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Tritax Big Box REIT plc Annual Report 2017
Fulfilling structural change
Tritax Big Box REIT plc Annual Report 2017
CONTENTS
STRATEGIC REPORT
Tritax Big Box
Tritax Big Box at a Glance
2017 Highlights
Chairman’s Statement
The Year in Brief
Our Portfolio
Our Market
Our Business Model
Our Strategy and Objectives
Manager’s Report
The Manager
Key Performance Indicators
EPRA Performance Measures
Our Principal Risks and Uncertainties
Responsible Business
Going Concern and Viability
Board Approval of the Strategic Report
GOVERNANCE
Chairman’s Governance Overview
Leadership
How we govern the Company
The Board of Directors
Effectiveness
Nomination Committee Report
Accountability
Audit Committee Report
Management Engagement Committee Report
Relations with Shareholders and stakeholders
Directors’ Remuneration Report
Directors’ Report
Directors’ Responsibilities Statement
Independent Auditor’s Report
FINANCIAL STATEMENTS
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 Statement of Changes in Equity
Notes to the Company Accounts
ADDITIONAL INFORMATION
Notes to the EPRA Performance Measures
Application of the Principles of the AIC Code
Financial Calendar
Company Information
1-77
1
2
4
6
8
10
22
32
34
36
62
64
65
66
72
76
77
78-117
80
83
85
88
90
91
93
96
101
104
106
108
111
112
118-161
120
121
122
123
124
152
153
154
162-170
164
167
169
170
Tritax Big Box is the UK’s leading investment company focused on larger scale
logistics real estate. These properties are critically important to our Customers
helping them to deliver their long-term business strategies by improving operational
efficiency, providing cost savings and fulfilling fast growing e-commerce sales.
Strong demand and limited supply, both occupationally and for investment stock,
make Big Box logistics one of the most exciting asset classes in UK real estate.
We invest in and actively manage existing income-producing assets, land suitable
for Big Box development and pre-let forward funded developments.
We have assembled and created a UK portfolio unmatched in quality. Our Customers
include some of the biggest names in retail, logistics, consumer products and
automotive, and we look to build long-term and mutually beneficial relationships with
them to enhance their businesses and ours.
Our ‘core-plus’ strategy is supported by high-quality income which underpins our
desire to deliver secure, attractive and growing dividends for our Shareholders and
we seek to apply sector-leading expertise to deliver total return outperformance.
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Tritax Big Box REIT plc Annual Report 2017
1
Strategic Report
TRITAX BIG BOX AT A GLANCE
A compelling business
Our strengths, coupled with the highly attractive dynamics of
our market, make us a compelling business for the long term.
1. An attractive market benefitting
from structural change
Big Boxes are critical in fulfilling the
changing needs of consumers. They
generate cost savings and efficiencies
needed to deal with the growth of
e-commerce and complexities of the
omni-channel supply chain. A supply and
demand imbalance favouring owners
of logistics assets creates powerful
features in our market, including longer
term leases and the potential for
attractive rental growth.
See Our Market, pages 24-31 for more.
In 2016, Amazon took the largest annual volume of
logistics floorspace for a single occupier on record
See Our Market, page 28 for more.
2. We selectively acquire and manage
some of the UK’s best logistics assets
We were first movers in this subsector
and our dedication to it differentiates
us from our peers. We continue to
strengthen a portfolio which we believe
is one of the best in the UK quoted real
estate sector, including outstanding
assets and institutional-grade Customers.
3. Our competitive advantage
Tritax Management LLP is our
Investment Manager. We benefit
significantly from the Manager’s
expertise, knowledge and specialist
subsector focus, to help us buy off
market at attractive prices and asset
manage to deliver outperformance.
See Our Portfolio, pages 10-11 and the Manager’s
Report, pages 36-61 for more.
See Our Business Model, pages 32-33 for more.
2
Tritax Big Box REIT plc Annual Report 2017
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4. Delivering attractive returns for
Shareholders
Long leases, growing rental income,
increasing economies of scale and a
largely fixed cost base allow us to offer
transparent, secure and rising dividends.
Tenant and investor demand for Big
Boxes, plus our asset management
programme, also help to protect and
grow capital values.
5. Well positioned for further success
Our market is performing well, with
strong fundamentals and offers
continued attractions. Via a strong
pipeline we see further opportunities
to broaden the portfolio, supporting
our dividend growth and total return
ambitions.
See the Chairman’s Statement, pages 6-7 and the
Manager’s Report, pages 36-61 for more.
The Year in Brief, pages 8-9 and the
See The Year in Brief, pages 8-9 and the
The Year in Brief
Report, pages 36-61 for more.
Manager’s
+55%
Tritax Big Box has
delivered an aggregate
total return of 55%
in the four years
since IPO
Tritax Big Box REIT plc Annual Report 2017
3
Strategic Report
2017 HIGHLIGHTS
Financial
6.40p
Dividend per share(cid:3)
(2016: 6.20p)
142.24p
EPRA NAV
(2016: 129.00p)
15.2%
Total return
(2016: 9.6%)
+3.2%
+10.3%
+58.3%
6.37p
Adjusted earnings
per share
(2016: 6.51p)
£2.61bn
Portfolio value
(2016: £1.89bn)
£247.80m
Profit before tax
(2016: £91.90m)
-2.2%
+38.1%
+169.6%
£2.03bn
Market capitalisation
(2016: £1.54bn)
£350m
Equity raised
(2016: £550m)
+31.8%
£940m
Diversified borrowings
arranged
(2016: £72m)
Dividend declared
per share (p)
6.40p
(+0.20p)
Operating profit
before changes in fair
value of investment
properties (£m)
8
7
6
5
4
3
2
1
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4.15
+3.2%
6.00
6.20
6.40
100
80
60
40
20
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35.94
15.00
£93.78m
(+£30.90m)
+49.1%
93.78
62.88
2014
2015
2016
2017
2014
2015
2016
2017
4
Tritax Big Box REIT plc Annual Report 2017
Operational
Post balance sheet activity
+11
Big Box assets acquired
(Aggregate purchase price:
£434.99m)
+114 acres
Prime strategic land
(Littlebrook, Dartford)
6.70p
2018 target
dividend per share
(2017: 6.40p)
+4.7%
13.9yrs
Portfolio WAULT
(Against a target of 12yrs)
22.7m sq ft1
+3
Portfolio 100% let or
pre-let
(2016: 18.2m sq ft)
Big Box assets acquired
(Aggregate purchase price:
£139.81m)
5.7%1 NIY
Portfolio average net
initial yield at purchase
(Year-end valuation of 4.6%)
93%
+1
Assets acquired off market
in 2017
Conditional exchange
(Forward funded development)
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142.24p
(+13.2p)
+10.3%
142.24
EPRA NAV
per share (p)
124.68
129.00
107.57
150
120
90
60
30
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EPRA cost ratio (%)
13.1%
19.4
17.9
15.8
-2.7%
points
13.1
20
15
10
5
0
2014
2015
2016
2017
2014
2015
2016
2017
1 Includes all 46 assets held at 31 December 2017;
excludes Littlebrook, Dartford strategic land.
Tritax Big Box REIT plc Annual Report 2017
5
Strategic Report
CHAIRMAN’S STATEMENT
The Group once again performed strongly in
2017, our shares delivering a Total Shareholder
Return (TSR) of 12.3%. We continued to add
high-quality assets to the portfolio and put in
place the equity and debt financing to support
our continued growth, in a market which
remains compelling.
We acquired 11 investment assets during the year plus a
strategic land site, at a combined price of £497.45 million
(excluding purchase costs). These further diversified the
portfolio by geography and building size, added new Customers
and increased the number of income producing assets to 46
(plus 114 acres of strategic land at Dartford) as at the year end.
These were independently valued at £2.61 billion; the like-for-
like valuation uplift was 8.72%.
The Manager used its outstanding network and market
intelligence to source 93% of these investments by value off
market. The Manager also continued to exercise robust capital
discipline to ensure that we bought assets at attractive prices.
In addition to acquiring further Foundation assets (comprising
59% of purchases by value), we also took the opportunity to
purchase higher yielding Value Add and Growth Covenant
assets, with a view to using the Manager’s asset management
skills to enhance value.
During 2017, we completed four further forward funded pre-let
developments, taking the total to nine and making us one of
the most active development funders in the subsector. In 2016,
Shareholders approved an amendment to the Investment Policy
to allow us to buy strategic land. We were therefore pleased to
complete contracts in September 2017 to purchase 114 acres of
prime land at Dartford, in order to provide further high-quality
investments over the next few years, at an attractive yield
on cost. We will continue to control risk by only developing
buildings on a pre-let basis.
As described on pages 50-55, our asset management
programme delivered a number of successes, including a
96,476 sq ft extension of the Rolls-Royce Motor Cars facilities at
Bognor Regis, a lease extension for New Look in Newcastle-
under-Lyme and a pleasing rent review uplift for our property
leased to Marks & Spencer at Castle Donington.
Share issuance
Shareholders continued to support our growth plans through
an oversubscribed £350 million equity raise in May 2017. The
level of demand reflected the increased attractions, in uncertain
times, of a prime portfolio which delivers low-risk and growing
income from our excellent Customers.
As envisaged, we successfully invested the equity proceeds
within six months. The requirement to exercise patience and
only pursue the right deals meant many of the transactions
completed towards the end of the six-month period, resulting
in an element of cash drag on our earnings (see below).
The share issue also broadened our share register, through
selective targeting of new long-term investors in the UK and
internationally. Our rising market capitalisation, which stood
at approximately £2.0 billion as at 31 December 2017, has
helped increase our liquidity, which averaged approximately
£4.0 million per day during the year.
Debt financing
The evolution of our debt platform was an important feature
of the year. In December 2017 we issued £500 million of senior
unsecured loan notes, representing our first bond issue. At the
same time, we agreed a £350 million unsecured revolving
credit facility (RCF) and repaid the majority of our secured debt;
in doing so we avoided any early repayment charges. The bond
issue has opened up substantial pools of liquidity and was
delivered with an investment-grade credit rating of Baa1 (stable
outlook). With the potential for rising interest rates we
decided to refinance before the year end, which now seems
well-timed.
Our ability to secure attractive debt reflects the Group’s
quality, increasing maturity and scale and supports our growth
ambitions. The majority of our interest costs are now fixed,
underpinning the security of our increasing revenues.
Operating from a largely unsecured debt platform gives us
greater operational flexibility and speed of execution. We have
also substantially increased our average debt maturity, which
now stands at just under nine years, as well as broadening our
range of lenders.
At the year end our LTV was 27%. We maintain our medium term
target of 35% when fully invested and geared, against a ceiling
of 40%.
Financial results
The Group’s financial performance was strong in 2017. Operating
profit before changes in the fair value of investment properties
6
Tritax Big Box REIT plc Annual Report 2017
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increased by 49.1% to £93.78 million. Our Adjusted earnings
per share (EPS) were 6.37 pence (2016: 6.51 pence), which
substantially covered our dividends declared in respect of the
period of 6.40 pence. The EPRA net asset value per share was
142.24 pence, up 13.24 pence or 10.3% versus 31 December 2016.
Total Shareholder Return was 12.3%.
The Manager
The Board believes that the Manager continues to deliver strong
performance, whilst investing in talent and resource which will
benefit the Group. Of particular note, the Manager appointed
Sally Bruer as Head of Research and Charlie Withers as Director
of Development.
Continued cost discipline and economies of scale have helped
us reduce our EPRA cost ratio to 13.1%, (2016 15.8%). This low
and transparent cost base continues to compare favourably
with our peers, offering good value to our Shareholders.
Dividends
The Company switched to quarterly dividend payments from the
start of 2017, recognising the value to Shareholders of regular
cash income.
During the year, we declared and paid three quarterly dividends
of 1.60 pence per share each, in respect of 2017. On 7 March
2018, we declared a fourth quarterly dividend of 1.60 pence
per share, for the three months to 31 December 2017. This will
be paid on 29 March 2018, to Shareholders on the register at
16 March 2018. Total dividends declared in respect of the year
therefore totalled 6.40 pence, in line with our target.
For 2018, we are targeting a progressive total dividend of
6.70 pence per share, an increase of 4.7% over 2017, supported
by anticipated growth in our income (the Estimated Rental Value
(ERV) of our portfolio is 7.4% higher than our passing rental
income).
The Manager is the Company’s Authorised Investment Fund
Manager, under the Alternative Investment Fund Managers
Directive (AIFMD). To comply with the European Securities
and Markets Authority’s guidance on performing delegated
investment management functions the Company has delegated
authority to the Manager to, among other things, conduct
portfolio management and risk management services on its
behalf. As a result, the Manager will make final investment or
divestment decisions, with the Board continuing to play an
important role by offering advice on potential transactions and
monitoring compliance with our Investment Policy.
Outlook
We have a sector-leading portfolio of UK Big Box assets that
are benefiting from structural change driven by increasing
e-commerce penetration, and the operational and financial
benefits which they can provide to our Customers. The
fundamentals of our market remain positive and are largely
unaffected by current geopolitical and economic uncertainties.
Despite the uncertainties it brings, Brexit may provide a silver
lining, since with increased border controls our Customers will
require more warehousing domestically, further supporting our
business case.
Board and governance
Stephen Smith resigned as a Non-Executive Director in June
2017 and the Board thanks him for his contribution. Following
Stephen’s departure, Susanne Given became Chair of the
Management Engagement Committee and was also appointed
to the Nomination Committee. In September 2017, we were
pleased to announce the appointment of Aubrey Adams as a
Non-Executive Director and member of the Audit Committee.
Aubrey has almost 40 years’ experience and knowledge at
board level in the real estate industry.
Through the Manager’s excellent relationships, we see
opportunities to acquire high-quality assets and forward-funded
developments to further diversify our portfolio. The continued
imbalance between occupational supply and demand means
that we expect rental growth and values to remain robust in
2018. The assets we acquired towards the end of 2017 will add
to our rental income in 2018. Coupled with our largely fixed cost
base, this will contribute to earnings growth and support our
progressive dividend target of 6.70 pence for 2018.
Richard Jewson Chairman
7 March 2018
Tritax Big Box REIT plc Annual Report 2017
7
Strategic Report
THE YEAR IN BRIEF
A year of robust delivery
Including the 114 acres of development land at
Littlebrook, Dartford, we made 12 acquisitions
during 2017. In doing so we have diversified
the portfolio by geography and Customer and
ensured that the quality of what we had is not
diluted, but enhanced. Our average acquisition
yield and WAULT have been protected, as has the
quality of new additions.
17 January
Achieved practical completion
of the forward funded
development at Knottingley,
pre-let to TJX UK (trading as
T.K. Maxx)
22 February
Acquired a forward funded
investment in a new
distribution centre in Didcot,
Oxfordshire for £29.24m,
pre-let to Hachette UK Ltd
21 July
Achieved practical completion
of the eighth forward funded
development at Didcot,
Oxfordshire pre-let to Hachette
UK Ltd
14 July
Achieved practical completion
of the seventh forward
funded development at
Wolverhampton, pre-let to
Gestamp Tallent Ltd
24 July
Exchanged conditional
contracts to purchase a
114-acre prime development
site at Littlebrook, Dartford,
for £62.50m
7 September
Acquired the Royal Mail
distribution facility at
Atherstone, Warwickshire,
for £32.68m
12 September
Aubrey Adams was appointed
as a Non-Executive Director
and became a member of the
Audit Committee
23 November
Announced proposed £1.5bn
Euro Medium Term Note
Programme (EMTN) to be
listed on the ISE, Credit Rating,
Publication of a Base Listing
Particulars and announced
credit rating by Moody’s of Baa1
20 November
Acquired the Harlow logistics
Hub at Harlow, let to Wincanton
Holdings Ltd and Industrial Tool
Services (ITS) for £40.40m
20 November
Acquired a regional distribution
centre for £23.61m at Carlisle
Lake District Airport, Cumbria,
let to Stobart Group Limited
1 December
Priced £500m of senior
unsecured notes under the EMTN
Programme and announced a
new unsecured £350m revolving
credit facility. This funded the
repayment of the existing £550m
secured syndicated facility
and two bilateral facilities with
Landesbank Hessen-Thüringen
Girozentrale (“Helaba”) totalling
£18.6m
15 December
Agreed terms to extend
the maturity on its existing
£50.87m loan facility with
Helaba. Secured on the Ocado
distribution warehouse at Erith;
the facility has been extended
from July 2023 to July 2025
8
Tritax Big Box REIT plc Annual Report 2017
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1.55p
1.60p
£350m
1 March
Agreed a new fixed-rate,
10-year term loan facility
of £90m with PGIM Real
Estate Finance
7 March
Declared an interim dividend
of 1.55p per share, in
respect of the three months
to 31 December 2016
24 April
Declared an interim dividend
of 1.60p per share, in respect of
the three months to 31 March
2017
11 May
Raised gross proceeds of
£350m through the issue of
257,352,941 shares at a price
of 136p per share
1.60p
13 July
Declared an interim dividend
of 1.60p per share for the three
months ending 30 June 2017
9 June
Acquired a distribution
facility let to Morrisons, near
Birmingham, West Midlands
for £92.33m
17 May
Acquired distribution facility
let to Unilever, near Doncaster,
South Yorkshire for £20.90m
26 September
Achieved practical completion
of the Company’s ninth forward
funded development at Fradley,
pre-let to Screwfix Direct Ltd
2 October
Acquired the Royal Mail
distribution facility at Daventry
International Rail Freight
Terminal, Northamptonshire for
£48.82m
1.60p
12 October
Declared an interim
dividend of 1.60p per share,
in respect of the three months
to 30 September 2017
20 November
Acquired a national distribution
and production facility at
Worksop, Nottinghamshire for
£20.25m, let to Cerealto (UK) Ltd
25 October
Acquired two interconnected
buildings in Stoke-on-Trent,
Staffordshire let to Dunelm
(Soft Furnishings) Ltd, for
£42.10m
25 October
Acquired a national distribution
centre in Stoke-on-Trent,
Staffordshire, for £36.40m,
let to Marks & Spencer plc
28 December
Acquired a national
distribution facility at
Cannock, Staffordshire for
£44.25m, which is operated
and let to Unilever
Tritax Big Box REIT plc Annual Report 2017
9
Strategic Report
OUR PORTFOLIO
Dedicated to high-quality, well located Big Boxes
Since our IPO in December 2013, we have rapidly built a unique portfolio of modern
assets, in prime locations, which are fully let on long leases to investment-grade
Customers with upward-only rent reviews.
The portfolio is well diversified by customer, geography
and asset size, which helps to reduce our risk. Together,
we believe these factors give us one of the highest-
quality portfolios in the UK quoted real estate sector,
underpinning our objective of delivering low-risk and
growing income.
The size of the portfolio continues to generate economies
of scale benefits as well as other advantages for us, such
as generating our own rental evidence from within the
portfolio and the ability to perform asset management
initiatives with one customer across multiple assets.
£2.61bn
Portfolio value
13.9yrs1,2
Portfolio WAULT
(increasing to 14.7 years as
at the date of this report)
5.7% NIY1
Portfolio average net
initial purchase yield
(since December 2013)
£125.95m
Contracted rental
income
82%
Portfolio acquired
off market
(since December 2013)
100%1
Let or pre-let
10
Tritax Big Box REIT plc Annual Report 2017
1 Excludes strategic land at Littlebrook, Dartford.
2 Includes full rental penalty payment until the end
of the lease term at Unilever, Doncaster.
Portfolio by
investment pillar
Foundation asset
Value Add asset
Growth Covenant asset
Pre-let forward funded
developments
36
Land
Littlebrook, South East London
Key
Major port
Major M and A roads
46
8
25
20
17
30
12
14
9
1
24
39
21
11
5
18 45
3
4943 44
22
19
7
2
13
28
Our five largest tenants by
contracted rent roll (%)
Morrisons
Tesco
Marks & Spencer
Argos3
Ocado
8.6%
6.9%
5.4%
4.9%
4.4%
Total of rent roll
30.2%
27
29
35
48
32
40
41
42
31
33
36
23
37
26
4
38
47
16
15 34
A
6
10
5
13
19
28
34
46
6, 40
14
20
29
35
47
7, 8
15
22, 44
30
38
49
2, 43
3, 4, 12, 21
1
9
10
11
18
25
33
45
16, 26
17, 27
23, 36*, 37*
31
24
32
39, 48
41, 42
* The assets numbered 36, 37 and 49 relate to the conditional
exchange of Howdens units II and III at Warth Park, Raunds
and AO World, Crewe. The acquisitions of these assets were
completed in January 2018 and the assets are excluded from
the portfolio information on page 48.
3 Excludes lease exposure to Sainsbury’s covenant.
The logos above represent either the tenant, guarantor,
parent or brand name. Trade marks appearing in this page
are the property of their respective owners.
For a full list of tenants see the Manager’s Report,
page 48
11
Tritax Big Box REIT plc Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONGOVERNANCE
Goods inwards
Cargo ships are responsible for c.65% (by value)* of goods
imported into the UK. Big Boxes serve as the breakdown
point for bulk palleted deliveries and so are often port-centric
in their location focus.
Route to market
Big Boxes need to be located close to motorways or major
A roads, ideally those which do not suffer significant traffic
congestion.
Geographic coverage
Occupiers create webbed frameworks of logistics
warehouses, the locations of which are focused on their
markets: a combination of smaller urban warehouses, store
stock replenishment or e-commerce fulfilment. The objective
is to maximise geographic coverage and minimise overlap.
Regional model
Central models have given way to RDCs, away from urban
areas but with the ability to deliver efficiently into several
major towns and cities – being closer to the markets they
serve increases speed and reliability of deliveries. Such
locations are invariably also cheaper operationally.
Staffing up
Bigger buildings need more staff (see right), so availability
of labour is important to the choice of location.
* The value of goods passing through UK ports, MDS Transmodal, 2016.
A well diversified portfolio with good geographic spread.
By value, 65.8% are located in the highly sought after
2017 occupational take-up by sector (Grade A)
areas of the South East and Midlands.
1.3%
23.2%
21.7%
65.8%
of our assets are
located in the
South East and
Midlands
42.6%
11.2%
■ North East ■ North West ■ Midlands ■ South East ■ South West
Source: Tritax
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Tritax Big Box REIT plc Annual Report 2017
13
Tritax Big Box REIT plc Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONGOVERNANCE Supply control
Speculative development is very rare for buildings over
500,000 sq ft which require larger sites in locations not
previously designated for employment uses, so land supply is
constrained. This makes Big Boxes less easily reproduced in
the same location unless master-planned over many years.
Transitioning
Retailers are adapting to falling high street sales and growing
e-commerce volumes. This transitioning is most efficiently
done under the single roof of a larger building where both
store and doorstep deliveries can be managed.
Benefits within
Organically grown, poorly managed and disparate networks
are being consolidated into efficient logistics centres with
staff facilities, improved stock controls, and higher quality
management and training.
The only way is up
Rents are paid on a ground floor basis but buildings have
grown in height, delivering flexibility via full height racking
or mezzanine floors. This dramatically reduces the effective
cost of the operational area and allows occupiers to adapt
operations as their businesses change.
Big numbers
Big Boxes require lots of staff to operate them and fulfil
orders, even if the building benefits from Automation. Some
multi-level facilities employ as many as 7,000 peak-time staff.
Our portfolio is truly ‘Big Box’, with approximately
90.9% of our buildings over 300,000 sq ft and
2017 occupational take-up by sector (Grade A)
64.3% over 500,000 sq ft.
10.3%
33.7%
23.9%
64.3%*
of our assets
are >500 sq ft
32.1%
■ >700k sq ft ■ 500k-700k sq ft ■ 300k-500k sq ft ■ 200k-300k sq ft
* Measured by floor area Source: Tritax
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Tritax Big Box REIT plc Annual Report 2017 15
Tritax Big Box REIT plc Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONGOVERNANCE Efficient
Recently constructed buildings are better insulated, have
improved fire control systems and increasingly benefit from
sustainability measures such as solar panels or wind turbines
which assist with occupier CSR.
All mod-cons
State-of-the-art buildings often have higher floor loading
capacities, can be provisioned with large power consumption
capabilities (and generators for resilience) to cope with
automation and high-speed internet access for e-commerce
fulfilment.
Resilient
In the event of a vacancy, high-quality and well located real-
estate is likely to let quicker, potentially to a higher calibre
occupier and at a higher rent.
Growth
Modern Big Boxes are located where occupiers want
to be and they attract higher rents than their outmoded
counterparts because they are more valuable and deliver
cost saving benefits to the occupier that older, smaller
buildings cannot. Consequently, they provide greater
opportunity to capture attractive rental growth.
Our portfolio is perhaps the most modern of any listed
real estate company, with 90.3% of our portfolio having
been constructed since 2000.
2017 occupational take-up by sector (Grade A)
2.9%
6.8%
36.2%
90.3%*
of our portfolio
has been built
since 2000
54.1%
■ Since 2010 ■ 2000s ■ 1990s ■ 1980s
* By value Source: Tritax
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Tritax Big Box REIT plc Annual Report 2017 17
Tritax Big Box REIT plc Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONGOVERNANCE Evolution
The way we shop has undergone structural change. The high
street is becoming a showroom, offering more variety but
stocking less. Big Boxes are increasingly the retail units of the
future, concurrently handling large volumes of complex omni-
channel ‘real-time’ orders and returns.
Commitment
Internet sales and ever-quicker delivery times require
automation and this is expensive; it can eclipse the cost of
the building housing it. This encourages tenants to sign long-
term leases to protect their investment.
Size matters
High levels of automation are usually only found in larger
logistics buildings. The combination of technology and size
can deliver economies of scale and cost saving benefits to
occupiers.
Tech
Conveyors, sortation systems, wall climbers and robotics
are used for the stocking and retrieval of products. R-FID
technology allows products to be tracked from production
to consumer and prevents cross-contamination.
Information is power
Spending habits and online surfing histories provide
important data for retailers, which enables them to target
sales and predict future demand trends, increasing accuracy.
Automation is more prevalent in larger buildings. By
value, c.50% of our portfolio properties are automated.
2017 occupational take-up by sector (Grade A)
19.8%
50.4%
c.50%
of our portfolio
properties are
automated
21.3%
4.1%
4.4%
■ No ■ Yes (<300k sq ft) ■ Yes (<300k-500k sq ft)
■ Yes (500k-700k sq ft) ■ Yes (>750k sq ft)
Source: Tritax
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Tritax Big Box REIT plc Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONGOVERNANCE Quality
The quality of our real estate assets intrinsically provides
resilience. Coupled with the longevity of income and calibre
of our Customers and rental income they provide, we believe
that our portfolio is well placed to withstand property market
volatility.
Longevity
As at 31 December 2017 the portfolio’s WAULT stood at
13.9 years. A low 9.5% of our leases are due to expire within
the next five years and 41.3% of our rents do not expire for
more than 15 years, providing the Group with excellent long-
term income security. This represents 75% of our portfolio
being invested into Foundation Assets.
Diversity
Our assets are let to 36 different Customers, with seven new
Customers added during 2017.
Transparency
33.1% of our income is subject to either fixed or collared
inflation linked rental uplifts, providing guaranteed minimum
levels of rental growth to support our progressive dividend
growth aspirations.
Our customer base is high-calibre, with some of the
UK and world’s leading brands represented. 81% are
members of the major stock market indices in the UK,
Europe and USA.
2017 occupational take-up by sector (Grade A)
18.7%
45.7%
11.3%
2.7%
4.4%
81%*
of tenants are
constituents of
major quoted
indices
17.2%
■ FTSE 100 ■ FTSE 250 ■ DAX 30 ■ SBF 120 ■ S&P 500 ■ Private/other
* By value Source: Tritax
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Tritax Big Box REIT plc Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONGOVERNANCE Strategic Report
OUR MARKET
We believe that the Big Box logistics
sector remains one of the most exciting
asset classes in the UK property market.
In this section, we explain why Big Boxes
are so important to UK logistics and why
the fundamentals of the market continue
to be attractive.
Our market drivers
Demand for Big Boxes comes from three main sources:
conventional and online retailers, third-party logistics
companies (3PLs), and other companies such as manufacturers.
They need Big Boxes for two primary reasons: to improve
their operational efficiency (
see page 26) and to meet the
requirements of a fast-evolving retail market, in particular to
fulfil e-commerce sales, which are growing relentlessly
(
see page 24).
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Tritax Big Box REIT plc Annual Report 2017
The challenge of maximising operational efficiency
Over time, supply chains have evolved in response to
commercial trends and pressures. The initial driver for change
to UK supply chains was the transition towards the majority of
production being outsourced to overseas low-cost economies,
which has resulted in a significant increase in bulk imports. Prior
to this, logistics frameworks were fragmented with domestically
manufactured products held in numerous, small and
geographically dispersed retail storerooms or manufacturing
premises.
A centralised framework began to evolve in which a single large-
scale building could accommodate the ‘breakdown’ of goods
imported in bulk, and then hold the finished goods for efficient
distribution across the UK to other parts of the supply chain.
In more recent years, against the backdrop of uncompromising
global competition, weaker economic growth and rising
domestic inflation, companies have again recognised the
importance of optimising supply chains to meet demand and
maintain a competitive advantage.
Companies across all sectors are recognising the need for
substantial investment into national and regional logistics
frameworks that optimise staff and stock management, offer
flexibility, economies of scale and low cost of use, with a view to
increasing margins and protecting profits, whilst improving the
quality of their commercial offering.
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Tritax Big Box REIT plc Annual Report 2017
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Strategic Report: Our Market
The evolution of the retail landscape
The inexorable rise of e-commerce
E-commerce sales in the UK have grown rapidly in recent years.
As a relatively small and densely populated nation, the UK is
the most advanced e-commerce market in the world with UK
households spending more online than in any other country.
This is particularly important in grocery shopping, where Mintel
reports that 53% of British online grocery shopping customers
want same-day delivery, encouraging Tesco and Marks &
Spencer to trial one-hour delivery for selected food items in 2017
as well as Sainsbury’s trialling 30-minute Click & Collect.
In addition to pure online retailers, growth is being driven by the
expansion of omni-channel retailing. This reflects consumers’
desires to interact with retailers in different ways at different
points in their transactions. To survive, retailers must now offer
physical, online and mobile stores, apps and telephone sales.
Omni-channel retailing has made for a more competitive and
fast-moving battleground for retailers. It has disrupted their real
estate portfolios and revolutionised their logistics platforms
as they face the complexity and expense of ensuring stock
availability and fulfilment capacity is flexibly deployed into any
channel as dictated by customer demand.
Unprecedented surges in demand
Challenges faced by retailers are being further exacerbated
by changing consumer shopping habits, which require
their logistics and distribution networks to accommodate
unprecedented surges in demand. Whether seasonally driven,
such as public holidays and Christmas, promotionally led such
as ‘Black Friday’ or unexpected celebrity endorsements, the
challenges of these demand peaks are being intensified by the
share of sales coming via e-commerce.
In 2017 Black Friday online retail sales totalled £1.39 billion,
9% ahead of the original forecast of growth for the day, with
John Lewis, for example, reporting Black Friday 2017 as “one of
its most successful days” during which it had its busiest ever
single hour of online trading.
Meeting consumer expectations
Another major change is the shift in power from retailers to
customers, who have become increasingly demanding. Today’s
consumers are savvy, fickle, informed and impatient – they
expect to receive their orders wherever and however they want.
To keep pace with changing customer expectations and
competitive dynamics, retailers must speed up the time to
market, reduce inefficiencies and errors, while managing
profitability, customer service and reputational risk. A few years
ago, four or five days delivery would have been the norm, today
many are increasingly offering same-day delivery, with industry
disrupters such as Amazon already offering a two-hour service
for a limited product range.
The challenge of reverse logistics
As online sales have increased, so has the amount of product
being returned, with estimates suggesting that nearly a quarter
of online purchases are being returned. This represents a
growing cost of doing business and presents significant
logistical challenges to companies involved in the storage, sale
and distribution of goods, through often complex domestic and
international supply chains.
It’s estimated that to ‘pick and deliver’ an order costs between
£3 and £10 per item, but due to the increased processing,
handling and repackaging it can cost double or treble that
amount to be returned and restocked. The Financial Times
reports that returned parcels could cost retailers as much as
£60 billion a year, c.£20 billion of which relates to internet sales.
Retailers must therefore develop cost effective reverse logistics
strategies, in order to minimise the impact on profitability,
reputation and market share.
The pressure on margins
Major and fast-paced changes in the retail sector, the unknown
impact of Brexit, the living wage and exchange rate fluctuations
are all applying cost pressure to retailers. At the same time,
the continued growth in ‘pureplays’ (such as Amazon, Asos and
AO.com) is also applying pressure to the price retailers can offer
consumers to remain competitive.
Firstly, omni-channel retailers must cut costs by re-calibrating
their property portfolios. To make the most of their expensive
high street store space, they are carrying less depth of stock
in-store and are focusing more on the consumer experience,
increasingly offering a broader product line which in turn applies
more pressure to the speed and reliability of restocking. At
the same time, consumers are increasingly favouring smaller
convenience stores for food shopping. These stores generally
have very limited storage capacity.
To remain competitive retailers need to invest in logistics space
that provides a more cost effective, flexible, agile storage
solution as well as supply chain capabilities that help support
greater control of stock and ensure efficient and reliable ways
of fulfilling customer demand whether in store or online.
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Tritax Big Box REIT plc Annual Report 2017
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Technology drives the pace of change
E-commerce in the UK is supported by ubiquitous access to
Wi-Fi and smartphones, and widespread availability of 4G.
The Centre for Retail Research reports that many retailers now
see 70-80% of website browsing on mobile devices. Spending
on mobile devices is lower, but initial research reports indicate
that mobile-commerce increased significantly in 2017, totalling
50% of online retail sales. Mobile use is higher among younger
people, with research by Mintel showing, for example, that
48% of millennials in the UK have bought fashion items on their
smartphones.
Technology is also creating new distribution channels. Amazon’s
Dash service, for instance, allows consumers to order specific
products just by pressing a button. Another example is smart
appliances such as washing machines will be able to reorder
detergents automatically before they run out.
Capitalising on invaluable data and analytics
In its purest form, data can help improve customer satisfaction
and increase retailer profitability. In this age of modern retailing,
information collection and analysis, in the form of customer
insight has become an increasingly important means by which
retailers can gain a competitive advantage and plays a critical
role in any successful e-commerce operation.
Bar code scanning at store tills provides sales data and can
trigger automatic re-stocking, and the same principles apply
to online sales. Cookies, collected when consumers surf the
internet, provide additional intelligence which allows retailers to
know what is being bought by whom, where and when, as well
as providing trending data that allows them to forecast more
accurately changes in fashion, so they can order product lines
that are more likely to sell, reducing the amount of product that
needs to be discounted.
The UK is the home of online spending
Online sales in the UK represent
16.3%
of total annual retail sales
for the year to December 2017*
2x
Parcel delivery volumes have
doubled in the UK in the last
six years due to the growth of
online retail
UK annual online retail sales
increased by
16.0%
for the year to December 2017*
E-commerce is expected to grow to
25.8%
of total UK retail sales by
2021
Online retail sales on Black
Friday 2017 totalled
£1.39bn
up 11.7%
on the previous year
60%
of UK retailers
are prioritising
e-commerce
investment in 2018
44%
of UK retailers
say investment in
mobile is their key
omni-channel in 2018
* Source: Office for National Statistics
Tritax Big Box REIT plc Annual Report 2017
25
Strategic Report: Our Market
New generation logistics at the core
of modern life
The emergence of Big Boxes
In a time of economic and geopolitical uncertainty, companies
which want to survive and thrive are increasingly turning to Big
Boxes to enhance their efficiency and respond to the changing
retail landscape. The Big Box subsector has emerged mainly
in the last 10 years, with these large, often technologically
sophisticated and highly efficient properties offering previously
unavailable economies of scale, low cost of use and flexibility.
Big Boxes are cost effective and optimise efficiency
Big Boxes allow companies to centralise previously dispersed
distribution formats, by providing the nucleus for distribution
to other parts of the supply chain or directly to consumers.
These networks may be organised at a national level, but traffic
congestion and the need to deliver quickly and reliably to any
location mean that most major occupiers now prefer to use
Big Boxes as regional distribution centres.
Big Boxes’ strategic locations add to their efficiency. They are
close to major roads and motorways and often near to airports,
sea ports or rail freight hubs. This allows efficient stocking and
onward distribution. The properties also tend to be located in
areas with good workforce availability, helping occupiers to
manage their employment costs.
Low-bay buildings are typically used for food distribution. For non-
food distribution, the flexibility of a tall building can allow for high
racking and/or mezzanine floors, which can double or even triple
the operational space. This makes Big Boxes more attractive to
tenants, not least because rents are generally paid on the ground
floor area only. Consequently, the cost per square foot on an
overall basis has fallen for many occupiers of modern buildings.
Online has created visibility over 100% of the product line,
meaning that any customer can choose to purchase any product
that a retailer has to offer, wherever they live in the UK. Previously
a retailer may have only stocked say, 50%, of their product line in
a particular regional location. In just a few years the internet has
therefore presented a problem where some retailers have needed
to more than double their regional stock capacity.
The scale of Big Boxes means that unlike smaller buildings,
they can act as the breakdown point for goods imported in
bulk containers. The buildings can also hold all of a company’s
product lines, whatever their size or shape or how quickly
they turn over. This makes Big Boxes ideal for handling both
store and e-commerce distribution (sometimes via urban
logistics warehouses). The size of the buildings also means
that occupiers can adjust for demand or supply disruptions, or
fluctuations between store and e-commerce sales, far more
easily than using smaller, separate single-focus warehouses.
In addition to downstream fulfilment, Big Boxes can handle
returns allowing products to be efficiently restocked. The
importance of data to successful e-commerce operations
means that Big Boxes dedicated to e-commerce increasingly
also house the retailer’s data and intelligence centres.
To drive efficiency, technological advances are resulting in
Big Boxes becoming smarter. Occupiers increasingly invest in
advanced systems that allow them to stock automatically and
rapidly retrieve products, so they can operate on a just-in-time
basis. So called ‘four-dimensional automation can pick
complex online deliveries in the most efficient order possible.
When customised to work with state-of-the-art robotics,
such technology currently drives efficiency savings of up to
20%. The tenant will typically own the fit-out and its capital
investment can be substantial, sometimes eclipsing the value
of the investment.
Big Boxes are a strategic necessity
Land constraints have given rise to a scarcity of new and
modern buildings available to let. Additionally, a desire for high
levels of labour capture in appropriate locations and a tenant’s
inward investment by way of automation, mean that they are
willing to sign long leases and increase the potential for renewal
at lease expiry. These characteristics make the subsector more
resilient to economic downturns and should mean there is scope
for significant rental growth over long periods.
3x
as much Big Box space is required for
online fulfilment
compared with store-based fulfilment
Source: Addleshaw Goddard
26
Tritax Big Box REIT plc Annual Report 2017
Big Boxes are multi-functional:
As the complexities of manufacturing and multi-channel retail grow, retailers are combining the control
point for multiple functions within Big Boxes.
Big Boxes can:
regionally centralise previously dispersed distribution
help optimise staff and stock management and expand product ranges
provide the breakdown point for goods imported in bulk
house highly sophisticated and valuable technology – which drives efficiency
hold the finished goods for distribution to other parts of the supply chain
be quasi-retail outlets – distributing finished goods directly to consumers,
while also dealing with other channels such as click & collect
reliably and more quickly fulfil store replenishment
accommodate dedicated returns sections as e-commerce
support retailers through peak demand periods and supply disruptions
increasingly house occupiers’ data centres which provide intelligence integral to securing
a competitive advantage.
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The growth in e-commerce – the growth in Big Boxes:
Total annual online retail sales in the UK grew by 16.0% to the end of December 2017 and now account for
16.3% of total retail sales. By 2021, e-commerce is expected to account for more than 25% of total retail
sales. This growth in online retail has driven and continues to drive the demand for logistics properties.
Industrial and logistics space taken up by online retailers*:
2008-2009
1.47m sq ft
2016-2017*
12.23m sq ft
An increase of
+731%
*To start of December 2017
Source: Savills
Tritax Big Box REIT plc Annual Report 2017
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Strategic Report: Our Market
Structural trends continue to drive performance
1. Occupational take-up by size band (>250,000 sq ft units)
(million sq ft)
25
20
15
10
5
0
2008 2009 2010 2011
2013 2014 2015 2016 2017
2012
■ 250,000-500,000 sq ft units — >250,000 sq ft average annual take-up
■ >500,000 sq ft units --- >500,000 sq ft average annual take-up
Source: Gerald Eve and Tritax
2. Availability of new/early marketed floorspace
(>100,000+ sq ft units and 500,000+ sq ft units)
(million sq ft)
25
20
15
10
5
0
Q4
2008
Q4
2009
Q4
2010
Q4
2011
Q4
2012
Q4
2013
Q4
2014
Q4
2015
Q4
2016
Q4
2017
■ New/early marketed units of ≥100,000 sq ft
■ New/early marketed units of ≥500,000 sq ft Source: CBRE
Supply and demand fundamentals remain undisturbed
As described on pages 23-26 the factors influencing occupational
demand are deep-rooted and we expect this to remain so for the
next few years. The strength of demand has ensured that the
limited supply of buildings being produced has been let quickly,
and this has led to a continued shortage of completed Big Boxes
available to let.
2016 was a record year for occupational take-up. More
particularly, larger scale Big Boxes continued to increase their
influence on lettings activity. This was aided by Amazon which
leased the largest annual volume of space for a single occupier
on record.
Relative to the exceptional volumes of the previous year, 2017
take-up (250,000+ sq ft buildings) was significantly reduced at
15.1 million sq ft, although this remained just above the 10-year
average. The lower level was largely accounted for by Amazon’s
reduced activity, fewer available speculative developments
(because much of the potential product had been pre-let the
previous year) and the fact that many occupiers – particularly
those acquiring larger, more complicated facilities – took longer
to conclude occupational transactions and this resulted in
several lettings rolling over into 2018.
Take-up records the amount of space being let and so can
provide a guide as to levels of demand. A fall in take-up,
however, does not necessarily mean that demand has reduced,
because take-up can be constrained by a shortage of available
supply, leaving an overhang of unfulfilled demand, as has been
the case in recent years. We expect the continued supply-side
shortage of larger scale buildings to constrain take-up levels in
the next few years.
There has been a strong start to 2018. Within the first six weeks
of the year almost 3 million sq ft (250,000+ sq ft buildings) was let
and, although notoriously difficult to quantify, occupier enquiries
remain high. This indicates that we should continue to see healthy
levels of demand with several property agencies predicting that
take-up in 2018 will exceed that recorded last year.
Building size distinction is important when analyzing market
data. The availability of completed new, well located and
available to let Big Boxes remains low. As at the year end across
the UK there was nearly 9 million sq ft of logistics buildings
available in the size category 100,000-500,000 sq ft; this was
64% down on Q1 2009 (see graph 2). Of the 9 million sq ft,
5 million sq ft related to buildings of 100,00-200,000 sq ft and
1.8 million sq ft was in the 200,000-300,000 sq ft category.
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Tritax Big Box REIT plc Annual Report 2017
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3. Occupational take-up in 2017 of assets >500,000 sq ft
7.7 million sq ft
Take-up of assets >500,000 sq ft
+18%
higher than the 10-year average and the
third highest total take-up for this size of
Big Box in the past decade
4. Occupational take-up by sector in 2017
(Grade A >250,000+ sq ft)
4%
19%
40%
37%
■ Retail ■ Manufacturing ■ Logistics ■ Other
Source: Tritax
Following the recession, as demand increased and available to
let stock reduced, developers responded by nearly quadrupling
the 100,000-500,000 sq ft supply band in c.18 months but the
supply response for 500,000+ sq ft buildings was zero over the
same period. We believe that this signals stronger attributes for
larger buildings.
Two refurbished buildings came to the market in 2017 in the
400,000-500,000 sq ft category. As at 31 December 2017, there
was only one used (refurbished) building and no new completed
buildings of more than 500,000 sq ft available to let. Since then
one further used (un-refurbished) and one new building became
available – the new building was believed by the market to have
been under offer at the year end and this may remain the case,
but until clarified it will be treated as available.
Suitable land which can accommodate Big Boxes is scarce in
key locations. The process of bringing forward land capable of
delivering one or more Big Boxes can take many years. Typically,
suitable locations will be on agricultural land not zoned for
employment uses. If this hurdle can be overcome, the land needs
to be zoned for B8 distribution, following which the developer
will seek to secure outline, and finally detailed, planning consent.
The scale of Big Boxes and the extent of traffic movements
they generate can present planning challenges. In addition, Big
Boxes require a large pool of suitable labour in the local area
(some buildings can employ as many as 7,000 employees during
peak periods) and have substantial power and infrastructure
requirements, adding further complexity to site identification
and delivery. Savills estimates that a fully automated warehouse
can require as much power as 10,000 three-bed homes, severely
restricting the number of suitable sites.
Big Box supply, therefore, remains very thin and this is expected
to remain the case for some time. Most developers in the UK
are not prepared to speculatively develop very large logistics
buildings. Why? Because the years and costs incurred to
achieve planning and prepare the site can be significant and the
additional cost of constructing the building can run to several
tens of millions of pounds. There is also a risk that potential
occupiers want different-sized buildings and there are many
other variables. For the developer, there is far less risk in waiting
and constructing a building following a pre-let; noting that
construction times are swift for Big Boxes – typically six to nine
months. The level of occupier demand means developers can
de-risk their development by agreeing a pre-let with a tenant.
Building-to-suit on a pre-let basis creates opportunities for
investors, such as us, to forward fund these developments and
obtain brand new assets on long leases to high-quality tenants.
Tritax Big Box REIT plc Annual Report 2017
29
Strategic Report: Our Market
Rental growth
As take-up reduced the availability of warehouses following the
recession, rents stabilised around mid-2010 and began to rise
in early 2013 (see graph 5). Nonetheless, rents only recovered
to their 2008 levels at the beginning of 2015. This is important,
because for five yearly open market rent reviews, occurring
in-say-2017, the first half of the review period saw no growth.
This has the effect of suppressing the level of uplift achieved at
recent market rent reviews, but as time passes, and assuming
rents continue to rise, there will be a full five year backward
looking trend of growth to underpin stronger rent review results
for landlords. At the year end, rents were approximately 13%
higher than the levels achieved in 2008, all of which has been
delivered since 2015.
Typically, the UK is analysed regionally for rents. When viewing
rental tone, it is important to recognise that rents do not rise
on a regular curve. It might appear that rental growth in a
particular regional market has stalled but this could be because
of restrictions on the availability of suitable sites – then when a
site is deliverable the rent can jump. It is necessary, therefore,
to look at the broader regional trends over several years and to
understand the reasons for the movement, or lack thereof, in
each regional market. For instance, in East and West Midlands
and Yorkshire & North East rental growth in 2016 was +4.0%,
+2.4% and +10.0% respectively, whereas each recorded zero
headline growth in 2017. The prime headline rent is typically
achieved by the letting of a single building at a new record level.
The fact that a higher level of prime rent has not been achieved
since does not negate the potential for lower rented properties
to have delivered rental growth.
Ongoing constraints in supply, coupled with continued strong
occupier demand, have combined to deliver attractive levels of
rental growth in recent years. Rising labour and construction
costs (partly from imported inflation following the referendum
vote) are also feeding into rents. Competition for alternative land
uses, particularly housing, have increased land prices within and
on the fringe of urban environments.
The transition of sales from the high street to Big Boxes is
delivering cost savings because rents, staff and operational
costs are lower, particularly where occupiers utilise the volume
of high bay warehousing to reduce the effective cost per sq ft.
This explains why there has been little resistance to significant
levels of rental growth in the Big Box market and why we expect
rents to continue their upward trend in the near to medium term.
Rental growth forecasts from CBRE suggest an average annual
rental growth rate of 4.25% pa for the next four years.
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5. Rental growth versus availability (Q4 2007 = 100)
150
125
100
75
50
25
Q4
2008
Q4
2007
Q4
2009
■ UK average prime headline rent
■ Volume of availability
Q4
2010
Q4
2011
Q4
2012
Q4
2013
Q4
2014
Q4
2015
Q4
2016
Q4
2017
Source: Gerald Eve
6. UK prime logistics headline rent (per sq ft)
6. UK prime logistics headline rent (per sq ft)
and 2017 annual growth
and 2017 annual growth
REGIONAL AVERAGE
REGIONAL AVERAGE
RENTAL GROWTH RATE
RENTAL GROWTH RATE
+3.7%
+3.7%
NORTH WEST
NORTH WEST
£6.50 (+9.2%)
£6.50 (+9.2%)
NORTH EAST & YORKSHIRE
NORTH EAST & YORKSHIRE
£5.25-£5.75 (0.0%)
£5.25-£5.75 (0.0%)
WEST MIDLANDS
WEST MIDLANDS
£6.50 (0.0%)
£6.50 (0.0%)
EAST MIDLANDS
EAST MIDLANDS
EAST MIDLANDS
EAST MIDLANDS
£6.50 (0.0%)
£6.50 (0.0%)
LONDON/M25
LONDON/M25
£11.00-£15.25 (9.8%)
£11.00-£15.25 (9.8%)
SOUTH WEST
SOUTH WEST
£6.75 (+3.8%)
£6.75 (+3.8%)
SOUTH EAST
SOUTH EAST
£9.00 (+2.9%)
£9.00 (+2.9%)
Source: CBRE
Source: CBRE
7. Prime distribution vs gilt yields (%)
8
7
6
5
4
3
2
1
0
02
Sep
03
May
04
Jan
04
Sep
05
May
06
Jan
06
Sep
07
May
08
Jan
08
Sep
09
May
10
Jan
10
Sep
11
May
12
Jan
12
Sep
13
May
14
Jan
14
Sep
15
May
16
Jan
16
Sep
17
May
■ Prime Distribution Yield
■ UK 10 Year Gilt Yields
Source: CBRE
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Strengthening investment values
Occupier demand for Big Boxes influences investment demand.
Investors are drawn by the attractions of modern assets,
producing secure and growing rental incomes, from well
respected tenants with strong balance sheets. Both UK and
international investors are active in the market, with the latter
typically looking for larger lot sizes and assets that offer capital
preservation.
Despite the significant hardening of logistics yields in recent
years, they continued to compress during 2017 as institutional
property funds reweighted sector allocations in favour of
industrial and logistics assets. Overseas investment into the
UK remains strong, despite the prospect of Brexit and partly
because the devaluation of the pound has made UK investments
look comparatively cheap for overseas money. We expect
further value growth in 2018 but at a slower rate, partly due to
lower-end yield resistance and also as a result of rental growth
continuing, but at more sustainable levels.
Although yields have hardened, investors can still source
attractive assets at prices that represent good value. Property
yields remain well above the cost of debt, maintaining a positive
yield gap and a sizeable premium to 10-year gilts.
The Big Box logistics sector remains in its infancy
The growth of e-commerce and search for economies of scale,
cost savings and efficiencies have placed the UK at the forefront
of the world in terms of the development of Big Box logistics.
Yet as a property sector we believe it remains in its infancy, with
many still seeking to secure the buildings they desire.
UK online spending grew 12% in 20171 and is expected to
continue at similar levels over the next few years. Despite this
growth, e-commerce still only represents about 18%2 of retail
sales, suggesting that the capacity for growth is substantial,
particularly when some retailers envisage a time when their
online sales will eclipse those of the high street. Part of the
success of e-commerce has been the ability of retailers and
logistics companies to react to and satisfy their ever-demanding
consumers with faster, more reliable deliveries – achieving this
requires a framework of well located modern logistics facilities.
Such longer-term demand drivers, coupled with supply and
demand imbalances both occupationally and within the
investment market, suggest that property values in this
subsector are likely to remain robust, at least on a relative
basis, for some time to come.
1 Source: IMRG Capgemini e-Retail Sales Index. Based on average year-on-year
UK online retail sales for each month from January 2017 to December 2017
2 Source: Office for National Statistics. Based on internet sales as a percentage
of total retail sales for the month of December 2017
Tritax Big Box REIT plc Annual Report 2017
31
Strategic Report
OUR BUSINESS MODEL
We own and manage high-quality
Big Box logistics assets across the UK,
using the Manager’s experience and
expertise to assemble and grow a well
diversified portfolio, while prudently
applying leverage to increase returns.
The value we add
Sourcing investments
The starting point for value creation is sourcing our investments.
This relies on the Manager’s extensive agency, developer and
tenant contacts, built up over many years. The Manager also
develops relationships with asset owners, learning of their
triggers to sell. These relationships and knowledge allow us to
source most investments off market, so we can buy at attractive
prices. In a market where personnel changes are common, the
consistency of the Manager’s team helps us to maintain our
relationships and work on longer-term deals.
The Manager’s expertise enables us to move fast, rapidly
assessing opportunities, making decisions, performing thorough
due diligence and completing transactions. We have never
withdrawn a contract after agreeing terms and believe that our
reputation is unrivalled in our market. This speed and certainty
of execution makes us the obvious choice for asset owners
looking to sell Big Boxes and can help us achieve better prices.
Buying and selling for value
We have a clear Investment Policy (
see page 34) but we
are also pragmatic. We may buy smaller assets in locations
where larger ones are not available, helping us to diversify by
geography and building size and spreading lot-size risk. We
may also buy assets with shorter leases, where we see an
opportunity to add value such as by regearing the lease or
reletting. Creating value requires capital discipline and patience,
and we discount numerous opportunities that do not offer value
for money or meet our stringent criteria.
The inputs to our business model
We use the following resources to create value for Shareholders and other stakeholders:
£
Financial capital
We are funded by Shareholders’ equity, third-party debt
and recycled funds
Relationships
We build mutually beneficial relationships with our
Customers and draw on the Manager’s extensive contacts
with key players across the subsector
Physical assets
We have an outstanding portfolio of UK Big Box logistics
assets, as well as strategically located land for pre-let
development
Human capital
We have an experienced Board of Directors and a Manager
with a high-calibre, consistent, knowledgeable and forward-
thinking team
The Manager provides expertise in assembling a high-quality,
diversified and low-risk portfolio, as well as relationship
building, buying for value and speed and certainty of execution
32
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Our intention is to hold most assets for the long term but we may
sell if we have unlocked value and delivered the asset’s business
plan, and we have the potential to reinvest the proceeds in a
more attractive opportunity.
Funding developments
The Manager’s relationships with developers enables us to
invest in forward funded developments, through which we
fund the construction of a Big Box which has been pre-let to
a specific Customer. This results in lower transaction costs
and enables us to source brand new buildings for institutional
tenants on long leases.
We can also acquire land which is suitable for pre-let forward
funded developments. We do not invest in any speculative
developments (ie those which are not pre-let).
Asset management
The assets we buy are usually strategically important to our
Customers. We work with them to maximise their operational
effectiveness, for example by extending buildings or adding
mezzanine floors. This encourages them to sign longer
leases, increasing our revenue security and capital values.
Whilst recognising that only a limited part of our portfolio is
categorised as Value Add assets within our investment pillars,
where we buy properties with the potential to add value,
we look to turn them into Foundation assets through asset
management.
The value we add
Source
investments
Buy and sell
for value
£
Asset
management
Fund
developments
Delivering returns
By acquiring high-quality properties with excellent tenants and
carefully managing our assets, we aim to deliver a robust, low-risk
and growing rental stream, which supports a progressive target
dividend. Our asset selection and management add value to our
investments, allowing Shareholders to benefit from attractive
total returns.
As our portfolio grows, we benefit from economies of scale,
increased diversification by geography, tenant and building size, a
larger list of contacts and a deeper pool of available capital, helping
us to source further investments off market. A larger portfolio also
gives us greater insight into market developments, more control
over the evidence for rent reviews and lease renewals, and greater
potential to create multi-asset initiatives with the same tenant.
Buying assets directly incurs total costs of approximately 6.78%,
of which SDLT is approximately 5.00%. Standard sale costs are
c.1.75%. This means that frictional costs – the total standard costs
of selling an asset and reinvesting the proceeds – are c.8.53%. Our
actual transaction costs are typically lower, as where possible we
reduce SDLT by buying the special purpose vehicle which owns
the asset. Even so, frictional costs influence investment returns,
particularly in times of lower capital growth. Our portfolio is weighted
towards Foundation assets because they do not need to be
regularly traded. This reduces our frictional costs, which supports
our returns.
In addition, our REIT status protects the value we create for
Shareholders, as we are not subject to corporation tax on profits and
gains in respect of our qualifying property rental business. We also
pay dividends that qualify as a property income distribution (PID)
where possible, which offers tax advantages for certain UK investors.
The outputs from our business model
Our business model primarily creates value for our
Shareholders and Customers.
For Shareholders
We aim to deliver an attractive total return to
Shareholders, underpinned by progressive annual
dividends and net asset value growth.
We are targeting:
6.7 pence
annual dividend for 2018,
up 4.7% on 2017
9%+ per annum
a total return over the
medium term
For Customers
Our Customers benefit from occupying Big Box logistics
assets which are strategically important to their businesses,
helping them to achieve cost savings and economies of scale,
and to fulfil their rapidly growing e-commerce businesses.
Tritax Big Box REIT plc Annual Report 2017
33
Strategic Report
OUR STRATEGY AND OBJECTIVES
Our Investment Policy
Our Investment Policy is to acquire assets that:
Our acquisition focus
The assets we acquire typically fall under one or more of our
four investment pillars:
• are let or pre-let, as we will not invest in speculative
developments and will only forward fund investments where
a tenant is already contracted;
FOUNDATION
• have institutional-grade tenants, ideally businesses with
good growth potential;
• are in the right locations in the UK, with good transport
connections and workforce availability;
• are of the right size and age, and possibly with expansion
potential, to meet the requirements of major occupiers;
• have leases to institutional standards, with regular upward-
only rent reviews and unexpired lease length on purchase
typically of at least 12 years, to provide long-term and secure
income flows; and
• ideally are strategically important to the tenant, as evidenced
by extensive investment in fitting out the unit or proximity to
the tenant’s market and/or other key assets.
We target assets which offer value to our Shareholders and
usually have a geared yield range of approximately 5-7%.
We may make exceptions to our policy, where we see an
opportunity to deliver value for our Shareholders without
significantly increasing the portfolio’s aggregate risk.
The Investment Policy also allows us to invest in land, either on
our own or in a joint venture with a developer or a prospective
customer. This will allow us to assemble suitable sites for
pre-let forward funded developments. We will only proceed
with constructing a new Big Box after it has been pre-let to an
appropriate customer. Aggregate land purchases are subject to
a limit of 10% of our NAV, calculated at the point of investment.
Foundation assets provide the core, low-risk income
that underpins our business. They are usually let on long
leases to Customers 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 inflation indices.
VALUE ADD
These assets are typically let to Customers with
good covenants and offer the chance to grow the
assets’ capital value or rental income, through lease
engineering or physical improvements to the property.
We do this using our asset management capabilities
and understanding of customer requirements. These
assets are usually highly re-lettable.
GROWTH COVENANT
These are fundamentally sound assets in good locations,
let to Customers we perceive to be undervalued at the
point of purchase and who have the potential to improve
their financial strength, such as young e-retailers or other
companies with growth prospects. These assets offer
value enhancement through yield compression.
STRATEGIC LAND
These are opportunities in strategic land which we will
invest in with a view to securing pre-let forward funded
developments. The land we acquire will usually have
the benefit of outline B8 planning consent over at least
part of the site in order to minimise risk. This approach
allows us to own the ultimate investments in locations
which might otherwise attract yields lower than we
want to pay. It can also deliver enhanced returns whilst
controlling risk by avoiding speculative development.
Aggregate land purchases, including costs associated
with site preparation, are limited to 10% of net asset value
calculated at the point of purchase.
Our objectives
Our objectives reflect our aim of creating value for Shareholders, and assume we are fully invested and geared:
Dividends†
For 2018, we are targeting a total dividend of 6.70 pence per
share, with the aim of continued progressive dividend growth
thereafter.
Total return
Our investment objective is to deliver a total return of
9%+ per annum over the medium term. This reflects the
dividends paid plus growth in net asset value.
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Tritax Big Box REIT plc Annual Report 2017
† The target dividend is a target and not a profit forecast. There can be no assurances
that the target will be met and it should not be taken as an indication of the
Company’s expected or actual future results.
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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
Manager
Contract with a Manager who has
a knowledgeable and talented team,
committed to delivering value to
shareholders.
The Manager has a team dedicated to running the Group, comprising highly
experienced and qualified people with a track record of success. We also benefit
from the skills and experience of the Manager’s other employees, including the
market knowledge they gain from working on other investment businesses and
the cost efficiencies of utilising some of them part-time.
See The Manager, pages 62-63.
Customers
Develop and maintain a deep
understanding of the businesses
that operate in our market in order
to create long-term partnerships.
Building relationships with Customers enables us to work with them to deliver
asset management initiatives that meet their business objectives and unlock value
for us. Letting several properties to one customer also creates opportunities for
mutually beneficial cross-fertilisation, for example by limiting rent increases on one
property in return for extending the lease term on another, while still enhancing the
value of our portfolio.
See Asset Management, pages 50-55.
Operational excellence
Rigorously control costs and deliver
operational efficiencies, without
compromising growth or reputation.
We have a simple and transparent operating cost base, which largely comprises
the investment management fee, the Directors’ fees, and accounting, audit, legal,
valuation, compliance and regulatory fees. This helps us to focus on efficiency and
achieve one of the lowest EPRA cost ratios in our peer group.
See Financial Performance, pages 56-61.
Our success in building the portfolio, through an average of approximately one
acquisition per month since listing, also demonstrates the quality and efficiency
of the Manager’s operations and its team.
See The Year in Brief, pages 8-9.
Capital risk management
Achieve the right risk and return
balance of equity and debt, to
finance our business and enhance
returns.
The Group is financed through equity and debt. Using debt can increase
Shareholder returns and allows us to further diversify our portfolio. Looking
forward, we aim to minimise cash drag by temporarily repaying any sums drawn
under our new revolving credit facility with any new equity capital raised. We are
targeting an LTV over the medium term of 35%, which we believe is conservative
given the quality of our investments.
See Manager’s Report, pages 36-61.
Corporate responsibility
Strive to meet our corporate
responsibilities towards society
and the environment, in every
part of our business.
As an externally managed business without any employees, the Group’s
opportunities to make a significant impact in this area are limited. Even so, we aim
to work responsibly, including buying buildings with A, B or C Energy Performance
Certificate ratings where possible and working with tenants to help them achieve
their sustainability goals.
See Responsible Business, pages 72-75.
Tritax Big Box REIT plc Annual Report 2017
35
Strategic Report
MANAGER’S REPORT
The Group delivered a strong performance
in 2017 with a total return of 15.2%. It was
a busy year, with 11 assets purchased
improving diversification and positioning
the portfolio for further growth.
In this report, we provide a detailed analysis of the portfolio,
describe the progress the Group has made with its pre-let
forward funded developments and asset acquisitions in 2017,
set out the achievements of the Group’s asset management
programme in the year, and explain the Group’s financial
performance and position.
Delivering the investment strategy
During the year, the Group added 11 assets (
ending the year with 46 assets plus 114 acres of strategic land.
see page 42),
As described on page 34
focuses on four investment pillars.
, the Group’s investment strategy
Our portfolio by investment pillar (by valuation)
Core low risk income
Potential opportunities to enhance value
Amazon Peterborough
Co-op Thurrock
Euro Car Parts Tamworth
Screwfix Litchfield
Hachette Didcot
Unilever Doncaster
Morrisons Birmingham
Royal Mail Atherstone
Royal Mail Daventry
Eddie Stobart Carlisle
Unilever Cannock
Foundation assets, 75%
Sainsbury’s Sherburn-in-Elmet
M&S Castle Donington
Morrisons Sittingbourne
Rolls-Royce Motor Cars
Bognor Regis
The Range Doncaster
Kuehne+Nagel Derby
L’Oréal Manchester
Ocado Erith
B&Q Worksop
Argos Heywood
Brake Bros Harlow
Tesco Goole
Dunelm Stoke-on-Trent
T.K. Maxx Wakefield
Howdens I Raunds
Brake Bros Bristol
Argos Burton-upon-Trent
Dixons Carphone Newark
Gestamp Wolverhampton
Value Add assets, 17%
Tesco Chesterfield
Tesco Didcot
Next Doncaster
Wolseley Ripon
DHL Skelmersdale
DHL Langley Mill
Tesco Middleton
Kellogg’s Manchester
Whirlpool Raunds
Dunelm Stoke-on-Trent
M&S Stoke-on-Trent
ITS/Wincanton Harlow
Growth Covenant assets, 6%
New Look Newcastle-under-Lyme
Nice-Pak Wigan
Matalan Knowsley
Cerealto Worksop
Strategic Land, 2%
Littlebrook Dartford
Our investment pillar by weighted average lease term (WAULT)
Foundation assets
15.9yrs
Value Add assets
4.7yrs
Growth Covenant assets
19.8yrs
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Foundation assets provide the core, low-risk income and
made up 75% of the year-end portfolio by value. Value Add
and Growth Covenant assets made up 17% and 6% of the
portfolio respectively and provide opportunities for value
enhancement through asset management. The remaining 2%
by value is strategic land, providing us with the opportunity to
create enhanced capital returns by securing pre-lets before
commencing developments and benefiting from an attractive
yield on cost. These descriptions serve as a guide, but they are not
exclusive. For instance, significant value-enhancing opportunities
also exist within our Foundation assets.
2017 was another highly successful year for the Group, as we
continued to source attractive assets for its portfolio, raised
further equity and debt finance to support its growth, and
delivered the dividend and total return targets.
Disciplined capital allocation
Capital discipline and patience are required to deliver value at
the point of acquisition and thorough due diligence is needed
to ensure quality. Growth in the portfolio has been supported
by raising equity, at issue prices which have been consistently
accretive to both the previous raise and NAV per share
at the time of issue, and attractively priced debt financing
(
see page 58). This availability of capital, matched against
a consistent high-quality pipeline of investment opportunities
sourced via our industry contacts, allows us to act quickly in
acquiring attractive assets for the Group. As a result, of the
assets we acquired in 2017:
Building a diversified portfolio
Occupational supply and demand is most favourable for landlords
of strategically located, large and modern Big Boxes. These
assets offer the potential for strong rental growth and tend to be
highly attractive to new tenants, if they became available to let.
Recognising the large average financial lot size of our
investments, growth of the portfolio has been an important
factor in providing geographic risk diversification across key
logistics locations in England. The properties are generally
modern, with 90% having been built since 2000, ensuring they
remain efficient and fit for purpose as customers’ needs evolve.
The Group’s assets are true Big Boxes, with 64% of the portfolio
comprising buildings of 500,000 sq ft or more. As discussed in
the Our Market section, these larger logistics facilities are the
hardest to replicate and this has prevented an oversupply of
development in this subsector of the market.
Delivering secure income
The Group’s portfolio produces a diversified, robust and
long-term income stream, secured by some of the UK’s
strongest omni-channel retailers, and a range of top-quality
manufacturers and logistics companies.
The Group’s assets are let to 36 different Customers, with seven
new Customers added during 2017. The Customer base is high-
calibre, with 81% of Customers (or their parent companies)
being members of major stock market indices in the UK, Europe
and USA.
• 93% by value were off-market; and
• the average net initial purchase yield to the Company was 5.5%.
Capital growth
The portfolio was independently valued by CBRE as at
31 December 2017 at £2.61 billion (31 December 2016:
£1.89 billion) (‘market value’ or ‘fair value’ under IFRS 13) in
accordance with the RICS valuation – global standards 2017.
This represents the aggregate of individual property values with
no premium discount being applied for a collective portfolio.
As at 31 December 2017 the portfolio’s WAULT stood at
13.9 years (increasing to 14.7 years as at the date of this Report
including assets exchanged but not completed post period),
ahead of the Group’s target of over 12 years. As at period end,
41% of leases do not expire for at least 15 years and just 10% of
rents are due to expire within the next five years.
Analysis by investment pillar further highlights the strength of
the portfolio, with the Group’s core Foundation assets having
a WAULT which substantially exceeds the portfolio average.
Like-for-like valuation growth (on 35 assets) was 8.72% or
£165.06 million. During the year the Group acquired the strategic
land at Littlebrook plus 11 income producing assets for an
aggregate price of £497.45 million. Acquisition costs on these
assets represented an attractive level of only 3.7% (compared
to standard costs of 6.8%) due to the lower costs associated
with acquiring corporate vehicles and forward funded pre-let
developments. At the year end these 12 acquisitions were valued
at £548.54 million, representing an increase of £51.09 million or
10.3% excluding purchase costs. Combined with the standing
portfolio the total capital growth was therefore £216.14 million
or 9.0% excluding purchase costs.
Well positioned for income growth
The timing of rent reviews over the next few years supports
the Group’s ambition to deliver income growth, thereby
underpinning its progressive dividend policy. Rent reviews
typically take place every five years but the Group also benefits
from some annual fixed and inflation linked reviews. Through
careful selection we have ensured a balance in the timing of the
Group’s rent reviews, which provides the opportunity to grow
rental income each year.
As at 31 December 2017, the Group’s annualised rental
income was £125.95 million, up 26% over the previous year.
Tritax Big Box REIT plc Annual Report 2017
37
Strategic Report: Manager’s Report
This compares with the Estimated Rental Value (ERV) of
£135.22 million, assessed by the Group’s independent
valuer, CBRE. This represents a potential rental reversion
of approximately 7.4%, which is the amount the rent would
increase if all properties in the portfolio were subject to rent
reviews as at 31 December 2017 and were settled at CBRE’s
ERVs. The like-for-like ERV growth was 3.8% over 12 months.
Of the contracted rent roll as at the year end (including rents due
under agreements for lease from forward funded developments),
the breakdown of rent reviews by type was as follows:
Combining the fixed uplifts together with inflation linked
leases that benefit from a collar, it is notable that 33% of the
Group’s rental income is subject to guaranteed increases
over a five year time horizon (assuming no vacancies from
lease default or following lease expiry).
In 2017, 15.0% of the Group’s rental income was subject to
rent review (
see Asset management, pages 50-55). In
2018, a further 23.8% is subject to review.
Open market rent reviews: 40% These track the rents
achieved on new lettings and rent reviews of comparable
properties in the market, offering the potential to capture
the recent and continued healthy rental growth in the Big
Box logistics market.
Fixed uplift rent reviews: 14% Fixed rent reviews provide
certainty of income growth, at either 2% pa (one lease)
or 3% pa (four leases). By income, 63% of these leases
have five yearly reviews and 37% are reviewed annually
(provide rental increases each year).
RPI/CPI linked: 37% These provide inflation protection.
All but two of these in our portfolio are the more attractive
RPI linked variant. All are subject to caps (maximum 5% pa).
Over £24.3 million of our inflation linked income is also
collared (benefits from minimum uplifts). Of the 15 inflation
indexed leases, 11 are reviewed five yearly and four are
reviewed annually (provide rental increased each year).
Hybrid: 9% Hybrid rent reviews can be an amalgam of
the above, for instance to the higher of open market
rents or RPI (potentially subject to a cap and collar). Such
arrangements provide the Group with enhanced income
growth potential.
Rental income growth and the
revisionary nature of the portfolio (£m)
150
120
90
60
30
0
68.4 71.9
36.1 35.0
135.2
126.0
99.7 104.3
Dec 2014
Dec 2015
Dec 2016
Dec 2017
■ Contracted annual rent ■ Estimated rental value (ERV) per
CBRE independent valuation
Portfolio rent roll expiry (%)
Portfolio rent review frequency
(% of annual rent roll subject to rent reviews)
50
50
24
22
25
19
40
30
20
10
0
38
35
30
25
20
15
10
5
0
31
10
18
19
22
2017
2018
2019
2020
2021
2022
■ Open market rent review ■ Fixed uplift ■ RPI/CPI ■ Hybrid
0-5
5-10
10-15
15-20
20+
yrs
By annual rent roll as at 31 December 2017
38
Tritax Big Box REIT plc Annual Report 2017
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Enhancing returns through pre-let developments
We use our knowledge and expertise to enable the Group to
forward fund pre-let developments with a developer. This allows
the Group to acquire prime assets at a discount to the price of
a let and standing asset, with the potential to capture much of
the financial benefit of development, without taking on the level
of risk associated with speculative development. The Group
never undertakes speculative development (ie construction
of a building without a tenant pre-lease).
In aggregate, the Group has successfully completed nine
forward funded pre-let developments between its IPO and
31 December 2017, all of which were broadly on time and to
budget. These nine assets had an average purchase yield of
5.5% and an initial weighted average unexpired term at the
point of completion of 21.0 years. This compares to CBRE’s
publically available data stating the average purchase
yield for a strong covenant on a 15 year term as 4.5% as at
31 December 2017.
Pre-let forward funded portfolio
+9
completed developments
totalling >4.5m sq ft
5.5%
average purchase yield for
the nine completed assets
+21.2%
uplift on acquisition
price*
21yrs
weighted average term
at completion
2020
2014
Acquisition price
£m
81.8
32.5
71.2
52.7
29.3
56.3
59.0
67.0
43.4
28.7
37.037.037.037.037.037.037.0
37.0
101.7
37.0
2015
2019
2016
Acquisition date
Conditional acquisition
Practical completion
Target practical completion
Post period
2018
2017
During 2017, four forward funded
developments reached practical
completion. These assets, totalling
1.98m sq ft, pre-let to TJX UK (trading
as T.K. Maxx), Gestamp Tellant Ltd,
Hachette UK Ltd and Screwfix Direct Ltd.
* 31 December 2017
Tritax Big Box REIT plc Annual Report 2017
39
Strategic Report: Manager’s Report
Post period pre-let development acquisitions
In December 2016, the Company announced that it had
exchanged contracts (conditional on receiving planning
consent) to provide forward funding for the development of two
new distribution warehouses at Warth Park, Raunds, pre-let
under two separate 30 year leases to Howdens Joinery Group
Plc (‘Howdens’).
Capturing the development land opportunity
In May 2016, Shareholders approved an amendment to the
Company’s investment policy. This allows the Company to
purchase land and options over land, with the intention of
entering into agreements to forward fund pre-let Big Box
developments. The investment policy does not allow any
speculative development of buildings.
Our acquisition of the land and commencement of the
development were delayed due to a prolonged challenge to the
planning consent which was resolved in favour of the Group
and our development partner, Roxhill, in early 2018. Following
this the Group completed contracts for the site acquisition and
forward funding for the development and site works are now
underway.
The investment price was amended to £103.7 million, to reflect a
longer construction period due to the delayed planning consent
and revised construction programme. Completion of construction
is expected by winter 2019.
Since the year end the Company also exchanged contracts,
conditional on receiving full planning consent, to provide
forward funding for the development of a new regional
distribution centre at Midlands Logistic Park, Corby. The
development is pre-let to Eddie Stobart Limited, with a
guarantee from ESLL Group Limited, for a 20 year term from
completion of the development. Completion of construction
is due by January 2019. The investment price is £81.8 million.
This is a natural evolution of the Company’s strategy, allowing
it to secure a pipeline of best-in-class assets in the strongest
locations. Forward funding these pre-let developments will
enable the Company to acquire them at an attractive yield on
cost, particularly when compared to the investment yield for
completed assets in comparable locations. The Company can
therefore enhance returns for Shareholders, while avoiding the
risks associated with speculative developments.
The Company has already begun to implement its revised
investment policy and, following, an extensive 12-month UK-
wide search which saw it reject numerous sites, the Company
purchased c.114 acres of prime development land at Littlebrook,
Dartford, in September 2017 (
see page 74).
The Company is now actively considering other land
opportunities, on sites ranging in size from 50-200 acres in
a number of locations.
40
Tritax Big Box REIT plc Annual Report 2017
The Group’s acquisition strategy in action
and price. We also constantly review the market, as well
as broader economic and political conditions, so we can
adjust the allocation of capital between the Group’s
four investment pillars: Foundation, Value Add, Growth
Covenant and Strategic Land.
In 2016, we had prioritised Foundation assets, which
provide the Group’s core income. In 2017, while most
of the acquisitions were Foundation assets, we also
considered that it was the right time to acquire some
Value Add and Growth Covenant assets. With tenant
demand remaining high and Big Boxes in short supply,
we are excited by the opportunities these assets provide
to create value and convert them into Foundation assets
through asset management.
Value Add assets tend to be smaller lot sizes, as this
reduces risk. While they also, by definition, have shorter
leases, the overall WAULT of the 11 assets which the
Group bought in 2017 is 11.4 years, closely aligned with
the Group’s average target of over 12 years. When buying
assets with shorter income, quality remains key. We
target modern assets with strong fundamentals, in the
right locations.
In addition, the Group exchanged conditional contracts
to purchase a c.114-acre development site at Littlebrook,
Dartford for £62.5 million. More information can be found
on pages 44-45
.
The Group acquired 11 investment assets during the year
for an aggregate acquisition price of £434.99 million,
further diversifying the portfolio by size and geography.
We have also broadened the Group’s range of Customers
and strengthened relationships with a number of existing
Customers by acquiring more assets that they occupy.
As in previous years, we continued to source these
investments at attractive yields, with 93% acquired off
market. For the 11 assets acquired, the average NIY was
an attractive 5.5%; this yield supports the Group’s ability
to grow the dividend in 2018. Of the 11 purchases, six
were corporate acquisitions and one was forward funded.
This significantly reduced the associated transaction
costs, enhancing the day one running yield.
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Patience and discipline are key to investing for value,
and we only proceed with purchases at the right quality
James Dunlop Partner, Investment Director
The Group’s acquisitions in 2017
+10
Big Boxes assets
Ten standing assets, with an
aggregate purchase price of
£405.8m
+1
Big Box asset
One pre-let forward funded
development, with an
acquisition price of £29.2m
+114 acres
Prime strategic land
at Littlebrook, Dartford
5.5% NIY
Average NIY
at acquisition of the
11 Big Boxes acquired
93%
Of assets acquired
off market
4.43 m sq ft
Logistics space
across the 11 assets
acquired
11.4yrs
WAULT
The 11 acquisitions had
a WAULT of 11.4 years at
acquisition
Tritax Big Box REIT plc Annual Report 2017
41
Strategic Report: Manager’s Report
Standing investments acquired 2017
Unilever
Doncaster
South Yorkshire
Acquired: May 2017
Acquisition price: £20.90 million
Net initial yield: 5.6%
Gross internal area: c.262,885 sq ft
Eaves height: c.11 and 26 metres
Built: 2002
Lease expiry: May 2032
On/off market: Off market
Royal Mail
Atherstone
Warwickshire
Acquired: September 2017
Acquisition price: £32.68 million
Net initial yield: 6.1%
Gross internal area: c.395,111 sq ft
Eaves height: c.9 to 10 metres
Built: 1973-1995
Lease expiry: September 2027
On/off market: Off market
• Located on Trax Park, close to the M18, A1(M) and M1, with
• Located 21 miles north-east of Birmingham with excellent
good access to the ports of Hull and Grimsby, and adjacent to
Doncaster Rail Freight Terminal.
connectivity, the property is let to Royal Mail Group Limited,
the main subsidiary of Royal Mail plc.
• This high specification facility was purpose built for Unilever
• The property benefits from significant capital investment and
and fitted out to include a high level of automation.
a low site cover of 35%.
• New 15 year lease; five yearly upward only rent reviews,
to RPI collared at 1.5% and capped at 3.5% pa, annually
compounded. Tenant break option at years 10 and 12 subject
to a full rental penalty to the end of the lease term.
• Acquired with a c.10 year unexpired lease; five yearly upward
only open market rent reviews, the next due in September
2021.
Morrisons
Birmingham
West Midlands
Acquired: June 2017
Acquisition price: £92.33 million
Net initial yield: 5.3%
Gross internal area: c.814,329 sq ft
Eaves height: c.16.5 metres
Built: 2012
Lease expiry: May 2038
On/off market: Off market
Royal Mail
Daventry International
Rail Freight Terminal
(DIRFT), Northamptonshire
Acquired: October 2017
Acquisition price: £48.82 million
Net initial yield: 5.0%
Gross internal area: c.264,802 sq ft
Eaves height: c.7-13 metres
Built: 2003
Lease expiry: August 2023
On/off market: Off market
• Located on Birch Coppice Business Park, close to J.10 of the
• Situated at DIRFT (Daventry International Rail Freight
M42. The facility was purpose built for Ocado (the sub-tenant)
with multiple mezzanine floors, high levels of automation and
a low site cover of c.23%.
• Acquired with a c.21 year unexpired lease; annual upward only
rent reviews to CPI, capped at 3.5% pa.
Terminal) on J.18 of the M1, this high-specification 24 /7 parcel
delivery hub benefits from a very low site cover of c.18%.
• Acquired with a c.6 year unexpired lease; annual upward
only rent reviews to RPI capped at 3% pa, the next due in
August 2018.
Investment pillars:
n Foundation n Value Add n Growth Covenant n Strategic Land
42
Tritax Big Box REIT plc Annual Report 2017
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Standing investments acquired 2017
Marks & Spencer
Stoke-on-Trent
Staffordshire
Acquired: October 2017
Acquisition price: £36.40 million
Net initial yield: 5.4%
Gross internal area: c.382,594 sq ft
Eaves height: c.12 metres
Built: 2008
Lease expiry: May 2026
On/off market: Off market
Cerealto (UK)
Worksop
Nottinghamshire
Acquired: November 2017
Acquisition price: £20.25 million
Net initial yield: 6.6%
Gross internal area: c.330,807 sq ft
Eaves height: c.12 metres
Built: 2007
Lease expiry: September 2035
On/off market: Off market
• Located adjacent to the Group’s Dunelm property (see below)
and in a core logistics location close to the M6, the property
is one of M&S’s five national distribution centres for general
merchandise and is fully fitted out for the tenant’s occupation.
• Acquired with a c.8.5 year lease subject to a tenant break
option or a five yearly upward only open market rent review
in 2021.
• Located at Dukeries Industrial Estate, which has easy access
to both the M1 and A1.
• The Cerealto lease is guaranteed by Grupo Siro Corporativo SL,
a global private label food manufacturer.
• Acquired with a c.18 year lease; fixed rental uplift due in
September 2020 with five yearly upward only open market
reviews thereafter.
Dunelm
Stoke-on-Trent
Staffordshire
Acquired: October 2017
Acquisition price: £42.10 million
Net initial yield: 5.4%
Gross internal area: c.503,389 sq ft
(in two buildings)
Eaves height: c.12 metres
Built: 2004 and 2010
Lease expiry: August 2020
On/off market: Off market
Stobart Group
Carlisle Lake District
Airport, Cumbria
Acquired: November 2017
Acquisition price: £23.61 million
Net initial yield: 5.3%
Gross internal area: c.314,981 sq ft
Eaves height: c.12.5 metres
Built: 2015
Lease expiry: February 2038
On/off market: Off market
• Located adjacent to the Group’s M&S property (see above)
comprising two interconnected sortation and distribution
buildings that work in conjunction with the nearby Dunelm
National Distribution Centre at Sideway, which is also owned
by the Company.
• Acquired with two coterminous leases of c.3 years unexpired
without further rent review.
• Located at Carlisle’s Lake District Airport, close to the M6.
• This modern facility was acquired with a c.18 year unexpired
lease; five yearly upward only rent reviews to RPI, collared at
1.0% and capped at 3.5% pa, annually compounded. The next
review is due in February 2021.
Tritax Big Box REIT plc Annual Report 2017
43
Strategic Report: Manager’s Report
Standing investments acquired 2017
Pre-let forward funded development
acquired in 2017
Wincanton and ITS
Harlow
Essex
Acquired: November 2017
Acquisition price: £44.40 million
Net initial yield: 6.2%
Gross internal area: c.390,092 sq ft
Eaves height: c.11.5 metres
Built: 2008
Lease expiries: ITS, November 2031;
Wincanton, February 2022
On/off market: Off market
Hachette
Didcot
Oxfordshire
Acquired: February 2017
Acquisition price: £29.24 million
Net initial yield: 5.8%
Gross internal area: c.243,409 sq ft
Eaves height: 20 metres
Built: Completed July 2017
Lease expiry: July 2032
On/off market: Selectively marketed
• This high specification facility is strategically positioned close
• A forward funded development (now completed) of a new high
to the M11, the M25 and Central London.
specification and automated global distribution centre.
• Let under two leases to Wincanton (61% of rent) and Industrial
• Situated in a core South East logistics location close to the
Tool Supplies (ITS) (39% of rent).
M4, M40 and A34.
• Acquired with a c.4.5 year unexpired lease to Wincanton
(no further rent review) and a c.14 year unexpired lease
(tenant break option in 2026) to ITS, subject to annual upward
only rent reviews to RPI collared at 1% and capped at 2% pa.
• Acquired with a new 15 year lease, subject to five yearly
upward only open market rent reviews. During construction
the Group received an income return from the developer
equivalent to the lease rent.
Unilever
Cannock
Staffordshire
Acquired: December 2017
Acquisition price: £44.25 million
Net initial yield: 5.0%
Gross internal area: c.541,157 sq ft
Eaves height: c.10 to 28 metres
Built: 2005, extended 2012
Lease expiry: December 2027
On/off market: Off market
Strategic land acquired in 2017
Littlebrook
Dartford
South East London
Acquired: July 2017
Acquisition price: £62.5 million
Site area: 114 acres of prime
strategic land
• Situated in a core Midlands location, close to the M6 and
• The site occupies a core location within London’s M25
access to the wider motorway network.
• The property was purpose built for Unilever and is highly
automated.
• Acquired with a new 10 year lease, subject to a five yearly
upward only rent review to RPI, collared at 1.5% and capped
at 3.5% pa, compounded annually.
orbital motorway (J.1A) adjacent to the Dartford Thames
River Crossing. It provides the opportunity for the efficient
distribution of goods across the densely populated areas of
London and the Home Counties.
• Working alongside one of the UK’s leading specialist logistics
developers, Bericote Properties, the Company aims to deliver
one of London’s largest Big Box logistics parks.
Investment pillars:
n Foundation n Value Add n Growth Covenant n Strategic Land
44
Tritax Big Box REIT plc Annual Report 2017
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Looking forward
The sector continues to benefit from strong demand,
as occupiers invest in their logistics and e-commerce
supply chains, which in turn leads to significant
investment demand. We therefore expect some further
yield compression in 2018, supporting capital values.
While the market is competitive, we see opportunities
to acquire high-quality standing assets, forward funded
pre-let developments and strategic land, to further
diversify the Group’s portfolio. We have identified a
pipeline of potential purchases and since the year end
we have already completed three acquisitions, including
the two Howdens assets the Group conditionally
acquired at the end of 2016 along with the investment
asset in Crewe, guaranteed by AO World Plc. We have
also exchanged conditionally on one forward funded
development asset, pre-let to Eddie Stobart in Corby.
see page 58), we will be able to
Having refinanced the Group’s secured debt in
December 2017 with a bond issue and a new revolving
credit facility (
finance acquisitions more efficiently, while remaining
prudently within the Group’s 40% LTV target (although
we are likely to be operating with an LTV target of 35%
in the short to medium term). This would enable us to
subsequently raise further equity, to provide headroom
for further acquisitions. This approach will minimise
cash drag, while giving investors greater certainty
about the assets they are funding.
Littlebrook, Dartford – project update
Within two weeks of completing the purchase, phased demolition
began of the former power station and associated infrastructure.
The first c.54 acres will be ready for development during autumn/
winter 2018. The final phase of demolition is projected to finish
in late 2020, with the current National Grid electricity substation
being relocated and decommissioned by 2025.
Part of the site already benefits from c.488,006 sq ft of planning
consent for storage and distribution use. Planning discussions
are ongoing with the local authority for consolidation of the
existing consents, to ensure that a pre-let vertical build can start
promptly on phase one. Separate discussions are under way to
progress planning for the remainder of the site.
The scheme is not being actively marketed until the planning
discussions are advanced, but despite this, an encouraging level
of occupational requirements have been received or identified.
Construction of new buildings will only begin on a pre-let basis,
and is expected to start towards the end of 2018/early 2019.
Post period-end acquisitions
Following the period end, the Group acquired three assets,
two forward funded developments pre-let to Howdens and
one standing investment let to AO World. The Group also
conditionally exchanged on a forward funding in Corby, pre-let
to Eddie Stobart Ltd. Combined, the two pre-let forward funded
developments total 2.2 million sq ft of new Big Box logistics
space, with an unexpired lease term of 24 years (including
the developers licence fee during construction). These four
investments have a total acquisition price of £221.6 million,
reflecting an purchase yield of 5.1% net initial yield.
Howdens, II & III
Raunds
Northamptonshire
AO World
Crewe
Cheshire
Acquired: January 2018
Acquisition price: £103.7 million
Net initial yield: 5.0%
Gross internal area: 657,000 sq ft &
300,000 sq ft
Eaves height: c.15 metres
Built: Expected winter 2019
Lease expiries: Expected September 2049
On/off market: Off market
Acquired: January 2018
Acquisition price: £36.1 million
Net initial yield: 5.4%
Gross internal area: 387,541 sq ft
Eaves height: 12.5 metres
Built: 2006
Lease expiries: November 2026
On/off market: Off market
Eddie Stobart
Corby
Northamptonshire
Acquired: February 2018
Acquisition price: £81.8 million
Net initial yield: 5.0%
Gross internal area: 844,000 sq ft
Eaves height: 18 metres
Built: Expected January 2019
Lease expiries: Expected January 2038
On/off market: Off market
Tritax Big Box REIT plc Annual Report 2017
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Why London needs a large-scale Big Box
logistics park inside the M25
“Currently, Littlebrook is the only site available within the M25 that can potentially accommodate
logistics warehouses in excess of 450,000 sq ft.”
London is a thriving city
London’s population is forecast to increase to 10 million
by 2031, and average spending is expected to grow at 3%
pa over the next five years. As a result, it is estimated that
retailers alone will require approximately 3 million sq ft per
annum of additional logistics space in London, of which
c.1.3 million sq ft per annum just from online retailers. This is
in addition to the demand expected from other, non-retail
companies seeking more efficient light industrial and
distribution space.
A growth story
Occupier demand is high, yet the UKs densely populated
capital suffers from an acute shortage of modern facilities
from which to distribute goods. Logistics property located in
and around London has recently been one of the strongest
performing sectors of the UK property market. London prime
logistics headline rents have seen an average uplift of more
than 50% over the five years to December 2017, with the
East London area recording one of the highest levels of rental
growth at nearly 60%2.
A scarce commodity
Suitable development land within central London and the
South East is extremely limited due to pressures from
alternative uses, as a growing population places ever greater
demands on land. Between 2001 and 2015 approximately
3,225 acres of industrial land has been lost to alternative
uses. Soaring demand for space, coupled with an acute
shortage of land available for development, has resulted in
London and the South East becoming the most constrained
market in the UK, with grade A availability levels reducing by
50% since Q1 20161.
These characteristics are compelling for those investing
in prime logistics assets. London has witnessed yields
compress from 4.87% to 4.41% during 20173. Logistics land
prices in the capital have hit an all-time high, with a developer
reported to have paid over £3 million per acre in February
2018 for a 16.75-acre site at Elstree.
1 Source: Savills, London & South East 100,000 sq ft + units
2 Source: CBRE
3 Source: Gerald Eve, London 50,000 sq ft + units
Tritax Big Box REIT plc Annual Report 2017
47
Strategic Report: Manager’s Report
Summary of the portfolio
The table below summarises the Group’s portfolio at the year end. Assets are listed in the order the Group acquired them.
MONTH OF
ACQUISITION
Dec 2013
Dec 2013
Mar 2014
Apr 2014
Jun 2014
Jun 2014
Aug 2014
Aug 2014
Aug 2014
Oct 2014
Nov 2014
NET
PURCHASE
PRICE
£M
48.75
82.58
28.64
27.20
60.00
97.80
17.53
28.87
12.24
36.98
48.50
PURCHASE
NIY
%
6.7
5.2
6.6
6.9
6.1
5.2
6.5
6.5
6.7
6.3
6.1
LOCATION
Leeds
Castle Donington
Chesterfield
Didcot
Doncaster
Sittingbourne
Langley Mill
Skelmersdale
Ripon
Bognor Regis
Thorne
TENANT
Sainsbury’s Supermarket Ltd
Marks & Spencer plc
Tesco Stores Ltd
Tesco Stores Ltd 1
Next Group plc
Wm Morrison Supermarkets Ltd
DHL Supply Chain Ltd
DHL Supply Chain Ltd
Wolseley UK Ltd
Rolls-Royce Motor Cars Ltd
CDS (Superstores International) Ltd
(trading as The Range)
Tesco Stores Ltd
Kuehne+Nagel Ltd 2
L’Oréal (UK) Ltd
Argos Ltd
B&Q plc
New Look Retailers Ltd
Nice-Pak International Ltd
Ocado Holdings Limited 3
Brake Bros Ltd
Tesco Stores Ltd
Dunelm (Soft Furnishings) Ltd
TJX UK (trading as T.K. MAXX)
Howden Joinery Group plc
Matalan Retail Ltd
Brake Bros Ltd
Argos Ltd 4
DSG Retail Ltd
Gestamp Talent Ltd 5
Kellogg Company of Great Britain Limited
Amazon UK Services Ltd 6
Euro Car Parts Ltd
Whirlpool UK Appliances Ltd
The Co-operative Group Ltd
Screwfix Direct Ltd
Hachette UK Ltd
Unilever UK Ltd
Wm Morrison Supermarkets Ltd
Royal Mail Group Ltd
Royal Mail Group Ltd
Dunelm (Soft Furnishings) Ltd
Marks & Spencer plc
Cerealto (UK) Ltd 7
Stobart Group Limited
Industrial Tool Supplies (London) Ltd &
Wincanton Holdings Ltd
Unilever UK Ltd
Littlebrook Strategic Land
Total for assets completed at 31/12/17
Post period end
Raunds
Howdens Joinery Group plc ‡
Raunds
Howdens Joinery Group plc ‡
Expert Logistics Ltd 8 (trading as AO.com)
Crewe
Eddie Stobart Limited 9#$ (conditional on planning) Corby
Middleton
Derby
Manchester
Heywood
Worksop
Newcastle-under-Lyme
Wigan
Erith
Harlow
Goole
Stoke-on-Trent
Knottingley
Raunds
Knowsley
Bristol
Burton-on-Trent
Newark
Wolverhampton
Manchester
Peterborough
Birmingham
Raunds
Thurrock
Fradley
Didcot
Doncaster
Birmingham
Atherstone
Daventry
Stoke-on-Trent
Stoke-on-Trent
Worksop
Carlisle
Harlow
Cannock
Dartford
Dec 2014
Dec 2014
Dec 2014
Apr 2015
Apr 2015
May 2015
May 2015
May 2015
Jun 2015
Jun 2015
Jun 2015
Sep 2015
Oct 2015
Dec 2015
Mar 2016
Mar 2016
May 2016
Aug 2016
Aug 2016
Aug 2016
Oct 2016
Oct 2016
Oct 2016
Dec 2016
Feb 2017
May 2017
Jun 2017
Sep 2017
Oct 2017
Oct 2017
Oct 2017
Nov 2017
Nov 2017
Nov 2017
Dec 2017
Jul 2017
Jan 2018
Jan 2018
Jan 2018
Feb 2018
SIZE
SQ FT ¥
NEXT RENT
REVIEW
DATE
571,522 May 2018
Dec 2021
906,240
501,751
N/A
Aug 2019
288,295
Mar 2018
755,055
Jun 2018
919,443
Aug 2019
255,680
Aug 2019
470,385
Sep 2021
221,763
Sep 2020
410,095
Oct 2022
750,431
Dec 2017
302,111
Apr 2022
343,248
Aug 2018
315,118
495,441
Mar 2018
Nov 2021
880,175
398,618
Apr 2022
399,519 May 2021
Apr 2021
563,912
Jul 2019
276,213
Oct 2022
711,933
Feb 2021
526,953
Jan 2022
640,759
Jul 2021
658,971
Oct 2021
578,127
Mar 2021
250,763
Feb 2018
653,670
Mar 2021
725,799
Jul 2021
545,998
N/A
311,602
Apr 2020
549,788
Jan 2021
780,977
473,263
N/A
Dec 2020
322,684
Oct 2022
553,276
243,409
Jul 2022
262,885 May 2022
814,329 May 2018
Sep 2021
395,111
Aug 2018
264,802
503,389
N/A
382,594 May 2021
Dec 2020
330,807
Feb 2021
314,981
Nov 2018
390,092
22.45
29.27
25.83
34.10
89.75
30.05
28.66
101.73
37.18
47.10
43.43
59.00
67.00
42.38
25.20
74.65
77.30
56.30
23.50
42.90
80.14
35.35
56.50
52.70
29.24
20.90
92.33
32.68
48.82
42.10
36.40
20.25
23.61
44.40
8.3
6.0
7.1
5.3
5.1
5.9
6.4
5.3
5.0
5.7
5.5
5.3
5.0
6.3
5.2
5.6
5.9
5.1
5.9
5.6
5.0
6.6
5.5
5.5
5.8
5.6
5.3
6.1
5.0
5.4
5.4
6.6
5.3
6.2
44.25
62.50
2,169.04
541,157
5.0
N/A
N/A
5.70 22,753,134
Dec 2022
N/A
71.20
32.50
36.10
81.80
5.00
5.00
5.40
5.00
657,000
300,000
387,.541
844,000
Sep 2024
Sep 2024
Apr 2021
Jan 2024
1 Guaranteed by Tesco Plc
2 Guaranteed by Hays Plc
3 Guaranteed by Ocado Group plc
4 Guaranteed by Experian Finance plc
5 Guaranteed by Gestamp Automoción SA
48
6 Guaranteed by Amazon EU Sarl
7 Guaranteed by Grupo Siro Corporativo SL
8 Guaranteed by AO World Plc
9 Guaranteed by ESLL Group Limited
* Now unconditional post period end
^ Weighted portfolio purchase yield
excludes Littlebrook Strategic Land
‡ Estimated target practical completion
date of September 2019
$ Estimated target practical completion
date of January 2019
¥ CBRE measured floor area
# Conditionally exchanged
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Tritax Big Box REIT plc Annual Report 2017
49
Strategic Report: Manager’s Report
Our asset management strategy in action
by acquiring adjacent land. Such initiatives can improve
the customer’s efficiency and reduce operating costs as
well as helping customers to meet their environmental
and social responsibility obligations, such as by installing
renewable energy systems.
A diverse property portfolio with numerous small or multi-
tenanted assets can provide multiple opportunities for
asset management annually, but each will have only a small
financial impact on the portfolio. The Group’s portfolio
continues to develop in number, now with 46 large income
producing assets. With larger assets the frequency of
opportunities to create value though asset management
are fewer, but the impact of each can be greater.
Through regularly meeting with our Customers either
individually or at a range of industry focused events,
hosted or attended by the Manager, we have developed
strong relationships with key individuals. These
discussions can result in further engagement and
opportunities as highlighted in this report.
During 2017 we successfully extended three leases for
two of our assets and documented rent reviews on seven
of our properties. We also completed two development
extensions for Rolls-Royce Motor Cars and commenced
a building extension for New Look at Newcastle-Under-
Lyme. In addition we completed an option agreement
over 46.5 acres of land adjoining one of the Group’s
existing assets.
Petrina Austin Partner, Head of Asset Management
and Sustainability
The Group’s asset management strategy focuses on
creating value throughout an asset’s lifecycle.
The potential to protect and enhance income and capital
value is a key consideration when we source assets for
the Group. We categorise the Group’s assets into one
of four investment pillars (
see page 34) and develop
business plans for each. There are opportunities to add
value to assets across all four of the investment pillars but
particularly for Value Add assets, which comprised 17.2%
of the Group’s portfolio at the year end. These are typically
let to financially sound Customers and offer the potential
to use asset management to enhance capital value and,
for some assets, turn them into Foundation assets.
We look to use our industry and market expertise and
strong relationships with the Group’s Customers to
grow and improve the quality of its income streams. This
can include: negotiating rent reviews, lease extensions,
refurbishment, agreeing new lettings, enhancing the
building or extending it, either within the existing site or
The Group’s asset management highlights in 2017
15.0%
Rent roll
Subject to review
+2.43%
Annual equivalent
increase to the passing
rental income
+3
Lease extensions
+7
Rent reviews
settled across 3.7 m sq ft
+c175,000 sq ft
of physical extensions to existing facilities
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Tritax Big Box REIT plc Annual Report 2017
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A strong foundation
The key to unlocking value through asset management is owning
well located, modern, fit-for-purpose buildings that tenants want
to occupy and which are strategically important to their business.
In such circumstances they will be committed to the asset.
beyond simply the main property contacts, extending to the
logistics and operations directors, who often drive the internal
strategy. We work closely with them to better understand their
challenges and unlock opportunities through the most efficient
application of their operational real estate.
Financially strong occupiers will often make significant
investment in the property and continue to do so throughout the
life of the lease. Changes which benefit the tenant can often also
provide opportunities for the landlord to benefit from capital
value growth, through funding initiatives such as mezzanine
floors or solar panels.
Aside from engaging with our occupiers, we keep abreast
of advancements within the logistics and distribution sector
by attending industry events and meeting with companies
developing systems and equipment which could benefit our
Customers, such as evolving automation and robotics.
Our customer led approach
Our aim is to be an occupier’s landlord of choice for their
distribution property network. A key part of our approach is
to develop strong relationships with our Customers, so that
we understand their requirements and future objectives. Our
Customers are highly valued since the success of their business
can directly correlate with value and generates property
opportunities for us.
We proactively assist occupiers considering future space
or network reviews, orchestrating technical advice so as to
develop a ‘partnership’ approach in their evolving decisions.
In order to acquire a balanced understanding, we seek to
acquire a wide contact base within our Customers’ companies
Protecting value
We regularly review the financial status of our Customers,
as well as those of potential new occupiers. This includes
monitoring their trading results and statements and analysing
the corporate strategies disclosed in their annual reports, which
could identify property opportunities. Where appropriate, we
negotiate a guarantee from the parent company of a tenant to
strengthen the financial covenant of the lessee.
We look to future-proof our assets, maintaining versatility
so they can be adapted to future uses and methods of
fulfilment. This includes identifying opportunities both within
our ownership and adjacent land. An example of this is the
completion of an option agreement in November 2017, covering
46.5 acres in Newark, adjoining the Groups’ DSG, Newark asset.
Our proactive asset management approach
Cohesive
business plans
Asset management plans
and risk assessments are
developed on an asset by
asset basis
Tenant covenant
analysis
Key to risk management and
transaction due diligence
Sector specialism
Unique knowledge and sector
insight – understanding UK
Big Boxes
Diligent asset
monitoring
Risk analysis at property
level prepared annually
and ‘health-checked’
monthly
A relationship based approach
Regular meetings and relationship
building with local and national
customer contacts – fundamental
to creating asset management
opportunities
Dedicated in-house teams
A team based approach – combining a
dedicated internal property management
and development resource
Valuable market
intelligence
Extensive network of key
relationships with agents, consultants
and in-house research ensuring
up-to-date market intelligence
Tritax Big Box REIT plc Annual Report 2017
51
Strategic Report: Manager’s Report
Capturing reliable and balanced income growth
The timing of rent review events over the next few years
supports the Group’s ambition to deliver income growth,
thereby underpinning our progressive dividend policy. Rent
reviews typically take place every five years but the Group
also benefits from some annual reviews.
Through careful selection we have ensured a balance in the
timing of our rent reviews which provides the opportunity to
grow our rental income each year. In 2017, 15.0% of the rent
roll was subject to a review.
Since the start of the year, we have settled seven rent reviews
across 3.73 million sq ft of the portfolio, adding £1.40 million
to the annual rent roll. This equates to an annual equivalent
increase to the passing rental income across these seven assets
of 2.43%.
At the year end, the breakdown of rent reviews by type,
calculated as a percentage of contracted rental income, was:
Open market rent reviews: 40% These track the rents
achieved on new lettings and rent reviews of comparable
properties in the market, offering the potential to capture
the recent and continued healthy rental growth of Big Box
logistics.
Fixed uplift rent reviews: 14% Fixed rent reviews provide
certainty of income growth. At either 2% pa (one lease)
or 3% pa (four leases). By income, 63% of these leases
have five yearly reviews and 37% are reviewed annually
(provide rental increases each year).
RPI/CPI linked: 37% Provide inflation protection.
All but two of these in our portfolio are the more attractive
RPI linked variant. All are subject to caps (maximum 5% pa).
Over £24.3 million of our inflation linked income is also
collared (benefits from minimum uplifts). Of the 15 inflation
indexed leases, 11 are reviewed five yearly and four are
reviewed annually (provide rental increases each year).
Hybrid: 9% Hybrid rent reviews can be an amalgam of
the above, for instance to the higher of open market
rents or RPI (potentially subject to a cap and collar). Such
arrangements provide the Group with enhanced income
growth potential.
Annual inflation indexed rent reviews:
Morrison’s, Sittingbourne: An annual rent review linked to RPI
(capped at 2.00%) was reviewed effective from June 2017, at an
uplift of 2.00% pa, resulting in an increase of £111,316 pa to the
passing rent.
Annual fixed rent reviews:
Argos, Burton-on-Trent: The 3% pa annual rent increase was
applied in February 2017, reflecting an uplift to passing rent
of £124,107 pa.
L’Oréal (UK) Limited, Trafford Park: The 3% pa annual rent
review was applied in September 2017, resulting in an uplift to
the passing rent of £61,975 pa.
Hybrid rent reviews:
The Co-operative Group, Thurrock: The Company owns a
warehouse and adjacent trailer park let under two separate
leases. The warehouse is reviewed five yearly to the greater
of passing rent, open-market rent or £2,597,604 pa, plus 10%
ancillary income for fit-out. The new review was agreed in June
2017, effective from December 2015 at £2,857,364 pa, reflecting
an increase of 10.41%. The next rent review on the trailer park
lease will be in May 2018.
Marks & Spencer, Castle Donington: The five yearly open
market rent is subject to increases of 1.5% minimum and 2.5%
maximum pa compound. The rent review was settled in April
2017 effective from December 2016 at the maximum increase
of 2.5% pa reflecting an overall increase of 13.1%.
Five yearly open-market rent reviews:
New Look, Stoke-on-Trent: The rent review was settled in
September 2017, effective from April 2017 reflecting an increase
of 12.3%.
Wolseley, Ripon: This asset is reviewed to open market rent.
The rent review was settled in November 2017, effective from
September 2016, reflecting an increase of 6.6%.
Four open market rent reviews remain unsettled and under
negotiation as at the period end.
Improving property and enhancing value
When acquiring assets for the Group, one of our key considerations
is the potential to implement physical improvements that can
protect and enhance capital value while potentially also growing
income. We typically acquire assets that are well configured
with low site cover to allow for future occupational flexibility,
since we understand that a Customer may need to extend an
existing building or alter the layout of a facility as operational
requirements evolve.
52
Tritax Big Box REIT plc Annual Report 2017
Through our in-house specialist knowledge and experience in this
sector, we can often suggest practical solutions. The aim of such
initiatives is not only to grow our income, but also to ensure that
our property assets are resilient and can adapt or evolve to meet
the future demands of supply chain distribution across the UK.
During 2017, the Group agreed two building extension projects,
which will add a total of c.174,510 sq ft of new space to our existing
assets in Bognor Regis and Newcastle-under-Lyme. Following
a seven month construction project, completing in October 2017,
Rolls-Royce took occupation of two building extensions for a
combined 96,476 sq ft (
see case study page 54).
Works are progressing to extend our New Look Big Box in
Newcastle-under-Lyme. This initiative will extend the facility by
c.78,034 sq ft. The tenant intends to commit significant capital
expenditure to automate and fit out the building.
As part of our asset management strategy we also incorporate
responsible business initiatives by encouraging our Customers
to make environmental enhancements. Highly mechanised
buildings and those with mezzanine floors can be energy hungry
given the scale of heating, lighting and power requirements. By
using biomass heating systems, wind turbines or roof-mounted
solar panels such as those we installed on The Range asset
in Thorne, we can improve a property’s EPC rating as well
as reduce the tenant’s operational costs and support their
sustainability commitments. As with the asset improvements
noted above, by funding these works, we can improve the
quality of the property and also generate additional income for
the Company (
see Responsible Business pages 72-75).
Lengthening income
Physical enhancements, such as constructing an extension or
improving the specification of a building, can allow us to commit
capital expenditure in return for not only a higher rent, but also
a lengthening of the lease term, thereby protecting longevity of
income and/or increasing capital values.
The two previously mentioned extension projects will result in
an increase to the unexpired lease terms of the assets, further
demonstrating the asset’s strategic importance and Customer
commitment each property:
Rolls-Royce Big Box, Bognor Regis: Both leases were
extended by an additional 12 months as part of the property
extension negotiation.
New Look Big Box, Newcastle-under-Lyme: The lease
was extended by 12 years as part of the property extension
negotiation.
Subsequent to implementing this asset management initiative,
New Look announced challenging trading conditions, which
they intend to address by rationalising their store portfolio.
The building is critical to New Look’s supply chain operation,
being one of only two UK facilities which service their UK
and European business, fulfilling both store replenishment
and e-commerce orders. At the period end New Look’s rent
exposure reflected 1.6% of the total portfolio income.
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Executing our asset management strategy
We use our in-house expertise, strong relationships and sector
knowledge to turn Value Add acquisitions into Foundation assets.
Value Add assets
• Usually benefit from attractive running yields.
• Typically occupy strong locations with good infrastructure
connectivity.
• Can have shorter unexpired lease terms, presenting
opportunity for extending the lease or re-letting.
• If property fundamentals are sound, there is the potential
to use expertise/relationships to convert Value Add assets
into Foundation assets.
Foundation assets
• Foundation assets provide the
backbone of our longer-term income.
• By creating a Foundation asset
from a Value Add asset, we can
deliver capital value growth without
incurring the significant transactional
(frictional) costs associated with
selling an asset and re-deploying
proceeds into an alternative
Foundation asset.
• Extending a lease term in this way
helps to protect our portfolio WAULT.
Tritax Big Box REIT plc Annual Report 2017
53
Rolls-Royce Big Box, Bognor Regis
In October 2014, the Group acquired the forward funded
development of a 313,220 sq ft technology and logistics
centre at Bognor Regis, pre-let to Rolls-Royce Motor Cars
Ltd (“RRMC”), for an investment price of £37 million. This
warehouse and distribution centre is strategically situated
for RRMC, eight miles from its historic home, headquarters
and principal UK assembly plant at Goodwood, West Sussex.
Built on an 18.95 acre site, this facility had the potential for
future expansion within the curtilage of the site.
In August 2016, just 11 months after practical completion of
the construction of the original two buildings, we agreed
to fund enhancement works to extend both buildings. This
expansion coincided with the launch of the new Rolls-Royce
Cullinan. Construction began in April 2017 with RRMC taking
occupation of the extension soon after practical completion
in autumn 2017.
The initiative:
• To increase the combined floor area by 96,875 sq ft to
accommodate the growing requirements of our customer.
The financials:
• Capital commitment: £8.9 million.
• Yield on cost of 8% against the increased rent of £704,281 pa.
The outcome:
• Increased the Income: Rent reviews remain at 3% pa fixed
(realised five yearly), applied to the enlarged floor area of
410,075 sq ft.
• Extended the income: Increased the lease term adding a
further year to each building lease, extending the unexpired
lease term to c.9.5 years.
• Increased capital values: This asset management initiative
has delivered a capital profit of £2.1 million.
54
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Strategic Report: Manager’s Report
Post-period events
Following the period end, the following asset management
initiatives were completed:
Tesco Big Box, Chesterfield: The Group purchased this asset
in 2014 at an attractive yield and categorised it as Value Add
due to the short period to lease expiry. In February 2018 we
received notification of the Arbitrator’s direction in relation to
the outstanding open market rent review as at 28 May 2015.
This award confirmed an uplift of the passing rent to £2,100,000
from £1,999,804. In the summer of 2016, Tesco announced its
intention to vacate the property at Chesterfield. We viewed
the prospect of a potential refurbishment and re-letting with
optimism, given the location, building size and configuration
in the context of an occupational market bereft of vacant
properties of this type readily available to let.
We have conditionally exchanged contracts to accept a
surrender of the lease, from Tesco without premium, with
completion expected by the end of April 2018. We have
subsequently entered into a 12 month licence with a high-quality
and well known occupier to cover rent and all non-recoverable
property costs, whilst the occupier strategy is finalised.
Looking forward
Continuing to develop our Customer relationships,
growing our understanding of their businesses and
integrating the Group’s properties as key assets in
their supply chain operations is a strategic priority.
We will continue to keep abreast of advances in
technology based applications for warehouse
management processes and systems, identifying
where the Company’s Customers may benefit. We
must also be live to threats and how best to insulate
the Company and assist our Customers with any
challenges that they face.
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Tritax Big Box REIT plc Annual Report 2017
55
Strategic Report: Manager’s Report
The Group’s financial strategy in action
that the majority of the equity was invested towards the
end of that period. Which had a consequential impact on
our Adjusted earnings.
Strong NAV growth, of 13.24p or 10.2% over 2016, was
underpinned by the continued investment supply and
demand imbalance for prime logistics assets; the weight
of global money looking to invest in the subsector was
particularly strong during the second half of the year.
Coupled with the dividend, this NAV growth resulted in
a total return of 15.2%, comfortably ahead of target.
One of the most significant events of the year was
the strengthening of the Group’s capital structure. In
December 2017, the Group issued its debut, unsecured,
dual-tranche loan notes totalling £500 million and with
an average term of 11.5 years. At the same time, we
raised £350 million of debt via an unsecured corporate
revolving credit facility. Combined, these allowed us to
refinance the majority of the Group’s secured debt and
move forwards with largely unsecured debt, providing
a flexible platform to support future growth. As a result,
the Group’s average maturity profile nearly doubled, to
8.9 years (from 4.5 years at the point of refinance). Entry
into the public bond market opens the Company up to an
increased pool of liquidity which further diversifies our
borrowing and will help to support future growth.
Frankie Whitehead Head of Finance
For 2017, the Group had a dividend target of 6.40 pence
per share and a total return target of at least 9%. We also
stated that we would explore opportunities to bring in
longer and alternative sources of debt financing, without
compromising the Group’s investment objectives.
The Group met its dividend target by declaring the final
quarterly dividend on 7 March 2018, taking the aggregate
dividends declared to 6.40 pence per share for 2017.
The total dividend was substantially covered by the
Group’s Adjusted earnings which were 6.37 pence per
share. In May 2017, we successfully raised an additional
£350 million of equity to further grow the Company and
diversify its assets. We successfully deployed the equity
within six months, as planned. Our patient search for the
right investments at attractive prices meant, however,
The Group’s financial highlights in 2017
6.40p
Dividend per share
In line with target
6.37p
Adjusted earnings
per share
Dividends substantially
covered by Adjusted
earnings per share
15.2%
Total return
Compared with the
medium-term target
of 9%+ pa
142.24p
EPRA NAV per share
Increased by 13.24p or
10.3%
£2.61bn
Portfolio value
Increase of 38% over 2016
(including all forward funded
commitments)
13.1%
EPRA cost ratio
Declined from 15.8%
in 2016
26.8%
Loan to value
With a further £340 million
of debt commitments
undrawn
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Financial results
Net rental income grew by £33.35 million, to £107.94 million
(2016: £74.59 million), reflecting the positive impact of
the investment activity throughout the year as well as the
contribution from four forward funded developments that
completed during the period.
The continued growth in the portfolio increased the Group’s
contracted rent roll to £125.95 million across 46 assets (2016:
£99.66 million across 35 assets), as at 31 December 2017.
The portfolio’s strong rental income with upward-only rent
reviews generated growth of £1.40 million to headline rents
across the seven rent reviews settled in the year, of which three
were annual reviews and four were five yearly reviews. Details
of the individual reviews settled can be found on page 52 within
Asset Management.
Operating profit before changes in the fair value of investment
properties, as reported under IFRS, grew by 49.1% to
£93.78 million (2016: £62.88 million). Along with the growth
in net rental income, administrative expenses have continued
to fall on a relative basis, achieved through the ratcheted
investment manager fee and further cost controls. The Group’s
low and predominantly fixed overhead base translates into
an EPRA cost ratio of 13.1% for the year (2016: 15.8%). This
continues to compare favourably with our peer group.
A gain of £175.98 million (2016: £47.5 million) on revaluation of
the Group’s investment properties was recognised in the year.
This was calculated after accounting for all costs associated
with asset purchases during 2017.
Net financing costs (excluding capitalised interest) for the
year were £19.92 million (2016: £11.55 million), excluding the
reduction in the fair value of interest rate derivatives of
£2.04 million (2016: £7.15 million). The increase in net financing
costs reflects the growth in the business and the subsequent
increase in average debt drawn during the year. Further
information on financing and hedging is provided below.
Tax
The Group is a UK REIT for tax purposes and is exempt from
corporation tax on its property rental business. The tax charge
for 2017 was therefore £nil (2016: £nil).
Profit and earnings
Profit before tax for 2017 was £247.80 million (2016: £91.90 million),
which resulted in basic EPS of 19.54 pence (2016: 10.52 pence).
The Group’s EPRA EPS for the year was 6.20 pence (2016:
5.90 pence).
The Group’s Adjusted EPS was 6.37 pence for 2017 (2016:
6.51 pence). This was affected by the size of the May 2017 equity
issue and the timing of investment. Whilst investment of the
equity proceeds was patently and well in line with our targeted
timeframe of approximately six months, some investments were
delayed or took longer to transact than previously anticipated,
resulting in a number of transactions concluding towards the
latter part of the period. This included the delay caused by
an appeal against the planning consent for the two forward
funded developments, pre-let to Howdens, in Raunds, which
was originally expected to complete in May 2017, as well as
delays due to the transaction complexities across the Unilever,
Cannock and AO.com, Crewe, investments. We also made
a conscious decision to refinance our shorter term secured
borrowings, in favour of longer-term fixed rate unsecured
borrowings prior to the year end. In doing so we locked into
long-term attractive rates of borrowing which have since spiked
into early 2018 due to further global interest rate volatility and
signals from the Bank of England that rate rises may come
sooner than previously planned.
Whilst the timing of this refinancing wasn’t a necessity, we
believe this was in the best interest of Shareholders over the
long term, secured at an attractive cost and predominantly fixes
our cost of borrowing. For further details on our refinancing
arrangements, see Debt Capital below.
Adjusted EPS takes EPRA EPS, adds the developer’s licence
fees the Group receives on forward funded developments and
excludes other earnings not supported by cash flows. We see
Adjusted EPS as the most relevant measure when assessing
dividend distributions. Further information can be found in note 13.
Dividends
From 1 January 2017, the Group moved to quarterly dividend
payments. Since that date, the Board has declared the following
interim dividends:
DECLARED
AMOUNT
PER
SHARE
IN RESPECT
OF THREE
MONTHS TO
7 March 2017
1.55p
31 December
2016
PAID/
TO BE PAID
3 April 2017
24 April 2017
13 July 2017
1.60p
1.60p
12 October 2017 1.60p
7 March 2018
1.60p
31 March 2017
22 May 2017
30 June 2017
10 August 2017
30 September
2017
16 November
2017
31 December
2017
29 March 2018
Tritax Big Box REIT plc Annual Report 2017
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Strategic Report: Manager’s Report
The dividend declared on 7 March 2018 will be paid on 30 March
2018, to Shareholders on the register on 16 March 2018.
Dividends in respect of 2017 therefore totalled 6.40 pence per
share, meeting the Group’s target for the year and representing
an increase of 3.2% on the total dividend for 2016 of 6.20 pence
per share.
We have increased our target dividend for 2018, to 6.70 pence
per share, which is an increase of 4.7% over 2017 and somewhat
ahead of the retail price index which was running at 4.1% for the
12 months ending December 2017.
Our distributable reserves position is healthy, following the
historic conversion of a large part of our share premium
account into the capital reduction reserve, which is considered
distributable under the Companies Act, along with the stable
and growing retained earnings accumulating within the
Company. As at the year end the total distributable reserves
available to the Company were £626.42 million.
Investment properties
At 31 December 2017, the total value of the portfolio, including
forward funded development commitments, was £2.61 billion
across 46 assets (31 December 2016: £1.89 billion across 35
assets). The Group invested a total of £497.45 million (net of
purchase costs) in 11 assets and 114 acres of development land
during the year.
The gain recognised on revaluation of the Group’s investment
property portfolio was £175.98 million. An average acquisition
cost of 3.70% was incurred across the 11 assets acquired
during 2017, of which four were direct asset purchases, six
were corporate transactions and one was a forward funded
development. Corporate transactions contributed to returns
by saving approximately £13.50 million, or 1.00p to net asset
value versus incurring standard acquisition costs of 6.8%,
demonstrating further value through efficient purchasing.
The portfolio’s average valuation yield at 31 December 2017 was
4.56%, including the land at Littlebrook on which the Group
currently receives no income. On a like-for-like basis, compared
with assets held at 31 December 2016, values increased by
8.72% for the year, excluding any additional capital costs
incurred in the period.
At the year end, the Group had total commitments to forward
funded developments and other asset management initiatives
of £5.11 million (31 December 2016: £82.4 million). In addition,
the Group had committed £23.51 million following the purchase
of the development land project at Littlebrook, Dartford,
which is the expected amount required to bring the site to a
ready state for construction and includes costs of demolition,
remediation, planning and infrastructure works.
The Group had conditionally exchanged contracts on two
forward funded developments pre-let to Howdens at Raunds
with an investment commitment totalling £103.7 million.
The land acquisition and start on site were delayed as a
consequence of a planning objection lodged during the judicial
review period. The Group had also conditionally exchanged on
the purchase of the investment asset let to AO.com in Crewe,
prior to the year end. Both of these assets were therefore
disclosed as contingent liabilities at the year end, however
completion of the contracts were finalised on 12 January 2018
and 18 January 2018 respectively.
Net assets
EPRA net assets were £1.94 billion (2016: £1.43 billion). The
EPRA NAV per share at 31 December 2017 was 142.24 pence
(31 December 2017: 129.00 pence), representing a 10.3%
increase over the year. This was achieved through a combination
of purchasing well and booking gains at the point of purchase
and structuring our purchases efficiently which resulted in
significant cost savings against standard purchase costs
(see investment properties above). Our income stream grew
organically through the settlement of seven rent reviews, we
realised gains following asset management activity across
a number of assets (
see page 52) and the market moved
further in our favour, delivering yield compression and therefore
value appreciation across the existing portfolio.
Equity capital
During May 2017, we raised equity from Shareholders totalling
£350 million. The initial level targeted was £200 million,
however due to the considerable support we received from a
combination of existing and new Shareholders, the fundraise
was upscaled to £350 million. The issue was accretive to the
then net asset value and 257,352,941 new Ordinary Shares were
issued at 136 pence per share.
Debt capital
The Group made strong progress this year in terms of raising
additional debt capital in both the private and public debt
markets. This has helped develop a debt platform that provides
the Group with the necessary flexibility and structure to support
it through further growth. In total, the Group raised £940 million
of new, mostly unsecured debt, allowing it to refinance
£568 million of existing secured indebtedness. In the process,
the Group diversified its sources of borrowing, fixed most of
its interest costs at attractive rates and materially lengthened
the average debt maturity from 4.5 years to 8.9 years as at
31 December 2017, providing the Group with additional security
of funding during a continued period of economic uncertainty.
On 1 March 2017, the Group agreed a new 10-year, £90 million
facility with PGIM Real Estate Finance, secured against a
portfolio of four assets. The facility has a fixed all-in interest rate
of 2.54% and introduced a new lender to the Group.
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On 23 November 2017, the Group announced its £1.5 billion
Euro Medium Term Note (EMTN) Programme, under which it
can issue loan notes to be listed on the Irish Stock Exchange.
Both the Group and the EMTN Programme have been
assigned an investment-grade rating of Baa1 (stable outlook)
by Moody’s Investors Service. The debut issue under the
Programme followed on 1 December 2017, when the Group
issued £500 million of senior unsecured notes (more commonly
known as corporate bonds). The notes were issued in a dual
tranche, with nine and 14 year maturities respectively and with
an average term of 11.5 years. They bear interest at a rate of
2.625% and 3.125% per annum respectively. The issue was
significantly oversubscribed, which is a strong endorsement for
the Group considering it was its debut issue. The level of interest
allowed us to tighten pricing from initial levels by up to 20-25
basis points across each tranche. The notes have demonstrated
positive levels of trading in the secondary markets, since issue.
Simultaneously, the Group announced that it had agreed a new
£350 million unsecured revolving credit facility (RCF), with
an initial maturity of five years and the option to extend by a
further two years, with the lenders’ prior consent. The facility
also contains an uncommitted £200 million accordion option
and has an opening margin of 1.10% over LIBOR. The syndicate
for the RCF comprises three of the Group’s existing lenders,
Barclays Bank PLC, ING Bank N.V., London Branch and Wells
Fargo Bank N.A., London Branch, as well as four new lenders:
BNP Paribas, London Branch, HSBC Bank plc, The Royal Bank
of Scotland plc and Santander UK plc. We welcome the breadth
of lenders forming the RCF.
The issue of loan notes and new RCF allowed the Group to
refinance the majority of its secured, shorter-term debt.
This included the £550 million syndicated facility due to expire
in October 2020 and two facilities with Helaba, for £7.06 million
and £11.60 million, terminating in November 2019. All early
repayment fees associated with the repayment of these existing
facilities were avoided. There were, however, £4.77 million of
unamortised arrangement fees that were written off as part
of the refinance upon the extinguishment of these facilities.
This is a non-cash expense recognised in the Statement of
Comprehensive Income during the year.
On 14 December, the Group also extended its £50.87 million
facility with Helaba, secured on the Ocado asset at Erith,
by two years to July 2025. There was no change in margin
resulting from the extension.
The refinancing and new unsecured borrowings reduced the
capped cost of the Group’s debt from 2.78%1 as at 31 December
2016 to 2.66%1 as at 31 December 2017. At the same time,
the Group’s average maturity profile increased from 4.5 years
at the point of refinance to 8.9 years at 31 December 2017
(2016: 4.8 years), moving it closer to the WAULT on the portfolio.
The Group had an all-in running cost of borrowing of 2.38%
at 31 December 2017. This is a highly attractive cost of debt,
which is primarily fixed. The Group currently has no refinancing
requirement until December 2022.
The extent to which we have extended and de-risked our
maturity profile can be seen in the graphs below.
Debt maturity profile extended
December 2016 debt maturity profile (£m) December 2017 debt maturity profile (£m)
Committed Committed
amount £m amount £m
600
500
400
300
200
100
0
550.0
18.6
50.9
72.0
600
500
400
300
200
100
0
350.0
250.0
250.0
90.0
72.0
50.9
17
18 19 20 21 22 23 24 25 26 27 28 29 30 31
17
18 19 20 21 22 23 24 25 26 27 28 29 30 31
■ Syndicated facility ■ Helaba ■ Canada Life ■ PGIM ■ Unsecured RCF ■ Unsecured Loan Notes
Facility refinanced in 2017
Facility arranged in 2017
1) Based on gross debt commitment and excluding commitment fees
1 Calculated using gross debt commitments.
Tritax Big Box REIT plc Annual Report 2017
59
Strategic Report: Manager’s Report
The Group now has a scalable and flexible debt platform, which
gives access to a significant additional pool of liquidity in the
UK Sterling bond market, which will support future growth.
These unsecured financings provide the Group with improved
operational flexibility, greater speed of execution and lower
transactional costs moving forwards.
At 31 December 2017, the Group therefore had the following
borrowings:
ASSET
SECURITY
MATURITY
LOAN
COMMITMENT
£M
AMOUNT
DRAWN AT
31 DECEMBER
2017
£M
None
Dec 2026
249.01
249.01
None
Dec 2031
246.55
246.55
LENDER
Loan notes
2.625%
Bonds 2026
3.125%
Bonds 2031
Bank borrowings
RCF
Helaba
None
Dec 2022
350.00
Ocado,
Erith
Jul 2025
50.87
10.00
50.87
Canada Life Portfolio
of three
assets
PGIM Real
Estate
Finance
Portfolio
of four
assets
Apr 2029
72.00
72.00
Mar 2027
90.00
90.00
Total
1,058.43
718.43
At the year end, 62.3% of the Group’s debt commitments
were held under fixed-rate facilities. The Group has a hedging
strategy for its variable-rate debt, which predominantly includes
the use of interest rate caps to allow it to benefit from current
low interest rates, while minimising the effect of a significant
rise in underlying interest rates. The Group therefore holds
derivative instruments which, when including all fixed rate
debt, hedge 98.7% of all Group borrowing commitments. The
derivative instruments comprise one interest rate swap and
a number of interest rate caps, each running coterminous with
the respective loan.
The Group complied with all of its debt arrangements during
the year and subsequent to the year end.
Loan to value
The Group continues to operate with a conservative leverage
policy and medium-term, maximum target of 40% loan to
value. The loan to value as at 31 December 2017 was 26.8%
(2016: 30%); however, once fully invested and geared the look
through loan to value (which included all of the Group’s capital
commitments) will continue to be approximately 35%. Further
60
Tritax Big Box REIT plc Annual Report 2017
to guidance initially given within our Interim Report, this is a
reduction from our medium-term target of 40% 12 months ago.
Alternative Investment Fund Manager (AIFM)
The Manager is authorised and regulated by the Financial
Conduct Authority as a full-scope AIFM. The Manager is
therefore authorised to provide services to the Group and
the Group benefits from the rigorous reporting and ongoing
compliance applicable to AIFMs in the UK.
As part of this regulatory process, Langham Hall UK Depositary
LLP (Langham Hall) is responsible for cash monitoring, asset
verification and oversight of the Company and the Manager.
In performing its function, Langham Hall conducts a quarterly
review during which it monitors and verifies all new acquisitions,
share issues, loan facilities and other key events, together with
Shareholder distributions, the quarterly management accounts,
bank reconciliations and the Company’s general controls and
processes. Langham Hall provides a written report of its findings
to the Company and to us, and to date it has not identified
any issues. The Company therefore benefits from a continuous
real-time audit check on its processes and controls.
Looking forward
The Group’s financing activities during 2017 give it
the resources and flexibility to continue its selective
acquisition programme and further diversification in
its portfolio. We have a solid capital structure from
which to grow the business and our inaugural issuance
in the public debt market should mean that we have
a deeper pool of liquidity available to us in the future.
We have added further longevity and diversity to our
borrowings, which align it further to the length of
our income stream, allowing for a consistent level of
recurring earnings into the future.
The assets acquired towards the end of 2017 and in
the early part of 2018 will contribute to our earnings
and earnings growth, supporting the progressive
dividend target for 2018 of 6.70 pence per share.
We will continue to rigorously manage the Group’s
cost base where possible, which is now largely fixed
following the refinancing. The Group will also benefit
from further economies of scale as it grows and we
will continue to grow our income stream through
the organic combination of fixed, indexed and open
market rent reviews occurring in 2018.
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Strategic Report
THE MANAGER
The Manager provides all management
and advisory services to the Company,
under the Investment Management
Agreement. The Financial Conduct
Authority authorised the Manager as
an AIFM on 1 July 2014.
The Manager is 100% owned by Mark Shaw, Colin
Godfrey, James Dunlop, Henry Franklin, Bjorn Hobart
and Petrina Austin. This team of property, legal and
finance professionals has been together for over
10 years. They have a track record of creating value
for their clients through astute asset purchases 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.
Bjorn Hobart MA BSc (Hons) MRICS
Partner, Property
Edward Plumley MBA MSc MRICS
Assistant Fund Manager
Petrina Austin BSc MRICS
Partner, Asset Management and Sustainability
Charlie Withers
Director of Development
Catherine Fry
Head of Risk & Compliance
Olivia Cox non-practising solicitor
Deputy Company Secretary
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Colin Godfrey BSc (Hons) MRICS
Partner, Fund Manager (above)
James Dunlop BSc MRICS
Partner, Investment Director (left)
Sally Bruer
Head of Research
Henry Franklin BA CTA
Partner, Structuring and Legal
Frankie Whitehead ACA
Head of Finance (left)
Kirstin Walmsley
Head of Marketing
Tritax Big Box REIT plc Annual Report 2017
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Strategic Report
KEY PERFORMANCE INDICATORS
Our objective is to deliver attractive, low-risk returns to shareholders, by executing the Investment Policy
Set out below are the key performance indicators we use to track our progress.
described on page 34.
KPI AND DEFINITION
RELEVANCE TO STRATEGY
PERFORMANCE
RESULT
1. Total return (TR)
TR measures the change in the EPRA
net asset value over the period plus
dividends paid. We are targeting a
TR in excess of 9% per annum over
the medium term†.
TR measures the ultimate outcome
of our strategy, which is to deliver
value to our Shareholders through
our portfolio and to deliver a secure
and growing income stream.
15.2%
for the year to 31 December 2017
(2016: 9.6%).
Ahead of
our medium-term
TR target.
2. Dividend
Dividend paid to Shareholders and
declared in relation to the year. Our
target for 2017 was a total dividend
of 6.40 pence per share.
The dividend reflects our ability
to deliver a low-risk but growing
income stream from our portfolio
and is a key element of our TR.
6.40 pence per share
for the year to 31 December 2017
(2016: 6.20 pence per share).
3. 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.
The EPRA NAV reflects our ability to
grow the portfolio and to add value
to it throughout the lifecycle of our
assets.
142.24 pence
at 31 December 2017
(2016: 129.00 pence).
4. Loan to value ratio (LTV)
The proportion of our gross asset
value (including cash) that is funded
by borrowings. Our medium-term
target is to operate with an LTV of
up to 40%.
The LTV measures the prudence
of our financing strategy, balancing
the additional returns and portfolio
diversification that come with using
debt against the need to successfully
manage risk.
26.8%
at 31 December 2017
(2016: 30.0%).
Achieved our
target dividend in
2017 and set
a new target of
6.70 pence per
share for 2018.
Increase in EPRA
NAV per share
over the year
by 13.24 pence
(10.2%).
Below our
medium-term LTV
target maximum
of 40%.
5. Adjusted earnings per share
Post-tax adjusted EPS attributable
to Shareholders, which includes
the licence fees receivable on our
forward funded development assets,
and adjusts for other earnings not
supported by cash flows.
See note 13 for reconciliation.
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.
7. Weighted average unexpired
lease term (WAULT)
The average unexpired lease term of
the property portfolio, weighted by
annual passing rents. Our target is
a WAULT of at least 12 years.
The Adjusted EPS reflects our
ability to generate earnings from our
portfolio, which ultimately underpins
our dividend payments.
6.37 pence per share
for the year to 31 December 2017
(2016: 6.51 pence).
See note 13, page 113
Adjusted EPS
substantially
covers the total
dividend for
the year.
This is a key measure of our
operational performance. Keeping
costs low supports our ability to pay
dividends.
0.84%
for the year to 31 December 2017
(2016: 1.06%).
Our TER is
expected to
reduce as the
Company grows.
The WAULT is a key measure of the
quality of our portfolio. Long lease
terms underpin the security of our
income stream.
13.9 years
at 31 December 2017
(2016: 15.3 years).
+1.9 years
above our
12-year target.
* This is a target only and not a profit forecast. There can be no assurances
that the target will be met and it should not be taken as an indicator of the
Company’s expected or actual future results.
† EPRA NAV is calculated in accordance with the Best Practices
Recommendations of the European Public Real Estate Association (EPRA).
We use these alternative metrics as they provide a transparent and consistent
basis to enable comparison between European property companies.
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See Our Strategy and Objectives – Our Investment Policy, page 34
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Strategic Report
EPRA PERFORMANCE MEASURES
The table below shows additional performance measures, calculated in accordance with the Best Practices Recommendations
of the European Public Real Estate Association (EPRA). We provide these measures to aid comparison with other European real
estate businesses.
For a full reconciliation of all EPRA performance measures, please see Notes to the EPRA performance measures.
KPI AND DEFINITION
PURPOSE
PERFORMANCE
1. EPRA Earnings (Diluted)
Earnings from operational activities (which
excludes the licence fees receivable on our
forward funded development assets).
See note 13, page 133
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.
£78.61 million / 6.20 pence per share
for the year to 31 December 2017
(2016: £51.53 million / 5.90 pence per share).
2. EPRA NAV (Diluted)
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.
See note 28, page 148
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.
3. EPRA Triple Net Asset Value
(NNNAV)
EPRA NAV adjusted to include the fair
values of:
(i) financial instruments;
(ii) debt and;
(iii) deferred taxes.
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.
£1,940.42 million / 142.24 pence per share
as at 31 December 2017
(2016: £1.43 billion / 129.00 pence per share).
£1,939.35 million / 142.16 pence per share
as at 31 December 2017
(2016: £1.42 billion / 128.12 pence per share).
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.
This measure should make it
easier for investors to judge for
themselves how the valuations
of two portfolios compare.
4.04%
at 31 December 2017 (2016: 4.70%).
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).
This measure should make it
easier for investors to judge for
themselves how the valuations
of two portfolios compare.
4.71%
at 31 December 2017 (2016: 4.95%).
5. EPRA Vacancy
Estimated market rental value (ERV)
of vacant space divided by the ERV of the
whole portfolio.
A “pure” (%) measure of
investment property space that is
vacant, based on ERV.
0.00%
as at 31 December 2017 (2016: 0.00%).
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.
13.1%
for the year to 31 December 2017 (2016: 15.8%)
Both the 2017 and 2016 ratios include and exclude
vacancy costs.
See Notes to the EPRA performance measures, pages 164-166
Tritax Big Box REIT plc Annual Report 2017
65
Strategic Report
OUR PRINCIPAL RISKS AND UNCERTAINTIES
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 subsector of the UK real estate market to deliver an
attractive, growing and secure income for Shareholders,
together with the opportunity for capital appreciation. The
Board recognises that effective risk management is key to
the Group’s success. Risk management ensures a defined
approach to decision making that decreases 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.
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 these reviews, the Board has not identified
or been advised of any failings or weaknesses which it has
determined to be material.
Risk appetite
Our risk appetite is low, including the fact that we do not
undertake speculative development. We have high-quality
tenants, with a portfolio of modern buildings and one of the
longest unexpired lease terms in the sector coupled with an
average term to maturity on our debt of 8.9 years, most of which
is fixed rate.
We have a specific Investment Policy
and for which the Board has overall responsibility.
, which we adhere to
. They have the potential to materially affect
Principal risks and uncertainties
Further details of our principal risks and uncertainties are set out
on pages 67-71
our business, either favourably or unfavourably. Some risks are
currently unknown, while others that we currently regard as
immaterial, and have therefore not included here, may turn out
to be material in the future. All principal risks are the same as
detailed in the 2016 Annual Report.
Risk management framework
Board
Audit Committee
Policy procedure and controls
Review of key performance indicators
and management reports
Risk identification
The Manager
Risk assessment – financial and operational
Risk mitigation – implementation of risk mitigants
Risk monitoring – evaluation and revaluation
of financial and operational mterics
Risk reporting – to Audit Committee and Board
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The Board considers these risks have increased
since last year
1 Default of one or more tenants
3 Our ability to grow the portfolio may be affected by competition
for investment properties in the Big Box sector
6 The purchase of land may involve a higher degree of risk than
that associated with existing and built investments or pre-let
development activities
The Board consider all the other risks to be broadly
unchanged from last year
2 The performance and valuation of the property portfolio
4 Our property performance will depend on the performance of the
UK retail sector, specifically the continued growth of online retail
5 Development activities are likely to involve a higher degree of
risk than investment in standing investments
10 We rely on the continuance of the Manager
11 We are 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
12 The vote to leave the EU in June 2016 could result in political
and/or economic uncertainty that could have a negative effect
on the performance of the Company
The Board considers these risks have decreased
since last year
7 Our use of floating rate debt will expose the business to underlying
interest rate movements
8 A lack of debt funding at appropriate rates may restrict our ability
to grow
9 We must be able to operate within our banking covenants
Principal risks
H
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9
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LOW
MEDIUM
HIGH
The matrix above illustrates our assessment of the impact
and probability of the principal risks identified. The rationale
for perceived increases or decreases in the risks identified
is contained within the commentary for each risk category.
Property risks
1 Default of one or more tenants
PROBABILITY: LOW TO
MODERATE
Change in year:
IMPACT: MODERATE
The default of one or more of
our tenants would immediately
reduce revenue from the relevant
asset(s). If the tenant cannot
remedy the default and we have
to evict the tenant, there may be a
continuing reduction in revenues
until we are able to find a suitable
replacement tenant, which may
affect our ability to pay dividends
to Shareholders.
See Asset Management
pages 50-55
MITIGATION
Our investment policy limits our exposure to
any one tenant to 20% of gross assets or, where
tenants are members of the FTSE, up to 30% each
for two such tenants. This prevents significant
exposure to a single Customer. To mitigate
geographical shifts in tenants’ focus, we invest in
assets in a range of locations, with easy access to
large ports and key motorway junctions. Before
investing, we undertake thorough due diligence,
particularly over the strength of the underlying
covenant, while continuing to monitor the covenant
strength once forming part of the portfolio. We
select assets with strong property fundamentals
(good location, modern design, sound fabric), which
should be attractive to other tenants if the current
tenant fails. In addition, we focus on assets let to
tenants with strong financial covenant strength
that are strategically important to the tenant’s
business. Our maximum exposure to any one
tenant (calculated by contracted rental income) is
less than 9% as at 31 December 2017.
Tritax Big Box REIT plc Annual Report 2017
67
Strategic Report: Our Principal Risks and Uncertainties
Property risks (continued)
2 The performance and valuation of the property portfolio
PROBABILITY: LOW
Change in year:
See Asset Management
pages 50-55
IMPACT: MODERATE TO HIGH
An adverse change in our property
valuations may lead to a 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 have agreed banking covenants
with appropriate headroom and manage our
activities to operate well within these covenants.
We constantly monitor our covenant headroom
on LTV, gearing and interest cover. The level of
headroom is currently significant. The EMTN has
limited covenants.
3 Our ability to grow the portfolio may be affected by competition for investment
properties in the Big Box sector
PROBABILITY:
MODERATE
Change in year:
IMPACT: LOW
Competitors in the sector may be
better placed to secure property
acquisitions, as they may have
greater financial resources, thereby
restricting our ability to grow our NAV.
See Our Strategy and
Objectives pages 34-35
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 and developers in the sector, 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 and we have a number of current asset
management initiatives within the portfolio,
which means we can generate additional
income and value from the existing portfolio.
We are, however, disciplined in our investment
of capital and will not pay a price which we
believe is above market value, just to secure
a purchase.
4 Our property performance will depend on the performance of the UK retail sector, specifically the
continued growth of online retail
PROBABILITY: LOW
Change in year:
See Our Market
pages 22-31
IMPACT: LOW
Our focus on the Big Box sector
means we directly rely on the
distribution requirements of UK
retailers. Insolvencies among the
larger retailers and online retailers
could affect our revenues and
property valuations.
MITIGATION
The diversity of our institutional-grade tenant
base means the impact of default of any one of
our tenants is low. In addition to our due diligence
on tenants before an acquisition or, in the case
of forward funded developments, before
agreeing the lease terms, we regularly review
the performance of the retail sector, the position
of our tenants against their competitors and,
in particular, the financial performance of our
tenants. E-commerce is expected to grow to 23%
of UK retail sales by 2020.
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Property risks (continued)
5 Development activities are likely to involve a higher degree of risk than investment in
standing investments
PROBABILITY: LOW
Change in year:
See Our Market
pages 22-31
See Our Strategy and
Objectives pages 34-35
IMPACT: LOW
Our forward funded developments
are likely to involve a higher degree
of risk than is associated with
standing investments. This could
include general construction risks,
delays in the development or the
development not being completed,
cost overruns or developer/
contractor default. If any of the risks
associated with our forward funded
developments materialised, this could
reduce the value of these assets and
our portfolio.
MITIGATION
The Company had no forward funded
development assets under construction as at
31 December 2017. However, it has completed
on a further two and conditionally exchanged
on one forward funded development post
the period end. All of these assets are pre-let
to institutional-grade tenants. Any risk of
investment into forward funded projects is
minimal, as the developer takes on a significant
amount of construction risk and the risk of cost
overruns. Funds for these developments remain
with us and are only released to the developer
on a controlled basis subject to milestones as
assessed by our independent project monitoring
surveyors (see also risk below on land and
development activities).
6 The purchase of land may involve a higher degree of risk than that associated with existing and
built investments or development activities
PROBABILITY: LOW
Change in year:
See Our Market
pages 22-31
See Our Strategy and
Objectives pages 34-35
IMPACT: MODERATE
The inability to obtain planning
consent means that the land would
have to be held or sold prior to any
development. The value of the land
may be reduced due to the refusal
of planning consent and the costs
incurred to that date could be
significant and may be irrecoverable;
this would reduce the Company
NAV. If the Company fails to attract a
suitable pre-let it cannot proceed with
the development of a Big Box. This
would impact on the future revenues
the Company could make from the
land and failure to secure a pre-let
may have a negative effect on the
valuation.
The land may be subject to an
environmental risk which requires
significant investment to remediate
prior to commencing the development
works.
The costs associated with developing
land may fluctuate over the course
of the development due to market
conditions.
MITIGATION
The Company cannot undertake any speculative
development of buildings although it can
undertake land preparation works and therefore
a pre-let is a pre-requisite to commencing the
construction of building. Prior to acquisition of
land the Company will carry out an extensive
due diligence exercise to limit exposure to
environmental risk and other hazards. Once
a pre-let is agreed with a suitable tenant, the
Company will structure the development of the
asset as it does its forward funded development
projects, therefore minimising risk (see risk
above on development activities). The purchase
of land is also subject to a maximum level
of 10% of NAV, at the time of purchase. The
Company also undertakes a significant level
of due diligence on the land, the surrounding
power and highways infrastructure, the
surrounding environment and the state of the
market prior to embarking on a land purchase
to mitigate any risk around the viability of the
site for development as much as possible. The
Company will usually also work in tandem with
an experienced and respected development
partner to manage any preparatory works
and/or development.
Tritax Big Box REIT plc Annual Report 2017
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Strategic Report: Our Principal Risks and Uncertainties
Financial risks
7 Our use of floating rate debt will expose the business to underlying interest rate movements
PROBABILITY: MODERATE
Change in year:
IMPACT: LOW
Interest on our variable rate
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.
Robust financing and
hedging with strong liquidity
pages 56-61
MITIGATION
The Company has entered into interest rate
derivatives to hedge our direct exposure to
movements in Libor. These derivatives cap our
exposure to the level to which Libor can rise 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. During 2017, we
refinanced a significant amount of floating rate debt
in the year with fixed rate debt. Our exposure to Libor
currently represents only 8.5% of our drawn debt.
8 A lack of debt funding at appropriate rates may restrict our ability to grow
PROBABILITY: LOW
Change in year:
IMPACT: MODERATE
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,
either to increase the level of debt
or refinance existing debt, this
will impair our ability to maintain
our targeted level of dividend or
impair our ability to grow.
Robust financing and
hedging with strong liquidity
pages 56-61
9 We must be able to operate within our debt covenants
PROBABILITY: LOW
Change in year:
IMPACT: LOW
If we were unable to operate
within our debt covenants, this
could lead to default and our debt
funding being recalled. This may
result in us selling assets to repay
loan commitments, resulting in a
fall in NAV.
Depositary Statement
page 95
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Tritax Big Box REIT plc Annual Report 2017
MITIGATION
During the year the Company refinanced a
significant portion of its secured borrowings, by
issuing long-term unsecured borrowings. This should
enable the Company to raise future debt in a more
efficient and effective manner on an unsecured
basis. Before we contractually commit to buying an
asset, we enter into 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 committed funds. In December 2017,
we issued a £500 million dual tranche bond
with an average term of 11.5 years along with a
£350 million unsecured revolving credit facility.
We had headroom of £340 million within the
credit facility at the year end. This has created
new banking relationships for us, which helps keep
lending terms competitive.
MITIGATION
We continually monitor our debt covenant
compliance, to ensure we have sufficient headroom
and to give us early warning of any issues that may
arise. Our LTV is low and we enter into interest
rate caps to mitigate the risk of interest rate rises.
During 2017, we refinanced a significant part of
our floating rate debt and moved predominantly
to a fixed rate debt platform. This will mitigate the
effect on the Company from interest rate rises. We
invest in assets let to institutional-grade tenants
and we also seek to maintain a long WAULT, which
should reduce the volatility in our property values.
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Corporate risk
10 We rely on the continuance of the Manager
PROBABILITY: LOW
Change in year:
See Our Strategy and
Objectives pages 34-35
See Management Engagement
Committee Report pages 101-103
Taxation risk
IMPACT: MODERATE TO HIGH
We continue to rely on the
Manager’s services and its
reputation in the property
market. As a result, the
Company’s performance will,
to a large extent, depend on
the Manager’s abilities in the
property market. Termination
of the Investment Management
Agreement would severely
affect our ability to manage our
operations and may have
a negative impact on the share
price of the Company.
MITIGATION
Unless there is a default, either party may
terminate the Investment Management Agreement
by giving not less than 24 months’ written notice,
which may not be served before 31 December
2019. The Management Engagement Committee
regularly reviews and monitors the Manager’s
performance. In addition, the Board meets regularly
with the Manager, to ensure it maintains a positive
working relationship. The Investment Management
Agreement was amended during 2016; see the
Management Engagement Committee Report
.
11 We are 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
PROBABILITY: LOW
Change in year:
IMPACT: LOW TO MODERATE
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:
See Our Market
pages 22-31
See Our Strategy and
Objectives pages 34-35
Political risk
• 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.
12 The vote to leave the EU could result in political and/or economic uncertainty that could have
a negative effect on the performance of the Company
PROBABILITY: LOW
Change in year:
Robust financing and
hedging with strong liquidity
pages 56-61
IMPACT: LOW TO MODERATE
The UK has now triggered Article
50, which sets the expected
date of the UK’s departure from
the EU in March 2019. Economic
volatility is not a new risk for the
Group; however, until the terms
of Brexit become clearer the
exact outcome on the business is
difficult to predict at this stage.
MITIGATION
The Group operates with a sole focus on the UK
Big Box market which has a significant supply
shortage against current levels of demand; this
will assist in supporting property capital values. It
is currently well positioned with long and secure
leases and a diverse blue-chip tenant line up, with a
focus on tenants with financial strength, which are
well positioned to withstand any downturn in the
UK economy.
Tritax Big Box REIT plc Annual Report 2017
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Strategic Report
RESPONSIBLE BUSINESS
As changing weather patterns create
devastation and the scientific community
points to global warming as the cause, we
are ever more aware of the direct effect
that we have on our environment.
As a business we have a responsibility to play our part in
employing sustainable principles, not just because we consider
this to be beneficial to our long-term financial success, but for
the benefit of future generations. Adopting this approach in
partnership with our Customers helps to ensure that the real
estate from which they operate not only meets their future
needs but also complies with evolving legislative requirements
and their individual corporate social responsibility ideals. If our
buildings are resilient in specification so as to be attractive
to occupiers, they are likely to be attractive to investors,
underpinning both income and capital values. There is often
the opportunity to renew, invest and innovate, creating wider
welfare advantage at micro and macro levels.
Sphere of influence
As an externally managed business, we have no employees
or office space. The Board is made up of five Non-Executive
Directors, comprising four men and one woman. Our business
is solely in the UK and we consider there to be a low risk of
human rights abuses. It is important to us, and to the continued
service we receive from the Manager, that it has effective and
fair employment practices. The Manager has a bespoke bonus
payment policy and low staff turnover. It also has a healthy
balance of gender diversity and is committed to assisting the
Company in its ambition to minimise the environmental footprint
from our business operations.
The need for efficient sustainable buildings
With greater awareness of the impact of buildings on the
environment and finite natural resources, owners, developers
and occupiers must take responsibility for ensuring that their
environmental footprint is minimised. This can be delivered
through adopting sustainable design and encouraging
innovation in planned future operational practices. Land
constraints in certain urban locations would prompt us to
consider more flexibility in design, such as future-proofing for
a multi-level or multi-user facility, thus being best placed to
meet growing demand whilst limiting the impact on the wider
environment. Proactive property management can assist in
mitigating risks, with alterations or replacement of items such
as boilers, lighting systems or reconfiguration of access and
exit routes, so as to limit congestion.
It’s important that landlords and developers not only focus on
financial returns from real estate, but also fully understand
their responsibilities to the local communities within which they
operate and the wider environment.
A culture of accountability
We are a responsible owner, committed to owning high-quality,
modern Big Box warehouses which deliver sustainable returns.
In order to achieve this, we must focus on owning and creating
buildings that benefit local communities and that are sustainable
in the long term.
We want our properties to minimise their impact on the local
and wider environment, therefore we carefully consider the
environmental performance of assets before we acquire them
and encourage a sustainable approach to new developments
and to maintaining and upgrading existing buildings.
For all potential asset purchases, we analyse the data we obtain
and record it in a Green Review template. The review may lead
to further enquiries of the vendor, surveying and legal teams,
or could identify opportunities for our initial business plan for
the asset. We also provide key sustainability data to the Board,
when seeking approval to proceed with a purchase
How we influence sustainable practice
As a landlord with 100% of our investment assets leased, our
day-to-day environmental responsibilities are limited. This
is because under UK law a full repairing and insuring (FRI)
lease conveys control of the property to the lessee in virtually
all respects. Nonetheless, we have the ability to influence
the culture of our Customers, make recommendations and
potentially assist with environmental and sustainable initiatives
either by contributing to the cost or applying our knowledge and
expertise by way of assistance. Many of our Customers have
corporate responsibility targets and we therefore encourage
and help them to adopt sustainable business practices.
We commission reviews of each asset for the potential
installation of roof mounted solar PV panels and discuss the
findings with our Customers. We are currently progressing
negotiations regarding two Group funded solar schemes,
together with a joint Group and Customer funded feasibility
study in respect of the potential installation of a wind powered
turbine. One Customer took our analysis and has decided
to self-fund a solar scheme and biomass boiler (powered by
redundant timber pallets) to heat the office element of the
building, thereby lowering its carbon footprint through reduced
transportation.
Our Customers are responsible for an asset’s environmental
performance throughout its use, such as greenhouse gas
emissions or water consumption. As we do not purchase any
utilities, we cannot use the lease terms to influence how our
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Customer operate the property, however when negotiating new
leases, we endeavour to encourage a sustainable approach
to facilities management. As a result, we do not submit
performance data to benchmarking indices such as the
Global Real Estate Sustainability Benchmark.
Local communities
Our assets provide important benefits to their local
communities. They help our Customers to create jobs, often
in areas where traditional industries have declined, thus
boosting the local economy. They also support economic
activity more broadly, by underpinning the efficient operation
of our Customers and helping them succeed. Securing and
retaining labour is often a key decision factor for our Customers’
property decisions. Access to public transport systems, amenity
provisions and staff development programmes are areas where
we aim to work collaboratively with our Customers.
Measurement of energy efficiency
The EPC rating is a key part of our review of potential asset
purchases. We also look at material environmental risks, such as
flood and storm risk, connectivity and circulation, and planning
requirements. In addition, we commission an environmental
survey that includes the sites’ previous uses, so we can assess
the risk of possible site contamination and any past remediation,
with a view to implementing clean-up plans.
The MEES legislation provides an opportunity to work
collaboratively with our Customers, as we have identified that
often “green” initiatives generate cost savings and enhance
productivity. When either we or our Customers undertake
such works, there is the opportunity to re-commission EPCs
and demonstrate a rating improvement. Through proactive
management we can ensure that assets remain attractive and
operationally efficient for our Customers, whilst complying with
legislative requirements.
Property development partnerships
We do not undertake speculative development, but one of
the areas in which we can exert most influence is through
the commitment to a forward funded development of a new
building which has been pre-let. Whilst the specification will
be substantially influenced by the operational requirements
of the occupier and financial constraints of the developer, we
have the opportunity to influence the design approach. This
can include the specification of the building, how it will be built
and the inclusion of environmental elements such as rainwater
harvesting and renewable power.
Asset management
All but one of our assets are let to single Customers. We look
to develop strong relationships with our Customers so that we
can work together to understand their property and corporate
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An Energy Performance Certificate (EPC) is required
by law whenever a building is bought, sold or rented.
An EPC is a key measure of an asset’s energy efficiency,
and grades the property from A (most efficient) to G
(least efficient).
In April 2018, under the Minimum Energy Efficiency
Standards (MEES), it became unlawful for landlords to
grant a new lease on an asset with an EPC rating below E.
Our portfolio (by gross internal area) is rated as follows:
EPC’s on all assets
completed: 100% of
assets rated
A-E
6%
18%
28%
■ ‘A’
■ ‘B’
■ ‘C’
■ ‘D’
■ ‘E’
25%
23%
None of our properties are rated “F” or “G”.
* as at 31 December 2017
Tritax Big Box REIT plc Annual Report 2017
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Strategic Report: Responsible Business
social responsibility requirements, endeavouring to provide
environmentally and operationally efficient buildings which
suit their needs. Our business plan for each asset identifies
opportunities to enhance environmental attributes. Eight of
our properties harvest rainwater and five have either solar
or wind generated power. By working with our Customers,
we expect to increase this number. Other initiatives include
enabling rail connectivity, installing energy efficient lighting
and insulation, and plant replacement. In addition, we support
Customers who want to make alterations to assets to support
their employees, such as adding bus stops or staff shops. A
number of our Customers are conducting pioneering research
into more sustainable and efficient logistics concepts, such
as the use of drones or electric vehicles, which may require
alterations to the property. We are generally supportive of such
initiatives, adopting a practical and efficient consent process to
required building alterations. Once established, these innovative
practices could be of benefit to our wider Customer base.
Ongoing influence
The Building Research Establishment Environmental Assessment
Methodology (BREEAM) is a voluntary sustainability measure.
It has six ratings, ranging from Unclassified to Outstanding. We
expect a minimum of a Very Good rating for our pre-let forward
funded developments, which represents advanced good
practice and puts the buildings in the top quartile of new builds.
Case Study: Littlebrook Strategic Land
In September 2017 we acquired a c.114 acre site at
Littlebrook, Dartford, which previously accommodated
a former coal and oil power station. Although operations
were decommissioned in 2015 a very substantial power
station building, other ancillary buildings and very large oil
storage tanks remain on site. Demolition of these buildings
has commenced. Together with our development partner,
Bericote Properties, we have sought to maximise recycling
of materials from the demolition, including considerable
amounts of steel which are being sold for reuse and rubble
which is being used for hardcore on site. As little as possible
is being transported off-site. In parts of the site, ground levels
needed to be raised and we have diverted dig materials from
another London development that were being transported to
Kent in order to reduce carbon footprint.
The former owner of the power station ensured that site
was kept reasonably clean, but areas of contamination are
inevitable given the history of the site and we are applying
a meticulous approach to remediating this.
We have worked collaboratively with National Grid in order
to move an existing electricity substation within our site to a
new location on the fringe of our site. The existing substation
is old and inefficient. The new substation, which will provide
power to our site, will be significantly more efficient.
The location of the site is environmentally sensitive, being
adjacent to the River Thames. The masterplan for the site
includes initiatives to encourage biodiversity, including
landscaping with planting for wildlife including indigenous
trees and plants, balancing ponds and cleaning up of a local
stream which runs into the River Thames. The design also
includes access through the site to the Thames and provision
of a footpath with landscaped space adjacent to the river
for enjoyment by the public. The protection and creation of
wildlife habitats both during and after construction forms
part of the strategy and management practices, an example
of this being the provision for the resident lizards.
The development aims to apply high standards of energy
efficiency in the specification of buildings. Where possible
the supply chain will be sourced locally, such as the
employment of construction staff from the local community.
Goods inwards can be efficiently handled from nearby docks
at Tilbury, Gravesend or DP World. The Littlebrook site also
benefits from two landing stages which are capable of inward
and outward movement of goods by river.
The occupiers are expected to want to deliver goods to
consumers in London. The close proximity of large-scale
buildings such as those planned at Littlebrook will help
reduce the carbon footprint because these buildings of scale
are close to their market.
Land is a finite resource and this development seeks to
demonstrate the benefits both locally and more widely which
a regeneration project can bring.
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Looking forward
We recently bid on a development site where the
scheme was designed to be entirely self-sufficient
through the application of advanced power
technologies. Currently this is not always possible, but
with advances in technology our buildings will become
more energy efficient. Big Boxes benefit from being
flexible spaces occupying large sites which are capable
of accommodating such technologies, so in this respect
they benefit from significant future-proofing.
We live in a fast-moving world with increasing
consumer demands impacting on the pressures
for logistics. We view change as an opportunity to
influence our environment for the good. The UK
government is seeking to positively influence a
reduction in fossil fuel emissions but more needs to
be done. For articulated lorries, the technology is not
sufficiently advanced but we are keen on supporting
initiatives for hybrid vehicles with on-site battery
charging terminals. Pilot studies are indicating the
future potential for autonomous vehicles and drone
delivery, both of which have the potential to reduce
carbon emissions, deliver efficiencies, reduce danger,
pollution and congestion on our roads.
Prior to commencement of demolition at
Littlebrook, ecological surveys identified
a small number of reptiles on the site. To
safeguard the reptiles, a protection plan
was implemented. This involved collection
and relocation of the reptiles to a specially
constructed, larger and more suitable habitat
elsewhere within the site.
Tritax Big Box REIT plc Annual Report 2017
75
Strategic Report
GOING CONCERN AND VIABILITY
The Strategic Report describes the Company financial position,
cash flows, liquidity position and borrowing facilities. The Group
currently has substantial headroom against its borrowing
covenants, with a Group LTV of 26.8% as at 31 December 2017.
The Company also benefits from a secure income stream from
leases with long average unexpired terms, which are not overly
reliant on any one tenant and present a well-diversified risk.
The Company’s cash balance as at 31 December 2017 was
£78.0 million, of which £71.9 million was readily available. It
also had undrawn amounts under its debt facilities of a further
£340.0 million. The Company had capital commitments totalling
£28.6 million, plus a contingent liability reflecting the conditional
exchange of contracts on two pre-let forward funded asset
purchases, subject to satisfactory planning permission with an
investment price of £103.7 million plus a standing asset with an
investment price of £36.1 million. These assets completed on
12 January 2018 and 18 January 2018 respectively.
In December 2017 the Company refinanced a large part of its
secured borrowings with unsecured borrowings. The unsecured
borrowings were raised via the issue of a nine and 14 year loan
notes totalling £500 million plus a £350 million revolving credit
facility. Following the refinancing the Company now has a much
deeper pool of liquidity available to it in the sterling bond market,
but also greater certainty over its debt platform with a weighted
average unexpired term of 8.9 years as at 31 December 2017. As
a result, the Directors believe that the Company is well placed to
manage its current and future financial commitments and other
business risks.
The Directors believe that there are currently no material
uncertainties in relation to the Company’s ability to continue for
a period of at least 12 months from the date of approval of the
Company’s financial statements. The Board is, therefore, of the
opinion that the going concern basis adopted in the preparation
of the Annual Report is appropriate.
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
the business, which may be improved to mitigate such risks. The
Manager actively reviews and monitors perceived risks in order
to mitigate them. Responsibility for anti-bribery and corruption
has been assigned to the compliance officer within the Manager
who has sufficient time and seniority to manage it effectively.
The Manager maintains a risk register, where perceived risks and
associated actions are recorded and this is regularly shared with
the Board for approval.
Assessment of viability
The period over which the Directors consider it feasible and
appropriate to report on the Group’s viability is the five year
period to 7 March 2023. This period has been selected because
it is the period that is used for the Group’s medium-term
business plans and individual asset performance forecasts.
The assumptions underpinning these forecast cash flows and
covenant compliance forecasts were sensitised to explore the
resilience of the Group to the potential impact of the Group’s
significant risks, or a combination of those risks.
The principal risks on pages 66-71 summarises those matters
that could prevent the Group from delivering on its strategy.
A number of these principal risks, because of their nature or
potential impact, could also threaten in the Group’s ability to
continue in business in its current form if they were to occur.
The Directors paid particular attention to the risk of a
deterioration in economic outlook which would impact property
fundamentals, including investor and occupier demand which
would have a negative impact on valuations, and give rise to
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Strategic Report
BOARD APPROVAL OF THE
STRATEGIC REPORT
a reduction in the availability of finance. The remaining principal
risks, whilst having an impact on the Group’s business model,
are not considered by the Directors to have a reasonable
likelihood of impacting the Group’s viability over the five year
period to 7 March 2023.
Board approval of the Strategic Report
The Strategic Report was approved on behalf of the
Board by:
The sensitivities performed were designed to be severe but
plausible; and to take full account of the availability of mitigating
actions that could be taken to avoid or reduce the impact or
occurrence of the underlying risks:
Richard Jewson Chairman
7 March 2018
• Downturn in economic outlook: key assumptions including
occupancy, void periods, rental growth and yields were
sensitised to reflect reasonably likely levels associated with
an economic downturn.
• Restricted availability of finance: Following the December
2017 refinancing, the Group does not have a refinancing
event occurring until December 2022, at which point the
£350 million revolving credit facility is due to be refinanced.
This facility does, however, have two one year extension
options, which if exercised and approved by the lenders
would extend the maturity of the facility until December
2024. Regardless of the extension of the facility, financing
is arranged in advance of expected requirements and the
Directors have reasonable confidence that additional or
replacement debt facilities will be put in place.
Viability Statement
Having considered the forecast cash flows and covenant
compliance and the impact of the sensitivities in combination,
the Directors confirm that they have a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period ending 7 March 2023.
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Tritax Big Box REIT plc Annual Report 2017
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Tritax Big Box REIT plc Annual Report 2017
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CONTENTS
GOVERNANCE
Chairman’s Governance Overview
Key Board statements
Statement of Compliance
Leadership
The Board
Committees
Our governance structure
The Manager
How we govern the Company
Board meetings
Attendance at Board meetings and
Committee meetings
The Board of Directors
Effectiveness
Board performance and evaluation
Nomination Committee Report
Appointment of a new Non-Executive Director
Policy on tenure and succession planning
Director remuneration review
Board diversity
Accountability
Internal controls review
AIFM Directive
Depository Statement
Audit Committee Report
Committee membership and terms of reference
Meetings
Risk management and internal controls
Financial reporting and significant judgements
Valuation of property portfolio
Valuation of interest rate derivatives
Fair, balanced and understandable financial
statements
External Auditor re-tender
Management Engagement Committee Report
Management fee
Extension to term
Conflict management
Relations with Shareholders and stakeholders
Investor relations
Site visits
Annual General Meeting (AGM)
Public communications
Directors’ Remuneration Report
Annual statement
Directors’ Remuneration Policy
External advisers
Annual report on remuneration
Statement of voting at general meeting
Total Shareholder return
Directors’ shareholdings
Other items
Directors’ Report
Directors’ Responsibilities Statement
Independent Auditor’s Report
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Tritax Big Box REIT plc Annual Report 2017
79
Governance
CHAIRMAN’S GOVERNANCE OVERVIEW
Markets Authority (“ESMA”) guidelines published on
16 November 2016 in respect of the correct interpretation of the
Alternative Investment Fund Management Directive and ensures
that the Company continues to adopt best governance practice.
As well as regular Board meetings which consider Company
business in light of its strategy, the Board continues to meet
for specific strategy meetings to consider the Company’s
strategy, discuss the future of the Company, its market and its
Customers. Further detail on Board and strategy meetings can
be found on pages 85-86.
Directors
The Company appointed a new Non-Executive Director, Aubrey
Adams, formerly of Savills plc and British Land Company PLC.
Aubrey has also been appointed to the Audit Committee, the
Management Engagement Committee and the Nomination
Committee. More details can be found in my Nomination
Committee Report
of the Company in June 2017.
. Stephen Smith resigned from the Board
The Board commissioned Lintstock Limited to undertake its
Board evaluation in 2017 and 2018. This will allow Lintstock
to have a full and in-depth review of the Board and its key
working relationships. The arrangement has been structured
so that Lintstock will be able to use the results of the 2017
review as a starting point for its comprehensive evaluation
in 2018. I am looking forward to receiving the results and
recommendations from the 2018 review. Further information on
the 2017 evaluation can be found on page 90. As a Board, we
continue to benefit from our bespoke professional development
programme, more details of which can be found on page 90.
Shareholder and stakeholder communications
The Company has continued to develop its communications
programme with Shareholders and stakeholders and I was
pleased to run another series of Chairman’s lunches which
were again very beneficial, interesting and well received.
Colin Godfrey, together with the Company’s Broker, undertook
another extensive international roadshow this year which was
well received by Shareholders.
Capital markets
The Company undertook a successful equity fundraising in
May 2017 of £350 million. The Company appointed Lazard to
advise on the successful debt re-finance which took place in
December 2017. As part of the process, the Company achieved
an investment-grade credit rating of Baa1 from Moody’s. This
EMTN is part of the Company’s overall financing initiative to
further diversify its sources of funding and to move towards
The Company’s growth and long-term success
is supported by our culture of strong corporate
governance; it is integral to the Company’s growth
and the successful implementation of its strategy.
Strong corporate governance has been the foundation of our
business and strong performance since the Company’s launch
in 2013. The Company’s strategy is supported by the principles
of good and effective corporate governance; it has helped the
Company to establish a strong culture which supports open
and robust debate, promoting good decisions made to secure
the Company’s long-term and continuing success. In this
section of the Annual Report we report on our compliance with
the principles of corporate governance and highlight the key
governance events which have taken place during 2017.
2017 has been a successful year and a year of new achievements,
including our first issue of £500 million of loan notes which
were listed on the Irish Stock Exchange and issued under
the Euro Medium Term Notes Programme (“EMTN”); a well
supported equity raise and our Company’s acquisition of the
unique development site at Littlebrook. It has also been a year
of changes at Board level with the appointment of Aubrey
Adams OBE, formerly of Savills plc and British Land Company
PLC, and the resignation of Stephen Smith earlier in the year.
Strong governance
The Company has appointed Tritax Management LLP (the
“Manager”) as the Alternative Investment Fund Manager for
the purposes of the Alternative Investment Fund Manager
Directive (“AIFMD”) and as such the Board has delegated
authority to the Manager to conduct portfolio management
and risk management services on behalf of the Company.
Whilst the Manager has ultimate responsibility to take the final
decision over portfolio and risk management services, the
Board discusses potential investments and divestments with the
Manager and ensures ongoing compliance with the Investment
Policy. This complies with the latest European Securities and
See Nomination Committee Report, pages 91-92
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Key Board statements
REQUIREMENT
BOARD STATEMENT
WHERE TO FIND FURTHER INFORMATION
Going concern basis
The Board is of the opinion that the going
concern basis adopted in the preparation of
the Annual Report is appropriate.
Further details are set out on page 77
Strategic Report.
of the
Annual review of systems
of risk management and
internal control
A continuing process for identifying,
evaluating and managing the risks the
Company faces has been established and the
Board has reviewed the effectiveness of the
internal control systems.
Further details are set out in Accountability
pages 93-94 of this Governance Report.
,
Fair, balanced and
understandable
Appointment of the Manager
The Directors confirm that to the best of their
knowledge the Annual Report and Accounts
taken as a whole are fair, balanced and
understandable and provide the information
necessary for Shareholders to assess the
Company’s performance, business model and
strategy.
The Directors consider the continuing
appointment of the Manager on the terms
agreed in the Investment Management
Agreement dated 11 September 2017 to be in
the interests of the Company’s Shareholders
as a whole.
Further details of the fair, balanced and
understandable statement can be found in the
on pages 96-100.
Audit Committee Report
Further details are set out in the Management
on pages
Engagement Committee Report
101-103.
Robust assessment of
the principal risks to the
business model, future
performance, solvency and
liquidity of the Company
The Audit Committee and the Board
undertake a full risk review twice a year where
all the principal risks and uncertainties facing
the Company and the Group are considered.
Further details can be found in Our Principal
Risks and Uncertainties
Strategic Report.
on pages 66-71 of the
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unsecured longer-term borrowing for the Group. The refinance
and EMTN has moved the maturity date of the Company’s
borrowing from four and a half years to just under nine years.
Audit Committee
The Audit Committee, led by Jim Prower, went through a
re-tendering process for the external audit appointment.
Deloitte LLP, KPMG LLP, PwC LLP as well as the incumbent
auditors, BDO LLP were invited to tender and following an
extensive process with exceptional quality shown from all the
firms, the Audit Committee recommended to the Board that
BDO LLP should be re-appointed. I am pleased to confirm
that the Board acted upon this advice. In order to ensure
compliance with recent regulatory change concerning the types
of services which the Auditor is permitted to provide, following
the re-tendering process and re-appointment of BDO LLP as
Auditor, PwC LLP were appointed to advise on corporate finance
transactions and to provide tax advice to the Group. Further
information is provided in the Audit Committee Report
members of the Audit Committee also sit on the Management
Engagement Committee and the Nomination Committee.
. All the
See Accountability, pages 93-94
See Audit Committee Report, pages 96-100
See Management Engagement Committee Report, pages 101-103
See Our Principal Risks and Uncertainties, pages 66-71
Tritax Big Box REIT plc Annual Report 2017
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Governance: Chairman’s Governance Overview
Statement of Compliance
The Company is subject to the UK Corporate Governance
Code
; however, we, as the Board of the Company, have
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). The AIC Code, as explained by
the AIC Guide, addresses all the principles set out in the
UK Corporate Governance Code, as well as setting out
additional principles and recommendations on issues that
are of specific relevance to the Company.
The Board considers that reporting against the principles and
recommendations of the AIC Code, and by reference to the
AIC Guide (which incorporates the UK Corporate Governance
Code), provides better information to Shareholders.
The Company has complied with the recommendations
of the AIC Code (as set out on pages 161-162) and the
relevant provisions of the UK Corporate Governance
Code except as set out below.
Following the resignation of Stephen Smith and prior to
the appointment of Aubrey Adams, the Company appointed
Richard Jewson temporarily to the Audit Committee.
Further information is contained in the Audit Committee
Report, page6 96-97.
The UK Corporate Governance Code
relating to:
includes provisions
• The role of the Chief Executive;
• Executive Directors’ remuneration;
• The need for an internal audit function.
For reasons set out in the AIC Guide, and as explained
in the UK Corporate Governance Code, the Board
considers these provisions are not relevant to the position
of the Company. The Company is 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 or employees. The Company has
therefore not reported further in respect of these provisions.
The AIC Code and AIC Guide can be found at:
https://www.theaic.co.uk/aic-code-of-corporate-governance-0
Risks
The Board assessed, through the Audit Committee, the principal
risks facing the Group, its appetite in respect of those risks
and mitigating factors put in place in respect of those risks.
The Board has delegated responsibility for managing internal
risks and for establishing appropriate procedures in respect
of financial and internal risks to the Manager. The management
of these risks is reviewed by the Board on a half yearly basis. The
Board consider the risks the Group faces at each Board meeting
and the longer-term outlook at the strategy meetings. The Audit
Committee considers the principal risks in depth twice a year,
along with an assessment over whether the risk has heightened
or reduced during the previous 12 months.
Richard Jewson Chairman
7 March 2018
UK Corporate Governance Code:
https://www.frc.org.uk/directors/corporate-governance-and-stewardship/uk-corporate-governance-code
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Governance
LEADERSHIP
The Board is responsible to Shareholders,
Customers and other stakeholders for delivering
the sustainable and continuing success of the
Company. Good governance is fundamental for
long-term success and central to every Board
decision. The Board and the Manager work
together to ensure the highest standards of
governance are maintained by the Company.
The Board
The Board consists of five Non-Executive Directors. All the
Non-Executive Directors are independent of the Manager, with
the exception of Mark Shaw, who is a Partner and Chairman of
the Manager. Each Director will resign and stand for re-election
by Shareholders at the Company’s AGM in accordance with the
requirements of the AIC Code. Aubrey Adams will be submitting
himself for election at the scheduled May 2018 AGM, as this will
be the first AGM since his appointment.
The Board has determined 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 Directors believe that the Board is well balanced and
possesses sufficient breadth of skills, variety of backgrounds,
relevant experience and knowledge to ensure it functions
correctly and is not dominated by any one person. Biographical
information on each Director is set out in The Board of Directors
on pages 88-89.
The Board has approved a schedule of matters reserved for its
consideration and approval and has delegated the operational
aspects of running the Company to the Manager. The matters
reserved for Board consideration 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 and managing the Company’s
capital structure;
• reviewing and monitoring the Manager’s ongoing compliance
with the Company’s Investment Policy;
• overseeing the services provided by the Manager and, in
conjunction with the Manager, the Company’s principal service
providers; and
• approving the dividend policy.
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The Board has not established a remuneration committee as
it has no executive directors and the Company has no other
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 year ended 31 December
2017 are included in the Directors’ Remuneration Report
.
The Board considers the culture and ethos of the Company to be
integral to the Company’s success. Despite the Company being
externally managed, the Board considers that the culture within
the Manager is complementary to the Company. The Chairman
and the Senior Independent Director meet with and speak to
members of the Manager working within different functions at the
Manager on a regular basis outside of Board meetings. In addition,
different employees from the Manager deliver bespoke training
sessions to the Board and attend Board meetings as and when
requested.
Committees
The Board has delegated some of its responsibilities to its
three formal committees, the Nomination Committee, the Audit
Committee and the Management Engagement Committee,
details of which are set out in the diagram overleaf. The
Company ensures that all of the Board Committees have
sufficient resources to carry out their obligations.
or copies are available on request from
These Committees are each chaired by a different Director and
have their own terms of reference which can be found on the
Company’s Website
the Company Secretary. The terms of reference are reviewed as
necessary by the Board at least every three years. The terms of
reference for the Nomination Committee were reviewed at the
end of 2015, for the Management Engagement Committee in
October 2017 and for the Audit Committee in November 2017.
The Company Secretary acts as secretary to these Committees
and the Chairman of each committee reports the outcome of
the meetings to the Board.
The Board also establishes further ad hoc committees to take
operational responsibility on specific matters for subsequent
approval by the Board. These operational committees ensure
that key matters are dealt with efficiently by the best qualified
Non-Executive Director and representatives of the Manager.
See The Board of Directors, pages 88-89
See Directors’ Remuneration Report, pages 106-107
Board Committee Terms of Reference: https://tritaxbigbox.co.uk/
about/#corporate-governance
Tritax Big Box REIT plc Annual Report 2017
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Governance: Leadership
Our governance structure
AUDIT COMMITTEE
NOMINATION COMMITTEE
MANAGEMENT
ENGAGEMENT COMMITTEE
Responsible for reviewing the Board
Composition and assessing whether the
balance of skills, experience, knowledge
and independence is appropriate to
enable the Board to operate effectively.
Reviewing the Company’s main suppliers
including the Manager, the Broker and
the Valuer to ensure that the Company is
receiving a strong level of performance
along with value for money.
The Nomination Committee manages
succession planning and ensures that the
Directors receive necessary training.
Overseeing re-tenders or new
appointments.
Reviewing the integrity of the Group
Financial Statements and any significant
financial reporting judgements.
Reviewing and monitoring the relationship
with the Auditor.
Reviewing the Manager’s internal controls
and controls embedded in Link Asset
Services as the Company’s Administrator.
Overseeing the Company’s risk
management process.
Considering and reviewing the Company’s
Viability Statement and Going Concern
Statement.
See pages 96-100 for further
See pages 91-92 for further
See pages 101-103 for further
information
information
information
THE BOARD
Responsible for maintaining consistent and progressive Shareholder returns
INVESTMENT COMMITTEE
MANAGER
Established to review and recommend
investment and divestments. The
Investment Committee is chaired by
Colin Godfrey, the Fund Manager,
and consists of various members of the
Manager.
Tasked with the day-to-day running of
the Company including making the final
decisions in respect of investment and
divestments, financial management,
asset management and Investor Relations.
The Manager is chaired by Mark Shaw.
Colin Godfrey, as the Fund Manager
of the Company, oversees the Manager’s
relationship with the Company.
See pages 62-63 for further
information
COMPANY SECRETARIAT
AND COMPLIANCE
Again, part of the Manager, this function
oversees the Company’s governance
structure and manages the Company’s
compliance with financial regulation.
The Company Secretariat also
administers the Group. This function is
overseen by Henry Franklin.
The Company Secretariat function is
currently being re-tendered; further
information can be found on page 102.
The Manager
The Board has delegated the day-to-day running of the
Company to the Manager pursuant to the terms of the
Investment Management Agreement. Further details of the
delegated matters can be found on the Company’s Website
The Investment Management Agreement was amended and
restated on 11 September 2017 to clarify the Manager’s
.
responsibility to make final investment and divestment
decisions in accordance with ESMA guidance. The
Management Engagement Committee Report discusses the
changes made to the Investment Management Agreement
and how the Board’s relationship with the Manager is
regulated.
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Tritax Big Box REIT plc Annual Report 2017
Governance
HOW WE GOVERN THE COMPANY
Our Company’s success is based upon the
effective implementation of its strategy by the
people who work for and with it. Our Company’s
culture is set by the leadership of the Board.
Board meetings
During 2017, the Board held nine scheduled meetings of which
two were strategy meetings, plus a further nine ad hoc meetings
to deal with transactional and other specific events such as equity
raises and debt financing. The table below shows each individual
Director’s attendance at the scheduled Board meetings for
which they were eligible to attend during the year. Attendance at
Committee meetings is incorporated in each Committee report.
The Board is kept fully informed of potential investment
opportunities, along with wider property market intelligence,
through the Board papers prepared by the Manager which show
current investment opportunities in the market and quarterly
market research reports. All decisions to invest in or divest of
property are made by the Manager following a recommendation
by the Investment Committee and discussions with the Board.
The Manager provides a detailed acquisition paper to the
Board on any selected potential acquisition and notifies it when
an offer is made for and accepted on a property and regularly
updates the Board on the progress of the transaction. When the
Company acquires development land, a development appraisal
is presented to the Board and regular updates are provided to
the Board.
The Board meetings follow a formal agenda, which is approved
by the Chairman and circulated by the Company Secretary in
advance of the meeting to all the Non-Executive Directors and
other attendees. At each Board meeting every agenda item
is considered against the Company’s strategy, its Investment
Objectives and Investment Policy.
Representatives of the Manager attend the Board meetings
together with representatives from the Company Secretarial
team. Representatives of the Company’s other advisers are also
invited to attend Board meetings from time to time, particularly
representatives from the Company’s Broker, the Company’s
Financial Advisers and the Company’s Lawyers.
A typical agenda includes:
• a review of investment performance;
• a review of investment and divestments and asset
management initiatives currently in progress;
• an update on investment opportunities available in the market
and how they fit within the Company’s strategy;
• a review of the Company’s financial performance;
• a review of the Company’s financial forecast, cash flow and
ability to meet targets;
• a review of the Company’s financial and regulatory compliance;
• updates on Shareholder and stakeholder relations; and
• specific regulatory, compliance or corporate governance
updates.
Attendance at scheduled Board meetings
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Meetings held
Richard Jewson
Jim Prower
Mark Shaw
Susanne Given
Aubrey Adams
(appointed 11 September 2017)
Stephen Smith
(resigned 26 June 2017)
1 Includes strategy meetings.
BOARD MEETINGS
ELIGIBLE TO ATTEND 1
SCHEDULED BOARD
MEETINGS ATTENDED
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Tritax Big Box REIT plc Annual Report 2017
85
Governance: How we govern the Company
In 2017 the Board held two strategy meetings. The meetings
focused on reviewing and setting the Company’s overarching
strategy and whether the Company followed its strategy set in
2016. At the strategy meetings in 2016 and in February 2017,
the Board decided that the Company should continue to try to
diversify its property portfolio by tenant, asset and geography to
deliver further value to Shareholders; and that this would be best
achieved by the issuance of further equity to fund the acquisition
of properties as standing investments, as forward funded
opportunities or as land development within the Company’s
Investment Policy which was approved by Shareholders at the
Company’s AGM in May 2016. The Company also decided to
review formally its debt strategy and appointed Lazard to assist
with the transition from a secured debt finance model to an
unsecured debt finance model with greater access to capital
via the corporate bond market. The Board considers that the
Company is fulfilling its strategic objectives. The successful equity
raise in May 2017, followed by the careful deployment of capital
into further assets; the EMTN and debt re-finance in December
2017; the strong set of results shown in this Annual Report; and
the acquisition of the Littlebrook site all support and underpin the
Company’s strategy.
Board papers are disseminated to the Non-Executive Directors
via a secure online platform for reasons of efficiency and cyber
security. During 2017 the Board and the Company Secretary
have increased the use of the online platform to store relevant
Company information to ensure that is always easily accessible
by the Board in a secure format.
Attendance at Board meetings and Committee
meetings during the year ended 31 December 2017
All Non-Executive Directors are expected to attend all scheduled
meetings of the Board and of the Committees on which they
serve, and to devote sufficient time to the Company’s affairs to
fulfil their duties as Directors. Where Non-Executive Directors are
unable to attend meetings, Board papers are provided in advance
and their comments are given to the Chairman before the meeting
and shared with the rest of the Board and the Manager.
Due to the significant number of additional meetings during the
year it was not necessary for all the Non-Executive Directors to
attend every meeting, provided that all meetings were quorate
which was the case across all meetings held. The Nomination
Committee is satisfied that all the Non-Executive Directors,
including the Chairman, have sufficient time to meet their
commitments.
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Tritax Big Box REIT plc Annual Report 2017
Key activities of the Board during 2017
Q1
Q2
• Approval of 2016 financial results and final dividend
declaration
;
• Issuance of a Trading Statement
• Review of debt strategy and appointment of debt
;
advisory, please refer to the Chairman’s Governance
Overview, pages 80-82;
• Strategy Meeting;
• Consideration of an equity raise for Q2 2017
• Acquisition of a forward funded investment asset;
• Quarterly review of corporate governance compliance,
;
Group activity and depositary report;
• Agreed a fixed term loan with PGIM.
• Instruction of Lazard as debt adviser;
• Acquisition of two investment assets
• Regulatory change – clarification that the Manager
;
will be responsible for all Investment and Divestment
decisions
;
• Re-tender of the Auditor appointment – refer to the
Audit Committee Report, pages 96-100.
• Nomination Committee review and appointment of
Korn Ferry to search for a new Non-Executive Director;
Please refer to the Nomination Committee Report,
page 91-92.
• Launch and completion of an equity issue raising
proceeds of £350 million
;
;
• AGM
• Dividend declaration in respect of Q1 2017
• Quarterly review of corporate governance compliance,
;
Group activity and depositary report.
Q3
Q4
• Exchanged conditional contracts to purchase the site
;
at Littlebrook, Dartford
• Announced issue of £1.5 billion Euro Medium Term
Note Programme
;
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• Approval of Interim Property valuation;
• Approval of Interim results
• Review of Moody’s Rating of Baa1;
• Acquisition of one investment asset
• Quarterly review of corporate governance compliance,
;
;
Group activity and depositary report;
• Dividend declaration in respect of Q2 2017
• Appointment of Aubrey Adams as Non-Executive
;
Director
.
• £500 million bond issue and simultaneous refinancing,
and entry into £350 million unsecured revolving credit
facility
;
• Acquisition of seven investment assets
;
• Second half yearly principal risk review and
consideration of risk appetite;
• Approval of the updated Financial Prospects, Positions
and Procedures document;
• Quarterly review of corporate governance compliance,
Group activity and depositary report;
• Dividend declaration in respect of Q3 2017
• Extension of loan facility with Helaba.
;
https://tritaxbigbox.co.uk/about/#corporate-governance
https://tritaxbigbox.co.uk/news-media/
See Chairman’s Governance Overview, pages 80-82
See Audit Committee Report, pages 96-100
See Nomination Committee Report, pages 91-92
Tritax Big Box REIT plc Annual Report 2017
87
Governance
THE BOARD OF DIRECTORS
Richard Jewson
Chairman
Jim Prower
Senior Independent
Non-Executive Director
Aubrey Adams OBE
Non-Executive Director
Appointed: 18 November 2013
Length of service: four years, four months
Independent: Yes
Appointed: 18 November 2013
Length of service: four years, four months
Independent: Yes
Appointed: 11 September 2017
Length of service: six months
Independent: Yes
Committee memberships:
• Chair of the Nomination Committee
• Management Engagement Committee
Committee memberships:
• Chair of the Audit Committee
• Management Engagement Committee
• Nomination Committee
Committee memberships:
• Audit Committee
• Management Engagement Committee
• Nomination Committee
Relevant skills and experience:
• Significant leadership experience
as executive director, non-executive
director and chairman of a number of
public companies
• Long-standing commercial experience
through both executive and non-
executive roles in the construction
services, infrastructure and real estate
sectors
• Skilled in guiding companies through
strong growth phases as well as
managing the impact of business cycles
Significant previous external experience:
• Chairman of Meyer International PLC,
holding company of Jewson Limited
• Chairman of Archant Limited for
17 years
• Chairman of Savills plc for 10 years
• Board member of Grafton Group plc for
18 years
• Non-executive director and Deputy
Chairman of Anglian Water Plc for
14 years
Relevant skills and experience:
• A chartered accountant having trained
and qualified at Peat, Marwick, Mitchell
& Co, London
• In-depth knowledge of financial matters,
particularly in relation to the real estate
sector through his previous role as
finance director at the Argent Group,
which is undertaking the development
of King’s Cross Central
• Experienced in raising debt financing
for working capital, development and
investment
Significant previous external experience:
• Jim has acted as Finance Director and
company secretary at several public
companies including:
– Minty plc for two years
– Creston Land & Estates plc for six years
– NOBO Group plc for two years
Relevant skills and experience:
• Almost 40 years’ experience at board
level in the real estate industry, most
significantly as the Chief Executive of
Savills plc, a leading global real estate
service provider employing 30,000
people across a network of 700 offices.
• A fellow of the Institute of Chartered
Accountants
• Fellow of Royal Institution of Chartered
Surveyors
Significant previous external experience:
• Chief Executive of Savills plc from
1991-2008
• Senior Independent Director of
Associated British Ports PLC
• Chairman of Air Partner plc and Max
Property Group plc
• Non-Executive Director of British Land
Company PLC from 2008-2017
Principal external appointments:
• Chairman, Raven Russia Limited. Board
Principal external appointments:
• Senior independent director and
member since June 2007
• Senior non-executive director, Temple
Bar Investment Trust plc. Board member
since May 2001
chairman of audit committee, Empiric
Student Property plc since May 2014
• Non-executive director of AEW UK Long
Lease REIT PLC since June 2017
Principal external appointments:
• Group Chair of L&Q, a leading housing
association since September 2015
• Chair of the Board of Trustees of
Wigmore Hall
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Tritax Big Box REIT plc Annual Report 2017
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See Audit Committee Report, pages 96-100
See Management Engagement Committee
Report, pages 101-103
See Nomination Committee Report,
pages 91-92
https://tritaxbigbox.co.uk/about/
#corporate-governance
Tritax Big Box REIT plc Annual Report 2017
89
Susanne Given
Non-Executive Director
Mark Shaw
Non-Executive Director
Appointed: 13 September 2016
Length of service: one year, six months
Independent: Yes
Appointed: 8 November 2013
Length of service: four years, four months
Independent: No
Committee memberships:
• Chair of the Management Engagement
Committee memberships:
• Nomination Committee
Committee
• Audit Committee
• Nomination Committee
Relevant skills and experience:
• Significant experience in running large
retail companies
• High profile involvement in investor
presentations as well as previous
membership of risk and audit
committees
• Creation of five year strategy plans and
overseeing their implementation
• Significant experience in management
of logistics and property assets
Relevant skills and experience:
• Highly experienced in a range of
commercial, banking and investment
operations
• Extensive property investment
experience, particularly in developing
and structuring property transactions,
and managing a variety of property
vehicles including property unit trusts,
listed property vehicles and limited
partnerships
Significant previous external experience:
• Chief Operating Officer of SuperGroup
Plc – three years from April 2012
• John Lewis Department Store Group –
Director, January 2011-April 2012
• T.K. Maxx (UK and Ireland) – Managing
Director, December 2007-December
2010; Senior Vice President, November
2005-October 2007
• Harrods Limited – General Merchandise
Director, December 2001-November
2005
Principal external appointments:
• Chairman of made.com since April 2016
• Mentor and Advisor to Wayra,
Telefónica’s start-up accelerator since
March 2016
• Director of Eurostar International
Limited since December 2016
• Director of Al Tayer since January 2016
and Chair of REMCO Al Tayer Insignia
• Non-executive chairman of Outfittery
since May 2017
Principal external appointments:
• Chairman, Tritax Management LLP
since March 2007
Governance
EFFECTIVENESS
Strong governance enables the Board to pursue
the Company’s strategic objectives and helps to
safeguard the continued success of the Company
for its Shareholders and stakeholders.
Board performance and evaluation
Although an externally facilitated Board evaluation is not
required by the AIC Code and Guide until 2018, the Board
decided to appoint Lintstock to undertake an externally
facilitated Board evaluation for 2017 and 2018. The 2017
Board evaluation will provide a benchmark for the 2018 Board
evaluation and it will enable Lintstock to understand the
Board, the relationships between the Directors and between
the Board and the Manager, the Company Secretary and the
other key suppliers to the Company as well the Company’s
Shareholders and stakeholders.
The 2017 Board evaluation took the form of a questionnaire
which was sent to each of the Non-Executive Directors and
the Manager. It contained a section designed specifically as an
appraisal of the Chairman. The Board was asked to consider:
Board composition; Board expertise; Board dynamics;
management of meetings; Board support; Board committees;
focus of Board meetings; strategic operational oversight; risk
management and internal control; and succession planning.
The outcome of the Board evaluation was generally positive
while noting that there was room to make Board meetings more
focussed and to summarise lengthy Board papers. The top
priorities for change over 2018 which were identified were:
1) Reviewing the current Board composition with a view to
increasing the number of Non-Executive Directors and
welcoming recent appointments (Please refer to the
Nomination Committee Report
);
2) Continuing to review the Company’s strategy; and
3) To reduce the length of Board meetings by reducing the
formal Board pack.
The Chairman’s review was positive and the other Directors
considered that he had directed the Company well during the
Company’s initial rapid growth, had overseen the clarification
of the application of the AIFMD to the Company well and
continued to Chair the Board of the Company effectively.
The Board evaluation noted that the initiatives which flowed
from the Board evaluation last year or in 2015 continued to be
implemented effectively including the expansion to the Directors
Training Programme, the continuing succession policy review,
the strategy meetings and the successful implementation
of the Service Level Agreement between the Board and the
Manager. The Board also noted that larger projects are now
well administered by the Board and the Manager including, in
particular, the recent EMTN issue.
The Board considered succession planning for the Company
in 2017 and intends to update its policy during 2018. The Board
has instructed Korn Ferry to recruit a further Non-Executive
Director to the Board in 2018.
Director Training Programme
The Board recognises that it is essential to keep abreast of
regulatory and compliance changes. Accordingly, a bespoke
training programme was implemented in January 2016 following
consultation between the Manager and the Board. This bespoke
training programme was continued in 2017 and expanded to
include a presentation from a highly respected journalist in
the logistics sector. The Board also received formal training
sessions from some of the Company’s external service providers
as well as Catherine Fry, the Manager’s Head of Compliance.
The Board evaluation confirmed that the training programme
is well structured and highly informative and a real asset to the
Non-Executive Directors. The Company intends to continue with
the Director Training Programme in 2018.
In addition to the bespoke training programme, each Director
is expected to maintain their individual professional skills and is
responsible for identifying any individual training needs to help
them ensure that they maintain the requisite knowledge to be
able to consider and understand the Company’s responsibilities,
business and strategy. All Directors have access to advice
and services from the Company Secretary, who manages the
Company’s governance procedures, or the Manager.
The Directors are also entitled to take independent advice at the
Company’s reasonable expense at any time.
The Company maintains directors and officers’ liability
insurance, which gives appropriate cover for legal action
brought against its Directors.
See Nomination Committee Report, pages 91-92
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Governance
NOMINATION COMMITTEE REPORT
The Committee’s role is to review the size,
structure and composition of the Board, and
to ensure that the Board has the right mix of
skills, experience and knowledge to enable
the Company to fulfil its strategic objectives.
The Committee is also responsible for making
recommendations for new appointments to the
Board and for reviewing the performance and
terms of engagement for the existing Directors.
The Committee operates within defined terms of
reference which are available on the Company’s
Website
or from the Company Secretary.
Appointment of a new Non-Executive Director
The Nomination Committee identified the need to appoint a
further Independent Non-Executive Director to the Board and
the Audit Committee at its meeting at the end of 2016. The
recruitment process began soon after that.
The Nomination Committee then evaluated the skills and
experience considered necessary to complement the existing
Board composition. We particularly wanted the new candidate
to have strong experience in industrial real estate and logistics
with previous FTSE 100 board experience. We were clear that
the candidate had to be able to devote sufficient time to the
position and that we wanted the best candidate for the role. We
instructed Korn Ferry who had successfully worked with us in
2016 when we recruited Susanne Given. Korn Ferry has no other
connection with the Company apart from the provision of non-
executive recruitment services.
Korn Ferry presented to the Committee a list of candidates
who had expressed an interest in the role. We reviewed the list,
identifying those candidates who appeared to hold the correct
blend of skills. A series of interviews were arranged with the
Board and Colin Godfrey, James Dunlop and Henry Franklin
of the Manager. The Committee considered their skills and
experience, as well as their ability to devote enough time to the
position. Following the recommendation of the Committee, the
Board decided to appoint Aubrey Adams as a Non-Executive
Director of the Company with effect from 11 September 2017.
He will hold office until the Company’s AGM on 16 May 2018
when he will be submitted for election by the Shareholders as
a Non-Executive Director of the Company.
“Dear Shareholders,
I was delighted to welcome Aubrey Adams to
the Board in September. Aubrey has almost 40
years’ experience at board level in the real estate
industry and will be a great asset to the Company.
2018 will see the Nomination Committee focus on
succession planning, and particularly with regard
to a future Chairman over the medium term, and
ensuring that the Board continues to have the
right balance of skills, experience and knowledge
to independently carry out its duties.”
Membership
Richard Jewson Chairman
Jim Prower, Susanne Given, Aubrey Adams, Mark Shaw,
Stephen Smith (until his resignation from the Company
in June 2017)
Priorities for 2017
• The size, structure and composition of the Board;
• The appointment of a Non-Executive Director to the
Board and to the Audit Committee; and
• The proposal for re-election of the
Non-Executive Directors and the election of Aubrey
Adams as a Non-Executive Director at the AGM in
2018.
Meeting attendance register
PERSON
Richard Jewson
Jim Prower
Susanne Given
Mark Shaw
Aubrey Adams
Stephen Smith
MEETINGS
ELIGIBLE TO
ATTENDED
MEETINGS
ATTENDED
3
3
3
3
1
1
3
3
3
3
1
1
https://tritaxbigbox.co.uk/about/#corporate-governance
Tritax Big Box REIT plc Annual Report 2017
91
Director remuneration review
As the Company does not have any executive directors it does
not have a remuneration committee. No further changes have
been made to the remuneration of the Non-Executive Directors
during the review period. Details of the Non-Executive Directors’
remuneration can be found on pages 106-107
..
Board diversity
The Company does not have any employees. In respect of the
Board of Directors, we consider that each candidate should be
appointed on merit to make sure that the best candidate for the
role is appointed every time. We support diversity at Board level
and encourage candidates from all educational backgrounds
and walks of life. What is important to us is professional
achievement and the ability to be a successful non-executive
director based on the individual’s skill set and experience.
Qualifications are considered when necessary to ensure
compliance with regulation such as in relation to appointments
to the Audit Committee. We regularly review the Company’s
policy on diversity and consider that the Board of Directors
has a balance of skills, qualifications and experience which are
relevant to the Company. We support the recommendations of
the Hampton Alexander and Parker Reports and recognise the
value and importance of diversity in the boardroom but we do
not consider it appropriate, or in the interests of the Company
and its Shareholders, to set prescriptive diversity targets for
the Board.
Richard Jewson Chairman of the Nomination Committee
7 March 2018
Governance: Effectiveness
Policy on tenure and succession planning
We considered the ongoing independence of each of the
Non-Executive Directors, their respective skills and experience
and whether each Non-Executive Director is able to commit
sufficient time to the Company, as well as any other external
appointments held by the Non-Executive Directors. We consider
that each Non-Executive Director has contributed a significant
amount over the preceding year; a year which has seen the
Company grow with the first acquisition of prime development
land, its debut bond issue and another equity issue. The Board,
following the advice of the Committee and in line with the AIC
Code and Guide, will recommend the election and re-election
of each Non-Executive Director at the forthcoming AGM.
Non-Executive Directors are appointed for an initial period
of two years. It is the Company’s policy of tenure to review
individual appointments after seven years of service to consider
whether the Non-Executive Director is still independent and
still fulfils the role. However, in accordance with the principles
of the AIC Code and Guide, we do not consider it necessary to
mandatorily replace a Director after a predetermined period of
tenure. The Committee is currently recruiting an additional Non-
Executive Director with specific finance and audit committee
experience. Korn Ferry was appointed with this mandate in 2017
and the Committee hopes to be able to make a recommendation
to the Board shortly.
Pursuant to the Articles of Association of the Company, at every
AGM of the Company, one third of the Non-Executive Directors
who are subject to the requirement to retire by rotation (not
including any Non-Executive Director who was appointed by the
Board since the last AGM and is standing for election) will retire
from office and may offer themselves for re-election. However,
notwithstanding the provisions of the Articles, all the Non-
Executive Directors will offer themselves for re-election at each
AGM in accordance with the provisions of the AIC Code.
When renewing current appointments, all Non-Executive
Directors except the individual in question are able to vote at the
Annual General Meeting.
See Directors’ Remuneration Report, pages 106-107
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Governance
ACCOUNTABILITY
The Board is responsible for delivering robust and
sustainable value to its Shareholders by setting
strategic objectives and working to achieve them.
Undertaking robust assessments of the risks
which the Group faces and effectively managing
those risks is a key responsibility of the Board.
The main risks identified as the most relevant to
the Company are set out on pages 66-71 of the
Strategic Report
.
Code and Guide) and proposed future initiatives relating to the
Company’s governance and compliance framework. The Board
also receives quarterly compliance reports prepared by Langham
Hall UK Depositary LLP (see page 95 for further information). The
Board reviews the formal bi-annual risk assessment conducted
by the Audit Committee. Further, the Board actively considers
investment opportunities, asset management initiatives, debt
and equity fundraisings and other financial matters against the
requirements of the Company’s Investment Objectives and
Investment Policy.
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. The Company’s internal
control safeguards are designed to identify, manage and mitigate
the financial, operational and compliance risks that are inherent
to the Group. The safeguards and systems in place are 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, Link Asset
Services (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 Strategic Report.
The Board has contractually delegated responsibility for
administrative and accounting services to the Administrator and
for company secretarial services to the Manager. 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, which was reviewed and
approved in December 2017 to better reflect the operations of
the Company. The Financial Position, Prospects and Procedures
memorandum is reviewed and updated annually and the next
review will be during 2018.
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 Auditor (details of which are included
in the Audit Committee Report
Company Secretary (outlining corporate activity within the
Group and outlining the Company’s compliance with the AIC
), quarterly reports from the
The Board confirms that, in accordance with 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.
The Board also confirms that it conducts a robust assessment
of the risks to the business model, future performance, solvency
and liquidity of the Company on a bi-annual basis. The Manager
is asked to consider and analyse all the risks which face the
Group such as specific transactional risks like an adverse
decision regarding the development of a forward funded asset
at the planning stages or a sudden change in market conditions
before the launch of an equity raise or debt issue and report its
conclusions to the Board. The Board then considers each risk in
turn, probing the Manager’s assumptions and analysing whether
the risk factors attributed to each individual risk are fair and
accurate and the effect of any mitigating factors. It also considers
this at the risk review and at each strategy meeting.
AIFM Directive
The Alternative Investment Fund Managers Directive (“AIFMD”)
became part of UK law in 2013. It regulates Alternative
Investment Fund Managers (“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 AIFMD, the AIFM must comply with various organisational,
operational and transparency obligations. This year the Company
clarified that the Manager is responsible for making investment
and divestment decisions in respect of the Company’s assets
as part of the Manager’s regulatory responsibility for the overall
portfolio and risk management of the Company. This change
aligned the Company and the Manager with published ESMA
guidance on the application
of the AIFMD.
The Manager is authorised by the FCA as an AIFM and provides
all relevant management and advisory services to the Company,
including regulated activities.
See Our Principal Risks and Uncertainties, pages 66-71
See Depositary Statement, page 95
Tritax Big Box REIT plc Annual Report 2017
93
The annual fee paid by the Company is based on a percentage
of NAV, as set out in the Management Engagement Committee
Report
, pages 101-103. 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 103) in the Company’s
shares (“Management Shares”). Management 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.
Governance: Accountability
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 at
least 5% of the Manager’s profits. The discretionary bonus may
consist of cash or shares in the Company which form part of the
management fee payable to the Manager’s Partners but which
the Manager’s Partners elect to allocate to certain members
of staff as part of the annual bonus. Please refer to page 97
for further information. 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 is entitled
to additional partnership drawings that depend on the
performance of any AIF managed by the partnership. The
Partner’s 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.
See Management Engagement Committee Report, pages 101-103
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Tritax Big Box REIT plc Annual Report 2017
DEPOSITARY STATEMENT
Established in 2013, Langham Hall UK Depositary LLP is
an FCA regulated firm that works in conjunction with
the Manager and the Company to act as depositary.
Consisting exclusively of qualified and trainee accountants
and alternative specialists, the entity represents net assets
of US$50 billion and deployed our services to over 90
alternative investment funds across various jurisdictions
worldwide. Our role as depositary primarily involves
oversight of the control environment of the Company,
in line with the requirements of the AIFMD.
Our cash monitoring activity provides oversight of all
the Company held bank accounts with specific testing
of bank transactions triggered by share issues, property
income distributions via dividend payments, property
acquisitions and third-party financing. We review whether
cash transactions are appropriately authorised and timely.
The objective of our asset verification process is to perform
a review of the legal title of all properties held by the
Company, and shareholding of special purpose vehicles
beneath the Company. We test whether on an ongoing
basis the Company is being operated by the Manager in line
with the Company’s prospectus, and the internal control
environment of the Manager. This includes a review of
the Company’s and its subsidiaries’ decision papers and
minutes.
We work with the Manager in discharging our duties,
holding formal meetings with senior staff on a quarterly
basis and submitting quarterly reports to the Manager
and the Company, which are then presented to the
Board of Directors, setting our work performed and the
corresponding findings for the period.
In the year ended 31 December 2017 our work included
the review of one equity and two management share
issues, 12 property acquisitions, four third-party financing
arrangements and three property income distributions.
Based on the work performed during this period, we
confirm that no issues came to our attention to indicate
that controls are not operating appropriately.
Joe Hime Head of Depositary
For and on behalf of
Langham Hall UK Depositary LLP, London, UK
7 March 2018
Langham Hall UK Depositary LLP is a limited partnership
registered in England and Wales (with registered number
OC388007).
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Tritax Big Box REIT plc Annual Report 2017
95
Governance
AUDIT COMMITTEE REPORT
Key focus for 2017
• Recommended to the Board that the Annual Report and
Accounts for 2016, taken as whole, were fair, balanced
and understandable and that it provided the information
necessary for Shareholders to assess the Company’s
position and performance, business model and strategy;
• Reviewed the Interim Report 2017 and recommended the
same to the Board;
• Re-tendered the appointment of the Auditor in May 2017
and recommended the re-appointment of BDO as Auditor
and the appointment of PwC LLP as tax advisors to the
Company;
• Monitored the integrity of the financial statements of
the Company and any formal announcements relating to
the Company’s financial performance and reviewed any
significant financial reporting judgements contained in
them;
• Reviewed the robustness of the Company’s internal
financial controls and reviewed the efficacy of the internal
control and risk management systems used by the
Company;
• Assessed the quality of the annual and interim property
valuation prepared by the Company’s independent Valuers
and challenged the assumptions used by the Valuers in
preparing the valuation; and
• Reviewed and considered the basis of the Viability and
Going Concern Statements made by the Directors.
Meeting attendance register
PERSON
Jim Prower
Susanne Given
Stephen Smith
Aubrey Adams
Richard Jewson*
MEETINGS
ELIGIBLE TO
ATTEND
MEETINGS
ATTENDED
5
5
3
2
1
5
4
3
1
1
* Richard Jewson also attended the Audit Committee re-tender meeting
as an observer.
“Dear Shareholders,
This year we have changed the membership of the
Audit Committee with the appointment of Aubrey
Adams. It is the Committee’s role to robustly
review and assess the accuracy and quality of the
yearly audit and half-yearly review, to challenge
and consider the bi-annual property valuations
undertaken by the Valuer and the Company’s risk
management, financial reporting and financial
management functions which are undertaken
by the Manager and Administrator. We also re-
tendered the auditor function in May 2017 and are
pleased to announce that BDO LLP remains the
Auditor to the Company.”
Membership
Jim Prower Chairman1
Richard Jewson2, Susanne Given3, Aubrey Adams4,
Stephen Smith5 (until his resignation from the Company
in June 2017)
1 Jim Prower, is considered to possess recent and relevant financial
experience for the purpose of the AIC Code. Details of Jim Prower’s
experience can be found in his biography on page 88.
2 Richard Jewson, the Chairman of the Board, was appointed to the
Audit Committee on 6 July 2017 and resigned on 11 September 2017.
3 Susanne Given has previous experience of attending audit committee
meetings in her role as COO of SuperGroup Plc. Susanne also chairs
the Management Engagement Committee and is appointed to the
Nomination Committee.
4 Aubrey Adams was appointed to the Audit Committee on
11 September 2017. He is a Fellow of the Institute of Chartered
Accountants and was the pro-tem Chair of the Audit Committee
at British Land Company PLC. Aubrey is also appointed to the
Management Engagement Committee and Nomination Committee.
5 Stephen Smith sat on the Audit Committee until his resignation. He
was also a member of the Management Engagement Committee and
the Nomination Committee. Previously he had been responsible for
property investment strategy at British Land Company PLC in his role
as Chief Investment Officer. He also held various other non-executive
positions.
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Tritax Big Box REIT plc Annual Report 2017
See Viability Statement, pages 77
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The Audit Committee’s role is to oversee the
Company’s financial reporting process including
the risk management and internal financial controls
in place within the Manager, the valuation of the
property portfolio, the Group’s compliance with
accepted accounting standards and other regulatory
requirements as well as the activities of the Auditors.
Committee membership and terms of reference
We operate within defined terms of reference, which are
available on the Company’s Website and on request from the
Company Secretary.
The membership of the Committee has changed over the
course of the year. Richard Jewson, the Company’s Chairman,
was reappointed to the Audit Committee on 6 July 2017 to
support the Committee during the preparation of the Interim
Report, property valuation and risk review exercise. Richard
then resigned when Aubrey Adams was appointed to the
Audit Committee on 11 September 2017. All of the current
Audit Committee members, as well as Richard Jewson, are
independent Directors of the Company. Aubrey Adams is
a Fellow of the Institute of Chartered Accountants and has
chaired an audit committee previously and Susanne Given has
experience of sitting on an audit committee in a previous role.
I am a Chartered Accountant and acted as finance director at
Argent Group and several other listed companies. None of the
members of the Committee is connected to the Manager or to
the Auditor. The biographies of the members can be found on
pages 88-89 of this Annual Report.
Whilst Richard Jewson is an independent Director he is also
Chairman of the Company. The Chair of the Audit Committee
considered it to be beneficial to have Richard Jewson’s
experience on the Audit Committee at the time of the
publication of the Company’s Interim Results and to ensure
that the Audit Committee had three members at all times in
order to comply with the AIC Code and Guide.
Meetings
We met five times during 2017, following the Company’s
corporate calendar, which ensures that the meetings are aligned
to the Company’s financial reporting timetable. The Company
Secretary ensures that the meetings are of sufficient length to
allow the Committee to consider all the matters of importance
and the Committee is satisfied that it receives full information
in a timely manner to allow it to fulfil its obligations. These
meetings are attended by the Committee members, as well
as representatives of the Manager, the Company Secretary
and the Auditor. The Committee also met with the Company’s
independent Valuer, CBRE, in January 2018 as part of the year-
end audit process. I, as the Committee Chairman, had regular
meetings with the Company Secretary and the Head of Finance
for the Manager and the Committee regularly has informal
discussions throughout the year.
Risk management and internal controls
As part of each Board meeting and each Audit Committee
meeting, the Board of Directors review the financial position of
the Company and assess any risks in relation to the Company’s
business model, and the Group’s future performance, liquidity
and solvency as well as any risks relating to specific investments
or proposed investments and specific tenants or initiatives
relating to specific assets. To facilitate this process the Manager
produces financial reports, which include the latest management
accounts, a review and report on the Company’s financial
forecast, a report on proposed and existing investment and asset
management initiatives, substantiation of any dividend payments
and a general update on the financial health of the Company.
The Committee reviewed the principal business risks of the
Company on 3 July 2017 and 13 December 2017. The Company’s
principal risks are found on pages 66-71 of the Annual Report.
As the Company’s AIFM, the Manager is subject to reporting and
ongoing compliance under the AIFMD. As part of this regulatory
process, Langham Hall UK Depositary LLP has been retained
by the Company and is responsible for cash monitoring, asset
verification and oversight of the Company and the Manager.
Langham Hall UK Depositary LLP report quarterly to the Board
and the Manager. Please refer to page 95 for a description of
Langham Hall UK Depository LLP’s role.
The Manager also employs a Compliance Officer and Head
of Risk to assist the regulatory team with the discharge of the
Manager’s obligations in accordance with the AIFMD.
The Company does not have an internal audit function
and, following an internal risk review, we do not consider it
necessary for the Company to have one. The Company is
managed externally by the Manager. All payments of Company
funds are authorised by the Manager in accordance with the
duties delegated to it pursuant to the terms of the IMA and in
accordance with the provisions of the AIFMD. The Manager
instructs the Administrator to make the duly authorised
payment and Langham Hall UK Depositary LLP, as part of its
role as Depositary, reviews each payment. We consider that
See The Board of Directors, pages 88-89
See Our Principal Risks and Uncertainties, page 66-71
For further information on Langham Hall UK Depositary LLP,
see Depositary Statement, pages 95
Tritax Big Box REIT plc Annual Report 2017
97
Governance: Audit Committee Report
the internal controls in place and the function undertaken by
Langham Hall UK Depositary LLP makes it unnecessary for the
Company to employ an internal audit function. In addition to
this, the Administrator has its own internal audit performed on
an annual basis, from which the Company reviews any findings
and takes particular comfort. This audit has not raised any
significant findings.
Financial reporting and significant judgements
We monitor the integrity of the financial information published
in the Interim Report and Annual Report and consider whether
the Manager has made suitable and appropriate estimates and
judgements in respect of areas which could have a material
impact on the financial statements. We seek support from
the external Auditor to assess these significant judgements.
We also consider the processes undertaken by the Manager
to ensure that the financial statements are fair, balanced and
understandable.
A variety of financial information and reports were prepared
by the Manager and provided to the Board and to the Audit
Committee over the course of the year. These included budgets,
periodic re-forecasting and specific papers on the issuance of
further equity, the acquisition of the Littlebrook development
site, the impact of the refinancing of the syndicated loan
and simultaneous issue of £500 million loan notes under
the EMTN programme; as well as reviewing the Company’s
ability to continue to pay a progressive dividend. This financial
information was fully reviewed and debated both at Committee
and Board level across a number of meetings.
The Manager and the Auditor update us on changes to
accounting policies, legislation and best practice and areas
of significant judgement by the Manager. They pay particular
attention to transactions which they deem important due to size
or complexity. The main areas where a significant judgement is
required include the assessment over fair values of investment
property and interest rate derivatives, business combinations,
and operating lease contracts.
Business combinations
At the time of acquiring a subsidiary that owns investment
properties, the Group considers whether each acquisition
represents the acquisition of a business or the acquisition of an
asset. Where the acquisitions are not judged to be the acquisition
of a business, they are not treated as business combinations.
Operating lease contracts
The Group has determined, based on an evaluation of the terms
and conditions of the arrangements, that it retains all significant
risks and rewards of ownership of its properties and so accounts
for the leases as operating leases.
Valuation of property portfolio
Following production of the draft valuation by CBRE, the
Manager meets with CBRE to discuss and challenge various
elements of the property valuation. The Auditor, in fulfilling its
function as independent auditor to the Company, also meets
with CBRE to discuss, and where necessary, challenge the
property valuations. The Board receives a copy of the property
valuation for the portfolio once it has been tested by the
Manager and after the Auditor has met with the Valuer. The
Board also met with the Valuer in January 2018 to discuss and
challenge the valuation and to ensure it was conducted properly,
independently and could be fully supported. The property
portfolio is valued by CBRE bi-annually. The performance of
CBRE is assessed on an annual basis by the Management
Engagement Committee in its report on pages 101-103.
The Group had property assets of £2.60 billion at 31 December
2017, 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 year end was £2.60 billion.
We have reviewed the assumptions underlying the property
valuations and discussed these with the Manager, and have
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 and IFRS 13 Fair Value Measurement.
The valuations are provided by the relevant counterparties
of the interest rate derivatives. The Board has reviewed and
approved these valuations.
Fair, balanced and understandable financial statements
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
Annual Report is fair, balanced and understandable, as required
under the AIC Code and Guide, the Board has requested that
the Audit Committee advise on whether we consider that the
See Management Engagement Committee Report, pages 101-103
98
Tritax Big Box REIT plc Annual Report 2017
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Annual Report fulfils these requirements. In outlining our advice,
we have 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 Adviser, 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 ISAE 3402 control report produced by the
Administrator for the year ended 31 December 2017, which
has been reviewed and reported upon by the Administrator’s
external auditor, to verify the effectiveness of the
Administrator’s internal controls; and
• a letter provided by the Administrator that there have been no
changes to its control environment since 31 December 2017
and that all internal controls in place at the time of the last
review remain active.
As a result of the work performed, we have concluded and
reported to the Board that the Annual Report for the year
ended 31 December 2017, 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 Chairman’s Governance Overview
, page 82.
External Auditor re-tender
The European Union Audit Reform Legislation came into force in
2017 meaning that, as the Company’s Auditor, BDO LLP (“BDO”)
were unable to continue to provide the Company with audit
services, along with non-audit services including corporate
finance services and tax advisory work. With a view to dividing
the audit and non-audit services, the Board, in accordance with
our advice, decided that it would re-tender the position of
Auditor to the Company.
In April 2017, the Company invited, BDO, Deloitte LLP
(“Deloitte”), PricewaterhouseCooper LLP (“PwC”) and
KPMG LLP (“KPMG”) to tender for the position as Auditor
to the Company. Following receipt of written proposals, the
Committee asked BDO, Deloitte and KPMG to return to deliver
a formal presentation to it in May 2017. The tender documents
and presentations received were of exceptionally high quality.
The Committee gave particular consideration to the depth and
breadth of experience plus the qualifications and real estate
credentials of the respective audit teams. Alongside this, a focus
of each proposal included value for money, an ability to deliver
the audit within the timescales set and quality of audit services
in relation to recent FRC quality assessments made of the
respective firms. The Audit Committee decided to recommend
that BDO be reappointed as Auditor due to its strong tender
pitch and its comprehensive and in-depth knowledge of the
Company. Another key aspect was the high level of team
continuity, at all levels, that the Company has received from
BDO since the Company’s IPO. BDO have agreed a fixed fee for
this audit of this Annual Report and review of the Interim Report
for the next three years up to and including 2019. BDO were
therefore re-appointed as Auditor to the Company in May 2017.
As part of the re-tender process we considered BDO’s
compensation, past performance and continuing independence.
Richard Levy will remain the lead Audit Partner until year-end
2018, at which point he is due to rotate following the fifth year
of the audit in line with Ethical Standards. Richard has been
the lead Audit Partner since year-end 2014. It is intended
that Geraint Jones, who we met as part of the audit tender
process, then takes over the position as Lead Audit Partner.
The Company has met with the key members of the Audit team
over the course of the year and BDO have formally confirmed
its independence as part of the reporting process as well as
during the re-tender process. We consider that the Audit team
assigned to the Company by BDO has a good understanding
of the Company’s business which enables it to produce a
detailed, high-quality, in-depth audit and permits the team to
scrutinise and challenge the Company’s financial procedures
and significant judgements. We also considered BDO’s internal
quality control procedures and found them to be sufficient. The
FRC confirmed in its 2016 Audit Quality Review of BDO that
none of BDO’s audits needed significant improvements. The
Committee is satisfied that the Audit process is transparent and
of good quality.
Audit process
We meet with the Auditor before the preparation of the interim
and annual results began, to plan and discuss the scope of the
audit or review as appropriate, and challenge where necessary
to ensure its rigour. At these meetings the Auditors prepare a
detailed audit or review plan which is discussed and questioned
by us to ensure that all areas of the business are appropriately
See Chairman’s Governance Overview, pages 80-82
Tritax Big Box REIT plc Annual Report 2017
99
Governance: Audit Committee Report
reviewed and that the materiality thresholds are set at the
appropriate level which varies depending on the matter in
question. The timescale for the delivery of the Audit or review
is also set at this meeting. We meet with the Auditor again
just prior to the conclusion of the review or Audit to consider,
challenge and evaluate findings in depth. As an example, we
questioned the Auditor in depth on the process it adopted to
challenge the 2017 property valuation to ensure it was effective
and we discussed a query raised by a Shareholder relating to
the Company’s treatment of fixed uplift rental adjustments at
the half yearly review. Neither the audit nor the interim review
uncovered any significant findings.
We continue to believe 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. For this reason we continue to engage BDO as
reporting accountants on the Company’s secondary offerings in
the normal course of the Company’s business. Following the audit
tender, PwC LLP were appointed to assist with financial and tax
due diligence on corporate acquisitions and to provide specific
tax compliance advice.
The Company paid £77,500 in fees to the Auditor for non-audit
services during 2017. These fees are set out in the table below.
WORK UNDERTAKEN
RATIONALE FOR USING THE EXTERNAL AUDITOR
Reporting accountant on the Company’s
secondary offerings and public debt issuance
Detailed knowledge and understanding of the business and the
requirements of the exercise, having acted as reporting accountant
on previous equity fundraisings for the Company. Low risk of self-
interest and self-review threat, as the work is not used in the audit
of the financial statements.
FEE (£)
£77,500
Jim Prower Chairman of the Audit Committee
7 March 2018
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Tritax Big Box REIT plc Annual Report 2017
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Governance
MANAGEMENT ENGAGEMENT COMMITTEE REPORT
The Management Engagement Committee’s role
is to review the performance of the Manager and
the Company’s main service providers and to
recommend the re-tender of their appointments for
consideration by the Board. The Committee is also
responsible for overseeing any amendments to the
Investment Management Agreement.
We met twice in the year to 31 December 2017, to review the
Company’s relationships with its main service providers, their
performance and the terms of their appointment, and to review
the Company’s relationship with the Manager, the Manager’s
performance and the terms of the Manager’s appointment.
We conducted a comprehensive review of the performance of
the Manager and, together with the Manager and the Company
Secretary, all of the Company’s corporate advisers and principal
service providers. This included an assessment of the ongoing
requirement for the provision of such services, the fees paid to
and the performance of such advisers and service providers and
additional added value given by the Manager and the Company’s
service providers and advisers, and whether additional services
were required. The review was for the period ending 30 June
2017, thereby allowing the Committee to refer to figures
reviewed by the Auditor in its assessment of performance.
Under the terms of the Investment Management Agreement,
the Board has delegated day-to-day responsibility for running
the Company to the Manager, including sourcing of investment
opportunities in line with the Company’s Investment Policy,
responsibility for investment and divestment decisions made
in accordance with the Company’s Investment Policy, asset
management of the existing portfolio, negotiation of debt
facilities within the parameters of the Company’s policy on
gearing and liaising with the Company’s advisers on equity
fundraisings. As all of the Company’s subsidiaries and therefore
all of its assets are wholly owned and controlled by the
Company, the Board exercises direct control in respect of the
Group’s holdings.
The Investment Management Agreement was formally amended
on 11 September 2017 to reflect the clarification made to the
investment process adopted by the Company. This amendment
establishes that responsibility for investment and divestment
decisions is delegated to the Manager in accordance with
ESMA guidance as to the interpretation of the rules under the
AIFMD. Investment and divestment decisions must be made
in accordance with the Company’s Investment Policy and
the Board remains responsible for ensuring this is the case.
“Dear Shareholders,
The Committee’s main focus since my
appointment as Chair in the summer has been
to conduct a detailed review of the services
provided by the Company’s key suppliers in order
to implement the rolling re-tender programme.
We have also effectively implemented
the procedural change to the Investment
Management Agreement and, as a consequence
of that change, advised the Board to tender the
Company Secretarial function.”
Membership
Susanne Given Chairman
Richard Jewson, Jim Prower, Aubrey Adams,
Stephen Smith*
Priorities for 2017
• Implementation of the re-tender schedule commencing
with the re-tender of the Company Secretarial
Function.
• Procedural clarification to the Investment Management
Agreement.
• Annual review of each service provider to ensure
the quality of service and value for money for the
Shareholders.
Meeting attendance register
PERSON
Susanne Given
Richard Jewson
Jim Prower
Aubrey Adams
Stephen Smith
MEETINGS
ELIGIBLE TO
ATTENDED
MEETINGS
ATTENDED
2
2
2
2
0
2
2
2
2
0
* Stephen Smith was Chair of the Management Engagement Committee
until his resignation. Aubrey Adams was appointed to the Management
Engagement Committee on 11 September 2017.
Tritax Big Box REIT plc Annual Report 2017
101
Governance: Management Engagement Committee Report
The Board continues to review all investment and divestment
decisions as well as the asset management policy established
by the Manager. The Service Level Agreement has been
well implemented over 2017 and we noted that the Board
has commented on the improvement in the timeliness of the
dissemination of Board papers, the quality of the information
received and the quality of the research and training papers.
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 and discuss the market generally and to discuss
the financial performance and strategy of the Company. Details
of the Company’s performance in 2017 have been set out in the
Strategic Report on pages 1-77. The Manager has adopted a
focused approach to investing with the Company acquiring 11
Big Boxes during the year, which offer opportunities for capital
appreciation through income growth and asset management
initiatives. As a result of acquisitions sourced and executed by
the Manager, the Company has diversified its portfolio by tenant
and geography while providing a high level of income security.
41.3% of our rent roll is underpinned by leases of more than
15 years’ unexpired term. The Company has also acquired
a significant development site of prime land at Littlebrook
on the south side of the River Thames at Dartford.
The Committee also reviews the Manager’s culture and
resourcing. The Manager increased the number of people it
employed in 2017 to ensure that the Company is well serviced
and made the following appointments of note; Charlie Withers,
a highly experienced property specialist, to oversee Littlebrook,
future developments and certain asset management initiatives;
and Sally Bruer as Head of Research with a particular focus on
the Company and its market sector. The Manager also promoted
Bjorn Hobart and Petrina Austin to equity partners. We are
confident following our review that the Manager continues to
provide excellent service to the Company and provides fair value
for money to the Company’s Shareholders.
Following an extensive review and full analysis, we agreed with
the Manager that the performance of all of the Company’s
current service providers for the past year continued to be
satisfactory, and in several cases exceptional, and, in accordance
with the Manager’s recommendation, that each be retained until
the next review. We did not formally review the appointment of
PwC LLP as corporate services and tax advisor to the Company
as this appointment is very recent. The appointment will form part
of the 2018 review. We did not suggest any material changes to
the engagement terms of any of the advisers or service providers.
See Strategic Report, pages 1-77
See Audit Committee Report, pages 96-100
102
Tritax Big Box REIT plc Annual Report 2017
Our review did not reveal any material weaknesses in the advice
and support provided to the Group. We are satisfied that the
Company is benefiting from added value in respect of the services
it procures.
However, in order to ensure that the Company continues to
receive the very best service and value from its service providers,
the Management Engagement Committee has recommended a
schedule of re-tendering to the Board which sets out a timetable
for each professional appointment to be re-tendered. The re-
tendering programme started in 2017 with the re-tender of the
Auditor and the appointment of a new corporate finance and
tax compliance and advisory work to the Group in the form of
PwC. Details of the Audit re-tender can be found in the Audit
Committee Report
.
Following the clarification of the Manager’s responsibilities
under the Investment Management Agreement the Committee
recommended to the Board that the Company Secretarial
function be re-tendered to ensure that the Company follows
best practice corporate governance at all times. The Company
launched the re-tender of the Company Secretarial function in
November 2017 and it is expected to complete in March in 2018.
Management fee
Under the Investment Management Agreement, as amended
and restated on 11 September 2017, 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. 25% (net of associated costs) of the
management fee is reinvested in shares of the Company within
60 days following the release of the Company’s financial results
to the market. 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 while remaining capped at NAV.
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The management fee as a percentage of NAV is as set out below:
NAV
RELEVANT PERCENTAGE
TRITAX PARTNER OR
PERSON CLOSELY
ASSOCIATED
NUMBER OF
MANAGEMENT
SHARES HELD
PERCENTAGE OF ISSUED
SHARE CAPITAL AS AT
31 DECEMBER 2017
Up to and including £500 million
Above £500 million up to and including
£750 million
Above £750 million up to and including
£1 billion
Above £1 billion up to and including
£1.25 billion
Above £1.25 billion up to and including
£1.5 billion
Above £1.5 billion
1.0%
0.9%
0.8%
0.7%
0.6%
0.5%
During specified periods after publication of the Company’s
annual or interim results the members of the Manager and
relevant employees (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 Ordinary Shares being issued 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. The Ordinary
Shares may be issued to any members of the Manager or, at the
discretion of the Manager, to any employee of the Manager.
On 13 April 2017, the Company issued 528,528 Ordinary Shares
in respect of the net cash amount, relating to the six months
to 31 December 2016. The issue price was 126.45 pence per
Ordinary Share, equivalent to the prevailing and published
audited basic NAV of 128.00 pence per Ordinary Share less
the interim dividend of 1.55 pence per Ordinary Share, for
which the shares did not qualify, paid to Shareholders on or
around 3 April 2017 for the period between 1 October to
31 December 2016. On 3 October 2017, the Company issued
557,085 Ordinary Shares in respect of the net cash amount,
relating to the six months to 30 June 2017. The issue price was
130.83 pence per Ordinary Share, equivalent to the prevailing
unaudited basic NAV of 132.43 pence per Ordinary Share less
the interim dividend of 1.60 pence per Ordinary Share, for which
the shares did not qualify, paid to Shareholders in August 2017
in respect of the period from 1 April to 30 June 2017. Following
these issues of Ordinary Shares, the Manager as at the year end
had the following beneficial interests:
Mark Shaw
Colin Godfrey
James Dunlop
Henry Franklin
Bjorn Hobart
Petrina Austin
822,027
741,757
690,796
520,302
61,843
41,883
Tritax Management LLP
83,161
Staff of Tritax
Management LLP*
Total
105,177
3,066,946
0.060%
0.054%
0.051%
0.038%
0.005%
0.003%
0.006%
0.008%
0.225%
* This figure comprises Ordinary Shares issued to staff at Tritax Management LLP
under the terms of the Investment Management Agreement and at IPO, and does not
include other shares that may have otherwise been acquired by any staff members.
Extension to term
The earliest termination date of the Investment Management
Agreement is 31 December 2021. In order to terminate on that
date, 24 months’ notice of termination would need to be given
by either party by 31 December 2019. Thereafter either party
can terminate the Investment Management Agreement by giving
at least 24 months’ notice. The provisions allowing the parties
to terminate without notice in certain circumstances, including
material breach and/or loss of key personnel, remain in place.
Conflict management
The Investment Management Agreement contains restrictive
conflict provisions and the Manager is not permitted in any
circumstance to manage another fund with an exclusive
investment strategy focusing on distribution or logistics assets
in excess of 300,000 sq ft located within the UK. The Manager
is permitted to acquire and manage UK distribution or logistics
assets which provide less than 300,000 sq ft of accommodation
on behalf of other funds subject to certain caveats designed to
ensure that any assets which may be of interest to the Company
are offered to the Company in priority to other funds managed
by the Manager.
We will review the continuing appointment of all of the
Company’s principal service providers and the performance of
the Manager on an annual basis and ensure they are in the best
interests of Shareholders as a whole.
Susanne Given Chairman of the Management
Engagement Committee
7 March 2018
Tritax Big Box REIT plc Annual Report 2017
103
Governance
RELATIONS WITH SHAREHOLDERS AND STAKEHOLDERS
As a Board, we recognise the importance
of maintaining strong relationships with the
Company’s Shareholders and stakeholders and
in understanding their priorities and concerns. In
2017, we have extended this focus to developing
strong and beneficial relationships with our
Customers. We have continued to develop our
communications programme and expand upon
the initiatives developed last year.
The Chairman and Colin Godfrey, together with Jim Prower,
Susanne Given and Aubrey Adams held a series of lunches in
October and November 2017 with several Shareholders to
discuss, informally, the Company and its business strategy in
the present economic climate. The lunches proved informative
for the Board and the Manager and were well received by those
Shareholders who were able to attend. The feedback received
was again generally highly supportive of the Company and has
been presented to the Board. The Board hopes to continue this
initiative into 2018 and is considering expanding the programme
to include other key stakeholders.
The Chairman and the Senior Independent Director, alongside
Colin Godfrey from the Manager, are the Company’s principal
spokesmen who speak with the Company’s Shareholders, the
press, analysts, investors and other stakeholders regularly. The
Directors are all available to speak to Shareholders to discuss
any matters relating to the Company, whether they concern the
Company’s corporate governance or the Company’s strategy or
anything else of importance.
Investor relations
During the year, the Manager together with the Company’s
Broker, Jefferies International Limited, devoted time to meeting
with existing Shareholders and prospective new investors
in the UK, USA, South Africa, The Netherlands, France and
Switzerland. The roadshows, together with a series of ongoing
ad hoc meetings with Shareholders and stakeholders,
enabled the Manager to listen to and understand the views of
Shareholders and stakeholders and report the information to
the Board so it could consider and appreciate these opinions.
On the whole, feedback from the roadshows and other meetings
has been positive over the year and this is supported by the
response to the equity raise in May 2017 and the Company’s
EMTN issue in December 2017.
The Manager has a dedicated investor relations team who
liaise with the Company’s public relations advisor, Newgate
Communications Plc, and provide regular investor relations
reports to the Board, which includes major press coverage,
analyst reports and Shareholder feedback. The Company’s
Broker provides a bespoke quarterly report, which has a section
dedicated to investor relations. The Manager also produces
a quarterly factsheet on behalf of the Company which can be
viewed on the Company’s Website
.
As well as the Chairman’s lunches, the Company hosted a
private event for Customers and other key stakeholders during
the summer of 2017. As well as the Board, representatives from
the Manager were also present. This event enabled the Board
and the Manager to better understand the main concerns and
development points for our Customers which should enable
the Company to partner with its Customers more effectively
as well as promoting a more open discussion for future asset
management and other property initiatives in the future.
Site visits
The Manager has undertaken several “Big Box” site visits for
existing Shareholders, prospective investors and analysts during
the year. We will continue the initiative in 2018 as we believe
that it provides Shareholders and other stakeholders with a
better insight into the nature of the assets we invest in and
our strategy.
Annual General Meeting (AGM)
Shareholders are encouraged to attend and vote at the
Company’s general meetings so they can discuss governance
and strategy with the Board and the Manager. This enables
the Board to better understand Shareholders’ views. The full
Board usually attends the Annual General Meeting and the
Directors make themselves available to answer Shareholder
questions at all the general meetings of the Company and are
always contactable as necessary. The Chairman makes himself
available, as necessary, outside of these meetings to speak to
Shareholders. The Senior Independent Director is also available
for Shareholders to contact if other channels of communication
with the Company are not available or are inappropriate.
Members of the Board also regularly attend the bi-annual
financial results presentations to analysts.
https://tritaxbigbox.co.uk/investors/shareholder-information/
104
Tritax Big Box REIT plc Annual Report 2017
The Chairman and the Senior Independent Director as well as
other members of the Board can be contacted by emailing the
Company Secretary, on cosec@tritaxbigbox.co.uk, who will
pass the communication directly to the relevant person, or by
post at the Company’s registered office.
Public communications
The Company ensures that any price sensitive information is
released to all Shareholders at the same time and in accordance
with regulatory requirements. All Company announcements
which are released through the London Stock Exchange are also
made available on the Company’s Website. The Website also
holds the quarterly fact sheets, share price information, investor
presentations, the Key Information Document prepared by the
Manager and the Annual and Interim Reports which are available
for download. The Company’s Annual Report and Interim Report
are also dispatched to Shareholders by mail.
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Tritax Big Box REIT plc Annual Report 2017
105
Governance
DIRECTORS’ REMUNERATION REPORT
Annual statement
As the Board has no executive directors, it does not consider it
necessary to establish a separate remuneration committee. The
Directors’ remuneration is disclosed later in this Remuneration
Report. The Remuneration Report and the Remuneration Policy
will be presented at the AGM for Shareholder consideration for
approval.
other than the Chairman, Richard Jewson, who is paid a fee of
£100,000 pa.
The fees paid to the current and past Directors in the year to
31 December 2017, which have been audited, are set out in
the table below. Nothing further is owed by the Company to
Stephen Smith following his resignation in June 2017.
Directors’ Remuneration Policy
The Company’s policy is to determine the level of Directors’
fees with regard to those payable to Non-Executive Directors
of comparable REITs generally and the time each Director
dedicates to the Company’s affairs.
The Directors are entitled only to their annual fee and
their reasonable expenses. 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.
Under the Company’s Articles of Association, all Directors are
entitled to the remuneration determined from time to time by
the Board.
External advisers
The Board and its Committees have access to sufficient
resources to discharge their duties, which include access to
independent remuneration experts, the Company Secretarial
team and the Manager and other advisers as required. The
Board has not required any additional advice from independent
remuneration experts. The Company’s advisers are named in
this Annual Report and a list of the main advisers can be found
on page 170.
Annual report on remuneration
Richard Jewson was appointed to the Board by a letter of
appointment dated 18 November 2013 which was updated and
re-issued on 13 September 2016. Jim Prower was appointed
by a letter of appointment dated 18 November 2013. Mark Shaw
was appointed by a letter of appointment dated 8 November
2013. Susanne Given was appointed by a letter dated
13 September 2016. Aubrey Adams was appointed by a letter
dated 11 September 2017. 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 £50,000 pa,
In addition, each Director is entitled to recover all reasonable
expenses properly incurred in connection with performing
his or her duties as a Director. Directors’ expenses for the year
to 31 December 2017 totalled £4,163 (2016: £2,725). No
other remuneration was paid or payable during the year to
any Director.
DIRECTOR*
ANNUAL FEE
£
2017
TOTAL
£
2016
TOTAL
£
Richard Jewson Chairman
£100,000
£100,000
£79,000
Jim Prower
Stephen Smith†
Susanne Given
Aubrey Adams‡
£50,000
£50,000
£46,500
£50,000
£25,000
£43,000
£50,000
£50,000
£15,000
£50,000
£15,385
N/A
* As Chairman of the Company’s Manager, Mark Shaw is not entitled to receive a fee.
† Stephen Smith resigned from the Board on 24 June 2017.
‡ Aubrey Adams was appointed on 11 September 2017.
Statement of voting at general meeting
The Company is committed to ongoing Shareholder dialogue
and takes an active interest in voting outcomes. If 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 Directors’ Remuneration Report
(excluding the Directors’ Remuneration Policy) was approved
by Shareholders at the Company’s AGM held on 17 May 2017.
The Directors’ Remuneration Policy (as set out in the financial
statements of the Company for the financial year ended
31 December 2014) was approved at the Company’s AGM on
15 April 2015. The next time that the Shareholders will be
asked to approve the Directors’ Remuneration Policy will be
at the Company’s AGM in 2018. The voting on the respective
resolutions was as shown overleaf.
See Company Information, page 170
106
Tritax Big Box REIT plc Annual Report 2017
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RESOLUTION
VOTES CAST
FOR
%
AGAINST
%
VOTES
WITHHELD
337,092,585
100
0
2,260,800
Other items
The Company maintains Directors’ and Officers’ liability
insurance cover, at its expense, on the Directors’ behalf.
662,582,179 99.11
0.89 47,382,183
Relative importance of spending on pay
Directors’
Remuneration Policy*
Directors’
Remuneration Report†
2016
£
%
CHANGE
0.21
9.50
29%
25%
32%
Directors’ remuneration
2017
£
0.27
Investment management fees
11.84
Dividends paid to Shareholders
78.45
59.38
Richard Jewson Chairman
7 March 2018
* Voting as at AGM held on 15 April 2015.
† Voting as at AGM held on 17 May 2017.
Total Shareholder return
The graph below shows 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 All-Share Index and the FTSE All-Share REIT Index.
Total Shareholder return is the measure of returns provided by
a Company to Shareholders reflecting share price movements
and assuming reinvestment of dividends.
Directors’ shareholdings (audited)
There is no requirement for the Directors of the Company to
own shares in the Company. As at the year end, the Directors
and their persons closely associated had the shareholdings
listed below.
Total Shareholder return (p)
160
150
140
130
120
110
100
90
80
PRICE
CHANGE
TOTAL
RETURN
48.9%
75.7%
35.3%
50.8%
20.6%
39.2%
3
1
c
e
D
3
1
r
a
M
3
1
n
u
J
3
1
p
e
S
4
1
c
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D
4
1
r
a
M
4
1
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u
J
4
1
p
e
S
5
1
c
e
D
5
1
r
a
M
5
1
n
u
J
5
1
p
e
S
6
1
c
e
D
6
1
r
a
M
6
1
n
u
J
6
1
p
e
S
7
1
c
e
D
7
1
r
a
M
7
1
n
u
J
7
1
p
e
S
■ Tritax Big Box ■ FTSE 2502 ■ FTSE All-Share REIT Index2
1 Source: Bloomberg and Capital IQ.
2 Rebased to Tritax Big Box.
NUMBER
OF SHARES
HELD
77,182
PERCENTAGE OF
ISSUED SHARE
CAPITAL AS AT
31 DECEMBER 2017
DIVIDENDS
RECEIVED
31 DECEMBER 2017
£
0.01%
£4,588.40
DIRECTOR*
Richard Jewson
Chairman
Jim Prower
23,760
Aubrey Adams
100,000
Susanne Given
0
Mark Shaw
822,027
0.00%
0.01%
0.00%
0.06%
£1,508.76
£0
£0
£37,351.66
* Includes Directors and persons closely associated (as defined by the EU Market
Abuse Regulation) Shareholdings.
The shareholdings of these Directors are not significant and,
therefore, do not compromise their independence.
Tritax Big Box REIT plc Annual Report 2017
107
Governance
DIRECTORS’ REPORT
Introduction
The Directors are pleased to present the Annual Report,
including the Company’s audited financial statements as at,
and for the year ended, 31 December 2017.
The Directors’ Report, together with the Strategic Report,
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.
Incorporation by reference
The Governance Report (pages 80-111 of this Annual Report
and Accounts for the year ended 31 December 2017) is
incorporated by reference into this Directors’ Report.
Directors
The names of the Directors currently serving the Company
are set out in The Board of Directors
, together with their
biographical details on pages 88-89. Stephen Smith served as a
Director of the Company until his resignation on 24 June 2017.
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.
Future developments
An indication of the likely future developments of the Company’s
business is set out in the Strategic Report.
Political donations
No political donations were made during the year.
Financial results and dividends
The financial results for the year can be found in the Group
Statement of Comprehensive Income
.
Employees
The Group has no employees and therefore no employee share
scheme or policies on equal opportunities and disability.
During the year, the following interim dividends amounting to,
in aggregate, 6.40 pence per share were declared:
• on 24 April 2017 an interim dividend was declared in respect
of the period from 1 January 2017 to 31 March 2017 of
1.60 pence per Ordinary Share and paid on or around 22 May
2017 to Shareholders on the register on 5 May 2017;
• on 13 July 2017 an interim dividend was declared in respect
of the period from 1 April 2017 to 30 June 2017 of 1.60 pence
per Ordinary Share and paid on or around 10 August 2017 to
Shareholders on the register on 21 July 2017.
• on 12 October 2017 an interim dividend was declared in
respect of the period from 1 July 2017 to 30 September 2017
of 1.60 pence per Ordinary Share and paid on or around
16 November 2017 to Shareholders on the register on
20 October 2017.
An additional interim dividend in respect of the three months
ended 31 December 2017 of 1.60 pence per share was declared
on 7 March 2018. This takes the total dividend in respect of the
2017 financial year to 6.40 pence per share.
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
In May 2017, the Company issued 257,352,941 Ordinary Shares
at a price of 136 pence pursuant to a Placing, Open Offer and
Offer for Subscription. In April and October 2017 the Company
issued 528,528 Ordinary Shares and 557,085 Ordinary
Shares respectively pursuant to the Investment Management
Agreement.
As at 31 December 2017, there were 1,363,598,083 Ordinary
Shares in issue.
ORDINARY SHARES
NUMBER
GROSS
PROCEEDS (£)
Balance at start of the year
1,105,159,529
Shares issued in April 2017
528,528
N/A
N/A
Shares issued in May 2017
257,352,941 £350,000,000
Shares issued in October 2017
557,085
N/A
Balance at end of the year
1,363,598,083 £350,000,000
See The Board of Directors, pages 88-89
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NUMBER OF
ORDINARY
SHARES
PERCENTAGE
HOLDING OF
ISSUED SHARE
CAPITAL
106,788,824
102,767,171
49,016,579
7.73%
7.54%
3.59%
3.38%
3.25%
2.97%
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:
INVESTOR
BlackRock
• the FCA’s Listing Rules, which require certain individuals to
Aviva Investors
have approval to deal in the Company’s shares; and
Vanguard Group
• 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 year ended 31 December 2017:
• 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.
As such, the Board believes that the Company has no reportable
emissions for the year ended 31 December 2017.
Legal & General Investment Management 46,027,585
Brewin Dolphin
44,364,866
Quilter Cheviot Investment Management
40,523,823
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 Act and any directions given by the Company by
special resolution.
Powers in relation to the Company issuing its shares
At the Annual General Meeting held on 17 May 2017, the
Directors were granted a renewed general authority to
allot Ordinary Shares in accordance with section 551 of the
Companies Act 2006 up to an aggregate nominal amount
of £7,367,730. Of those Ordinary Shares, the Directors were
granted authority to issue up to an aggregate nominal amount
of £552,808 (which is equivalent to 5% of the Company’s issued
share capital as at that date) non pre-emptively and wholly for
cash and authority to issue up to an aggregate nominal amount
of £552,808 to be used only for the purpose of financing (or
refinancing, if the authority is to be used within six months after
the original transaction), a transaction which the Directors
determine to be an acquisition or other capital investment
of a kind contemplated by the Statement of Principles on
Disapplying Pre-Emption Rights most recently published by the
Pre-Emption Group prior to the date of the notice of the AGM.
These authorities replaced the equivalent authorities given
to the Directors at the General Meeting held on 11 May 2017.
These authorities expire at the next AGM on 16 May 2018.
Substantial shareholdings
As at 28 February 2018, 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.
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 or
institutions.
In certain facilities including the issue of recent loan notes, the
change of control provisions also include a change of control at
the ultimate parent company level.
Tritax Big Box REIT plc Annual Report 2017
109
Governance: Directors’ Report
Appointment and replacement of Directors
Details of the process by which Directors can be appointed or
replaced are included in the Nomination Committee Report.
Events subsequent to the year-end date
For details of events since the year-end date, please refer to
note 33 to the consolidated financial statements.
Independent Auditor
BDO LLP has expressed it willingness to continue as Auditor for
the financial year ending 31 December 2018.
Manager and service providers
The Manager during the year was Tritax Management LLP.
Details of the Manager and the Investment Management
Agreement are set out in the Management Engagement
Committee Report.
The Company’s administration was delegated to Capita Sinclair
Henderson Limited who were acquired by the Link Group during
the year and are now known as Link Asset Services Limited.
Additional information
In accordance with Listing Rule (LR) 9.8.4C R, the only
disclosure requirement required under LR 9.8.4 R is the
disclosure of capitalised interest, which is disclosed in note 11,
page 125.
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 10:00 am on 16 May 2018.
This report was approved by the Board on 7 March 2018.
Tritax Management LLP Company Secretary
7 March 2018
Company Registration Number: 08215888
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Governance
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 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 year.
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 IFRS’s 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 Financial
Reporting Standard 100 Applications of Financial Reporting
Requirements (“FRS 100”) and Financial Reporting Standard
101 Reduced Disclosure Framework (“FRS 101”), 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.
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 the pages detailed in the
footnotes below (or using the embedded link in the PDF).
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 financial 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.
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.
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.
Signed on behalf of the Board by:
Richard Jewson Chairman
7 March 2018
See Directors’ Report, pages 108-110
See Strategic Report, pages 1-77
See Directors’ Remuneration Report, pages 106-107
See Chairman’s Governance Overview, pages 80-82
https://tritaxbigbox.co.uk/investors/shareholder-information
111
Governance
INDEPENDENT AUDITOR’S REPORT
to the members of Tritax Big Box REIT plc
Opinion
We have audited the financial statements of Tritax Big Box
REIT plc (the ‘Parent Company’) and its subsidiaries together
(the ‘Group’) for the year ended 31 December 2017 which
comprise the Group Statement of Comprehensive Income, the
Group Statement of Financial Position, the parent Company
Balance Sheet, the Group and parent Company Statement of
Changes in Equity, the Group Cash Flow Statement and Notes
to the Financial Statements, including a summary of significant
accounting policies. The financial reporting framework that
has been applied in their preparation of the Group financial
statements is applicable law and International Financial
Reporting Standards ("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
(United Kingdom Generally Accepted Accounting Practice).
In our opinion the financial statements:
• give a true and fair view of the state of the Group’s and of the
parent Company’s affairs as at 31 December 2017 and of the
Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
us to report to you whether we have anything material to add or
draw attention to:
• the disclosures in the Annual Report set out on page 66-71
that describe the principal risks and explain how they are being
managed or mitigated;
• the Directors’ confirmation set out on page 66 in the Annual
Report that they have carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or
liquidity;
• the Directors’ statement set out on page 76 in the financial
statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting
in preparing the financial statements and the Directors’
identification of any material uncertainties to the Group and
the parent company’s ability to continue to do so over a period
of at least 12 months from the date of approval of the financial
statements;
• whether the Directors’ statement relating to going concern
required under the Listing Rules in accordance with Listing
Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit; or
• 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.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described
in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We are independent of
the Group in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the
UK, including the FRC’s Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
• the Directors’ explanation set out on page 77 in the Annual
Report as to how they have assessed the prospects of the
Group, over what period they have done so and why they
consider that period to be appropriate, and their statement as
to whether they have a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities as
they fall due over the period of their assessment, including
any related disclosures drawing attention to any necessary
qualifications or assumptions.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
financial statements of the current period and include the most
significant assessed risks of material misstatement (whether
or not due to fraud) that we identified. These matters included
those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Conclusions relating to principal risks, going concern
and viability statement
We have nothing to report in respect of the following information
in the Annual Report, in relation to which the ISAs (UK) require
The table overleaf shows the key audit matters that we
identified. This is not a complete list of all risks identified for
our audit. There has been no change in the key audit matters
from the prior year as the operations of the Group remain
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largely unchanged. The approach to these risks also remained
consistent with the prior year.
KEY AUDIT MATTER
HOW THE SCOPE OF OUR AUDIT ADDRESSED
THE KEY AUDIT MATTER
We obtained an understanding of the approach to the
valuation of both investment properties and properties in
the course of construction.
We met with the Group’s independent valuer, who valued
all of the Group’s investment properties, to understand
the assumptions and methodologies used in valuing these
properties, the market evidence supporting the valuation
assumptions and the valuation movements in the year.
We used our knowledge and experience to evaluate and
challenge the valuation assumptions, methodologies and
the unobservable inputs used.
We agreed a sample of key observable valuation inputs
supplied to and used by the independent valuer to
supporting documentation.
We assessed the competency, independence and
objectivity of the independent valuer.
For properties in the course of construction we assessed
project costs and progress of development and verified
the forecast costs to complete included in the valuations
through cost analysis.
For such forward funded assets we also reviewed the
accounting treatment of licence fees receivable from the
developer during the construction phase as well as the
treatment of any lease incentives with the pre-let tenant.
Valuation of investment property portfolio, including
properties in the course of construction (forward
funded assets)
Refer to page 98, Audit Committee Report
estimates and judgements
) pages135-137.
property
), pages 124-125 (investment
(significant
The valuation of investment property requires significant
judgement and estimates by management and the
independent valuer and is therefore considered a
significant risk due to the subjective nature of certain
assumptions inherent in each valuation.
The Group’s investment property portfolio includes:
• Standing investments: these are existing properties
that are currently let. They are valued using the income
capitalisation method.
• Properties under construction: these are properties
being built under forward funded agreements with
developers and which have agreed pre-lets with tenants.
Such assets have a different risk and investment profile
to the standing investments. They are valued using
the residual method (ie by estimating the fair value of
the completed project using the income capitalisation
method less estimated costs to completion and an
appropriate developer’s margin).
Any input inaccuracies or unreasonable bases used in
the valuation judgements (such as in respect of estimated
rental value and yield profile applied) could result in a
material misstatement of the income statement and
balance sheet.
There is also a risk that management may influence the
significant judgements and estimates in respect of property
valuations in order to achieve property valuation and other
performance targets to meet market expectations.
Additionally, properties under construction may involve
licence fees receivable from the developer during the
construction phase and lease incentives to the pre-let
tenant. Accounting for such assets is typically more
complex than for standing assets.
Tritax Big Box REIT plc Annual Report 2017
113
Governance: Independent Auditor’s Report
Our application of materiality
We apply the concept of materiality both in planning
and performing our audit, and in evaluating the effect of
misstatements on the audit and in forming our audit opinion.
Materiality is assessed on both quantitative and qualitative
grounds. With respect to disclosure and presentational matters,
amounts in excess of the quantitative thresholds below may not
be adjusted if their effect is not considered to be material on a
qualitative basis.
£25 million
Materiality
£18.75 million
Performance materiality
Specific materiality
£3.75 million
Specific performance materiality £2.8 million
£0.5 million
Reporting threshold
Materiality
The magnitude of an omission or misstatement that, individually
or in the aggregate, could reasonably be expected to influence
the economic decisions of the users of the financial statements.
We determined materiality for the Group financial statements
as a whole to be £25 million (2016: £20 million), which was set
at 0.9% of Group total assets (2016: 1%). This provides a basis
for determining the nature and extent of our risk assessment
procedures, identifying and assessing the risk of material
misstatement and determining the nature and extent of further
audit procedures.
Performance materiality
The application of materiality at the individual account or balance
level. It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessment, together with our
assessment of the Group’s overall control environment, our
judgement was that overall performance materiality for the
Group should be 75% (2016: 75%) of materiality, namely
£18.75 million (2016: £15 million).
We determined that the same measure as the Group was
appropriate for the Parent Company, and the performance
materiality and specific performance materiality applied were
£15.75 million and £2.7 million respectively.
Reporting threshold
An amount below which identified misstatements are considered
as being clearly trivial.
We agreed with the Audit Committee that we would report to the
Committee all individual audit differences in excess of £500,000
(2016: £400,000) as well as differences below this threshold that,
in our view, warranted reporting on qualitative grounds.
We determined that the same measure as the Group was
appropriate for the Parent Company, and the reporting threshold
applied was £420,000.
We determined that total assets would be the most appropriate
basis for determining overall materiality as we consider it to be
one of the principal considerations for members of the Company
in assessing the financial performance of the Group.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in the
light of other relevant qualitative considerations.
We determined that for other account balances, classes
of transactions and disclosures not related to investment
properties a misstatement of less than materiality for the
financial statements as a whole could influence the economic
decisions of users. We determined that materiality for these
areas should be £3.75 million (2016: £3.0 million), which was set
at 4.8% (2016: 5.8%) of EPRA earnings. EPRA earnings excludes
the impact of the net surplus on revaluation of investment
properties and interest rate derivatives.
We determined that the same measure as the Group was
appropriate for the Parent Company, and the materiality and
specific materiality applied were £21.0 million and £3.7 million
respectively.
An overview of the scope of our audit
We designed our audit by determining materiality and assessing
the risks of material misstatements in the financial statements.
In particular, we looked at where the Directors make subjective
judgements. We also addressed the risk of management
override of internal controls, including assessing whether there
was evidence of bias by the Directors that represented a risk of
material misstatement due to fraud.
The Group operates solely in the United Kingdom and operates
through one segment, investment property. The Group audit
team performed all the work necessary to issue the Group and
parent company audit opinions, including undertaking all of the
audit work on the key risks of material misstatement.
See Strategic Report, pages 1-77
See Governance Report, pages 80-111
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and Governance Report
Other information
The other information comprises the information included in the
Annual Report set out on pages 1-170, including the Strategic
Report
set out on pages 1-117,
other than the financial statements and our auditor’s report
thereon. The Directors are responsible for the other information.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance conclusion
thereon. In connection with our audit of the financial statements,
our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of the other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions 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.
In our opinion, based on the work undertaken in the course
of the audit:
• the information given in the Strategic Report
and the
Directors’ Report
for the financial year for which the
financial statements are prepared is consistent with the
financial statements and those reports have been prepared
in accordance with applicable legal requirements;
• the information about internal control and risk management
systems in relation to financial reporting processes and
about share capital structures, given in compliance with rules
7.2.5 and 7.2.6 in the Disclosure Guidance and Transparency
Rules sourcebook made by the Financial Conduct Authority
(the FCA Rules), is consistent with the financial statements
and has been prepared in accordance with applicable legal
requirements; and
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in
the other information and to report as uncorrected material
misstatements of the other information where we conclude that
those items meet the following conditions:
• information about the Company’s corporate governance code
and practices and about its administrative, management and
supervisory bodies and their committees complies with rules
7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
• The statement given by the Directors on pages 98-99 that they
consider the Annual Report and financial statements taken as
a whole is fair, balanced and understandable and provides the
information necessary for Shareholders to assess the Group’s
performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or
• The section describing the work of the Audit Committee
on pages 96-100 does not appropriately address matters
communicated by us to the Audit Committee; or
• The parts of the Directors’ statement on page 82 required
under the Listing Rules relating to the Company’s compliance
with the UK Corporate Governance Code containing
provisions specified for review by the auditor in accordance
with Listing Rule 9.8.10R(2) do not properly disclose a
departure from a relevant provision of the UK Corporate
Governance Code.
See Audit Committee Report, pages 96-100
See Strategic Report, pages 1-77
See Statement of Compliance, pages 82
See Directors’ Remuneration Report, pages 106-107
See Directors’ Report, pages 108-110
Tritax Big Box REIT plc Annual Report 2017
115
Governance: Independent Auditor’s Report
Matters on which we are required to report by exception
In light of the knowledge and understanding of the Group and the
parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in:
• the Strategic Report or the Directors’ Report
; or
• the information about internal control and risk management
systems in relation to financial reporting processes and about
share capital structures, given in compliance with rules 7.2.5
and 7.2.6 of the FCA Rules.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us 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
to be audited are not in
Directors’ Remuneration Report
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 parent company.
set out on page 111, the Directors are responsible
Responsibilities of Directors
As explained more fully in the Directors’ Responsibilities
Statement
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such internal
control as the Directors determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group’s and the parent
company’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either
intend to liquidate the Group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial
statements
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 objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken
on the basis of these financial statements.
We consider that the audit procedures we have undertaken in
accordance with ISAs (UK) have provided us with reasonable
assurance that irregularities, including fraud, would have been
detected to the extent that they could have resulted in material
misstatements in the financial statements. Our audit was
not designed to identify misstatement or other irregularities
that would not be considered to be material to the financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our Auditor’s Report.
See Strategic Report, pages 1-77
See Governance Report, pages 80-111
See Our Principal Risks and Uncertainties, pages 66-71
See Viability Statement, page 77
See Directors’ Responsibilities Statement, page 111
116
Tritax Big Box REIT plc Annual Report 2017
Other matters which we are required to address
We were initially appointed by the Directors in November 2013
to audit the financial statements of the Company for the period
ended 31 December 2014. In respect of subsequent periods we
have been reappointed annually by the members at the Annual
General Meeting. Following a competitive re-tender in May
2017 we were reappointed to audit the financial statements for
the year ending 31 December 2017 and subsequent financial
periods. The period of total uninterrupted engagement is four
years, covering the years ended 31 December 2014 to
31 December 2017.
The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the parent company and we
remain independent of the Group and the parent company in
conducting our audit.
Our audit opinion is consistent with the additional report to the
Audit Committee.
Richard Levy (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
London
United Kingdom
7 March 2018
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
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Tritax Big Box REIT plc Annual Report 2017
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Tritax Big Box REIT plc Annual Report 2017 I
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CONTENTS
FINANCIAL STATEMENTS
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
1. Corporate information
2. Basis of preparation
3. Significant accounting judgements, estimates
118-161
120
121
122
123
124
124
124
and assumptions
5. Standards issued and effective from
1 January 2017
6. Total property income
7. Service charge expenses
8. Administrative and other expenses
9. Directors’ remuneration
10. Finance income
11. Finance expense
12. Taxation
13. Earnings per share
14. Dividends paid
15. Investment property
16. Investments
17. Trade and other receivables
18. Cash held at bank
19. Trade and other payables
20. Borrowings
21. Interest rate derivatives
22. Financial risk management
23. Capital management
24. Share capital
25. Share premium
26. Capital reduction reserve
27. Retained earnings
28. Net asset value (NAV) per share
29. Operating leases
30. Transactions with related parties
31. Reconciliation of liabilities to cash flows
from financing activities
32. Capital commitments
33. Subsequent events
34. Contingent liabilities
Company Balance Sheet
Company Statement of Changes in Equity
Notes to the Company Accounts
1. Accounting policies
2. Taxation
3. Dividends paid
4. Investments
5. Trade and other receivables
6. Cash held at bank
7. Trade and other payables
8. Loan notes
9. Share capital
10. Share premium
11. Capital reduction reserve
12. Net asset value (NAV) per share
13. Related party transactions
14. Directors’ remuneration
125
129
130
130
131
131
131
131
132
133
134
135
138
139
140
140
141
143
144
146
147
147
148
148
148
149
149
150
150
150
151
152
153
154
154
155
156
156
158
158
159
159
160
160
161
161
161
161
Tritax Big Box REIT plc Annual Report 2017
119
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2017
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
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 year
Total comprehensive income (attributable to the Shareholders)
Earnings per share – basic
Earnings per share – diluted
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
107.96
2.94
(2.96)
107.94
(14.16)
93.78
175.98
269.76
0.40
(20.32)
(2.04)
247.80
–
247.80
19.54p
19.53p
74.66
2.25
(2.32)
74.59
(11.71)
62.88
47.51
110.39
0.22
(11.56)
(7.15)
91.90
–
91.90
10.52p
10.51p
6
6
7
8
15
10
11
21
12
13
13
120
Tritax Big Box REIT plc Annual Report 2017
Financial Statements
GROUP STATEMENT OF FINANCIAL POSITION
As at 31 December 2017
Non‑current assets
Investment property
Interest rate derivatives
Total non‑current assets
Current assets
Trade and other receivables
Cash held at bank
Total current assets
Total assets
Current liabilities
Deferred rental income
Trade and other payables
Total current liabilities
Non‑current liabilities
Bank borrowings
Loan notes
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
Net asset value per share – diluted
EPRA net asset value per share
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
2,599.21
1.97
2,601.18
10.23
78.04
88.27
1,803.11
3.17
1,806.28
9.16
170.69
179.85
2,689.45
1,986.13
(27.62)
(23.44)
(51.06)
(216.76)
(492.17)
(708.93)
(759.99)
1,929.46
13.64
932.37
467.93
515.52
(19.45)
(18.64)
(38.09)
(533.50)
–
(533.50)
(571.59)
1,414.54
11.05
589.39
546.38
267.72
1,929.46
1,414.54
141.50p
141.44p
142.24p
128.00p
127.93p
129.00p
15
21
17
18
19
20
20
24
25
26
27
28
28
28
These financial statements were approved by the Board of Directors on 7 March 2018 and signed on its behalf by:
Richard Jewson Chairman
Tritax Big Box REIT plc Annual Report 2017
121
Financial StatementsFINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
GROUP CASH FLOW STATEMENT
For the year ended 31 December 2017
Cash flows from operating activities
Profit for the year (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)/decrease in trade and other receivables
Increase in deferred income
Increase in trade and other payables
Cash received as part of corporate acquisitions
Cash generated from operations
Tax paid
Net cash flow generated from operating activities
Investing activities
Purchase of investment properties
Licence fees received
Interest received
Amounts transferred into restricted cash deposits
Amounts transferred out of 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
Amounts received on issue of loan notes
Loan arrangement fees paid
Bank interest paid
Interest rate cap premium paid
Proceeds from disposal of interest rate cap
Dividends paid to equity holders
Net cash flow generated from financing activities
Net increase/(decrease) in cash and cash equivalents for the year
Cash and cash equivalents at start of the year
Cash and cash equivalents at end of the year
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
247.80
(175.98)
2.04
(0.40)
20.32
(12.52)
(3.00)
7.16
0.02
1.62
87.06
(0.28)
86.78
(607.92)
5.84
0.39
(5.26)
4.78
(602.17)
351.40
(5.83)
164.00
(482.66)
495.54
(7.85)
(14.21)
(1.07)
0.24
(77.31)
422.25
(93.14)
165.05
71.91
91.90
(47.51)
7.15
(0.22)
11.56
(10.23)
9.74
5.47
0.39
2.04
70.29
(0.02)
70.27
(600.76)
6.69
0.26
(0.54)
4.27
(590.08)
551.08
(10.16)
311.49
(155.00)
–
(2.28)
(9.99)
(1.69)
–
(57.80)
625.65
105.84
59.21
165.05
15
21
10
11
6
18
18
24
25
20
20
18
18
122
Tritax Big Box REIT plc Annual Report 2017
Financial Statements
GROUP STATEMENT OF CHANGES IN EQUITY
Share capital
£m
Share premium
£m
Capital reduction
reserve
£m
Retained earnings
£m
589.39
546.38
1 January 2017
Total comprehensive income
Issue of Ordinary Shares
Shares issued in relation to further equity
issue (May 2017)
Associated share issue costs
Shares issued in relation to management contract
Share based payments
Transfer of share based payments to liabilities
to reflect settlement
11.05
–
2.58
–
0.01
–
Dividends paid:
Third interim dividend in respect of period ended
31 December 2016 at 1.55 pence per Ordinary Share
First interim dividend in respect of year ended
31 December 2017 at 1.60 pence per Ordinary Share
Second interim dividend in respect of year ended
31 December 2017 at 1.60 pence per Ordinary Share
Third interim dividend in respect of year ended
31 December 2017 at 1.60 pence per Ordinary Share
–
–
–
–
–
–
347.42
(5.83)
1.39
–
–
–
–
–
–
31 December 2017
13.64
932.37
1 January 2016
Total comprehensive income
Issue of Ordinary Shares
Shares issued in relation to further Equity
issue (February 2016)
Share issue expenses in relation to Equity
issue (February 2016)
Shares issued in relation to further Equity
issue (October 2016)
Share issue expenses in relation to Equity
issue (October 2016)
Shares issued in relation to management contract
Share based payments
Transfer of share based payments to liabilities
to reflect settlement
Dividends paid:
Fourth interim dividend in respect of period ended
31 December 2015 at 3.00 pence per Ordinary Share
First interim dividend in respect of year ended
31 December 2016 at 3.10 pence per Ordinary Share
Second interim dividend in respect of year ended
31 December 2015 at 1.50 pence per Ordinary Share
6.78
–
1.61
–
2.65
–
0.01
–
–
–
–
–
52.74
–
198.39
(3.90)
347.35
(6.26)
1.07
–
–
–
–
–
–
–
–
–
–
–
(17.13)
(17.69)
(21.81)
(21.82)
467.93
605.76
–
–
–
–
–
–
–
–
(20.34)
(26.02)
(13.02)
Total
£m
1,414.54
247.80
350.00
(5.83)
1.40
1.56
267.72
247.80
–
–
–
1.56
(1.56)
(1.56)
–
–
–
–
(17.13)
(17.69)
(21.81)
(21.82)
515.52
1,929.46
175.82
91.90
841.10
91.90
–
–
–
–
–
1.25
(1.25)
–
_
–
200.00
(3.90)
350.00
(6.26)
1.08
1.25
(1.25)
(20.34)
(26.02)
(13.02)
31 December 2016
11.05
589.39
546.38
267.72
1,414.54
Tritax Big Box REIT plc Annual Report 2017
123
Financial StatementsFINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
NOTES TO THE CONSOLIDATED ACCOUNTS
1. CORPORATE INFORMATION
The consolidated financial statements of the Group for the year ended 31 December 2017 comprise the results of Tritax Big Box
REIT plc (“the Company”) and its subsidiaries and were approved by the Board for issue on 7 March 2018. The Company is a public
limited 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 registered
address of the Company is disclosed in the Company Information
.
The nature of the Group’s operations and its principal activities are set out in the Strategic Report
.
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 comparative information disclosed relates to the year ended 31 December 2016.
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 million (£m), 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 within Accountability
.
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:
Company Information, page 170
Strategic Report, pages 1-77
Accountability, pages 93-95
124
Tritax Big Box REIT plc Annual Report 2017
Financial Statements 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.
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.
3.2. Estimates
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 – Global
Standards January 2017 (“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 counterparties 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
year-end date.
4.2. Subsidiaries
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee, exposure to variable returns from the investee and the ability of the
investor to use its power to affect those variable returns. Control is reassessed wherever facts and circumstances indicate that
there may be a change in any of these elements of control.
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. The Directors consider that these properties have similar economic characteristics and as a result these
individual properties have been aggregated into a single reportable operating element.
Tritax Big Box REIT plc Annual Report 2017
125
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE 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.
The corresponding entry upon recognising lease incentives or fixed/minimum rental uplifts is made to investment property. For
further details please see Accounting Policy note 4.14.1.
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 year 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. It does, however, undertake certain works
including demolition, remediation and other site preparatory works to bring a site to the condition ready for construction of an asset.
Investment properties under construction are initially recognised at cost (including any associated costs), which reflect 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 expensed 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 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 and swaps 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.
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.
126
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: Notes to the Consolidated Accounts 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 unobservable.
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 initially recognised at fair value and subsequently measured 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 to the Group Statement of Comprehensive Income when the probability of recovery is assessed as
being remote.
4.8. Forward funded pre‑let investments
The Group enters into forward funding development agreements for pre-let investments. The Group will enter into a forward funding
agreement with a developer and simultaneously enter into an agreement for lease with a prospective tenant willing to occupy the
building once complete.
4.8.1. Licence fees receivable
During the period between initial investment in a forward funded agreement and the rent commencement date under the lease, 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.
IAS 40.20 states that investment property should be recognised initially at cost, being the consideration paid to acquire the asset,
therefore 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. In addition, IAS 16.21 indicates that income and expenses from operations that are
not to bring an asset to the location and condition necessary for it to be capable of operating in the manner intended, should be
recognised in profit or loss.
4.9. Cash held at bank
Cash and cash equivalents comprises cash in hand, deposits held at call with banks, other short-term highly liquid investments with
original maturities of three months or less. Cash held at bank also includes amounts held in restricted or ring fenced accounts to
cover future rent-free periods and certain other capital commitments.
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.
Tritax Big Box REIT plc Annual Report 2017
127
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
4.11 Borrowings
All borrowings are initially recognised at fair value net of attributable transaction costs. After initial recognition, all borrowings are
measured at amortised cost, using the effective interest method. The effective interest rate is calculated to include all associated
transaction costs. Any difference between the amount initially recognised and the redemption value will be recognised in the
Statement of Comprehensive Income over the period of the borrowings.
4.12. Share based payments
The expense relating to share based payments is accrued over the year in which the service is received and is measured at the
fair value of those services received. The extent to which the expense is not settled at the reporting period end is transferred to
a liability with a view that there is an expectation that the payment will be settled in cash. Contingently issuable shares are treated
as dilutive to the extent that based on market factors prevalent at the reporting period date, the shares would be issuable.
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 term and
is included in gross rental income in the Group Statement of Comprehensive Income. A rental adjustment is recognised from the
rent review date in relation to unsettled rent reviews, where the Directors are reasonably certain that the rental uplift will be agreed.
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. Rental income is invoiced, either monthly or quarterly in advance and for all rental income that
relates to a future period; this is deferred and appears within current liabilities on the Group Statement of Financial Position.
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.
When the Group enters into a forward funded transaction, the future tenant signs an agreement for lease. No rental income is
recognised under the agreement for lease, but once practical completion has taken place the formal lease is signed at which point
rental income commences to be recognised in the Group Statement of Comprehensive Income.
128
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: Notes to the Consolidated Accounts 4.14.2. Service charges, insurances and other expenses recoverable from tenants
Income arising from expenses recharged to tenants is recognised in the year 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
Finance costs consist of interest and other costs that an entity incurs in connection with bank and other borrowings. 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. Finance costs also consist of the amortisation charge of
arrangement or other costs associated with the set-up of borrowings, these are amortised over the period of the loan. All other
finance costs are expensed to the Group Statement of Comprehensive Income in the period in which they occur.
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.
5. STANDARDS ISSUED AND EFFECTIVE FROM 1 JANUARY 2017
There were no new standards for the first time beginning on or after 1 January 2017 that had a significant effect on the Group’s
financial statements, other than ‘Disclosure initiatives (amendment IAS 7)’, which has resulted in a reconciliation of liabilities
disclosed for the first time in note 31.
5.1 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 statements:
IFRS 9: Financial Instruments (effective 1 January 2018); The Group will need to apply an expected credit loss model when
calculating impairment losses on its trade and other receivables. This may result in increased impairment provisions and greater
judgement due to the need to factor in forward looking information. It will need to consider the probability of default occurring
over the contractual life of its trade receivables and contracts. As the Company has tenants with strong covenants and generally
tenant receipts are received in advance or on the due date, the Directors do not consider there to be a material impact on the Group
financial statements.
IFRS 15: Revenue from Contracts with Customers (effective 1 January 2018); The standard is applicable to service charge income
but excludes rent receivable, which is within the scope of IFRS 16. The Group does not believe that the standard will have a material
impact on the financial statements as service change income is not material. The adoption of the standard may result in changes to
presentation and disclosure.
IFRS 16: Leases (effective 1 January 2019). The Directors are currently assessing the impact on the financial statements of this
standard; however, at present they do not anticipate that the adoption of this will have a material impact on the Group’s financial
statements as the Group does not hold any material operating leases as lessee.
Tritax Big Box REIT plc Annual Report 2017
129
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE 6. TOTAL PROPERTY INCOME
Rental income – freehold property
Rental income – long leasehold property
Spreading of tenant incentives and guaranteed rental uplifts
Lease premiums
Gross rental income
Property insurance recoverable
Service charges recoverable
Total insurance/service charge income
Total property income
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
73.02
22.40
12.52
0.02
107.96
2.43
0.51
2.94
110.90
49.56
14.85
10.23
0.02
74.66
1.83
0.42
2.25
76.91
There were no individual tenants representing more than 10% of gross rental income present during either years.
7. SERVICE CHARGE EXPENSES
Property insurance expense
Service charge expense
Total property expenses
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 review of the Company’s interim accounts
– Fees payable for the audit of the Company’s subsidiaries
– Fees payable for taxation compliance services
Total Auditor’s fee
Corporate administration fees
Regulatory fees
Legal and professional fees
Marketing and promotional fees
Other administrative costs
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
2.94
0.02
2.96
2.26
0.06
2.32
Year ended
31 December
2017
£m
11.84
0.27
0.14
0.03
0.05
–
0.22
0.38
0.04
0.91
0.14
0.36
Year ended
31 December
2016
£m
9.50
0.21
0.17
0.03
0.04
0.20
0.44
0.37
0.04
0.70
0.12
0.33
14.16
11.71
The Auditor has also received £0.08 million (2016: £0.14 million) in respect of providing reporting accountant services in connection
with the equity issuance and bond issuance occurring during the year. A total of £nil (2016: £0.09 million) has been incurred
in respect of due diligence services provided in connection with the acquisition of Group assets. The fees relating to the share
130
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: Notes to the Consolidated Accounts
issuances have been treated as share issue expenses and offset against share premium. The fees related to the bond issuance
have been treated as part of the arrangement fees for issuing the bond. 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
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
0.24
0.03
0.27
0.18
0.02
0.20
A summary of the Directors’ emoluments, including the disclosures required by the Companies Act 2006, is set out in the Directors’
. As Chairman of the Company’s Manager, Mark Shaw is not entitled to receive a fee.
Remuneration Report
10. FINANCE INCOME
Interest received on bank deposits
11. FINANCE EXPENSE
Interest payable on bank borrowings
Interest payable on loan notes
Commitment fees payable on bank borrowings
Swap interest payable
One-off cost of extinguishment of bank loans
Amortisation of loan arrangement fees
Year ended
31 December
2017
£m
0.40
0.40
Year ended
31 December
2016
£m
0.22
0.22
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
12.29
0.67
0.63
0.11
4.75
1.87
20.32
9.37
–
0.54
0.09
–
1.56
11.56
The total interest payable on financial liabilities carried at amortised cost comprises interest and commitment fees payable
on bank borrowings and loan notes of £13.91 million (2016: £10.49 million) of which £0.32 million was capitalised in the year
(2016: £0.58 million) and amortisation of loan arrangement fees of £6.69 million (2016: £1.68 million) of which £0.08 million
(2016: £0.11 million) was capitalised in the year. The total interest payable on bank borrowings specifically drawn to finance the
construction of investment properties was capitalised in the current and preceding year.
The one-off cost of extinguishment of bank loans represents the accelerated amortisation charge in relation to the unamortised
borrowing costs following early repayment of £550 million syndicated facility and Helaba bilateral loans totalling £18.66 million.
This was a one-off non cash cost expensed in the Group Statement of Comprehensive Income in the year. There were no other early
repayment charges due or payable.
Directors’ Remuneration Report, pages 106-107
Tritax Big Box REIT plc Annual Report 2017
131
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
12. TAXATION
a) Tax charge in the Group Statement of Comprehensive Income
UK corporation tax
Year ended
31 December
2017
£m
–
Year ended
31 December
2016
£m
–
The Government announced its intention to further reduce the UK corporation tax rates from 20% to 19% from 1 April 2017
and 17% from 1 April 2020. Accordingly, these rates have been applied in the measurement of the Group’s tax liability at
31 December 2017.
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 19.25% (31 December 2016: 20.00%)
REIT exempt income
Non-taxable items
Transfer pricing adjustment
Residual losses
Total tax credit
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
247.80
47.70
(14.48)
(33.49)
0.65
(0.38)
–
91.90
18.38
(10.49)
(8.07)
0.53
(0.35)
–
Non-taxable items include income and gains that are not taxable for corporation tax purposes other than property rental income
exempt from UK corporation tax in accordance with Part 12 of CTA 2010.
REIT exempt income includes property rental income that is exempt from UK corporation tax in accordance with Part 12 of
CTA 2010.
132
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: Notes to the Consolidated Accounts
13. EARNINGS PER SHARE
Earnings per share (EPS) amounts are calculated by dividing profit for the year attributable to ordinary equity holders of the
Company by the weighted average number of Ordinary Shares in issue during the year. As there are dilutive instruments
outstanding, both basic and diluted earnings per share are quoted below.
The calculation of basic and diluted earnings per share is based on the following:
For the year ended 31 December 2017
Basic earnings per share
Adjustment for dilutive shares to be issued
Diluted earnings per share
Adjustments to remove:
Changes in fair value of investment properties (note 15)
Changes in fair value of interest rate derivatives (note 21)
One-off cost of extinguishment of bank loans (note 11)
EPRA2 basic earnings per share
EPRA2 diluted earnings per share
Adjustments to include:
Licence fee receivable on forward funded developments
Rental income recognised in respect of fixed uplifts
Loan amortisation
Interest capitalised on forward funded developments
Adjusted basic earnings per share
Adjusted diluted earnings per share
For the year ended 31 December 2016
Basic earnings per share
Adjustment for dilutive shares to be issued
Diluted earnings per share
Adjustments to remove:
Changes in fair value of investment properties (note 15)
Changes in fair value of interest rate derivatives (note 21)
EPRA2 basic earnings per share
EPRA2 diluted earnings per share
Adjustments to include:
Licence fee receivable on forward funded developments
Rental income recognised in respect of fixed uplifts
Loan amortisation
Interest capitalised on forward funded developments
Adjusted basic earnings per share
Adjusted diluted earnings per share
1 Based on the weighted average number of Ordinary Shares in issue throughout the year.
2 European Public Real Estate Association.
Net profit
attributable to
Ordinary
Shareholders
£m
247.80
247.80
Weighted average
number of
Ordinary
Shares 1
Number
1,268,540,113
590,881
1,269,130,994
Earnings
per share
Pence
19.54p
19.53p
(175.98)
2.04
4.75
78.61
78.61
1,268,540,113
1,269,130,994
6.20p
6.20p
5.31
(4.65)
1.87
(0.32)
80.82
80.82
1,268,540,113
1,269,130,994
873,562,775
533,132
874,095,907
6.37p
6.37p
10.52p
10.51p
91.90
91.90
(47.51)
7.15
51.54
51.54
7.96
(3.57)
1.56
(0.59)
56.90
56.90
873,562,775
874,095,907
5.90p
5.90p
873,562,775
874,095,907
6.51p
6.51p
Tritax Big Box REIT plc Annual Report 2017
133
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
13. EARNINGS PER SHARE (CONTINUED)
Adjusted earnings is a performance measure used by the Board to assess the level of the Group’s dividend payments. The metric
reduces EPRA earnings by interest paid to service debt that was capitalised and removes other non-cash items credited or charged
to the Statement of Comprehensive Income. Licence fees receivable during the year are added to earnings on the basis noted below
as the Board sees these cash flows as supportive of dividend payments. The Board compares the Adjusted earnings to the available
distributable reserves when considering the level of dividend to pay.
The adjustment for licence fee receivable is calculated by reference to the fraction of the total period of completed construction
during the year, multiplied by the total licence fee receivable on a given forward funded asset. Licence fees will convert into rental
income once practical completion has occurred and therefore the rental income will flow into Adjusted earnings from this point.
Fixed rental uplift adjustments relate to adjustments to net rental income on leases with fixed or minimum uplifts embedded within
their review profiles. The total minimum income recognised over the lease term is recognised on a straight line basis and therefore
not supported by cash flows during the early term of the lease, but this reverses towards the end of the lease.
14. DIVIDENDS PAID
Third interim dividend in respect of period ended 31 December 2016 at 1.55 pence per
Ordinary Share (Fourth interim for 31 December 2015 at 3.00 pence per Ordinary Share)
First interim dividend in respect of year ended 31 December 2017 at 1.60 pence per
Ordinary Share (31 December 2016: 3.10 pence)
Second interim dividend in respect of year ended 31 December 2017 at 1.60 pence per
Ordinary Share (31 December 2016: 1.55 pence)
Third interim dividend in respect of year ended 31 December 2017 at 1.60 pence per
Ordinary Share
Total dividends paid
Total dividends paid for the year
Total dividends unpaid but declared for the year
Total dividends declared for the year
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
17.13
17.69
21.81
21.82
78.45
4.80p
1.60p
6.40p
20.34
26.02
13.02
–
59.38
4.65p
1.55p
6.20p
On 24 April 2017, the Company announced the declaration of a first interim dividend in respect of the period from 1 January 2017 to
31 March 2017 of 1.60 pence per Ordinary Share, which was payable on 22 May 2017 to Ordinary Shareholders on the register on
5 May 2017.
On 13 July 2017, the Company announced the declaration of a second interim dividend in respect of the period 1 April 2017
to 30 June 2017 of 1.60 pence per Ordinary Share, which was payable on 10 August 2017 to Shareholders on the register on
21 July 2017.
On 12 October 2017, the Company announced the declaration of a third interim dividend in respect of the period 1 July 2017 to
30 September 2017 of 1.60 pence per Ordinary Share, which was payable on 20 October 2017 to Shareholders on the register on
19 October 2017.
On 7 March 2018, the Company announced the declaration of a fourth interim dividend in respect of the period 1 October 2017 to
31 December 2017 of 1.60 pence per Ordinary Share, which will be payable on or around 29 March 2018 to Shareholders on the
register on 15 March 2018.
134
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: Notes to the Consolidated Accounts
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 – Global Standards January 2017 (“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 Valuer’s professional judgement. The Valuer has sufficient current local
and national knowledge of the particular property markets involved and has 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 January 2017
Property additions2
Fixed rental uplift and tenant lease incentives1
Transfer of completed property to investment property
Change in fair value during the year
As at 31 December 2017
As at 1 January 2016
Property additions2
Fixed rental uplift and tenant lease incentives1
Transfer of completed property to investment property
Change in fair value during the year
As at 31 December 2016
Investment
property
freehold
£m
1,278.13
307.45
7.70
209.75
121.30
1,924.33
720.89
268.27
7.75
259.28
21.94
1,278.13
Investment
property
long leasehold
£m
Investment
property under
construction
£m
436.84
121.83
4.82
–
48.89
612.38
260.70
158.87
2.48
–
14.79
436.84
88.14
178.32
–
(209.75)
5.79
62.50
176.27
160.37
–
(259.28)
10.78
88.14
Total
£m
1,803.11
607.60
12.52
–
175.98
2,599.21
1,157.85
587.51
10.23
–
47.51
1,803.11
1 Included within the carrying value of investment property is £25.89 million (2016: £13.37 million) in respect of accrued contracted rental uplift income. This balance
arises as a result of the IFRS treatment of leases with fixed or minimum rental uplifts and rent-free periods, which requires the recognition of rental income on
a straight-line basis over the lease term. The difference between this and cash receipts change the carrying value of the property against which revaluations are
measured. Also see note 6.
2 Licence fees deducted from the cost of investment property under construction totalled £0.70 million in the year (2016: £4.83 million).
Investment property at fair value per Group Statement of Financial Position
Licence fee receivable
Capital commitments
Ring fenced cash (note 18)
Restricted cash (note 18)
Total portfolio valuation*
* Including costs to complete on forward funded development assets.
31 December
2017
£m
31 December
2016
£m
2,599.21
–
5.12
2.95
–
2,607.28
1,803.11
2.52
82.40
–
5.65
1,893.68
Tritax Big Box REIT plc Annual Report 2017
135
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
15. INVESTMENT PROPERTY (CONTINUED)
Capital commitments represent costs to bring the asset to completion under the developer’s funding agreements which include the
developer’s margin. These commitments could also represent commitments made in respect of asset management initiatives and
development land. These costs are not provided for in the Statement of Financial Position; refer to note 32
.
Cash received in respect of future rent-free periods represents amounts that were topped up by the vendor on acquisition of the
property to cover future rent-free periods on the lease. The valuation assumes the property to be income generating throughout the
lease and therefore includes this cash in the value.
Licence fees that have been billed but not received from the developer in relation to the property are included within trade and other
receivables. The valuation assumes the property to be income generating and therefore includes this receivable in the value.
Forward funded prepayments represent costs to bring the asset to completion under the Development Funding Agreement which
includes the developer’s margin and were paid to the developer in advance.
The valuation summary is set out in the Strategic Report
.
Fair value hierarchy
The following table provides the fair value measurement hierarchy for investment property:
Date of valuation
Quoted prices
in active markets
(Level 1)
£m
Significant
observable inputs
(Level 2)
£m
Significant
unobservable inputs
(Level 3)
£m
Total
£m
Assets measured at fair value:
Investment properties
Investment properties
31 December 2017
31 December 2016
2,599.21
1,803.11
–
–
–
–
2,599.21
1,803.11
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.
note 32, page 150
Strategic Report, pages 1-77
136
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: Notes to the Consolidated Accounts
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: £893,500-£5,675,049
per annum).
Passing rents are dependent upon a number of variables in relation to the Group’s property. These include: size, location, tenant
covenant strength and terms of the lease.
Unobservable input: rental growth
The estimated average increase in rent based on both market estimations and contractual arrangements. A reduction of the
estimated future rental growth in the valuation model would lead to a decrease in the fair value of the investment property and an
inflation of the estimated future rental growth would lead to an increase in the fair value. No quantitative sensitivity analysis has
been provided for estimated rental growth as a reasonable range would not result in a significant movement in fair value.
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: 3.91%-6.85%).
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:
(Decrease)/increase in the fair value of investment
properties as at 31 December 2017
(Decrease)/increase in the fair value of investment
properties as at 31 December 2016
-5% in
passing rent
£m
+5% in
in passing rent
£m
+0.25% in
net initial yield
£m
–0.25%
net initial yield
£m
(130.36)
130.36
(136.56)
152.41
(94.68)
94.68
(91.39)
101.16
Tritax Big Box REIT plc Annual Report 2017
137
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
16. INVESTMENTS
The Group comprises a number of companies, all subsidiaries included within these financial statements are noted below:
TBBR Holdings 1 Limited
TBBR Holdings 2 Limited
Baljean Properties Limited
Tritax Acquisition 2 Limited
Tritax Acquisition 2 (SPV) 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 REIT Acquisition 8 Limited
Tritax Acquisition 8 Limited
Tritax REIT Acquisition 9 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
Tritax Worksop Limited
Tritax REIT Acquisition 16 Limited
Tritax Acquisition 16 Limited
Tritax Acquisition 17 Limited
Tritax Acquisition 18 Limited
Tritax Harlow Limited
Tritax Lymedale Limited
Tritax Acquisition 21 Limited
Tritax Acquisition 22 Limited
Tritax Acquisition 23 Limited
Tritax Acquisition 24 Limited
Tritax Knowsley Limited
Tritax Burton Upon Trent Limited
Tritax Acquisition 28 Limited
Tritax Peterborough Limited
Click Peterborough SARL
Tritax Holdings CL Debt Limited
Tritax Portbury Limited
Tritax Newark Limited
Wellzone Limited
Sportdale Limited
Tritax Holdings PGIM Debt Limited
Tritax Merlin 310 Trafford Park Limited
Tritax West Thurrock Limited
Tritax Tamworth Limited
Tritax Acquisition 34 Limited
Tritax Acquisition 35 Limited
Tritax Acquisition 36 Limited
Tritax Acquisition 37 Limited
Tritax Acquisition 38 Limited
Tritax Acquisition 39 Limited
Tritax Acquisition 40 Limited
Tritax Acquisition 41 Limited
Tritax Littlebrook 1 Limited
Principal activity
Investment Holding Company
Investment Holding Company
Property Investment
Investment Holding Company
Investment Holding Company
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Investment Holding Company
Property Investment
Investment Holding Company
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Investment Holding Company
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Dormant Company
Investment Holding Company
Property Investment
Property Investment
Investment Holding Company
Investment Holding Company
Investment Holding Company
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
138
Tritax Big Box REIT plc Annual Report 2017
Country of incorporation
Jersey
Jersey
Isle of Man
Jersey
Jersey
Jersey
UK
Jersey
Jersey
BVI
Guernsey
UK
Jersey
UK
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
BVI
UK
Jersey
Jersey
Jersey
Guernsey
Guernsey
Jersey
Jersey
Jersey
Jersey
Isle of Man
BVI
Jersey
Jersey
Luxembourg
Jersey
Jersey
Jersey
UK
UK
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Ownership %
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Financial Statements: Notes to the Consolidated Accounts Tritax Littlebrook 2 Limited
Tritax Littlebrook 3 Limited
Tritax Littlebrook 4 Limited
Tritax Atherstone Limited
Tritax Atherstone Limited (formerly Aequitas Estates
(Midlands) Limited)
Tritax Acquisition 42 Limited
Tritax Stoke DC1&2 Limited
Tritax Luxembourg DC1&2 Limited
Tritax Stoke DC3 Limited
Tritax Luxembourg DC3 Limited
Tritax Stoke Management Limited
Tritax Acquisition 43 Limited
Tritax Carlisle Limited
Tritax Carlisle UK Limited
Tritax Worksop 18 Limited
Tritax Edinburgh Way Harlow Limited
Tritax Edinburgh Way Harlow (Luxembourg) Limited
Tritax Crewe Limited
Tritax Crewe (Luxembourg) Limited
Tritax Acquisition 44 Limited
Principal activity
Property Investment
Property Investment
Property Investment
Investment Holding Company
Property Investment
Property Investment
Investment Holding Company
Property Investment
Investment Holding Company
Property Investment
Property Management Company
Property Investment
Investment Holding Company
Property Investment
Property Investment
Investment Holding Company
Property Investment
Investment Holding Company
Property Investment
Property Investment
Country of incorporation
Jersey
Jersey
Jersey
Jersey
Ownership %
100%
100%
100%
100%
UK
Jersey
Jersey
Luxembourg
Jersey
Luxembourg
UK
Jersey
Jersey
UK
Jersey
Jersey
Luxembourg
Jersey
Luxembourg
Jersey
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The registered addresses for the subsidiaries across the Group are consistent based on their country of incorporation and are
as follows:
Jersey entities: 13-14 Esplanade, St Helier, Jersey JE1 1EE
Guernsey entities: PO Box 25, Regency Court, Glategny Esplanade, St Peter Port, Guernsey GY1 3AP
Isle of Man entities: 33-37 Athol Street, Douglas, Isle of Man IM1 1LB
BVI entities: Jayla Place, Wickhams Cay 1, PO Box 3190, Road Town, Tortola, BVI VG1110
UK entities: Aberdeen House, South Road, Haywards Heath, West Sussex RH16 4NG
Luxembourg entity: 46A Avenue J F Kennedy L-1885, Grand Duchy of Luxembourg.
17. TRADE AND OTHER RECEIVABLES
Trade receivables
Licence fee receivable
Prepayments, accrued income and other receivables
VAT
As at 31 December 2017, some trade receivables were past due but not impaired, as set out below.
Past due but not impaired
<30 days
30-60 days
60-90 days
90 days+
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
5.27
0.45
0.92
3.59
10.23
3.27
1.74
–
0.26
5.27
5.42
2.52
1.22
–
9.16
4.52
0.15
0.64
0.11
5.42
Tritax Big Box REIT plc Annual Report 2017
139
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
18. CASH HELD AT BANK
Cash and cash equivalents to agree with cash flow
Restricted cash
Year ended
31 December
2017
£m
71.91
6.13
78.04
Year ended
31 December
2016
£m
165.04
5.65
170.69
Ring fenced cash of £2.95 million (2016: £nil) included with cash and cash equivalents represents amounts relating to future
rent-free periods on certain assets within the portfolio or rental top-up amounts, where a cash deduction against the net purchase
price was agreed with the vendor. Currently the cash is held in a ring fenced bank account.
Restricted cash is cash where there is a legal restriction to specify its type of use, i.e. this may be where we have a joint arrangement
with a tenant under an asset management initiative.
Cash and cash equivalents reported in the Consolidated Statement of Cash Flows totalled £68.96 million (2016: £165.05 million) as
at the year end, which excludes long-term restricted and ring fenced cash deposits totalling £9.08 million (2016: £5.65 million). Total
cash held at bank as reported in the Group Statement of Financial Position is £78.04 million (2016: £170.69 million).
19. TRADE AND OTHER PAYABLES
Trade and other payables
Bank loan interest payable
Accruals
VAT
Tax liability
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
16.81
1.69
4.43
–
0.51
23.44
12.68
1.90
3.57
0.21
0.28
18.64
The tax liability arises from the acquisition of a number of special purpose vehicles (SPV’s) during the current and prior year. The tax
liability wholly relates to the period prior to Group ownership. Any tax liability was fully accrued for within the take on accounts of
the SPV.
140
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: Notes to the Consolidated Accounts
20. BORROWINGS
A summary of the drawn and undrawn bank borrowings in the year is shown below:
BANK BORROWINGS
As at 1 January 2017
New bank borrowings agreed in the year
Bank borrowings drawn in the year under existing facilities
Bank borrowings repaid in the year under existing facilities
As at 31 December 2017
As at 1 January 2016
New bank borrowings agreed in the year
Bank borrowings drawn in the year under existing facilities
Bank borrowings repaid in the year under existing facilities
Increase in Syndicated bank borrowings agreed in the year
As at 31 December 2016
LOAN NOTES
Bonds
2.625% Bonds 2026
3.125% Bonds 2031
Bank
borrowings
drawn
£m
541.53
100.00
64.00
(482.66)
222.87
385.04
72.00
239.49
(155.00)
–
541.53
Bank
borrowings
undrawn
£m
150.00
340.00
(64.00)
(86.00)
340.00
184.49
–
(84.49)
–
50.000
150.00
Total
£m
691.53
440.00
–
(568.66)
562.87
569.53
72.00
155.00
(155.00)
50.00
691.53
31 December
2017
£m
31 December
2016
£m
249.01
246.55
495.56
–
–
–
On 1 March 2017, the Group announced that it had agreed a new long-term, interest only, fixed rate term loan facility of £90 million
with PGIM Real Estate Finance, secured against a portfolio of four assets. The facility, which was drawn in full immediately, is
repayable on 1 March 2027 and has a fixed all-in rate payable of 2.54% per annum. The amounts drawn down under the facility will
be segregated and non-recourse to the Company.
On 14 December 2017, the Group announced the pricing of senior unsecured loan notes (the “notes”) with an aggregate
principal amount of £500 million split evenly over a nine and fourteen year term. The notes were issued under the Company’s
£1.5 billion Euro Medium Term Note Programme. The Group issued two tranches of loan notes, comprising (i) £250 million
senior unsecured loan notes maturing on 14 December 2026, and (ii) £250 million senior unsecured loan notes maturing
on 14 December 2031. The 2026 Notes and the 2031 Notes were priced at a fixed interest rate of 2.625% and 3.125% per
annum respectively.
On the same date, the Company also announced a new £350 million unsecured revolving credit facility with its core relationship
lender group and selected new lenders. The new unsecured revolving credit facility has an initial maturity of five years and can
be extended (subject to obtaining the prior consent of the lenders) by a further two years to a maximum of seven years. The new
facility also contains an uncommitted £200 million accordion option. The new facility had an opening margin of 1.10% per annum
over Libor.
Tritax Big Box REIT plc Annual Report 2017
141
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
20. BORROWINGS (CONTINUED)
The syndicate for the unsecured revolving credit facility comprises Barclays Bank PLC, BNP Paribas London Branch, HSBC Bank
plc, ING Bank N.V. London Branch, The Royal Bank of Scotland plc, Santander UK plc and Wells Fargo Bank N.A. London Branch.
Following the issue of the notes and the entering into of the unsecured revolving credit facility, the Company’s existing £550 million
secured syndicated facility due October 2020 and the £7.06 million and £11.60 million Helaba facilities due November 2019 were
repaid in full on 11 December 2017 and 7 December 2017 respectively.
Following the December 2017 refinancing, a large part of the Group’s borrowings are unsecured financing arrangements. The
nature of unsecured financing arrangements means that the Group has greater flexibility, it allows for quicker execution of future
debt at a lower cost of arrangement and provides a scalable debt platform to support the future growth of the business. After the
date of refinancing 62% (2016: 10%) of the Group’s debt facility commitments are fixed term, with 38% floating term (2016: 90%).
As at 31 December 2017, the weighted average running cost of debt was 2.38% (2016: 1.80%), with a reduction to the Group’s
average capped cost of debt (see below).
The Group has been in compliance with all of the financial covenants of the Group’s bank facilities as applicable throughout the year
covered by these financial statements.
Any associated fees in arranging the bank borrowings and loan notes that are unamortised as at the year end are offset against
amounts drawn on the facilities as shown in the table below:
Bank borrowings drawn: due in more than one year
Loan notes drawn: due in more than one year
Less: unamortised costs on bank borrowings
Less: unamortised costs on loan notes
Non-current liabilities: borrowings
Maturity of borrowings
Repayable between 1 and 2 years
Repayable between 2 and 5 years
Repayable in over 5 years
31 December
2017
£m
31 December
2016
£m
222.87
495.56
(6.11)
(3.39)
708.93
541.53
–
(8.03)
–
533.50
31 December
2017
£m
31 December
2016
£m
–
10.00
708.43
718.43
–
418.66
122.87
541.53
On 15 December 2017, the Group announced that it had agreed terms to extend the maturity of its £50.87 million loan facility
secured on the asset with Landesbank Hessen-Thüringen Girozentrale (“Helaba”) from July 2023 to July 2025. The margin payable
on the facility remained unchanged.
Following the refinancing as noted above, the weighted average term to maturity of the Group’s debt as at the year end is 8.9 years
(31 December 2016: 4.8 years). The syndicated facility has a two-year extension option remaining, exercisable on the first and
second anniversaries of the facility. This option requires lender consent, although when taking these into account the weighted
average term to maturity for the Group, assuming all options were exercised, would increase to 9.6 years (31 December 2016:
5.6 years).
142
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: 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 loans, the Group has entered into a number
of interest rate derivatives. A number of interest rate caps and one interest rate swap have been taken out in respect of the
Group’s variable rate debt to fix or cap the rate to which 3 month Libor can rise. Each runs coterminous to the initial term of the
respective loans.
The weighted average capped rate, excluding any margin payable, for the Group as at the year end was 1.26% (2016: 1.39%), which
effectively caps the level to which Libor can rise to, therefore limiting any effect on the Group of an interest rate rise. The interest
rate derivatives mean that the Group’s borrowing facilities at the year end have an all-inclusive interest rate payable of 2.66% (2016:
2.82%). The total premium payable in the year towards securing the interest rate caps was £1.07 million (2016: £1.69 million).
Non-current assets: interest rate derivatives
31 December
2017
£m
1.97
31 December
2016
£m
3.17
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 derivative valuation brought forward
Interest rate cap premium paid
Disposal of interest rate cap
Changes in fair value of interest rate derivatives
31 December
2017
£m
31 December
2016
£m
3.18
1.07
(0.24)
(2.04)
1.97
8.64
1.68
–
(7.15)
3.17
As part of the Group refinancing in December 2017, on repayment of the borrowings to Helaba, the Group disposed of three interest
rate caps held against the secured loans. The Group received proceeds of £0.24 million on disposal.
It is the Group’s target to hedge at least 90% of the total debt portfolio either using interest rate derivatives or entering fixed rate
loan arrangements. As at the year-end date the total proportion of debt either hedged via interest rate derivatives or subject to fixed
rate loan agreements equated to 99.78%, as shown below.
Total borrowings drawn (note 20)
Notional value of effective interest rate derivatives and fixed rate loans
Proportion of hedged debt
31 December
2017
Drawn
£m
718.43
716.90
31 December
2016
Drawn
£m
541.53
539.81
99.78%
99.68%
As at the year end the Group had notional value of interest rate caps of £337.50 million to act as a hedge against the £350.00 million
revolving credit facility.
Tritax Big Box REIT plc Annual Report 2017
143
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
21. INTEREST RATE DERIVATIVES (CONTINUED)
Fair value hierarchy
The following table provides the fair value measurement hierarchy for interest rate derivatives:
Assets measured at fair value:
Interest rate derivatives
Interest rate derivatives
Date of
valuation
31 December 2017
31 December 2016
Total
£m
1.97
3.17
Quoted prices in
active markets
(Level 1)
£m
Significant
observable inputs
(Level 2)
£m
Significant
unobservable inputs
(Level 3)
£m
–
–
1.97
3.17
–
–
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 year end.
There have been no transfers between Level 1 and Level 2 during any of the years, nor have there been any transfers between Level
2 and Level 3 during any of the years.
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 held at bank. The Group’s other principal financial assets and liabilities are bank borrowings
and interest rate derivatives, the main purpose of which is to finance the acquisition and development of the Group’s investment
property portfolio and hedge against the interest rate risk arising.
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:
Financial assets
Interest rate derivatives
Trade and other receivables1
Cash held at bank
Financial liabilities
Trade and other payables2
Borrowings
Book value
31 December
2017
£m
Fair value
31 December
2017
£m
Book value
31 December
2016
£m
Fair value
31 December
2016
£m
1.97
9.31
78.04
22.93
718.43
1.97
9.31
78.04
22.93
712.98
3.17
7.97
170.69
18.35
541.53
3.17
7.97
170.69
18.35
543.62
1 Excludes certain VAT certain prepayments, other debtors and forward funded prepayments.
2 Excludes tax and VAT liabilities.
144
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: Notes to the Consolidated Accounts
Interest rate derivatives are the only financial instruments measured at fair value through the Group Statement of Comprehensive
Income. All other financial assets are classified as loans and receivables and all financial liabilities are measured at amortised cost.
All financial instruments were designated in their current categories upon initial recognition.
Liabilities measured at fair value:
Borrowings
Borrowings
Date of valuation
31 December 2017
31 December 2016
Total
£m
652.11
69.91
Quoted prices
in active markets
(Level 1)
£m
Significant
observable inputs
(Level 2)
£m
Significant
unobservable inputs
(Level 3)
£m
491.46
–
160.65
69.91
–
–
The Group has two fixed rate loans totalling £162 million, provided by PGIM (£90 million) and Canada Life (£72 million). The fair
value is determined by comparing the discounted future cash flows using the contracted yields with those reference gilts plus the
margin implied. The references used were the Treasury 4.25% 2027 Gilt and Treasury 4.75% 2030 Gilt respectively, with an implied
margin which is unchanged since the date of fixing. The loan is considered to be a Level 2 fair value measurement. For all other bank
loans there is considered no other difference between fair value and carrying value.
The fair value of financial liabilities traded on active liquid markets, including the 2.625% Bonds 2026 and 3.125% Bonds 2031, is
determined with reference to the quoted market prices. These financial liabilities are considered to be a Level 1 fair value measure.
The book value of the financial liabilities at Level 1 fair value measure were £492.17 million (2016: £nil) and the financial liabilities at
Level 2 fair value measure were £162 million (2016: £72 million).
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.
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 cash balances, bank borrowings along
with a number of interest rate derivatives entered into to mitigate interest rate risk.
The Group monitors its interest rate exposure on a regular basis. A sensitivity analysis performed to ascertain the impact on the
Group Statement of Comprehensive Income and net assets of a 50 basis point shift in interest rates would result in an increase of
£0.30 million (2016: £2.71 million) or a decrease of £0.30 million (2016: £2.71 million).
Credit risk
Credit risk is the risk that a 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 Statement of Financial Position 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.
Tritax Big Box REIT plc Annual Report 2017
145
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
22. FINANCIAL RISK MANAGEMENT (CONTINUED)
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 is 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, principal repayments
on its borrowings and its commitments under forward funded development arrangements. 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 ensuring it has
appropriate levels of cash and available drawings to meet liabilities as they fall due.
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments:
31 December 2017
Borrowings
Trade and other payables
31 December 2016
Borrowings
Trade and other payables
On demand
£m
<3 months
£m
3-12 months
£m
1-5 years
£m
–
–
–
–
–
–
4.99
23.44
28.43
2.66
18.35
21.01
14.87
–
14.87
7.97
–
7.97
89.38
–
89.38
499.86
–
499.86
>5 years
£m
830.98
–
830.98
85.94
–
85.94
Total
£m
940.22
23.44
963.66
596.43
18.35
614.78
Included within the contracted payments is £217.32 million (2016: £54.90 million) of loan interest payable up to the point of maturity
across the facilities.
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 considers proceeds
from share issuances, bank borrowings and retained earnings as capital. The Group’s policy on borrowings is as set out below:
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 limit of 40% of
the Group’s gross assets.
146
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: Notes to the Consolidated Accounts
The Group has complied with all covenants on its borrowings up to the date of this report. All of the targets mentioned above sit
comfortably within the Group’s covenant levels, which include loan to value (“LTV”), interest cover ratio and loan to projected
project cost ratio. The Group LTV at the year end was 26.8% (2016: 30.0%).
Debt is secured at the asset and corporate 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
The share capital relates to amounts subscribed for share capital at its nominal value:
31 December
2017
Number
31 December
2017
£m
31 December
2016
Number
31 December
2016
£m
Issued and fully paid at 1 pence each
1,363,598,083
13.64
1,105,159,529
Balance at beginning of year – £0.01 Ordinary Shares
1,105,159,529
11.05
677,840,088
Shares issued in relation to further Equity issuance
Shares issued in relation to management contract
257,352,941
1,085,613
2.58
0.01
426,441,838
877,603
Balance at end of year
1,363,598,083
13.64
1,105,159,529
11.05
6.78
4.26
0.01
11.05
On 13 April 2017 the Company announced that, in accordance with the terms of the management fee arrangements with the
Manager pursuant to which 25% of the management fee is payable in new Ordinary Shares, it issued 528,528 Ordinary Shares at an
issue price per Ordinary Share of 126.45 pence.
On 24 April 2017, the Company announced that it intended to proceed with a proposed Placing, Open Offer and Offer for
Subscription of new Ordinary Shares at a price of 136.00 pence per share to raise £200 million. Following this on 11 May 2017 the
Company announced it had exercised its right to increase the size of the issue, due to excess demand, to £350 million. As a result,
a total of 257,352,941 Ordinary Shares were issued at a price of 136.00 pence per Ordinary Share, of which 100,517,096 Ordinary
Shares were issued pursuant to the Open Offer, 12,075,902 Ordinary Shares were issued pursuant to the Offer for Subscription,
144,759,943 Ordinary Shares were issued under the Placing.
On 3 October 2017 the Company announced that, in accordance with the terms of the management fee arrangements with the
Manager pursuant to which 25% of the management fee is payable in new Ordinary Shares, it issued 557,085 Ordinary Shares at an
issue price per Ordinary Share of 130.83 pence.
25. SHARE PREMIUM
The share premium relates to amounts subscribed for share capital in excess of nominal value:
Balance at beginning of year
Share premium on Ordinary Shares issued in relation to further Equity issuance
Share issue expenses in relation to further Equity issuance
Transfer to capital reduction reserve (see note 26)
Share premium on Ordinary Shares issued to management
Balance at end of year
31 December
2017
£m
31 December
2016
£m
589.39
347.42
(5.83)
–
1.39
932.37
52.74
545.74
(10.16)
–
1.07
589.39
Tritax Big Box REIT plc Annual Report 2017
147
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
26. CAPITAL REDUCTION RESERVE
Balance at beginning of year
Transfer from share premium
Third interim dividend for the period ended 31 December 2016
First interim dividend for the year ended 31 December 2017
Second interim dividend for the year ended 31 December 2017
Third interim dividend for the year ended 31 December 2017
Balance at end of year
Please refer to note 14 for details of the declaration of dividends to Shareholders.
27. RETAINED EARNINGS
Balance at beginning of year
Retained profit for the year
Balance at end of year
31 December
2017
£m
31 December
2016
£m
546.38
–
(17.13)
(17.69)
(21.81)
(21.82)
467.93
605.76
–
(20.34)
(26.02)
(13.02)
–
546.38
31 December
2017
£m
31 December
2016
£m
267.72
247.80
515.52
175.82
91.90
267.72
Retained earnings relates to all net gains and losses not recognised elsewhere.
28. NET ASSET VALUE (NAV) PER SHARE
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 year. As there are dilutive instruments
outstanding, both basic and diluted NAV per share are shown below.
Net assets per Group Statement of Financial Position
EPRA NAV (see Additional Information
)
Ordinary Shares:
Issued share capital (number)
Basic net asset value per share
Dilutive shares in issue (number)
Diluted net asset value per share
Basic EPRA NAV per share
Dilutive shares in issue (number)
Diluted EPRA NAV per share
31 December
2017
£m
1,929.46
1,940.42
31 December
2016
£m
1,414.54
1,426.19
1,363,598,083
1,105,159,529
141.50p
590,881
141.44p
142.30p
590,881
142.24p
128.00p
533,132
127.93p
129.05p
533,132
129.00p
EPRA NAV is calculated as net assets per the Consolidated Statement of Financial Position excluding fair value adjustments for
debt-related derivatives.
Additional Information – Notes to the EPRA Performance Measures pages 163-167
148
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: 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 2017
31 December 2016
<1 year
£m
119.50
84.65
2-5 years
£m
484.28
354.07
>5 years
£m
1,239.05
1,014.44
Total
£m
1,842.83
1,453.16
The Group’s investment properties are leased to single tenants, with the exception of one asset which is leased to two separate
tenants, some of which have guarantees attached, under the terms of a commercial property lease. Each has upward only rent
reviews that are linked to either RPI/CPI, open market or with fixed uplifts. Please refer to the table on page 48 which presents each
level of passing rent currently payable under the operating leases.
30. TRANSACTIONS WITH RELATED PARTIES
For the year ended 31 December 2017 all Directors and the Partners of the Manager are considered key management personnel.
The terms and conditions of the Investment Management Agreement are described in the Management Engagement Committee
Report
. Details of the amount paid for services provided by Tritax Management LLP (“the Manager”) are provided in note 8.
The total amount outstanding at the year end relating to the Investment Management Agreement was £3.29 million
(2016: £2.74 million).
The total expense recognised in the Statement of Comprehensive Income relating to share based payments under the Investment
Management Agreement was £1.56 million (2016: £1.25 million), of which £0.84 million (2016: £0.67 million) was outstanding at the
year end.
Details of amounts paid to Directors for their services can be found within the Directors’ Remuneration Report
year SG Commercial LLP (“SG Commercial”) has provided general property agency services to the Group. SG Commercial has
been paid fees totalling £0.68 million (2016: £1.55 million) in respect of agency services for the year; this represents a total of 20%
(2016: 36%) of agency fees paid by the Group during the year. There were £nil (2016: £0.04 million) fees outstanding as at the
year 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.
. Throughout the
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.
During the year the Directors received the following dividends; Richard Jewson: £4,588, Jim Prower: £1,508, Aubrey Adams: £nil,
Susanne Given: £nil and Mark Shaw: £37,351.
During the year the four controlling Members of the Manager received the following dividends; Mark Shaw as above, Colin Godfrey:
£37,700, James Dunlop: £35,688 and Henry Franklin: £28,289.
Management Engagement Committee Report, pages 101-103
Directors’ Remuneration Report, pages 106-107
Tritax Big Box REIT plc Annual Report 2017
149
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
31. RECONCILIATION OF LIABILITIES TO CASH FLOWS FROM FINANCING ACTIVITIES
Balance at the start of the year
Cash flows from financing activities:
Bank borrowings advanced
Bank borrowings repaid
Amounts received on the issue of loan notes
Loan arrangement fees paid
Non-cash movements:
Change in creditors for loan arrangement fees payable
Amortisation of loan arrangement fees
Amortisation of loan arrangement fees on the repayment of loans
Bank
Borrowings
£
533.50
164.00
(482.66)
–
(4.66)
(0.04)
1.87
4.75
Loan notes
£
–
–
–
495.54
(3.19)
(0.21)
0.03
–
Total
£
533.50
164.00
(482.66)
495.54
(7.85)
(0.25)
1.90
4.75
Balance at the end of the year
216.76
492.17
708.93
32. CAPITAL COMMITMENTS
The Group had capital commitments of £28.6 million in relation to its forward funded pre-let development assets, asset
management initiatives and commitments under development land, outstanding as at 31 December 2017 (31 December 2016:
£82.4 million). All commitments fall due within one year from the date of this report.
33. SUBSEQUENT EVENTS
On 12 January 2018 the Group completed contracts for the site acquisition and forward funding for the development of two new
distribution warehouse facilities at Warth Park, Raunds, pre-let in their entirety under two separate leases to Howden Joinery Group
Plc. The investment price was £103.7 million.
On 18 January 2018 the Group completed the acquisition of a National Distribution Centre at Weston Road, Crewe let to Expert
Logistics Limited, a wholly owned subsidiary of AO World Plc. The total consideration was £36.10 million.
On 6 February 2018 the Group exchanged contracts, conditional on receiving full planning consent, to provide forward funding
for the development of a new regional distribution centre in Corby, pre-let to Eddie Stobart Limited. The investment price is
£81.8 million.
150
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: Notes to the Consolidated Accounts
34. CONTINGENT LIABILITIES
On 23 December 2016 the Group exchanged contracts, conditional on receiving planning consent, to provide forward funding for
the development of two new distribution warehouse facilities at Warth Park, Raunds, pre-let in their entirety under two separate
leases to Howden Joinery Group Plc for a total investment price of £103.7 million. As mentioned within note 33 above, the Company
completed on this contract in January 2018.
On 17 December 2017, the Group exchanged contracts to purchase the corporate vehicle that owns the distribution facility in
Crewe, Cheshire. The property is let to Expert Logistics Limited, a wholly owned subsidiary of AO World Plc, which will act as
guarantor. The total consideration was £36.10 million.
Refer to note 33 for the respective completion dates of these investment properties.
Tritax Big Box REIT plc Annual Report 2017
151
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE COMPANY BALANCE SHEET
Company Registration Number: 08215888
Non‑current assets
Investment in subsidiaries
Total non‑current assets
Current assets
Trade and other receivables
Cash held at bank
Total current assets
Total assets
Current liabilities
Trade and other payables
Loans from Group companies
Total current liabilities
Non‑current liabilities
Loan notes
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
Net asset value per share – diluted
EPRA net asset value per share
At 31 December
2017
£m
At 31 December
2016
£m
Note
4
5
6
7
8
9
10
11
12
12
12
1,028.22
1,028.22
1,075.17
21.25
1,096.42
812.67
812.67
363.49
109.81
473.30
2,124.64
1,285.97
(7.85)
(52.19)
(60.04)
(492.17)
(492.17)
(5.01)
(51.23)
(56.24)
–
–
(552.21)
(56.24)
1,572.43
1,229.73
13.64
932.37
467.93
158.49
11.05
589.39
546.38
82.91
1,572.43
1,229.73
115.31p
115.26p
115.26p
111.27p
111.22p
111.22p
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 year ended
31 December 2017 amounted to £75.58 million (31 December 2016: £47.62 million).
These financial statements were approved by the Board of Directors on 7 March 2018 and signed on its behalf by:
Richard Jewson Chairman
152
Tritax Big Box REIT plc Annual Report 2017
Financial Statements
COMPANY STATEMENT OF CHANGES IN EQUITY
Undistributable reserves
Distributable reserves
1 January 2017
Total comprehensive income
Share
capital
£m
11.05
–
Issue of Ordinary Shares
Shares issued in relation to further Equity issue (May 2017)
Share issue expenses in relation to Equity issue (May 2017)
Shares issued in relation to management contract
Share based payments
Transfer of share based payments to liabilities to reflect settlement
2.58
–
0.01
–
–
Share Capital reduction
reserve
£m
premium
£m
589.39
546.38
–
347.42
(5.83)
1.39
–
–
–
–
–
–
–
–
Dividends paid:
Third interim dividend in respect of period ended
31 December 2016 at 1.55 pence per Ordinary Share
First interim dividend in respect of year ended
31 December 2017 at 1.60 pence per Ordinary Share
Second interim dividend in respect of year ended
31 December 2017 at 1.60 pence per Ordinary Share
Third interim dividend in respect of year ended
31 December 2017 at 1.60 pence per Ordinary Share
–
–
–
–
–
–
–
–
(17.13)
(17.69)
(21.81)
(21.82)
Retained
earnings
£m
82.91
75.58
Total
£m
1,229.73
75.58
–
–
–
1.56
(1.56)
–
–
–
–
350.00
(5.83)
1.40
1.56
(1.56)
(17.13)
(17.69)
(21.81)
(21.82)
31 December 2017
13.64
932.37
467.93
158.49
1,572.43
1 January 2016
Total comprehensive income
6.78
–
52.74
605.77
–
Issue of Ordinary Shares
Shares issued in relation to further Equity
issue (February 2016)
Share issue expenses in relation to Equity
issue (February 2016)
Shares issued in relation to further Equity
issue (October 2016)
Share issue expenses in relation to Equity
issue (October 2016)
Shares issued in relation to management contract
Share based payments
Transfer of share based payments to liabilities to reflect settlement
Dividends paid:
Fourth interim dividend in respect of period ended
31 December 2015 at 3.00 pence per Ordinary Share
First interim dividend in respect of year ended
31 December 2016 at 3.10 pence per Ordinary Share
Second interim dividend in respect of year ended
31 December 2015 at 1.50 pence per Ordinary Share
–
0.01
–
–
–
–
–
1.61
198.39
–
(3.90)
2.65
347.35
(6.26)
1.07
–
–
–
–
–
(20.34)
(26.02)
(13.03)
–
–
–
–
–
–
–
–
35.29
47.62
700.58
47.62
–
–
–
–
–
1.25
(1.25)
–
–
–
200.00
(3.90)
350.00
(6.26)
1.08
1.25
(1.25)
(20.34)
(26.02)
(13.03)
31 December 2016
11.05
589.39
546.38
82.91
1,229.73
Tritax Big Box REIT plc Annual Report 2017
153
Financial StatementsFINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
NOTES TO THE COMPANY ACCOUNTS
1. ACCOUNTING POLICIES
Basis of preparation
The financial statements have been prepared in accordance with Financial Reporting Standard 100 Application of Financial
Reporting Requirements (“FRS 100”) and Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”).
Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS 101.
Therefore these financial statements do not include:
• Certain comparative information as otherwise required by EU endorsed IFRS;
• Certain disclosures regarding the Company’s capital;
• A statement of cash flows;
• The effect of future accounting standards not yet adopted;
• The disclosure of the remuneration of key management personnel; and
• Disclosure of related party transactions with other wholly owned members of Tritax Big Box REIT plc.
In addition, and in accordance with FRS 101 further disclosure exemptions have been adopted because equivalent disclosures
are included in the Company’s consolidated financial statements. These financial statements do not include certain disclosures in
respect of:
• Share based payments;
• Financial instruments;
• Fair value measurement other than certain disclosures required as a result of recording financial instruments at fair value.
Principal accounting policies
The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been
consistently applied to all the years presented, unless otherwise stated.
Basis of accounting
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”).
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 million (£m), except where otherwise indicated.
Other income
Other income represents dividend income which has been declared by its subsidiaries and is recognised when it is received.
Dividends payable for 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.
154
Tritax Big Box REIT plc Annual Report 2017
Financial Statements 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 at fair value and subsequently at amortised cost or their recoverable amount.
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the
counterparty or default or significant delay in payment) that the Company will be unable to collect all of the amounts due under
the terms receivable. The amount of such a provision is the difference between the net carrying amount and the present value of
the future expected cash flows associated with the impaired receivable. For trade debtors, which are reported net, such provisions
are recorded in a separate allowance account with the loss being recognised within administrative expenses. On confirmation
that the trade debtor will not be collectable the gross carrying value of the asset is expensed to the profit and loss against the
associated provision.
Financial liabilities
Financial liabilities including trade payables, other payables, accruals and amounts due to Group undertakings are originally
recorded at fair value and subsequently stated at amortised cost under the effective interest method.
Investments in subsidiaries
The investments in subsidiary companies are included in the Company’s Balance Sheet at cost less provision for impairment.
Share based payments
The expense relating to share based payments is accrued over the year in which the service is received and is measured at the
fair value of those services received. The extent to which the expense is not settled at the reporting period end is recognised as
a liability as any shares outstanding remain contingently issuable. Contingently issuable shares are treated as dilutive to the extent
that, based on market factors prevalent at the reporting year end date, the shares would be issuable.
Significant accounting judgements, estimates and assumptions
The preparation of the Company’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 years. There were no significant accounting judgements, estimates or
assumptions in preparing these financial statements.
2. TAXATION
UK corporation tax
Year ended
31 December
2017
£m
–
Year ended
31 December
2016
£m
–
Tritax Big Box REIT plc Annual Report 2017
155
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
3. DIVIDENDS PAID
Third interim dividend in respect of period ended 31 December 2016 at 1.55 pence per
Ordinary Share (Fourth interim for 31 December 2015 at 3.00 pence per Ordinary Share)
First interim dividend in respect of year ended 31 December 2017 at 1.60 pence per
Ordinary Share (31 December 2016: 3.10 pence)
Second interim dividend in respect of year ended 31 December 2017 at 1.60 pence per
Ordinary Share (31 December 2016: 1.55 pence)
Third interim dividend in respect of year ended 31 December 2017 at 1.60 pence per
Ordinary Share
Total dividends paid
Total dividends paid for the year
Total dividends unpaid but declared for the year
Total dividends declared for the year
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
17.13
17.69
21.81
21.82
78.45
4.80p
1.60p
6.40p
20.34
26.02
13.02
–
59.38
4.65p
1.55p
6.20p
On 24 April 2017, the Company announced the declaration of a first interim dividend in respect of the period from 1 January 2017 to
31 March 2017 of 1.60 pence per Ordinary Share, which was payable on 22 May 2017 to Ordinary Shareholders on the register on
5 May 2017.
On 13 July 2017, the Company announced the declaration of a second interim dividend in respect of the period 1 April 2017
to 30 June 2017 of 1.60 pence per Ordinary Share which was payable on 10 August 2017 to Shareholders on the register on
21 July 2017.
On 12 October 2017, the Company announced the declaration of a third interim dividend in respect of the period 1 July 2017 to
30 September 2017 of 1.60 pence per Ordinary Share which was payable on 20 October 2017 to Shareholders on the register on
19 October 2017.
On 7 March 2018, the Company announced the declaration of a fourth interim dividend in respect of the period 1 October 2017 to
31 December 2017 of 1.60 pence per Ordinary Share which will be payable on or around 29 March 2018 to Shareholders on the
register on 15 March 2018.
4. INVESTMENTS
As at 1 January 2017
Increase in investments via share purchase
As at 31 December 2017
As at 1 January 2016
Increase in investments via share purchase
As at 31 December 2016
Shares
£m
812.67
215.55
1,028.22
547.81
264.86
812.67
Loan
£m
–
–
–
–
–
–
Total
£m
812.67
215.55
1,028.22
547.81
264.86
812.67
156
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: Notes to the Company Accounts
The Company has the following subsidiary undertakings as at 31 December 2017:
TBBR Holdings 1 Limited
TBBR Holdings 2 Limited
Baljean Properties Limited
Tritax Acquisition 2 Limited
Tritax Acquisition 2 (SPV) 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 REIT Acquisition 8 Limited
Tritax Acquisition 8 Limited
Tritax REIT Acquisition 9 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
Tritax Worksop Limited
Tritax REIT Acquisition 16 Limited
Tritax Acquisition 16 Limited
Tritax Acquisition 17 Limited
Tritax Acquisition 18 Limited
Tritax Harlow Limited
Tritax Lymedale Limited
Tritax Acquisition 21 Limited
Tritax Acquisition 22 Limited
Tritax Acquisition 23 Limited
Tritax Acquisition 24 Limited
Tritax Knowsley Limited
Tritax Burton Upon Trent Limited
Tritax Acquisition 28 Limited
Tritax Peterborough Limited
Click Peterborough SARL
Tritax Holdings CL Debt Limited
Tritax Portbury Limited
Tritax Newark Limited
Wellzone Limited
Sportdale Limited
Tritax Holdings PGIM Debt Limited
Tritax Merlin 310 Trafford Park Limited
Tritax West Thurrock Limited
Tritax Tamworth Limited
Tritax Acquisition 34 Limited
Tritax Acquisition 35 Limited
Tritax Acquisition 36 Limited
Tritax Acquisition 37 Limited
Tritax Acquisition 38 Limited
Tritax Acquisition 39 Limited
Tritax Acquisition 40 Limited
Tritax Acquisition 41 Limited
Tritax Littlebrook 1 Limited
Tritax Littlebrook 2 Limited
Tritax Littlebrook 3 Limited
Principal activity
Investment Holding Company
Investment Holding Company
Property Investment
Investment Holding Company
Investment Holding Company
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Investment Holding Company
Property Investment
Investment Holding Company
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Investment Holding Company
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Dormant Company
Investment Holding Company
Property Investment
Property Investment
Investment Holding Company
Investment Holding Company
Investment Holding Company
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Country of incorporation
Jersey
Jersey
Isle of Man
Jersey
Jersey
Jersey
UK
Jersey
Jersey
BVI
Guernsey
UK
Jersey
UK
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
BVI
UK
Jersey
Jersey
Jersey
Guernsey
Guernsey
Jersey
Jersey
Jersey
Jersey
Isle of Man
BVI
Jersey
Jersey
Luxembourg
Jersey
Jersey
Jersey
UK
UK
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Ownership %
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Tritax Big Box REIT plc Annual Report 2017
157
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE 4. INVESTMENTS (CONTINUED)
Tritax Littlebrook 4 Limited
Tritax Atherstone Limited
Tritax Atherstone Limited (formerly Aequitas Estates
(Midlands) Limited)
Tritax Acquisition 42 Limited
Tritax Stoke DC1&2 Limited
Tritax Luxembourg DC1&2 Limited
Tritax Stoke DC3 Limited
Tritax Luxembourg DC3 Limited
Tritax Stoke Management Limited
Tritax Acquisition 43 Limited
Tritax Carlisle Limited
Tritax Carlisle UK Limited
Tritax Worksop 18 Limited
Tritax Edinburgh Way Harlow Limited
Tritax Edinburgh Way Harlow (Luxembourg) Limited
Tritax Crewe Limited
Tritax Crewe (Luxembourg) Limited
Tritax Acquisition 44 Limited
Principal activity
Property Investment
Investment Holding Company
Property Investment
Property Investment
Investment Holding Company
Property Investment
Investment Holding Company
Property Investment
Property Management Company
Property Investment
Investment Holding Company
Property Investment
Property Investment
Investment Holding Company
Property Investment
Investment Holding Company
Property Investment
Property Investment
Country of incorporation
Jersey
Jersey
Ownership %
100%
100%
UK
Jersey
Jersey
Luxembourg
Jersey
Luxembourg
UK
Jersey
Jersey
UK
Jersey
Jersey
Luxembourg
Jersey
Luxembourg
Jersey
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The registered addresses for subsidiaries across the Group are consistent based on their country of incorporation and are
as follows:
Jersey entities: 13-14 Esplanade, St Helier, Jersey JE1 1EE
Guernsey entities: PO Box 25, Regency Court, Glategny Esplanade, St Peter Port, Guernsey GY1 3AP
Isle of Man entities: 33-37 Athol Street, Douglas, Isle of Man IM1 1LB
BVI entities: Jayla Place, Wickhams Cay 1, PO Box 3190, Road Town, Tortola, BVI VG1110
UK entities: Aberdeen House, South Road, Haywards Heath, West Sussex RH16 4NG
Luxembourg entity: 46A Avenue J F Kennedy L-1885, Grand Duchy of Luxembourg.
5. TRADE AND OTHER RECEIVABLES
Amounts receivable from Group companies
Prepayments
Other receivables
All amounts fall due for repayment within one year.
6. CASH HELD AT BANK
Cash held at bank
158
Tritax Big Box REIT plc Annual Report 2017
31 December
2017
£m
1,073.90
0.14
1.13
1,075.17
31 December
2016
£m
362.80
0.04
0.65
363.49
31 December
2017
£m
21.25
21.25
31 December
2016
£m
109.81
109.81
Financial Statements: Notes to the Company Accounts
7. TRADE AND OTHER PAYABLES
Trade and other payables
Accruals
8. LOAN NOTES
Bonds
2.625% Bonds 2026
3.125% Bonds 2031
Less: unamortised costs on loan notes
Non-current liabilities: net borrowings
Maturity of borrowings
Repayable between 1 and 2 years
Repayable between 2 and 5 years
Repayable in over 5 years
31 December
2017
£m
31 December
2016
£m
3.84
4.01
7.85
1.59
3.42
5.01
31 December
2017
£m
31 December
2016
£m
249.01
246.55
(3.39)
492.17
–
–
–
–
31 December
2017
£m
31 December
2016
£m
–
–
495.56
495.56
–
–
–
–
On 14 December 2017, the Group announced the pricing of senior unsecured loan notes (the “notes”) with an aggregate
principal amount of £500 million split evenly over a nine and fourteen year term. The notes were issued under the Company’s
£1.5 billion Euro Medium Term Note Programme. The Group issued two tranches of loan notes, comprising (i) £250 million
senior unsecured loan notes maturing on 14 December 2026 and (ii) £250 million senior unsecured loan notes maturing
on 14 December 2031. The 2026 Notes and the 2031 Notes were priced at a fixed interest rate of 2.625% and 3.125% per
annum respectively.
On the same date, the Company also announced a new £350 million unsecured revolving credit facility with its core relationship
lender group and selected new lenders. The new unsecured revolving credit facility has an initial maturity of five years and can
be extended (subject to obtaining the prior consent of the lenders) by a further two years to a maximum of seven years. The new
facility also contains an uncommitted £200 million accordion option. The new facility had an opening margin of 1.10% per annum
over Libor.
The syndicate for the unsecured revolving credit facility comprises Barclays Bank PLC, BNP Paribas London Branch, HSBC Bank
plc, ING Bank N.V. London Branch, The Royal Bank of Scotland plc, Santander UK plc and Wells Fargo Bank N.A. London Branch.
Following the issue of the notes and the entering into of the unsecured revolving credit facility, the Company’s existing £550 million
secured syndicated facility due October 2020 and the £7.06 million and £11.60 million Helaba facilities due November 2019 were
repaid in full on 11 December 2017 and 7 December 2017 respectively.
Tritax Big Box REIT plc Annual Report 2017
159
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
9. SHARE CAPITAL
The share capital relates to amounts subscribed for share capital at its nominal value:
31 December
2017
Number
31 December
2017
£m
31 December
2016
Number
31 December
2016
£m
Issued and fully paid at 1 pence each
At beginning of year – £0.01 Ordinary Shares
Shares issued in relation to further equity issuance
Shares issued in relation to management contract
1,363,598,083
1,105,159,529
257,352,941
1,085,613
13.64
1,105,159,529
11.05
677,840,088
2.58
0.01
426,441,838
877,603
Balance at end of year
1,363,598,083
13.64
1,105,159,529
11.05
6.78
4.26
0.01
11.05
On 13 April 2017 the Company announced that, in accordance with the terms of the management fee arrangements with the
Manager pursuant to which 25% of the management fee is payable in new Ordinary Shares, it issued 528,528 Ordinary Shares at an
issue price per Ordinary Share of 126.45 pence.
On 24 April 2017, the Company announced that it intended to proceed with a proposed Placing, Open Offer and Offer for
Subscription of new Ordinary Shares at a price of 136 pence per share to raise £200 million. Following this on 11 May 2017 the
Company announced it had exercised its right to increase the size of the issue, due to excess demand, to £350 million. As a result,
a total of 257,352,941 Ordinary Shares were issued at a price of 136 pence per Ordinary Share, of which 100,517,096 Ordinary
Shares were issued pursuant to the Open Offer, 12,075,902 Ordinary Shares were issued pursuant to the Offer for Subscription,
144,759,943 Ordinary Shares were issued under the Placing.
On 3 October 2017 the Company announced that, in accordance with the terms of the management fee arrangements with the
Manager pursuant to which 25% of the management fee is payable in new Ordinary Shares, it issued 577,085 Ordinary Shares at an
issue price per Ordinary Share of 130.83 pence.
10. SHARE PREMIUM
The share premium relates to amounts subscribed for share capital in excess of nominal value:
Balance at beginning of year
Share premium on Ordinary Shares issued in relation to further equity issuance
Share issue expenses in relation to further equity issuance
Transfer to capital reduction reserve (see note 26)
Share premium on Ordinary Shares issued to management
Balance at end of year
31 December
2017
£m
31 December
2016
£m
589.39
347.42
(5.83)
–
1.39
932.37
52.74
545.74
(10.16)
–
1.07
589.39
160
Tritax Big Box REIT plc Annual Report 2017
Financial Statements: Notes to the Company Accounts
11. CAPITAL REDUCTION RESERVE
Balance at beginning of year
Transfer from share premium
Third interim dividend for the period ended 31 December 2016
First interim dividend for the year ended 31 December 2017
Second interim dividend for the year ended 31 December 2017
Third interim dividend for the year ended 31 December 2017
Balance at end of year
Please refer to note 3.
12. NET ASSET VALUE (NAV) PER SHARE
31 December
2017
£m
31 December
2016
£m
546.38
–
(17.13)
(17.69)
(21.81)
(21.82)
467.93
605.77
–
(20.34)
(26.02)
(13.03)
–
546.38
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 year. As there are dilutive instruments
outstanding, both basic and diluted NAV per share are shown below.
Net assets per Company Balance Sheet
EPRA NAV
Ordinary Shares:
Issued share capital (number)
Net asset value per Share – Basic
Potentially issuable dilutive shares (number)
Net asset value per Share – Diluted
EPRA net asset value per Share – Diluted
31 December
2017
£m
1,572.43
1,572.43
31 December
2016
£m
1,229.73
1,229.73
1,363,598,083
1,105,159,529
115.31p
590.881
115.26p
115.26p
111.27p
533,132
111.22p
111.22p
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 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
.
14. DIRECTORS’ REMUNERATION
Directors’ fees
Employer’s National Insurance
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
0.24
0.03
0.27
0.18
0.02
0.20
A summary of the Directors’ emoluments, including the disclosures required by the Companies Act 2006, is set out in the Directors’
. As Chairman of the Company’s Manager, Mark Shaw is not entitled to receive a fee.
Remuneration Report
note 30, page 149
Directors’ Remuneration Report, pages 106-107
Tritax Big Box REIT plc Annual Report 2017
161
FINANCIAL STATEMENTSSTRATEGIC REPORTADDITIONAL INFORMATIONGOVERNANCE
162
Tritax Big Box REIT plc Annual Report 2017 CONTENTS
ADDITIONAL INFORMATION
Notes to the EPRA Performance Measures
1. EPRA earnings per share
2. EPRA NAV per share
3. EPRA NNNAV
4. EPRA net initial yield (NIY) and
EPRA “topped up” NIY
5. EPRA vacancy rate
6. EPRA cost ratio
Application of the Principles of the AIC Code
Financial Calendar
Company Information
162-170
164
164
164
165
165
166
166
167
169
170
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163
NOTES TO THE EPRA PERFORMANCE MEASURES
1. EPRA EARNINGS PER SHARE
Total comprehensive income (attributable to Shareholders)
Adjustments to remove:
Changes in fair value of investment properties
Changes in fair value of interest rate derivatives
One-off cost of extinguishment of bank loans (note 11)
Profits to calculate EPRA Earnings per share
Weighted average number of Ordinary Shares
EPRA earnings per share – basic
Dilutive shares to be issued
EPRA earnings per share – diluted
2. EPRA NAV PER SHARE
Net assets at end of period
Adjustments to calculate EPRA NAV:
Changes in fair value of interest rate derivatives – 2017
Changes in fair value of interest rate derivatives – 2016
Changes in fair value of interest rate derivatives – 2015
Changes in fair value of interest rate derivatives – 2014
EPRA net assets
Shares in issue at 31 December 2017
Dilutive shares in issue
Year ended
31 December
2017
£m
247.80
Year ended
31 December
2016
£m
91.90
(175.98)
2.04
4.75
78.61
(47.51)
7.15
–
51.54
1,268,540,113
6.20p
873,562,775
5.90p
590,881
6.20p
533,132
5.90p
Year ended
31 December
2017
£m
1,929.46
Year ended
31 December
2016
£m
1,414.54
(0.69)
7.08
1.99
2.58
–
7.08
1.99
2.58
1,940.42
1,426.19
1,363,598,083
590,881
1,105,159,529
533,132
1,364,188,964
1,105,692,661
Dilutive EPRA NAV per share
142.24p
129.00p
164
Tritax Big Box REIT plc Annual Report 2017
Additional Information
3. EPRA NNNAV
EPRA net assets
Include:
Fair value of financial instruments
Fair value of debt1
EPRA NNNAV
Shares in issue at 31 December 2017
Dilutive shares in issue
Year ended
31 December
2017
£m
1,940.42
Year ended
31 December
2016
£m
1,426.19
(10.96)
9.89
(11.65)
2.09
1,939.35
1,416.63
1,363,598,083
590,881
1,105,159,529
533,132
1,364,188,964
1,105,692,661
EPRA NNNAV per share
142.16p
128.12p
1 Difference between interest-bearing loans and borrowings included in Balance Sheet at amortised cost, and the fair value of interest bearing loans and borrowings.
4. EPRA NET INITIAL YIELD (NIY) AND EPRA “TOPPED UP” NIY
Investment property – wholly owned
Less: development properties
Completed property portfolio
Allowance for estimated purchasers’ costs
Gross up completed property portfolio valuation (B)
Annualised passing rental income
Less: contracted rental income in respect of development properties
Property outgoings
Annualised net rents (A)
Contractual increases for fixed uplifts
Topped up annualised net rents (C)
EPRA Net Initial Yield (A/B)
EPRA Topped Up Net Initial Yield
Year ended
31 December
2017
£m
2,607.28
–
2,607.28
176.77
2,784.05
112.56
–
(0.02)
112.54
18.52
131.06
4.04%
4.71%
Year ended
31 December
2016
£m
1,803.11
(88.14)
1,714.97
116.62
1,831.59
99.66
(9.11)
(0.08)
86.13
4.35
90.48
4.70%
4.95%
Tritax Big Box REIT plc Annual Report 2017
165
STRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTS
5. EPRA VACANCY RATE
Annualised estimated rental value of vacant premises
Portfolio estimated rental value1
EPRA vacancy rate
1 Excludes development properties
6. EPRA COST RATIO
Property operating costs
Administration expenses
Total costs including and excluding vacant property costs (A)
Total gross rental income
Total EPRA cost ratio (including and excluding vacant property costs)
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
–
135.23
0%
–
97.95
0%
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
0.02
14.16
14.18
108.54
13.1%
0.07
11.71
11.78
74.66
15.8%
166
Tritax Big Box REIT plc Annual Report 2017
Additional Information: Notes to the EPRA Performance Measures
APPLICATION OF THE PRINCIPLES OF THE AIC CODE
The Company has applied the 21 Principles of the AIC Code as follows:
THE BOARD
1. The Chairman should be independent
The Company’s Chairman, Richard Jewson, is independent. In addition, the Board has appointed a Senior Independent Director who, among
other things, will take the lead in the annual evaluation of the Chairman and will be an alternative contact for Shareholders.
2. A majority of the Board should be independent of the Manager
The Board currently comprises five Non-Executive Directors of which Richard Jewson, the Chairman and Susanne Given, Jim Prower and
Aubrey Adams are independent of the Manager. Mark Shaw, who is a partner and chairman of the Manager, Tritax Management LLP is not
considered to be independent.
3. Directors should be submitted for re‑election at regular intervals
As the Company is a constituent of the FTSE 250, Richard Jewson, Susanne Given, Aubrey Adams and Mark Shaw will retire and stand for
re-election at the AGM in May 2018. Aubrey Adams will stand for election to the Board at the AGM in May 2018.
4. The Board should have a policy on tenure
The Company’s practice is to appoint Directors for a minimum two-year term subject to annual re-election.
5. There should be full disclosure of information about the Board
Full information about the Board, as a whole, and the Directors, as individuals, is set out, inter alia, in this Annual Report.
6. The Board should aim to have a balance of skills, experience, length of service and knowledge of the Company
The Nomination Committee has undertaken a review of the Board’s composition and appointed Aubrey Adams as a Non-Executive Director
of the Company and as a member of the Audit Committee, Nomination Committee and Management Engagement Committee. In making
appointments to the Board, the Committee considers the wide range of skills, knowledge and experience required to maintain an effective
Board. The Nomination Committee Report is on pages 91-92.
7. The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its Committees and
individual Directors
The Board appointed Lintstock Limited to conduct a Board Evaluation. Details of the evaluation are set out on page 92.
8. Directors’ remuneration should reflect their duties, responsibilities and the value of their time spent
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. The fees paid to the Directors are listed on page 104 of this report.
9. The independent Directors should take the lead in the appointment of new Directors and the process should be disclosed in the
Annual Report
The appointment of new Directors to the Board is led by the Nomination Committee. Further details of the activities of the Nomination
Committee can be found on page 91-92.
10. Director Induction Programme
Aubrey Adams was appointed as a Non-Executive Director of the Company and as a member of the Audit, Management Engagement and
Nomination Committees in 2017. Aubrey received a bespoke induction training programme designed to give him a comprehensive overview
of the Company, including its business and strategic aims and its governance structure. The Company Secretary also provided Aubrey with
a bespoke induction pack of documents and an introduction to the Company.
11. The Chairman (and the Board) should be brought into the process of a new launch at an early stage
The Company operates a single fund and has no plans to launch further funds. However, whenever the Company carries out equity
fundraisings the Chairman and the Board are always involved and are integral to the process from an early stage.
BOARD MEETINGS AND THE RELATIONSHIP WITH THE MANAGER
12. Boards and Managers should operate in a supportive, co‑operative and open environment
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
among themselves.
Tritax Big Box REIT plc Annual Report 2017
167
Additional InformationSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTS 13. The primary focus at regular Board meetings should be a review of investment performance and associated matters such as
gearing, asset allocation, marketing/investor relations, peer group information and industry issues
The Chairman sets the agendas for the meetings, manages the meeting timetable and facilitates open and constructive dialogue during
the meetings. The Board has a schedule of matters specifically reserved for its decision which include the approval of budgets, setting
investment and performance objectives and policies, the approval of the Company’s financial statements and published reports, the
approval of equity and debt fundraising.
Prior to each meeting, the Directors are provided with a comprehensive set of papers providing information on the Company’s proposed
investments, its financial position and performance, an update on relevant sectors including the commercial property and retail sectors,
a monthly Shareholder analysis and a report on regulatory and governance matters.
14. Boards should give sufficient attention to overall strategy
The Board, together with the Manager, regularly considers the overall strategy of the Company in light of its performance and the
sector overall.
15. The Board should regularly review both the performance of, and contractual arrangements with, the Manager
The performance of the Manager is assessed on a regular basis by the Management Engagement Committee. Further details of the review
in 2017 are set out in the Management Engagement Committee Report see pages 101-103.
The Board together with the Audit Committee sets the Group’s risk appetite and annually reviews the effectiveness of the Group’s risk
management and internal control systems. The activities of the Audit Committee, which assists the Board with its responsibilities in relation
to the management of risk, are summarised in the Audit Committee Report on pages 96-99.
16. The Board should agree policies with the Manager covering key operational issues
The Board has an agreed set of policies with the Manager covering key operational areas and the implementation of such policies is subject
to a regular, independent review. Further details of this review of internal controls are set out in Leadership on page 81. Langham Hall UK
Depositary LLP acts as depositary for the Company and conducts an independent review of the internal controls of the Company. Further
details of the role of Langham Hall UK Depositary LLP are set out on page 95.
17. The Board should monitor the level of the share price discount or premium (if any) and, if desirable, take action to reduce it
The Board monitors the performance on the Company’s share price both on an absolute level and relative to the prevailing Net Asset Value
per Ordinary Share. The Directors have at their disposal the authority to buy back or issue Ordinary Shares (within certain parameters) which
would allow them to address anomalies in the performance of the Ordinary Shares, if necessary. The Board works with the Company’s joint
financial advisers and corporate broker to maintain regular contact with the investors and monitor investor sentiment.
18. The Board should monitor and evaluate other service providers
The Management Engagement Committee together with the Manager reviews the continuing appointment of its service providers to ensure
that terms remain competitive and in the best interests of Shareholders, through an annual review of the relevant contracts.
The Board has access to independent professional advisers at the Company’s expense.
SHAREHOLDER COMMUNICATIONS
19. The Board should regularly monitor the Shareholder profile of the Company and put in place a system for canvassing Shareholder
views and for communicating the Board’s views to Shareholders
Representatives of the Manager met regularly with Shareholders throughout 2017, providing the Board with feedback on Shareholder views
and concerns. Please see Relations with Shareholders and stakeholders for further information on pages 104-105.
The Directors make themselves available at general meetings to address Shareholder queries and the Annual General Meeting, in particular,
provides the Board with an important opportunity to meet with Shareholders, who are invited to meet the Board following the formal
business of the meeting.
20. The Board should normally take responsibility for, and have direct involvement in, the content of communications regarding
major corporate issues even if the Manager is asked to act as spokesperson
All communications with Shareholders are subject to sign off by one or more of the Directors, as appropriate. Any communications regarding
major corporate issues are approved by the Board prior to release.
21. The Board should ensure that Shareholders are provided with sufficient information for them to understand the risk:reward
balance to which they are exposed by holding the shares
The Board places great importance on communication with Shareholders. It aims to provide Shareholders with a full understanding of the
Company’s activities and performance and reports formally to Shareholders twice a year by way of the Half Yearly Report and the Annual
Report, including in particular, the Strategic Report. The Strategic Report is set out on pages 1-75 and this provides information about the
performance of the Company, the Investment Policy, strategy and the risks and uncertainties relating to the Company’s future prospects.
This is supplemented by frequent notifications via a regulatory information service on developments such as asset acquisitions, debt
financings and fundraising activities, and the Company’s Website is regularly updated.
168
Tritax Big Box REIT plc Annual Report 2017
Additional Information: Application of the Principles of the AIC Code FINANCIAL CALENDAR
7 March 2018
Announcement of Full Year Results
16 May 2018
Annual General Meeting
30 June 2018
Half Year End
9 August 2018
Announcement of Half Year Results
31 December 2018
Full Year End
Tritax Big Box REIT plc Annual Report 2017
169
Additional InformationSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTS COMPANY INFORMATION
Company Registration Number: 08215888 Incorporated in the United Kingdom
Directors, Management and Advisers
Directors
Richard Jewson
Non-Executive Chairman
Jim Prower Senior Independent
Non-Executive Director
Susanne Given
Non-Executive Director
Aubrey Adams, OBE
Non-Executive Director
Mark Shaw
Non-Executive Director
Registered office
Standbrook House
4th Floor
2-5 Old Bond Street
Mayfair
London
W1S 4PD
Manager
Tritax Management LLP
2-5 Old Bond Street
Mayfair
London
W1S 4PD
Joint Financial Adviser and
Corporate Broker
Jefferies International Limited
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
Joint Financial Adviser
Akur Limited
66 St James’s Street
London
SW1A 1NE
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
Tritax Management LLP
Standbrook House
4th Floor
2-5 Old Bond Street
Mayfair
London
W1S 4PD
Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Administrator
Link Asset Services
Beaufort House
51 New North Road
Exeter
EX4 4EP
Depositary
Langham Hall UK Depositary LLP
5 Old Bailey
London
EC4M 7BA
Bankers
Barclays Bank PLC
PO Box 3333
One Snowhill
Snow Hill Queensway
Birmingham
B3 2WN
BNP Paribas
10 Harewood Avenue
London
NW1 6AA
Canada Life Investments
1-6 Lombard Street
London
EC3V 9JU
170
Tritax Big Box REIT plc Annual Report 2017
Helaba Landesbank
Hessen‑Thüringen Girozentrale
3rd Floor
95 Queen Victoria Street
London
EC4V 4HN
HSBC Bank plc
Level 2, 8 Canada Square
Canary Wharf
London
E14 5HQ
ING Real Estate Finance (UK) B.V.
60 London Wall
London
EC2M 3JQ
PGIM Real Estate Finance
8th Floor
One London Bridge
London
SE1 9BG
Royal Bank of Scotland
250 Bishopsgate
London
EC2M 4AA
Santander
2 Triton Square
Regent’s Place,
London
UK, NW1 3AN
Wells Fargo Bank, N.A.
90 Long Acre
London
WC2E 9RA
Valuer
CBRE Limited
Henrietta House
Henrietta Place
London
W1G 0NB
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CAUTIONARY STATEMENT
This Annual Report and the Tritax Big Box REIT plc website may contain certain ‘forward-looking statements’ with respect to
Tritax Big Box REIT plc’s (“Company”) financial condition, results of its operations and business, and certain plans, strategy,
objectives, goals and expectations with respect to these items and the economies and markets in which the Company operates.
Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as
‘anticipates’, ‘aims’, ‘due’, ‘could’, ‘may’, ‘should’, ‘will’, ‘would’, ‘expects’, ‘believes’, ‘intends’, ‘plans’, ‘targets’, ‘goal’ or ‘estimates’
or, in each case, their negative or other variations or comparable terminology. Forward-looking statements are not guarantees
of future performance. By their very nature forward-looking statements are inherently unpredictable, speculative and involve
risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Many of these
assumptions, risks and uncertainties relate to factors that are beyond the Company’s ability to control or estimate precisely.
There are a number of such factors that could cause actual results and developments to differ materially from those expressed
or implied by these forward-looking statements. These factors include, but are not limited to, changes in the economies and
markets in which the Company operates; changes in the legal, regulatory and competition frameworks in which the Company
operates; changes in the markets from which the Company raises finance; the impact of legal or other proceedings against
or which affect the Company; changes in accounting practices and interpretation of accounting standards under IFRS, and
changes in interest and exchange rates. Any forward-looking statements made in this Annual Report or Tritax Big Box REIT plc
website, or made subsequently, which are attributable to the Company, or persons acting on their behalf, are expressly qualified
in their entirety by the factors referred to above. Each forward-looking statement speaks only as of the date it is made. Except as
required by its legal or statutory obligations, the Company does not intend to update any forward-looking statements. Nothing
in this Annual Report or the Tritax Big Box REIT plc website should be construed as a profit forecast or an invitation to deal in the
securities of the Company.
Designed and produced by Bruce Associates
Printed in England by Cousin
Printed using vegetable based inks and both paper mill and printer have ISO14001 Environmental
accreditation. This report is printed on Essential Satin, which is an FSC Mix certified paper.
Tritax Big Box REIT plc Annual Report 2017
171
Tritax Big Box REIT plc
Standbrook House
4th Floor
2-5 Old Bond Street
Mayfair
London
W1S 4PD
www.tritaxbigbox.co.uk
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