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

Good morning, everybody, and welcome to our first half results presentation. My name is Ian Brown, I'm part of the Investor Relations team here at Tritax. I'm very pleased to be joined here today by the Chairman of Tritax Big Box, Aubrey Adams; Colin Godfrey, our CEO; and Frankie Whitehead, our Finance Director. Before I hand over to Aubrey for some opening remarks, I will quickly run you through some housekeeping points. 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] Finally, in November, we will be hosting a seminar for investors, which will provide further details on our development program. And more details of that seminar will be published on our website in the coming weeks. This session is being recorded, and a replay will be available on the Tritax Big Box website. And with that, I will hand over to Aubrey.

Ian, thank you, and a very big welcome from me to everyone. Good morning to you all. Welcome, not just from me, but also from the Board of Big Box. As my first set of results as Chairman, I'm particularly pleased that we've produced a fantastic set of figures. In fact, I think that's probably a record. And I obviously can't take any credit for that, but credit is due to Colin and his team. But could I just acknowledge also the role of Richard Jewson, who was the Chairman from whom I took over. Richard was Chairman when Big Box first was launched, and he had the vision and foresight to see the potential for Big Boxes. And that has flown through into the strategy, a very clear strategy to invest in the very best assets and the class. And I think history has shown that, that has always produced the most consistent results over time. These results not only produce a fantastic return, an excellent return to shareholders, but also form the base for future expansion of the business. And it puts us in a particularly good position to take advantage of what is clearly a very strong market. So you will hear more about this from Colin. So at that point, can I hand over to Colin.

Thank you, Aubrey, and good morning, everyone. It's a real pleasure to be presenting the interim results to you this morning for the Tritax Big Box and to provide you with an update on the further great progress that we've made so far this year. As usual, I'll start with a brief introduction and then come back later to provide a strategic update, after which Frankie will run through the financial results and outlook. Ian will then coordinate the Q&A. You'll hear from Frankie in a moment that, once again, we've delivered a really strong set of results for the half year. It's the strongest first half performance we've delivered to date, and we remain really positive about the outlook for our business. This performance is a direct consequence of our strategy and it's based upon our decisions to focus on a high-quality portfolio of investment assets in the logistics space and to control land and create investments in-house through development, and we will be reaping the benefits of these decisions for many years to come. And the confidence that we've got in our future performance is also supported by our track record. You can see here on the graph that we have grown both contracted rent and NAV over the last 5 years. And this is underpinned in improving earnings per share position, which in turn supports our attractive dividend. It's fair to say that over the last 7.5 years, we've never been more excited about the future than we are today. Why? Because we're incredibly well positioned to take advantage of the market opportunity, having laid strong foundations to success, which has already shown through in our performance. And this is based on the very favorable ongoing fundamentals of our market, which I'll touch on later, combined with the benefits of a higher performing, resilient and strategically positioned portfolio, sector-leading in-house expertise and, of course, the U.K.'s largest logistics land portfolio. And these combined allow us to drive performance by executing a clear strategy, which is underpinned by our focus on enhancing ESG and maintaining financial discipline. And as you've heard me say before, all of this means that we're really well positioned to capture the great opportunity ahead of us to deliver growing returns over the short, medium and longer terms. We'll return to the theme of delivering our strategy in a few minutes. But first, I'll hand over to Frankie to run through the financial results. Frankie?

Thank you, Colin, and good morning, everyone. I'm pleased to be presenting a continuation of the strong performance recorded in 2020 as we report on our 2021 interim results. Our market conditions have become even more favorable over the past 6 months. As Colin has said, this has led to us recording our strongest Half 1 performance since IPO. It's a period where growth in net rental income has helped to deliver a 23.6% increase in our adjusted earnings per share up to 4.03p, and we have increased the dividend for the first half. Further, attractive levels of capital growth across our portfolio has seen the NAV increased by 10.6% to 194.2p, and as a result, we have delivered a double-digit total accounting return across the first half of the year. This next slide highlights the growth in our income stream, which is a driving factor behind growth in the overall earnings. The group net rental income increased by 10.9%, largely driven by recent development completions. We've added a total of GBP 8.5 million to our contracted annual rent run, which increases to GBP 189 million as at the period end. Our operating costs have remained stable on a relative basis, represented by a net cost ratio, which remains unchanged at 14.1%. The adjusted earnings per share has increased to 4.03p, which includes GBP 8.9 million of development management fees received in the period. And now with our policy, the dividends for the first half totaled 50% of last year's full year dividend. This equates to 3.2p per share, which is a 2.4% increase. Based on adjusted earnings, the dividend payout ratio equates to 79%. And excluding any additional development management fees received in the period, this ratio increases to 87%. Moving on to Slide 10, which shows that our income performance has been matched with continued strong levels of capital growth. The strength of our market, along with our development and asset management activity, have been drivers to performance, and Colin will outline aspects of this later in the presentation. The total portfolio value has increased to GBP 4.9 billion driven by valuation surplus generated of over GBP 300 million, which equates to capital growth of 7.3% across the first half. This has helped deliver growth of 10.6% in NAV, and we reported closing EPRA NTA of 194.2p. Our rent collection continues to be strong. We have now collected 100% of all rent due for 2020 and 99.5% of rent due for the first half of 2021. The LTV has remained steady at 30%. And this performance culminated in a strong total accounting return of 12.5% reported across the 6-month period. This next slide sets out the detail behind our attractive level of earnings growth driven by an GBP 8.6 million increase in net rental income. Starting on the left-hand side, which is the half 1 2020 earnings position. As you can see, a significant part of the income growth is generated by recent development completions. Elsewhere, our investment activity and last year's disposal activity broadly offset one another. And as presented in the third to last column, this generates an adjusted EPS before growth in other operating income of 3.69p, which is an increase of 13.2% over the period. The 87% dividend payout ratio referred to on a previous slide is calculated against this 3.69p adjusted earnings figure, excluding the additional development management fees. And it's this payout ratio, which we will pay regard to when determining our future dividend level. The increase in development management fees by GBP 5.9 million or 0.34p sees a 23.6% increase in adjusted EPS, up to 4.03p. To put some additional color on the DMA income itself, this next slide sets this out. Firstly, this income is real cash profit and it is an additional benefit following the Tritax Symmetry acquisition. In the majority of cases, a fee or profit share is received in exchange for us providing development management services to third parties. It's therefore, reflective of the experience and expertise within our development team, and there is no TBBR capital required as part of this. It is more variable in nature, however, and therefore, more challenging when it comes to forward guidance. Whilst we're guiding to between GBP 3 million to GBP 5 million per annum over the medium term, there will be periods when we are outside of this range. We've seen the GBP 3 million to GBP 5 million as the recurring level and therefore, in terms of how we think about the relationship between this form of income and our dividend, we will only factor DMA income into our payout ratio at levels within this range, so as to remove any potential volatility. Since the Symmetry acquisition, GBP 22 million of additional income has been delivered under these contracts, so it provides an attractive return to our shareholders. Now returning back to our net asset value performance. This slide sets out the details behind our strong NAV growth. The continuing strength of the investment market has caused yield to tighten by approximately 14 basis points across our portfolio, which, alongside the rental growth captured, has led to the investment portfolio adding 14.4p to performance. Our development assets have added a further 3.6p. And we are expecting to add to the value delivered from the development component of the portfolio during the second half. When noting the impact of the operating profit and dividends paid, this takes us to the closing EPRA NTA of 194.2p. Now thinking more about the future and looking to the significant opportunity that rests within our ownership of the U.K.'s largest logistics-focused land bank. This rental income bridge sets out the potential we have to be today's top passing rent from GBP 175 million, as shown on the left-hand side, by approximately 2.5x, up to an estimated GBP 447 million. This shows a live picture and, therefore, there will be a few small presentation differences when compared to Slides 35 and 36, which are dated as at the balance sheet date. So moving from left to right, we currently have prelet developments under construction, which is set to add GBP 14 million to passing rent as well as the opportunity to capture a further GBP 12 million through the portfolio's rental reversion. In terms of providing further visibility on the current or soon-to-be-current developments, the orange section in the middle of the page shows GBP 8 million of potential rent, which is currently under offer, which we hope to conclude in the coming weeks. In addition, a further GBP 11 million of potential rent can be generated from our speculative program, which is either under construction or where we are aiming for construction commencement prior to the year-end. Taking all of this into account, this gets us to the orange bar totaling GBP 220 million. So within our current development pipeline, plus the reversion, we have the opportunity to grow passing rent by GBP 45 million or 26%. And in respect to that current development pipeline, the time lines to reach practical completion span approximately the next 18 months. Finally, the purple bars show the potential from our near and future development pipeline. More than GBP 200 million of additional rent is capable of being generated from this, which is well positioned, considering nearly GBP 50 million is allocated against schemes where we currently have planning consent. The development portfolio is building in terms of its momentum and the opportunity presented here gives us confidence about delivering growth over the long term. And there is upside on top of this in the form of future rental growth, which is not recognized within these numbers. Moving on to the final slide for me this morning, we are looking to capitalize on an extremely strong market backdrop and our land bank provides us with a competitive advantage to help us do this. In terms of capital expenditure, I reiterate previous guidance of targeting GBP 200 million to GBP 250 million of CapEx per annum into development. We expect to be right at the top of this range in 2021. We have balance sheet capacity to commit to near-term development opportunities, and we seek to recycle capital through investment disposals when it's right to do so and when we are able to redeploy those proceeds in a timely manner. From an earnings perspective, I'll provide some color on how we expect to grow our income through our current development pipeline, but whilst not forgetting the organic income growth we're able to capture with a large part of the portfolio being subject to review over the next few years. And finally, we will target a dividend payout ratio of at least 90% of adjusted earnings. And in line with our policy, any potential increase to this year's accounting dividend will be determined as part of the Q4 declaration. So that concludes the financial review where the execution of our strategy has led to another excellent set of financial results. And I shall now hand you back to Colin.

Well, thank you, Frankie. So Frankie has described our really strong performance in the first half of 2021 and our positive outlook. I'll also now spend a few minutes just looking at what's behind all of that and why our consistent strong performance is set to continue into the long term. Essentially, as you've heard me say before, it's all about the strength of our markets and how our strategy and our expertise are aligned to make the most of that to drive income growth. I'll start with some of the strong market drivers and then update you on continued value delivery, both through active asset management and from our development activities. So let's look at the key themes we're seeing from our occupiers and how that drives our business. Firstly, e-commerce continues to accelerate. It's predicted that the U.K. will need a further 60 million square feet of logistics space by 2025. But if take-up continues at recent rates, then the level is likely to be much higher than that. Secondly, with disruption expected to be a more regular feature of trading activity, businesses are planning to improve supply chain resilience and reliability, increasing their space requirements. And finally, there's a growing awareness and focus on enhancing ESG performance, not just in terms of environmental factors, but we also work -- sorry, but also the working environment and employee welfare, as demonstrated by our research survey with Savills, and I'll talk to this a little more a bit later, but Big Box is very well placed to make a very significant contribution in this area. And for us, all of this translates to growing a long-term need for high-quality logistics space capable of helping our customers respond to these dynamics. And these occupier drivers are part of the ongoing market backdrop, which support the strong trading that we continue to experience. Here on Slide 18, I'll walk you through some of the dynamics that are evident in our market right now. At the beginning of the year, unsatisfied demand was equivalent to around 4 years of take-up. But despite constrained supply, H1 2021 witnessed the strongest first half take-up performance to date. Supply has significantly lagged demand. And this has left the vacancy rate at its lowest level ever at only 2%. There are only 3 buildings available to let that are over 500,000 square feet, one of which, we understand, actually is being offered for an occupation, but only one of which is new and completes next spring. The supply and demand imbalance continues to drive rental growth, and agency forecasts have strengthened for the next few years. And improving rental growth is encouraging investment demand as commercial property allocations pivot away from traditional sectors into logistics. And this has produced the highest level of first half investment activity recorded ever, driving further yield compression, which is good news for our investment assets as well as our developed land. Importantly, the structural changes that we're seeing are still in their infancy in our view, and this gives us the confidence in the significant scale and duration of the opportunity, which is really a positive feature of our future. It's worth reminding you that we have designed our strategy to align with the long-term drivers that we're seeing in the market. Again, you're familiar by now with this, but I'll just highlight a few key points. In essence, there are 3 key components to our strategy. You can see at the top of the triangle that we've deliberately built a portfolio of high-quality assets, attracting great customers. I believe it's the best in Europe. We've also built the capabilities to add value to these assets through direct and active management. And we apply our skills, insights and innovation gained from being the U.K.'s largest investor in logistics to develop our land portfolio 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, with sustainability being embedded across the portfolio. And that leads me neatly on to the next slide, which gives an updated snapshot on our strong sustainability position and the progress that we continue to make. We've handpicked and built a modern and sustainable portfolio. 92% of our floor space has an EPC rating of A to C. Also, 49% of total floor space is certified to brand very good or excellent, well above the industry average. This is a critical factor because our portfolio means that we don't face significant future CapEx requirements to enhance the environmental performance and meet government targets. We generated 890 megawatts of solar PV power for our tenants in the first half of 2021, avoiding over 200 tonnes of carbon emissions. And we're leading by example, the aim of developing only net 0 carbon buildings. DPD at Bicester was completed very recently is our first example. Every year, we poll our occupiers and what's important to them. And we've seen a notable increase in ESG as a key factor in their decision-making with nearly 70% saying it was very important to them, and that's up from around 50% 4 years ago. And we're seeing this activity being reflected in our ESG ratings, which continue to improve, including the recent increase in our Sustainanalytics and FTSE good ratings. So ESG remains at the very heart of our thinking, and it's embedded into our actions. And to return to the first of the 3 key elements of our strategy, our high-quality assets, this slide updates on the strategic composition of the portfolio at the half year, which is very little changed from December. The investment portfolio represents around 90% of GAV and the development portfolio approximately 10%, and this balance has been a conscious decision. The investment portfolio consists of foundation assets at around 72% of GAV. These provide our low-risk income with modern buildings, strong locations and long-term high-quality customers. Added to which we have value-add assets at approximately 19% of GAV, which provides good capital and rental growth potential through active management, for example, lease regears or property improvements. It's worth saying that in 7.5 years, none of our buildings have suffered a vacancy at lease expiry, and we currently enjoy 0 vacancy. And this really speaks to our business in demand and the consequent reliability of the income that we've benefited from. Allied to the investment portfolio, of course, is the U.K.'s largest land portfolio for logistics, which took over 10 years to assemble and nurture. And from this, we can create investments in-house, controlling timing, quality of build, tenant caliber and attractiveness of returns. There's been no better time to control such a logistics-focused land portfolio given the strength of current market dynamics, but we believe that this will only improve into the future. And it's worth remembering that our land is held primarily through option ranges, which is capital efficient and flexible. And this means that the potential for our development portfolio is far greater than the current capital allocations suggest. And as Frankie said, this has the potential to more than double the size of the business as we can see here by the potential income growth breakdown on the right-hand pie graph. The key takeaway here is that the quality of our investment portfolio underpins returns, delivering long-term dependable and growing income, and this combines very neatly with our development land portfolio which provides the potential to further enhance returns in a controlled way. And the next 3 slides provide an update on how our active asset and investment management is driving value from within the portfolio. And that's the second element of the 3-part strategy. So here on Slide 22, this captures the way that we're embedding rental growth with active management into our business, complementing one another. And the key to this is the strength of our customer relationships and our understanding of their businesses. We're a customer-led business in our thinking. For us, this activity breaks down into 4 key components: rent reviews, which compound our income; building improvements, including extensions and sustainability initiatives; lease regearing and reletting; and, of course, selectively buying and selling investments. And you can see in the pie charts that we've created an attractive blend of upward-only review types, with a 1/3 of our portfolio is subject to open market rent reviews and half inflation linked. And whilst most rent reviews are 5 yearly, 12% of our rents are reviewed annually, which is attractive. The light-shaded section on the lower graph shows how contracted uplifts will grow our inflation-linked hybrid and fixed rent reviews at a minimum of 1.4% per annum over the next 2 years. And then the darker shaded area shows the additional growth potential from open market and inflation-linked rent reviews at levels higher than the contracted minimums. And this reflects the potential for over 3% per annum over the course of the next 2 years. On this next slide, you can see what we've done in the first half of 2021. 37% of our portfolio is subject to rent review this year at 21 properties, of which 12 have been reviewed during the first half, along with 2 from the previous year. We're making really good progress so far, having delivered GBP 3.8 million increase in contracted rent in the first half through a blend of inflation-linked and open market rent reviews. And this equates to 2.2% like-for-like growth annualized. Like-for-like ERV growth has also been attractive at 3.8% over the 12 months to 30th of June, with a portfolio now 6.5% reversionary. We expect further progress as we conclude the remaining reviews this year. And as you can see on the right here, it's a further 27% of the portfolio due for review in 2022. So there's really significant potential to capture an attractive level of rental growth over the course of the next couple of years. This is another great example of how we use our investment management skills to actively create value. We have a really strong track record of acquiring attractive assets off market using our experience relationships and reputation. And during the period, we acquired off-market, an 872,000 square foot logistics facility at Avonmouth near Bristol for GBP 90 million. The purchase reflected an attractive net initial yield of 5.1x for nearly 13 years unexpired term and rent reviews with CPIs as a minimum. Let to Accolade Wines, the #1 wine company by value of U.K. sales. The facility is the largest wine production, warehouse distribution and innovation center in Europe. And at the half year, the investment was valued at more than 50 basis points lower than the purchase yield. This opportunity was the result of the strength of our relationships in the market and also our ability to move swiftly. And we see a number of opportunities to deploy our asset management and ESG capabilities to further enhance the value of the building. So that's giving you an insight into our investment activity in the first half. And I'll spend the next few minutes updating the great progress that we're making in the third key element of our strategy, the development portfolio. This map provides a reminder of the scale and strategic positioning of our land portfolio. As I said, it's the largest logistics-focused land portfolio in the U.K. It incorporates 25 sites across all of the key logistics locations in the U.K. And as I mentioned earlier, it's capable of delivering 40 million square feet. That's more than double the size of our current investment portfolio. Earlier, Frankie gave you a feel for the magnitude of the opportunity in demonstrating the potential rental growth from our land portfolio. And this portfolio is therefore a key competitive advantage, allowing us to create assets in a capital-efficient way and capture unprecedented levels of demand at a 6% to 8% yield on cost, significantly above the current prevailing market prime yields of sub-4%. And I'm pleased to report that we're making very good progress, consistent with our guidance, as shown here on Slide 26. We're building momentum in our development portfolio, as you can see here on the right. We achieved practical completion of 700,000 square feet in the period, adding GBP 5.5 million parting rent. We have 2 significant transactions, totaling 1 million square feet in solicitors' hands. And we commenced 600,000 square feet of speculative construction in the first half. We also, though, expect to commence a further 900,000 square feet of speculative construction very shortly. So in total, we have line of sight on a potential GBP 19.1 million of additional rent that we expect to deliver within the next 18 months. And on top of that, we received a further 2.4 million square feet of planning consents during the period, maintaining our 100% track record of planning success. This increasing activity underpins our expectation for greater letting activity in the second half of this year and beyond, which is excellent news. Slide 27 breaks down the phasing and scale of our development pipeline. First, you can see our current development pipeline, where we're currently constructing buildings,and expect to generate rental income within around 12 months. This amounts to 3.5 million square feet and includes Amazon at Littlebrook, which, as you know, is Europe's largest and most prestigious logistics facility. It was a terrific achievement for us to have delivered practical completion on this building earlier this week. Next is the near-term development pipeline, where we've received or submitted an application for a planning consent. This is estimated to provide over 10 million square feet, and we expect to be able to begin construction on these sites over the course of the next 3 years. Further ahead is our future development pipeline, which has the potential to deliver an additional 28 million square feet on land held under auction. Land values are growing, particularly in key locations and for land with planning consent. And with a deep pool of option land, we control a long-term supplier, which will support our future growth. So the key takeaway here is the scale of the opportunity and the development potential within the business. With such a strong market, we're very confident in our ability to deploy our annual target of GBP 200 million to GBP 250 million, which equates to approximately 2 million to 3 million square feet of space per annum, as Frankie mentioned earlier. And we'll be delving into this area in greater detail at our Capital Markets Day in November, as mentioned by Ian. So turning to our final slide, and a brief summary of the key points from today's results and update. We've made a really strong start to 2021, and we're on track to deliver our eighth consecutive year of growth. We have a strong balance sheet, clear strategy and a financial discipline to deliver attractive and sustainable performance. Our market is in great shape, delivering both attractive rental growth and capital value growth. This is supported by structural change, a driver which we believe will underpin our sector for the longer term. There are material barriers to entry for U.K. logistics property, 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 portfolio. As a consequence, we are confident in delivering long-term income and value growth for our stakeholders. That concludes this morning's presentation. Thank you for listening. I'll now hand over to Ian. He will open up the session to your questions.

Thanks, Colin. [Operator Instructions] We've had a couple of questions come through as the presentation has been going on, so I'll just rattle through a couple of days that have come through first. The first one is, I see you've delivered 2.2% rental growth in the first half. How should we think about that moving forward?

Okay. Thanks, Ian. I think I'll take that one, Frankie. So look, I think it's important to remember that much of our rent reviews are 5 yearly and backward looking to sort of lower historic inflation and lower rents. Obviously, rental growth has been on the up. We've generally delivered a sort of 2% to 3% annual rental growth for the business. We think that is an appropriate level given the lower-risk, high-quality nature of our assets and income. Of course, as you just heard me say, ERV growth in the 12 months to the 30th of June was 3.8% in our portfolio, with rental growth accelerating in the market more generally, which speaks to a growing opportunity for us to capture. And of course, rent reviews is just one component of delivering total returns for our shareholders. There are other components to income growth across our business as well. And these building blocks really altogether produce attractive total returns. And obviously, we think about that in the context of including our development portfolio as well, which has a huge potential to grow our income, so -- as we showed on one of the slides, I think it was slide 21. So it's really about a more rounded composition and contribution to total return that rent reviews are part -- as part of our overall -- the way we think about income growth.

Great. Okay. And we've got a question from Paul May online. So I'm going to -- Paul, I'm going to open up your line and allow you to talk. So Paul, if you don't meet yourself, we should be able to hear you.

Can you hear me okay?

Yes, we can.

Just a few questions just around the development opportunity. I suppose first one, I think you highlighted GBP 246 million of potential new rent coming from the total development opportunity, just estimating that to be around GBP 3 billion to GBP 4 billion of CapEx, given the 6% to 8% yield on cost and obviously you're starting to buy the land through the auction. Just wondering thoughts on financing of that moving forward. Next one, just around the time frame. I appreciate you've had an acceleration of the development probably since you acquired DBS. And the total pipeline or total opportunity has increased. I just wondered around the time frame, I think I recall it was around 8 to 10 years when you acquired DBS, if I recall correctly. It seems to be sort of extending. Is that just simply a case of the pipeline has got bigger? Or is it just being cautious? And then just finally on the development side of things and development team. I think, again, I recall when you acquired DBS, the incentive for the management kind of tied them in for, I think, it was on like 6 to 8 years. Maybe I'm wrong on that, I can't remember exactly. Just wondered how the development situation looks, whether you've sort of got that expertise now brought in-house or whether there's an expectation to continue or extend the sort of the Tritax Symmetry situation?

Well, Thank you, Paul. If I may, I'll take those in reverse order and perhaps take the last 2, and then Frankie, you can answer the first one. As to development team, you're absolutely right. It was an 8-year contractual arrangement at the start of the relationship in February 2019. And that remains the case in terms of time frame. But of course, you did see us come back and announce to the market a change in the incentive program for the management team. I think this is really important in the context of a market, where individuals and teams with strong expertise in the logistics space were in high demand. And we were having quite a lot of knocks on the door with some of our key members of that team. They're all really happy. It's a highly focused team. I think that's being demonstrated in the progress we're making now. So there's no change to the time line expected there. And of course, the incentive plan that we have in place does incentivize that team, both to the 8-year anniversary but also beyond that, Paul. So there is the expectation that, that will continue, assuming all things continue in a positive manner. As to the time frame over which we're looking at the sites, you're absolutely right. It was an 8- to 10-year time frame on the site. It hasn't really changed much. We're still looking at it on the basis of a sort of a 10-year program. We have added some sites since we acquired Symmetry platform. But they've been sites that we believe that we can accelerate through the process, partly because local authorities come to us and encourage us to bring the planning application forward or because that site has already been allocated for employment uses in the local plan process. So they wouldn't necessarily -- because they're new sites to go onto the back end of the time horizon. So we're still looking to a 10-year projected time horizon. Of course, as time gets by, we do continue to add sites, they may well project the time horizon out a little bit further, but that's great news in the context of a longer-term backdrop of the market looking positive. As for the CapEx financing, I'll hand you over to Frankie.

Yes. Thanks, Colin. I think if we look at the CapEx target of GBP 200 million to GBP 250 million per annum into development, I think we're extremely confident of self financing that through a combination of balance sheet leverage and the recycling of capital. I think we demonstrated our ability to dispose well last year. We made nearly GBP 150 million worth of disposals ahead of book value. And I think you will see us doing more of that disposing of investment assets in the 4sand the 5% to recycling that capital into the 6s and 7s is a very good business for us. So you see us doing more of that. Clearly, we have further target our disposal over the longer term, and we've had some support from shareholders to date. We have no plans to raise equity at the moment. But I think a scenario was to present itself where effectively we were able to accelerate that development pipeline beyond those parameters, and we could demonstrate enhancing and accelerating returns to our shareholders. That may be a situation where we look to present that to our shareholders, but we are in that current position at the moment.

Just to -- sorry, possible just follow-up -- still audible able. Sorry, just checking if you can still hear me.

I haven't muted you yet, Paul, sorry.

So I'll just monopolize it. So just to follow up on that, just tying all of the things together because you got yourselves into an extremely advantageous position with the land plots you have and the opportunity you have and the potential development of scale. The market is very strong. I appreciate you say your expectation is that strong structural market continues for some time. It's just trying to see, is there an opportunity to increase that development CapEx on an annual basis given the strong market, given the land plots you have, given the potential we have within the business. Maybe you'll say actually, we can't because of planning. So that's fine. But it's just trying to tie up CapEx spend per annum, time line, development opportunity, revenue opportunity. And as you say, in terms of equity issuance, it's adding -- to issue equity, if that is expanding the pipeline and delivering teams on a faster time scale. Just wondering what the sort of thoughts are there and what the positioning is?

Frankie, would you like to take that?

Yes. So I think for the near term, Paul, for that 2 million to 3 million square feet per annum, that GBP 200 million to GBP 250 million of the CapEx is positioned based on the current and the next development pipeline, i.e., the maturity of the sites, where they are within the planning regime and the associated time within that. As I said, I think we're very confident of self-financing that. Over the near to medium term, is there an ability to increase that level? Yes. Will we have appetite for that? Yes, I think in the context of a larger portfolio overall. And clearly, within the context of our investment policy limits, up to 5% of spec as a proportion of GAV. And we look to do that, provided -- back to the shareholder, provided it's in the shareholders' interest and provided we are looking straight at an ability to accelerate and enhance overall returns. So it's starting off at that level, but yes, an ability to ramp that up over the medium term.

And Paul, just if I can add to that, we currently have over 9 million square feet of planning consented sites across the U.K. It's important to note that those sites typically have either already had CapEx in infrastructure to open them up or don't require a significant amount of infrastructure. One of the joys of our portfolio -- actually, I mean, apart from Hinkley, we don't really own very, very large highly strategically sensitive sites, which are either contentious, from a planning point of view, or going to require a very, very significant amount of money in terms of infrastructure costs. So this is a really important feature. And it's something that when Phil Redding joined us, he commented on specifically. He was really, really encouraged by this. He said, this is a real feature of your business that you're not presenting strongly enough for the market. So I think we're in great shape in terms of the balance between planning consent and the ability to react to the current market strength and get on site and vertically build these buildings in the near -- in the current and near term.

So just turning to the webcast. We've got a question from Tom Musson. He asks about construction cost inflation in the market, and are we experiencing any? And do you expect this feeds into rental inflation?

Well, thank you, Tom. Yes, we are seeing a combination of both the delays in obtaining materials and also cost price inflation. There's also a bit of cost inflation in labor in certain instances. I think it's a simple supply-demand imbalance situation, really, which is creating this. Largely Brexit-driven, a little bit COVID-driven. There are other factors, which have conspired against the market. I think there was a Tata steel factory, which has sort of closed for upgrading. There's a fire on another major facility, et cetera, et cetera. It's almost a perfect storm, including the [ suing ] situation, which came -- which is sort of comes as a confluence to create squeeze in the market. We believe that there's probably something like a 12- to 18-month squeeze. That typically is what most of the commentators in the market are suggesting. Overall, we're mitigating most of this impact and our current projects benefit from fixed-price contracts and suppliers. So we're protected there. We are also, remember, a large-scale developer. And we can, therefore, achieve pricing advantage and priority on the delivery of key materials. So I think the smaller operators are struggling a lot more to have the product delivered on time. So far, this is having very little impact on our current development pipeline. We're talking about 4-week time delays that we're seeing in a few of our buildings. And again, not all of them. And we believe that through a combination of buying well, managing costs against the acceleration of rental growth in the market, of course, which is offsetting some of these cost increases, we're really confident we can continue to delivered developments within our stated 6% to 8% target yield range, which, of course, is the most important metric. And we continue to keep that under review.