Morning Note: Market news and an update from Tritax Big Box REIT.

Market News

US equities sold off last night – S&P 500 (-1.6%); Nasdaq (-2.8%) – as investors reassessed Donald Trump’s tariff risks and China’s vowed “necessary countermeasures” to new tariffs. The fall was driven by the Mag 7, with Nvidia down 8% following its earnings report the previous evening. The sell-off continued across Asia this morning: Nikkei 225 (-2.9%); Hang Seng (-3.3%); Shanghai Composite (-2.0%).

The dollar gained and Treasury yields dropped – the 10-year is currently 4.24%. Gold slipped to $2,850 an ounce, while Bitcoin is now 25% from its all-time high.

The FTSE 100 is proving to be more resilient and is currently 0.4% lower at 8,725. President Trump said levies on the UK would be unnecessary if a trade deal is reached. The president said he would restart long-stalled negotiations after meeting Keir Starmer. 10-year Gilts yield 4.48%, while Sterling trades at $1.2610 and €1.2110.

In Germany, the conservative CDU/CSU bloc and the Social Democrats are set to start exploratory talks on a coalition today.

Source: Bloomberg

Property News

Tritax Big Box REIT has released its 2024 results this morning. The company highlighted positive strategic progress via rent reviews, asset management initiatives, and new developments. The dividend has been raised by 4.9% and the business has delivered its highest total accounting return level since 2021. The shares currently trade on a 23% discount to NAV, which rose by 4.7% in the year, and offer a dividend yield of 5.4%.

Tritax is a real estate investment trust dedicated to investing in very large logistics warehouse assets, or Big Boxes, in the UK. Over time, the group has evolved from an income-led asset aggregator into an integrated investment and development company. The £6.55bn portfolio is spread across more than 100 logistics assets and around 128 investment tenants, with a weighted average unexpired lease term of 10.3 years. The largest tenant is Amazon, representing 15% of rental income.

Through Tritax Symmetry, the group owns a strategic land portfolio for the development of Big Box assets of 42m sq ft (including land options) which provides the opportunity to more than double the company’s existing rent roll over the next decade. The group aims to minimise risk by primarily undertaking developments which are pre-let to a tenant – speculative development is 3% of asset value. The company believes these opportunities can be delivered at a yield on cost significantly higher than is currently available from the acquisition of built and let or pre-let forward-funded assets, with a 6%-8% yield target.

Last year’s merger with UK Commercial Property REIT adds high-quality urban logistics assets (i.e. smaller boxes) reflected in the 5.8% uplift in asset values since June 2024. The deal enhances Tritax’s customer offer and drives accelerated rental growth through early capture of significant rental reversion. Around 40% of the £1.2bn UKCM portfolio was made up of office, retail, and other space (18 assets in total). The liquid nature of these non-strategic assets is reflected in the number of offers Tritax has received, and the company has already sold £181.2m of assets, at the upper end of the £150m-£200m guidance, with a further £177m currently under offer. Full liquidation is expected within two years from purchase. This will facilitate the accretive rotation of capital into the development of brand new best-in-class logistics assets.

Last month, the group initiated a new strategic leg in the data centre market with a 147 MW data centre development opportunity and further 1 GW pipeline. The phase 1 data centre at Manor Farm is targeting exceptional returns with a 9.3% yield on cost to Tritax Big Box shareholders. There is potential for an accelerated delivery timeline of Phase 1 with practical completion and income recognition as early as H2 2027.

At present, Tritax is 90%+ exposed to logistics property. We believe the long-term outlook for the sector remains favourable, supported by the continued growth in e-commerce, the consolidation of logistics networks into fewer, larger, more modern and efficient buildings, and the need to build resilience into supply chains. At a time when occupiers need a robust and flexible supply chain, the assets are essential to their business and cannot be easily replicated. We note that property costs are a small percentage of total operational costs for a retailer – more important is having the right location.

After a difficult period, the group entered 2025 with growing confidence, driven by improving occupational market conditions and an expanded range of growth drivers. There was 5.4% like-for-like portfolio ERV growth during 2024, reflecting favourable supply/demand dynamics resulting in attractive levels of market rental growth for high quality logistics real estate. Underlying portfolio vacancy is 3.3%, with further 2.4% from speculative developments competed in November 2024 to give total of 5.7%, with the potential to add additional rent of £21.5m.

Tritax continues to crystalise value through asset sales and recycle capital into higher-returning development and investment opportunities. In 2024, the group made £306.2m of disposals above book value including the £181.2m of non-strategic UKCM assets highlighted above. In addition, the group continues to take advantage of market conditions to selectively acquire what it considers to be mispriced assets.

The group’s portfolio offers a secure and growing income – 23% of rent is generated by leases having an unexpired term of more than 15 years and 25% from leases expiring within five years which provide near-term asset management opportunities. In 2024, net rental income increased by 24.3% to £276m. The group achieved 3.9% EPRA like-for-like rental growth reflecting ongoing market rental growth and higher proportion of reviews.

The contracted annual rent roll increased by 39.1% to £313.5m, driven by the UKCM acquisition, asset management, and development activity. Through active management, the group secured an additional £11.6m of contracted rent in 2024. Of this £8.4m came from rent reviews, reflecting an average 11.7% increase in passing rent, and 34.6% increase across all open market reviews. Another £3.2m came from other asset management initiatives.

A record 27.9% logistics portfolio reversion provides potential to capture £79.2m of additional rent, of which 79% has the potential to be captured by 2027, supporting future earnings growth.

The growing rental stream means the group can adopt a progressive dividend policy, with the intention to pay out more than 90% of adjusted earnings. The 2024 payout has been lifted by 4.9% to 7.66p, equal to a yield of 5.4%. With adjusted EPS up 3.9% to 8.05p, the payout ratio was 95%.

On the development front, the group is seeing an encouraging uptick in levels of activity in its pipeline. In 2024, £11.4m of contracted rent was secured, including 1.0m sq ft pre-let to a global leader in e-commerce, representing one of the UK's largest pre-lets in 2024. There was 1.9m sq ft of development starts, just below the guidance range. 79% of 2024 development starts were either pre-let or pre-sold. Development starts for 2025 are expected to be in line with 2024 levels and within the 2-3m sq ft guidance. Development yield on cost expected to be at the upper end of 6-8% guidance for 2025 starts.

Overall, the combination of record rental reversion and a significant development pipeline gives the group the capability to more than double its rental income over the long-term (to £750m).

The group remains financially robust – in 2024, LTV fell from 31.6% to 28.8%, just below the 30%-35% target range – with substantial covenant headroom. The current weighted average cost of debt is only 3.05% (up from 2.93% in 2023), with 93.4% of drawn debt either fixed or hedged, with an average maturity of 4.5 years. The group has no debt maturing prior to June 2026. The increased scale of the company following the UKCM deal offers the potential for lower cost of capital and an enhanced credit rating – Moody’s upgraded the group’s credit rating outlook to Baa1 (positive) from Baa1 (stable).

The portfolio equivalent yield remained broadly stable at 5.68%. The EPRA cost ratio fell from 13.1% to 12.6%, driven by UKCM synergies and efficient externally managed structure. Including vacancy costs it rose from 13.1% to 13.6%, reflecting assumed vacancy from UKCM acquisition. The EPRA Net Tangible Assets (NTA) per share rose by 4.7% to 185.56p, while the total accounting return was 9.0%, the highest since 2019.

Source: Bloomberg