Tritax Big Box REIT plc (BBOX) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to our results presentation for the financial year ending December 2020. My name is Ian Brown, part of the Investor Relations team here at Tritax. I'm very pleased to be joined here today by Sir Richard Jewson, Chairman of Tritax Big Box; Colin Godfrey, CEO; and Frankie Whitehead, our Finance Director. Before I hand over to Richard for some opening remarks, I will run you through some quick housekeeping points. So firstly, we are webcasting this live from our respective homes in line with government guidance. So I do hope you can see and hear us clearly. The team will run you through the results presentation. And thereafter, there will be an opportunity for analysts and investors to ask questions. [Operator Instructions] This session is being recorded, and a replay and the transcript will be made available on the Tritax Big Box website. And with that, I will hand over to Sir Richard.

Well, good morning, everyone. It's great that you're able to join us this morning, and I'm delighted that we are today presenting the strongest performance in the life of the company to date. The remote nature of this presentation is a reminder that the pandemic broke out a year ago, and it has been a testing time for all of us. Through this period, we have been extra vigilant and sensitive, mindful of the health and well-being of our staff, contractors on our sites, our customers, shareholders and all that do business with us. I have been Chairman since our IPO in December 2013, and I am proud of what we have achieved for our stakeholders over the last 7.5 years. We have grown to become the largest REIT focused entirely on U.K. logistics real estate, from a start-up to a market cap of over GBP 3 billion today. Having announced that I will be retiring from the Board and handing over to Aubrey Adams at our AGM in May, I do so leaving the business in excellent health and with great opportunity ahead. This provides me with the chance to thank both my fellow nonexecutive directors who have served the company so admirably, and indeed, Colin Godfrey and his excellent Tritax team, who have carried out the strategy so brilliantly to deliver these sustainable and growing returns. And finally, I thank all of you who have worked with and supported the company. I now hand you over to Colin.

Thank you, Sir Richard, and good morning, everyone. We're really delighted to be presenting the Tritax Big Box results for 2020 and to update you on the great progress we're making in delivering our strategy. And I'm glad to say that the theme for today's update is we produced a really strong performance combined with sustained growth. This is particularly pleasing that we are a year into the effects of the pandemic. Briefly on our agenda, you've heard from Ian and Sir Richard, and I'll give a short introduction. Frankie will then run through the financial results and outlook. And I'll provide a strategic update, following which Ian will coordinate the Q&A. So starting on Slide 4. You will hear from Frankie in a moment that we've delivered a really strong set of results for 2020, and we're really positive about our outlook. But I also want to emphasize that we remain well positioned to deliver ongoing strong performance, not just in the short term, but also into the medium and longer terms. This is based on the very favorable ongoing fundamentals of our market, which I'll touch on later; and the benefits of a high-performing, resilient and strategically positioned portfolio, coupled with expertise across all aspects of our business and a strong platform, which allows us to drive performance by executing a clear strategy underpinned by our focus on enhancing ESG and maintaining financial discipline, both of which are critical to us. And as I say, all of this means that we're well positioned to capture the great opportunity ahead of us to deliver growing returns over the short, medium and longer terms. I'll return to these points in a few minutes. But first, I'll hand you over to Frankie to run through the financial results. Frankie?

Thank you, Colin, and good morning, everyone. I'm pleased to be presenting an excellent set of our financial results this morning. It's a period where the portfolio has performed exceptionally well, recording strong levels of rent collection and income growth, and this is highlighted by the 8% increase in adjusted earnings per share. There is also now clear evidence that the development portfolio is increasing in its contribution to overall group performance. This has helped us reduce the highest level of capital growth recorded since the company's IPO with a net increase of up to 15.7% to 176p. Our balance sheet is very well positioned. And as a result of all of this, we continue to pay an attractive dividend, but also have confidence in generating strong levels of total return going forwards. Moving on to the next slide and further detail about the strength of our income growth. The group net rental income increased by 12% primarily driven by our development activity. We've added GBP 16.9 million of new rents through lettings across our development pipeline, which increases the annual contracted rent roll to just over GBP 180 million. This rental growth, alongside our stable operating costs, has led to the cost ratio reducing to 14.2%, which is down from 15.1% last year. And we do expect this to fall further as high-yielding assets are developed over time. The adjusted earnings per share has increased to 7.17p. This does include approximately GBP 4.5 million of additional other income received by development management agreements, which is a point I will be referring to on a later slide. The fourth quarterly dividend declared this morning takes the overall position for 2020 to 6.4p per share, which is a 2.4% increase above the 6.25p that we indicated during the first half of 2020. The year-on-year reduction in dividend is a reflection of a strategy that is delivering a greater total return focus whilst maintaining an element of prudence following COVID-19 and its impact on corporates across the U.K. This positions our dividend payout ratio at 90% for the year. Moving on to Slide 8, and you'll hear about our development and asset management activity later in the presentation. But these factors, coupled with the very strong markets, has improved all key balance sheet metrics. The total portfolio value now exceeds GBP 4.4 billion, and the year-on-year capital performance saw growth of 9.5% across the portfolio, with development profits playing a larger role within the overall valuation surplus generated of over GBP 350 million this year. Our rent collection has been consistently strong with 99.4% of all rents during 2020 having been received, and the small level of arrears expected to be recovered by the middle of this year. This translates into an approximate 24p increase in EPRA NTA, up to 175.6p, and a very strong total accounting return delivered at just under 20% for the year, all of which stems from a portfolio which provides a high-quality and resilient income stream but now with the growth opportunity provided by our significant and maturing land bank. Our LTV remained steady at 30%, and the use of. Our balance sheet remains a key tool for us across our range of financing options. This next slide sets out the detail behind our attractive level of EPS growth driven by an increase in net rental income of GBP 17.2 million. Starting on the left-hand side, we choose the 2019 earnings position at 6.6p. The constituent parts of this growth include 0.6p from the investment portfolio, which includes 2% per annum of like-for-like rental growth across the reviews settled. New leasing activity is at 0.3p, and this is partially offset by our net disposal activity. Against this, there is a 0.5p unwind of license fees as this effectively converts to net rental income as certain developments reach practical to completion. And as presented in the third-to-last column, this generates an EPS before growth in other income of 6.9p, which is a 4.1% increase over the year. Other operating income is made up of development management fees and profit share arrangements, and this has increased by 0.26p or GBP 4.5 million. Its contribution leads to an 8% increase in headline adjusted EPS to 7.2p. Now these development management fees are more variable in nature and level recognized of GBP 8.6 million in 2020 is in excess of our anticipated run rate, which would guide to between GBP 3 million and GBP 5 million per annum moving forwards, and we were within this range in 2019. Therefore, if removing this element of fee income, our payout ratio was 93%, which is also a consideration when considering this year's dividend. Slide 10, which sets out the detail behind our strong NAV growth of 15.7%. And we have adopted the EPRA NTA as our primary net asset value measure. A strengthening market, which has caused yields to tighten by approximately 30 basis points across our portfolio, along with rental growth captured, has led to the investment portfolio adding 12p to performance. Development profits captured across 2.9 million square feet of new lettings have added a further 7.5p and significant planning consents achieved has seen planning value progression across the land bank with a 3.5p contribution to NAV growth. When combined, the development portfolio and the land bank have contributed almost 50% of the overall portfolio growth. And when noting the impact of the operating profit and dividends paid in the year, this takes us to the closing NAV of 175.6p. Moving on, and our balance sheet is in great shape. This is a critical part of financing our strategy. And as you can see from the chart, our debt book is diverse in terms of both its maturity profile and the range of different sources, which provide us with optionality and flexibility. At the year-end, we had a loan-to-value ratio of 30%. When considering our target range of up to 35%, this shows that we have firepower available to us and an even greater level of total liquidity when including all undrawn borrowings. We enhanced this with 2 main events during the year, as highlighted by the red dashed lines on the slide. The first is a 12-month extension to one of the company's revolving credit facilities, and the second was our very successful GBP 250 million green bond issue, which is a 13-year term and is attractively priced at 1.5% per annum, the proceeds of which supports our sustainability agenda and has been pledged towards green projects. The combination of these events has led to a debt maturity being maintained for approximately 7.5 years and a lowering of the company's capped cost of debt to now below 2.5%. Just before I comment on the outlook and moving on to Slide 12, to give some perspective to the growth opportunity and the value within the development pipeline, this rental income bridge shows that we have the potential to grow the contracted annual rent from GBP 181 million today by nearly 2.5x to GBP 430 million. And just to be clear, this is without considering any additional form of market-driven income growth over and above today's levels. Included within the starting position is GBP 18 million of rent secured under previous arrangements. This is income which is all due to commence by the summer of this year, and we see this as a key factor behind 2021 earnings progression. You will also note that we have the opportunity to capture a portfolio rental reversion of approximately 6%. Now Colin will be updating you with the progress we have been making across each of these steps. But the significant opportunity to drive value helps underpin our confidence as we think about the longer-term future for our business. And so on to the final slide for me. I feel the company is in a really strong position to take advantage both of the position of its portfolio and the strength of the market. And to provide some guidance across some key areas: We are targeting GBP 200 million to GBP 250 million of CapEx this year to support the development program. This is to commit to the next phase of speculative development but also certain pre-let opportunities, which we hope to crystallize during the second half of the year. As we did in 2020, we will continue to trim the portfolio and realize value, but this will be linked to our ability to recycle this capital into more accretive opportunities. From an earnings perspective, we are targeting sustainable levels of progression and ultimately see our future earnings growth being driven by our development pipeline. And finally, moving forward, we will target a dividend payout ratio of at least 90% of adjusted earnings. Building in this additional flexibility will allow us to deliver on our strategy and maximize shareholder value. We plan to commence the 2021 quarterly dividend payments in line with the 2020 level, but allowing for a potentially higher dividend in relation to the fourth quarter whilst targeting sustainable dividend growth over the long term. So that concludes the financial review, where the execution of our strategy has led to a compelling set of financial results in what is a really exciting time for the company when looking ahead. So I should now hand you back to Colin to continue with the presentation.

Thanks, Frankie. So Frankie describes our really strong performance in 2020 and our positive outlook. And I'll now spend a few minutes looking at what's behind all of that. Essentially, it's about the strength of our market and how our strategy is aligned to make the most of that to drive income and growth. So let's first look at Slide 15, and a powerful long-term market fundamentals. You're all familiar with this, but I just want to highlight 4 points. First, top left, you can see the acceleration of online retail sales, up 46% in the year. But importantly, there remains a lot of opportunity for further growth. Second, on the top right, you can see that this drove a record level of lettings in 2020 with the GBP 0.5 million-plus segment up 134% over the previous year. We started 2021 with occupier requirements totaling 112 million square feet. And based on average takeup over the last few years, it could take nearly 4 years for supply to match the current level of demand. Third, bottom left, shows how -- shows our vacancy rates have dropped significantly. And in fact, there are only 4 buildings of over 0.5 million square feet currently available to let in the U.K. Finally, you can see the impact of these dynamics in the bottom right-hand graph, which shows increased investment volumes and tightening yields as investors chase scarce supply. And we believe that there's room for yield compression this year as well, which is good news for our investment assets, but also enhances the opportunity in our development land. While COVID-19 or Brexit had a positive effect in our market, structural change is the key driver, and we believe that this is still in its infancy, giving us confidence in the significant scale and duration of the opportunity. So this sets a really positive market backdrop for our business, not just now, but into the future. And as shown on Slide 16, we've designed our strategy to align with these market drivers. There are 3 key components to our strategy, and I'll give some flavor for each component in a moment. But in essence, you can see at the top of the triangle that we've built a platform of high-quality assets attracting great customers. We've also built the capabilities to add value to these assets through direct and active management. And we use our skills in the form of insights and innovation to develop our land bank at an attractive yield on cost. And I really want to emphasize the point at the bottom here. This strategy is underpinned by a very disciplined approach to capital allocation, and sustainability is embedded across our portfolio in all of our actions, as you'll see on Slide 17, from the strong position and progress that we've made. We've handpicked and built a modern and sustainable portfolio. 90% of our floor space has an EPC rating of A to C. Also, 43% of our total floor space is certified to BREEAM Very Good or Excellent, well above the industry average at 23%. We generated 890 megawatts of solar PV power for our tenants in 2020, avoiding over 200 tonnes of carbon emissions. We're leading by example with the aim of developing only net-zero carbon buildings. DPD at Bicester, which completes this year, will be our first example. Our development at Littlebrook set the group's first social value targets and recorded an additional social value of GBP 8.2 million in 2020 through local employment, community investment and procurement. And since launching our ESG strategy in mid-2020, we've made good progress against our targets. For example, our GRESB score has increased from 1 Green Star to 3 Green Stars, and our MSCI rating has improved from B to BB. We've made good progress, but there remains a lot of opportunity for improvement. So you can see that ESG is at the very heart of our thinking, and it's embedded into our strategy. Part of the strategy is portfolio composition. And as shown on Slide 18, this is built on very strong foundations. As you know, we split our assets between the investment portfolio, which represents 91% of GAV, and the development portfolio at around 9% of GAV. The investment portfolio consists of foundation assets at 73% of GAV, which provides our low-risk income with modern buildings, strong locations and long-term high-quality customers; and our value-add assets at 18% of GAV, which have good capital and rental value potential through active management. For example, lease regears or property improvements. Allied to this is our land platform and the assets that we're developing, which gives us the opportunity to capitalize on strong market dynamics, both now and into the future. Our land is held primarily through options, which is really capital-efficient and flexible. This means that the potential for our development platform is far greater than the current capital allocation suggests. The key point here is that the quality of our investment portfolio provides long-term and highly visible growing income, which combines with significant growth potential from our development platform to deliver attractive total returns. So let's look a bit closer at the investment portfolio on Slide 19 to demonstrate each of the 3 key points I made earlier. First, our portfolio is high quality. The charts on this slide provide further evidence of the quality that we focused on. The pie graph, shown top left, highlights the financial strengths of our customers and our top 10 customers by rental, on the top right, into the quality of our income. It's no coincidence that our rental income is weighted towards strong sectors, such as e-commerce, food retail, logistics and other resilient segments, as shown bottom left, noting that these customer relationships are underpinned by long-term leases or 100% let, as Frankie mentioned. Of course, our investment decisions are underpinned by regular performance analysis. And this includes assessments of customer financial health, supply chain networks and their requirements. Taking this together, you can see how we've delivered the first key element of the strategy, a platform of really high-quality assets and strong sectors, which act as a firm foundation for long-term, stable and growing income, which leads me to our second key strategic elements on Slide 20, active management to drive value from within. Customer relationships and our understanding of their businesses help us support them and a key to successful active management. For us, this activity breaks down to 4 components: rent reviews, which compound our income; building improvements, including extensions and sustainability initiatives; lease regears and reletting; and selective sale and purchase of investments. Compounding and growing income is a cornerstone to our returns. Here, we consider its composition and growth potential. As shown by the pie graphs, we benefit from an attractive blend of upward-only revenue types for 1/3 of our portfolio subject to open-market rent reviews and half inflation-inked. And while most are five-yearly, 12% of our rents are delivered annually. The light-shaded section in the graph shows how minimum contracted uplifts will grow our inflation-linked, hybrid and fixed rent reviews at 1.4% per annum over the next 2 years. The darker-shaded area highlights the additional growth potential from open market and inflation-linked rent reviews at levels higher than the contracted minimums. And this reflects a potential for over 3% per annum over the next 2 years. Then on Slide 21, let me show you how we've put that into practice, starting with what we've done in 2020. Events such as rent reviews and lease expiries provide opportunity for customer engagement and insight gathering. From this, we can help customers optimize their business plans and deliver value for our stakeholders. For example, last year, we removed a lease break option at Marks & Spencer Stoke, which extended the term by 5 years and forward-agreed the rent review. Also as great, Dunelm held over on 2 lease expiries. Both were extended to 10 years on improved rentals. There were 12 rent reviews during the year relating to approximately 21% of our income on which we achieved like-for-like growth of 2% per annum. Combined with the new rents agreed on the buildings I just mentioned, we grew our income by GBP 2 million. And thinking back to the potential for rental income growth on the last slide, you can see here on the right-hand graph, what's behind that. In 2021 alone, 37% of our rent is being reviewed with a further 27% due in 2022. So there's significant potential to capture an attractive level of rental growth over the next couple of years. So you can see how we have and will continue to drive value through active management across the portfolio. And as I mentioned, it's an evaluation and insight-driven process, which underpins our decisions, as shown here on Slide 22, where we look at our disposals. We undertake regular and rigorous analysis of past and future performance and identifying assets which we believe have maximized returns under our ownership and where there is potential to recycle capital into higher-returning opportunities. In 2020, we sold 4 assets above book value for a combined GBP 134 million, in line with guidance, having achieved an attractive average IRR of just under 13% per annum over the blended hold period. Whilst development will be the primary target for sales proceeds, we continually look for attractive investment opportunities. And reminding you that over 80% -- in fact, 88% of our purchases have been off-market. And Slide 23 shows one such example. In 2020, at South Hampton, we acquired an asset off-market, GBP 44.2 million, reflecting an attractive net initial yield of 5.3%, funded in part by share issuance at a premium to NAV. This is a rare temperature control facility that was just a few months from lease expiry. Our insight confirms that Tesco wanted to stay in the building, and negotiations are ongoing and looking favorable. So that's the second key element of our strategy, actively managing our assets, which leads me on to the third key strategic element here on Slide 24, delivering value from our development land bank. The first thing to say here is that we own and control the U.K.'s largest logistics-focused land platform. I'll update on progress across the portfolio in a moment. But in overall terms, the next few slides, I'll cover the key metrics that explain why we're so excited about the value opportunity. The map shows the strategic nature of the locations, well-diversified across 24 sites and capable of delivering up to 40 million square feet of logistics space. This will more than double the size of our company over the course of the next 10 years if we sold no investments. So this really is a catalyst for growth as well as maintaining portfolio modernity. We will, however, look to sell investments and rotate that capital into high-yielding developments with an attractive yield on cost of up to 6% to 8%. And this will be a key component to funding our development program. Prime yields are now below 4%, so we are looking to capture an arbitrage of over 450 basis points. And through this process, we hope to deliver attractive dividend growth. And just as a reminder, land and developments comprise approximately 8% of our GAV. But because we control much of the land via option agreement, the profit and earnings growth potential is much greater. As Frankie showed you, it has the potential to more than double our rental income. So let's return to Slide 25, which highlights development progress and its increasing contribution to our performance. We secured just under 3 million square feet of development lettings in 2020, and we've grown our rent by nearly GBP 17 million per annum. This included 4 speculatively developed assets, delivering an attractive yield on cost of nearly 7%. We secured planning consent on land capable of delivering 5.4 million square feet of logistics space in the year, further derisking our land bank and acting as a precursor to securing lettings. In total, development assets contributed 49% of our overall capital value growth in the year and delivered GBP 203 million in profit. Focusing in on Littlebrook, it's a great example of what we can do, and here is a short video for you to provide a feel for the site and the progress that we've made. [Presentation]

Littlebrook is a great example of our strategy and action, how we've deployed capital with discipline and been able to use our insights, experience and customer relationships to drive value. Amazon's building is on Phase 2. And just to say that development progress has moved on from this video with Amazon having already installed significant mechanical automation. Turning to Phase 1, where we already have a planning consent, we recently agreed to our development partner, commencing construction of a 450,000-square-foot building, which is targeting completion this autumn. And finally, land works are nearing completion of Phase 3, subsequent to which we'll be looking to submit a planning application in the coming months for a range of building sizes. So that's great progress at Littlebrook, and there's more to come. We've made significant progress with the Symmetry land platform as well, as set out on Slide 28. We're seeing the benefits of embedding an experienced team with a proven track record within our operations, and we're really proud to have announced our commitment to net-zero carbon in the construction of our developments. Since we acquired Symmetry in 2019, we have added 4 sites, increasing our potential development space by over 11 million square feet, more than trebled the amount of planning consented land, further derisking the land bank; let 5 speculatively developed buildings totaling 567,000 square feet at a very attractive rental levels; secured a further pre-let and contributed an additional GBP 5.3 million in rental income. Also, we delivered GBP 111 million in capital profit, reflecting an IRR of over 15% per annum. Our approach to development is focused on reducing risk while maximizing returns. Options over land provide flexibility, are capital-efficient and significantly derisk the development process. We typically only draw down on the option once we've achieved the planning consent, which is a value-enhancement milestone. Planning is, therefore, a powerful development tool in reducing risk, and this is the first major stage in advancing capital full value from the development platform. And whilst we've made excellent progress, it's still early days, and there's a huge amount of potential in making the prospects for our business very exciting. That brings us up-to-date for Symmetry. So let's consider the development outlook overall on Slide 29. Firstly, we've witnessed a significant increase in occupational inquiries over the last 6 months or so, increasing to a current level of inquiries exceeding 16 million square feet. It also echoes the favorable backdrop I mentioned earlier, where current demand exceeds supply by several years based on recent delivery rates. We're guiding 2 million to 3 million square feet of development per annum, which Frankie mentioned, and this equates to capital expenditure of broadly GBP 200 million to GBP 250 million per annum, with Symmetry expected to increasingly contribute compared to the strong levels achieved by Littlebrook in 2020. We successfully let all 5 of our speculatively developed buildings at or above the target rental levels, in fact, 15% above overall, including 1 building to Ocado and 2 leased to new customer, Apple. Our speculative development program continues. And as a guide, we expect the run rate level in 2021 to reach around 3% of GAV, similar to the level in 2020. We now have an increasing number of planning-consented sites capable of securing pre-lets and delivering speculative developments, noting that our investment policy restricts land and development exposure to a maximum of 15% of GAV, currently 8%. And within that limit, speculative development is restricted to a maximum of 5% of GAV, currently 0%. All of this underpins the confidence in the numbers that Frankie covered, more particularly the opportunity for our development platform to more than double the income of our business over the course of the next 10 years. So that gives an update on how we're delivering value from our development land bank, the third key element of our strategy. And taking our strategy overall, you can see that the combination of our unique position and positive market presents a significant and attractive opportunity for us to grow and capture value. My penultimate slide, 30, picks up on this opportunity for growth and how we will fund it. The first thing to stress is that to maximize returns with lower risk, we must undertake development activity in a patient and controlled way to achieve a manageable and sustainable level of growth. This extends to a carefully considered and disciplined approach to the use of capital. And I'm pleased to say that we're well positioned with a range of funding sources at our disposal. It is cornerstoned by our strong balance sheet, where, as Frankie mentioned, we have available fire power, and we'll continue to manage our LTV carefully. We complement this with capital recycling from selective investment disposals as evidenced in 2020, and we will consider raising equity as part of a balanced approach to funding our strategy where it is accretive and clearly in the interest of and supported by our shareholders. Finally, we will also consider the potential for joint venture partnerships in order to provide an alternative source of capital and offer a route to share risk. The important point here is that while we see a huge amount of opportunity, we're really disciplined in the investment decisions we take and the way that we deploy capital, with a clear focus on supporting accretive value growth for our shareholders. So turning to our final slide, 31, and a brief summary of the key points from today's results and updates. Despite the challenges of COVID-19 and the uncertainty that it's created, we've delivered a really strong set of results in 2020 and a seventh consecutive year of growth. We have a well-positioned balance sheet and the financial discipline to support our clear strategy, which is designed to deliver attractive and sustainable performance. This is backed by a strong and exciting market, both occupational and investment, supported by structural change and which we believe will remain attractive for the long term. Our market has material barriers to entry. And our unique position and expertise means that we're well-placed to take advantage through our high-quality investment portfolio and the U.K.'s largest development land bank. As a consequence, we're confident in delivering long-term income and value growth for our stakeholders. Thank you for listening. I'll now hand over to Ian, who will open up for questions for your session.

Great. Thanks very much, Colin. [Operator Instructions] We've already had a couple of questions in on the web chat. So I'll take the first one here from Robbie Duncan at Numis. He's got 2 questions. The first one is where in the 6% to 8% target yield on cost range do you expect the next phase of developments to land? And the second question is, historically, Big Box had a 9% per annum total accounting return target, split 6% income, 3% capital. Has the target and/or the composition shifted as developments become an increasingly important part of the business?

Thank you, Robbie. It's really helpful. I wouldn't quite -- I didn't quite understand the second component part of Robbie's question about the 6% to 8% where you -- I think you talked about costs.

Sorry, yes, target yield on cost.

And you said, where is that coming from?

Where do we expect -- what do we expect, I suppose, on the next phase of development?

Yes. Look, we regularly -- I mean I can -- Frankie might be able to pitch in on this as well. But we regularly undertake assessments of all of our development appraisals throughout the Symmetry land bank on a regular basis. And we're making sure all the time that the juxtaposition between value and cost is carefully considered. We've not seen significant cost inflation coming in yet. And of course -- and the value of the land has been increasing, and the underlying value of the investments we've been looking to create has been increasing as well. So we believe that we're more than keeping pace in terms of that value gap, as it were. And as a consequence, we still believe that we're capable of delivering 6% to 8% returns on our development portfolio. More particularly, in Symmetry, it's usually sort of 7%-plus. We're guiding 6%-plus in our Littlebrook land bank, which of course is in London where land cost is higher. So that gives -- I hope it gives you a good feel for the range of that. Turning to the second part of your question, in terms of the 9% total return. Yes, that was a historic guide. And I think it's important to recognize that the business has undertaken a form of evolution as we've matured in acquiring land from 2017, when we acquired the development land bank at Littlebrook; and then subsequently 2019, when we acquired Symmetry. And this is partly in recognition of the potential for slowing yield compression over time. Ultimately, it will come to a halt, and we think that values will hold up well. But it's important to recognize the value contribution that our development platform can then deliver. And we'd like to think about it more in the realms of delivering the long-term sustainable returns in the upper-single digits and the lower-double digits.

Great. Next question comes from Mike Prew, who asks, Big Box has a perfect rent collection record. So can you explain why the dividend payout ratio has been redefined? And in light of this, how should we think of future returns being bounced between NAV growth and dividend income growth, please?

Okay. Well, that's probably one that Frankie might like to start with.

Mike, ultimately, it's about maximizing shareholder returns. I think firstly, our dividend remains very attractive, and we expect this to grow on a sustainable basis over the long term. But we do have an opportunity with our development pipeline to drive both capital value growth and income growth through that development pipeline, and that requires investments. And therefore, that's why we're guiding to a payout ratio moving forwards of at least 90% of adjusted earnings. In terms of the balance sheet, the total return, we continue to be underpinned by our strong income yield but with a growing capital component that will come through from the development pipeline. And I think Colin sort of touched on that in the earlier question.

Great. Okay. I'll take one more question from the web chat, and then I'll just open -- go the phones. Next question comes from Miranda Cockburn. The ERV growth of 1.3% over the year feels a bit low. Any thoughts as to what that might be and how it compares with what you are seeing?

Thank you, Miranda. Look, I think the first thing to say is that valuation is a backward-looking principle. It's an art. It looks at some historic data and the evidence of a parable evidence in the market. So valuers are always sort of catching up with what's going on in the market. Remember, the markets change very significantly, very quickly. So we're expecting that ERV growth to accelerate. That's certainly been reflected in our lettings. I mean if you look at the 4 lettings that we achieved in the Symmetry platform in 2020, we had 2 that were on target with our rental tone that we were expecting, and we had in their development appraisals, and 3 that was substantially ahead. And the 3 that were substantially ahead were really a long way ahead. So overall, it's actually a 15.4% increase over the target rental tone. Now we're not going to achieve that on every single building, clearly, but it does demonstrate what you can achieve when you've got a lease expiry opportunity. And I think if we're seeing those sorts of numbers coming through in the market, we should expect to see our ERV growth, and therefore, our rental growth accelerate. But of course, we don't want to boom-and-bust situation here. What we're looking for in our market, and we believe that we can deliver in the Big Box arena, is attractive rental growth levels, which are outstripping inflation by a good degree and which are sustainable over the longer term. And given the low-risk offer and the quality of our offer, we believe that, that's a really good juxtaposition to be looking to enjoy in the longer-term period.

Great. I think I'll just turn to the phones. So we got a question from Paul May at Barclays.

Can you hear me okay?

Paul, yes, we can.

It's a great presentation, firing on all cylinders. Just a few specific questions from me. I have to do one at a time. We can just run through quite quickly. The -- is it right that from H2 or sort of Q3-ish sort of time, all of the pre-let rental income will start to impact the P&L or start to benefit the P&L? Is that kind of the right sort of timing?

Back-end of summer, Paul, for the final one to complete. That's the underground.

And is the total uplift going to be the GBP 17.8 million of rent? Or is it the GBP 19.1 million that's in the EPRA net initial yield table? Sort of there seems to be a couple of figures for rent income.

It will be the GBP 17.1 million. There is a bit of timing difference between the 2, it would be the GBP 17.1 million.

And what's the -- sorry, last one on now. What's the net uplift when adjusting for license fees currently being received?

So broadly, you need to deduct from that around GBP 6 million, which will be the Littlebrook contribution in 2020. So you're down at GBP 11.5 million as net contribution to adjusted earnings.

Brilliant. And then also linked to rents, what's the -- as of the end of December, what would be the gross rental income on the portfolio in terms of the start point moving forward? There's various figures in the presentation and in the reports. Just trying to get a start point as a guide.

So passing rent for end of December, I believe, is around GBP 166 million.

GBP 166 million. Okay. Brilliant. Moving on to sort of the future, obviously a huge opportunity coming through from the development pipeline. You mentioned sort of CapEx expectations moving forwards. What would you say is the timing of achieving the GBP 238 million? And it's probably slightly -- going to be slightly more than that GBP 238 million once we get there in terms of the rent opportunity. Are we still talking a sort of 6 to 8 years from here? Or has things got longer or shorter in terms of given that -- the demand in the market, as you mentioned?

Well, we've added 4 sites, Paul, since we acquired Symmetry. So the type -- bearing in mind, those sites are typically, if you like, bolted to the back end of the time line. So we're currently still talking now about a 10-year time horizon. But the majority of that is focused within the course of the next 8 years. And the joy of the Symmetry platform, of course, is that prior to our purchase of it, it had already enjoyed 10 years of progression, if you like. And with each of those sites in varying degrees of a state of readiness. So we bought some land with planning. Some that was just about to get planning. Some was a couple of years away and we've subsequently got planning. And I think we were were ahead of our planning delivery targets. So if you like, it's like a pipeline. And each year, 1 -- a site will -- more than 1 site will come out with planning consents. And of course, that brings us closer to the point where we can invest in infrastructure and closer to the point where we can capture those pre-let opportunities. Reminding you that we've still got a number of sites where we've achieved planning consent and yet where we've yet to draw down the land because we're in control of the timing of that process. And what we're doing in the background there is looking at and dealing with infrastructure and also looking to bring onboard and increase the level of occupational interest with the idea that we can tie at least 1 pre-let up by the point that we then acquire the land or even part of the land because we often don't even need to acquire all of the land in one go. We can draw it down in parcels.

And then finally, just -- and I think you touched on this in the presentation or towards the end of presentation, that the funding of that opportunity, obviously quite a large investment required to achieve that. I think you've done a great job in transitioning the strategy towards the disposals that you've made and focusing on that capital recycling. It'd be great if that continues moving forward. But obviously minded by the fact you're now trading at premium-to-asset value, and that's been a time when equity has being called upon. And also with regard to the new ManCo ownership structure and in terms of their focus, I presume their focus will be again to increase fees, being achieved from the operations platform. So just wondered how those discussions are going and what the thinking is and the sort of strategy moving forwards.

Should we do a double out there, Frankie? We'll take that in reverse order. Look, I think the first thing to say is that the transaction with Aberdeen Standard has absolutely no bearing on the strategy for Tritax Big Box. We're here to do a job. It's something we discuss in great depth with our Board. We've got a clear strategy set out with the Board. Yes, we are -- we've traded at premiums for a good while now. We haven't raised any equity for the last couple of years. We think we've got a really good balance of levers at our disposal. I think, yes, we have successfully divested of some investments in the course of 2020, and we'll look to do so again. I think you'll see those back-ended this year because we need to be careful about the timing of that against the deployment of pre-lets coming in. And we typically get a bit of line of sight into those pre-lets coming forward. What we don't want to do is sell assets ahead of time because, of course, that will act as a drag to our income, and we're just sitting on cash, which we're then not deploying. So you'll see us be quite careful about the timing of our disposals into the face of new opportunities coming through. And Frankie, do you want to mention anything more on that?

I mean just to put some color on near-term capacity, I suppose, you're looking at the balance sheet at 30%, medium-term guidance of between 30% and 35%. In terms of the LTV efficient, round numbers somewhere between GBP 300 million and GBP 350 million worth of existing balance sheet capacity. And that's prior to overlaying any disposals that occur in 2021. So there is plenty in the tank in terms of existing capacity to finance near term.

Apologies, Paul. I inadvertently muted there. But thanks very much. But we'll move on to Andrew Gill from Jefferies.

I've just got 2 questions. On the development management fee, given the strong demand in the sector, what are the key factors in deciding on which sites you're happy to develop for other investors? And you've got increasing experience on smaller and speculative assets. Are there opportunities within the portfolio outside of the land bank to add speculative developments on sites with low coverage?

Thanks, Andrew. Look, I think the first thing is we look to acquire the best sites for ourselves and for our shareholders. The development management agreement arrangements we have in place pre-existed our acquisition of Symmetry. So whilst we can offer that service, it will be very selective, and we're looking to -- and obviously, there would be income that would be beneficial to our shareholders from that. But we're not going to do that at the expense of either distracting the team from the core job at hand, and that's essentially focusing on delivering value through our development platform in the assets that we will own. Turning to your second question. Look, I think our platform, the way we see it very prudently is that about 2/3 of the land is very well-suited to larger-scale logistics assets. Reminding you that it's becoming more and more difficult to find sites that are big enough in the right locations that don't require tens, if not hundreds and hundreds of millions of pounds in infrastructure to bring forward and deliver on planning. So they are really precious. And -- but we think about 2/3 of that land is capable of delivering for larger-scale buildings. And 1/3 is probably better-suited to smaller-scale, if you like, last-mile delivery. Sometimes it's a consequence of the topography of the land, sometimes as a consequence of the configuration of the site, i.e., certain parts of the site can't fit a larger-scale building. So it naturally lends itself that way. But we do believe that there's value right away across the logistics spectrum from -- right away from smaller-scale buildings, right up to the larger-scale megalogistics buildings. But we also expect to remain weighted towards the larger-scale buildings in the longer-term because we see that there's a huge amount of benefit from those. I mean if you look at the increase in demand in the market, larger-scale logistics, those with over 500,000 square feet, have been increasing their share of total takeup year after year. And there's a reason for that. It's because occupiers recognize the importance of these buildings, the economies of scale, say -- benefits the cost savings they can provide and how they integrate so seamlessly and are needed with automation to drive the speed and reliability that consumers have come to expect from e-commerce deliveries.

The next question comes from [ Matthew Spiro at Peel Hunt ].

Two questions from me and apologies if these have already been covered. CapEx last year was just shy of GBP 300 million. I think you talked about GBP 250 million targeted for this year. What do you think that the likely run rate is going forward beyond this year? Do you think you can keep up that sort of pace of CapEx given the land bank that you've got to play with? And then following on from that, thinking about the land bank and as you progress through building out the schemes that you've got under control currently through Symmetry, are you looking at and are you indeed replenishing that land bank? So are you active in the market at the moment?

Sure. Thanks, Matt. We touched on this a little bit. But I will sort of reemphasize and perhaps cover it in a bit more detail. Yes, the first thing is that in terms of run rate, we expect that to be picking up really in 2022 onwards. We will -- we do expect to get to somewhere close to GBP 250 million in 2021. A lot will depend upon the timing of pre-lets, depending on whether they fall this side of the year-end or the other side of the year-end, but there are some really good opportunities there for us. So I think you can see that growing in time rather than staying at exactly the same level in terms of that banding, the band is sort of up to GBP 300 million. In terms of replenishment -- and I think -- sorry, just to think back on that, just to remind you that this development -- there's demand right now -- occupation is 4x the level of the run rate of supply over the last few years. So there's absolutely enough demand in the market that will drive that level in the fullness of time. So I don't think we've got any concerns about the ability for the market to underpin that level of spend. In terms of replenishing sites, I did mention a little earlier, we've added 4 sites to the portfolio since we acquired Symmetry. We will continue to look for new sites, but we're being really selective about what sites we're buying, that we're really looking for value. And we're looking for sites that we're not going to be waiting 10 years to be able to put a spade in the ground and start a vertical build on. So it's really opportunistically led. And yes, we will be looking to add more because that way, we're creating value for this platform for the longer term.

Great. Brilliant. There are 2 further questions from the web chat, so the first one comes from Julian Livingston-Booth at RBC. He's asking, can you provide further color on the timing of the rent reviews in 2021?

One for me, Colin. I'll have a go. Julian, I believe they're relatively well-balanced in terms of timing throughout 2021. So it's nothing significant to factor in timing-wise. Broadly speaking, 50% of the reviews coming through are index-linked. Around 1/4 of them are linked to open-market value and the balance being fixed. So that's the makeup. Indexation was slightly dragging our performance in 2020 in terms of the like-for-like rental growth. Obviously, with the expectation that inflation starts picking up as the economy reopens, hopefully, we'll be benefiting from some of that.

Great. And then the final question from Poonam Lodhia at Numis. So 2 questions here. Would it be possible to provide further color on the extent of this occupier interest across 16 million square feet in terms of the nature of the tenants, whether this is primarily driven by existing tenants or new tenants? So a question about the kind of composition of demand that we're seeing. The second question is, is there opportunity to take advantage of investment appetite in the market and overshoot disposals beyond the current new the GBP 125 million to GBP 175 million target level?

Yes. Thank you very much for your question. In answer to the first one -- excuse me, I've got a frog in my throat. Would you mind taking that, Frankie?

So the first one, in terms of 16 million square feet. So yes, we do regularly look at this. Broadly speaking, and this is broad-brush in terms of the occupier interest between sort of current tenants and new tenants, it's 60-40 in favor of existing tenants, broadly speaking...

I guess just for instance, this year, we leased 1 new building to Ocado, an existing tenant, and we attracted in another new tenant in the name of Apple for a TV studio operations you might have seen in the press. So I think it will be a good blend. I mean there are clearly new names coming into the market, particularly in the e-commerce field. So I think you should expect to see that grow over time. In terms of appetite and rate of disposals, look, it's really a case of us flexing the disposals against the backdrop of the strength of the investment market to maximize returns. And also, as I said earlier, to feed that capital into our development program. And to maximize efficiency of capital, we want to make sure that we're not selling too far ahead of time. So to some degree, it's going to be about the speed and the quality of the pre-lets coming through in our development platform that will dictate the rate of sales of our existing investment assets.

Great. That concludes the questions that we had at the moment, Colin. So I'll hand it back to you.

Thanks very much, Ian. Well, look, to everyone that's taken the chance to join and ask questions today and also to all of those that have supported the business over the course of the last 12 months, thank you very much. I hope that next time we get together, it will be in person. It remains for me to say, look, have a great remaining part of your day, and we look forward to catching up with you some time soon. Thank you very much for your time. Bye-bye.