRA net asset value per share – basic and diluted
At
31 December
2014
£’000
At
31 October
2013
£’000
586,179
2,379
588,558
30,668
98,616
129,284
717,842
(7,332)
(6,048)
(13,380)
(200,933)
(200,933)
(214,313)
503,529
4,705
272,536
184,444
41,844
503,529
107.02p
107.57p
–
–
–
50
–
50
50
–
–
–
–
–
–
50
50
–
–
–
50
100.00p
100.00p
Note
15
21
17
18
19
20
24
25
26
27
28
28
These financial statements were approved by the Board of Directors on 23 February 2015 and signed on its behalf by:
Richard Jewson
Chairman
60 Tritax Big Box REIT plc Annual Report 2014
Group Cash Flow Statement
For the period ended 31 December 2014
Cash flows from operating activities
Profit for the period (attributable to equity Shareholders)
Less: Changes in fair value of investment properties
Add: Changes in fair value of interest rate derivatives
Less: Finance income
Add: Finance expense
Accretion of tenant lease incentive
Increase in trade and other receivables
Increase in deferred income
Increase in trade and other payables
Cash generated from operations
Net cash flow generated from operating activities
Investing activities
Purchase of investment properties
Forward funded payment
Licence fee received
Interest received
Long-term restricted cash deposits
Net cash flow used in investing activities
Financing activities
Proceeds from issue of Ordinary Share capital
Cost of share issues
Bank borrowings drawn
Bank borrowings repaid
Loan arrangement fees paid
Bank interest paid
Interest rate cap premium paid
Dividends paid to equity holders
Net cash flow generated from financing activities
Net increase in cash and cash equivalents for the period
Cash and cash equivalents at the start of the period
For the period
1 November 2013
to 31 December
2014
£’000
Note
For the period
1 March 2013
to 31 October
2013
£’000
41,844
(31,668)
2,577
(205)
2,452
(937)
(1,787)
7,332
3,194
22,802
22,802
(555,696)
(27,204)
1,514
115
(4,310)
(585,581)
480,901
(9,594)
215,144
(11,500)
(2,658)
(1,418)
(4,956)
(8,834)
657,085
94,306
–
18
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Cash and cash equivalents at the end of the period
18
94,306
Group Cash Flow Statement
For the period ended 31 December 2014
Tritax Big Box REIT plc Annual Report 2014 61
Undistributable reserves
Distributable reserves
Capital
reduction
reserve
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
1 November 2013
Total comprehensive income
Issue of Ordinary Shares
Share capital
£’000
Share premium
£’000
50
–
–
–
Shares issued in relation to IPO
1,950
198,000
Share issue expenses in relation to IPO
Shares issued in relation to Tap (June 2014)
Share issue expenses in relation to Tap
(June 2014)
200
–
(4,000)
20,579
(402)
Shares issued in relation to further Equity issue
(July 2014)
1,456
148,544
–
1
(3,042)
121
1,048
108,952
(2,216)
–
–
(194,000)
194,000
Share issue expenses in relation to further
Equity issue (July 2014)
Shares issued in relation to management
contract
Shares issued in relation to further Equity issue
(December 2014)
Share issue expenses in relation to further
Equity issue (December 2014)
Share based payments
Transfer of share based payments to liabilities
to reflect settlement
Cancellation of share premium account
Dividends paid:
First interim dividend for the period ended
31 December 2014 (1.85p)
Second interim dividend for the period
ended 31 December 2014 (1.50p)
–
–
–
–
–
–
Retained
earnings
£’000
–
41,844
–
–
–
–
–
–
–
–
–
320
(320)
–
Total
£’000
50
41,844
199,950
(4,000)
20,779
(402)
150,000
(3,042)
122
110,000
(2,216)
320
(320)
–
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–
–
(4,070)
(5,486)
–
–
(4,070)
(5,486)
31 December 2014
4,705
272,536
184,444
41,844
503,529
1 March 2013
Total comprehensive income
31 October 2013
50
–
50
–
–
–
–
–
–
–
–
–
50
–
50
62 Tritax Big Box REIT plc Annual Report 2014
Notes to the Consolidated Accounts
1. Corporate information
The consolidated financial statements of the Group for the 14-month period ended 31 December 2014 comprise the results of
the Company and its subsidiaries and were approved by the Board for issue on 23 February 2015. Tritax Big Box REIT plc (“the
Company”) is a public listed company incorporated and domiciled in England and Wales. The Company’s Ordinary Shares are
admitted to the official list of the UK Listing Authority, a division of the Financial Conduct Authority, and traded on the London
Stock Exchange.
The nature of the Group’s operations and its principal activities are set out in the Strategic Report on pages 2 to 33.
Accounting policies
2. Basis of preparation
The consolidated financial information has been prepared in accordance with International Financial Reporting Standards (IFRS)
as issued by the International Accounting Standards Board (IASB) as adopted by the European Union and in accordance with the
Companies Act 2006 and Article 4 of the IAS Regulations.
The Group’s financial information has been prepared on a historical cost basis, as modified for the Group’s investment properties
and interest rate derivatives, which have been measured at fair value through the Group Statement of Comprehensive Income.
The consolidated financial information is presented in Sterling, which is also the Group’s functional currency, and all values are
rounded to the nearest thousand (£’000), except where otherwise indicated.
The Group has chosen to adopt EPRA best practice guidelines for calculating key metrics such as net asset value and earnings
per share.
2.1. Going concern
The consolidated financial statements are prepared on a going concern basis as explained in the Directors’ Report on page 52.
3. Significant accounting judgements, estimates and assumptions
The preparation of the Group's financial information requires management to make judgements, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities at the
reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material
adjustment to the carrying amount of the asset or liability affected in future periods.
3.1. Judgements
In the process of applying the Group's accounting policies, management has made the following judgements, which have the
most significant effect on the amounts recognised in the consolidated financial information:
Business combinations
The Group acquires subsidiaries that own investment properties. At the time of acquisition, the Group considers whether each
acquisition represents the acquisition of a business or the acquisition of an asset. The Group accounts for an acquisition as a
business combination where an integrated set of activities is acquired in addition to the property.
Where such acquisitions are not judged to be the acquisition of a business, they are not treated as business combinations.
Rather, the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based
upon their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred tax arises.
Tritax Big Box REIT plc Annual Report 2014 63
3. Significant accounting judgements, estimates and assumptions (continued)
Operating lease contracts – the Group as lessor
The Group has acquired investment properties that are subject to commercial property leases with tenants. The Group has
determined, based on an evaluation of the terms and conditions of the arrangements, particularly the duration of the lease
terms and minimum lease payments, that it retains all the significant risks and rewards of ownership of these properties and
so accounts for the leases as operating leases.
Fair valuation of investment property
The fair value of investment property is determined, by independent property valuation experts, to be the estimated amount
for which a property should exchange on the date of the valuation in an arm’s length transaction. Properties have been valued
on an individual basis. The valuation experts use recognised valuation techniques applying the principles of both IAS 40 and
IFRS 13.
The valuations have been prepared in accordance with the Royal Institution of Chartered Surveyors (“RICS”) Valuation –
Professional Standards January 2014 (“the Red Book”). Factors reflected include current market conditions, annual rentals, lease
lengths and location. The significant methods and assumptions used by valuers in estimating the fair value of investment
property are set out in note 15.
Fair valuation of interest rate derivatives
In accordance with IAS 39, the Group values its interest rate derivatives at fair value. The fair values are estimated by the
loan counterparty with revaluation occurring on a quarterly basis. The counter parties will use a number of assumptions
in determining the fair values including estimations over future interest rates and therefore future cash flows. The fair
value represents the net present value of the difference between the cash flows produced by the contracted rate and the
valuation rate.
4. Summary of significant accounting policies
4.1. Basis of consolidation
The consolidated financial statements incorporate the audited financial statements of the Company and its subsidiaries, as at the
Balance Sheet date.
4.2. Subsidiaries
Subsidiaries are those entities controlled by the Company. Control exists where the Company has the power, directly or
indirectly, to direct the financial and operating activities of an entity so as to obtain benefits from its activities.
All intercompany transactions and balances are eliminated on consolidation. The accounting policies of the subsidiaries are
consistent with those adopted by the Group.
4.3. Segmental information
The Directors are of the opinion that the Group is engaged in a single segment business, being the investment in the United
Kingdom in Big Box assets.
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Notes to the Consolidated Accounts
4. Summary of significant accounting policies (continued)
4.4. Investment property and investment property under construction
Investment property comprises completed property that is held to earn rentals or for capital appreciation, or both. Property held
under a lease is classified as investment property when it is held to earn rentals or for capital appreciation or both, rather than for
sale in the ordinary course of business or for use in production or administrative functions.
Investment property is recognised when the risks and rewards of ownership have been transferred and is measured initially at
cost including transaction costs. Transaction costs include transfer taxes, professional fees for legal services and other costs
incurred in order to bring the property to the condition necessary for it to be capable of operating. Subsequent to initial
recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in the
Group Statement of Comprehensive Income in the period in which they arise under IAS 40 Investment Property.
Investment properties under construction are financed by the Group where the Group enters into contracts for the development
of a pre-let property under a funding agreement. All such contracts specify a fixed amount of consideration. The Group does not
expose itself to any speculative development risk as the proposed building is pre-let to a tenant under an agreement for lease
and the Group enters into a fixed price development agreement with the developer. Investment properties under construction
are initially recognised at cost (including any associated costs, which reflects the Group’s investment in the assets. Subsequently,
the assets are remeasured to fair value at each reporting date. The fair value of investment properties under construction is
estimated as the fair value of the completed asset less any costs still payable in order to complete which include an appropriate
developer’s margin.
Additions to properties include costs of a capital nature only. Expenditure is classified as capital when it results in identifiable
future economic benefits, which are expected to accrue to the Group. All other property expenditure is written-off in the Group
Statement of Comprehensive Income as incurred.
Investment properties cease to be recognised when they have been disposed of or withdrawn permanently from use and no
future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying
amount of the asset would result in either gains or losses at the retirement or disposal of investment property. Any gains or
losses are recognised in the Group Statement of Comprehensive Income in the year of retirement or disposal.
4.5. Derivative financial instruments
Derivative financial instruments, comprising interest rate caps for hedging purposes, are initially recognised at cost and are
subsequently measured at fair value being the estimated amount that the Group would receive or pay to terminate the
agreement at the period end date, taking into account current interest rate expectations and the current credit rating of the
Company and its counterparties. The gain or loss at each fair value remeasurement date is recognised in the Group Statement
of Comprehensive Income. Premiums payable under such arrangements are initially capitalised into the Group’s Statement of
Financial Position, subsequently they are remeasured and held at their fair values.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to
measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant
to the fair value measurement as a whole.
Tritax Big Box REIT plc Annual Report 2014 65
4.6. Fair value hierarchy
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is observable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period.
4.7. Trade and other receivables
Trade and other receivables are recognised and carried at the lower of their original invoiced value and recoverable amount.
Where the time value of money is material, receivables are carried at amortised cost. A provision for impairment is made when
there is objective evidence that the Group will not be able to recover balances in full. Balances are written-off when the
probability of recovery is assessed as being remote.
4.8. Forward funded pre-let investments
The Group enters into forward funding agreements for pre-let investments.
4.8.1. Forward funded prepayments
Under the terms of the forward funded pre-payment agreements, the total fixed price construction cost is paid to the developer
and is held in a restricted bank account. As construction costs are incurred, funds are released subject to the authorisation of the
Group’s subsidiary that has contracted the development along with appropriate monitoring surveyor sign off. Accordingly, the
initial amount paid into the restricted bank account is shown as a forward funded prepayment which reduces as construction
costs are incurred and funds are released from the restricted account and capitalised accordingly.
4.8.2. Licence fees receivable
During the period between initial investment in a forward funded agreement and the lease commencement date, the Group
receives licence fee income. This is payable by the developer to the Group throughout this period and typically reflects the
approximate level of rental income that is expected to be payable under the lease, as and when practical completion is reached.
Under IFRS such licence fees are deducted from the cost of the investment and are shown as a receivable. Any economic benefit
of the licence fee is reflected within the Group Statement of Comprehensive Income as a movement in the fair value of
investment property and not within gross rental income.
4.9. Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments
with original maturities of three months or less. Cash also includes amounts held in restricted accounts to cover future rent free
periods, that is not available for every day use.
4.10. Trade payables
Trade payables are initially recognised at their fair value; being at their invoiced value inclusive of any VAT that may be
applicable. Payables are subsequently measured at cost.
4.11. Bank borrowings
All bank borrowings are initially recognised at fair value net of attributable transaction costs. Any attributable transaction costs
relating to the issue of the bank borrowings are amortised through the Group Statement of Comprehensive Income over the life
of the debt instrument on a straight-line basis. After initial recognition, all bank borrowings are measured at amortised cost,
using the effective interest method.
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Notes to the Consolidated Accounts
4. Summary of significant accounting policies (continued)
4.12. Share-based payments
Fees payable to the Manager are partly settled by the reinvestment of 25% of the fee (net of taxes) in Ordinary Shares. The cost is
recognised based on the agreed fee structure contained in the Investment Management Agreement, together with a
corresponding increase in equity. The Investment Management Agreement allows for shares to be acquired from the market
where the trading share price is below Net Asset Value per Share. As a result the Company may be obliged to pay cash to the
Manager rather than issue new Ordinary Shares at each reporting date and a transfer is made from equity to liabilities to reflect
this obligation. Details of the Investment Management Agreement are further set out in the Management Engagement
Committee Report on page 40.
4.13. Dividends payable to Shareholders
Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final
equity dividends are recognised when approved by the Shareholders at an annual general meeting.
4.14. Property income
4.14.1. Rental income
Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease
terms and is included in gross rental income in the Group Statement of Comprehensive Income due to its operating nature,
except for contingent rental income, which is recognised when it arises. Initial direct costs incurred in negotiating and arranging
an operating lease are recognised as an expense over the lease term on the same basis as the lease income.
For leases which contain fixed or minimum uplifts, the rental income arising from such uplifts is recognised on a straight-line
basis over the lease term.
Tenant lease incentives are recognised as a reduction of rental revenue on a straight-line basis over the term of the lease.
The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option
to continue the lease where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise
that option.
Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the Group Statement
of Comprehensive Income when the right to receive them arises.
4.14.2. Service charges, insurances and other expenses recoverable from tenants
Income arising from expenses recharged to tenants is recognised in the period in which the compensation becomes receivable.
Service and insurance charges and other such receipts are included in net rental income gross of the related costs, as the
Directors consider that the Group acts as principal in this respect.
4.15. Finance income
Finance income is recognised as interest accrues on cash balances held by the Group. Interest charged to a tenant on any
overdue rental income is also recognised within finance income.
4.16. Finance costs
Any finance costs that are separately identifiable and directly attributable to the acquisition or construction of an asset that
takes a period of time to complete are capitalised as part of the cost of the asset. All other finance costs are expensed in the
period in which they occur. Finance costs consist of interest and other costs that an entity incurs in connection with bank and
other borrowings.
4.17. Taxation
Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and deferred tax. Current
tax is expected tax payable on any non-REIT taxable income for the period, using tax rates enacted or substantively enacted at
the period end date, and any adjustment to tax payable in respect of previous years.
Tritax Big Box REIT plc Annual Report 2014 67
5. Standards issued but not yet effective
The following are new standards, interpretations and amendments, which are not yet effective and have not been early adopted
in this financial information, that will or may have an effect on the Group’s future financial information:
IFRS 9: Financial Instruments (effective 1 January 2018 subject to EU endorsement);
IFRS 15: Revenue from Contracts with Customers (effective 1 January 2017 subject to EU endorsement).
The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the
Group’s financial statements in the period of initial application, other than on presentation and disclosure.
6. Total property income
Rental income – freehold property
Rental income – long leasehold property
Gross rental income
Property insurance recoverable
Service charges recoverable
Service charge income
Total property income
For the period
1 November 2013
to 31 December
2014
£’000
For the period
1 March 2013
to 31 October
2013
£’000
15,788
2,815
18,603
460
51
511
19,114
–
–
–
–
–
–
–
Included within rental income is £937,000 of accrued contracted rental uplift income. See note 15.
7. Service charge expenses
Property insurance expense
Service charge expense
Total property expenses
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For the period
1 November 2013
to 31 December
2014
£’000
For the period
1 March 2013
to 31 October
2013
£’000
460
51
511
–
–
–
68 Tritax Big Box REIT plc Annual Report 2014
Notes to the Consolidated Accounts
8. Administrative and other expenses
Investment management fees
Directors’ remuneration (note 9)
Auditor’s fees
• Fees payable for the audit of the Company’s annual accounts
• Fees payable for the audit of the Company’s interim accounts
• Fees payable for the audit of the Company’s initial accounts
• Fees payable for the audit of the Company’s subsidiaries
• Fees payable for taxation services
Total Auditor’s fee
Corporate administration fees
Regulatory fees
Legal and professional fees
Marketing and promotional fees
Other administrative costs
For the period
1 November 2013
to 31 December
2014
£’000
For the period
1 March 2013
to 31 October
2013
£’000
2,330
154
44
14
9
27
60
154
254
25
488
95
103
3,603
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The Auditor has also received £100,000 in respect of providing reporting accountant services in connection with the initial listing
of the Company and a further £115,000 in relation to the July 2014 offering. A total £81,000 in respect of advisory services
provided in connection with the acquisition of Group assets. The fees relating to the listing of the Company have been treated
share issue expenses and offset against share premium. The fees in relation to the acquisition of assets have been capitalised in
to the cost of the respective assets.
9. Directors’ remuneration
Directors’ fees
Employer’s National Insurance
For the period
1 November 2013
to 31 December
2014
£’000
For the period
1 March 2013
to 31 October
2013
£’000
141
13
154
–
–
–
A summary of the Directors’ emoluments, including the disclosures required by the Companies Act 2006, is set out in the Directors’
Remuneration Report on pages 49 to 50. As Chairman of the Company’s Manager, Mark Shaw is not entitled to receive a fee.
10. Finance income
Interest received on bank deposits
For the period
1 November 2013
to 31 December
2014
£’000
For the period
1 March 2013
to 31 October
2013
£’000
205
205
–
–
Tritax Big Box REIT plc Annual Report 2014 69
11. Finance expense
Interest payable on bank borrowings
Amortisation of loan arrangement fees
12. Taxation
a) Tax charge in the Group Statement of Comprehensive Income
UK corporation tax
For the period
1 November 2013
to 31 December
2014
£’000
For the period
1 March 2013
to 31 October
2013
£’000
2,142
310
2,452
–
–
–
For the period
1 November 2013
to 31 December
2014
£’000
For the period
1 March 2013
to 31 October
2013
£’000
–
–
A reduction in the UK corporation tax rate from 23% to 21% was effective from 1 April 2014. In addition, the Government
announced its intention to further reduce the UK corporation tax rates from 21% to 20% from 1 April 2015. Accordingly, these
rates have been applied in the measurement of the Group's tax liability at 31 December 2014.
b) Factors affecting the tax credit for the year
The tax assessed for the year is lower than the standard rate of corporation tax in the UK. The differences are explained below:
Profit on ordinary activities before taxation
Theoretical tax at UK corporation tax rate of 21.71% (31 October 2013: 23.0%)
REIT exempt income
Non-taxable items
Transfer pricing adjustment
Residual losses
Current tax credit
For the period
1 November 2013
to 31 December
2014
£’000
For the period
1 March 2013
to 31 October
2013
£’000
41,844
9,084
(2,672)
(6,406)
144
(150)
–
–
–
–
–
–
–
–
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Notes to the Consolidated Accounts
13. Earnings per share
Earnings per share (EPS) amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the
Company by the weighted average number of Ordinary Shares in issue during the period. As there are no dilutive instruments
outstanding, basic and diluted earnings per share are identical.
The calculation of basic and diluted earnings per share is based on the following:
For the period 1 November 2013 to 31 December 2014
Basic and diluted earnings per share
Adjustments to remove:
Net profit
attributable to
Ordinary
Shareholders
£’000
Weighted
average number
of Ordinary Shares1
Number
41,844
277,169,193
Earnings
per share
Pence
15.10p
Changes in fair value of investment properties (note 15)
Changes in fair value of interest rate derivatives (note 21)
(31,668)
2,577
EPRA basic and diluted earnings per share
12,753
277,169,193
4.60p
For the period 1 March 2013 to 31 October 2013
Basic and diluted earnings per share
EPRA2 basic and diluted earnings per share
–
–
50,000
50,000
–
–
1 Based on the weighted average number of Ordinary Shares in issue from the date of IPO to 31 December 2014.
2 European Public Real Estate Association.
14. Dividends paid
First interim dividend in respect of period ended
31 December 2014 at 1.85 pence per Ordinary Share (219,980,000 shares eligible)
Second interim dividend in respect of period ended
31 December 2014 at 1.50 pence per Ordinary Share (365,733,316 shares eligible)
Total dividends
Total dividends per share
For the period
1 November 2013
to 31 December
2014
£’000
For the period
1 March 2013
to 31 October
2013
£’000
4,070
5,486
9,556
3.35p
–
–
–
–
On 8 July 2014, the Company announced the declaration of a first interim dividend in respect of the period from admission of
the share capital of the Company to trading on the Specialist Fund Market on 9 December 2013 to 30 June 2014 of 1.85 pence
per Ordinary Share, which was payable on 8 August 2014 to Ordinary Shareholders on the register on 18 July 2014.
On 20 November 2014, the Company announced the declaration of a second interim dividend in respect of the period from
1 July 2014 to 31 October 2014 of 1.50 pence per Ordinary Share which was payable on 17 December 2014 to Shareholders on
the register on 28 November 2014.
On 23 February 2015, the Company announced the declaration of a third interim dividend in respect of the period 1 November
2014 to 31 December 2014 of 0.80 pence per Ordinary Share. The third interim dividend will be paid on 18 March 2015 to
Shareholders on the register at 6 March 2015.
It is not proposed to pay a final dividend in respect of the period.
Tritax Big Box REIT plc Annual Report 2014 71
15. Investment property
In accordance with IAS 40: Investment Property, the investment property has been independently valued at fair value by
CBRE Limited (“CBRE”), an accredited independent valuer with a recognised and relevant professional qualification and with
recent experience in the locations and categories of the investment properties being valued. The valuations have been
prepared in accordance with the RICS Valuation – Professional Standards January 2014 (“the Red Book”) and incorporate the
recommendations of the International Valuation Standards Committee which are consistent with the principles set out in
IFRS 13.
The Valuer in forming its opinion make a series of assumptions, which are typically market related such as net initial yields
and expected rental values and are based on the Valuers’ professional judgement. The Valuer has sufficient current local and
national knowledge of the particular property markets involved and have the skills and understanding to undertake the
valuations competently.
The valuations are the ultimate responsibility of the Directors. Accordingly, the critical assumptions used in establishing the
independent valuation are reviewed by the Board.
All corporate acquisitions during the year have been treated as asset purchases rather than business combinations because they
are considered to be acquisitions of properties rather than businesses.
As at 1 November 2013
Property additions
Fixed rental uplift1
Change in fair value during the period
As at 31 December 2014
As at March 2013 and 31October 2013
Investment
property long
leasehold
£'000
Investment
property
under construction
£'000
Investment
property
freehold
£'000
–
442,698
937
23,685
–
103,375
–
6,775
467,320
110,150
–
–
Total
£'000
–
553,574
937
31,668
586,179
–
–
7,501
–
1,208
8,709
–
1
Included within the carrying value of investment property is £937,000 in respect of accrued contracted rental uplift income. This balance arises as a result of the
IFRS treatment of leases with fixed rental uplifts and rent free periods, which requires the recognition of rental income on a straight-line basis over the lease term,
with the difference between this and cash receipts changing the carrying value of the property against which revaluations are measured. Also see note 6.
Investment property at fair value
Forward funding prepayments (note 17)
Licence fee receivable
Restricted cash (note 18)
Total portfolio valuation*
*
Including costs to complete on forward funded assets.
The valuation summary is set out on page 18 of the Strategic Report.
For the period
31 December
2014
£'000
586,179
27,204
1,587
4,310
619,280
31 October
2013
£'000
–
–
–
–
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72 Tritax Big Box REIT plc Annual Report 2014
Notes to the Consolidated Accounts
15. Investment property (continued)
Fair value hierarchy
The following table provides the fair value measurement hierarchy for investment property:
Date of
valuation
£’000
Total
£’000
Quoted prices
in active
markets
(Level 1)
£’000
Significant
observable
inputs
(Level 2)
£’000
Significant
unobservable
inputs
(Level 3)
£’000
Assets measured at fair value:
Investment properties
Investment properties
31 December 14
586,179
31 October 13
–
–
–
–
–
586,179
–
There have been no transfers between Level 1 and Level 2 during any of the periods, nor have there been any transfers between
Level 2 and Level 3 during any of the periods.
The valuations have been prepared on the basis of Market Value (MV), which is defined in the RICS Valuation Standards, as:
“The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing
seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and
without compulsion.”
Market Value as defined in the RICS Valuation Standards is the equivalent of fair value under IFRS.
The following descriptions and definitions relating to valuation techniques and key unobservable inputs made in determining
fair values are as follows:
Valuation techniques: market comparable method
Under the market comparable method (or market comparable approach), a property’s fair value is estimated based on
comparable transactions in the market.
Unobservable input: passing rent
The rent at which space could be let in the market conditions prevailing at the date of valuation (range: £838,500 – £5,419,974
per annum).
Unobservable input: rental growth
The estimated average increase in rent based on both market estimations and contractual arrangements.
Unobservable input: net initial yield
The net initial yield is defined as the initial gross income as a percentage of the market value (or purchase price as appropriate)
plus standard costs of purchase (range: 4.54% – 7.50%).
Sensitivities of measurement of significant unobservable inputs
As set out within significant accounting estimates and judgements above, the Group’s property portfolio valuation is open to
judgements and is inherently subjective by nature.
As a result the following sensitivity analysis has been prepared:
Increase/(decrease) in the fair value of investment properties
-5% in
passing rent
£’000
(30,964)
+5% in
passing rent
£’000
30,964
+0.25% in
net initial yield
£’000
-0.25% in
net initial yield
£’000
(26,835)
29,381
Tritax Big Box REIT plc Annual Report 2014 73
16. Investments
The Group comprises a number of companies so has taken advantage of the exemption under Section 410(2) of the Companies
Act 2006 in disclosing the names of only those subsidiary entities whose results are deemed by Directors to principally affect the
financial statements:
Baljean Properties Limited
The Sherburn RDC Unit Trust
Tritax REIT Acquisition 3 Limited
Tritax Acquisition 4 Limited
Tritax Acquisition 5 Limited
Sonoma Ventures Limited
Tritax Ripon Limited
Tritax Acquisition 8 Limited
Tritax Acquisition 9 Limited
Tritax Acquisition 10 Limited
Tritax Acquisition 11 Limited
Tritax Acquisition 12 Limited
Tritax Acquisition 13 Limited
Tritax Acquisition 14 Limited
The principal activity of all of the above companies is property investment.
17. Trade and other receivables
Forward funded prepayment
Trade receivables
Licence fee receivable
Prepayments and other receivables
Country of incorporation
Ownership %
Isle of Man
Jersey
UK
Jersey
Jersey
BVI
Guernsey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
31 December
2014
£’000
31 October
2013
£’000
i
F
n
a
n
c
a
i
27,204
1,718
1,587
159
30,668
l
S
t
a
t
e
m
e
n
t
s
–
–
–
–
–
All trade receivables relate to amounts that are less than 30 days overdue as at the period end date.
74 Tritax Big Box REIT plc Annual Report 2014
Notes to the Consolidated Accounts
18. Cash and cash equivalents
Cash held at bank
Restricted cash
31 December
2014
£’000
94,306
4,310
98,616
31 October
2013
£’000
–
–
–
Restricted cash as at 31 December 2014 represents amounts relating to future rent-free periods on asset purchases during the
period, where a cash deduction against the net purchase price was agreed with the vendor. Currently the cash is held in an
account at the bank that has debt security over the asset to cover the periods of cash shortfall as set out in the lease.
The restricted cash is not readily convertible to cash available on demand.
Cash and cash equivalents reported in the Consolidated Statement of Cash Flows totalled £94.31 million as at the period end,
which excludes long-term restricted cash deposits totalling £4.31 million. Total cash and cash equivalents as reported in the
Group Statement of Financial Position equals £98.62 million.
19. Trade and other payables
Trade and other payables
Accruals
VAT
Tax liability
31 December
2014
£’000
31 October
2013
£’000
2,720
1,763
1,490
75
6,048
–
–
–
–
–
The tax liability arises from the acquisition of Sonoma Ventures Limited and relates to the period prior to acquisition.
20. Bank borrowings
A summary of the drawn and undrawn bank borrowings in the period is shown below:
As at 1 November 2013
Bank borrowings drawn in the period
Bank borrowings available but undrawn in the period
As at 31 December 2014
As at 1 March 2013 and 31 October 2013
Bank borrowings
drawn
£’000
Bank borrowings
undrawn
£’000
–
203,644
–
203,644
–
–
–
13,172
13,172
–
Total
£’000
–
203,644
13,172
216,816
–
Tritax Big Box REIT plc Annual Report 2014 75
20. Bank borrowings (continued)
The Group has entered into ten separate banking facilities during the period, drawing on £203.6 million of debt while having an
undrawn debt facility available of £13.2 million at the period end. The weighted average term to maturity of the Group’s debt as
at the period end is 4.31 years.
Bank borrowings are secured by charges over individual investment properties held by certain asset-holding subsidiaries.
The banks also hold charges over the shares of the subsidiaries and any intermediary holding companies of those subsidiaries.
The Group does not provide any cross-Group guarantees nor does the Company act as a guarantor to the banks.
Any associated fees in arranging the bank borrowings unamortised as at the period end are offset against amounts drawn on
the facilities as shown in the table below:
Bank borrowings drawn: due in more than one year
Less: Unamortised costs
Non-current liabilities: Bank borrowings
Maturity of bank borrowings
Repayable between 1 and 2 years
Repayable between 2 and 5 years
Repayable in over 5 years
31 December
2014
£’000
203,644
(2,711)
200,933
31 December
2014
Drawn
£’000
–
203,644
–
203,644
31 October
2013
£’000
–
–
–
31 October
2013
Drawn
£’000
–
–
–
–
Of the Group’s ten banking facilities, seven of these facilities contained options for extension. There were four facilities with an
extension option of one year and a further three facilities with an extension option of two years (split into two, one year
extensions). The extension options require the agreement of both the Group and counterparty bank in order to exercise. Details
of the individual facilities can be found in the Manager’s Report on page 29.
Each of the Group’s facilities has an interest charge which is payable quarterly based on a margin above 3 month Libor. The
weighted average margin payable by the Group on its debt portfolio as at the period end was 1.76% above 3 month Libor.
The Group has been in compliance with all of the financial covenants of the above facilities as applicable throughout the period
covered by these financial statements.
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n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
76 Tritax Big Box REIT plc Annual Report 2014
Notes to the Consolidated Accounts
21. Interest rate derivatives
To mitigate the interest rate risk that arises as a result of entering into variable rate linked loans, the Group entered into
a number of interest rate caps during the period. An interest rate cap has been taken out in respect of each loan drawn to cap
the rate to which 3-month Libor can rise and are coterminous with the initial term of the loan. The weighted average cap rate
for the Group as at the period end was 2.09%, which effectively caps the Group’s drawn borrowing facilities at an all-inclusive
interest rate payable of 3.85%. The total premium payable in the period towards securing the interest rate caps was
£4.96 million.
Non-current assets: Interest rate derivatives
31 December
2014
Drawn
£’000
2,379
31 October
2013
Drawn
£’000
–
The interest rate derivatives are marked to market by the relevant counterparty banks on a quarterly basis in accordance with
IAS 39. Any movement in the mark to market values of the derivatives are taken to the Group Statement of Comprehensive
Income.
Interest rate cap premium
Changes in fair value of interest rate derivatives
31 December
2014
Drawn
£’000
4,956
(2,577)
2,379
31 October
2013
Drawn
£’000
–
–
It is the Group’s target to hedge at least 90% of the total debt portfolio using interest rate derivatives. As at the period end date
the total proportion of hedged debt equated to 97.7%, as shown below.
Total bank borrowings (note 20)
Notional value of interest rate derivatives
Proportion of hedged debt
31 December
2014
Drawn
£’000
203,644
198,918
97.7%
31 October
2013
Drawn
£’000
–
–
–
Tritax Big Box REIT plc Annual Report 2014 77
21. Interest rate derivatives (continued)
Fair value hierarchy
The following table provides the fair value measurement hierarchy for interest rate derivatives:
Asset measured at fair value:
Interest rate derivatives
Interest rate derivatives
Date of
valuation
£’000
31 December 2014
31 October 2013
Quoted prices in
active markets
(Level 1)
£’000
–
–
Total
£’000
2,379
–
Significant
observable
inputs
(Level 2)
£’000
2,379
–
Significant
unobservable
inputs
(Level 3)
£’000
–
–
The fair value of these contracts are recorded in the Group Statement of Financial Position and is determined by forming an
expectation that interest rates will exceed strike rates and discounting these future cash flows at the prevailing market rates as at
the period end.
There have been no transfers between Level 1 and Level 2 during any of the periods, nor have there been any transfers between
Level 2 and Level 3 during any of the periods.
22. Financial risk management
Financial instruments
The Group’s principal financial assets and liabilities are those that arise directly from its operations: trade and other receivables,
trade and other payables and cash and cash equivalents. The Group’s other principal financial liabilities are bank borrowings,
the main purpose of which is to finance the acquisition and development of the Group’s investment property portfolio.
Set out below is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments that are carried
in the financial information:
i
F
n
a
n
c
a
i
Financial assets
Interest rate derivatives
Trade and other receivables
Cash and short-term deposits
Financial liabilities
Trade and other payables
Book value
31 December
2014
£’000
Fair value
31 December
2014
£’000
Book value
31 October
2013
£’000
Fair value
31 October
2013
£’000
l
S
t
a
t
e
m
e
n
t
s
2,379
30,668
98,616
2,379
30,668
98,616
(4,285)
(4,285)
–
–
–
–
–
–
–
–
Risk management
The Group is exposed to market risk (including interest rate risk), credit risk and liquidity risk. The Board of Directors oversees the
management of these risks. The Board of Directors reviews and agrees policies for managing each of these risks that are
summarised below.
78 Tritax Big Box REIT plc Annual Report 2014
Notes to the Consolidated Accounts
22. Financial risk management (continued)
Market risk
Market risk is the risk that the fair values of financial instruments will fluctuate because of changes in market prices. The financial
instruments held by the Group that are affected by market risk are principally the Group’s bank balances along with a number of
interest rate caps entered into to mitigate interest rate risk.
Credit risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to
a financial loss. The Group is exposed to credit risks from both its leasing activities and financing activities, including deposits
with banks and financial institutions. Credit risk is assisted by tenants being required to pay rentals in advance under their lease
obligations. The credit quality of the tenant is assessed based on an extensive credit rating scorecard at the time of entering into
a lease agreement.
Outstanding trade receivables are regularly monitored. The maximum exposure to credit risk at the reporting date is the carrying
value of each class of financial asset.
Trade receivables
Trade receivables, primarily tenant rentals, are presented in the balance sheet net of allowances for doubtful receivables and are
monitored on a case by case basis. Credit risk is primarily managed by requiring tenants to pay rentals in advance and
performing tests around strength of covenant prior to acquisition. Any trade receivables past due as at the period end were
received shortly after the period end.
Credit risk related to financial instruments and cash deposits
One of the principal credit risks of the Group arises with the banks and financial institutions. The Board of Directors believes that
the credit risk on short-term deposits and current account cash balances are limited because the counterparties are banks, who
are committed lenders to the Group, with high credit ratings assigned by international credit-rating agencies.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital and, going forward, the finance charges and principal
repayments on its borrowings. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall
due, as the majority of the Group’s assets are property investments and are therefore not readily realisable. The Group’s objective
is to ensure it has sufficient available funds for its operations and to fund its capital expenditure. This is achieved by continuous
monitoring of forecast and actual cash flows by management.
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments:
On demand
£’000
Less than 3 months
£’000
3 to 12 months
£’000
1 to 5 years
£’000
> 5 years
£’000
Total
£’000
31 December 2014
Bank borrowings
Trade and other payables
31 October 2013
Bank borrowings
Trade and other payables
–
–
–
–
–
–
1,180
6,048
7,228
–
–
–
3,539
–
3,539
–
–
–
219,243
–
219,243
–
–
–
–
–
–
–
–
–
223,962
6,048
230,010
–
–
–
Included within the contracted payments is £30.32 million of bank interest payable up to the point of maturity across
the facilities.
Tritax Big Box REIT plc Annual Report 2014 79
23. Capital management
The primary objective of the Group’s capital management is to ensure that it remains a going concern and continues to qualify
for UK REIT status.
The Board, with the assistance of the Investment Manager, monitors and reviews the Group’s capital so as to promote the
long-term success of the business, facilitate expansion and to maintain sustainable returns for Shareholders.
The Group’s policy on borrowings is as follows:
The level of borrowing will be on a prudent basis for the asset class, and will seek to achieve a low cost of funds, while
maintaining flexibility in the underlying security requirements, and the structure of both the portfolio and the REIT Group.
The Directors intend that the Group will maintain a conservative level of aggregate borrowings with a medium-term target
of 40% of the Group’s gross assets. However, during the investment phase post admission, the Group’s target level of aggregate
borrowings will be 45% of the Group’s gross assets, with flexibility to increase to a maximum level of 50% of the Group’s gross
assets on a temporary basis during this phase.
Debt will be secured at the asset level subject to the assessment of the optimal financing structure for the Group and having
consideration to key metrics including lender diversity, debt type and maturity profiles.
24. Share capital
Issued and fully paid at 1p each
(formerly £1.00 each)
At beginning of period – £1.00 Ordinary
Shares
Conversion to £0.01 Ordinary Shares
31 December
2014
Number
31 December
2014
£’000
31 October
2013
Number
31 October
2013
£’000
470,495,220
4,705
50,000
50,000
4,950,000
50
–
Shares issued in relation to IPO
December 2013
195,000,000
1,950
Shares issued in relation to
Tap issue
Shares issued in relation to
further Equity issue
Shares issued in relation to
management contract
Shares issued in relation to
further Equity
At end of period
June 2014
19,980,000
200
July 2014
145,631,068
1,456
122,248
1
December 2014
104,761,904
470,495,220
1,048
4,705
50,000
–
–
–
–
–
–
50,000
50
On 9 December 2013, Tritax Big Box REIT plc announced that it had raised £200 million through its IPO and the Ordinary
Shares issued had been admitted to trading on the SFM and the Official List of the CISX. The Company’s ticker symbol is BBOX.
The initial raising by the Company involved the issue of Ordinary Shares to the relevant subscriber at a price of 100 pence per
Ordinary Share.
On 4 June 2014, the Company issued a further 19,980,000 Ordinary Shares (the “Tap issue”), at a price of 104 pence per share.
Net cash proceeds from the Tap issue amounted to £20.4 million.
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
50
50
–
–
–
–
–
–
80 Tritax Big Box REIT plc Annual Report 2014
Notes to the Consolidated Accounts
24. Share capital (continued)
On 8 July 2014, the Company announced that it had published a prospectus in relation to the issue of 145,631,068 new
Ordinary Shares through a Placing, Open Offer and Offer for subscription at a price of 103 pence per Ordinary Share to raise
up to £150 million, plus the proposed future issue of up to 350 million new Ordinary Share through the Share Issuance
Programme; and the proposed admission of the Company’s issued and to be issued Ordinary Shares to the premium listing
segment of the Official List of the Financial Conduct Authority and to trading on the main market for listed securities of
the London Stock Exchange.
On 7 October 2014, the Company announced that in accordance with the terms of the management fee arrangements with the
Manager, pursuant to 25% of the management fee being payable in new Ordinary Shares of £0.01, it issued a further 122,248
shares in relation to the period from IPO to 30 June 2014. The issue price per Ordinary Share was 100 pence per share (based on
the most recently published net asset value of 101.85p per Ordinary Share as at 30 June 2014, less the first interim dividend
declared of 1.85p per share.
On 28 November 2014, the Company announced a total of 104,761,904 new Ordinary Shares of £0.01 to be issued at price of
105 pence per share in the form of a Placing as part of the Company’s Share Issuance Programme.
25. Share premium
The share premium relates to amounts subscribed for share capital in excess of nominal value:
Balance at beginning of period
31 December
2014
£’000
–
Share premium on Ordinary Shares issued in relation to IPO
December 2013
198,000
Share issue expenses in relation to IPO
Share premium on Ordinary Shares issued in relation to Tap
Share issue expenses in relation to Tap
Transfer to capital reduction reserve (see note 26)
Share premium on Ordinary Shares issued in relation to further Equity issue
Share issue expenses in relation to further Equity issue
Share premium on Ordinary Shares issued in to management
December 2013
June 2014
June 2014
July 2014
July 2014
(4,000)
20,579
(402)
(194,000)
148,544
(3,042)
121
Share premium on Ordinary Shares issued in relation to further Equity issue
December 2014
108,952
Share issue expenses in relation to further Equity issue (December 2014)
December 2014
Balance at end of period
(2,216)
272,536
31 October
2013
£’000
–
–
–
–
–
–
–
–
–
–
–
–
Tritax Big Box REIT plc Annual Report 2014 81
26. Capital reduction reserve
Balance at beginning of period
Transfer from share premium
First interim dividend for the period ended 31 December 2014
Second interim dividend for the period ended 31 December 2014
Balance at end of period
31 December
2014
£’000
–
194,000
(4,070)
(5,486)
184,444
31 October
2013
£’000
–
–
–
–
–
On 4 July 2014, the Company by way of Special Resolution, cancelled the then value of its share premium account, by an Order
of the High Court of Justice, Chancery Division. As a result of this cancellation, £194.0 million has been transferred from the share
premium account, into the capital reduction reserve account. The capital reduction reserve account is classed as a distributable
reserve.
Please refer to note 14 for details of the declaration of dividends to Shareholders.
27. Retained earnings
Balance at beginning of period
Retained profit for the period
Balance at end of period
31 December
2014
£’000
–
41,844
41,844
31 October
2013
£’000
–
–
–
28. Net asset value per share (NAV)
Basic NAV per share is calculated by dividing net assets in the Group Statement of Financial Position attributable to ordinary
equity holders of the parent by the number of Ordinary Shares outstanding at the end of the period. As there are no dilutive
instruments outstanding, basic and diluted NAV per share are identical.
Net asset values have been calculated as follows:
Net assets per Group Statement of Financial Position
EPRA NAV
Ordinary Shares:
Issued share capital
Basic and diluted net asset value per share
Basic and diluted EPRA NAV per share
31 December
2014
£’000
503,529
506,106
31 October
2013
£’000
50
50
470,495
107.02p
107.57p
50
100p
100p
EPRA NAV is calculated as net assets per the Consolidated Statement of Financial Position excluding fair value adjustments for
debt-related derivatives.
i
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a
i
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t
a
t
e
m
e
n
t
s
82 Tritax Big Box REIT plc Annual Report 2014
Notes to the Consolidated Accounts
29. Operating leases
The future minimum lease payments under non-cancellable operating leases receivable by the Group are as follows:
31 December 2014
31 October 2013
Less than one year
£’000
2-5 years
£’000
More than 5 years
£’000
Total
£’000
32,787
130,579
294,312
457,678
–
–
–
–
30. Transactions with related parties
For the period ended 31 December 2014 all Directors plus the Partners of the Manager are considered key management
personnel. The terms and conditions of the Investment Management Agreement are described in the Directors’ Report on
page 40. Details of all amounts paid for services provided by Tritax Management LLP (“the Manager”) are provided in note 8.
Details of amounts paid to Directors for their services can be found within the Directors’ Remuneration Report on page 50.
On 13 November 2014, the Board announced that it had exchanged contracts on The Range UK National Distribution Centre
("NDC") at Nimbus Park, Thorne, Doncaster for a purchase price of £48.5 million (net of acquisition costs). The vendor of the
property was Tritax Prime Distribution Income Fund, a limited partnership vehicle managed by the Manager. The four controlling
Partners of the Manager (or their beneficiaries), namely Mark Shaw, Colin Godfrey, James Dunlop and Henry Franklin had total
aggregated equity interests in the limited partnership of 2.14%.
Throughout the period SG Commercial LLP (“SG Commercial”) has provided general property agency services to the Group.
SG Commercial has been paid fees totalling £1.71 million in respect of agency services for the period; this represents a total of 40%
of agency fees paid by the Group. No fees remain outstanding as at the period end. Of the four controlling Members of the Manager,
namely Mark Shaw, Colin Godfrey, James Dunlop and Henry Franklin, all except Henry Franklin are also the controlling Members of
SG Commercial. While there are currently no existing contractual arrangements between the Company and SG Commercial, the
Company may choose to appoint SG Commercial in the future from time to time on either a sole or joint agency basis. Any such
appointments have been and will continue to be made on normal market-based contractual terms. In the event that any such
appointment is proposed by the Manager, the Board has and shall continue to be consulted and asked for its approval.
Mark Shaw does not vote at any meeting of the Board relating to contractual terms to be agreed between the Company, the Manager
and SG Commercial, nor with respect to any investment decision where SG Commercial is acting as agent in any capacity.
31. Capital commitments
The Group had no capital commitments outstanding as at 31 December 2014.
32. Subsequent events
On 29 January 2015, the Company announced that it has exchanged contracts (subject to detailed planning consent) to provide
forward funding for a new distribution warehouse facility located inside the M25 at Crossdox, Bronze Age Way, Erith, pre-let in
its entirety to Ocado Holdings Ltd, guaranteed by Ocado Group Plc (“Ocado”). The investment price is £98.8 million, reflecting a
yield of 5.25% (net of standard acquisition costs).
Ocado has an option to introduce a third part joint guarantor to the lease on the later of 30 April 2014 and the date of grant of
detailed planning consent which, if exercised, would result in an increase in the investment price to £99.9 million and a reduced
yield of 4.9% (net of standard acquisition costs).
On 2 February 2015 and further to the acquisition of the distribution centre in Dove Valley Park, Derby announced on
8 December 2014, the Board announced that the Company has drawn on senior debt financing secured on the asset. This
facility had previously been agreed with Barclays Bank PLC to the value of £13.2 million, reflecting a loan to value ratio of
approximately 43.2%.
Company Balance Sheet
Tritax Big Box REIT plc Annual Report 2014 83
Non-current assets
Investment in subsidiaries
Total non-current assets
Current assets
Trade and other receivables
Called up share capital not paid
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Loans from Group companies
Total current liabilities
Non-current liabilities
Loans from Group companies
Total non-current liabilities
Total liabilities
Total net assets
Equity
Share capital
Share premium reserve
Capital reduction reserve
Retained earnings
Total equity
Net asset value per share – basic and diluted
EPRA net asset value per share – basic and diluted
At
31 December
2014
£’000
At
31 October
2013
£’000
Note
5
6
7
8
9
10
11
12
12
284,694
284,694
135,190
–
71,121
206,311
491,005
(2,213)
(18,203)
(20,416)
(619)
(619)
(21,035)
469,970
4,705
272,536
184,444
8,285
469,970
99.89p
99.89p
–
–
–
50
–
50
50
–
–
–
–
50
50
–
–
–
50
100.00p
100.00p
These financial statements were approved by the Board of Directors on 23 February 2015 and signed on its behalf by:
Richard Jewson
Chairman
84 Tritax Big Box REIT plc Annual Report 2014
Company Reconciliation of Movement in Shareholders’ Funds
Undistributable reserves
Distributable reserves
Share capital
£’000
Share premium
£’000
Capital reduction
reserve
Retained earnings
£’000
1 November 2013
Total comprehensive income
50
–
–
–
Issue of Ordinary Shares
Shares issued in relation to IPO
1,950
198,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
200
–
(4,000)
20,579
(402)
1,456
148,544
–
1
(3,042)
121
1,048
108,952
–
–
–
–
–
–
(2,216)
–
–
(194,000)
194,000
–
–
(4,070)
(5,486)
Total
£’000
50
8,285
199,950
(4,000)
20,779
(402)
150,000
(3,042)
122
110,000
(2,216)
320
(320)
–
(4,070)
(5,486)
–
8,285
–
–
–
–
–
–
–
–
–
320
(320)
–
–
–
Share issue expenses in relation to IPO
Shares issued in relation to Tap
Share issue expenses in relation to Tap
Shares issued in relation to further
Equity issue (July 2014)
Share issue expenses in relation to further
Equity issue (July 2014)
Shares issued in relation to management
contract
Shares issued in relation to further Equity
issue (December 2014)
Share issue expenses in relation to further
Equity issue (December 2014)
Share based payments
Transfer of share based payments to
liabilities to reflect settlement
Cancellation of share premium account
Dividends paid:
First interim dividend for the year period
31 December 2014 (1.85p)
Second interim dividend for the year period
31 December 2014 (1.50p)
31 December 2014
4,705
272,536
184,444
8,285
469,970
1 March 2013
Profit for the year
Total comprehensive income
31 October 2013
50
–
–
50
–
–
–
–
–
–
–
–
–
–
–
–
50
–
–
50
Notes to the Company Accounts
Tritax Big Box REIT plc Annual Report 2014 85
1. Accounting policies
Basis of preparation
These financial statements have been presented as required by the Companies Act 2006 and have been prepared under
the historical cost convention and in accordance with applicable Accounting Standards and policies in the United Kingdom
(“UK GAAP”).
The Company has taken advantage of the Companies Act 2006 exemption from presenting a Company Profit and Loss Account
together with related profit and loss notes. The Company has also taken advantage of the exemption from preparing a Cash
Flow Statement, under the terms of FRS 1 (Revised 1996) “Cash Flow Statements”.
During the period the Company has adopted FRS 26 ‘Financial Instruments: Recognition and Measurement’. The impact on the
financial statements has only been in relation to presentation and disclosure.
The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not
presented its own profit and loss account in these financial statements. The profit attributable to the Parent Company
for the period from 1 November 2013 to 31 December 2014 amounted to £8.28 million (period from 1 March 2013 to
31 October 2013: £nil).
Currency
The Company financial information is presented in Sterling, which is also the Company’s functional currency and all values are
rounded to the nearest thousand (£’000), except where otherwise indicated.
Dividends
Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final
equity dividends are recognised when approved by the Shareholders at an Annual General Meeting.
Financial instruments
Financial assets and financial liabilities are recognised in the Balance Sheet when the Company becomes a party to the
contractual provisions of the instrument.
Trade and other receivables
Trade and other receivables are initially recognised and carried at the lower of their original invoiced value and recoverable
amount. A provision for impairment is made when there is objective evidence that the Company will not be able to recover
balances in full. Balances are written off when the probability of recovery is assessed as being remote.
Investments in subsidiaries
The investments in subsidiary companies are included in the Company’s Balance Sheet at cost less provision for impairment.
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Notes to the Company Accounts
2. Segmental information
The Directors are of the opinion that the Group is engaged in a single segment business, being the investment in the United
Kingdom in Big Box assets.
3. Taxation
UK corporation tax
4. Dividends paid
First interim dividend in respect of period ended
31 December 2014 at 1.85 pence per Ordinary Share (219,980,000 shares eligible)
Second interim dividend in respect of period ended
31 December 2014 at 1.50 pence per Ordinary Share (365,733,316 shares eligible)
Total dividends
Total dividends per share
For the period
1 November 2013
to 31 December
2014
£’000
For the period
1 March 2013
to 31 October
2013
£’000
–
–
For the period
1 November 2013
to 31 December
2014
£’000
For the period
1 March 2013
to 31 October
2013
£’000
4,070
5,486
9,556
3.35p
–
–
–
–
Tritax Big Box REIT plc Annual Report 2014 87
5. Investments
As at 1 November 2013
Increase in investments via share purchase
Increase in investments via loan
As at 31 December 2014
Shares
£'000
Loan
£'000
Total
£'000
254,424
–
254,424
–
30,270
30,270
254,424
30,270
284,694
As at 31 March 2013 and 31 October 2013
–
–
–
As at 31 December 2014, the principal subsidiaries, held directly or indirectly by the Company, were as follows:
Baljean Properties Limited
The Sherburn RDC Unit Trust
Tritax REIT Acquisition 3 Limited
Tritax Acquisition 4 Limited
Tritax Acquisition 5 Limited
Sonoma Ventures Limited
Tritax Ripon Limited
Tritax Acquisition 8 Limited
Tritax Acquisition 9 Limited
Tritax Acquisition 10 Limited
Tritax Acquisition 11 Limited
Tritax Acquisition 12 Limited
Tritax Acquisition 13 Limited
Tritax Acquisition 14 Limited
The principal activity of all of the above companies is property investment.
6. Trade and other receivables
Loans to Group companies due within one year
Prepayments
Other receivables
7. Cash and cash equivalents
Cash held at bank
Country of incorporation
Ownership %
Isle of Man
Jersey
UK
Jersey
Jersey
BVI
Guernsey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
31 December
2014
£’000
135,035
16
139
135,190
31 October
2013
£’000
–
–
–
–
31 December
2014
£’000
71,121
31 October
2013
£’000
–
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Notes to the Company Accounts
8. Trade and other payables
Trade and other payables
Accruals
9. Share capital
Issued and fully paid at 1p each
(formerly £1.00 each)
At beginning of period – £1.00 Ordinary
Shares
Conversion to £0.01 Ordinary Shares
31 December
2014
£’000
31 October
2013
£’000
823
1,390
2,213
–
–
–
31 December
2014
Number
31 December
2014
£’000
31 October
2013
Number
31 October
2013
£’000
470,495,220
4,705
50,000
50
50
–
–
–
–
–
–
50,000
4,950,000
50
–
Shares issued in relation to IPO
December 2013
195,000,000
1,950
Shares issued in relation to
Tap issue
Shares issued in relation to
further Equity issue
Shares issued in relation to
management contract
Shares issued in relation to
further Equity
At end of period
June 2014
19,980,000
200
July 2014
145,631,068
1,456
122,248
1
December 2014
104,761,904
470,495,220
1,048
4,705
50,000
–
–
–
–
–
–
50,000
50
On 9 December 2013, Tritax Big Box REIT plc announced that it had raised £200 million through its IPO and the Ordinary Shares issued
had been admitted to trading on the SFM and the Official List of the CISX. The Company’s ticker symbol is BBOX. The initial raising by the
Company involved the issue of Ordinary Shares to the relevant subscriber at a price of 100 pence per Ordinary Share.
On 4 June 2014, the Company issued a further 19,980,000 Ordinary Shares (the “Tap issue”), at an agreed price of
104 pence per share. Net cash proceeds from the Tap issue amounted to £20.4 million.
On 8 July 2014, the Company announced that it had published a prospectus in relation to the issue of 145,631,068 new Ordinary
Shares through a Placing, Open Offer and Offer for subscription at a price of 103 pence per Ordinary Share to raise up to £150
million, plus the proposed future issue of up to 350 million new Ordinary Share through the Share Issuance Programme; and the
proposed admission of the Company’s issued and to be issued Ordinary Shares to the premium listing segment of the Official List
of the Financial Conduct Authority and to trading on the main market for listed securities of the London Stock Exchange.
On 7 October 2014, the Company announced that in accordance with the terms of the management fee arrangements with the
Manager, pursuant to 25% of the management fee being payable in new Ordinary Shares of £0.01, it issued a further 122,248
shares in relation to the period from IPO to 30 June 2014. The issue price per Ordinary Share was 100 pence per share (based on
the most recently published net asset value of 101.85 pence per Ordinary Share as at 30 June 2014, less the first interim dividend
declared of 1.85 pence per share.
On 28 November 2014, the Company announced a total of 104,761,904 new Ordinary Shares of £0.01 to be issued at price of
105 pence per share in the form of a Placing as part of the Company’s Share Issuance Programme.
Tritax Big Box REIT plc Annual Report 2014 89
10. Share premium
The share premium relates to amounts subscribed for share capital in excess of nominal value:
Balance at beginning of period
Share premium on Ordinary Shares issued in relation to IPO
Share issue expenses in relation to IPO
Share premium on Ordinary Shares issued in relation to Tap
Share issue expenses in relation to Tap
Transfer to capital reduction reserve (see note 26 of the Group accounts)
Share premium on Ordinary Shares issued in relation to further Equity issue (July 2014)
Share issue expenses in relation to further Equity issue (July 2014)
Share premium on Ordinary Shares issued to management
31 December
2014
£’000
–
198,000
(4,000)
20,579
(402)
(194,000)
148,544
(3,042)
121
Share premium on Ordinary Shares issued in relation to further Equity issue (December 2014)
108,952
Share issue expenses in relation to further Equity issue (December 2014)
Balance at end of period
11. Capital reduction reserve
Balance at beginning of period
Transfer from share premium
First interim dividend for the period ended 31 December 2014
Second interim dividend for the period ended 31 December 2014
Balance at end of period
(2,216)
272,536
31 December
2014
£’000
–
194,000
(4,070)
(5,486)
184,444
31 October
2013
£’000
–
–
–
–
–
–
–
–
–
–
–
–
31 October
2013
£’000
–
–
–
–
–
On 4 July 2014, the Company by way of Special Resolution, cancelled the then value of its share premium account, by an
Order of the High Court of Justice, Chancery Division. As a result of this cancellation, £194.0 million has been transferred from
the share premium account, into the capital reduction reserve account. The capital reduction reserve account is classed as a
distributable reserve.
Please refer to note 14 of the Group accounts for details of the declaration of dividends to Shareholders.
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Notes to the Company Accounts
12. Net asset value per share (NAV)
Basic NAV per share amounts are calculated by dividing net assets in the Company Balance Sheet attributable to ordinary
equity holders of the parent by the number of Ordinary Shares outstanding at the end of the period. As there are no dilutive
instruments outstanding, basic and diluted NAV per share are identical.
Net asset values have been calculated as follows:
Net assets per Company Balance Sheet
EPRA NAV
Ordinary Shares:
Issued share capital
Basic and diluted net asset value per share
Basic and diluted EPRA NAV per share
31 December
2014
£’000
469,970
469,970
470,495
99.89p
99.89p
31 October
2013
£’000
50
50
50
100p
100p
EPRA NAV is calculated as net assets per the Company Balance Sheet excluding fair value adjustments for debt-related
derivatives.
13. Related party transactions
The Company has taken advantage of the exemption available in FRS 8 Related Party Disclosures not to disclose transactions
with other members of the Group, as the Company’s own financial statements are presented together with its consolidated
financial statements.
For all other related party transactions please make reference to note 30 of the Group accounts on page 82.
Financial calendar
Tritax Big Box REIT plc Annual Report 2014 91
18 March 2015
Payment of third interim dividend in respect of the period ended 31 December 2014
15 April 2015
May 2015
30 June 2015
August 2015
Annual General Meeting
Trading Update to be issued
Half Year End
Announcement of Half Year Results
November 2015
Trading Update to be issued
31 December 2015
Full Year End
Additional Information 92 Tritax Big Box REIT plc Annual Report 2014
Company information
Company Registration Number: 08215888
Incorporated in the United Kingdom
Directors, Management and Advisers
Directors
Richard Jewson (Non-Executive Chairman)
Jim Prower (Non-Executive Director)
Mark Shaw (Non-Executive Director)
Stephen Smith (Non-Executive Director)
Trading address
17-18 Old Bond Street
London
W1s 4PT
Manager
Tritax Management LLP
Aberdeen House
South Road
Haywards Heath
West Sussex
RH16 4NG
Joint Financial Adviser and Corporate Broker
Jefferies International Limited
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
Joint Financial Adviser
Akur Limited
23 Bruton Street
Mayfair
London
W1J 6QF
Legal Advisers to the Company
as to English law
Taylor Wessing LLP
5 New Street Square
London
EC4A 3TW
Auditor
BDO LLP
55 Baker Street
London
W1U 7EU
Company Secretary
Taylor Wessing Secretaries Limited
5 New Street Square
London
EC4A 3TW
Registrar
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Administrator
Capita Sinclair Henderson Limited
Beaufort House
51 New North Road Exeter
EX4 4EP
Bankers
Barclays Bank PLC
PO Box 3333
One Snowhill
Snow Hill Queensway
Birmingham
B3 2WN
Helaba Landesbank Hessen-Thüringen Girozentrale
3rd Floor
95 Queen Victoria Street
London
EC4V 4HN
Santander UK plc
44 Merrion Street
Leeds
LS2 8JQ
Valuer
CBRE Limited
Henrietta House
Henrietta Place
London
W1G 0NB
Designed and produced by Bruce Associates
In association with Richard Hollins
Photography by Molyneux Associates
Printed by Cousin
Tritax Big Box REIT plc
Aberdeen House
South Road
Haywards Heath
West Sussex RH16 4NG
www.tritaxbigbox.co.uk
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