Half-year results for

the six months ended

31 March 2024

16 May 2024

Continued progress on strategic priorities has delivered a solid operational performance, with good visibility on further improvement in the second half.

FY24 half-year key figures

Chairman's commentary

Robert Orr, Chairman of Tritax EuroBox plc, commented:

"Over the past six months, we have continued to build on the good progress made on delivering the strategic priorities we outlined 18 months ago. A solid operational performance is reflected in the cost ratio within our target range, the dividend remaining fully covered, and the further advancement of our planned disposal programme that continues to lower balance sheet leverage.

"Asset sales have now reached €173 million, and we expect to complete the disposal programme and move our debt metrics towards target levels by the end of 2024.  In total, these transactions have been completed broadly in line with book values, demonstrating the attractiveness of our portfolio in what has been a challenging period in investment markets. Reflecting this uncertain market backdrop, investment yields have continued to soften leading to our portfolio valuation declining marginally over the period. 

"We remain confident our high-quality portfolio and customer base continues to place the Company in a strong position to benefit from the supportive structural drivers and market dynamics in the European logistics sector. However, despite the progress with our strategic priorities and well-positioned portfolio, the Board remains acutely aware of the significant share price discount to NAV. The Board is in regular dialogue with the Manager and the Board's advisers about how to address this issue, and there is a clear alignment and focus to deliver value for all shareholders in an effective and efficient manner."

FY24 half-year results overview

Rental income impacted by disposals; dividend remains covered

·    IFRS rental income of €35.9 million, up 10.1%, reflecting rent indexations, asset management activity and conversion of rental guarantees into income partly offset by disposals

·   Annualised rental income of €74.3 million, down 2.6%, primarily due to the sales programme. Like-for-like⁵ rental decline of 0.3% over six months, with income growth offset by lease and rental guarantee expiries.

·     Adjusted EPRA Cost Ratio⁷ of 24.1% (H1 23: 25.6%), in line with our target range of 20-25%, benefiting from a lower Management fee due to the lower portfolio valuation.

·     Adjusted EPS¹ of 2.62 cents, down 3.0%, primarily due to disposals.

·     Dividend per share of 2.50 cents was 104.7% covered by Adjusted EPS for the period.

Investment portfolio let to strong customers on long-term, inflation-linked leases

·     Portfolio value² of €1,464.8 million (FY23: €1,561.9 million), reflecting the disposals of Bochum and Malmö and a like-for-like reduction of 2.9% primarily due to continued sector-wide outward yield shift, partly offset by ERV growth.

·    Decline in portfolio value led to a reduction in NTA per share to €0.96 (FY23: €1.02) and a negative Total Return of 3.0% (FY23: negative 22.5%).

·     Portfolio reversion of 21.3% or €15.9 million, reflecting a like-for-like increase in portfolio ERV of 4.0%.

·   97% of leases subject to annual rental increases, with a WAULT to expiry of 9.5 years and 82% linked to inflation.

·     Decrease in EPRA vacancy rate to 3.9% (FY23: 5.5%) reflecting the new lettings in Italy, Sweden and Poland. The post period end short-term letting in Poland reduces this to 3.1%.

Asset management and indexation added €1.8 million to annualised rental income⁴

·     Three new leases at Settimo Torinese, Rosersberg 1 and Strykow total €1.6 million of annual rent. Post period end, signed an additional short-term lease at Strykow, securing rent of €0.6 million.

·    Asset sales in Bochum and Malmö for €46.8 million and €28.3 million respectively, and post period end in Gothenburg for €33.5 million. The disposal programme has now reached €173 million, with overall sales in line with book value.

·   Ongoing integration of ESG objectives into operations, including progress with the four German solar PV projects that will more than double installed capacity to 21.5MWp from 10.3MWp. Installation is expected to commence in Q4 2024.

Balance sheet benefitting from low cost of debt and no near-term refinancing

·   100% of drawn debt with fixed rates, with an average cost of debt of 1.43% for H1 24. €250.0 million of undrawn debt facilities as at period end.

·    3.0-year weighted maturity, with earliest refinancing of drawn debt not required until Q2 2026.

·    Fitch investment grade rating re-affirmed and outlook upgraded to Stable.

·    Loan to value (LTV) ratio³ of 44.5% remains above our preferred range, with the benefit of disposal proceeds partly offset by the portfolio valuation decline and capital expenditure on the Oberhausen development.

·    Taking into account the post period end disposal at Gothenburg, the pro-forma LTV decreases to 43.3%.

·    Covenant headroom with LTV³ of 44.5%, interest cover of 4.8x and gearing of 86.1%, versus covenants of 65%, 1.5x and 150.0% respectively.

Notes

1. See note 7 to the condensed financial statements for reconciliation.

2. Valuation under IFRS (excluding rental guarantees), this includes assets held for sale.

3. As per KPI definition.

4. Contracted rent, on an annualised basis, at the reporting date. With the additions of rental guarantees.

5. Excluding extensions at Strykow, the like-for-like rental income decline is 0.3%. Rental income growth for the stabilised portfolio of 0.6%.

6. Weighted average unexpired lease term to break is 7.8 years and weighted average unexpired lease term to expiry is 9.5 years.

7. Including rental guarantees.

8. Like-for-like ERV growth for six months for H1 24 and H1 23, and for 12 months for FY23.

Presentation for investors and analysts

A Company presentation for analysts and investors will take place via a live webcast at 09:00am (UK time) today. To view the live webcast, please register via this link:

Tritax EuroBox plc - 2024 half-year results

Analysts and investors will also be able to listen to the event via a moderated conference call using the following details:

Phone number: +44 (0) 33 0551 0200

Participant access: quote 'EuroBox Half-year results'

The presentation will also be accessible on-demand later in the day from the Company website:

tritaxeurobox.co.uk/investors/results-and-presentations/.

A Company presentation aimed more towards retail investors will take place via a live webcast at 11:30am (UK time) on Friday 17 May 2024. Investors can sign up to Investor Meet Company for free and add to meet Tritax EuroBox plc via:

https://www.investormeetcompany.com/tritax-eurobox-plc/register-investor

The presentation is open to all existing and potential shareholders. Questions can be submitted pre-event via your Investor Meet Company dashboard up until 16 May 2024, 09:00am (UK time), or at any time during the live presentation. Investors who already follow Tritax EuroBox plc on the Investor Meet Company platform will automatically be invited.

Further information

Tritax EuroBox plc

+44 (0) 20 8051 5070
Phil Redding - CEO for Tritax EuroBox plc
Mehdi Bourassi - CFO for Tritax EuroBox plc
Charles Chalkly - Investor Relations Director for Tritax EuroBox plc

Kekst CNC (Media enquiries)

Tom Climie / Guy Bates
+44 (0) 7760 160 248 / +44 (0) 7581 056 415
tritax@kekstcnc.com

Notes:

Further information on the Company is available at: tritaxeurobox.co.uk

The Company's LEI is: 213800HK59N7H979QU33.

Chairman's statement

During the period, we have delivered further progress on the strategic priorities set out 18 months ago. IFRS rental income has increased by 10.1%, our Adjusted EPRA Cost Ratio of 24.1% remains within our target range and the dividend remains well covered. We have disposed of three further assets and are confident the remaining planned sales will move the LTV ratio towards our preferred percentage range of low 40s by the end of the year. The use of sale proceeds to primarily reduce leverage has, as expected, impacted annualised rental income and Adjusted Earnings, which have reduced by 2.6% and 3.0% respectively.

Despite the challenging macro-economic backdrop, our portfolio remains well-positioned. The high-quality assets and strong income characteristics are demonstrated by our 100% rent collection, high occupancy, roster of strong customers on long leases and annual rental increases through indexation.

However, the continuation of restrictive monetary conditions has caused investment markets to remain subdued and valuation yields to drift higher across European logistics markets. Reflecting these market conditions, during the period we experienced a small reduction in the valuation of our portfolio. In spite of this, we are encouraged to see macro-economic expectations improving and investor sentiment turning more positive.

Financial performance driven by further progress on our strategic priorities

IFRS rental income increased to €35.9 million (H1 23: €32.6 million), mainly due to letting activity converting rental guarantees to IFRS income. The Company's Adjusted EPRA Cost Ratio improved to  24.1% (H1 23: 25.6%), benefiting from a reduced Management fee derived from the lower portfolio valuation. However, the positive effect on earnings from these income and cost movements was more than offset by the two disposals completed during the period. The Adjusted EPS consequently decreased by 3.0% to 2.62 cents (H1 23: 2.70 cents).

However, the dividend remained covered at 104.7% of Adjusted EPS, with a declared dividend totalling 2.50 cents per share for the period, in line with the previous year.

The portfolio was independently valued by CBRE at €1,464.8 million at the period end (FY23: €1,561.9 million), reflecting the two asset disposals and representing a like-for-like valuation reduction of 2.9% versus September 2023. Valuation declines were partially mitigated by continued ERV growth of 4.0% growing the reversionary potential of the portfolio to €15.9 million (21.3%). Overall, this resulted in EPRA NTA per share of €0.96, down 5.9% (FY23: €1.02).

In line with our previously announced disposal programme, during the period we completed the sales of assets in Bochum (Germany) for €46.8 million and in Malmö (Sweden) for €28.3 million. Post period end we completed the sale of an asset in Gothenburg (Sweden) for €33.5m and this brought sales completed over the last 12 months to €173 million.

Including the post period end sale of Gothenburg, our LTV has reduced further to 43.3%. We will look to complete the disposal programme in the second half of 2024, which is expected to lower leverage towards our preferred percentage range in the low 40s.

The Company continues to benefit from a low average cost of debt of 1.43% due to the fixed or capped rates on all its borrowings. As the Revolving Credit Facility (RCF) has been repaid during the period, the Company's earliest refinancing is the €500 million green bond. The Company expects to refinance the RCF and the bond ahead of their respective maturities in October 2025 and June 2026.

During the period, Fitch Ratings affirmed the Company's investment grade rating and revised up the Company's outlook to Stable from Negative. Together these underline the good progress made on targeted disposals and the overall quality of the portfolio.

Advancement of our ESG strategy, particularly our solar PV installations

We continue to focus on delivering our ESG strategy and on the targets we launched a year ago. Improved ratings from CDP and Sustainalytics demonstrated this progress in our ESG performance. Our focus over the past six months has been on the four solar PV projects in Germany which will more than double portfolio capacity to 21.5MWp from 10.3MWp. We have now secured a guaranteed floor price for power entering the grid on the four schemes and have also made good progress on agreeing Power Purchase Agreements with our customers. Installation is expected to begin in Q4 2024.

As part of its ongoing programme of engagement with investors, the Board met with seven of the top-10 shareholders and directly interacted with approximately half of the Company's active, institutional shareholders during the period. The Board remains committed to maintaining an active dialogue with shareholders and has appreciated the productive discussions, including those on strategic options available to the Company.

Outlook

The future performance of the business is underpinned by our portfolio of high-quality, modern logistics assets that are mission-critical to our customers. Our buildings have strong ESG credentials and are concentrated in the major distribution corridors in key European markets, which means they remain well-positioned to deliver performance and value to stakeholders over the long term.

With a steady reduction in inflation in recent months, we have seen increasing confidence that the rate hiking cycle in Europe is now behind us and expectations that the next movement in rates will be downwards. Signs are emerging that investor sentiment and wider capital markets are responding to this shift, as demonstrated by the increase in European logistics transaction volumes recorded in the period, up 17% versus the same period in the prior year. This improvement underpins the growing consensus that we are near the end of interest-rate-driven outward yield shift and the market backdrop should be more supportive for asset values through the remainder of 2024 and into 2025.

Occupational markets remain broadly healthy, particularly in core markets where supply remains constrained and vacancy levels are low. Take-up continues to be well supported by the ongoing structural drivers of demand and the diversified nature of occupational requirements from a range of business sectors. However, we are seeing evidence of the more challenging economic outlook in Continental Europe leading to increasing caution from some occupiers, with decision-making taking longer and expansion plans being reviewed.

Within this context, our high-quality and well-located portfolio has allowed us to benefit from positive structural drivers and supportive market dynamics, and the roster of strong customers on long, inflation-linked leases with minimal exposure to development risk also provides defensive characteristics in the event occupational markets become tougher.

Although future income growth from within our own portfolio will continue to be primarily driven by the annual fixed and index-linked uplifts inherent in nearly all our leases, unlocking the €15.9 million (21.3%) of rent reversion within the portfolio through asset-management initiatives remains a priority. In addition, the ongoing engagement with our strong customer base will continue to be a source of new opportunities to grow income.

The Board continues to believe the emphasis on delivering high-quality earnings, paying a covered dividend, and maintaining balance sheet strength through completing the planned disposal programme, remains appropriate and will deliver value to Shareholders in the long term.

However, despite the progress with our strategic priorities and well-positioned portfolio, the Board remains acutely aware of the significant share price discount to NAV. The Board is in regular dialogue with the Manager and the Board's advisers about how to address this issue, and there is a clear alignment and focus to deliver value for all shareholders in an effective and efficient manner.

Manager's report

18 months ago, we set out four key priorities: to capture income growth opportunities embedded within the existing portfolio; to improve operational efficiencies to lower the cost ratio; to combine these activities to drive earnings per share and deliver a covered dividend for the year; and to underpin these activities by maintaining balance sheet strength. Over the past six months, the Company has taken further steps in delivering these priorities despite the economic and property market backdrop remaining challenging.

Market sentiment has continued to be influenced by macro-economic factors, with the continuation of restrictive monetary conditions and uncertainty on the timing of interest rate cuts, leading many investors to adopt a "wait-and-see" approach. This environment has led to valuations across some of our markets to drift lower during the period. However, with inflation in Continental Europe on a downward trajectory and expectations that interest rates will also turn lower, this should provide a more supportive backdrop for our markets over the remainder of the year.

While investment volumes have remained subdued, more recently we have seen evidence of activity picking up, particularly from those investors with high conviction on the sector's long-term structural drivers and strong market fundamentals. The reported up-tick in investment volumes during the period reflects this trend and is also an encouraging sign that activity should gain momentum through the year and into 2025. However, stability and valuation improvement will likely remain dependent on the extent and timing of Central Bank actions in the near term.

Occupier markets in Continental Europe have also not been immune to the more challenging economic outlook, with take-up declining, albeit off the back of three very strong years through the pandemic. Demand remains broad-based but some occupiers are becoming more cautious, and decision-making is taking longer.

The significant decline in development pipelines towards the end of last year has mitigated to a degree this fall in demand, with average vacancy levels only increasing moderately in most markets. Increases in country averages also mask a divergence between core markets, that remain very tight, and peripheral markets, where speculative development is taking longer to lease up. Overall, occupier market fundamentals remain robust and continue to support positive rental growth.

Delivering on our strategic priorities

A key part of our focus on driving operational performance is the capture of income growth opportunities embedded within the existing property portfolio. In line with this objective, we successfully completed several initiatives during the period increasing IFRS rental Income to €35.9 million, up 10.1% from the previous interim period, reflecting rent indexations, asset management activity and new lettings converting rental guarantees into rental income.

The annualised rental income of €74.3 million was down 2.6%, as a result of the disposals over the past 12 months. On a like-for-basis, the annualised income decreased by 0.3%, driven by the rental guarantee expiry at Rosersberg.  On the stabilised portfolio (excluding the Rosersberg assets), the like-for-like income grew 0.6%. With good visibility on new income and lease indexations weighted to the second half of the year, we anticipate the stabilised portfolio will deliver like-for-like income growth of between 3% and 5% for the full financial year.

The portfolio's EPRA vacancy rate reduced to 3.9% from 5.5% reflecting this good progress in letting recently completed speculatively developed schemes at Settimo Torinese (Italy) and Rosersberg (Sweden). The post period end short-term letting of existing vacant space at Strykow (Poland) reduces this further to 3.1%. The majority of the vacancy relates to the recently completed speculative schemes at Rosersberg, with the lease-up of this space a key priority for the remainder of the year.

Our Adjusted EPRA Cost Ratio declined to 24.1% from 25.6% in H1 23 as we continued to manage our costs and benefited from a reduced Management fee due to the alignment with the lower portfolio valuation. Our Adjusted EPRA Cost Ratio remains within our target range of 20-25%. We continue to seek opportunities to reduce the cost base further to enable us to move towards our longer-term aspiration of being at the lower end of this range.

Reflecting the asset management and disposal activity during the period, adjusted EPS consequently decreased by 3.0% to 2.62 cents. However, the dividend remained covered at 104.7%. The Company declared quarterly dividends totalling 2.50 cents in the period, in line with the prior year.

Underpinning these priorities is our objective to maintain a strong balance sheet position, encompassing the management of our cost of debt, available liquidity and metrics including the LTV and net debt/EBITDA ratios.

To support this objective, in May last year we announced our intention to sell at least €150 million of assets to lower leverage and move debt metrics to within target ranges. Two disposals were signed in the period at Bochum in Germany for c.€47 million and Malmö in Sweden for c.€28 million. Together with the previous disposal of Hammersbach in Germany for c.€65 million, these transactions have brought sales completed to €139 million as at the end of March.

Post period end, we announced the disposal of an asset in Gothenburg for €33.5 million, 3.8% below the September 2023 valuation and in line with the latest valuation. This sale increased proceeds from the disposal programme to €173 million and, in total, have been secured at a price broadly in line with book value. In the context of a subdued investment market backdrop and lower transactional volumes, the ability to effectively execute the sales programme through this period demonstrates the attractiveness of our high-quality assets.

Including the post period end sale in Gothenburg, the pro forma LTV has now reduced to 43.3%. We expect to complete the planned disposal programme over the course of 2024 and remain confident of achieving our target of an LTV percentage in the low 40s by the end of the calendar year.

Valuation performance

The Company's portfolio valuation movements over the past two years have broadly reflected wider market trends, that in turn have been led by the rapid change in the macro-economic and interest rate environment. The first signs of outward yield shift became apparent in the second half of FY22 and were followed by a greater impact in the first half of FY23. This yield expansion moderated in the latter half of FY23 and at the latest valuation date at the end of March 2024.

As at 31 March 2024, the property portfolio was valued by the Company's independent valuer, CBRE, at €1,464.8 million compared with €1,561.9 million at 30 September 2023. The valuation declined by 2.9% on a like-for-like basis during the period, driven by the modest outward yield shift partly offset by asset management gains,  indexations and continued ERV growth.

As at 31 March 2024, the portfolio net initial yield was 4.7% (FY23: 4.4%), with the equivalent yield at 5.2% (FY23: 4.9%). Lower yielding assets, larger lot sizes and assets with vacancies experienced the most outward yield movement with assets in supply-constrained markets such as the Netherlands and Belgium performing well.

Portfolio ERV growth of 4.0% during the period continued the positive momentum seen through FY23. As at 31 March 2024, the portfolio's ERV was €90.2 million (30 September 2023: €89.7 million). As a result, the portfolio reversion has increased to €15.9 million or 21.3% (FY23: €13.4 million or 17.6%), and the reversionary yield has increased to 5.6% from 5.3% on 30 September 2023.

Enhancing our portfolio and its performance

We have made good progress during the period on our portfolio objectives.

Growing income through asset management activity

We have successfully completed several asset management initiatives during the period, including:

Strykow, Poland:

§ Completion of 8,808 sqm building extension for Arvato together with a lease re-gear, extending the unexpired term to break to 8 years and to expiry to 11 years on all of Arvato's 67,956 sqm of space. This added €0.5 million pa of annualised rental income.

§ Lease re-gear signed with existing customer, Tillmann, for the expansion of their unit of 3,287 sqm by an additional 4,680 sqm on a new 6.5-year lease.

§ Post period end, a short-term lease expiring in January 2025 signed with Arvato for an additional 17,156 sqm and meaning the 102,328 sqm Strykow scheme is now fully let. New rent of €0.6 million will be generated over the 10-month period.

Settimo Torinese, Italy:

§ Lease completed on 14,150 sqm Unit 1 with I-Dika, who also leased Unit 2 in August 2023. The new six-year lease agreed at a rent of €0.71 million pa was 11.3% above the rental guarantee and 9% above the rent on the recently leased Unit 2.

Rosersberg, Sweden:

§ Lease completed with Aprilice on 5,007 sqm DC2, on a 5-year lease with a 5-year extension option and a tenant-only break option. The agreed rent was 20% above the appraisal underwrite and 3.2% above the September 2023 ERV level, representing €0.5 million of annualised rental income.

Bornem, Belgium:

§ Post period end, lease re-gear of 13,945 sqm unit B and new lease for 14,935 unit C; both are inflation-linked, with an eight-year duration and have been agreed with an existing customer. Together the leases secure annualised income of €1.5 million until 2032. Also, the customer signed a Power Purchase Agreement for the existing 1.4MWp solar scheme, adding further annualised income of €0.1 million.

Completing our pipeline of development projects

Following the completion of six forward-funded developments totalling 224,763 sqm in FY23, one further asset is under construction:

Oberhausen, Germany:

§ Construction commenced in July 2023 on this two-unit, 23,243 sqm speculative forward funding, which has the potential to produce annualised rental income of €1.9 million when completed and fully let. Practical completion is scheduled for Q3 2024, and we are targeting a DGNB Gold certification. Active discussions are on-going with potential customers.

Progressing the disposal programme

We made further progress with our planned disposal programme during the period, with two sales completing at Bochum in Germany for c.€47 million and Malmö in Sweden for c.€28 million. The Bochum sale price was broadly in line with book value, with Malmö significantly ahead due to its specific user case as a data centre commanding a high premium from the purchaser. Together with the earlier disposal of Hammersbach in Germany for c.€65 million, these transactions brought gross sale proceeds to €139 million.

Post period end we disposed of an asset in Gothenburg in Sweden for €33.5m 3.8% below the 30 September valuation and in line with the latest valuation. The sale follows the Malmö disposal agreed in December 2023 and means our Swedish portfolio now comprises only two assets in Rosersberg, located to the north of Stockholm, where we continue to seek tenants for the remaining vacant units.

We will look to complete the planned disposal programme over the remainder of 2024 to achieve our primary objectives of reducing our debt metrics to within target ranges and funding existing portfolio opportunities. Following the completion of the programme, we will continue to review the portfolio on our usual biannual basis to ensure portfolio performance and positioning is maintained and aligned with external market conditions.

Increase the solar PV generating capacity of the portfolio

Our focus over the past six months has been on the four solar PV projects in Germany, in collaboration with our customers Wayfair, Action, Rhenus and GXO. These proposed projects will the take current portfolio installed capacity to 21.5MWp from 10.3MWp, an increase of 109%. We have now secured a guaranteed long-term floor price for power entering the grid and we have also made good progress on agreeing Power Purchase Agreements with our customers. Installation is expected to begin during Q4 2024.

In the near-term, there is a further 6.0MWp of capacity which can be installed across three more assets in Germany plus an extension of the existing scheme at Piacenza in Italy. 

Delivering our ESG strategy

In addition to the advancement of the portfolio's solar PV schemes, we have delivered progress across the updated ESG targets launched in 2023. During the first half of FY24:

·   We updated the ESG criteria we use for our Investment Committee processes, enhancing investment decision-making.

·   We held a workshop on our ESG ambitions and objectives with the relevant country teams from CBRE property management, identifying ways in which they can further support us in achieving these.

·     We engaged with our supply chain and customers to explore options for delivering net zero carbon emissions in partnership.

·      We continued our charity partnership with Mission to Seafarers.

These activities have been complemented by some further development and asset management progress. Specifically:

·      Our units in Settimo Torinese achieved BREEAM New Construction Very Good, and we are targeting a Gold DGNB certification for our Oberhausen development.

·      We signed three new green leases.

Finally, our progress was reflected in improved ESG rating agency scores, including a CDP climate benchmark score of B, and a 9.8 (Negligible Risk) score for Sustainalytics (2023: 14.3 (Low Risk)). These ratings bring us within the 8^th percentile of companies within the Real Estate industry.

Good visibility of further progress in the second half and beyond

Future growth potential and priorities

Future income growth from within our own portfolio will continue to be primarily driven by the annual fixed and index-linked uplifts inherent in nearly all our leases. However, the €15.9 million of rent reversion within the portfolio represents a major opportunity and unlocking this potential through asset-management initiatives remains a key priority. In addition, the attractiveness of our well-located, high-quality portfolio and ongoing engagement with our customers will facilitate further opportunities to grow income. In the near-term, this potential includes annualised rental income of €4.4 million from leasing vacant space at our speculative schemes at Rosersberg and Oberhausen. In the medium-term, our solar PV revenue stream will make an increasing contribution to portfolio income as the programme continues to expand.

Outlook

Our portfolio of high-quality assets with strong income characteristics continues to be well-placed to benefit from the sector's positive growth drivers with its defensive qualities also providing income security through the market cycle. In the second half we expect:

- the like-for-like rental growth to move up to between 3% and 5% on the stabilised portfolio

- to maintain the cost ratio within our target range of 20-25% for the full year.

- the dividend to remain fully covered for the financial year 2024, including the impact of planned asset sales.

- to complete the planned disposal programme by the end of 2024 - as originally outlined - and expect the LTV ratio to move to our target percentage of low 40s.

Financial Review

Portfolio valuation

The portfolio was independently valued by CBRE as at 31 March 2024, in accordance with the RICS Valuation - Global Standards. The portfolio's total value at the period end was €1,464.8 million (30 September 2023: €1,561.9 million), reflecting a like-for-like valuation decrease of 2.9%. The Valuation's equivalent yield increased by 26 bps over the past six months, with this outward yield shift only partially offset by like-for-like ERV growth of 4.0% in the period.

Financial results

Income

IFRS rental income for the period was €35.9 million (H1 23: €32.6 million), up 10.1%. The growth was primarily due to the conversion of previous rental guarantees into rental income through the letting of assets under development in the prior period. However, the increase was partly offset by the three disposals completed since the start of the disposal programme in May 2023.

Over six months, the like-for-like rental decline of 0.3% with income growth offset by lease and rental guarantee expiries. As at 31 March 2024, the portfolio's annualised rent was €74.3 million (H1 23: €76.3 million), including €1.6 million of annualised rental guarantees.

Costs

The Company's operating and administrative costs were €7.5 million (H1 23: €9.0 million), which primarily comprised:

·      the Management Fee payable to the Manager of €2.3 million (H1 23: €3.4 million);

·      the Company's running costs, including accounting, tax and audit; and

·      the Directors' fees.

The EPRA Cost Ratio for the period (inclusive of vacancy cost) was 25.8% (H1 23: 30.3%). The Adjusted EPRA Cost Ratio of 24.1% (H1 23: 25.6%), including rental guarantees received, remains within the stated target range of 20-25%. The lower cost ratio was primarily driven by a lower Management fee due to the decrease in portfolio valuation.

The total cost of debt for the period was €5.4 million (H1 23: €4.3 million), reflecting an attractive average cost of debt of 1.4% (H1 23: 1.2%). This represents a small increase against the prior period, due to the expiry of the previously held caps at the start of the financial year.

The Group made a consolidated loss before tax for the period of €17.95 million (H1 23: loss of €241.3 million), primarily driven by the negative valuation movement of investment properties.

The current income taxation charge for the year was €5.4 million (H1 23: €0.9 million). The relatively higher charge against prior period is the result of capital gains realised on disposals of investment properties during the year. This exceptional taxation charge was €3.9 million. Overall, the taxation charge is incurred in the local jurisdictions in which the Company invests. As an HMRC approved investment trust, the Company is exempt from UK corporation tax on its chargeable gains. The Company is also exempt from UK corporation tax on dividend income received, whether from UK or non-UK companies, provided the dividends fall within one of the exempt classes under the Corporation Tax Act 2009.

The corporation tax rate in future periods will depend primarily on the jurisdictions where the Company owns property assets, given the differing tax rates across Continental Europe. The Company does not use any structures designed to artificially reduce its tax liabilities and looks to pay the appropriate level of tax where it is due.

Earnings Per Share

IFRS Basic Earnings Per Share for the period was negative 2.32 cents (H1 23: negative 27.20 cents), with the improvement versus the prior year reflecting a less negative adverse valuation movement through the period. EPRA EPS, which excludes valuation movements, was 2.60 cents (H1 23: 3.21 cents). Adjusted Earnings, which include rental guarantees and other adjustments, was €21.1 million (H1 23: €21.8 million), resulting in Adjusted EPS of 2.62 cents (H1 23: 2.70 cents).

More information about the calculation of basic, EPRA and Adjusted EPS can be found in Note 7 to the Financial Statements.

Net assets

The IFRS NAV per share at the year-end was €0.94 (FY23: €0.99). The EPRA NTA per share at the year-end was €0.96 (FY23: €1.02). The valuation of investment property is the main driver of the EPRA NTA movement and was determined by CBRE as independent valuer.

The Board is satisfied that the valuation exercise was performed in accordance with RICS Valuation - Global Standards. As such, the Board has full confidence in the level of EPRA NTA disclosed in the financial statements at the reporting date.

More information on EPRA's net asset valuation metrics can be found in the EPRA Performance Measures section.

Debt financing

At the period end, the Company had total debt drawn of €700 million. This resulted in an LTV ratio of 44.5% (30 September 2023: 46.4%), with €250.0 million available undrawn debt facilities. We expect the disposal programme to complete over the second half of the financial year with the aim of reducing the LTV towards our preferred percentage range of low 40s.

The Company expects to refinance the RCF and the bond ahead of their respective maturities in October 2025 and June 2026. Our expectation is for the refinanced debt facilities to be smaller than the current amount, albeit at a higher rate to reflect a likely higher interest rate environment.

During the period Fitch Ratings re-affirmed the Company's investment grade rating, comprising its Long-Term Issuer Default Rating at 'BBB-' and its senior unsecured debt rating at 'BBB'. Fitch also upgraded the Company's outlook to Stable from Negative, mainly as a result of the successful disposal programme.

Dividends

The Company has declared the following dividends in respect of the year:

The total dividend for the period was 2.50 cents per share or €20.2 million (H1 23: 2.50 cents per share or €20.2 million) and was 104.7% covered by Adjusted Earnings (H1 23: 108.0%). We expect the dividend for the full year to be fully covered by Adjusted Earnings.

Post period-end activity

On 8 April 2024, a short-term lease was agreed with Arvato at Strykow, Poland.

On 1 May 2024 a lease re-gear of unit B and new lease for unit C was agreed at Bornem, Belgium.  The customer also signed a Power Purchase Agreement for the existing solar scheme.

On 13 May 2024, the sale of Gothenburg, Sweden was agreed.

Related party transactions

Transactions with related parties included the Management Fee paid to the Manager and the Directors' fees.

Alternative Investment Fund Manager (AIFM)

The Company is an Alternative Investment Fund within the meaning of the Alternative Investment Fund Managers Directive 2011 and has appointed the Manager as its AIFM. The Manager is authorised and regulated by the Financial Conduct Authority as a full scope AIFM.

Our market

Structural drivers still support occupier markets despite weak macro-economic conditions

Take-up across our markets during the period totalled 8.4 million sqm (H1 23: 11.2 million sqm)[1]. Logistics real estate markets have not been immune to the weaker macro-economic backdrop which is reflected in activity slowing across the continent. While demand remains broad-based, occupier decision-making is taking longer.

Demand continues to be supported by the ongoing need for companies to evolve warehouse networks to better meet customer requirements and their business objectives. As well as the continuing shift to online sales, requirements are underpinned by: the need to handle returns; secure greater supply chain resilience; and, build out networks to meet demand for electric vehicles and green energy solutions. Further, the growing importance of reflecting corporate ESG ambitions throughout supply chain networks and physical estates frames customer decision-making.

Vacancy rates continue to diverge between countries, reflecting a varied supply picture

Pan-European vacancy moved up to 4.1% (Q3 2023: 3.3%)[2]. These regional numbers, however, hide significant differences at a country, and especially local-market, level. Vacancy in Spain and Poland is above 7%; while Germany, Belgium, the Netherlands, and Italy continue to see national vacancy levels below 3.5%¹. Vacancy in core markets within these countries is often lower still.

Challenging financing conditions and lower demand have slowed development with completions totalling 7.9 million sqm in the period, down from 10.8 million sqm across the corresponding period last year¹. Speculative space under construction across the continent remains below the record levels of recent years. Again, however, the picture remains uneven. Speculative development, for example, remains elevated in Italy (in response to the very tight market conditions where the national vacancy rate is 1.5%); while activity in countries such as Germany, France, the Netherlands, and Belgium remain below 2022/2023 levels.

Rental growth healthy but below recent peaks

European markets have seen further rental growth across the period with prime headline rents increasing by 2.2% on average[3] (H1 2023: 5.0%). As we highlighted 12 months ago, growth continues to slow from the exceptional levels of recent years but remains healthy by longer-term standards. Rental growth is also becoming more sub-market specific; not least because the volume of new supply in many core markets remains limited due to high barriers to development. We continue to believe our portfolio is well-positioned to capitalise on this trend.

Sentiment improving and capital market pricing increasingly compelling

European capital markets saw a shift in sentiment and pricing through the period. Uncertainty around further ECB rate hikes, the cost-of-capital and corresponding pricing of assets has given way to a widespread belief that with inflation steadily declining and little to no economic growth across the continent, the current hiking cycle is complete.

Real estate logistics capital markets reflected this transition, albeit with a time lag. Pricing uncertainty and investor hesitance resulted in a further outward shift in yields across the period. At a country level, yields held flat in Belgium and moved out by 50bps in France and Poland. Yield movements in all other countries were between 15bps and 30bps¹.

The shift in sentiment and wider capital market pricing, however, alongside sustained confidence in sector fundamentals and increasingly attractive logistics pricing in both absolute and relative terms, has resulted in a pick-up in transaction activity. Deal volumes totalled €12.3 billion for the period, 17% higher than a year ago¹.

While the near-term outlook will continue to be influenced by macro trends, it is encouraging to see logistics real estate deal volumes pick up off the back of improved sentiment. Higher transaction activity lends support to the premise that the sector is priced appropriately for current market conditions and offers attractive returns over the medium term.

Portfolio strategy and composition

Our portfolio strategy is based on a long-term investment approach and the goal to generate income-orientated returns with the ability to capture capital growth over time. We seek to deliver this strategy through combining a disciplined approach to capital allocation and proactive asset management and customer engagement, with enhancing ESG performance central to all our activities.

Our portfolio composition is based on the following characteristics:

·      diversified by:

-    geography, but with the objective of each country having the appropriate critical mass to enable advantages of scale to be captured;

-     building size, but with a focus on larger-scale warehouses that facilitate operational efficiencies and where existing and potential supply is limited; and

-     customer and business sector, but with a focus on large, multi-national organisations;

·      displaying an appropriate balance between:

-     stabilised, income producing assets; and

-     exposure to opportunities to create value through asset management and development activities;

·      highly efficient:

-     let on long leases to strong companies; and

-     incorporating in-built, inflation-linked rent escalators;

·      with market-leading ESG credentials:

-     reducing the environmental impact of our own and our customers' operations;

-     making a meaningful difference to people and communities across our geographies; and

-    seeking green lease clauses, which commit customers to using buildings sustainably, along with an obligation to share resource usage data.

At the period end, the portfolio comprised 22 high-quality warehouse assets, diversified by location, building size and customer sector, plus one building under construction. The assets are modern, with 87% of the portfolio built in the past 10 years, located across Belgium, Germany, Italy, the Netherlands, Poland, Spain and Sweden, and are relatively large, with 68% of the portfolio in excess of 50,000 sqm (the average size being 67,000 sqm).

To deliver an attractive level of return with an appropriate level of risk, our portfolio combines core, stabilised assets with a managed exposure to development and land. The exposure to development and value-add activities is managed dynamically to be aligned with investment and occupational market conditions. With the external environment becoming more challenging over the past 12 months, we have sought to reduce portfolio exposure to speculative development risk and to focus on capturing income growth and value from the existing stabilised portfolio.

The stabilised assets provide the portfolio's core income, comprise the majority of the portfolio and reflect the relatively low-risk positioning of the Company.

Exposure to development activity provides the potential for capturing higher returns with the forward funding of pre-let developments representing the lower end of the risk spectrum and the funding of speculative developments the higher end. Rental guarantees are agreed with our developer-partners to provide protection from potential void periods following the completion of the building. Speculative development offers the opportunity to capture higher market rental levels than appraised levels or the additional rental growth that may have occurred through the construction phase of the development.

The stabilised assets combine to form a highly efficient portfolio, reinforced by four distinct characteristics. Specifically, the assets are let:

i)          On long leases

At the period end, the portfolio Weighted Average Unexpired Lease Term to expiry was 9.5 years (H1 23: 9.6 years) and the Weighted Average Unexpired Lease Term to the first break was 7.8 years (H1 23: 7.9 years).

ii)          To a high-quality customer base

Across the portfolio, the Company has 32 customers operating in a range of business sectors. Many of the Company's customers are multi-billion Euro businesses, including some of the world's best-known companies, underpinning the security of the portfolio's rental income.

iii)         With annual rental uplifts

The majority of the Company's leases contain indexation provisions offering significant inflation protection and regular uplifts in income. Rental uplifts are either linked to local inflation measures or fixed at an agreed rate, with the increases usually taking place annually.

iv)         With structurally low vacancies

The EPRA vacancy at the period end was 3.9% (FY23: 5.5%). This decrease was due to the lettings for the second half of the development at Settimo Torinese (Italy) and the unit at Rosersberg I. Post period end, the short-term letting of the vacant space at Strykow (Poland) reduced the vacancy rate to 3.1%. The vacancy rate represents voids at Rosersberg 2, the second unit at Rosersberg 1 and Unit 2 at Bremen 1.

Strong ESG credentials

Our customers require the ESG performance of the buildings they occupy to be aligned with their own ESG commitments and targets. The ESG credentials of our buildings play an important role in attracting and retaining high-quality occupiers to the portfolio and also enable our customers to meet the expectations of their stakeholders. We have a clear ESG strategy focused on working collaboratively with our customers to jointly deliver enhanced building performance including carbon reduction, wellbeing and biodiversity.

The ESG performance of our buildings and alignment with our net zero carbon pathway are key considerations in determining the future value and liquidity of our assets. The Company holds a four Green Star rating from GRESB and EPRA Gold for its Sustainability Best Practices Recommendations submission.

In addition, our progress was reflected in improved ESG rating agency scores, including a CDP climate benchmark score of B, and a 9.8 (Negligible Risk) score for Sustainalytics (2023: 14.3 (Low Risk)). These ratings bring us within the 8^th percentile of companies within the Real Estate industry.

A proactive approach to asset management

A fundamental part of how we deliver our portfolio strategy is our proactive approach to asset management. This is focused on extracting income growth and value uplifts from the opportunities embedded within the existing portfolio.

Our asset management operations are led by an experienced team, giving us scope to take a direct and active role in the strategic asset management of the portfolio and strengthen relationships with our customers. The in-house team works closely and collaboratively with our locally based partners and also draws on the specialist skills within the wider Tritax Group, such as supply chain, ESG and power expertise, to help formulate our future asset management plans.

We undertake a thorough bottom-up review of all our assets on a biannual basis. This enables us to determine the value-maximising strategy for each property and to review expected returns. In conjunction with this, a top-down assessment is undertaken to ensure the portfolio is optimally positioned to capture efficiencies and to benefit from the positive structural tailwinds that continue to support the Continental European logistics sector.

This process informs our asset recycling strategy by highlighting those assets where, for example, we have completed our asset management plans and maximised value or where forecast ESG performance is not aligned with our overall portfolio objectives. It also identifies markets where we expect performance to be less strong or where we have a sub-scale position and gaining sufficient scale in an appropriate timescale will be challenging. Such assets will be identified for disposal, enabling us to recycle the capital into higher returning opportunities, reduce leverage, or other purposes that enhances the overall performance of the Company.

Key Performance Indicators

Set out below are the key performance indicators we use to track our strategic progress.

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 the new EPRA NAV measures, please see the Notes to the EPRA and Other Key Performance Indicators.

¹ Inclusive of vacant property costs.

² Exclusive of vacant property costs.

Principal risks and uncertainties

At least twice a year, the Board undertakes a formal risk review, with the assistance of the Audit & Risk Committee, to assess the effectiveness of our risk management and internal control systems. During the period the Audit & Risk Committee instructed BDO LLP to perform a risk review. In conjunction with the Manager, the engagement was to enhance the Company's approach to risk management. The outcome of the review has led to an improved risk register, enhanced mitigations and a pathway to more adequate risk-based decisions in the future.

The Audit & Risk Committee considers that general macroeconomic uncertainty results in greater volatility on certain risks, namely the value of the portfolio, finance costs and customer default risk.

The Company's principal risks are summarised below: