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BBOX Tritax Big Box Reit Plc

158.20
1.60 (1.02%)
Last Updated: 15:05:28
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Tritax Big Box Reit Plc LSE:BBOX London Ordinary Share GB00BG49KP99 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  1.60 1.02% 158.20 158.00 158.30 158.40 155.00 155.00 1,401,996 15:05:28
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Real Estate Agents & Mgrs 222.1M 70M 0.0368 42.88 3B

Tritax Big Box REIT plc FULL YEAR RESULTS (9127G)

07/03/2018 7:02am

UK Regulatory


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TIDMBBOX

RNS Number : 9127G

Tritax Big Box REIT plc

07 March 2018

THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014.

7 March 2018

Tritax Big Box REIT plc

(the "Group" or the "Company")

FULL YEAR RESULTS FOR THE PERIOD FROM 1 JANUARY TO 31 DECEMBER 2017

Tritax Big Box REIT plc (ticker: BBOX), the only real estate investment trust giving pure exposure to Big Box logistics assets in the UK, is today reporting its full year results for the Group for the period from 1 January 2017 to 31 December 2017.

2017 HIGHLIGHTS

Financial

 
                          31 December   31 December   Increase 
                                 2017          2016 
 
 Dividend per share             6.40p         6.20p      +3.2% 
 EPRA NAV                     142.24p       129.00p     +10.3% 
 Total Return                   15.2%          9.6%     +58.3% 
 Adjusted earnings 
  per share                     6.37p         6.51p      -2.2% 
 Portfolio value            GBP2.61bn     GBP1.89bn     +38.1% 
 Contracted annual 
  rent roll                GBP125.95m     GBP99.66m     +26.2% 
 Profit before tax         GBP247.80m     GBP91.90m    +169.6% 
 Weighted average             13.9yrs       15.3yrs     1.4yrs 
  unexpired lease term 
 

Financial highlights

-- Dividends declared in relation to 2017 totalled 6.40 pence per share, in line with our target.

-- EPRA net asset value per share increased by 10.3% to 142.24 pence at 31 December 2017 (31 December 2016: 129.00 pence).

-- Total return (being the increase in EPRA NAV plus dividends paid) for the year was 15.2%, compared to our target of in excess of 9% per annum over the medium term.

   --      Adjusted earnings per share totalled 6.37 pence per share. 
   --      Market capitalisation of GBP2.03 billion as at 31 December 2017. 

-- Portfolio independently valued at GBP2.61 billion as at 31 December 2017, across 46 assets plus 114 acres of strategic land.

-- The portfolio's contracted annual rent roll has increased to GBP125.95 million (31 December 2016: GBP99.66 million), which includes all forward funded commitments.

-- Further diversified our sources of borrowing, with our debut unsecured loan notes totalling GBP500 million. Weighted average unexpired debt term extended to 8.9 yrs (2016: 4.8 yrs). The Loan to Value (LTV) as at 31 December 2017 was 26.8%.

-- A reducing EPRA cost ratio of 13.1% (2016: 15.8%), reflecting the benefits of increased scale.

-- Raised GBP350 million of equity during 2017, through a substantially oversubscribed share issue.

Operational highlights

-- Acquired 11 Big Boxes during the year with an aggregate purchase price of GBP434.99 million, further diversifying the portfolio by geography and tenant.

-- As at the year-end our portfolio comprised 46 assets, covering more than 22.7 million sq ft of logistics space.

   --      114 acres of strategic land acquired at Littlebrook, Dartford for GBP62.5 million. 

-- Average net initial yield of the portfolio at acquisition is 5.7%(1) , against our year-end valuation of 4.6%.

   --      Our portfolio was fully let, or pre-let and income producing during the year. 

-- At the year end, the weighted average unexpired lease term ("WAULT") was 13.9 years(1) , against our target of at least 12 years.

Post Balance Sheet Activity

   --      Progressive dividend target of 6.70 pence per share announced for 2018. 
   --      A further three Big Box assets acquired totalling GBP139.81 million. 
   --      One pre-let forward funded asset conditionally exchanged totalling GBP81.8 million. 

(1) Includes all 46 assets held at 31 December 2017; excludes Littlebrook, Dartford strategic land.

Richard Jewson, Chairman of Tritax Big Box REIT plc, commented:

"We have a sector-leading portfolio of UK Big Box assets that are benefiting from structural change driven by increasing e-commerce penetration, and the operational and financial benefits which they can provide to our Customers. The fundamentals of our market remain positive and are largely unaffected by current geopolitical and economic uncertainties. Despite the uncertainties it brings, Brexit may provide a silver lining, since with increased border controls our Customers will require more warehousing domestically, further supporting our business case.

Through the Manager's excellent relationships, we see opportunities to acquire high-quality assets and forward-funded developments to further diversify our portfolio. The continued imbalance between occupational supply and demand means that we expect rental growth and values to remain robust in 2018. The assets we acquired towards the end of 2017 will add to our rental income in 2018. Coupled with our largely fixed cost base, this will contribute to earnings growth and support our progressive dividend target of 6.70 pence for 2018."

For further information, please contact:

 
  Tritax Group               via Newgate (below) 
    Colin Godfrey (Partner, 
    Fund Manager) 
 
   Newgate (PR Adviser)       Tel: 020 7680 6550 
    James Benjamin             Email: tritax@newgatecomms.com 
    Anna Geffert 
    Leena Patel 
 
   Jefferies International    Tel: 020 7029 8000 
    Limited 
    Gary Gould 
    Stuart Klein 
 
   Akur Limited               Tel: 020 7493 3631 
    Anthony Richardson 
    Tom Frost 
    Siobhan Sergeant 
 

The Company's LEI is: 213800L6X88MIYPVR714

NOTES:

Tritax Big Box REIT plc is the only listed vehicle dedicated to investing in very large logistics warehouse assets ("Big Boxes") in the UK and is committed to delivering attractive and sustainable returns for shareholders. Investing in and actively managing existing built investments, land suitable for Big Box development and pre-let forward funded developments, the Company focuses on well-located, modern "Big Box" logistics assets, typically greater than 500,000 sq. ft. (measured by floor area, c. 65% of the Company's existing logistics facilities including forward funded developments are in excess of 500,000 sq ft.), let to institutional-grade tenants on long-term leases (typically at least 12 years in length) with upward-only rent reviews and geographic and tenant diversification throughout the UK. The Company seeks to exploit the significant opportunity in this sub-sector of the UK logistics market owing to strong tenant demand and limited supply of Big Boxes.

The Company is a real estate investment trust to which Part 12 of the UK Corporation Tax Act 2010 applies ("REIT"), is listed on the premium segment of the Official List of the UK Financial Conduct Authority and is a constituent of the FTSE 250, FTSE EPRA/NAREIT and MSCI indices.

Further information on Tritax Big Box REIT is available at www.tritaxbigbox.co.uk

Meeting for investors and analysts and audio recording of results available

A meeting for investors and analysts will be held at 9.30am today at:

Newgate Communications

Sky Light City Tower

50 Basinghall Street

London, EC2V 5DE

In addition, later in the day an audio recording of this meeting and the presentation will also be available to download from the Company's website: www.tritaxbigbox.co.uk

The Annual Report and Accounts will today be available on the Company's website at www.tritaxbigbox.co.uk. In accordance with Listing Rule 9.6.1, copies of these documents will also be submitted today to the UK Listing Authority via the National Storage Mechanism and will be available for viewing shortly at www.morningstar.co.uk/uk/NSM.

Hard copies of the Annual Report and Accounts will be sent to shareholders, along with the notice for Annual General Meeting 2018, on or around 16 May 2018.

CHAIRMAN'S STATEMENT

The Group once again performed strongly in 2017, our shares delivering a Total Shareholder Return (TSR) of 12.3%. We continued to add high-quality assets to the portfolio and put in place the equity and debt financing to support our continued growth, in a market which remains compelling.

We acquired 11 investment assets during the year plus a strategic land site, at a combined price of GBP497.45 million (excluding purchase costs). These further diversified the portfolio by geography and building size, added new Customers and increased the number of income producing assets to 46 (plus 114 acres of strategic land at Dartford) as at the year end. These were independently valued at GBP2.61 billion, the like-for-like valuation uplift was 8.72%.

The Manager used its outstanding network and market intelligence to source 93% of these investments by value off market. The Manager also continued to exercise robust capital discipline to ensure that we bought assets at attractive prices. In addition to acquiring further Foundation assets (comprising 59% of purchases by value), we also took the opportunity to purchase higher yielding Value Add and Growth Covenant assets, with a view to using the Manager's asset management skills to enhance value.

During 2017, we completed four further forward funded pre-let developments, taking the total to nine and making us one of the most active development funders in the subsector. In 2016, Shareholders approved an amendment to the Investment Policy to allow us to buy strategic land. We were therefore pleased to complete contracts in September 2017 to purchase 114 acres of prime land at Dartford, in order to provide further high-quality investments over the next few years, at an attractive yield on cost. We will continue to control risk by only developing buildings on a pre-let basis.

Our asset management programme delivered a number of successes, including a 96,476 sq ft extension of the Rolls-Royce Motor Cars facilities at Bognor Regis, a lease extension for New Look in Newcastle-under-Lyme and a pleasing rent review uplift for our property leased to Marks & Spencer at Castle Donington.

Share issuance

Shareholders continued to support our growth plans through an oversubscribed GBP350 million equity raise in May 2017. The level of demand reflected the increased attractions, in uncertain times, of a prime portfolio which delivers low-risk and growing income from our excellent Customers.

As envisaged, we successfully invested the equity proceeds within six months. The requirement to exercise patience and only pursue the right deals meant many of the transactions completed towards the end of the six-month period, resulting in an element of cash drag on our earnings (see below). The share issue also broadened our share register, through selective targeting of new long-term investors in the UK and internationally. Our rising market capitalisation, which stood at approximately GBP2.0 billion as at 31 December 2017, has helped increase our liquidity, which averaged approximately GBP4.0 million per day during the year.

Debt financing

The evolution of our debt platform was an important feature of the year. In December 2017 we issued GBP500 million of senior unsecured loan notes, representing our first bond issue. At the same time, we agreed a GBP350 million unsecured revolving credit facility (RCF) and repaid the majority of our secured debt; in doing so we avoided any early repayment charges. The bond issue has opened up substantial pools of liquidity and was delivered with an investment grade credit rating of Baa1 (stable outlook). With the potential for rising interest rates we decided to refinance before the year end, which now seems well-timed.

Our ability to secure attractive debt reflects the Group's quality, increasing maturity and scale and supports our growth ambitions. The majority of our interest costs are now fixed, underpinning the security of our increasing revenues.

Operating from a largely unsecured debt platform gives us greater operational flexibility and speed of execution. We have also substantially increased our average debt maturity, which now stands at just under nine years, as well as broadening our range of lenders.

At the year end our LTV was 27%. We maintain our medium term target of 35% when fully invested and geared, against a ceiling of 40%.

Financial results

The Group's financial performance was strong in 2017. Operating profit before changes in the fair value of investment properties increased by 49.1% to GBP93.78 million. Our Adjusted earnings per share (EPS) were 6.37 pence (2016: 6.51 pence), which substantially covered our dividends declared in respect of the period of 6.40 pence. The EPRA net asset value per share was 142.24 pence, up 13.24 pence or 10.3% versus 31 December 2016. Total Shareholder Return was 12.3%.

Continued cost discipline and economies of scale have helped us reduce our EPRA cost ratio to 13.1%, (2016: 15.8%). This low and transparent cost base continues to compare favourably with our peers, offering good value to our Shareholders.

Dividends

The Company switched to quarterly dividend payments from the start of 2017, recognising the value to Shareholders of regular cash income.

During the year, we declared and paid three quarterly dividends of 1.60 pence per share each, in respect of 2017. On 7 March 2018, we declared a fourth quarterly dividend of 1.60 pence per share, for the three months to 31 December 2017. This will be paid on 29 March 2018, to Shareholders on the register at 16 March 2018. Total dividends declared in respect of the year therefore totalled 6.40 pence, in line with our target.

For 2018, we are targeting a progressive total dividend of 6.70 pence per share, an increase of 4.7% over 2017, supported by anticipated growth in our income (the Estimated Rental Value (ERV) of our portfolio is 7.4% higher than our passing rental income).

Board and governance

Stephen Smith resigned as a Non-Executive Director in June 2017 and the Board thanks him for his contribution. Following Stephen's departure, Susanne Given became Chair of the Management Engagement Committee and was also appointed to the Nomination Committee. In September 2017, we were pleased to announce the appointment of Aubrey Adams as a Non-Executive Director and member of the Audit Committee. Aubrey has almost 40 years' experience and knowledge at board level in the real estate industry.

The Manager

The Board believes that the Manager continues to deliver strong performance, whilst investing in talent and resource which will benefit the Group. Of particular note, the Manager appointed Sally Bruer as Head of Research and Charlie Withers as Director of Development.

The Manager is the Company's Authorised Investment Fund Manager, under the Alternative Investment Fund Managers Directive (AIFMD). To comply with the European Securities and Markets Authority's guidance on performing delegated investment management functions the Company has delegated authority to the Manager to, among other things, conduct portfolio management and risk management services on its behalf. As a result, the Manager will make final investment or divestment decisions, with the Board continuing to play an important role by offering advice on potential transactions and monitoring compliance with our Investment Policy.

Outlook

We have a sector-leading portfolio of UK Big Box assets that are benefiting from structural change driven by increasing e-commerce penetration, and the operational and financial benefits which they can provide to our Customers. The fundamentals of our market remain positive and are largely unaffected by current geopolitical and economic uncertainties. Despite the uncertainties it brings, Brexit may provide a silver lining, since with increased border controls our Customers will require more warehousing domestically, further supporting our business case.

Through the Manager's excellent relationships, we see opportunities to acquire high-quality assets and forward-funded developments to further diversify our portfolio. The continued imbalance between occupational supply and demand means that we expect rental growth and values to remain robust in 2018. The assets we acquired towards the end of 2017 will add to our rental income in 2018. Coupled with our largely fixed cost base, this will contribute to earnings growth and support our progressive dividend target of 6.70 pence for 2018.

Richard Jewson Chairman

7 March 2018

STRATEGIC REPORT

Tritax Big Box is the UK's leading investment company focused on larger scale logistics real estate. These properties are critically important to our Customers helping them to deliver their long-term business strategies by improving operational efficiency, providing cost savings and fulfilling fast growing e-commerce sales.

Strong demand and limited supply, both occupationally and for investment stock, make Big Box logistics one of the most exciting asset classes in UK real estate. We invest in and actively manage existing income-producing assets, land suitable for Big Box development and pre-let forward funded developments.

We have assembled and created a UK portfolio unmatched in quality. Our Customers include some of the biggest names in retail, logistics, consumer products and automotive, and we look to build long-term and mutually beneficial relationships with them to enhance their businesses and ours.

Our 'core-plus' strategy is supported by high quality income which underpins our desire to deliver secure, attractive and growing dividends for our Shareholders and we seek to apply sector-leading expertise to deliver total return outperformance.

Quality

The quality of our real estate assets intrinsically provides resilience. Coupled with the longevity of income and calibre of our Customers and rental income they provide, we believe that our portfolio is well placed to withstand property market volatility.

Longevity

As at 31 December 2017 the portfolio's WAULT stood at 13.9 years. A low 9.5% of our leases are due to expire within the next five years and 41.3% of our leases do not expire for more than 15 years, providing the Group with excellent long-term income security. This represents 75% of our portfolio being invested into Foundation Assets.

Diversity

Our 46 assets are let to 36 different Customers, with seven new Customers added during 2017.

Transparency

33.1% of our income is subject to either fixed or collared inflation linked rental uplifts, providing guaranteed minimum levels of rental growth to support our progressive dividend growth aspirations.

Our customer base is high-calibre, with some of the UK and world's leading brands represented. 81% are members of the major stock market indices in the UK, Europe and USA.

81% of tenants are constituents of major quoted indices

 
 FTSE 100          45.7% 
 FTSE 250          17.2% 
 DAX 30            4.4% 
 SBF 120           2.7% 
 S&P 500           11.3% 
 Private/other     18.7% 
 
 Source: Tritax 
 

Well located

Goods inwards

Cargo ships are responsible for c.65% (by value)* of goods imported into the UK. Big Boxes serve as the breakdown point for bulk palleted deliveries and so are often port-centric in their location focus.

Geographic coverage

Occupiers create webbed frameworks of logistics warehouses, the locations of which are focused on their markets: a combination of smaller urban warehouses, store stock replenishment or e-commerce fulfilment. The objective is to maximise geographic coverage and minimise overlap.

Regional model

Central models have given way to RDCs, away from urban areas but with the ability to deliver efficiently into several major towns and cities - being closer to the markets they serve increases speed and reliability of deliveries. Such locations are invariably also cheaper operationally.

Staffing up

Bigger buildings need more staff (see below), so availability of labour is important to the choice of location.

* The value of goods passing through UK ports, MDS Transmodal, 2016

Route to Market

Big Boxes need to be located close to motorways or major A roads, ideally those which do not suffer significant traffic congestion.

A well-diversified portfolio with good geographic spread. By value, 65.89% are located in the highly sought after areas of the South-East and Midlands.

 
 North East        21.7% 
 North West        11.2% 
 Midlands          42.6% 
 South East        23.2% 
 South West        1.3% 
 
 Source: Tritax 
 

BIG

Supply control

Speculative development is very rare for buildings over 500,000 sq ft which require larger sites in locations not previously designated for employment uses, so land supply is constrained. This makes Big Boxes less easily reproduced in the same location unless master-planned over many years.

Transitioning

Retailers are adapting to falling high street sales and growing e-commerce volumes. This transitioning is most efficiently done under the single roof of a larger building where both store and doorstep deliveries can be managed.

Benefits within

Organically grown, poorly managed and disparate networks are being consolidated into efficient logistics centres with staff facilities, improved stock controls, and higher quality management and training.

The only way is up

Rents are paid on a ground floor basis but buildings have grown in height, delivering flexibility and via full height racking or mezzanine floors. This dramatically reduces the effective cost of the operational area and allows occupiers to adapt operations as their businesses change.

Big numbers

Big Boxes require lots of staff to operate them and fulfil orders, even if the building benefits from automation. Some multi-level facilities employ as many as 7,000 peak-time staff.

Our portfolio is truly 'Big Box', with approximately 90.9% of our buildings over 300,000 sq ft and 64.3% of our assets are over 500,000 sq ft.

 
 >700k sq ft        31.8% 
 500k-700k sq ft    32.5% 
 300k-500k sq ft    26.6% 
 200k-300k sq ft    9.1% 
 
 Source: Tritax 
 

Modern

Efficient

Recently constructed buildings are better insulated, have improved fire control systems and increasingly benefit from sustainability measures such as solar panels or wind turbines which assist with occupier CSR.

All mod-cons

State of the Art buildings often have higher floor loading capacities, can be provisioned with large power consumption capabilities (and generators for resilience) to cope with automation and high-speed internet access for e-commerce fulfilment.

Resilient

In the event of a vacancy, high quality and well located real-estate is likely to let quicker, potentially to a higher calibre occupier and at a higher rent.

Growth

Modern Big Boxes are located where occupiers want to be and they attract higher rents than their outmoded counterparts because they are more valuable and deliver cost saving benefits to the occupier that older, smaller buildings cannot. Consequently, they provide greater opportunity to capture attractive rental growth.

Our portfolio is perhaps the most modern of any listed real estate company, with 90.3% of our portfolio having been constructed since 2000.

 
 Since 2010        36.2% 
 2000s             54.1% 
 1990s             2.9% 
 1980s             6.8% 
 
 Source: Tritax 
 

Hi-tech

Evolution

The way we shop has undergone structural change. The High Street is becoming a showroom, offering more variety but stocking less. Big Boxes are increasingly the retail units of the future, concurrently handling large volumes of complex omni-channel 'real-time' orders and returns.

Commitment

Internet sales and ever-quicker delivery times require automation and this is expensive; it can eclipse the cost of the building housing it. This encourages tenants to sign long-term leases to protect their investment.

Size matters

High levels of automation are usually only found in larger logistics buildings. The combination of technology and size can deliver economies of scale and cost saving benefits to occupiers.

Tech

Conveyors, sortation systems, wall climbers and robotics are used for the stocking and retrieval of products. R-FID technology allows products to be tracked from production to consumer and prevents cross-contamination.

Information is power

Spending habits and online surfing histories provide important data for retailers from which to target sales and predict future demand trends, increasing accuracy.

Automation is more prevalent in larger buildings. By value, c.50% of our portfolio properties are automated.

 
 >700k sq ft        31.8% 
 500k-700k sq ft    32.5% 
 300k-500k sq ft    26.6% 
 200k-300k sq ft    9.1% 
 
 Source: Tritax 
 

OUR MARKET

We believe that the Big Box logistics sector remains one of the most exciting asset classes in the UK property market. In this section, we explain why Big Boxes are so important to UK logistics and why the fundamentals of the market continue to be attractive.

Our market drivers

Demand for Big Boxes comes from three main sources: conventional and online retailers, third-party logistics companies (3PLs), and other companies such as manufacturers. They need Big Boxes for two primary reasons: to improve their operational efficiency and to meet the requirements of a fast-evolving retail market, in particular to fulfil e-commerce sales, which are growing relentlessly.

The challenge of maximising operational efficiency

Over time, supply chains have evolved in response to commercial trends and pressures. The initial driver for change to UK supply chains was the transition towards the majority of production being outsourced to overseas low-cost economies, which has resulted in a significant increase in bulk imports. Prior to this, logistics frameworks were fragmented with domestically manufactured products held in numerous, small and geographically dispersed retail storerooms or manufacturing premises.

A centralised framework began to evolve in which a single largescale building could accommodate the 'breakdown' of goods imported in bulk, and then hold the finished goods for efficient distribution across the UK to other parts of the supply chain.

In more recent years, against the backdrop of uncompromising global competition, weaker economic growth and rising domestic inflation, companies have again recognised the importance of optimising supply chains to meet demand and maintain a competitive advantage.

Companies across all sectors are recognising the need for substantial investment into national and regional logistics frameworks that optimise staff and stock management, offer flexibility, economies of scale and low cost of use, with a view to increasing margins and protecting profits, whilst improving the quality of their commercial offering.

The evolution of the retail landscape

The inexorable rise of e-commerce

E-commerce sales in the UK have grown rapidly in recent years. As a relatively small and densely populated nation, the UK is the most advanced e-commerce market in the world with UK households spending more online than in any other country.

In addition to pure online retailers, growth is being driven by the expansion of omni-channel retailing. This reflects consumers' desires to interact with retailers in different ways at different points in their transactions. To survive, retailers must now offer physical, online and mobile stores, apps and telephone sales.

Omni-channel retailing has made for a more competitive and fast-moving battleground for retailers. It has disrupted their real estate portfolios and revolutionised their logistics platforms as they face the complexity and expense of ensuring stock availability and fulfilment capacity is flexibly deployed into any channel as dictated by customer demand.

Unprecedented surges in demand

Challenges faced by retailers are being further exacerbated by changing consumer shopping habits, which require their logistics and distribution networks to accommodate unprecedented surges in demand. Whether seasonally driven, such as public holidays and Christmas, promotionally led such as 'Black Friday' or unexpected celebrity endorsements, the challenges of these demand peaks are being intensified by the share of sales coming via e-commerce.

In 2017 Black Friday online retail sales totalled GBP1.39 billion, 9% ahead of the original forecast of growth for the day, with John Lewis, for example, reporting Black Friday 2017 as "one of its most successful days" during which it had its busiest ever single hour of online trading.

Meeting consumer expectations

Another major change is the shift in power from retailers to customers, who have become increasingly demanding. Today's consumers are savvy, fickle, informed and impatient - they expect to receive their orders wherever and however they want.

To keep pace with changing customer expectations and competitive dynamics, retailers must speed up the time to market, reduce inefficiencies and errors, while managing profitability, customer service and reputational risk. A few years ago, four or five days delivery would have been the norm, today many are increasingly offering same-day delivery, with industry disrupters e.g. Amazon already offering a two-hour service for a limited product range.

This is particularly important in grocery shopping, where Mintel reports that 53% of British online grocery shopping customers want same-day delivery, encouraging Tesco and Marks & Spencer to trial one-hour delivery for selected food items in 2017 as well as Sainsbury's trialling 30-minute Click & Collect.

The challenge of reverse logistics

As online sales have increased, so has the amount of product being returned, with estimates suggesting that nearly a quarter of online purchases are being returned. This represents a growing cost of doing business and presents significant logistical challenges to companies involved in the storage, sale and distribution of goods, through often complex domestic and international supply chains.

It's estimated that to 'pick and deliver' an order costs between GBP3 and GBP10 per item, but due to the increased processing, handling and repackaging it can cost double or treble that amount to be returned and restocked. The Financial Times reports that returned parcels could cost retailers as much as GBP60 billion a year, c.GBP20 billion of which relates to internet sales.

Retailers must therefore develop cost effective reverse logistics strategies, in order to minimise the impact on profitability, reputation and market share.

The pressure on margins

Major and fast-paced changes in the retail sector, the unknown impact of Brexit, the living wage and exchange rate fluctuations are all applying cost pressure to retailers. At the same time, the continued growth in 'pureplays' (such as Amazon, Asos and AO.com) is also applying pressure to the price retailers can offer consumers to remain competitive.

Firstly, omni-channel retailers must cut costs by re-calibrating their property portfolios. To make the most of their expensive high street store space, they are carrying less depth of stock in-store and are focusing more on the consumer experience, increasingly offering a broader product line which in turn applies more pressure to the speed and reliability of restocking. At the same time, consumers are increasingly favouring smaller convenience stores for food shopping. These stores generally have very limited storage capacity.

To remain competitive retailers need to invest in logistics space that provides a more cost effective, flexible, agile storage solution as well as supply chain capabilities that help support greater control of stock and ensure efficient and reliable ways of fulfilling customer demand whether in store or online.

Technology drives the pace of change

E-commerce in the UK is supported by ubiquitous access to Wi-Fi and smartphones, and widespread availability of 4G. The Centre for Retail Research reports that many retailers now see 70-80% of website browsing on mobile devices. Spending on mobile devices is lower, but initial research reports indicate that mobile-commerce increased significantly in 2017, totalling 50% of online retail sales. Mobile use is higher among younger people, with research by Mintel showing, for example, that 48% of millennials in the UK have bought fashion items on their smartphones.

Technology is also creating new distribution channels. Amazon's Dash service, for instance, allows consumers to order specific products just by pressing a button. Another example is smart appliances such as washing machines will be able to reorder detergents automatically before they run out.

Capitalising on invaluable data and analytics

In its purest form, data can help improve customer satisfaction and increase retailer profitability. In this age of modern retailing, information collection and analysis, in the form of customer insight has become an increasingly important means by which retailers can gain a competitive advantage and plays a critical role in any successful e-commerce operation.

Bar code scanning at store tills provides sales data and can trigger automatic re-stocking, and the same principles apply to online sales. Cookies, collected when consumers surf the internet, provide additional intelligence which allows retailers to know what is being bought by whom, where and when, as well as providing trending data that allows them to forecast more accurately changes in fashion, so they can order product lines that are more likely to sell, reducing the amount of product that needs to be discounted.

New generation logistics at the core of modern life

The emergence of Big Boxes

In a time of economic and geopolitical uncertainty, companies which want to survive and thrive are increasingly turning to Big Boxes to enhance their efficiency and respond to the changing retail landscape. The Big Box subsector has emerged mainly in the last 10 years, with these large, often technologically sophisticated and highly efficient properties offering previously unavailable economies of scale, low cost of use and flexibility.

Big Boxes are cost effective and optimise efficiency

Big Boxes allow companies to centralise previously dispersed distribution formats, by providing the nucleus for distribution to other parts of the supply chain or directly to consumers. These networks may be organised at a national level, but traffic congestion and the need to deliver quickly and reliably to any location mean that most major occupiers now prefer to use Big Boxes as regional distribution centres.

Big Boxes' strategic locations add to their efficiency. They are close to major roads and motorways and often near to airports, sea ports or rail freight hubs. This allows efficient stocking and onward distribution. The properties also tend to be located in areas with good workforce availability, helping occupiers to manage their employment costs.

Low-bay buildings are typically used for food distribution. For non-food distribution, the flexibility of a tall building can allow for high racking and/or mezzanine floors, which can double or even triple the operational space. This makes Big Boxes more attractive to tenants, not least because rents are generally paid on the ground floor area only. Consequently, the cost per square foot on an overall basis has fallen for many occupiers of modern buildings.

Online has created visibility over 100% of the product line, meaning that any customer can choose to purchase any product that a retailer has to offer, wherever they live in the UK. Previously a retailer may have only stocked say, 50%, of their product line in a particular regional location. In just a few years the internet has therefore presented a problem where some retailers have needed to more than double their regional stock capacity.

The scale of Big Boxes means that unlike smaller buildings, they can act as the breakdown point for goods imported in bulk containers. The buildings can also hold all of a company's product lines, whatever their size or shape or how quickly they turn over. This makes Big Boxes ideal for handling both store and e-commerce distribution (sometimes via urban logistics warehouses). The size of the buildings also means that occupiers can adjust for demand or supply disruptions, or fluctuations between store and e-commerce sales, far more easily than using smaller, separate single-focus warehouses.

In addition to downstream fulfilment, Big Boxes can handle returns allowing products to be efficiently restocked. The importance of data to successful e-commerce operations means that Big Boxes dedicated to e-commerce increasingly also house the retailer's data and intelligence centres.

To drive efficiency, technological advances are resulting in Big Boxes becoming smarter. Occupiers increasingly invest in advanced systems that allow them to stock automatically and rapidly retrieve products, so they can operate on a just-in-time basis. So called 'four-dimensional automation can pick

complex online deliveries in the most efficient order possible. When customised to work with state-of-the-art robotics, such technology currently drives efficiency savings of up to 20%. The tenant will typically own the fit-out and its capital investment can be substantial, sometimes eclipsing the value of the investment.

Big Boxes are a strategic necessity

Land constraints have given rise to a scarcity of new and modern buildings available to let. Additionally, a desire for high levels of labour capture in appropriate locations and a tenant's inward investment by way of automation, mean that they are willing to sign long leases and increase the potential for renewal at lease expiry. These characteristics make the subsector more resilient to economic downturns and should mean there is scope for significant rental growth over long periods.

Structural trends continue to drive performance

Supply and demand fundamentals remain undisturbed

The factors influencing occupational demand are deep-rooted and we expect this to remain so for the next few years. The strength of demand has ensured that the limited supply of buildings being produced has been let quickly, and this has led to a continued shortage of completed Big Boxes available to let.

2016 was a record year for occupational take-up. More particularly, larger scale Big Boxes continued to increase their influence on lettings activity. This was aided by Amazon which leased the largest annual volume of space for a single occupier on record.

Relative to the exceptional volumes of the previous year, 2017 take-up (250,000+ sq ft buildings) was significantly reduced at 15.1 million sq ft, although this remained just above the 10-year average. The lower level was largely accounted for by Amazon's reduced activity, fewer available speculative developments (because much of the potential product had been pre-let the previous year) and the fact that many occupiers - particularly those acquiring larger, more complicated facilities - took longer to conclude occupational transactions and this resulted in several lettings rolling over into 2018.

Take-up records the amount of space being let and so can provide a guide as to levels of demand. A fall in take-up, however, does not necessarily mean that demand has reduced, because take-up can be constrained by a shortage of available supply, leaving an overhang of unfulfilled demand, as has been the case in recent years. We expect the continued supply-side shortage of larger scale buildings to constrain take-up levels in the next few years.

There has been a strong start to 2018. Within the first six weeks of the year almost 3 million sq ft (250,000 sq ft buildings) was let and, although notoriously difficult to quantify, occupier enquiries remain high. This indicates that we should continue to see healthy levels of demand with several property agencies predicting that take-up in 2018 will exceed that recorded last year.

Building size distinction is important when analysing market data. The availability of completed new, well located and available to let Big Boxes remains low. As at the year end across the UK there was nearly 9 million sq ft of logistics buildings available in the size category 100,000-500,000 sq ft; this was 64% down on Q1 2009. Of the 9 million sq ft, 5 million sq ft related to buildings of 100,000-200,000 sq ft and 1.8 million sq ft was in the 200,000-300,000 sq ft category.

Following the recession, as demand increased and available to let stock reduced, developers responded by nearly quadrupling the 100,000-500,000 sq ft supply band in c.18 months but the supply response for 500,000+ sq ft buildings was zero over the same period. We believe that this signals stronger attributes for larger buildings.

Two refurbished buildings came to the market in 2017 in the 400,000-500,000 sq ft category. As at 31 December 2017, there was only one used (refurbished) building and no new completed buildings of more than 500,000 sq ft available to let. Since then one further used (un-refurbished) and one new building became available - the new building was believed by the market to have been under offer at the year end and this may remain the case, but until clarified it will be treated as available.

Suitable land which can accommodate Big Boxes is scarce in key locations. The process of bringing forward land capable of delivering one or more Big Boxes can take many years. Typically, suitable locations will be on agricultural land not zoned for employment uses. If this hurdle can be overcome, the land needs to be zoned for B8 distribution, following which the developer will seek to secure outline, and finally detailed, planning consent. The scale of Big Boxes and the extent of traffic movements they generate can present planning challenges. In addition, Big Boxes require a large pool of suitable labour in the local area (some buildings can employ as many as 7,000 employees during peak periods) and have substantial power and infrastructure requirements, adding further complexity to site identification and delivery. Savills estimates that a fully automated warehouse can require as much power as 10,000 three-bed homes, severely restricting the number of suitable sites.

Big Box supply, therefore, remains very thin and this is expected to remain the case for some time. Most developers in the UK are not prepared to speculatively develop very large logistics buildings. Why? Because the years and costs incurred to achieve planning and prepare the site can be significant and the additional cost of constructing the building can run to several tens of millions of pounds. There is also a risk that potential occupiers want different-sized buildings and there are many other variables. For the developer, there is far less risk in waiting and constructing a building following a pre-let; noting that construction times are swift for Big Boxes - typically six to nine months. The level of occupier demand means developers can de-risk their development by agreeing a pre-let with a tenant. Building-to-suit on a pre-let basis creates opportunities for investors, such as us, to forward fund these developments and obtain brand new assets on long leases to high-quality tenants.

Rental growth

As take-up reduced the availability of warehouses following the recession, rents stabilised around mid-2010 and began to rise in early 2013. Nonetheless, rents only recovered to their 2008 levels at the beginning of 2015. This is important, because for five yearly open market rent reviews, occurring in-say-2017, the first half of the review period saw no growth. This has the effect of suppressing the level of uplift achieved at recent market rent reviews, but as time passes, and assuming rents continue to rise, there will be a full five year backward looking trend of growth to underpin stronger rent review results for landlords. At the year end, rents were approximately 13% higher than the levels achieved in 2008, all of which has been delivered since 2015.

Typically, the UK is analysed regionally for rents. When viewing rental tone, it is important to recognise that rents do not rise on a regular curve. It might appear that rental growth in a particular regional market has stalled but this could be because of restrictions on the availability of suitable sites - then when a site is deliverable the rent can jump. It is necessary, therefore, to look at the broader regional trends over several years and to understand the reasons for the movement, or lack thereof, in each regional market. For instance, in East and West Midlands and Yorkshire & North East rental growth in 2016 was +4.0%, +2.4% and +10.0% respectively, whereas each recorded zero headline growth in 2017. The prime headline rent is typically achieved by the letting of a single building at a new record level. The fact that a higher level of prime rent has not been achieved since does not negate the potential for lower rented properties to have delivered rental growth.

Ongoing constraints in supply, coupled with continued strong occupier demand, have combined to deliver attractive levels of rental growth in recent years. Rising labour and construction costs (partly from imported inflation following the referendum vote) are also feeding into rents. Competition for alternative land uses, particularly housing, have increased land prices within and on the fringe of urban environments.

The transition of sales from the high street to Big Boxes is delivering cost savings because rents, staff and operational costs are lower, particularly where occupiers utilise the volume of high bay warehousing to reduce the effective cost per sq ft. This explains why there has been little resistance to significant levels of rental growth in the Big Box market and why we expect rents to continue their upward trend in the near to medium term. Rental growth forecasts from CBRE suggest an average annual rental growth rate of 4.25% pa for the next four years.

UK prime logistics headline rent (per sq ft) and 2017 annual growth

 
 Regional average rental 
  growth rate               +3.7% 
 North East & Yorkshire     GBP5.25-GBP5.75 
                             (0.0%) 
 East Midlands              GBP6.50 (0.0%) 
 North West                 GBP6.50 (+9.2%) 
 West Midlands              GBP6.50 (0.0%) 
 London/m25                 GBP11.00-GBP15.25 
                             (9.8%) 
 South East                 GBP9.00 (+2.9%) 
 South West                 GBP6.75 (+3.8%) 
 
 Source: CBRE 
 

Strengthening investment values

Occupier demand for Big Boxes influences investment demand. Investors are drawn by the attractions of modern assets, producing secure and growing rental incomes, from well respected tenants with strong balance sheets. Both UK and international investors are active in the market, with the latter typically looking for larger lot sizes and assets that offer capital preservation.

Despite the significant hardening of logistics yields in recent years, they continued to compress during 2017 as institutional property funds reweighted sector allocations in favour of industrial and logistics assets. Overseas investment into the UK remains strong, despite the prospect of Brexit and partly because the devaluation of the pound has made UK investments look comparatively cheap for overseas money. We expect further value growth in 2018 but at a slower rate, partly due to lower-end yield resistance and also as a result of rental growth continuing, but at more sustainable levels.

Although yields have hardened, investors can still source attractive assets at prices that represent good value. Property yields remain well above the cost of debt, maintaining a positive yield gap and a sizeable premium to 10-year gilts.

The Big Box logistics sector remains in its infancy

The growth of e-commerce and search for economies of scale, cost savings and efficiencies have placed the UK at the forefront of the world in terms of the development of Big Box logistics. Yet as a property sector we believe it remains in its infancy, with many still seeking to secure the buildings they desire.

UK online spending grew 12% in 2017 and is expected to continue at similar levels over the next few years. Despite this growth, e-commerce still only represents about 18% of retail sales, suggesting that the capacity for growth is substantial, particularly when some retailers envisage a time when their online sales will eclipse those of the high street. Part of the success of e-commerce has been the ability of retailers and logistics companies to react to and satisfy their ever-demanding consumers with faster more reliable deliveries - achieving this requires a framework of well located modern logistics facilities.

Such longer term demand drivers, coupled with supply and demand imbalances both occupationally and within the investment market, suggest that property values in this subsector are likely to remain robust, at least on a relative basis, for some time to come.

OUR BUSINESS MODEL

We own and manage high-quality Big Box logistics assets across the UK, using the Manager's experience and expertise to assemble and grow a well diversified portfolio, while prudently applying leverage to increase returns.

The value we add

Sourcing investments

The starting point for value creation is sourcing our investments. This relies on the Manager's extensive agency, developer and tenant contacts, built up over many years. The Manager also develops relationships with asset owners, learning of their triggers to sell. These relationships and knowledge allow us to source most investments off market, so we can buy at attractive prices. In a market where personnel changes are common, the consistency of the Manager's team helps us to maintain our relationships and work on longer-term deals.

The Manager's expertise enables us to move fast, rapidly assessing opportunities, making decisions, performing thorough due diligence and completing transactions. We have never withdrawn a contract after agreeing terms and believe that our reputation is unrivalled in our market. This speed and certainty of execution makes us the obvious choice for asset owners looking to sell Big Boxes and can help us achieve better prices.

Buying and selling for value

We have a clear Investment Policy but we are also pragmatic. We may buy smaller assets in locations where larger ones are not available, helping us to diversify by geography and building size and spreading lot-size risk. We may also buy assets with shorter leases, where we see an opportunity to add value such as by regearing the lease or reletting. Creating value requires capital discipline and patience, and we discount numerous opportunities that do not offer value for money or meet our stringent criteria.

Our intention is to hold most assets for the long term but we may sell if we have unlocked value and delivered the asset's business plan, and we have the potential to reinvest the proceeds in a more attractive opportunity.

The inputs to our business model

We use the following resources to create value for Shareholders and other stakeholders:

Financial capital

We are funded by Shareholders' equity, third-party debt and recycled funds

Physical assets

We have an outstanding portfolio of UK Big Box logistics assets, as well as strategically located land for pre-let development

Relationships

We build mutually beneficial relationships with our Customers and draw on the Manager's extensive contacts with key players across the subsector

Human capital

We have an experienced Board of Directors and a Manager with a high-calibre, consistent, knowledgeable and forward-thinking team

The Manager provides expertise in assembling a high-quality, diversified and low-risk portfolio, as well as relationship building, buying for value and speed and certainty of execution

Funding developments

The Manager's relationships with developers enables us to invest in forward funded developments, through which we fund the construction of a Big Box which has been pre-let to a specific Customer. This results in lower transaction costs and enables us to source brand new buildings for institutional tenants on long leases.

We can also acquire land which is suitable for pre-let forward funded developments. We do not invest in any speculative developments (i.e. those which are not pre-let).

Asset management

The assets we buy are usually strategically important to our Customers. We work with them to maximise their operational effectiveness, for example by extending buildings or adding mezzanine floors. This encourages them to sign longer leases, increasing our revenue security and capital values. Whilst recognising that only a limited part of our portfolio is categorised as value-add assets within our investment pillars, where we buy properties with the potential to add value, we look to turn them into Foundation assets through asset management.

Delivering returns

By acquiring high-quality properties with excellent tenants and carefully managing our assets, we aim to deliver a robust, low-risk and growing rental stream, which supports a progressive target dividend. Our asset selection and management add value to our investments, allowing Shareholders to benefit from attractive total returns.

As our portfolio grows, we benefit from economies of scale, increased diversification by geography, tenant and building size, a larger list of contacts and a deeper pool of available capital, helping us to source further investments off market. A larger portfolio also gives us greater insight into market developments, more control over the evidence for rent reviews and lease renewals, and greater potential to create multi-asset initiatives with the same tenant.

Buying assets directly incurs total costs of approximately 6.78%, of which SDLT is approximately 5.00%. Standard sale costs are c.1.75%. This means that frictional costs - the total standard costs of selling an asset and reinvesting the proceeds - are c.8.53%. Our actual transaction costs are typically lower, as where possible we reduce SDLT by buying the special purpose vehicle which owns the asset. Even so, frictional costs influence investment returns, particularly in times of lower capital growth. Our portfolio is weighted towards Foundation assets because they do not need to be regularly traded. This reduces our frictional costs, which supports our returns.

In addition, our REIT status protects the value we create for Shareholders, as we are not subject to corporation tax on profits and gains in respect of our qualifying property rental business. We also pay dividends that qualify as a property income distribution (PID) where possible, which offers tax advantages for certain UK investors.

The value we add

Identify investments

Buy and sell for value

Asset management

Fund developments

The outputs from our business model

Our business model primarily creates value for our Shareholders and Customers.

For Shareholders

We aim to deliver an attractive total return to Shareholders, underpinned by progressive annual dividends and net asset value growth.

We are targeting:

   --      6.7 pence annual dividend for 2018, up 4.7% on 2017 
   --      9%+ per annum total return over the medium term 

For Customers

Our Customers benefit from occupying Big Box logistics assets which are strategically important to their businesses, helping them to achieve cost savings and economies of scale, and to fulfil their rapidly growing e-commerce businesses.

OUR STRATEGY AND OBJECTIVES

Our Investment Policy

Our Investment Policy is to acquire assets that:

-- are let or pre-let, as we will not invest in speculative developments and will only forward fund investments where a tenant is already contracted;

   --      have institutional-grade tenants, ideally businesses with good growth potential; 

-- are in the right locations in the UK, with good transport connections and workforce availability;

-- are of the right size and age, and possibly with expansion potential, to meet the requirements of major occupiers;

-- have leases to institutional standards, with regular upward-only rent reviews and unexpired lease length on purchase typically of at least 12 years, to provide long-term and secure income flows; and

-- ideally are strategically important to the tenant, as evidenced by extensive investment in fitting out the unit or proximity to the tenant's market and/or other key assets.

We target assets which offer value to our Shareholders and usually have a geared yield range of approximately 5-7%. We may make exceptions to our policy, where we see an opportunity to deliver value for our Shareholders without significantly increasing the portfolio's aggregate risk.

The Investment Policy also allows us to invest in land, either on our own or in a joint venture with a developer or a prospective customer. This will allow us to assemble suitable sites for pre-let forward funded developments. We will only proceed with constructing a new Big Box after it has been pre-let to an appropriate customer. Aggregate land purchases are subject to a limit of 10% of our NAV, calculated at the point of investment.

Our acquisition focus

The assets we acquire typically fall under one or more of our four investment pillars:

FOUNDATION

Foundation assets provide the core, low-risk income that underpins our business. They are usually let on long leases to Customers with excellent covenant strength. The buildings are commonly new or modern and in prime locations, and the leases have regular upward-only rent reviews, often either fixed or linked to inflation indices.

VALUE ADD

These assets are typically let to Customers with good covenants and offer the chance to grow the assets' capital value or rental income, through lease engineering or physical improvements to the property. We do this using our asset management capabilities and understanding of customer requirements. These assets are usually highly re-lettable.

GROWTH COVENANT

These are fundamentally sound assets in good locations, let to Customers we perceive to be undervalued at the point of purchase and who have the potential to improve their financial strength, such as young e-retailers or other companies with growth prospects. These assets offer value enhancement through yield compression.

STRATEGIC LAND

These are opportunities in strategic land which we will invest in with a view to securing pre-let forward funded developments. The land we acquire will usually have the benefit of outline B8 planning consent over at least part of the site in order to minimise risk. This approach allows us to own the ultimate investments in locations which might otherwise attract yields lower than we want to pay. It can also deliver enhanced returns whilst controlling risk by avoiding speculative development. Aggregate land purchases, including costs associated with site preparation, are limited to 10% of net asset value calculated at the point of purchase.

Our objectives

Our objectives reflect our aim of creating value for Shareholders, and assume we are fully invested and geared:

Dividends

For 2018, we are targeting a total dividend of 6.70 pence per share, with the aim of continued progressive dividend growth thereafter.

Total return

Our investment objective is to deliver a total return of 9%+ per annum over the medium term. This reflects the dividends paid plus growth in net asset value.

The target dividend is a target and not a profit forecast. There can be no assurances that the target will be met and it should not be taken as an indication of the Company's expected or actual future results.

Our operational strategy

To help us deliver long-term and sustainable returns to our Shareholders, we focus on the following strategic areas:

 
 STRATEGIC AREA               IMPLEMENTATION AND BENEFITS 
---------------------------  ------------------------------------------ 
 
 Manager                      The Manager has a team dedicated 
  Contract with                to running the Group, comprising 
  a Manager who                highly experienced and qualified 
  has a knowledgeable          people with a track record of 
  and talented                 success. We also benefit from 
  team, committed              the skills and experience of the 
  to delivering                Manager's other employees, including 
  value to shareholders.       the market knowledge they gain 
                               from working on other investment 
                               businesses and the cost efficiencies 
                               of utilising some of them part-time. 
---------------------------  ------------------------------------------ 
 
 Customers                    Building relationships with Customers 
  Develop and maintain         enables us to work with them to 
  a deep understanding         deliver asset management initiatives 
  of the businesses            that meet their business objectives 
  that operate                 and unlock value for us. Letting 
  in our market                several properties to one customer 
  in order to create           also creates opportunities for 
  long-term partnerships.      mutually beneficial cross-fertilisation, 
                               for example by limiting rent increases 
                               on one property in return for 
                               extending the lease term on another, 
                               while still enhancing the value 
                               of our portfolio. 
---------------------------  ------------------------------------------ 
 
 Operational excellence       We have a simple and transparent 
  Rigorously control           operating cost base, which largely 
  costs and deliver            comprises the investment management 
  operational efficiencies,    fee, the Directors' fees, and 
  without compromising         accounting, audit, legal, valuation, 
  growth or reputation.        compliance and regulatory fees. 
                               This helps us to focus on efficiency 
                               and achieve one of the lowest 
                               EPRA cost ratios in our peer group. 
 
                               Our success in building the portfolio, 
                               through an average of approximately 
                               one acquisition per month since 
                               listing, also demonstrates the 
                               quality and efficiency of the 
                               Manager's operations and its team. 
---------------------------  ------------------------------------------ 
 
 Capital risk                 The Group is financed through 
  management                   equity and debt. Using debt can 
  Achieve the right            increase Shareholder returns and 
  risk and return              allows us to further diversify 
  balance of equity            our portfolio. Looking forward, 
  and debt, to                 we aim to minimise cash drag by 
  finance our business         temporarily repaying any sums 
  and enhance returns.         drawn under our new revolving 
                               credit facility with any new equity 
                               capital raised. We are targeting 
                               an LTV over the medium term of 
                               35%, which we believe is conservative 
                               given the quality of our investments. 
---------------------------  ------------------------------------------ 
 
 Corporate responsibility     As an externally managed business 
  Strive to meet               without any employees, the Group's 
  our corporate                opportunities to make a significant 
  responsibilities             impact in this area are limited. 
  towards society              Even so, we aim to work responsibly, 
  and the environment,         including buying buildings with 
  in every part                A, B or C Energy Performance Certificate 
  of our business.             ratings where possible and working 
                               with tenants to help them achieve 
                               their sustainability goals. 
---------------------------  ------------------------------------------ 
 

KEY PERFORMANCE INDICATORS

Our objective is to deliver attractive, low-risk returns to shareholders, by executing the Investment Policy. Set out below are the key performance indicators we use to track our progress.

 
 KPI AND DEFINITION            RELEVANCE TO STRATEGY         PERFORMANCE                   RESULT 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
 1. Total return (TR)          TR measures the ultimate      15.2% for the year to 31      Ahead of our medium-term TR 
 TR measures the change in     outcome of our strategy,      December 2017 (2016: 9.6%).   target. 
 the EPRA net asset value      which is to deliver value 
 over the period plus          to our Shareholders 
 dividends paid. We            through our portfolio and 
 are targeting a TR in         to deliver a secure and 
 excess of 9% per annum over   growing income stream. 
 the medium term . 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
 2. Dividend                   The dividend reflects our     6.40 pence per share for      Achieved our target 
 Dividend paid to              ability to deliver a          the year to 31 December       dividend in 2017 and set a 
 Shareholders and declared     low-risk but growing income   2017 (2016: 6.20 pence per    new target of 6.70 pence 
 in relation to the year.      stream from our               share).                       per share for 2018. 
 Our target for 2017 was       portfolio and is a key 
 a total dividend of 6.40      element of our TR. 
 pence per share. 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
 3. EPRA NAV per share*        The EPRA NAV reflects our     142.24 pence per share at     Increase in EPRA NAV per 
 The value of our assets       ability to grow the           31 December 2017 (2016:       share over the year by 
 (based on an independent      portfolio and to add value    129.00 pence).                13.24 pence (10.2%). 
 valuation) less the book      to it throughout 
 value of our liabilities,     the lifecycle of our 
 attributable to               assets. 
 Shareholders and calculated 
 in accordance with EPRA 
 guidelines. 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
 4. Loan to value ratio        The LTV measures the          26.8% at 31 December 2017     Below our medium-term LTV 
 (LTV)                         prudence of our financing     (2016:30.0%).                 target maximum of 40%. 
 The proportion of our gross   strategy, balancing the 
 asset value (including        additional returns 
 cash) that is funded by       and portfolio 
 borrowings. Our               diversification that come 
 medium-term target is to      with using debt against the 
 operate with an LTV of up     need to successfully manage 
 to 40%.                       risk. 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
 5. Adjusted earnings per      The Adjusted EPS reflects     6.37 pence per share for      Adjusted EPS substantially 
 share                         our ability to generate       the year to 31 December       covers the total dividend 
 Post-tax adjusted EPS         earnings from our             2017 (2016: 6.51 pence).      for the year. 
 attributable to               portfolio, which ultimately 
 Shareholders, which           underpins our dividend 
 includes the licence fees     payments. 
 receivable 
 on our forward funded 
 development assets, and 
 adjusts for other earnings 
 not supported by 
 cash flows. 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
 6. Total expense ratio        This is a key measure of      0.84% for the year to 31      Our TER is expected to 
 (TER)                         our operational               December 2017 (2016:          reduce as the Company 
 The ratio of total            performance. Keeping costs    1.06%).                       grows. 
 administration and property   low supports our ability 
 operating costs expressed     to pay dividends. 
 as a percentage of 
 average net asset value 
 throughout the period. 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
 7. Weighted average           The WAULT is a key measure    13.9 years at 31 December     +1.9 years above our 
 unexpired lease term          of the quality of our         2017 (2016: 15.3 years).      12-year target. 
 (WAULT)                       portfolio. Long lease terms 
 The average unexpired lease   underpin the 
 term of the property          security of our income 
 portfolio, weighted by        stream. 
 annual passing rents. 
 Our target is a WAULT of at 
 least 12 years. 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
 

* This is a target only and not a profit forecast. There can be no assurances that the target will be met and it should not be taken as an indicator of the Company's expected or actual future results.

EPRA NAV is calculated in accordance with the Best Practices Recommendations of the European Public Real Estate Association (EPRA). We use these alternative metrics as they provide a transparent and consistent basis to enable comparison between European property companies.

EPRA PERFORMANCE MEASURES

The table below shows additional performance measures, calculated in accordance with the Best Practices Recommendations of the European Public Real Estate Association (EPRA). We provide these measures to aid comparison with other European real estate businesses.

For a full reconciliation of all EPRA performance measures.

 
 KPI AND DEFINITION                      PURPOSE                                 PERFORMANCE 
--------------------------------------  --------------------------------------  -------------------------------------- 
 1. EPRA Earnings (Diluted)              A key measure of a company's            GBP78.61 million / 6.20 pence per 
 Earnings from operational activities    underlying operating results and an     share for the year to 31 December 
 (which excludes the licence fees        indication of the extent                2017 (2016: GBP51.53 million 
 receivable on our forward               to which current dividend payments      / 5.90 pence per share). 
 funded development assets).             are supported by earnings. 
--------------------------------------  --------------------------------------  -------------------------------------- 
 2. EPRA NAV (Diluted)                   Makes adjustments to IFRS NAV to        GBP1,940.42 million / 142.24 pence 
 Net asset value adjusted to include     provide stakeholders with the most      per share as at 31 December 2017 
 properties and other investment         relevant information on                 (2016: GBP1.43 billion 
 interests at fair value                 the fair value of the assets and        / 129.00 pence per share). 
 and to exclude certain items not        liabilities within a true real estate 
 expected to crystallise in a            investment company, 
 long-term investment property           with a long-term investment strategy. 
 business. 
--------------------------------------  --------------------------------------  -------------------------------------- 
 3. EPRA Triple Net Asset Value          Makes adjustments to EPRA NAV to        GBP1,939.35 million / 142.16 pence 
 (NNNAV)                                 provide stakeholders with the most      per share as at 31 December 2017 
 EPRA NAV adjusted to include the fair   relevant information on                 (2016: GBP1.42 billion 
 values of:                              the current fair value of all the       / 128.12 pence per share). 
 (i) financial instruments;              assets and liabilities within a real 
 (ii) debt and;                          estate company. 
 (iii) deferred taxes. 
--------------------------------------  --------------------------------------  -------------------------------------- 
 4.1 EPRA Net Initial Yield (NIY)        This measure should make it easier      4.04% as at 31 December 2017 (2016: 
 Annualised rental income based on the   for investors to judge for themselves   4.70%). 
 cash rents passing at the balance       how the valuations 
 sheet date, less non-recoverable        of two portfolios compare. 
 property operating expenses, divided 
 by the market value of the property, 
 increased with (estimated) 
 purchasers' costs. 
--------------------------------------  --------------------------------------  -------------------------------------- 
 4.2 EPRA 'Topped-Up' NIY                This measure should make it easier      4.71% as at 31 December 2017 (2016: 
 This measure incorporates an            for investors to judge for themselves   4.95%). 
 adjustment to the EPRA NIY in respect   how the valuations 
 of the expiration of rent-free          of two portfolios compare. 
 periods (or other unexpired lease 
 incentives, such as discounted rent 
 periods and step rents). 
--------------------------------------  --------------------------------------  -------------------------------------- 
 5. EPRA Vacancy                         A "pure" (%) measure of investment      0.00% as at 31 December 2017 (2016: 
 Estimated market rental value (ERV)     property space that is vacant, based    0.00%). 
 of vacant space divided by the ERV of   on ERV. 
 the whole portfolio. 
--------------------------------------  --------------------------------------  -------------------------------------- 
 6. EPRA Cost Ratio                      A key measure to enable meaningful      13.1% for the year to 31 December 
 Administrative and operating costs      measurement of the changes in a         2017 (2016: 15.8%). Both the 2017 and 
 (including and excluding costs of       company's operating costs.              2016 ratios include 
 direct vacancy) divided by gross                                                and exclude vacancy costs. 
 rental income. 
--------------------------------------  --------------------------------------  -------------------------------------- 
 

MANAGER'S REPORT

The Group delivered a strong performance in 2017 with a total return of 15.2%. It was a busy year, with 11 assets purchased improving diversification and positioning the portfolio for further growth.

In this report, we provide a detailed analysis of the portfolio, describe the progress the Group has made with its pre-let forward funded developments and asset acquisitions in 2017, set out the achievements of the Group's asset management programme in the year, and explain the Group's financial performance and position.

Delivering the investment strategy

During the year, the Group added 11 assets, ending the year with 46 assets plus 114 acres of strategic land.

The Group's investment strategy focuses on four investment pillars. Foundation assets provide the core, low-risk income and made up 75% of the year-end portfolio by value. Value Add and Growth Covenant assets made up 17% and 6% of the portfolio respectively and provide opportunities for value enhancement through asset management. The remaining 2% by value is strategic land, providing us with the opportunity to create enhanced capital returns by securing pre-lets before commencing developments and benefiting from an attractive yield on cost. These descriptions serve as a guide, but they are not exclusive. For instance, significant value-enhancing opportunities also exist within our Foundation assets.

2017 was another highly successful year for the Group, as we continued to source attractive assets for its portfolio, raised further equity and debt finance to support its growth, and delivered the dividend and total return targets.

Disciplined capital allocation

Capital discipline and patience are required to deliver value at the point of acquisition and thorough due diligence is needed to ensure quality. Growth in the portfolio has been supported by raising equity, at issue prices which have been consistently accretive to both the previous raise and NAV per share at the time of issue, and attractively priced debt financing. This availability of capital, matched against a consistent high-quality pipeline of investment opportunities sourced via our industry contacts, allows us to act quickly in acquiring attractive assets for the Group. As a result, of the assets we acquired in 2017:

   --      93% by value were off-market; and 
   --      the average net initial purchase yield to the Company was 5.5%. 

Capital growth

The portfolio was independently valued by CBRE as at 31 December 2017 at GBP2.61 billion (31 December 2016: GBP1.89 billion) ('market value' or 'fair value' under IFRS 13) in accordance with the RICS valuation - global standards 2017. This represents the aggregate of individual property values with no premium discount being applied for a collective portfolio.

Like-for-like valuation growth (on 35 assets) was 8.72% or GBP165.06 million. During the year the Group acquired the strategic land at Littlebrook plus 11 income producing assets for an aggregate price of GBP497.45 million. Acquisition costs on these assets represented an attractive level of only 3.7% (compared to standard costs of 6.8%) due to the lower costs associated with acquiring corporate vehicles and forward funded pre-let developments.

At the year end these 12 acquisitions were valued at GBP548.54 million, representing an increase of GBP51.09 million or 10.3% excluding purchase costs. Combined with the standing portfolio the total capital growth was therefore GBP216.14 million or 9.0% excluding purchase costs.

Building a diversified portfolio

Occupational supply and demand is most favourable for landlords of strategically located, large and modern Big Boxes. These assets offer the potential for strong rental growth and tend to be highly attractive to new tenants, if they became available to let.

Recognising the large average financial lot size of our investments, growth of the portfolio has been an important factor in providing geographic risk diversification across key logistics locations in England. The properties are generally modern, with 90% having been built since 2000 ensuring they remain efficient and fit for purpose as customers' needs evolve. The Group's assets are true Big Boxes, with 64% of the portfolio comprising buildings of 500,000 sq ft or more. As discussed in the Our Market section, these larger logistics facilities are the hardest to replicate and this has prevented an oversupply of development in this subsector of the market.

Delivering secure income

The Group's portfolio produces a diversified, robust and long-term income stream, secured by some of the UK's strongest omni-channel retailers, and a range of top-quality manufacturers and logistics companies.

The Group's assets are let to 36 different Customers, with seven new Customers added during 2017. The Customer base is high-calibre, with 81% of Customers (or their parent companies) being members of major stock market indices in the UK, Europe and USA.

As at 31 December 2017 the portfolio's WAULT stood at 13.9 years (increasing to 14.7 years as at the date of this Report including assets exchanged but not completed post period), ahead of the Group's target of over 12 years. As at period end, 41% of leases do not expire for at least 15 years and just 10% of leases are due to expire within the next five years.

Analysis by investment pillar further highlights the strength of the portfolio, with the Group's core Foundation assets having a WAULT which substantially exceeds the portfolio average.

Well positioned for income growth

The timing of rent reviews over the next few years supports the Group's ambition to deliver income growth, thereby underpinning its progressive dividend policy. Rent reviews typically take place every five years but the Group also benefits from some annual fixed and inflation linked reviews. Through careful selection we have ensured a balance in the timing of the Group's rent reviews, which provides the opportunity to grow rental income each year.

As at 31 December 2017, the Group's annualised rental income was GBP125.95 million, up 26% over the previous year.

This compares with the Estimated Rental Value (ERV) of GBP135.22 million, assessed by the Group's independent valuer, CBRE. This represents a potential rental reversion of approximately 7.4%, which is the amount the rent would increase if all properties in the portfolio were subject to rent reviews as at 31 December 2017 and were settled at CBRE's ERVs. The like-for-like ERV growth was 3.8% over 12 months.

Of the contracted rent roll as at the year end (including rents due under agreements for lease from forward funded developments), the breakdown of rent reviews by type was as follows:

Open market rent reviews: 40% These track the rents achieved on new lettings and rent reviews of comparable properties in the market, offering the potential to capture the recent and continued healthy rental growth in the Big Box logistics market.

Fixed uplift rent reviews: 14% Fixed rent reviews provide certainty of income growth, at either 2% pa (one lease) or 3% pa (four leases). By income, 63% of these leases have five yearly reviews and 37% are reviewed annually (provide rental increases each year).

RPI/CPI linked: 37% These provide inflation protection. All but two of these in our portfolio are the more attractive RPI linked variant. All are subject to caps (maximum 5% pa). Over GBP24.3 million of our inflation linked income is also collared (benefits from minimum uplifts). Of the 15 inflation indexed leases, 11 are reviewed five yearly and four are reviewed annually (provide rental increased each year).

Hybrid: 9% Hybrid rent reviews can be an amalgam of the above, for instance to the higher of open market rents or RPI (potentially subject to a cap and collar). Such arrangements provide the Group with enhanced income growth potential.

Combining the fixed uplifts together with inflation linked leases that benefit from a collar, it is notable that 33% of the Group's rental income is subject to guaranteed increases over a five year time horizon (assuming no vacancies from lease default or following lease expiry).

In 2017, 15.0% of the Group's rental income was subject to rent review. In 2018, a further 23.8% is subject to review.

Enhancing returns through pre-let developments

We use our knowledge and expertise to enable the Group to forward fund pre-let developments with a developer. This allows the Group to acquire prime assets at a discount to the price of a let and standing asset, with the potential to capture much of the financial benefit of development, without taking on the level of risk associated with speculative development. The Group never undertakes speculative development (i.e. construction of a building without a tenant pre-lease).

During 2017, the Group made further progress with its forward funded developments, with a further four assets totalling 1.98 million sq ft reaching practical completion:

 
 FORWARD FUNDED DEVELOPMENTS   PRACTICAL COMPLETION 
----------------------------  --------------------- 
 
 T.K. Maxx, Knottingley        January 2017 
 Gestamp, Wolverhampton        July 2017 
 Hachette, Didcot              July 2017 
 Screwfix, Fradley             September 2017 
 

In aggregate, the Group has successfully completed nine forward funded pre-let developments between its IPO and 31 December 2017, all of which were broadly on time and to budget. These nine assets had an average purchase yield of 5.5% and an initial weighted average unexpired term at the point of completion of 21.0 years. This compares to CBRE's publicly available data stating the average purchase yield for a strong covenant on a 15 year term as 4.5% as at 31 December 2017.

In December 2016, the Company announced that it had exchanged contracts (conditional on receiving planning consent) to provide forward funding for the development of two new distribution warehouses at Warth Park, Raunds, pre-let under two separate 30 year leases to Howdens Joinery Group Plc ('Howdens').

Our acquisition of the land and commencement of the development were delayed due to a prolonged challenge to the planning consent which was resolved in favour of the Group and our development partner, Roxhill, in early 2018. Following this the Group completed contracts for the site acquisition and forward funding for the development and site works are now underway.

The investment price was amended to GBP103.7 million, to reflect a longer construction period due to the delayed planning consent and revised construction programme. Completion of construction is expected by winter 2019.

Post period pre-let development acquisitions

Since the year end the Company also exchanged contracts, conditional on receiving full planning consent, to provide forward funding for the development of a new regional distribution centre at Midlands Logistic Park, Corby. The development is pre-let to Eddie Stobart Limited, with a guarantee from ESLL Group Limited, for a 20 year term from completion of the development. Completion of construction is due by January 2019. The investment price is GBP81.8 million.

Capturing the development land opportunity

In May 2016, Shareholders approved an amendment to the Company's investment policy. This allows the Company to purchase land and options over land, with the intention of entering into agreements to forward fund pre-let Big Box developments. The investment policy does not allow any speculative development of buildings.

This is a natural evolution of the Company's strategy, allowing it to secure a pipeline of best-in-class assets in the strongest locations. Forward funding these pre-let developments will enable the Company to acquire them at an attractive yield on cost, particularly when compared to the investment yield for completed assets in comparable locations. The Company can therefore enhance returns for Shareholders, while avoiding the risks associated with speculative developments.

The Company has already begun to implement its revised investment policy and, following, an extensive 12-month UK-wide search which saw it reject numerous sites, the Company the purchase of c.114 acres of prime development land at Littlebrook, Dartford, in September 2017.

The Company is now actively considering other land opportunities, on sites ranging in size from 50-200 acres in a number of locations.

The Group's acquisition strategy in action

The Group acquired 11 investment assets during the year for an aggregate acquisition price of GBP434.99 million, further diversifying the portfolio by size and geography. We have also broadened the Group's range of Customers and strengthened relationships with a number of existing Customers by acquiring more assets that they occupy. As in previous years, we continued to source these investments at attractive yields, with 93% acquired off market. For the 11 assets acquired, the average NIY was an attractive 5.5%; this yield supports the Group's ability to grow the dividend in 2018. Of the 11 purchases, six were corporate acquisitions and one was forward funded. This significantly reduced the associated transaction costs, enhancing the day one running yield.

Patience and discipline are key to investing for value, and we only proceed with purchases at the right quality and price. We also constantly review the market, as well as broader economic and political conditions, so we can adjust the allocation of capital between the Group's four investment pillars: Foundation, Value Add, Growth Covenant and Strategic Land.

In 2016, we had prioritised Foundation assets, which provide the Group's core income. In 2017, while most of the acquisitions were Foundation assets, we also considered that it was the right time to acquire some Value Add and Growth Covenant assets. With tenant demand remaining high and Big Boxes in short supply, we are excited by the opportunities these assets provide to create value and convert them into Foundation assets through asset management.

Value Add assets tend to be smaller lot sizes, as this reduces risk. While they also, by definition, have shorter leases, the overall WAULT of the 11 assets which the Group bought in 2017 is 11.4 years, closely aligned with the Group's average target of over 12 years. When buying assets with shorter income, quality remains key. We target modern assets with strong fundamentals, in the right locations.

In addition, the Group exchanged conditional contracts to purchase a c.114-acre development site at Littlebrook, Dartford for GBP62.5 million.

James Dunlop Partner, Investment Director

 
 The Group's acquisitions in 2017 
------------------------------------------------------------------------------------------------------------------ 
 +10 Big Boxes assets                Ten standing assets, with an aggregate purchase price of GBP405.8m 
----------------------------------  ------------------------------------------------------------------------------ 
 +114 acres Prime strategic land     at Littlebrook, Dartford 
----------------------------------  ------------------------------------------------------------------------------ 
 5.5% NIY Average NIY                at acquisition of the 11 Big Boxes acquired 
----------------------------------  ------------------------------------------------------------------------------ 
 93% Of assets acquired off market 
----------------------------------  ------------------------------------------------------------------------------ 
 +1 Big Box asset                    One pre-let forward funded development, with an acquisition price of GBP29.2m 
----------------------------------  ------------------------------------------------------------------------------ 
 4.43 m sq ft Logistic space         across the 11 assets acquired 
----------------------------------  ------------------------------------------------------------------------------ 
 11.4yrs WAULT                       The 11 acquisitions had a WAULT of 11.4 years at acquisition 
----------------------------------  ------------------------------------------------------------------------------ 
 

Standing investments acquired 2017

Unilever

Doncaster, South Yorkshire

Acquired: May 2017

Acquisition price: GBP20.90 million

Net initial yield: 5.6%

Gross internal area: c.262,885 sq ft

Eaves height: c.11 and 26 metres

Built: 2002

Lease expiry: May 2032

On/off market: Off market

-- Located on Trax Park, close to the M18, A1(M) and M1, with good access to the ports of Hull and Grimsby, and adjacent to Doncaster Rail Freight Terminal.

-- This high specification facility was purpose built for Unilever and fitted out to include a high level of automation.

-- New 15-year lease; five yearly upward only rent reviews, to RPI collared at 1.5% and capped at 3.5% pa, annually compounded. Tenant break option at years 10 and 12 subject to a full rental penalty to the end of the lease term.

Morrisons

Birmingham, West Midlands

Acquired: June 2017

Acquisition price: GBP92.33 million

Net initial yield: 5.3%

Gross internal area: c.814,329 sq ft

Eaves height: c.16.5 metres

Built: 2012

Lease expiry: May 2038

On/off market: Off market

-- Located on Birch Coppice Business Park, close to J.10 of the M42. The facility was purpose-built for Ocado (the sub-tenant) with multiple mezzanine floors, high levels of automation and a low site cover of c.23%.

-- Acquired with a c.21 year unexpired lease; annual upward only rent reviews to CPI, capped at 3.5% pa.

Royal Mail

Atherstone, Warwickshire

Acquired: September 2017

Acquisition price: GBP32.68 million

Net initial yield: 6.1%

Gross internal area: c.395,111 sq ft

Eaves height: c.9 to 10 metres

Built: 1973-1995

Lease expiry: September 2007

On/off market: Off market

-- Located 21 miles north-east of Birmingham with excellent connectivity, the property is let to Royal Mail Group Limited, the main subsidiary of Royal Mail plc.

   --      The property benefits from significant capital investment and a low site cover of 35%. 

-- Acquired with a c.10 year unexpired lease; five yearly upward only open market rent reviews, the next due in September 2021.

Royal Mail

Daventry International Rail Freight Terminal (DIRFT), Northamptonshire

Acquired: October 2017

Acquisition price: GBP48.82 million

Net initial yield: 5.0%

Gross internal area: c.264,802 sq ft

Eaves height: c.7 to 13 metres

Built: 2003

Lease expiry: August 2023

On/off market: Off market

   --      Situated at DIRFT (Daventry International Rail Freight Terminal) on J.18 of the M1, this high-specification 24/7 parcel delivery hub benefits from a very low site cover of c.18%. 

-- Acquired with a c. 6 year unexpired lease; annual upward only rent reviews to RPI capped at 3% pa, the next due in August 2018.

Marks & Spencer

Stoke-on-Trent, Staffordshire

Acquired: October 2017

Acquisition price: GBP36.40 million

Net initial yield: 5.4%

Gross internal area: c.382,594 sq ft

Eaves height: c.12 metres

Built: 2008

Lease expiry: May 2026

On/off market: Off market

-- Located adjacent to the Group's Dunelm property (see below) and in a core logistics location close to the M6, the property is one of M&S's five national distribution centres for general merchandise and is fully fitted out for the tenants occupation.

-- Acquired with a c.8.5 year lease subject to a tenant break option or a five yearly upward only open market rent review in 2021.

Dunelm

Stoke-on-Trent, Staffordshire

Acquired: October 2017

Acquisition price: GBP42.10 million

Net initial yield: 5.4%

Gross internal area: c.503,389 sq ft (in two buildings)

Eaves height: c.12 metres

Built: 2004 and 2010

Lease expiry: August 2020

On/off market: Off market

-- Located adjacent to the Group's M&S property (see above) comprising two interconnected sortation and distribution buildings that work in conjunction with the nearby Dunelm National Distribution Centre at Sideway, which is also owned by the Company.

   --      Acquired with two coterminous leases of c.3 years unexpired without further rent review. 

Cerealto (UK)

Worksop, Nottinghamshire

Acquired: November 2017

Acquisition price: GBP20.25 million

Net initial yield: 6.6%

Gross internal area: c.330,807 sq ft

Eaves height: c.12 metres

Built: 2007

Lease expiry: September 2035

On/off market: Off market

   --      Located at Dukeries Industrial Estate, which has easy access to both the M1 and A1. 

-- The Cerealto lease is guaranteed by Grupo Siro Corporativo SL, a global private label food manufacturer.

-- Acquired with a c.18 year lease; fixed rental uplift due in September 2020 with five yearly upward only open market reviews thereafter.

Stobart Group

Carlisle Lake District Airport, Cumbria

Acquired: November 2017

Acquisition price: GBP23.61 million

Net initial yield: 5.3%

Gross internal area: c.314,981 sq ft

Eaves height: c. 12.5 metres

Built: 2015

Lease expiry: February 2038

On/off market: Off market

   --      Located at Carlisle's Lake District Airport, close to the M6. 

-- This modern facility was acquired with a c.18 year unexpired lease; five yearly upward only rent reviews to RPI, collared at 1.0% and capped at 3.5% pa, annually compounded. The next review is due in February 2021.

Wincanton and ITS

Harlow, Essex

Acquired: November 2017

Acquisition price: GBP44.40 million

Net initial yield: 6.2%

Gross internal area: c.390,092 sq ft

Eaves height: c.11.5 metres

Built: 2008

Lease expiry: ITS, November 2031; Wincanton, February 2022

On/off market: off market

-- This high specification facility is strategically positioned close to the M11, the M25 and Central London.

-- Let under two leases to Wincanton (61% of rent) and Industrial Tool Supplies (ITS) (39% of rent).

-- Acquired with a c.4.5 year unexpired lease to Wincanton (no further rent review) and a c.14 year unexpired lease (tenant break option in 2026) to ITS, subject to annual upward only rent reviews to RPI collared at 1% and capped at 2% pa.

Unilever

Cannock, Staffordshire

Acquired: December 2017

Acquisition price: GBP44.25 million

Net initial yield: 5.0%

Gross internal area: c.541,157 sq ft

Eaves height: c.10 to 28 metres

Built: 2005, extended 2012

Lease expiry: December 2027

On/off market: Off market

-- Situated in a core Midlands location, close to the M6 and access to the wider motorway network.

   --      The property was purpose built for Unilever and is highly automated. 

-- Acquired with a new 10 year lease, subject to a five yearly upward only rent review to RPI, collared at 1.5% and capped at 3.5% pa, compounded annually.

Pre-let forward funded development acquired in 2017

Hachette

Didcot, Oxfordshire

Acquired: February 2017

Acquisition price: GBP29.24 million

Net initial yield: 5.8%

Gross internal area: c.243,409 sq ft

Eaves height: 20 metres

Built: Completed July 2017

Lease expiry: July 2032

On/off market: Selectively marketed

-- A forward-funded development (now completed) of a new high specification and automated global distribution centre.

   --      Situated in a core South East logistics location close to the M4, M40 and A34. 

-- Acquired with a new 15-year lease, subject to five yearly upward only open market rent reviews. During construction the Group received an income return from the developer equivalent to the lease rent.

Strategic land acquired in 2017

Littlebrook

Dartford, South-East London

Acquired: July 2017

Acquisition price: GBP62.5 million

   --      Site area: 114 acres of prime strategic land 

The site occupies a core location within London's M25 orbital motorway (J.1A) adjacent to the Dartford Thames River Crossing. It provides the opportunity for the efficient distribution of goods across the densely populated areas of London and the Home Counties. Working alongside one of the UK's leading specialist logistics developers, Bericote Properties, the Company aims to deliver one of London's largest Big Box logistics parks.

Within two weeks of completing the purchase, phased demolition began of the former power station and associated infrastructure. The first c.54 acres will be ready for development during autumn/winter 2018. The final phase of demolition is projected to finish in late 2020, with the current National Grid electricity substation being relocated and decommissioned by 2025.

Part of the site already benefits from c.488,006 sq ft of planning consent for storage and distribution use. Planning discussions are ongoing with the local authority for consolidation of the existing consents, to ensure that a pre-let vertical build can start promptly on phase one. Separate discussions are under way to progress planning for the remainder of the site. The scheme is not being actively marketed until the planning discussions are advanced, but despite this, an encouraging level of occupational requirements have been received or identified. Construction of new buildings will only begin on a pre-let basis, and is expected to start towards the end of 2018/early 2019.

Looking forward

The sector continues to benefit from strong demand, as occupiers invest in their logistics and e-commerce supply chains, which in turn leads to significant investment demand. We therefore expect some further yield compression in 2018, supporting capital values.

While the market is competitive, we see opportunities to acquire high-quality standing assets, forward funded pre-let developments and strategic land, to further diversify the Group's portfolio. We have identified a pipeline of potential purchases and since the year end we have already completed three acquisitions, including the two Howdens assets the Group conditionally acquired at the end of 2016 along with the investment asset in Crewe, guaranteed by AO World Plc. We have also exchanged conditionally on one forward funded development asset, pre-let to Eddie Stobart in Corby.

Having refinanced the Group's secured debt in December 2017 with a bond issue and a new revolving credit facility, we will be able to finance acquisitions more efficiently, while remaining prudently within the Group's 40% LTV target (although we are likely to be operating with an LTV target of 35% in the short to medium term).

Summary of the portfolio

The table below summarises the Group's portfolio at the year end. Assets are listed in the order the Group acquired them.

 
                                                                         NET                              NEXT 
                                                           MONTH    PURCHASE   PURCHASE                   RENT 
                                                              OF       PRICE        NIY         SIZE    REVIEW 
 TENANT                    LOCATION                  ACQUISITION        GBPM          %       SQ FT*      DATE 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Sainsbury's 
  Supermarket                                                                                              May 
  Ltd                      Leeds                        Dec 2013       48.75        6.7      571,522      2018 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Marks & Spencer           Castle                                                                          Dec 
  plc                       Donington                   Dec 2013       82.58        5.2      906,240      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Tesco Stores 
  Ltd                      Chesterfield                 Mar 2014       28.64        6.6      501,751       N/A 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Tesco Stores                                                                                              Aug 
  Ltd (1)                  Didcot                       Apr 2014       27.20        6.9      288,295      2019 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Next Group                                                                                                Mar 
  plc                      Doncaster                    Jun 2014       60.00        6.1      755,055      2018 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Wm Morrison 
  Supermarkets                                                                                             Jun 
  Ltd                      Sittingbourne                Jun 2014       97.80        5.2      919,443      2018 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 DHL Supply                Langley                                                                         Aug 
  Chain Ltd                 Mill                        Aug 2014       17.53        6.5      255,680      2019 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 DHL Supply                                                                                                Aug 
  Chain Ltd                Skelmersdale                 Aug 2014       28.87        6.5      470,385      2019 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Wolseley UK                                                                                               Sep 
  Ltd                      Ripon                        Aug 2014       12.24        6.7      221,763      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Rolls-Royce 
  Motor Cars               Bognor                                                                          Sep 
  Ltd                       Regis                       Oct 2014       36.98        6.3      410,095      2020 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 CDS (Superstores 
  International) 
  Ltd (trading                                                                                             Oct 
  as The Range)            Thorne                       Nov 2014       48.50        6.1      750,431      2022 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Tesco Stores                                                                                              Dec 
  Ltd                      Middleton                    Dec 2014       22.45        8.3      302,111      2017 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Kuehne+Nagel                                                                                              Apr 
  Ltd (2)                  Derby                        Dec 2014       29.27        6.0      343,248      2022 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 L'Oréal                                                                                              Aug 
  (UK) Ltd                 Manchester                   Dec 2014       25.83        7.1      315,118      2018 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
                                                                                                           Mar 
 Argos Ltd                 Heywood                      Apr 2015       34.10        5.3      495,441      2018 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
                                                                                                           Nov 
 B&Q plc                   Worksop                      Apr 2015       89.75        5.1      880,175      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 New Look Retailers                                                                                        Apr 
  Ltd                      Newcastle-under-Lyme         May 2015       30.05        5.9      398,618      2022 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Nice-Pak International                                                                                    May 
  Ltd                      Wigan                        May 2015       28.66        6.4      399,519      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Ocado Holdings                                                                                            Apr 
  Limited (3)              Erith                        May 2015      101.73        5.3      563,912      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Brake Bros                                                                                                Jul 
  Ltd                      Harlow                       Jun 2015       37.18        5.0      276,213      2019 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Tesco Stores                                                                                              Oct 
  Ltd                      Goole                        Jun 2015       47.10        5.7      711,933      2022 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Dunelm (Soft 
  Furnishings)                                                                                             Feb 
  Ltd                      Stoke-on-Trent               Jun 2015       43.43        5.5      526,953      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 TJX UK (trading                                                                                           Jan 
  as T.K. MAXX)            Knottingley                  Sep 2015       59.00        5.3      640,759      2022 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Howden Joinery                                                                                            Jul 
  Group plc                Raunds                       Oct 2015       67.00        5.0      658,971      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Matalan Retail                                                                                            Oct 
  Ltd                      Knowsley                     Dec 2015       42.38        6.3      578,127      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Brake Bros                                                                                                Mar 
  Ltd                      Bristol                      Mar 2016       25.20        5.2      250,763      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Argos Ltd                                                                                                 Feb 
  (4)                      Burton-on-Trent              Mar 2016       74.64        5.6      653,670      2018 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 DSG Retail                                                                                                Mar 
  Ltd                      Newark                       May 2016       77.30        5.9      725,799      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Gestamp Talent                                                                                            Jul 
  Ltd (5)                  Wolverhampton                Aug 2016       56.30        5.1      545,998      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Kellogg Company 
  of Great Britain 
  Limited                  Manchester                   Aug 2016       23.50        5.9      311,602       N/A 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Amazon UK 
  Services Ltd                                                                                             Apr 
  (6)                      Peterborough                 Aug 2016       42.90        5.6      549,788      2020 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Euro Car Parts                                                                                            Jan 
  Ltd                      Birmingham                   Oct 2016       80.14        5.0      780,977      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Whirlpool 
  UK Appliances 
  Ltd                      Raunds                       Oct 2016       35.35        6.6      473,263       N/A 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 The Co-operative                                                                                          Dec 
  Group Ltd                Thurrock                     Oct 2016       56.50        5.5      322,684      2020 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Screwfix Direct                                                                                           Oct 
  Ltd                      Fradley                      Dec 2016       52.70        5.5      553,276      2022 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Hachette UK                                                                                               Jul 
  Ltd                      Didcot                       Feb 2017       29.24        5.8      243,409      2022 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Unilever UK                                                                                               May 
  Ltd                      Doncaster                    May 2017       20.90        5.6      262,885      2022 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Wm Morrison 
  Supermarkets                                                                                             May 
  Ltd                      Birmingham                   Jun 2017       92.33        5.3      814,329      2018 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Royal Mail                                                                                                Sep 
  Group Ltd                Atherstone                   Sep 2017       32.68        6.1      395,111      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Royal Mail                                                                                                Aug 
  Group Ltd                Daventry                     Oct 2017       48.82        5.0      264,802      2018 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Dunelm (Soft 
  Furnishings) 
  Ltd                      Stoke-on-Trent               Oct 2017       42.10        5.4      503,389       N/A 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Marks & Spencer                                                                                           May 
  plc                      Stoke-on-Trent               Oct 2017       36.40        5.4      382,594      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Cerealto (UK)                                                                                             Dec 
  Ltd (7)                  Worksop                      Nov 2017       20.25        6.6      330,807      2020 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Stobart Group                                                                                             Feb 
  Limited                  Carlisle                     Nov 2017       23.61        5.3      314,981      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Industrial 
  Tool Supplies 
  (London) Ltd 
  & Wincanton                                                                                              Nov 
  Holdings Ltd             Harlow                       Nov 2017       44.40        6.2      390,092      2018 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Unilever UK                                                                                               Dec 
  Ltd                      Cannock                      Dec 2017       44.25        5.0      541,157      2022 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Littlebrook 
  Strategic 
  Land                     Dartford                     Jul 2017       62.50        N/A          N/A       N/A 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Total for 
  assets completed 
  at 31/12/17                                                       2,169.04       5.70   22,753,134 
----------------------------------------------------------------  ----------  ---------  -----------  -------- 
 Post period 
  end 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Howdens Joinery 
  Group plc                                                                                                Sep 
  ++                       Raunds                       Jan 2018       71.20       5.00      657,000      2024 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Howdens Joinery 
  Group plc                                                                                                Sep 
  ++                       Raunds                       Jan 2018       32.50       5.00      300,000      2024 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Expert Logistics                                                                                          Apr 
  Ltd (8)                  Crewe                        Jan 2018       36.10       5.40      387,541      2021 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 Eddie Stobart 
  Limited (9#$) 
  (conditional                                                                                             Jan 
  on planning)             Corby                        Feb 2018       81.80       5.00      844,000      2024 
------------------------  ----------------------  --------------  ----------  ---------  -----------  -------- 
 

1 Guaranteed by Tesco Plc

2 Guaranteed by Hays Plc

3 Guaranteed by Ocado Group plc

4 Guaranteed by Experian Finance plc

5 Guaranteed by Gestamp Automocian SA

6 Guaranteed by Amazon EU Sarl

7 Guaranteed by Grupo Siro Corporativo SL

8 Guaranteed by AO World Plc

9 Guaranteed by ESLL Group Limited

* Now unconditional post period end

^ Weighted portfolio purchase yield excludes Littlebrook Strategic Land

++ Estimated target practical completion date of September 2019

$ Estimated target practical completion date of January 2019

Yen CBRE measured floor area

# Conditionally exchanged

Our asset management strategy in action

The Group's asset management strategy focuses on creating value throughout an asset's lifecycle.

The potential to protect and enhance income and capital value is a key consideration when we source assets for the Group. We categorise the Group's assets into one of four investment pillars and develop business plans for each. There are opportunities to add value to assets across all four of the investment pillars but particularly for Value Add assets, which comprised 17.2% of the Group's portfolio at the year end. These are typically let to financially sound Customers and offer the potential to use asset management to enhance capital value and, for some assets, turn them into Foundation assets.

We look to use our industry and market expertise and strong relationships with the Group's Customers to grow and improve the quality of the Group's income streams. This can include: negotiating rent reviews, lease extensions, refurbishment, agreeing new lettings, enhancing the building or extending it, either within the existing site or by acquiring adjacent land. Such initiatives can improve the customer's efficiency and reduce operating costs as well as helping customers to meet their environmental and social responsibility obligations, such as by installing renewable energy systems.

A diverse property portfolio with numerous small or multitenant assets can provide multiple opportunities for asset management annually, but each will have only a small financial impact on the portfolio. The Group's portfolio continues to develop in number, now with 46 large income producing assets. With larger assets the frequency of opportunities to create value though asset management are fewer, but the impact of each can be greater.

Through regularly meeting with our Customers either individually or at a range of industry focused events, hosted or attended by the Manager, we have developed strong relationships with key individuals. These discussions can result in further engagement and opportunities as highlighted in this report. During 2017 we successfully extended three leases for two of our assets and documented rent reviews on seven of our properties. We also completed two development extensions for Rolls-Royce Motor Cars and commenced a building extension for New Look at Newcastle-Under-Lyme. In addition, we completed an option agreement over 46.5 acres of land adjoining one of the Group's existing assets.

Petrina Austin

Partner, Head of Asset Management and Sustainability

 
 The Group's asset management highlights in 2017 
-------------------------------------------------------------------------- 
 15.0%             Rent roll subject to review 
----------------  -------------------------------------------------------- 
 +2.43%            Annual equivalent increase to the passing rental income 
----------------  -------------------------------------------------------- 
 +3                Lease extensions 
----------------  -------------------------------------------------------- 
 +7                Rent reviews settled across 3.7m sq ft 
----------------  -------------------------------------------------------- 
 +c175,000 sq ft   of physical extensions to existing facilities 
----------------  -------------------------------------------------------- 
 

A strong foundation

The key to unlocking value through asset management is owning well located, modern, fit-for-purpose buildings that tenants want to occupy and which are strategically important to their business. In such circumstances they will be committed to the asset.

Financially strong occupiers will often make significant investment in the property and continue to do so throughout the life of the lease. Changes which benefit the tenant can often also provide opportunities for the landlord to benefit from capital value growth, through funding initiatives such as mezzanine floors or solar panels.

Our customer led approach

Our aim is to be an occupier's landlord of choice for their distribution property network. A key part of our approach is to develop strong relationships with our Customers, so that we understand their requirements and future objectives. Our Customers are highly valued since the success of their business can directly correlate with value and generates property opportunities for us.

We proactively assist occupiers considering future space or network reviews, orchestrating technical advice so as to develop a 'partnership' approach in their evolving decisions. In order to acquire a balanced understanding, we seek to acquire a wide contact base within our Customers' companies beyond simply the main property contacts, extending to the logistics and operations directors, who often drive the internal strategy. We work closely with them to better understand their challenges and unlock opportunities through the most efficient application of their operational real estate.

Aside from engaging with our occupiers, we keep abreast of advancements within the logistics and distribution sector by attending industry events and meeting with companies developing systems and equipment which could benefit our Customers, such as evolving automation and robotics.

Protecting value

We regularly review the financial status of our Customers, as well as those of potential new occupiers. This includes monitoring their trading results and statements and analysing the corporate strategies disclosed in their annual reports, which could identify property opportunities. Where appropriate, we negotiate a guarantee from the parent company of a tenant to strengthen the financial covenant of the lessee.

We look to future-proof our assets, maintaining versatility so they can be adapted to future uses and methods of fulfilment. This includes identifying opportunities both within our ownership and adjacent land. An example of this is the completion of an option agreement in November 2017, covering 46.5 acres in Newark, adjoining the Groups' DSG, Newark asset.

Capturing reliable and balanced income growth

The timing of rent review events over the next few years supports the Group's ambition to deliver income growth, thereby underpinning our progressive dividend policy. Rent reviews typically take place every five years but the Group also benefits from some annual reviews.

Through careful selection we have ensured a balance in the timing of our rent reviews which provides the opportunity to grow our rental income each year. In 2017, 15.0% of the rent roll was subject to a review.

Since the start of the year, we have settled seven rent reviews across 3.73 million sq ft of the portfolio, adding GBP1.40 million to the annual rent roll. This equates to an annual equivalent increase to the passing rental income across these seven assets of 2.43%.

At the year end, the breakdown of rent reviews by type, calculated as a percentage of contracted rental income, was:

Open market rent reviews: 40% These track the rents achieved on new lettings and rent reviews of comparable properties in the market, offering the potential to capture the recent and continued healthy rental growth of Big Box logistics.

Fixed uplift rent reviews: 14% Fixed rent reviews provide certainty of income growth. At either 2% pa (one lease) or 3% pa (four leases). By income, 63% of these leases have five yearly reviews and 37% are reviewed annually (provide rental increases each year).

RPI/CPI linked: 37% Provide inflation protection. All but two of these in our portfolio are the more attractive RPI linked variant. All are subject to caps (maximum 5% pa). Over GBP24.3 million of our inflation linked income is also collared (benefits from minimum uplifts). Of the 15 inflation indexed leases, 11 are reviewed five yearly and four are reviewed annually (provide rental increases each year).

Hybrid: 9% Hybrid rent reviews can be an amalgam of the above, for instance to the higher of open market rents or RPI (potentially subject to a cap and collar). Such arrangements provide the Group with enhanced income growth potential.

Annual inflation indexed rent reviews:

Morrison's, Sittingbourne: An annual rent review linked to RPI (capped at 2.00%) was reviewed effective from June 2017, at an uplift of 2.00% pa, resulting in an increase of GBP111,316 pa to the passing rent.

Annual fixed rent reviews:

Argos, Burton-on-Trent: The 3% pa annual rent increase was applied in February 2017, reflecting an uplift to passing rent of GBP124,107 pa.

L'Oréal (UK) Limited, Trafford Park: The 3% pa annual rent review was applied in September 2017, resulting in an uplift to the passing rent of GBP61,975 pa.

Hybrid rent reviews:

The Co-operative Group, Thurrock: The Company owns a warehouse and adjacent trailer park let under two separate leases. The warehouse is reviewed five-yearly to the greater of passing rent, open-market rent or GBP2,597,604 pa, plus 10% ancillary income for fit out. The new review was agreed in June 2017, effective from December 2015 at GBP2,857,364 pa, reflecting an increase of 10.41%. The next rent review on the trailer park lease will be in May 2018.

Marks & Spencer, Castle Donington: The five yearly open market rent is subject to increases of 1.5% minimum and 2.5% maximum pa compound. The rent review was settled in April 2017 effective from December 2016 at the maximum increase of 2.5% pa reflecting an overall increase of 13.1%.

Five yearly open-market rent reviews:

New Look, Stoke-on-Trent: The rent review was settled in September 2017, effective from April 2017 reflecting an increase of 12.3%.

Wolseley, Ripon: This asset is reviewed to open market rent. The rent review was settled in November 2017, effective from September 2016, reflecting an increase of 6.6%.

Four open market rent reviews remain unsettled and under negotiation as at the period end.

Improving property and enhancing value

When acquiring assets for the Group, one of our key considerations is the potential to implement physical improvements that can protect and enhance capital value while potentially also growing income. We typically acquire assets that are well configured with low site cover to allow for future occupational flexibility, since we understand that a Customer may need to extend an existing building or alter the layout of a facility as operational requirements evolve.

Through our in-house specialist knowledge and experience in this sector, we can often suggest practical solutions. The aim of such initiatives is not only to grow our income, but also to ensure that our property assets are resilient and can adapt or evolve to meet the future demands of supply chain distribution across the UK.

During 2017, the Group agreed two building extension projects, which will add a total of c.174,510 sq ft of new space to our existing assets in Bognor Regis and Newcastle-under-Lyme. Following a seven month construction project, completing in October 2017, Rolls-Royce took occupation of two building extensions for a combined 96,476 sq ft.

Works are progressing to extend our New Look Big Box in Newcastle-under-Lyme. This initiative will extend the facility by c.78,034 sq ft. The tenant intends to commit significant capital expenditure to automate and fit out the building.

As part of our asset management strategy we also incorporate responsible business initiatives by encouraging our Customers to make environmental enhancements. Highly mechanised buildings and those with mezzanine floors can be energy hungry given the scale of heating, lighting and power requirements. By using biomass heating systems, wind turbines or roof-mounted solar panels such as those we installed on The Range asset in Thorne, we can improve a property's EPC rating as well as reduce the tenant's operational costs and support their sustainability commitments. As with the asset improvements noted above, by funding these works, we can improve the quality of the property and also generate additional income for the Company.

Lengthening income

Physical enhancements, such as constructing an extension or improving the specification of a building, can allow us to commit capital expenditure in return for not only a higher rent, but also a lengthening of the lease term, thereby protecting longevity of income and/or increasing capital values.

The two previously mentioned extension projects will result in an increase to the unexpired lease terms of the assets, further demonstrating the asset's strategic importance and Customer commitment each property:

Rolls-Royce Big Box, Bognor Regis: Both leases were extended by additional 12 months as part of the property extension negotiation.

New Look Big Box, Newcastle-under-Lyme: The lease was extended by 12 years as part of the property extension negotiation.

Subsequent to implementing this asset management initiative, New Look announced challenging trading conditions, which they intend to address by rationalising their store portfolio. The building is critical to New Look's supply chain operation, being one of only two UK facilities which service their UK and European business, fulfilling both store replenishment and e-commerce orders. At the period end New Look's rent exposure reflected 1.6% of the total portfolio income.

Post -period events

Following the period end, the following asset management initiatives were completed:

Tesco Big Box, Chesterfield: The Group purchased this asset in 2014 at an attractive yield and categorised it as Value Add due to the short period to lease expiry. In February 2018 we received notification of the Arbitrator's direction in relation to the outstanding open market rent review as at 28 May 2015. This award confirmed an uplift of the passing rent to GBP2,100,000 from GBP1,999,804. In the summer of 2016, Tesco announced its intention to vacate the property at Chesterfield. We viewed the prospect of a potential refurbishment and re-letting with optimism, given the location, building size and configuration in the context of an occupational market bereft of vacant properties of this type readily available to let.

We have conditionally exchanged contracts to accept a surrender of the lease from Tesco, without premium, with completion expected by the end of April 2018. We have subsequently entered into a 12 month licence with a high quality and well known occupier to cover rent and all non-recoverable property costs, whilst the occupier strategy is finalised.

Looking forward

Continuing to develop our Customer relationships, growing our understanding of their businesses and integrating the Group's properties as key assets in their supply chain operations is a strategic priority.

We will continue to keep abreast of advances in technology based applications for warehouse management processes and systems, identifying where the Company's Customers may benefit. We must also be live to threats and how best to insulate the Company and assist our Customers with any challenges that they face.

The Group's financial strategy in action

For 2017, the Group had a dividend target of 6.40 pence per share and a total return target of at least 9%. We also stated that we would explore opportunities to bring in longer and alternative sources of debt financing, without compromising the Group's investment objectives.

The Group met its dividend target by declaring the final quarterly dividend on 7 March 2018, taking the aggregate dividends declared to 6.40 pence per share for 2017. The total dividend was substantially covered by the Group's Adjusted earnings which were 6.37 pence per share. In May 2017, we successfully raised an additional GBP350 million of equity to further grow the Company and diversify its assets. We successfully deployed the equity within six months, as planned. Our patient search for the right investments at attractive prices meant, however, that the majority of the equity was invested towards the end of that period, which had a consequential impact on our Adjusted earnings.

Strong NAV growth, of 13.24p or 10.2% over 2016, was underpinned by the continued investment supply and demand imbalance for prime logistics assets; the weight of global money looking to invest in the subsector was particularly strong during the second half of the year. Coupled with the dividend, this NAV growth resulted in a total return of 15.2%, comfortably ahead of target.

One of the most significant events of the year was the strengthening of the Group's capital structure. In December 2017, the Group issued its debut, unsecured, dual-tranche loan notes totalling GBP500 million and with an average term of 11.5 years. At the same time, we raised GBP350 million of debt via an unsecured corporate revolving credit facility. Combined, these allowed us to refinance the majority of the Group's secured debt and move forwards with largely unsecured debt, providing a flexible platform to support future growth. As a result, the Group's average maturity profile nearly doubled, to 8.9 years (from 4.5 years at the point of refinance). Entry into the public bond market opens the Company up to an increased pool of liquidity which further diversifies our borrowing and will help to support future growth.

Frankie Whitehead Head of Finance

 
 The Group's financial highlights in 2017 
------------------------------------------------------------------------------------------------------- 
 6.40p       Dividend per share in line with target 
----------  ------------------------------------------------------------------------------------------- 
 15.2%       Total Return compared with the medium-term target of 9%+ pa 
----------  ------------------------------------------------------------------------------------------- 
 GBP2.61bn   Portfolio value increase of 38% over 2016 (including all forward funded commitments) 
----------  ------------------------------------------------------------------------------------------- 
 13.1%       EPRA Cost Ratio declined from 15.8% in 2016 
----------  ------------------------------------------------------------------------------------------- 
 6.37p       Adjusted earnings per share Dividends substantially covered by Adjusted earnings per share 
----------  ------------------------------------------------------------------------------------------- 
 142.24p     EPRA NAV per share Increased by 13.24p or 10.3% 
----------  ------------------------------------------------------------------------------------------- 
 26.8%       Loan to value with a further GBP340 million of debt commitments undrawn 
----------  ------------------------------------------------------------------------------------------- 
 

Financial results

Net rental income grew by GBP33.35 million, to GBP107.94 million (2016: GBP74.59 million), reflecting the positive impact of the investment activity throughout the year as well as the contribution from four forward funded developments that completed during the period.

The continued growth in the portfolio increased the Group's contracted rent roll to GBP125.95 million across 46 assets (2016: GBP99.66 million across 35 assets), as at 31 December 2017.

The portfolio's strong rental income with upward-only rent reviews generated growth of GBP1.40 million to headline rents across the seven rent reviews settled in the year, of which three were annual reviews and four were five yearly reviews.

Operating profit before changes in the fair value of investment properties, as reported under IFRS, grew by 49.1% to GBP93.78 million (2016: GBP62.88 million). Along with the growth in net rental income, administrative expenses have continued to fall on a relative basis, achieved through the ratcheted investment manager fee and further cost controls. The Group's low and predominantly fixed overhead base translates into an EPRA cost ratio of 13.1% for the year (2016: 15.8%). This continues to compare favourably with our peer group.

A gain of GBP175.98 million (2016: GBP47.5 million) on revaluation of the Group's investment properties was recognised in the year. This was calculated after accounting for all costs associated with asset purchases during 2017.

Net financing costs (excluding capitalised interest) for the year were GBP19.92 million (2016: GBP11.55 million), excluding the reduction in the fair value of interest rate derivatives of GBP2.04 million (2016: GBP7.15 million). The increase in net financing costs reflects the growth in the business and the subsequent increase in average debt drawn during the year. Further information on financing and hedging is provided below.

Tax

The Group is a UK REIT for tax purposes and is exempt from corporation tax on its property rental business. The tax charge for 2017 was therefore GBPnil 2016: GBPnil).

Profit and earnings

Profit before tax for 2017 was GBP247.80 million (2016: GBP91.90 million), which resulted in basic EPS of 19.54 pence (2016: 10.52 pence). The Group's EPRA EPS for the year was 6.20 pence (2016: 5.90 pence).

The Group's Adjusted EPS was 6.37 pence for 2017 (2016: 6.51 pence). This was affected by the size of the May 2017 equity issue and the timing of investment. Whilst investment of the equity proceeds was well in line with our targeted timeframe of approximately six months, some investments were delayed or took longer to transact than previously anticipated, resulting in a number of transactions concluding towards the latter part of the period. This included the delay caused by an appeal against the planning consent for the two forward funded developments, pre-let to Howdens, in Raunds, which was originally expected to complete in May 2017, as well as delays due to the transaction complexities across the Unilever, Cannock and AO.com, Crewe, investments. We also made a conscious decision to refinance our shorter term secured borrowings, in favour of longer term fixed rate unsecured borrowings prior to the year end. In doing so we locked into long-term attractive rates of borrowing which have since spiked into early 2018 due to further global interest rate volatility and signals from the Bank of England that rate rises may come sooner than previously planned.

Whilst the timing of this refinancing wasn't a necessity, we believe this was in the best interest of Shareholders over the long term, secured at an attractive cost and predominantly fixes our cost of borrowing. For further details on our refinancing arrangements, see Debt Capital below.

Adjusted EPS takes EPRA EPS, adds the developer's licence fees the Group receives on forward funded developments and excludes other earnings not supported by cash flows. We see Adjusted EPS as the most relevant measure when assessing dividend distributions. Further information can be found in note 13.

Dividends

From 1 January 2017, the Group moved to quarterly dividend payments. Since that date, the Board has declared the following interim dividends:

 
 DECLARED        AMOUNT PER   IN RESPECT         PAID/TO BE 
                  SHARE        OF THREE MONTHS    PAID 
                               TO 
--------------  -----------  -----------------  -------------- 
 7 March 2017    1.55p        31 December        3 April 2017 
                               2016 
--------------  -----------  -----------------  -------------- 
 24 April 2017   1.60p        31 March 2017      22 May 2017 
--------------  -----------  -----------------  -------------- 
 13 July 2017    1.60p        30 June 2017       10 August 
                                                  2017 
--------------  -----------  -----------------  -------------- 
 12 October      1.60p        30 September       16 November 
  2017                         2017               2017 
--------------  -----------  -----------------  -------------- 
 7 March 2018    1.60p        31 December        29 March 2018 
                               2017 
--------------  -----------  -----------------  -------------- 
 

The dividend declared on 7 March 2018 will be paid on 30 March 2018, to Shareholders on the register on 16 March 2018.

Dividends in respect of 2017 therefore totalled 6.40 pence per share, meeting the Group's target for the year and representing an increase of 3.2% on the total dividend for 2016 of 6.20 pence per share.

We have increased our target dividend for 2018, to 6.70 pence per share, which is an increase of 4.7% over 2017 and somewhat ahead of the retail price index which was running at 4.1% for the 12 months ending December 2017.

Our distributable reserves position is healthy, following the historic conversion of a large part of our share premium account into the capital reduction reserve, which is considered distributable under the Companies Act, along with the stable and growing retained earnings accumulating within the Company. As at the year end the total distributable reserves available to the Company were GBP626.42million.

Investment properties

At 31 December 2017, the total value of the portfolio, including forward funded development commitments, was GBP2.61 billion across 46 assets (31 December 2016: GBP1.89 billion across 35 assets). The Group invested a total of GBP497.45 million (net of purchase costs) in 11 assets and 114 acres of development land during the year.

The gain recognised on revaluation of the Group's investment property portfolio was GBP175.98 million. An average acquisition cost of 3.70% was incurred across the 11 assets acquired during 2017, of which four were direct asset purchases, six were corporate transactions and one was a forward funded development. Corporate transactions contributed to returns by saving approximately GBP13.50 million, or 1.00p to net asset value versus incurring standard acquisition costs of 6.8%, demonstrating further value through efficient purchasing.

The portfolio's average valuation yield at 31 December 2017 was 4.56%, including the land at Littlebrook on which the Group currently receives no income. On a like-for-like basis, compared with assets held at 31 December 2016, values increased by 8.72% for the year, excluding any additional capital costs incurred in the period.

At the year end, the Group had total commitments to forward funded developments and other asset management initiatives of GBP5.11 million (31 December 2016: GBP82.4 million). In addition, the Group had committed GBP23.51 million following the purchase of the development land project at Littlebrook, Dartford, which is the expected amount required to bring the site to a ready state for construction and includes costs of demolition, remediation, planning and infrastructure works.

The Group had conditionally exchanged contracts on two forward funded developments pre-let to Howdens at Raunds with an investment commitment totalling GBP103.7 million. The land acquisition and start on site were delayed as a consequence of a planning objection lodged during the judicial review period. The Group had also conditionally exchanged on the purchase of the investment asset let to AO.com in Crewe, prior to the year end. Both of these assets were therefore disclosed as contingent liabilities at the year end, however completion of the contracts were finalised on 12 January 2018 and 18 January 2018 respectively.

Net assets

EPRA net assets were GBP1.94 billion (2016: GBP1.43 billion). The EPRA NAV per share at 31 December 2017 was 142.24 pence (31 December 2017: 129.00 pence), representing a 10.3% increase over the year. This was achieved through a combination of purchasing well and booking gains at the point of purchase and structuring our purchases efficiently which resulted in significant cost savings against standard purchase costs (see investment properties above). Our income stream grew organically through the settlement of seven rent reviews, we realised gains following asset management activity across a number of assets and the market moved further in our favour, delivering yield compression and therefore value appreciation across the existing portfolio.

Equity capital

During May 2017, we raised equity from Shareholders totalling GBP350 million. The initial level targeted was GBP200 million, however due to the considerable support we received from a combination of existing and new Shareholders, the fundraise was upscaled to GBP350 million. The issue was accretive to the then net asset value and 257,352,941 new Ordinary Shares were issued at 136 pence per share.

Debt capital

The Group made strong progress this year in terms of raising additional debt capital in both the private and public debt markets. This has helped develop a debt platform that provides the Group with the necessary flexibility and structure to support it through further growth. In total, the Group raised GBP940 million of new, mostly unsecured debt, allowing it to refinance GBP568 million of existing secured indebtedness. In the process, the Group diversified its sources of borrowing, fixed most of its interest costs at attractive rates and materially lengthened the average debt maturity from 4.5 years to 8.9 years as at 31 December 2017, providing the Group with additional security of funding during a continued period of economic uncertainty.

On 1 March 2017, the Group agreed a new 10-year, GBP90 million facility with PGIM Real Estate Finance, secured against a portfolio of four assets. The facility has a fixed all-in interest rate of 2.54% and introduced a new lender to the Group.

On 23 November 2017, the Group announced its GBP1.5 billion Euro Medium Term Note (EMTN) Programme, under which it can issue loan notes to be listed on the Irish Stock Exchange. Both the Group and the EMTN Programme have been assigned an investment-grade rating of Baa1 (stable outlook) by Moody's Investors Service. The debut issue under the Programme followed on 1 December 2017, when the Group issued GBP500 million of senior unsecured notes (more commonly known as corporate bonds). The notes were issued in a dual tranche, with nine and 14 year maturities respectively and with an average term of 11.5 years. They bear interest at a rate of 2.625% and 3.125% per annum respectively. The issue was significantly oversubscribed, which is a strong endorsement for the Group considering it was its debut issue. The level of interest allowed us to tighten pricing from initial levels by up to 20-25 basis points across each tranche. The notes have demonstrated positive levels of trading in the secondary markets, since issue.

Simultaneously, the Group announced that it had agreed a new GBP350 million unsecured revolving credit facility (RCF), with an initial maturity of five years and the option to extend by a further two years, with the lenders' prior consent. The facility also contains an uncommitted GBP200 million accordion option and has an opening margin of 1.10% over LIBOR. The syndicate for the RCF comprises three of the Group's existing lenders, Barclays Bank PLC, ING Bank N.V., London Branch and Wells Fargo Bank N.A., London Branch, as well as four new lenders: BNP Paribas, London Branch, HSBC Bank plc, The Royal Bank of Scotland plc and Santander UK plc. We welcome the breadth of lenders forming the RCF.

The issue of loan notes and new RCF allowed the Group to refinance the majority of its secured, shorter term debt. This included the GBP550 million syndicated facility due to expire in October 2020 and two facilities with Helaba, for GBP7.06 million and GBP11.60 million, terminating in November 2019. All early repayment fees associated with the repayment of these existing facilities were avoided. There were, however, GBP4.77 million of unamortised arrangement fees that were written off as part of the refinance upon the extinguishment of these facilities. This is a non-cash expense recognised in the Statement of Comprehensive Income during the year.

On 14 December, the Group also extended its GBP50.87 million facility with Helaba, secured on the Ocado asset at Erith, by two years to July 2025. There was no change in margin resulting from the extension.

The refinancing and new unsecured borrowings reduced the capped cost of the Group's debt from 2.78%(1) as at 31 December 2016 to 2.66%(1) as at 31 December 2017. At the same time, the Group's average maturity profile increased from 4.5 years at the point of refinance to 8.9 years at 31 December 2017 (2016: 4.8 years), moving it closer to the WAULT on the portfolio. The Group had an all-in running cost of borrowing of 2.38% at 31 December 2017. This is a highly attractive cost of debt, which is primarily fixed. The Group currently has no refinancing requirement until December 2022.

(1 Calculated using gross debt commitments.)

The Group now has a scalable and flexible debt platform, which gives access to a significant additional pool of liquidity in the UK Sterling bond market, which will support future growth. These unsecured financings provide the Group with improved operational flexibility, greater speed of execution and lower transactional costs moving forwards.

At 31 December 2017, the Group therefore had the following borrowings:

 
 LER       ASSET SECURITY    MATURITY    LOAN COMMITMENT   AMOUNT DRAWN 
                                             GBPM              AT 31 DECEMBER 
                                                               2017 GBPM 
-----------  ----------------  ----------  ----------------  ---------------- 
 Loan notes 
----------------------------------------------------------------------------- 
 2.625% 
  Bonds 
  2026        None              Dec 2026             249.01            249.01 
-----------  ----------------  ----------  ----------------  ---------------- 
 3.125% 
  Bonds 
  2031        None              Dec 2031             246.55            246.55 
-----------  ----------------  ----------  ----------------  ---------------- 
 Bank borrowings 
----------------------------------------------------------------------------- 
 RCF          None              Dec 2022             350.00             10.00 
-----------  ----------------  ----------  ----------------  ---------------- 
 Helaba       Ocado, Erith      Jul 2025              50.87             50.87 
-----------  ----------------  ----------  ----------------  ---------------- 
              Portfolio 
 Canada        of three 
  Life         assets           Apr 2029              72.00             72.00 
-----------  ----------------  ----------  ----------------  ---------------- 
 PGIM Real    Portfolio 
  Estate       of four 
  Finance      assets           Mar 2027              90.00             90.00 
-----------  ----------------  ----------  ----------------  ---------------- 
 Total                                             1,058.43            718.43 
-----------------------------------------  ----------------  ---------------- 
 

At the year end, 62.3% of the Group's debt commitments were held under fixed-rate facilities. The Group has a hedging strategy for its variable-rate debt, which predominantly includes the use of interest rate caps to allow it to benefit from current low interest rates, while minimising the effect of a significant rise in underlying interest rates. The Group therefore holds derivative instruments which, when including all fixed rate debt, hedge 98.7% of all Group borrowing commitments. The derivative instruments comprise one interest rate swap and a number of interest rate caps, each running coterminous with the respective loan.

The Group complied with all of its debt arrangements during the year and subsequent to the year end.

Loan to value

The Group continues to operate with a conservative leverage policy and medium-term, maximum target of 40% loan to value. The loan to value as at 31 December 2017 was 26.8% (2016: 30%); however, once fully invested and geared the look through loan to value (which included all of the Group's capital commitments) will continue to be approximately 35%. Further to guidance initially given within our Interim Report, this is a reduction from our medium-term target of 40% 12 months ago.

Alternative Investment Fund Manager (AIFM)

The Manager is authorised and regulated by the Financial Conduct Authority as a full-scope AIFM. The Manager is therefore authorised to provide services to the Group and the Group benefits from the rigorous reporting and ongoing compliance applicable to AIFMs in the UK.

As part of this regulatory process, Langham Hall UK Depositary LLP (Langham Hall) is responsible for cash monitoring, asset verification and oversight of the Company and the Manager. In performing its function, Langham Hall conducts a quarterly review during which it monitors and verifies all new acquisitions, share issues, loan facilities and other key events, together with Shareholder distributions, the quarterly management accounts, bank reconciliations and the Company's general controls and processes. Langham Hall provides a written report of its findings to the Company and to us, and to date it has not identified any issues. The Company therefore benefits from a continuous real-time audit check on its processes and controls.

Looking forward

The Group's financing activities during 2017 give it the resources and flexibility to continue its selective acquisition programme and further diversification in its portfolio. We have a solid capital structure from which to grow the business and our inaugural issuance in the public debt market should mean that we have a deeper pool of liquidity available to us in the future. We have added further longevity and diversity to our borrowings, which align it further to the length of our income stream, allowing for a consistent level of recurring earnings into the future.

The assets acquired towards the end of 2017 and in the early part of 2018 will contribute to our earnings and earnings growth, supporting the progressive dividend target for 2018 of 6.70 pence per share. We will continue to rigorously manage the Group's cost base where possible, which is now largely fixed following the refinancing. The Group will also benefit from further economies of scale as it grows and we will continue to grow our income stream through the organic combination of fixed, indexed and open market rent reviews occurring in 2018.

OUR PRINCIPAL RISKS AND UNCERTAINTIES

The Board has overall responsibility for our risk management and internal controls, with the Audit Committee reviewing the effectiveness of our risk management process on its behalf.

We aim to operate in a low-risk environment, focusing on a single subsector of the UK real estate market to deliver an attractive, growing and secure income for Shareholders, together with the opportunity for capital appreciation. The Board recognises that effective risk management is key to the Group's success. Risk management ensures a defined approach to decision making that decreases uncertainty surrounding anticipated outcomes, balanced against the objective of creating value for Shareholders.

Approach to managing risk

Our risk management process is designed to identify, evaluate and mitigate (rather than eliminate) the significant risks we face. The process can therefore only provide reasonable, and not absolute, assurance. As an investment company, we outsource key services to the Manager, the Administrator and other service providers, and rely on their systems and controls.

At least twice a year, the Board undertakes a formal risk review, with the assistance of the Audit Committee, to assess the effectiveness of our risk management and internal control systems. During these reviews, the Board has not identified or been advised of any failings or weaknesses which it has determined to be material.

Risk appetite

Our risk appetite is low, including the fact that we do not undertake speculative development. We have high-quality tenants, with a portfolio of modern buildings and one of the longest unexpired lease terms in the sector coupled with an average term to maturity on our debt of 8.9 years, most of which is fixed rate.

We have a specific Investment Policy, which we adhere to and for which the Board has overall responsibility.

Principal risks and uncertainties

Principal risks and uncertainties have the potential to materially affect our business, either favourably or unfavourably. Some risks are currently unknown, while others that we currently regard as immaterial, and have therefore not included here, may turn out to be material in the future. All principal risks are the same as detailed in the 2016 Annual Report.

 
 Property Risks 
------------------------------  ------------------------------  ------------------------------------------------------ 
 1. Default of one or more tenants 
---------------------------------------------------------------------------------------------------------------------- 
 PROBABILITY: LOW TO MODERATE    IMPACT: MODERATE                MITIGATION 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Change in year:                 The default of one or more of   Our investment policy limits our exposure to any one 
                                 our tenants would immediately   tenant to 20% of gross assets or, where 
  See Asset Management           reduce revenue from the         tenants are members of the FTSE, up to 30% each for 
                                 relevant                        two such tenants. This prevents significant 
                                 asset(s). If the tenant         exposure to a single Customer. To mitigate 
                                 cannot remedy the default and   geographical shifts in tenants' focus, we invest 
                                 we have to evict the tenant,    in assets in a range of locations, with easy access 
                                 there may                       to large ports and key motorway junctions. 
                                 be a continuing reduction in    Before investing, we undertake thorough due 
                                 revenues until we are able to   diligence, particularly over the strength of the 
                                 find a suitable replacement     underlying covenant, while continuing to monitor the 
                                 tenant,                         covenant strength once forming part of 
                                 which may affect our ability    the portfolio. We select assets with strong property 
                                 to pay dividends to             fundamentals (good location, modern design, 
                                 Shareholders.                   sound fabric), which should be attractive to other 
                                                                 tenants if the current tenant fails. In 
                                                                 addition, we focus on assets let to tenants with 
                                                                 strong financial covenant strength that are 
                                                                 strategically important to the tenant's business. Our 
                                                                 maximum exposure to any one tenant (calculated 
                                                                 by contracted rental income) is less than 9% as at 31 
                                                                 December 2017. 
------------------------------  ------------------------------  ------------------------------------------------------ 
 2. The performance and valuation of the property portfolio 
---------------------------------------------------------------------------------------------------------------------- 
 PROBABILITY: LOW                IMPACT: MODERATE TO HIGH        MITIGATION 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Change in year:                 An adverse change in our        Our property portfolio is 100% let, with long 
                                 property valuations may lead    unexpired weighted average lease terms and an 
  See Asset Management           to a breach of our banking      institutional-grade tenant base. All the leases 
                                 covenants.                      contain upward-only rent reviews, which are 
                                 Market conditions may also      either fixed, RPI/CPI linked or at open market value. 
                                 reduce the revenues we earn     These factors help maintain our asset 
                                 from our property assets,       values. We have agreed banking covenants with 
                                 which may                       appropriate headroom and manage our activities 
                                 affect our ability to pay       to operate well within these covenants. We constantly 
                                 dividends to Shareholders. A    monitor our covenant headroom on LTV, 
                                 severe fall in values may       gearing and interest cover. The level of headroom is 
                                 result in                       currently significant. The EMTN has limited 
                                 us selling assets to repay      covenants. 
                                 our loan commitments, 
                                 resulting in a fall in our 
                                 NAV. 
------------------------------  ------------------------------  ------------------------------------------------------ 
 3. Our ability to grow the portfolio may be affected by competition for investment properties 
  in the Big Box sector 
---------------------------------------------------------------------------------------------------------------------- 
 PROBABILITY:                    IMPACT: LOW                     MITIGATION 
  MODERATE 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Change in year:                 Competitors in the sector may   We have extensive contacts in the sector and often 
                                 be better placed to secure      benefit from off-market transactions. We 
 See Our Strategy and            property acquisitions, as       also maintain close relationships with a number of 
 Objectives                      they may                        investors and developers in the sector, 
                                 have greater financial          giving us the best possible opportunity to secure 
                                 resources, thereby              future acquisitions. We are not exclusively 
                                 restricting our ability to      reliant on acquisitions to grow the portfolio. Our 
                                 grow our NAV.                   leases contain upward-only rent review 
                                                                 clauses and we have a number of current asset 
                                                                 management initiatives within the portfolio, 
                                                                 which means we can generate additional income and 
                                                                 value from the existing portfolio. We are, 
                                                                 however, disciplined in our investment of capital and 
                                                                 will not pay a price which we believe 
                                                                 is above market value, just to secure a purchase. 
------------------------------  ------------------------------  ------------------------------------------------------ 
 4. Our property performance will depend on the performance of the UK retail sector, specifically 
  the continued growth of online retail 
---------------------------------------------------------------------------------------------------------------------- 
 PROBABILITY: LOW                IMPACT: LOW                     MITIGATION 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Change in year:                 Our focus on the Big Box        The diversity of our institutional-grade tenant base 
                                 sector means we directly rely   means the impact of default of any one 
  See Our Market                 on the distribution             of our tenants is low. In addition to our due 
                                 requirements of                 diligence on tenants before an acquisition or, 
                                 UK retailers. Insolvencies      in the case of forward funded developments, before 
                                 among the larger retailers      agreeing the lease terms, we regularly 
                                 and online retailers could      review the performance of the retail sector, the 
                                 affect our                      position of our tenants against their competitors 
                                 revenues and property           and, in particular, the financial performance of our 
                                 valuations.                     tenants. E-commerce is expected to grow 
                                                                 to 23% of UK retail sales by 2020. 
------------------------------  ------------------------------  ------------------------------------------------------ 
 5. Development activities are likely to involve a higher degree of risk than investment in 
  standing investments 
---------------------------------------------------------------------------------------------------------------------- 
 PROBABILITY: LOW                IMPACT: LOW                     MITIGATION 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Change in year:                 Our forward funded              The Company had no forward funded development assets 
                                 developments are likely to      under construction as at 31 December 
 See Our Market                  involve a higher degree of      2017. However, it has completed on a further two and 
                                 risk than is associated         conditionally exchanged on one forward 
 See Our Strategy and            with standing investments.      funded development post the period end. All of these 
 Objectives                      This could include general      assets are pre-let to institutional-grade 
                                 construction risks, delays in   tenants. Any risk of investment into forward funded 
                                 the development                 projects is minimal, as the developer 
                                 or the development not being    takes on a significant amount of construction risk 
                                 completed, cost overruns or     and the risk of cost over-runs. Funds for 
                                 developer/contractor default.   these developments remain with us and are only 
                                 If                              released to the developer on a controlled basis 
                                 any of the risks associated     subject to milestones as assessed by our independent 
                                 with our forward funded         project monitoring surveyors (see also 
                                 developments materialised,      risk below on land and development activities). 
                                 this could 
                                 reduce the value of these 
                                 assets and our portfolio. 
------------------------------  ------------------------------  ------------------------------------------------------ 
 6. The purchase of land may involve a higher degree of risk than that associated with existing 
  and built investments or development activities 
---------------------------------------------------------------------------------------------------------------------- 
 PROBABILITY: LOW                IMPACT: MODERATE                MITIGATION 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Change in year:                 The inability to obtain         The Company cannot undertake any speculative 
                                 planning consent means that     development of buildings although it can undertake 
 See Our Market                  the land would have to be       land preparation works and therefore a pre-let is a 
                                 held or sold                    pre-requisite to commencing the construction 
 See Our Strategy and            prior to any development. The   of building. Prior to acquisition of land the Company 
 Objectives                      value of the land may be        will carry out an extensive due diligence 
                                 reduced due to the refusal of   exercise to limit exposure to environmental risk and 
                                 planning                        other hazards. Once a pre-let is agreed 
                                 consent and the costs           with a suitable tenant, the Company will structure 
                                 incurred to that date could     the development of the asset as it does 
                                 be significant and may be       its forward funded development projects, therefore 
                                 irrecoverable;                  minimising risk (see risk above on development 
                                 this would reduce the Company   activities). The purchase of land is also subject to 
                                 NAV. If the Company fails to    a maximum level of 10% of NAV, at the 
                                 attract a suitable pre-let it   time of purchase. The Company also undertakes a 
                                 cannot                          significant level of due diligence on the 
                                 proceed with the development    land, the surrounding power and highways 
                                 of a Big Box. This would        infrastructure, the surrounding environment and the 
                                 impact on the future revenues   state of the market prior to embarking on a land 
                                 the Company                     purchase to mitigate any risk around the 
                                 could make from the land and    viability of the site for development as much as 
                                 failure to secure a pre-let     possible. The Company will usually also work 
                                 may have a negative effect on   in tandem with an experienced and respected 
                                 the                             development partner to manage any preparatory 
                                 valuation.                      works and/or development. 
 
                                 The land may be subject to an 
                                 environmental risk which 
                                 requires significant 
                                 investment to 
                                 remediate prior to commencing 
                                 the development works. 
 
                                 The costs associated with 
                                 developing land may fluctuate 
                                 over the course of the 
                                 development 
                                 due to market conditions. 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Financial Risks 
---------------------------------------------------------------------------------------------------------------------- 
 7. Our use of floating rate debt will expose the business to underlying interest rate movements 
---------------------------------------------------------------------------------------------------------------------- 
 PROBABILITY: MODERATE           IMPACT: LOW                     MITIGATION 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Change in year:                 Interest on our variable rate   The Company has entered into interest rate 
                                 debt facilities is payable      derivatives to hedge our direct exposure to movements 
 Robust financing and hedging    based on a margin over Libor.   in Libor. These derivatives cap our exposure to the 
 with strong liquidity           Any                             level to which Libor can rise and have 
                                 adverse movements in Libor      terms coterminous with the loans. We aim, where 
                                 could significantly impair      reasonable, to minimise the level of unhedged 
                                 our profitability and ability   debt with Libor exposure, by taking out hedging 
                                 to pay                          instruments with a view to keeping variable 
                                 dividends to Shareholders.      rate debt approximately 90%+ hedged. During 2017, we 
                                                                 refinanced a significant amount of floating 
                                                                 rate debt in the year with fixed rate debt. Our 
                                                                 exposure to Libor currently represents only 
                                                                 8.5% of our drawn debt. 
------------------------------  ------------------------------  ------------------------------------------------------ 
 8. A lack of debt funding at appropriate rates may restrict our ability to grow 
---------------------------------------------------------------------------------------------------------------------- 
 PROBABILITY: LOW                IMPACT: MODERATE                MITIGATION 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Change in year:                 Without sufficient debt         During the year the Company refinanced a significant 
                                 funding, we may be unable to    portion of its secured borrowings, by 
 Robust financing and hedging    pursue suitable investment      issuing long-term unsecured borrowings. This should 
 with strong liquidity           opportunities                   enable the Company to raise future debt 
                                 in line with our investment     in a more efficient and effective manner on an 
                                 objectives. If we cannot        unsecured basis. Before we contractually commit 
                                 source debt funding at          to buying an asset, we enter into discussions with 
                                 appropriate rates,              our lenders to get an outline heads of 
                                 either to increase the level    terms on debt financing. This allows us to ensure 
                                 of debt or refinance existing   that we can borrow against the asset and 
                                 debt, this will impair our      maintain our borrowing policy. The Board keeps our 
                                 ability                         liquidity and gearing levels under review. 
                                 to maintain our targeted        We only enter into forward funding commitments if 
                                 level of dividend or impair     they are supported by available committed 
                                 our ability to grow.            funds. In December 2017, we issued a GBP500 million 
                                                                 dual tranche bond with an average term 
                                                                 of 11.5 years along with a GBP350 million unsecured 
                                                                 revolving credit facility. We had headroom 
                                                                 of GBP340 million within the credit facility at the 
                                                                 year end. This has created new banking 
                                                                 relationships for us, which helps keep lending terms 
                                                                 competitive. 
------------------------------  ------------------------------  ------------------------------------------------------ 
 9. We must be able to operate within our debt covenants 
---------------------------------------------------------------------------------------------------------------------- 
 PROBABILITY: LOW                IMPACT: LOW                     MITIGATION 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Change in year:                 If we were unable to operate    We continually monitor our debt covenant compliance, 
                                 within our debt covenants,      to ensure we have sufficient headroom 
  See Depositary Statement       this could lead to default      and to give us early warning of any issues that may 
                                 and our                         arise. Our LTV is low and we enter into 
                                 debt funding being recalled.    interest rate caps to mitigate the risk of interest 
                                 This may result in us selling   rate rises. During 2017, we refinanced 
                                 assets to repay loan            a significant part of our floating rate debt and 
                                 commitments,                    moved predominantly to a fixed rate debt 
                                 resulting in a fall in NAV.     platform. This will mitigate the effect on the 
                                                                 Company from interest rate rises. We invest 
                                                                 in assets let to institutional-grade tenants and we 
                                                                 also seek to maintain a long WAULT, which 
                                                                 should reduce the volatility in our property values. 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Corporate Risk 
---------------------------------------------------------------------------------------------------------------------- 
 10. We rely on the continuance of the Manager 
---------------------------------------------------------------------------------------------------------------------- 
 PROBABILITY: LOW                IMPACT: MODERATE TO HIGH        MITIGATION 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Change in year:                 We continue to rely on the      Unless there is a default, either party may terminate 
                                 Manager's services and its      the Investment Management Agreement 
 See Our Strategy and            reputation in the property      by giving not less than 24 months' written notice, 
 Objectives                      market. As                      which may not be served before 31 December 
                                 a result, the Company's         2019. The Management Engagement Committee regularly 
 See Management Engagement       performance will, to a large    reviews and monitors the Manager's performance. 
 Committee Report                extent, depend on the           In addition, the Board meets regularly with the 
                                 Manager's abilities             Manager, to ensure it maintains a positive 
                                 in the property market.         working relationship. The Investment Management 
                                 Termination of the Investment   Agreement was amended during 2016; see the 
                                 Management Agreement would      Management Engagement Committee Report. 
                                 severely 
                                 affect our ability to manage 
                                 our operations and may have a 
                                 negative impact on the share 
                                 price 
                                 of the Company. 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Taxation Risk 
---------------------------------------------------------------------------------------------------------------------- 
 11. We are a UK REIT and have a tax-efficient corporate structure, with advantageous consequences 
  for UK Shareholders. Any change to our tax status or in UK tax legislation could affect our 
  ability to achieve our investment objectives and provide favourable returns to Shareholders 
---------------------------------------------------------------------------------------------------------------------- 
 PROBABILITY: LOW                IMPACT: LOW TO MODERATE         MITIGATION 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Change in year:                 If the Company fails to              The Board is ultimately responsible for ensuring 
                                 remain a REIT for UK tax             we adhere to the UK REIT regime. It monitors 
 See Our Market                  purposes, our profits and            the REIT compliance reports provided by: 
                                 gains will be subject                 *    the Manager on potential transactions; 
 See Our Strategy and            to UK corporation tax. 
 Objectives 
                                                                       *    the Administrator on asset levels; and 
 
 
                                                                       *    our Registrar and broker on shareholdings. 
 
 
                                                                      The Board has also engaged third-party tax 
                                                                      advisers to help monitor REIT compliance 
                                                                      requirements. 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Political Risk 
---------------------------------------------------------------------------------------------------------------------- 
 12. The vote to leave the EU could result in political and/or economic uncertainty that could 
  have a negative effect on the performance of the Company 
---------------------------------------------------------------------------------------------------------------------- 
 PROBABILITY: LOW                IMPACT: LOW TO MODERATE         MITIGATION 
------------------------------  ------------------------------  ------------------------------------------------------ 
 Change in year:                 The UK has now triggered        The Group operates with a sole focus on the UK Big 
                                 Article 50, which sets the      Box market which has a significant supply 
 Robust financing and hedging    expected date of the UK's       shortage against current levels of demand; this will 
 with strong liquidity           departure from                  assist in supporting property capital 
                                 the EU in March 2019.           values. It is currently well positioned with long and 
                                 Economic volatility is not a    secure leases and a diverse blue-chip 
                                 new risk for the Group;         tenant line up, with a focus on tenants with 
                                 however, until                  financial strength, which are well positioned 
                                 the terms of Brexit become      to withstand any downturn in the UK economy. 
                                 clearer the exact outcome on 
                                 the business is difficult to 
                                 predict 
                                 at this stage. 
------------------------------  ------------------------------  ------------------------------------------------------ 
 

GOING CONCERN AND VIABILITY

The Strategic Report describes the Company financial position, cash flows, liquidity position and borrowing facilities. The Group currently has substantial headroom against its borrowing covenants, with a Group LTV of 26.8% as at 31 December 2017.

The Company also benefits from a secure income stream from leases with long average unexpired terms, which are not overly reliant on any one tenant and present a well-diversified risk. The Company's cash balance as at 31 December 2017 was GBP78.0 million, of which GBP71.9 million was readily available. It also had undrawn amounts under its debt facilities of a further GBP340.0 million. The Company had capital commitments totalling GBP28.6 million, plus a contingent liability reflecting the conditional exchange of contracts on two pre-let forward funded asset purchases, subject to satisfactory planning permission with an investment price of GBP103.7 million plus a standing asset with an investment price of GBP36.1 million. These assets completed on 12 January 2018 and 18 January 2018 respectively.

In December 2017 the Company refinanced a large part of its secured borrowings with unsecured borrowings. The unsecured borrowings were raised via the issue of a nine and 14 year loan notes totalling GBP500 million plus a GBP350 million revolving credit facility. Following the refinancing the Company now has a much deeper pool of liquidity available to it in the sterling bond market, but also greater certainty over its debt platform with a weighted average unexpired term of 8.9 years as at 31 December 2017. As a result, the Directors believe that the Company is well placed to manage its current and future financial commitments and other business risks.

The Directors believe that there are currently no material uncertainties in relation to the Company's ability to continue for a period of at least 12 months from the date of approval of the Company's financial statements. The Board is, therefore, of the opinion that the going concern basis adopted in the preparation of the Annual Report is appropriate.

Anti-bribery and corruption

The Board has a zero tolerance policy towards bribery and is committed to carrying out business fairly, honestly and openly. In considering The Bribery Act 2010, at the date of this report, the Board had assessed the perceived risks to the Company arising from bribery and corruption and to identify aspects of the business, which may be improved to mitigate such risks. The Manager actively reviews and monitors perceived risks in order to mitigate them. Responsibility for anti-bribery and corruption has been assigned to the compliance officer within the Manager who has sufficient time and seniority to manage it effectively. The Manager maintains a risk register, where perceived risks and associated actions are recorded and this is regularly shared with the Board for approval.

Assessment of viability

The period over which the Directors consider it feasible and appropriate to report on the Group's viability is the five year period to 7 March 2023. This period has been selected because it is the period that is used for the Group's medium-term business plans and individual asset performance forecasts.

The assumptions underpinning these forecast cash flows and covenant compliance forecasts were sensitised to explore the resilience of the Group to the potential impact of the Group's significant risks, or a combination of those risks.

The principal risks summarises those matters that could prevent the Group from delivering on its strategy. A number of these principal risks, because of their nature or potential impact, could also threaten in the Group's ability to continue in business in its current form if they were to occur.

The Directors paid particular attention to the risk of a deterioration in economic outlook which would impact property fundamentals, including investor and occupier demand which would have a negative impact on valuations, and give rise to a reduction in the availability of finance. The remaining principal risks, whilst having an impact on the Group's business model, are not considered by the Directors to have a reasonable likelihood of impacting the Group's viability over the five year period to 7 March 2023.

The sensitivities performed were designed to be severe but plausible; and to take full account of the availability of mitigating actions that could be taken to avoid or reduce the impact or occurrence of the underlying risks:

-- Downturn in economic outlook: key assumptions including occupancy, void periods, rental growth and yields were sensitised to reflect reasonably likely levels associated with an economic downturn.

-- Restricted availability of finance: Following the December 2017 refinancing, the Group does not have a refinancing event occurring until December 2022, at which point the GBP350 million revolving credit facility is due to be refinanced. This facility does, however, have two one year extension options, which if exercised and approved by the lenders would extend the maturity of the facility until December 2024. Regardless of the extension of the facility, financing is arranged in advance of expected requirements and the Directors have reasonable confidence that additional or replacement debt facilities will be put in place.

Viability Statement

Having considered the forecast cash flows and covenant compliance and the impact of the sensitivities in combination, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period ending 7 March 2023.

Board approval of the Strategic Report

The Strategic Report was approved on behalf of the Board by:

Richard Jewson Chairman

7 March 2018

DIRECTORS' RESPONSIBILITIES STATEMENT

The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare the Group and Company financial statements for each financial year. The Group financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and the Company financial statements have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law, the Directors must not approve the financial statements unless they are satisfied they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for the Group for that year.

In preparing the financial statements, the Directors are required to:

   --      select suitable accounting policies and then apply them consistently; 
   --      make judgements and estimates that are reasonable and prudent; 

-- for the Group financial statements, state whether they have been prepared in accordance with IFRS's as adopted by the European Union, subject to any material departures disclosed and explained in the Group financial statements;

-- for the Company financial statements, state whether they have been prepared in accordance with Financial Reporting Standard 100 Applications of Financial Reporting Requirements ("FRS 100") and Financial Reporting Standard 101 Reduced Disclosure Framework ("FRS 101"), subject to any material departures disclosed and explained in the Company financial statements; and

-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that its financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, a Strategic Report, a Directors' Remuneration Report and a Corporate Governance Statement that comply with that law and those regulations.

Website publication

The Directors are responsible for ensuring the Annual Report, including the financial statements, is made available on a website. Financial statements are published on the Company's Website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's Website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

Directors' responsibility statement

We confirm that to the best of our knowledge:

-- the financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and Article 4 of the IAS Regulation, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation as a whole;

-- the Strategic Report includes a fair review of the development and performance of the business and the financial position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

-- the Annual Report and Accounts taken as a whole is fair, balanced and understandable, and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy.

Disclosure of information to the Auditor

The Directors who were members of the Board at the time of approving the Directors' Report have confirmed that:

-- so far as each Director is aware, there is no relevant audit information of which the Company's Auditor is not aware; and

-- each Director has taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

Signed on behalf of the Board by:

Richard Jewson Chairman

7 March 2018

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2017

 
                                             Note           Year 
                                                           ended     Year ended 
                                                     31 December    31 December 
                                                            2017           2016 
                                                            GBPm           GBPm 
------------------------------------------  -----  -------------  ------------- 
 Gross rental income                          6           107.96          74.66 
 Service charge income                        6             2.94           2.25 
 Service charge expense                       7           (2.96)         (2.32) 
------------------------------------------  -----  -------------  ------------- 
 Net rental income                                        107.94          74.59 
------------------------------------------  -----  -------------  ------------- 
 
 Administrative and other expenses            8          (14.16)        (11.71) 
------------------------------------------  -----  -------------  ------------- 
 Operating profit before changes 
  in fair value of investment properties                   93.78          62.88 
------------------------------------------  -----  -------------  ------------- 
 Changes in fair value of investment 
  properties                                  15          175.98          47.51 
------------------------------------------  -----  -------------  ------------- 
 Operating profit                                         269.76         110.39 
 
 Finance income                               10            0.40           0.22 
 Finance expense                              11         (20.32)        (11.56) 
 Changes in fair value of interest 
  rate derivatives                            21          (2.04)         (7.15) 
------------------------------------------  -----  -------------  ------------- 
 Profit before taxation                                   247.80          91.90 
 
 Tax charge on profit for the year            12               -              - 
 
 Total comprehensive income (attributable 
  to the Shareholders)                                    247.80          91.90 
------------------------------------------  -----  -------------  ------------- 
 Earnings per share - basic                   13          19.54p         10.52p 
 Earnings per share - diluted                 13          19.53p         10.51p 
------------------------------------------  -----  -------------  ------------- 
 

GROUP STATEMENT OF FINANCIAL POSITION

As at 31 December 2017

 
                                        Note             At             At 
                                                31 December    31 December 
                                                       2017           2016 
                                                       GBPm           GBPm 
-------------------------------------  -----  -------------  ------------- 
 Non-current assets 
 Investment property                     15        2,599.21       1,803.11 
 Interest rate derivatives               21            1.97           3.17 
-------------------------------------  -----  -------------  ------------- 
 Total non-current assets                          2,601.18       1,806.28 
 
 Current assets 
 Trade and other receivables             17           10.23           9.16 
 Cash held at bank                       18           78.04         170.69 
-------------------------------------  -----  -------------  ------------- 
 Total current assets                                 88.27         179.85 
 
 Total assets                                      2,689.45       1,986.13 
-------------------------------------  -----  -------------  ------------- 
 
 Current liabilities 
 Deferred rental income                             (27.62)        (19.45) 
 Trade and other payables                19         (23.44)        (18.64) 
-------------------------------------  -----  -------------  ------------- 
 Total current liabilities                          (51.06)        (38.09) 
 
 Non-current liabilities 
 Bank borrowings                         20        (216.76)       (533.50) 
 Loan notes                              20        (492.17)              - 
-------------------------------------  -----  -------------  ------------- 
 Total non-current liabilities                     (708.93)       (533.50) 
 Total liabilities                                 (759.99)       (571.59) 
 Total net assets                                  1,929.46       1,414.54 
-------------------------------------  -----  -------------  ------------- 
 
 Equity 
 Share capital                          24            13.64          11.05 
 Share premium reserve                  25           932.37         589.39 
 Capital reduction reserve              26           467.93         546.38 
 Retained earnings                      27           515.52         267.72 
-------------------------------------  -----  -------------  ------------- 
 Total equity                                      1,929.46       1,414.54 
-------------------------------------  -----  -------------  ------------- 
 Net asset value per share - basic      28          141.50p        128.00p 
 Net asset value per share - diluted    28          141.44p        127.93p 
 EPRA net asset value per share         28          142.24p        129.00p 
-------------------------------------  -----  -------------  ------------- 
 

These financial statements were approved by the Board of Directors on 07 March 2018 and signed on its behalf by:

Richard Jewson

Chairman

GROUP CASH FLOW STATEMENT

For the year ended 31 December 2017

 
                                           Note           Year           Year 
                                                         ended          ended 
                                                   31 December    31 December 
                                                          2017           2016 
                                                          GBPm           GBPm 
----------------------------------------  -----  -------------  ------------- 
 Cash flows from operating activities 
 Profit for the year (attributable 
  to equity Shareholders)                               247.80          91.90 
 Less: changes in fair value of 
  investment properties                    15         (175.98)        (47.51) 
 Add: changes in fair value of interest 
  rate derivatives                         21             2.04           7.15 
 Less: finance income                      10           (0.40)         (0.22) 
 Add: finance expense                      11            20.32          11.56 
 Accretion of tenant lease incentive       6           (12.52)        (10.23) 
 (Increase)/decrease in trade and 
  other receivables                                     (3.00)           9.74 
 Increase in deferred income                              7.16           5.47 
 Increase in trade and other payables                     0.02           0.39 
 Cash received as part of corporate 
  acquisitions                                            1.62           2.04 
----------------------------------------  -----  -------------  ------------- 
 Cash generated from operations                          87.06          70.29 
----------------------------------------  -----  -------------  ------------- 
 Tax paid                                               (0.28)         (0.02) 
----------------------------------------  -----  -------------  ------------- 
 Net cash flow generated from operating 
  activities                                             86.78          70.27 
----------------------------------------  -----  -------------  ------------- 
 
 Investing activities 
 Purchase of investment properties                    (607.92)       (600.76) 
 Licence fees received                                    5.84           6.69 
 Interest received                                        0.39           0.26 
 Amounts transferred into restricted 
  cash deposits                            18           (5.26)         (0.54) 
 Amounts transferred out of restricted 
  cash deposits                            18             4.78           4.27 
----------------------------------------  -----  -------------  ------------- 
 Net cash flow used in investing 
  activities                                          (602.17)       (590.08) 
----------------------------------------  -----  -------------  ------------- 
 
 Financing activities 
 Proceeds from issue of Ordinary 
  Share capital                            24           351.40         551.08 
 Cost of share issues                      25           (5.83)        (10.16) 
 Bank borrowings drawn                     20           164.00         311.49 
 Bank borrowings repaid                    20         (482.66)       (155.00) 
 Amounts received on issue of loan 
  notes                                                 495.54              - 
 Loan arrangement fees paid                             (7.85)         (2.28) 
 Bank interest paid                                    (14.21)         (9.99) 
 Interest rate cap premium paid                         (1.07)         (1.69) 
 Proceeds from disposal of interest 
  rate cap                                                0.24              - 
 Dividends paid to equity holders                      (77.31)        (57.80) 
----------------------------------------  -----  -------------  ------------- 
 Net cash flow generated from financing 
  activities                                            422.25         625.65 
----------------------------------------  -----  -------------  ------------- 
 
 Net increase/(decrease) in cash 
  and cash equivalents for the year                    (93.14)         105.84 
 
 Cash and cash equivalents at start 
  of the year                              18           165.05          59.21 
----------------------------------------  -----  -------------  ------------- 
 Cash and cash equivalents at end 
  of the year                              18            71.91         165.05 
----------------------------------------  -----  -------------  ------------- 
 

GROUP STATEMENT OF CHANGES IN EQUITY

 
                                                     Capital 
                               Share      Share    reduction    Retained 
                             capital    premium      reserve    earnings      Total 
                                GBPm       GBPm         GBPm        GBPm       GBPm 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 1 January 2017                11.05     589.39       546.38      267.72   1,414.54 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 Total comprehensive 
  income                           -          -            -      247.80     247.80 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 
 Issue of Ordinary 
  Shares 
 Shares issued in 
  relation to further 
  equity issue (May 
  2017)                         2.58     347.42            -           -     350.00 
 Associated share 
  issue costs                      -     (5.83)            -           -     (5.83) 
 Shares issued in 
  relation to management 
  contract                      0.01       1.39            -           -       1.40 
 Share based payments 
  Transfer of share 
  based payments to                -          -            -        1.56       1.56 
  liabilities to reflect 
  settlement                       -          -            -      (1.56)     (1.56) 
 
 Dividends paid: 
 Third interim dividend 
  for the period ended 
  31 December 2016 
  at 1.55 pence per 
  Ordinary Share                   -          -      (17.13)           -    (17.13) 
 First interim dividend 
  for the year ended 
  31 December 2017 
  at 1.60 pence per 
  Ordinary Share                   -          -      (17.69)           -    (17.69) 
 Second interim dividend 
  for the year ended 
  31 December 2017 
  at 1.60 pence per 
  Ordinary Share                   -          -      (21.81)           -    (21.81) 
 Third interim dividend 
  for the year ended 
  31 December 2017 
  at 1.60 pence per 
  Ordinary Share                   -          -      (21.82)           -    (21.82) 
 31 December 2017              13.64     932.37       467.93      515.52   1,929.46 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 
 1 January 2016                 6.78      52.74       605.76      175.82     841.10 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 Total comprehensive 
  income                           -          -            -       91.90      91.90 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 
 Issue of Ordinary 
  Shares 
 Shares issued in 
  relation to further 
  Equity issue (February 
  2016)                         1.61     198.39            -           -     200.00 
 Share issue expenses 
  in relation to Equity 
  issue (February 2016)            -     (3.90)            -           -     (3.90) 
 Shares issued in 
  relation to further 
  Equity issue (October 
  2016)                         2.65     347.35            -           -     350.00 
 Share issue expenses 
  in relation to Equity 
  issue (October 2016)             -     (6.26)            -           -     (6.26) 
 Shares issued in 
  relation to management 
  contract                      0.01       1.07            -           -       1.08 
 Share based payments 
  Transfer of share 
  based payments to                -          -            -        1.25       1.25 
  liabilities to reflect 
  settlement                       -          -            -      (1.25)     (1.25) 
 
 Dividends paid: 
 Fourth interim dividend 
  for the period ended 
  31 December 2015 
  at 3.00 pence per 
  Ordinary Share                   -          -      (20.34)           -    (20.34) 
 First interim dividend 
  for the year ended 
  31 December 2016 
  at 3.10 pence per 
  Ordinary Share                   -          -      (26.02)           -    (26.02) 
 Second interim dividend 
  for the year 
  ended 31 December 
  2016 at 1.50 pence 
  per Ordinary Share               -          -      (13.02)           -    (13.02) 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 31 December 2016              11.05     589.39       546.38      267.72   1,414.54 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 
 

NOTES TO THE CONSOLIDATED ACCOUNTS

1. Corporate information

The consolidated financial statements of the Group for the year ended 31 December 2017 comprise the results of Tritax Big Box REIT plc ("the Company") and its subsidiaries and were approved by the Board for issue on 7 March 2018. The Company is a public listed company incorporated and domiciled in England and Wales. The Company's Ordinary Shares are admitted to the official list of the UK Listing Authority, a division of the Financial Conduct Authority, and traded on the London Stock Exchange. The registered address of the Company is disclosed in the Company Information.

The nature of the Group's operations and its principal activities are set out in the Strategic Report.

Accounting policies

2. Basis of preparation

The financial information contained in this announcement has been prepared on the basis of the accounting policies set out in the financial statements for the year ended 31 December 2017. Whilst the financial information included in this announcement has been computed in accordance with IFRS, as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS. The financial information does not constitute the Group's financial statements for the years ended 31 December 2017 or 31 December 2016, but is derived from those financial statements. Those accounts give a true and fair view of the assets, liabilities, financial position and results of the Group. Financial statements for the year ended 31 December 2016 have been delivered to the Registrar of Companies and those for the year ended 31 December 2017 will be delivered following the Company's Annual General Meeting. The auditors' reports on both the 31 December 2017 and 31 December 2016 financial statements were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

The consolidated financial information has been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) as adopted by the European Union and in accordance with the Companies Act 2006 and Article 4 of the IAS Regulations.

The comparative information disclosed relates to the year ending 31 December 2016.

The Group's financial information has been prepared on a historical cost basis, as modified for the Group's investment properties and interest rate derivatives, which have been measured at fair value through the Group Statement of Comprehensive Income.

The consolidated financial information is presented in Sterling, which is also the Group's functional currency, and all values are rounded to the nearest million (GBPm), except where otherwise indicated.

The Group has chosen to adopt EPRA best practice guidelines for calculating key metrics such as net asset value and earnings per share.

2.1. Going concern

The consolidated financial statements are prepared on a going concern basis as explained within Accountability.

3. Significant accounting judgements, estimates and assumptions

The preparation of the Group's financial information requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

3.1. Judgements

In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial information:

Business combinations

The Group acquires subsidiaries that own investment properties. At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property.

Where such acquisitions are not judged to be the acquisition of a business, they are not treated as business combinations. Rather, the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based upon their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred tax arises.

Operating lease contracts - the Group as lessor

The Group has acquired investment properties that are subject to commercial property leases with tenants. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, particularly the duration of the lease terms and minimum lease payments, that it retains all the significant risks and rewards of ownership of these properties and so accounts for the leases as operating leases.

3.2. Estimates

Fair valuation of investment property

The fair value of investment property is determined, by independent property valuation experts, to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. Properties have been valued on an individual basis. The valuation experts use recognised valuation techniques, applying the principles of both IAS 40 and IFRS 13.

The valuations have been prepared in accordance with the Royal Institution of Chartered Surveyors ("RICS") Valuation - Global Standards January 2017 ("the Red Book"). Factors reflected include current market conditions, annual rentals, lease lengths and location. The significant methods and assumptions used by valuers in estimating the fair value of investment property are set out in note 15.

Fair valuation of interest rate derivatives

In accordance with IAS 39, the Group values its interest rate derivatives at fair value. The fair values are estimated by the loan counterparty with revaluation occurring on a quarterly basis. The counterparties will use a number of assumptions in determining the fair values including estimations over future interest rates and therefore future cash flows. The fair value represents the net present value of the difference between the cash flows produced by the contracted rate and the valuation rate.

4. Summary of significant accounting policies

4.1. Basis of consolidation

The consolidated financial statements incorporate the audited financial statements of the Company and its subsidiaries, as at the year-end date.

4.2. Subsidiaries

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee and the ability of the investor to use its power to affect those variable returns. Control is reassessed wherever facts and circumstances indicate that there may be a change in any of these elements of control.

4.3. Segmental information

The Directors are of the opinion that the Group is engaged in a single segment business, being the investment in the United Kingdom in Big Box assets. The Directors consider that these properties have similar characteristics and as a result these individual properties have been aggregated into a single reportable operating element.

4.4. Investment property and investment property under construction

Investment property comprises completed property that is held to earn rentals or for capital appreciation, or both. Property held under a lease is classified as investment property when it is held to earn rentals or for capital appreciation or both, rather than for sale in the ordinary course of business or for use in production or administrative functions.

The corresponding entry upon recognising lease incentives or fixed/minimum rental uplifts is made to investment property. For further details please see Accounting Policy note 4.14.1.

Investment property is recognised when the risks and rewards of ownership have been transferred and is measured initially at cost including transaction costs. Transaction costs include transfer taxes, professional fees for legal services and other costs incurred in order to bring the property to the condition necessary for it to be capable of operating. Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in the Group Statement of Comprehensive Income in the year in which they arise under IAS 40 Investment Property.

Investment properties under construction are financed by the Group where the Group enters into contracts for the development of a pre-let property under a funding agreement. All such contracts specify a fixed amount of consideration. The Group does not expose itself to any speculative development risk as the proposed building is pre-let to a tenant under an agreement for lease and the Group enters into a fixed price development agreement with the developer. It does, however, undertake certain works including demolition, remediation and other site preparatory works to bring a site to the condition ready for construction of an asset. Investment properties under construction are initially recognised at cost (including any associated costs), which reflect the Group's investment in the assets. Subsequently, the assets are remeasured to fair value at each reporting date. The fair value of investment properties under construction is estimated as the fair value of the completed asset less any costs still payable in order to complete, which include an appropriate developer's margin.

Additions to properties include costs of a capital nature only. Expenditure is classified as capital when it results in identifiable future economic benefits, which are expected to accrue to the Group. All other property expenditure is expensed in the Group Statement of Comprehensive Income as incurred.

Investment properties cease to be recognised when they have been disposed of or withdrawn permanently from use and no future economic benefit is expected from disposal. The difference between the net disposal proceeds and the carrying amount of the asset would result in either gains or losses at the retirement or disposal of investment property. Any gains or losses are recognised in the Group Statement of Comprehensive Income in the year of retirement or disposal.

4.5. Derivative financial instruments

Derivative financial instruments, comprising interest rate caps and swaps for hedging purposes, are initially recognised at cost and are subsequently measured at fair value, being the estimated amount that the Group would receive or pay to terminate the agreement at the period end date, taking into account current interest rate expectations and the current credit rating of the Company and its counterparties. The gain or loss at each fair value remeasurement date is recognised in the Group Statement of Comprehensive Income.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to the fair value measurement as a whole.

4.6. Fair value hierarchy

Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period.

4.7. Trade and other receivables

Trade and other receivables are recognised and carried at the lower of their original invoiced value and recoverable amount.

Where the time value of money is material, receivables are initially recognised at fair value and subsequently measured at amortised cost. A provision for impairment is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off to the Group Statement of Comprehensive Income when the probability of recovery is assessed as being remote.

4.8. Forward funded pre-let investments

The Group enters into forward funding development agreements for pre--let investments. The Group will enter into a forward funding agreement with a developer and simultaneously enter into an agreement for lease with a prospective tenant willing to occupy the building once complete.

4.8.1. Licence fees receivable

During the period between initial investment in a forward funded agreement and the rent commencement date under the lease, the Group receives licence fee income. This is payable by the developer to the Group throughout this period and typically reflects the approximate level of rental income that is expected to be payable under the lease, as and when practical completion is reached. IAS 40.20 states that investment property should be recognised initially at cost, being the consideration paid to acquire the asset, therefore such licence fees are deducted from the cost of the investment and are shown as a receivable. Any economic benefit of the licence fee is reflected within the Group Statement of Comprehensive Income as a movement in the fair value of investment property and not within gross rental income. In addition, IAS 16.21 indicates that income and expenses from operations that are not to bring an asset to the location and condition necessary for it to be capable of operating in the manner intended, should be recognised in profit or loss.

4.9. Cash held at bank

Cash and cash equivalents comprises cash in hand, deposits held at call with banks, other short--term highly liquid investments with original maturities of three months or less. Cash held at bank also includes amounts held in restricted or ring fenced accounts to cover future rent-free periods and certain other capital commitments.

4.10. Trade payables

Trade payables are initially recognised at their fair value, being at their invoiced value inclusive of any VAT that may be applicable. Payables are subsequently measured at cost.

4.11 Bank borrowings

All borrowings are initially recognised at fair value net of attributable transaction costs. After initial recognition, all borrowings are measured at amortised cost, using the effective interest method. The effective interest rate is calculated to include all associated transaction costs. Any difference between the amount initially recognised and the redemption value will be recognised in the Statement of Comprehensive Income over the period of the borrowings.

4.12. Share-based payments

The expense relating to share based payments is accrued over the year in which the service is received and is measured at the fair value of those services received. The extent to which the expense is not settled at the reporting period end is transferred to a liability with a view that there is an expectation that the payment will be settled in cash. Contingently issuable shares are treated as dilutive to the extent that based on market factors prevalent at the reporting period date, the shares would be issuable.

4.13. Dividends payable to Shareholders

Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised when approved by the Shareholders at an Annual General Meeting.

4.14. Property income

4.14.1. Rental income

Rental income arising from operating leases on investment property is accounted for on a straight--line basis over the lease term and is included in gross rental income in the Group Statement of Comprehensive Income. A rental adjustment is recognised from the rent review date in relation to unsettled rent reviews, where the Directors are reasonably certain that the rental uplift will be agreed. Initial direct costs incurred in negotiating and arranging an operating lease are recognised as an expense over the lease term on the same basis as the lease income. Rental income is invoiced, either monthly or quarterly in advance and for all rental income that relates to a future period; this is deferred and appears within current liabilities on the Group Statement of Financial Position.

For leases, which contain fixed or minimum uplifts, the rental income arising from such uplifts is recognised on a straight--line basis over the lease term.

Tenant lease incentives are recognised as a reduction of rental revenue on a straight--line basis over the term of the lease. The lease term is the non--cancellable period of the lease together with any further term for which the tenant has the option to continue the lease where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option.

Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the Group Statement of Comprehensive Income when the right to receive them arises.

When the Group enters into a forward funded transaction, the future tenant signs an agreement for lease. No rental income is recognised under the agreement for lease, but once practical completion has taken place the formal lease is signed at which point rental income commences to be recognised in the Group Statement of Comprehensive Income.

4.14.2. Service charges, insurances and other expenses recoverable from tenants

Income arising from expenses recharged to tenants is recognised in the year in which the compensation becomes receivable. Service and insurance charges and other such receipts are included in net rental income gross of the related costs, as the Directors consider that the Group acts as principal in this respect.

4.15. Finance income

Finance income is recognised as interest accrues on cash balances held by the Group. Interest charged to a tenant on any overdue rental income is also recognised within finance income.

4.16. Finance costs

Finance costs consist of interest and other costs that an entity incurs in connection with bank and other borrowings. Any finance costs that are separately identifiable and directly attributable to the acquisition or construction of an asset that takes a period of time to complete are capitalised as part of the cost of the asset. Finance costs also consist of the amortisation charge of arrangement or other costs associated with the set--up of borrowings, these are amortised over the period of the loan. All other finance costs are expensed to the Group Statement of Comprehensive Income in the period in which they occur.

4.17. Taxation

Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and deferred tax. Current tax is expected tax payable on any non--REIT taxable income for the period, using tax rates enacted or substantively enacted at the period end date, and any adjustment to tax payable in respect of previous years.

5. Standards issued and effective from 1 January 2017

There were no new standards for the first time beginning on or after 1 January 2017 that had a significant effect on the Group's financial statements, other than 'Disclosure initiatives (amendment IAS 7),' which has resulted in a reconciliation of liabilities disclosed for the first time in note 31.

5.1 Standards issued but not yet effective

The following are new standards, interpretations and amendments, which are not yet effective and have not been early adopted in this financial information, that will or may have an effect on the Group's future financial statements:

IFRS 9: Financial Instruments (effective 1 January 2018); The Group will need to apply an expected credit loss model when calculating impairment losses on its trade and other receivables. This may result in increased impairment provisions and greater judgement due to the need to factor in forward looking information. It will need to consider the probability of default occurring over the contractual life of its trade receivables and contracts. As the Company has tenants with strong covenants and generally tenant receipts are received in advance or on the due date, the Directors do not consider there to be a material impact on the Group financial statements.

IFRS 15: Revenue from Contracts with Customers (effective 1 January 2018); The standard is applicable to service charge income but excludes rent receivable, which is within the scope of IFRS 16. The Group does not believe that the standard will have a material impact on the financial statements as service change income is not material. The adoption of the standard may result in changes to presentation and disclosure.

IFRS 16: Leases (effective 1 January 2019). The Directors are currently assessing the impact on the financial statements of this standard; however, at present they do not anticipate that the adoption of this will have a material impact on the Group's financial statements as the Group does not hold any material operating leases as lessee.

6. Total property income

 
                                                           Year 
                                     Year ended           ended 
                                    31 December     31 December 
                                           2017            2016 
                                           GBPm            GBPm 
--------------------------------  -------------  -------------- 
 Rental income - freehold 
  property                                73.02           49.56 
 Rental income - long leasehold 
  property                                22.40           14.85 
 Spreading of tenant incentives 
  and guaranteed rental uplifts           12.52           10.23 
 Lease premiums                            0.02            0.02 
--------------------------------  -------------  -------------- 
 Gross rental income                     107.96           74.66 
--------------------------------  -------------  -------------- 
 
 Property insurance recoverable            2.43            1.83 
 Service charges recoverable               0.51            0.42 
--------------------------------  -------------  -------------- 
 Total insurance/service 
  charge income                            2.94            2.25 
--------------------------------  -------------  -------------- 
 Total property income                   110.90           76.91 
--------------------------------  -------------  -------------- 
 

There were no individual tenants representing more than 10% of gross rental income present during either years.

7. Service charge expenses

 
                                       Year            Year 
                                      ended           ended 
                                31 December     31 December 
                                       2017            2016 
                                       GBPm            GBPm 
----------------------------  -------------  -------------- 
 Property insurance expense            2.94            2.26 
 Service charge expense                0.02            0.06 
----------------------------  -------------  -------------- 
 Total property expenses               2.96            2.32 
----------------------------  -------------  -------------- 
 

8. Administrative and other expenses

 
                                                   Year            Year 
                                                  ended           ended 
                                            31 December     31 December 
                                                   2017            2016 
                                                   GBPm            GBPm 
----------------------------------------  -------------  -------------- 
 Investment management fees                       11.84            9.50 
 Directors' remuneration (note 9)                  0.27            0.21 
----------------------------------------  -------------  -------------- 
 Auditor's fees 
 - Fees payable for the audit of 
  the Company's annual accounts                    0.14            0.17 
 - Fees payable for the review of 
  the Company's interim accounts                   0.03            0.03 
 - Fees payable for the audit of 
  the Company's subsidiaries                       0.05            0.04 
 - Fees payable for taxation compliance 
  services                                            -            0.20 
----------------------------------------  -------------  -------------- 
 Total Auditor's fee                               0.22            0.44 
 Corporate administration fees                     0.38            0.37 
 Regulatory fees                                   0.04            0.04 
 Legal and professional fees                       0.91            0.70 
 Marketing and promotional fees                    0.14            0.12 
 Other administrative costs                        0.36            0.33 
----------------------------------------  -------------  -------------- 
                                                  14.16           11.71 
----------------------------------------  -------------  -------------- 
 

The Auditor has also received GBP0.08 million (2016: GBP0.14 million) in respect of providing reporting accountant services in connection with the equity issuance and bond issuance occurring during the year. A total of GBPnil (2016: GBP0.09 million) has been incurred in respect of due diligence services provided in connection with the acquisition of Group assets. The fees relating to the share issuances have been treated as share issue expenses and offset against share premium. The fees related to the bond issuance have been treated as part of the arrangement fees for issuing the bond. The fees in relation to the acquisition of assets have been capitalised in to the cost of the respective assets.

9. Directors' remuneration

 
                                                          Year 
                                                         ended 
                                    Year ended     31 December 
                                   31 December            2016 
                                     2017 GBPm            GBPm 
-------------------------------  -------------  -------------- 
 Directors' fees                          0.24            0.18 
 Employer's National Insurance            0.03            0.02 
-------------------------------  -------------  -------------- 
                                          0.27            0.20 
-------------------------------  -------------  -------------- 
 

A summary of the Directors' emoluments, including the disclosures required by the Companies Act 2006, is set out in the Directors' Remuneration Report. As Chairman of the Company's Manager, Mark Shaw is not entitled to receive a fee.

10. Finance income

 
                                                               Year 
                                                              ended 
                                         Year ended     31 December 
                                        31 December            2016 
                                          2017 GBPm            GBPm 
------------------------------------  -------------  -------------- 
 Interest received on bank deposits            0.40            0.22 
------------------------------------  -------------  -------------- 
                                               0.40            0.22 
------------------------------------  -------------  -------------- 
 
 

11. Finance expense

 
 
                                                 Year          Year 
                                                ended         ended 
                                          31 December         to 31 
                                                 2017      December 
                                                 GBPm     2016 GBPm 
-------------------------------------  --------------  ------------ 
 Interest payable on bank borrowings            12.29          9.37 
 Interest payable on loan notes                  0.67             - 
 Commitment fees payable on bank 
  borrowings                                     0.63          0.54 
 Swap interest payable                           0.11          0.09 
 One-off cost of extinguishment 
  of bank loans                                  4.75             - 
 Amortisation of loan arrangement 
  fees                                           1.87          1.56 
-------------------------------------  --------------  ------------ 
                                                20.32         11.56 
-------------------------------------  --------------  ------------ 
 

The total interest payable on financial liabilities carried at amortised cost comprises interest and commitment fees payable on bank borrowings and loan notes of GBP13.91 million (2016: GBP10.49 million) of which GBP0.32 million was capitalised in the year (2016: GBP0.58 million) and amortisation of loan arrangement fees of GBP6.69 million (2016: GBP1.68 million) of which GBP0.08 million (2016: GBP0.11 million) was capitalised in the year. The total interest payable on bank borrowings specifically drawn to finance the construction of investment properties was capitalised in the current and preceding year.

The one-off cost of extinguishment of bank loans represents the accelerated amortisation charge in relation to the unamortised borrowing costs following early repayment of GBP550 million syndicated facility and Helaba bilateral loans totalling GBP18.66 million. This was a one-off non cash cost expensed in the Group Statement of Comprehensive Income in the year. There were no other early repayment charges due or payable.

12. Taxation

a) Tax charge in the Group Statement of Comprehensive Income

 
 
                               Year 
                              ended            Year 
                        31 December           ended 
                               2017     31 December 
                               GBPm       2016 GBPm 
-------------------  --------------  -------------- 
 UK corporation tax               -               - 
-------------------  --------------  -------------- 
 

The Government announced its intention to further reduce the UK corporation tax rates from 20% to 19% from 1 April 2017 and 17% from 1 April 2020. Accordingly, these rates have been applied in the measurement of the Group's tax liability at 31 December 2017.

b) Factors affecting the tax credit for the year

The tax assessed for the year is lower than the standard rate of corporation tax in the UK. The differences are explained below:

 
 
                                                  Year 
                                                 ended            Year 
                                           31 December           ended 
                                                  2017     31 December 
                                                  GBPm       2016 GBPm 
--------------------------------------  --------------  -------------- 
 Profit on ordinary activities before 
  taxation                                      247.80           91.90 
 Theoretical tax at UK corporation 
  tax rate of 19.25% 
  (31 December 2016: 20.00%)                     47.70           18.38 
 REIT exempt income                            (14.48)         (10.49) 
 Non-taxable items                             (33.49)          (8.07) 
 Transfer pricing adjustment                      0.65            0.53 
 Residual losses                                (0.38)          (0.35) 
--------------------------------------  --------------  -------------- 
 Total tax credit                                    -               - 
--------------------------------------  --------------  -------------- 
 

Non--taxable items include income and gains that are not taxable for corporation tax purposes other than property rental income exempt from UK corporation tax in accordance with Part 12 of CTA 2010.

REIT exempt income includes property rental income that is exempt from UK corporation tax in accordance with Part 12 of CTA 2010.

13. Earnings per share

Earnings per share (EPS) amounts are calculated by dividing profit for the year attributable to ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue during the year. As there are dilutive instruments outstanding, both basic and diluted earnings per share are quoted below.

The calculation of basic and diluted earnings per share is based on the following:

 
                                                             Weighted 
                                           Net profit         average 
                                         attributable          number   Earnings 
                                          to Ordinary     of Ordinary        per 
 For the year ended 31 December          Shareholders       Shares(1)      share 
  2017                                           GBPm          Number      Pence 
-------------------------------------  --------------  --------------  --------- 
 Basic earnings per share                      247.80   1,268,540,113     19.54p 
 Adjustment for dilutive shares 
  to be issued                                                590,881 
 Diluted earnings per share                    247.80   1,269,130,994     19.53p 
 
   Adjustments to remove: 
 Changes in fair value of 
  investment properties (note 
  15)                                        (175.98) 
 Changes in fair value of 
  interest rate derivatives 
  (note 21)                                      2.04 
 One-off cost of extinguishment 
  of bank loans (note 11)                        4.75 
-------------------------------------  --------------  --------------  --------- 
 EPRA(2) basic earnings per 
  share                                         78.61   1,268,540,113      6.20p 
 EPRA(2) diluted earnings 
  per share                                     78.61   1,269,130,994      6.20p 
-------------------------------------  --------------  --------------  --------- 
 Adjustments to include: 
 Licence fee receivable on 
  forward funded developments                    5.31 
 Rental income recognised in 
  respect of fixed uplifts                     (4.65) 
 Loan amortisation                               1.87 
 Interest capitalised on forward 
  funded developments                          (0.32) 
-------------------------------------  --------------  --------------  ----------- 
 Adjusted basic earnings per 
  share                                         80.82   1,268,540,113        6.37p 
 Adjusted diluted earnings 
  per share                                     80.82   1,269,130,994        6.37p 
-------------------------------------  --------------  --------------  ----------- 
 
 
 
 
 For the year ended 31 December 
  2016 
-------------------------------------  --------------  --------------  ----------- 
 Basic earnings per share                       91.90     873,562,775       10.52p 
 Adjustment for dilutive shares 
  to be issued                                                533,132 
 Diluted earnings per share                     91.90     874,095,907       10.51p 
-------------------------------------  --------------  --------------  ----------- 
 Adjustments to remove: 
 Changes in fair value of investment 
  properties (note 15)                        (47.51) 
 Changes in fair value of interest 
  rate derivatives (note 21)                     7.15 
-------------------------------------  --------------  --------------  ----------- 
 EPRA(2) basic earnings per 
  share                                         51.54     873,562,775        5.90p 
 EPRA(2) diluted earnings per 
  share                                         51.54     874,095,097        5.90p 
-------------------------------------  --------------  --------------  ----------- 
 Adjustments to include: 
 Licence fee receivable on 
  forward funded developments                    7.96 
 Rental income recognised in 
  respect of fixed uplifts                     (3.57) 
 Loan amortisation                               1.56 
 Interest capitalised on forward 
  funded developments                          (0.59) 
-------------------------------------  --------------  --------------  ----------- 
 Adjusted basic earnings per 
  share                                         56.90     873,562,775        6.51p 
 Adjusted diluted earnings 
  per share                                     56.90     874,095,907        6.51p 
-------------------------------------  --------------  --------------  ----------- 
 
 
 

(1 Based on the weighted average number of Ordinary Shares in issue throughout the year.)

(2 European Public Real Estate Association.)

Adjusted earnings is a performance measure used by the Board to assess the level of the Group's dividend payments. The metric reduces EPRA earnings by interest paid to service debt that was capitalised and removes other non--cash items credited or charged to the Statement of Comprehensive Income. Licence fees receivable during the year are added to earnings on the basis noted below as the Board sees these cash flows as supportive of dividend payments. The Board compares the Adjusted earnings to the available distributable reserves when considering the level of dividend to pay.

The adjustment for licence fee receivable is calculated by reference to the fraction of the total period of completed construction during the year, multiplied by the total licence fee receivable on a given forward funded asset. Licence fees will convert into rental income once practical completion has occurred and therefore the rental income will flow into Adjusted earnings from this point.

Fixed rental uplift adjustments relate to adjustments to net rental income on leases with fixed or minimum uplifts embedded within their review profiles. The total minimum income recognised over the lease term is recognised on a straight line basis and therefore not supported by cash flows during the early term of the lease, but this reverses towards the end of the lease.

14. Dividends paid

 
 
                                                 Year 
                                                ended      Year ended 
                                          31 December     31 December 
                                                 2017            2016 
                                                 GBPm            GBPm 
-------------------------------------  --------------  -------------- 
 Third interim dividend in respect 
  of period ended 31 December 2016 
  at 1.55 pence per Ordinary Share 
  (Fourth interim for 31 December 
  2015 at 3.00 pence per Ordinary 
  Share)                                        17.13           20.34 
 First interim dividend in respect 
  of year ended 31 December 2017 
  at 1.60 pence per Ordinary Share 
  (31 December 2016: 3.10 pence)                17.69           26.02 
 Second interim dividend in respect 
  of year ended 31 December 2017 
  at 1.60 pence per Ordinary Share 
  (31 December 2016: 1.55 pence)                21.81           13.02 
 Third interim dividend in respect 
  of year ended 31 December 2017 
  at 1.60 pence per Ordinary Share              21.82               - 
 Total dividends paid                           78.45           59.38 
 Total dividends paid for the year              4.80p           4.65p 
 Total dividends unpaid but declared 
  for the year                                  1.60p           1.55p 
-------------------------------------  --------------  -------------- 
 Total dividends declared for the 
  year                                          6.40p           6.20p 
-------------------------------------  --------------  -------------- 
 

On 24 April 2017, the Company announced the declaration of a first interim dividend in respect of the period from 1 January 2017 to 31 March 2017 of 1.60 pence per Ordinary Share, which was payable on 22 May 2017 to Ordinary Shareholders on the register on 5 May 2017.

On 13 July 2017, the Company announced the declaration of a second interim dividend in respect of the period 1 April 2017 to 30 June 2017 of 1.60 pence per Ordinary Share, which was payable on 10 August 2017 to Shareholders on the register on 21 July 2017.

On 12 October 2017, the Company announced the declaration of a third interim dividend in respect of the period 1 July 2017 to 30 September 2017 of 1.60 pence per Ordinary Share, which was payable on 20 October 2017 to Shareholders on the register on 19 October 2017.

On 7 March 2018, the Company announced the declaration of a fourth interim dividend in respect of the period 1 October 2017 to 31 December 2017 of 1.60 pence per Ordinary Share, which will be payable on or around 29 March 2018 to Shareholders on the register on 15 March 2018.

15. Investment property

In accordance with IAS 40: Investment Property, the investment property has been independently valued at fair value by CBRE Limited ("CBRE"), an accredited independent valuer with a recognised and relevant professional qualification and with recent experience in the locations and categories of the investment properties being valued. The valuations have been prepared in accordance with the RICS Valuation - Global Standards January 2017 ("the Red Book") and incorporate the recommendations of the International Valuation Standards Committee which are consistent with the principles set out in IFRS 13.

The Valuer in forming its opinion make a series of assumptions, which are typically market related, such as net initial yields and expected rental values and are based on the Valuer's professional judgement. The Valuer has sufficient current local and national knowledge of the particular property markets involved and has the skills and understanding to undertake the valuations competently.

The valuations are the ultimate responsibility of the Directors. Accordingly, the critical assumptions used in establishing the independent valuation are reviewed by the Board.

All corporate acquisitions during the year have been treated as asset purchases rather than business combinations because they are considered to be acquisitions of properties rather than businesses.

 
 
                                                     Investment       Investment 
                                      Investment       property         property 
                                        property           long            under 
                                        freehold      leasehold     construction      Total 
                                            GBPm           GBPm             GBPm       GBPm 
---------------------------------  -------------  -------------  ---------------  --------- 
 As at 1 January 2017                   1,278.13         436.84            88.14   1,803.11 
 Property additions(2)                    307.45         121.83           178.32     607.60 
 Fixed rental uplift 
  and tenant lease incentives(1)            7.70           4.82                -      12.52 
 Transfer of completed 
  property to investment 
  property                                209.75              -         (209.75)          - 
 Change in fair value 
  during the year                         121.30          48.89             5.79     175.98 
---------------------------------  -------------  -------------  ---------------  --------- 
 As at 31 December 2017                 1,924.33         612.38            62.50   2,599.21 
---------------------------------  -------------  -------------  ---------------  --------- 
 
 
 As at 1 January 2016                     720.89         260.70           176.27   1,157.85 
 Property additions(2)                    268.27         158.87           160.37     587.51 
 Fixed rental uplift 
  and tenant lease incentives(1)            7.75           2.48                -      10.23 
 Transfer of completed 
  property to investment 
  property                                259.28              -         (259.28)          - 
 Change in fair value 
  during the period                        21.94          14.79            10.78      47.51 
---------------------------------  -------------  -------------  ---------------  --------- 
 As at 31 December 2016                 1,278.13         436.84            88.14   1,803.11 
---------------------------------  -------------  -------------  ---------------  --------- 
 
 

1 Included within the carrying value of investment property is GBP25.89 million (2016: GBP13.37 million) in respect of accrued contracted rental uplift income. This balance arises as a result of the IFRS treatment of leases with fixed or minimum rental uplifts and rent (--) (free periods, which requires the recognition of rental income on a straight) (--) (line basis over the lease term. The difference between this and cash receipts change the carrying value of the property against which revaluations are measured. Also see note 6.)

2 Licence fees deducted from the cost of investment property under construction totalled GBP0.70 million in the year (2016: GBP4.83 million).

 
                                      31 December   31 December 
                                             2017          2016 
                                             GBPm          GBPm 
-----------------------------------  ------------  ------------ 
 Investment property at fair value 
  per Group Statement of Financial 
  Position                               2,599.21      1,803.11 
 Licence fee receivable                         -          2.52 
 Capital commitments                         5.12         82.40 
 Ring fenced cash (note 18)                  2.95             - 
 Restricted cash (note 18)                      -          5.65 
-----------------------------------  ------------  ------------ 
 Total portfolio valuation*              2,607.28      1,893.68 
-----------------------------------  ------------  ------------ 
 

(* Including costs to complete on forward funded development assets.)

Capital commitments represent costs to bring the asset to completion under the developer's funding agreements which include the developer's margin. These commitments could also represent commitments made in respect of asset management initiatives and development land. These costs are not provided for in the Statement of Financial Position; refer to note 32.

Cash received in respect of future rent--free periods represents amounts that were topped up by the vendor on acquisition of the property to cover future rent--free periods on the lease. The valuation assumes the property to be income generating throughout the lease and therefore includes this cash in the value.

Licence fees that have been billed but not received from the developer in relation to the property are included within trade and other receivables. The valuation assumes the property to be income generating and therefore includes this receivable in the value.

Forward funded prepayments represent costs to bring the asset to completion under the Development Funding Agreement which includes the developer's margin and were paid to the developer in advance.

The valuation summary is set out in the Strategic Report.

Fair value hierarchy

The following table provides the fair value measurement hierarchy for investment property:

 
                                                        Quoted 
                                                        prices   Significant     Significant 
                                                     in active    observable    unobservable 
                               Date of                 markets        inputs          inputs 
                             valuation                  (Level        (Level          (Level 
                                            Total           1)            2)              3) 
                                             GBPm         GBPm          GBPm            GBPm 
 Assets measured 
  at fair value: 
                           31 December 
 Investment properties            2017   2,599.21            -             -        2,599.21 
-----------------------  -------------  ---------  -----------  ------------  -------------- 
                           31 December 
 Investment properties            2016   1,803.11            -             -        1,803.11 
-----------------------  -------------  ---------  -----------  ------------  -------------- 
 

There have been no transfers between Level 1 and Level 2 during any of the periods, nor have there been any transfers between Level 2 and Level 3 during any of the periods.

The valuations have been prepared on the basis of Market Value (MV), which is defined in the RICS Valuation Standards, as:

"The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's--length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion."

Market Value as defined in the RICS Valuation Standards is the equivalent of fair value under IFRS.

The following descriptions and definitions relating to valuation techniques and key unobservable inputs made in determining fair values are as follows:

Valuation techniques: market comparable method

Under the market comparable method (or market comparable approach), a property's fair value is estimated based on comparable transactions in the market.

Unobservable input: passing rent

The rent at which space could be let in the market conditions prevailing at the date of valuation (range: GBP893,500 - GBP5,675,049 per annum).

Passing rents are dependent upon a number of variables in relation to the Group's property. These include: size, location, tenant covenant strength and terms of the lease.

Unobservable input: rental growth

The estimated average increase in rent based on both market estimations and contractual arrangements. A reduction of the estimated future rental growth in the valuation model would lead to a decrease in the fair value of the investment property and an inflation of the estimated future rental growth would lead to an increase in the fair value. No quantitative sensitivity analysis has been provided for estimated rental growth as a reasonable range would not result in a significant movement in fair value.

Unobservable input: net initial yield

The net initial yield is defined as the initial gross income as a percentage of the market value (or purchase price as appropriate) plus standard costs of purchase (range: 3.91% - 6.85%).

Sensitivities of measurement of significant unobservable inputs

As set out within significant accounting estimates and judgements above, the Group's property portfolio valuation is open to judgements and is inherently subjective by nature.

As a result the following sensitivity analysis has been prepared:

 
                                      -5% in     +5% in         +0.25%         -0.25% 
                                     passing    passing             in             in 
                                        rent       rent    net initial    net initial 
                                        GBPm       GBPm          yield          yield 
                                                                  GBPm           GBPm 
 ===============================  ==========  =========  =============  ============= 
 (Decrease)/increase in 
 the fair value of investment 
 properties as at 31 December 
 2017                               (130.36)     130.36       (136.56)           152.41 
 (Decrease)/increase in 
 the fair value of investment 
 properties as at 31 December 
 2016                                (94.68)      94.68        (91.39)           101.16 
--------------------------------   ---------  ---------  -------------  --------------- 
 

16. Investments

The Group comprises a number of companies, all subsidiaries included within these financial statements are noted below:

 
                                                                 Country   Ownership 
                                 Principal Activity     of incorporation           % 
---------------------------  ----------------------  -------------------  ---------- 
 TBBR Holdings 1              Investment Holding 
  Limited                      Company                            Jersey        100% 
 TBBR Holdings 2              Investment Holding 
  Limited                      Company                            Jersey        100% 
 Baljean Properties                                              Isle of 
  Limited                     Property Investment                    Man        100% 
 Tritax Acquisition           Investment Holding 
  2 Limited                    Company                            Jersey        100% 
 Tritax Acquisition           Investment Holding 
  2 (SPV) Limited              Company                            Jersey        100% 
 The Sherburn RDC 
  Unit Trust                  Property Investment                 Jersey        100% 
 Tritax REIT Acquisition 
  3 Limited                   Property Investment                     UK        100% 
 Tritax Acquisition 
  4 Limited                   Property Investment                 Jersey        100% 
 Tritax Acquisition 
  5 Limited                   Property Investment                 Jersey        100% 
 Sonoma Ventures 
  Limited                     Property Investment                    BVI        100% 
 Tritax Ripon Limited         Property Investment               Guernsey        100% 
 Tritax REIT Acquisition      Investment Holding 
  8 Limited                    Company                                UK        100% 
 Tritax Acquisition 
  8 Limited                   Property Investment                 Jersey        100% 
 Tritax REIT Acquisition      Investment Holding 
  9 Limited                    Company                                UK        100% 
 Tritax Acquisition 
  9 Limited                   Property Investment                 Jersey        100% 
 Tritax Acquisition 
  10 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  11 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  12 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  13 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  14 Limited                  Property Investment                 Jersey        100% 
 Tritax Worksop 
  Limited                     Property Investment                    BVI        100% 
 Tritax REIT Acquisition      Investment Holding 
  16 Limited                   Company                                UK        100% 
 Tritax Acquisition 
  16 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  17 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  18 Limited                  Property Investment                 Jersey        100% 
 Tritax Harlow Limited        Property Investment               Guernsey        100% 
 Tritax Lymedale 
  Limited                     Property Investment               Guernsey        100% 
 Tritax Acquisition 
  21 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  22 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  23 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  24 Limited                  Property Investment                 Jersey        100% 
 Tritax Knowsley                                                 Isle of 
  Limited                     Property Investment                    Man        100% 
 Tritax Burton Upon 
  Trent Limited               Property Investment                    BVI        100% 
 Tritax Acquisition 
  28 Limited                  Property Investment                 Jersey        100% 
 Tritax Peterborough 
  Limited                     Property Investment                 Jersey        100% 
 Click Peterborough 
  SARL                        Dormant Company                 Luxembourg        100% 
 Tritax Holdings              Investment Holding 
  CL Debt Limited              Company                            Jersey        100% 
 Tritax Portbury 
  Limited                     Property Investment                 Jersey        100% 
 Tritax Newark Limited        Property Investment                 Jersey        100% 
                              Investment Holding 
 Wellzone Limited              Company                                UK        100% 
                              Investment Holding 
 Sportdale Limited             Company                                UK        100% 
 Tritax Holdings              Investment Holding 
  PGIM Debt Limited            Company                            Jersey        100% 
 Tritax Merlin 310 
  Trafford Park Limited       Property Investment                 Jersey        100% 
 Tritax West Thurrock 
  Limited                     Property Investment                 Jersey        100% 
 Tritax Tamworth 
  Limited                     Property Investment                 Jersey        100% 
 Tritax Acquisition 
  34 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  35 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  36 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  37 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  38 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  39 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  40 Limited                  Property Investment                 Jersey        100% 
 Tritax Acquisition 
  41 Limited                  Property Investment                 Jersey        100% 
 Tritax Littlebrook 
  1 Limited                   Property Investment                 Jersey        100% 
 Tritax Littlebrook 
  2 Limited                   Property Investment                 Jersey        100% 
 Tritax Littlebrook 
  3 Limited                   Property Investment                 Jersey        100% 
 Tritax Littlebrook 
  4 Limited                   Property Investment                 Jersey        100% 
 Tritax Atherstone            Investment Holding 
  Limited                      Company                            Jersey        100% 
 Tritax Atherstone 
  Limited (formerly 
  Aequitas Estates 
  (Midlands) Limited)         Property Investment                     UK        100% 
 Tritax Acquisition 
  42 Limited                  Property Investment                 Jersey        100% 
 Tritax Stoke DC1&2           Investment Holding 
  Limited                      Company                            Jersey        100% 
 Tritax Luxembourg 
  DC1&2 Limited               Property Investment             Luxembourg        100% 
 Tritax Stoke DC3             Investment Holding 
  Limited                      Company                            Jersey        100% 
 Tritax Luxembourg 
  DC3 Limited                 Property Investment             Luxembourg        100% 
 Tritax Stoke Management      Property Management 
  Limited                      Company                                UK        100% 
 Tritax Acquisition 
  43 Limited                  Property Investment                 Jersey        100% 
 Tritax Carlisle              Investment Holding 
  Limited                      Company                            Jersey        100% 
 Tritax Carlisle 
  UK Limited                  Property Investment                     UK        100% 
 Tritax Worksop 
  18 Limited                  Property Investment                 Jersey        100% 
 Tritax Edinburgh             Investment Holding 
  Way Harlow Limited           Company                            Jersey        100% 
 Tritax Edinburgh 
  Way Harlow (Luxembourg) 
  Limited                     Property Investment             Luxembourg        100% 
                              Investment Holding 
 Tritax Crewe Limited          Company                            Jersey        100% 
 Tritax Crewe (Luxembourg) 
  Limited                     Property Investment             Luxembourg        100% 
 Tritax Acquisition 
  44 Limited                  Property Investment                 Jersey        100% 
---------------------------  ----------------------  -------------------  ---------- 
 

The registered addresses for the subsidiaries across the Group are consistent based on their country of incorporation and are as follows:

Jersey entities: 13--14 Esplanade, St Helier, Jersey JE1 1EE

Guernsey entities: PO Box 25, Regency Court, Glategny Esplanade, St Peter Port, Guernsey GY1 3AP

Isle of Man entities: 33--37 Athol Street, Douglas, Isle of Man IM1 1LB

BVI entities: Jayla Place, Wickhams Cay 1, PO Box 3190, Road Town, Tortola, BVI VG1110

UK entities: Aberdeen House, South Road, Haywards Heath, West Sussex RH16 4NG

Luxembourg entity: 46A Avenue J F Kennedy L--1885, Grand Duchy of Luxembourg.

17. Trade and other receivables

 
                                            Year           Year 
                                           ended          ended 
                                     31 December    31 December 
                                            2017           2016 
                                            GBPm           GBPm 
---------------------------------  -------------  ------------- 
 Trade receivables                          5.27           5.42 
 Licence fee receivable                     0.45           2.52 
 Prepayments, accrued income and 
  other receivables                         0.92           1.22 
 VAT                                        3.59              - 
---------------------------------  -------------  ------------- 
                                           10.23           9.16 
---------------------------------  -------------  ------------- 
 

As at 31 December 2017, some trade receivables were past due but not impaired, as set out below.

Past due but not impaired

 
 < 30 days     3.27   4.52 
 30-60 days    1.74   0.15 
 60-90 days       -   0.64 
 90 days +     0.26   0.11 
------------  -----  ----- 
               5.27   5.42 
------------  -----  ----- 
 

18. Cash held at bank

 
                                               Year           Year 
                                              ended          ended 
                                        31 December    31 December 
                                               2017           2016 
                                               GBPm           GBPm 
------------------------------------  -------------  ------------- 
 Cash and cash equivalents to agree 
  with cash flow                              71.91         165.04 
 Restricted cash                               6.13           5.65 
------------------------------------  -------------  ------------- 
                                              78.04         170.69 
------------------------------------  -------------  ------------- 
 

Ring fenced cash of GBP2.95 million (2016: GBPnil) included with cash and cash equivalents represents amounts relating to future rent--free periods on certain assets within the portfolio or rental top--up amounts, where a cash deduction against the net purchase price was agreed with the vendor. Currently the cash is held in a ring fenced bank account.

Restricted cash is cash where there is a legal restriction to specify its type of use, i.e. this may be where we have a joint arrangement with a tenant under an asset management initiative.

Cash and cash equivalents reported in the Consolidated Statement of Cash Flows totalled GBP68.96 million (2016: GBP165.05 million) as at the year end, which excludes long--term restricted and ring fenced cash deposits totalling GBP9.08 million (2016: GBP5.65 million). Total cash held at bank as reported in the Group Statement of Financial Position is GBP78.04 million (2016: GBP170.69 million).

19. Trade and other payables

 
                                       Year     Year ended 
                                      ended    31 December 
                                31 December           2016 
                                       2017           GBPm 
                                       GBPm 
----------------------------  -------------  ------------- 
 Trade and other payables             16.81          12.68 
 Bank loan interest payable            1.69           1.90 
 Accruals                              4.43           3.57 
 VAT                                      -           0.21 
 Tax liability                         0.51           0.28 
----------------------------  -------------  ------------- 
                                      23.44          18.64 
----------------------------  -------------  ------------- 
 

The tax liability arises from the acquisition of a number of special purpose vehicles (SPV's) during the current and prior year. The tax liability wholly relates to the period prior to Group ownership. Any tax liability was fully accrued for within the take on accounts of the SPV.

20. Borrowings

A summary of the drawn and undrawn bank borrowings in the year is shown below:

Bank Borrowings

 
                                               Bank          Bank 
                                         borrowings    borrowings 
                                              drawn       undrawn      Total 
                                               GBPm          GBPm       GBPm 
-------------------------------------  ------------  ------------  --------- 
 As at 1 January 2017                        541.53        150.00     691.53 
 New bank borrowings agreed 
  in the year                                100.00        340.00     440.00 
 Bank borrowings drawn in the 
  year under existing facilities              64.00       (64.00)          - 
 Bank borrowings repaid in 
  the year under existing facilities       (482.66)       (86.00)   (568.66) 
 As at 31 December 2017                      222.87        340.00     562.87 
-------------------------------------  ------------  ------------  --------- 
 
 As at 1 January 2016                        385.04        184.49     569.53 
 New bank borrowings agreed 
  in the year                                 72.00             -      72.00 
 Bank borrowings drawn in the 
  year under existing facilities             239.49       (84.49)     155.00 
 Bank borrowings repaid in 
  the year under existing facilities       (155.00)             -   (155.00) 
 Increase in Syndicated bank 
  borrowings agreed in the year                   -        50.000      50.00 
-------------------------------------  ------------  ------------  --------- 
 As at 31 December 2016                      541.53        150.00     691.53 
-------------------------------------  ------------  ------------  --------- 
 
 

Loan Notes

 
 
                         31 December     31December 
                                2017           2016 
   Bonds                        GBPm           GBPm 
------------------    --------------  ------------- 
 2.625% Bonds 2026            249.01              - 
 3.125% Bonds 2031            246.55              - 
                              495.56              - 
------------------    --------------  ------------- 
 

On 1 March 2017, the Group announced that it had agreed a new long--term, interest only, fixed rate term loan facility of GBP90 million with PGIM Real Estate Finance, secured against a portfolio of four assets. The facility, which was drawn in full immediately, is repayable on 1 March 2027 and has a fixed all--in rate payable of 2.54% per annum. The amounts drawn down under the facility will be segregated and non--recourse to the Company.

On 14 December 2017, the Group announced the pricing of senior unsecured loan notes (the "notes") with an aggregate principal amount of GBP500 million split evenly over a nine and 14 year term. The notes were issued under the Company's GBP1.5 billion Euro Medium Term Note Programme. The Group issued two tranches of loan notes, comprising (i) GBP250 million senior unsecured loan notes maturing on 14 December 2026, and (ii) GBP250 million senior unsecured loan notes maturing on 14 December 2031. The 2026 Notes and the 2031 Notes were priced at a fixed interest rate of 2.625% and 3.125% per annum respectively.

On the same date, the Company also announced a new GBP350 million unsecured revolving credit facility with its core relationship lender group and selected new lenders. The new unsecured revolving credit facility has an initial maturity of five years and can be extended (subject to obtaining the prior consent of the lenders) by a further two years to a maximum of seven years. The new facility also contains an uncommitted GBP200 million accordion option. The new facility had an opening margin of 1.10% per annum over Libor.

The syndicate for the unsecured revolving credit facility comprises Barclays Bank PLC, BNP Paribas London Branch, HSBC Bank plc, ING Bank N.V. London Branch, The Royal Bank of Scotland plc, Santander UK plc and Wells Fargo Bank N.A. London Branch.

Following the issue of the notes and the entering into of the unsecured revolving credit facility, the Company's existing GBP550 million secured syndicated facility due October 2020 and the GBP7.06 million and GBP11.60 million Helaba facilities due November 2019 were repaid in full on 11 December 2017 and 7 December 2017 respectively.

Following the December 2017 refinancing, a large part of the Group's borrowings are unsecured financing arrangements. The nature of unsecured financing arrangements means that the Group has greater flexibility, it allows for quicker execution of future debt at a lower cost of arrangement and provides a scalable debt platform to support the future growth of the business. After the date of refinancing 62% (2016: 10%) of the Group's debt facility commitments are fixed term, with 38% floating term (2016: 90%). As at 31 December 2017, the weighted average running cost of debt was 2.38% (2016: 1.80%), with a reduction to the Group's average capped cost of debt (see below).

The Group has been in compliance with all of the financial covenants of the Group's bank facilities as applicable throughout the year covered by these financial statements.

Any associated fees in arranging the bank borrowings and loan notes that are unamortised as at the year end are offset against amounts drawn on the facilities as shown in the table below:

 
                                        31 December   31 December 
                                               2017          2016 
                                               GBPm          GBPm 
-------------------------------------  ------------  ------------ 
 Bank borrowings drawn: due in more 
  than one year                              222.87        541.53 
 Loan notes drawn: due in more than          495.56             - 
  one year 
 Less: Unamortised costs on bank 
  borrowings                                 (6.11)        (8.03) 
 Less: Unamortised costs on loan             (3.39)             - 
  notes 
-------------------------------------  ------------  ------------ 
 Non-current liabilities: borrowings         708.93        533.50 
-------------------------------------  ------------  ------------ 
 

Maturity of borrowings

 
                                    31 December   31 December 
                                           2017          2016 
                                           GBPm          GBPm 
---------------------------------  ------------  ------------ 
 Repayable between 1 and 2 years              -             - 
 Repayable between 2 and 5 years          10.00        418.66 
 Repayable in over 5 years               708.43        122.87 
---------------------------------  ------------  ------------ 
                                         718.43        541.53 
---------------------------------  ------------  ------------ 
 

On 15 December 2017, the Group announced that it had agreed terms to extend the maturity of its GBP50.87 million loan facility secured on the asset with Landesbank Hessen--Thüringen Girozentrale ("Helaba") from July 2023 to July 2025. The margin payable on the facility remained unchanged.

Following the refinancing as noted above, the weighted average term to maturity of the Group's debt as at the year end is 8.9 years (31 December 2016: 4.8 years). The syndicated facility has a two--year extension option remaining, exercisable on the first and second anniversaries of the facility. This option requires lender consent, although when taking these into account the weighted average term to maturity, for the Group, assuming all options were exercised, would increase to 9.6 years (31 December 2016: 5.6 years).

21. Interest rate derivatives

To mitigate the interest rate risk that arises as a result of entering into variable rate loans, the Group has entered into a number of interest rate derivatives. A number of interest rate caps and one interest rate swap have been taken out in respect of the Group's variable rate debt to fix or cap the rate to which 3 month Libor can rise. Each runs coterminous to the initial term of the respective loans.

The weighted average capped rate, excluding any margin payable, for the Group as at the year end was 1.26% (2016: 1.39%), which effectively caps the level to which Libor can rise to, therefore limiting any effect on the Group of an interest rate rise. The interest rate derivatives mean that the Group's borrowing facilities at the year end have an all--inclusive interest rate payable of 2.66% (2016: 2.82%). The total premium payable in the year towards securing the interest rate caps was GBP1.07 million (2016: GBP1.69 million).

 
                                      31 December   31 December 
                                             2017          2016 
                                             GBPm          GBPm 
-----------------------------------  ------------  ------------ 
 Non-current assets: interest rate 
  derivatives                                1.97          3.17 
-----------------------------------  ------------  ------------ 
 

The interest rate derivatives are marked to market by the relevant counterparty banks on a quarterly basis in accordance with IAS 39. Any movement in the mark to market values of the derivatives are taken to the Group Statement of Comprehensive Income.

 
                                       31 December   31 December 
                                              2017          2016 
                                              GBPm          GBPm 
------------------------------------  ------------  ------------ 
 Interest rate derivative valuation 
  brought forward                             3.18          8.64 
 Interest rate cap premium paid               1.07          1.68 
 Disposal of interest rate cap              (0.24)             - 
 Changes in fair value of interest 
  rate derivatives                          (2.04)        (7.15) 
------------------------------------  ------------  ------------ 
                                              1.97          3.17 
------------------------------------  ------------  ------------ 
 

As part of the Group refinancing in December 2017, on repayment of the borrowings to Helaba, the Group disposed of three interest rate caps held against the secured loans. The Group received proceeds of GBP0.24 million on disposal.

It is the Group's target to hedge at least 90% of the total debt portfolio either using interest rate derivatives or entering fixed rate loan arrangements. As at the year--end date the total proportion of debt either hedged via interest rate derivatives or subject to fixed rate loan agreements equated to 99.78%, as shown below.

 
                                         31 December   31 December 
                                                2017          2016 
                                               Drawn         Drawn 
                                                GBPm          GBPm 
--------------------------------------  ------------  ------------ 
 Total borrowings drawn (note 20)             718.43        541.53 
 Notional value of effective interest 
  rate derivatives and fixed rate 
  loans                                       716.90        539.81 
--------------------------------------  ------------  ------------ 
 Proportion of hedged debt                    99.78%        99.68% 
--------------------------------------  ------------  ------------ 
 

As at the year end, the Group had notional value of interest rate caps of GBP337.50 million to act as a hedge against the GBP350.00 million revolving credit facility.

Fair value hierarchy

The following table provides the fair value measurement hierarchy for interest rate derivatives:

 
                                                             Significant     Significant 
                                                    Quoted    observable    unobservable 
                                                    prices        inputs          inputs 
                           Date of     Total     in active        (Level          (Level 
                         valuation      GBPm       markets            2)              3) 
                                                    (Level          GBPm            GBPm 
                                                        1) 
                                                      GBPm 
-----------------  ---------------  --------  ------------  ------------  -------------- 
 Assets measured 
  at fair value: 
  Interest rate        31 December 
  derivatives                 2017      1.97             -          1.97               - 
-----------------  ---------------  --------  ------------  ------------  -------------- 
 Interest rate         31 December 
  derivatives                 2016      3.17             -          3.17               - 
-----------------  ---------------  --------  ------------  ------------  -------------- 
 

The fair value of these contracts are recorded in the Group Statement of Financial Position and is determined by forming an expectation that interest rates will exceed strike rates and discounting these future cash flows at the prevailing market rates as at the year end.

There have been no transfers between Level 1 and Level 2 during any of the years, nor have there been any transfers between Level 2 and Level 3 during any of the years.

22. Financial risk management

Financial instruments

The Group's principal financial assets and liabilities are those that arise directly from its operations: trade and other receivables, trade and other payables and cash held at bank. The Group's other principal financial assets and liabilities are bank borrowings and interest rate derivatives, the main purpose of which is to finance the acquisition and development of the Group's investment property portfolio and hedge against the interest rate risk arising.

Set out below is a comparison by class of the carrying amounts and fair value of the Group's financial instruments that are carried in the financial information:

 
                                           Book           Fair           Book           Fair 
                                          value          value          value          value 
                                    31 December    31 December    31 December    31 December 
                                           2017           2017           2016           2016 
                                           GBPm           GBPm           GBPm           GBPm 
--------------------------------  -------------  -------------  -------------  ------------- 
 Financial assets 
 Interest rate derivatives                 1.97           1.97           3.17           3.17 
 Trade and other receivables(1)            9.31           9.31           7.97           7.97 
 Cash held at bank                        78.04          78.04         170.69         170.69 
--------------------------------  -------------  -------------  -------------  ------------- 
 Financial liabilities 
 Trade and other payables(2)              22.93          22.93          18.35          18.35 
 Borrowings                              718.43         712.98         541.53         543.62 
--------------------------------  -------------  -------------  -------------  ------------- 
 

1 Excludes certain VAT certain prepayments, other debtors and forward funded prepayments.

2 Excludes tax and VAT liabilities.

Interest rate derivatives are the only financial instruments measured at fair value through the Group Statement of Comprehensive Income. All other financial assets are classified as loans and receivables and all financial liabilities are measured at amortised cost. All financial instruments were designated in their current categories upon initial recognition.

 
                                                                  Significant     Significant 
                                                         Quoted    observable    unobservable 
                                                         prices        inputs          inputs 
                                Date of     Total     in active        (Level          (Level 
                              valuation      GBPm       markets            2)              3) 
                                                         (Level          GBPm            GBPm 
                                                             1) 
                                                           GBPm 
----------------------  ---------------  --------  ------------  ------------  -------------- 
 Liabilities measured 
  at fair value:            31 December 
  Borrowings                       2017    652.11        491.46        160.65               - 
----------------------  ---------------  --------  ------------  ------------  -------------- 
                            31 December 
 Borrowings                        2016     69.91             -         69.91               - 
----------------------  ---------------  --------  ------------  ------------  -------------- 
 

The Group has two fixed rate loans totalling GBP162 million, provided by PGIM (GBP90 million) and Canada Life (GBP72 million). The fair value is determined by comparing the discounted future cash flows using the contracted yields with those reference gilts plus the margin implied. The references used were the Treasury 4.25% 2027 Gilt and Treasury 4.75% 2030 Gilt respectively, with an implied margin which is unchanged since the date of fixing. The loan is considered to be a Level 2 fair value measurement. For all other bank loans there is considered no other difference between fair value and carrying value.

The fair value of financial liabilities traded on active liquid markets, including the 2.625% Bonds 2026 and 3.125% Bonds 2031, is determined with reference to the quoted market prices. These financial liabilities are considered to be a Level 1 fair value measure.

The book value of the financial liabilities at Level 1 fair value measure were GBP492.17 million (2016: GBPnil) and the financial liabilities at Level 2 fair value measure were GBP162 million (2016: GBP72 million).

Risk management

The Group is exposed to market risk (including interest rate risk), credit risk and liquidity risk. The Board of Directors oversees the management of these risks. The Board of Directors reviews and agrees policies for managing each of these risks that are summarised below.

Market risk

Market risk is the risk that the fair values of financial instruments will fluctuate because of changes in market prices. The financial instruments held by the Group that are affected by market risk are principally the Group's cash balances, bank borrowings along with a number of interest rate derivatives entered into to mitigate interest rate risk.

The Group monitors its interest rate exposure on a regular basis. A sensitivity analysis performed to ascertain the impact on the Group Statement of Comprehensive Income and net assets of a 50 basis point shift in interest rates would result in an increase of GBP0.30 million (2016: GBP2.71 million) or a decrease of GBP0.30 million (2016: GBP2.71 million).

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risks from both its leasing activities and financing activities, including deposits with banks and financial institutions. Credit risk is assisted by tenants being required to pay rentals in advance under their lease obligations. The credit quality of the tenant is assessed based on an extensive credit rating scorecard at the time of entering into a lease agreement.

Outstanding trade receivables are regularly monitored. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial asset.

Trade receivables

Trade receivables, primarily tenant rentals, are presented in the Statement of Financial Position net of allowances for doubtful receivables and are monitored on a case by case basis. Credit risk is primarily managed by requiring tenants to pay rentals in advance and performing tests around strength of covenant prior to acquisition.

Credit risk related to financial instruments and cash deposits

One of the principal credit risks of the Group arises with the banks and financial institutions. The Board of Directors believes that the credit risk on short--term deposits and current account cash balances is limited because the counterparties are banks, who are committed lenders to the Group, with high credit ratings assigned by international credit--rating agencies.

Liquidity risk

Liquidity risk arises from the Group's management of working capital and, going forward, the finance charges, principal repayments on its borrowings and its commitments under forward funded development arrangements. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due, as the majority of the Group's assets are property investments and are therefore not readily realisable. The Group's objective is to ensure it has sufficient available funds for its operations and to fund its capital expenditure. This is achieved by continuous monitoring of forecast and actual cash flows by management ensuring it has appropriate levels of cash and available drawings to meet liabilities as they fall due.

The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments:

 
                     On demand   < 3 months      3-12      1-5      > 5    Total 
                          GBPm         GBPm    months    years    years     GBPm 
                                                 GBPm     GBPm     GBPm 
-----------------  -----------  -----------  --------  -------  -------  ------- 
 31 December 
  2017 
 Borrowings                  -         4.99     14.87    89.38   830.98   940.22 
 Trade and 
  other payables             -        23.44         -        -        -    23.44 
-----------------  -----------  -----------  --------  -------  -------  ------- 
                             -        28.43     14.87    89.38   830.98   963.66 
 -----------------------------  -----------  --------  -------  -------  ------- 
 31 December 
  2016 
 Borrowings                  -         2.66      7.97   499.86    85.94   596.43 
 Trade and 
  other payables             -        18.35         -        -        -    18.35 
-----------------  -----------  -----------  --------  -------  -------  ------- 
                             -        21.01      7.97   499.86    85.94   614.78 
 -----------------------------  -----------  --------  -------  -------  ------- 
 

Included within the contracted payments is GBP217.32 million (2016: GBP54.90 million) of loan interest payable up to the point of maturity across the facilities.

23. Capital management

The primary objective of the Group's capital management is to ensure that it remains a going concern and continues to qualify for UK REIT status.

The Board, with the assistance of the Investment Manager, monitors and reviews the Group's capital so as to promote the long--term success of the business, facilitate expansion and to maintain sustainable returns for Shareholders. The Group considers proceeds from share issuances, bank borrowings and retained earnings as capital. The Group's policy on borrowings is as set out below:

The level of borrowing will be on a prudent basis for the asset class, and will seek to achieve a low cost of funds, while maintaining flexibility in the underlying security requirements, and the structure of both the portfolio and the REIT Group.

The Directors intend that the Group will maintain a conservative level of aggregate borrowings with a medium--term limit of 40% of the Group's gross assets.

The Group has complied with all covenants on its borrowings up to the date of this report. All of the targets mentioned above sit comfortably within the Group's covenant Levels which include loan to value ("LTV"), interest cover ratio and loan to projected project cost ratio. The Group LTV at the year end was 26.8% (2016: 30.0%).

Debt is secured at the asset and corporate level, subject to the assessment of the optimal financing structure for the Group and having consideration to key metrics including lender diversity, debt type and maturity profiles.

24. Share capital

The share capital relates to amounts subscribed for share capital at its nominal value:

 
                                  31 December   31 December     31 December   31 December 
                                         2017          2017            2016          2016 
                                       Number          GBPm          Number          GBPm 
-----------------------------  --------------  ------------  --------------  ------------ 
 Issued and fully paid 
  at 1 pence each               1,363,598,083         13.64   1,105,159,529         11.05 
-----------------------------  --------------  ------------  --------------  ------------ 
 
 Balance at beginning 
  of year - GBP0.01 Ordinary 
  Shares                        1,105,159,529         11.05     677,840,088          6.78 
-----------------------------  --------------  ------------  --------------  ------------ 
 Shares issued in relation 
  to further Equity issuance      257,352,941          2.58     426,441,838          4.26 
 Shares issued in relation 
  to management contract            1,085,613          0.01         877,603          0.01 
-----------------------------  --------------  ------------  --------------  ------------ 
 Balance at end of year         1,363,598,083         13.64   1,105,159,529         11.05 
-----------------------------  --------------  ------------  --------------  ------------ 
 

On 13 April 2017 the Company announced that, in accordance with the terms of the management fee arrangements with the Manager pursuant to which 25% of the management fee is payable in new Ordinary Shares, it issued 528,528 Ordinary Shares at an issue price per Ordinary Share of 126.45 pence.

On 24 April 2017, the Company announced that it intended to proceed with a proposed Placing, Open Offer and Offer for Subscription of new Ordinary Shares at a price of 136.00 pence per share to raise GBP200 million. Following this on 11 May 2017 the Company announced it had exercised its right to increase the size of the issue, due to excess demand, to GBP350 million. As a result, a total of 257,352,941 Ordinary Shares were issued at a price of 136.00 pence per Ordinary Share, of which 100,517,096 Ordinary Shares were issued pursuant to the Open Offer, 12,075,902 Ordinary Shares were issued pursuant to the Offer for Subscription, 144,759,943 Ordinary Shares were issued under the Placing.

On 3 October 2017 the Company announced that, in accordance with the terms of the management fee arrangements with the Manager pursuant to which 25% of the management fee is payable in new Ordinary Shares, it issued 557,085 Ordinary Shares at an issue price per Ordinary Share of 130.83 pence.

25. Share premium

The share premium relates to amounts subscribed for share capital in excess of nominal value:

 
                                           31 December   31 December 
                                                  2017          2016 
                                                  GBPm          GBPm 
---------------------------------------   ------------  ------------ 
 Balance at beginning of year                   589.39         52.74 
 Share premium on Ordinary Shares 
  issued in relation to further Equity 
  issuance                                      347.42        545.74 
 Share issue expenses in relation 
  to further Equity issuance                    (5.83)       (10.16) 
 Transfer to capital reduction reserve 
  (see note 26)                                      -             - 
 Share premium on Ordinary Shares 
  issued to management                            1.39          1.07 
----------------------------------------  ------------  ------------ 
 Balance at end of year                         932.37        589.39 
----------------------------------------  ------------  ------------ 
 

26. Capital reduction reserve

 
                                          31 December   31 December 
                                                 2017          2016 
                                                 GBPm          GBPm 
---------------------------------------  ------------  ------------ 
 Balance at beginning of year                  546.38        605.76 
 Transfer from share premium                        -             - 
 Third interim dividend for the period 
  ended 31 December 2016                      (17.13)       (20.34) 
 First interim dividend for the year 
  ended 31 December 2017                      (17.69)       (26.02) 
 Second interim dividend for the year 
  ended 31 December 2017                      (21.81)       (13.02) 
 Third interim dividend for the year          (21.82)             - 
  ended 31 December 2017 
---------------------------------------  ------------  ------------ 
 Balance at end of year                        467.93        546.38 
---------------------------------------  ------------  ------------ 
 

Please refer to note 14 for details of the declaration of dividends to Shareholders.

27. Retained earnings

 
                                 31 December   31 December 
                                        2017          2016 
                                        GBPm          GBPm 
------------------------------  ------------  ------------ 
 Balance at beginning of year         267.72        175.82 
 Retained profit for the year         247.80         91.90 
------------------------------  ------------  ------------ 
 Balance at end of year               515.52        267.72 
------------------------------  ------------  ------------ 
 

Retained earnings relates to all net gains and losses not recognised elsewhere.

28. Net asset value (NAV) per share

Basic NAV per share is calculated by dividing net assets in the Group Statement of Financial Position attributable to ordinary equity holders of the parent by the number of Ordinary Shares outstanding at the end of the year. As there are dilutive instruments outstanding, both basic and diluted NAV per share are shown below.

 
                                            31 December     31 December 
                                                   2017            2016 
                                                   GBPm            GBPm 
---------------------------------------  --------------  -------------- 
 Net assets per Group Statement of 
  Financial Position                           1,929.46        1,414.54 
 EPRA NAV (see Additional Information)         1,940.42        1,426.19 
 Ordinary Shares: 
 Issued share capital (number)            1,363,598,083   1,105,159,529 
 Basic net asset value per share                141.50p         128.00p 
 Dilutive shares in issue (number)              590,881         533,132 
---------------------------------------  --------------  -------------- 
 Diluted net asset value per share              141.44p         127.93p 
 Basic EPRA NAV per share                       142.30p         129.05p 
 Dilutive shares in issue (number)              590,881         533,132 
---------------------------------------  --------------  -------------- 
 Diluted EPRA NAV per share                     142.24p         129.00p 
---------------------------------------  --------------  -------------- 
 
 

EPRA NAV is calculated as net assets per the Consolidated Statement of Financial Position excluding fair value adjustments for debt--related derivatives.

29. Operating leases

The future minimum lease payments under non--cancellable operating leases receivable by the Group are as follows:

 
                     < 1 year   2-5 years   > 5 years      Total 
                         GBPm        GBPm        GBPm       GBPm 
------------------  ---------  ----------  ----------  --------- 
 31 December 2017      119.50      484.28    1,239.05   1,842.83 
------------------  ---------  ----------  ----------  --------- 
 31 December 2016       84.65      354.07    1,014.44   1,453.16 
------------------  ---------  ----------  ----------  --------- 
 

The Group's investment properties are leased to single tenants, with the exception of one asset which is leased to two separate tenants, some of which have guarantees attached, under the terms of a commercial property lease. Each has upward only rent reviews that are linked to either RPI/CPI, open market or with fixed uplifts.

30. Transactions with related parties

For the year ended 31 December 2017 all Directors and the Partners of the Manager are considered key management personnel. The terms and conditions of the Investment Management Agreement are described in the Management Engagement Committee Report. Details of the amount paid for services provided by Tritax Management LLP ("the Manager") are provided in note 8.

The total amount outstanding at the year end relating to the Investment Management Agreement was GBP3.29 million (2016: GBP2.74 million).

The total expense recognised in the Statement of Comprehensive Income relating to share based payments under the Investment Management Agreement was GBP1.56 million (2016: GBP1.25 million), of which GBP0.84 million (2016: GBP0.67 million) was outstanding at the year end.

Details of amounts paid to Directors for their services can be found within the Directors' Remuneration Report. Throughout the year SG Commercial LLP ("SG Commercial") has provided general property agency services to the Group. SG Commercial has been paid fees totalling GBP0.68 million (2016: GBP1.55 million) in respect of agency services for the year; this represents a total of 20% (2016: 36%) of agency fees paid by the Group during the year. There were GBPnil (2016: GBP0.04 million) fees outstanding as at the year end. Of the four controlling Members of the Manager, namely Mark Shaw, Colin Godfrey, James Dunlop and Henry Franklin, all except Henry Franklin are also the controlling Members of SG Commercial. While there are currently no existing contractual arrangements between the Company and SG Commercial, the Company may choose to appoint SG Commercial in the future from time to time on either a sole or joint agency basis. Any such appointments have been and will continue to be made on normal market--based contractual terms. In the event that any such appointment is proposed by the Manager, the Board has and shall continue to be consulted and asked for its approval.

Mark Shaw does not vote at any meeting of the Board relating to contractual terms to be agreed between the Company, the Manager and SG Commercial, nor with respect to any investment decision where SG Commercial is acting as agent in any capacity.

During the year the Directors received the following dividends; Richard Jewson: GBP4,588, Jim Prower: GBP1,508, Aubrey Adams: GBPnil, Susanne Given: GBPnil and Mark Shaw: GBP37,351.

During the year the four controlling Members of the Manager received the following dividends; Mark Shaw as above, Colin Godfrey: GBP37,700, James Dunlop: GBP35,688 and Henry Franklin: GBP28,289.

31. Reconciliation of liabilities to cash flows from financing activities

 
                                            Bank 
                                      borrowings      Loan      Total 
                                             GBP     notes        GBP 
                                                       GBP 
----------------------------------  ------------  --------  --------- 
 Balance at the start of the 
  year                                    533.50         -     533.50 
 Cash flows from financing 
  activities: 
 Bank borrowings advanced                 164.00         -     164.00 
 Bank borrowings repaid                 (482.66)         -   (482.66) 
 Amounts received on the issue 
  of loan notes                                -    495.54     495.54 
 Loan arrangement fees paid               (4.66)    (3.19)     (7.85) 
 
 Non-cash movements: 
 Change in creditors for loan 
  arrangement fees payable                (0.04)    (0.21)     (0.25) 
 Amortisation of loan arrangement 
  fees                                      1.87      0.03       1.90 
 Amortisation of loan arrangement 
  fees on the repayment of loans            4.75         -       4.75 
----------------------------------  ------------  --------  --------- 
 Balance at the end of the 
  year                                    216.76    492.17     708.93 
----------------------------------  ------------  --------  --------- 
 

32. Capital commitments

The Group had capital commitments of GBP28.6 million in relation to its forward funded pre--let development assets, asset management initiatives and commitments under development land, outstanding as at 31 December 2017 (31 December 2016: GBP82.4 million). All commitments fall due within one year from the date of this report.

33. Subsequent events

On 12 January 2018 the Group completed contracts for the site acquisition and forward funding for the development of two new distribution warehouse facilities at Warth Park, Raunds, pre--let in their entirety under two separate leases to Howden Joinery Group Plc. The investment price was GBP103.7 million.

On 18 January 2018 the Group completed the acquisition of a National Distribution Centre at Weston Road, Crewe let to Expert Logistics Limited, a wholly owned subsidiary of AO World Plc. The total consideration was GBP36.10 million.

On 6 February 2018 the Group exchanged contracts, conditional on receiving full planning consent, to provide forward funding for the development of a new regional distribution centre in Corby, pre-let to Eddie Stobart Limited. The investment price is GBP81.8 million.

34. Contingent liabilities

On 23 December 2016 the Group exchanged contracts, conditional on receiving planning consent, to provide forward funding for the development of two new distribution warehouse facilities at Warth Park, Raunds, pre--let in their entirety under two separate leases to Howden Joinery Group Plc for a total investment price of GBP103.7 million. As mentioned within note 33 above, the Company completed on this contract in January 2018.

On 17 December 2017, the Group exchanged contracts to purchase the corporate vehicle that owns the distribution facility in Crewe, Cheshire. The property is let to Expert Logistics Limited, a wholly owned subsidiary of AO World Plc, which will act as guarantor. The total consideration was GBP36.10 million.

Refer to note 33 for the respective completion dates of these investment properties.

COMPANY BALANCE SHEET

Company Registration Number: 08215888

 
 
 
                                                       At              At 
                                              31 December     31 December 
                                                     2017            2016 
                                                     GBPm            GBPm 
                                     Note 
--------------------------------  -------  --------------  -------------- 
 Non-current assets 
 Investment in subsidiaries          4           1,028.22          812.67 
 Total non-current assets                        1,028.22          812.67 
 Current assets 
 Trade and other receivables         5           1,075.17          363.49 
 Cash held at bank                   6              21.25          109.81 
--------------------------------  -------  --------------  -------------- 
 Total current assets                            1,096.42          473.30 
 
 Total assets                                    2,124.64        1,285.97 
--------------------------------  -------  --------------  -------------- 
 
 Current liabilities 
 Trade and other payables            7             (7.85)          (5.01) 
 Loans from Group companies                       (52.19)         (51.23) 
--------------------------------  -------  --------------  -------------- 
 Total current liabilities                        (60.04)         (56.24) 
--------------------------------  -------  --------------  -------------- 
 
 Non--current liabilities 
 Loan notes                          8           (492.17)               - 
 Total non--current liabilities                  (492.17)               - 
 
 Total liabilities                               (552.21)         (56.24) 
--------------------------------  -------  --------------  -------------- 
 
 Total net assets                                1,572.43        1,229.73 
--------------------------------  -------  --------------  -------------- 
 
 Equity 
 Share capital                       9              13.64           11.05 
 Share premium reserve               10            932.37          589.39 
 Capital reduction reserve           11            467.93          546.38 
 Retained earnings                                 158.49           82.91 
--------------------------------  -------  --------------  -------------- 
 Total equity                                    1,572.43        1,229.73 
--------------------------------  -------  --------------  -------------- 
 Net asset value per share - 
  basic                              12           115.31p         111.27p 
 Net asset value per share - 
  diluted                            12           115.26p         111.22p 
 EPRA net asset value per share      12           115.26p         111.22p 
--------------------------------  -------  --------------  -------------- 
 

The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own profit and loss account in these financial statements. The profit attributable to the Parent Company for the year ended 31 December 2017 amounted to GBP75.58 million (31 December 2016: GBP47.62 million).

These financial statements were approved by the Board of Directors on 7 March 2018 and signed on its behalf by:

Richard Jewson

Chairman

Company STATEMENT of CHANGES IN EQUITY

 
                                Undistributable            Distributable 
                                       reserves                 reserves 
                           --------------------  ----------------------- 
                                                     Capital 
                               Share      Share    reduction    Retained 
                             capital    premium      reserve    earnings      Total 
                                GBPm       GBPm         GBPm        GBPm       GBPm 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 1 January 2017                11.05     589.39       546.38       82.91   1,229.73 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 Total comprehensive 
  income                           -          -            -       75.58      75.58 
 
 Issue of Ordinary 
  Shares 
 Shares issued in 
  relation to further 
  Equity issue (May 
  2017)                         2.58     347.42            -           -     350.00 
 Share issue expenses 
  in relation to Equity 
  issue (May 2017)                 -     (5.83)            -           -     (5.83) 
 Shares issued in 
  relation to management 
  contract                      0.01       1.39            -           -       1.40 
 Share based payments 
  Transfer of share 
  based payments to                -          -            -        1.56       1.56 
  liabilities to reflect 
  settlement                       -          -            -      (1.56)     (1.56) 
 
 Dividends paid: 
 Third interim dividend 
  in respect of period 
  ended 31 December 
  2016 at 1.55 pence 
  per Ordinary Share               -          -      (17.13)           -    (17.13) 
 First interim dividend 
  in respect of year 
  ended 31 December 
  2017 at 1.60 pence 
  per Ordinary Share               -          -      (17.69)           -    (17.69) 
 Second interim dividend 
  in respect of year 
  ended 31 December 
  2017 at 1.60 pence 
  per Ordinary Share               -          -      (21.81)           -    (21.81) 
 Third interim dividend 
  in respect of year 
  ended 31 December 
  2017 at 1.60 pence 
  per Ordinary Share               -          -      (21.82)           -    (21.82) 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 31 December 2017              13.64     932.37       467.93      158.49   1,572.43 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 1 January 2016                 6.78      52.74       605.77       35.29     700.58 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 Total comprehensive 
  income                           -          -            -       47.62      47.62 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 
 Issue of Ordinary 
  Shares 
 Shares issued in 
  relation to further 
  Equity issue (February 
  2016)                         1.61     198.39            -           -     200.00 
 Share issue expenses 
  in relation to Equity 
  issue (February 
  2016)                            -     (3.90)            -           -     (3.90) 
 Shares issued in 
  relation to further 
  Equity issue (October 
  2016)                         2.65     347.35            -           -     350.00 
 Share issue expenses 
  in relation to Equity 
  issue (October 2016)             -     (6.26)            -           -     (6.26) 
 Shares issued in 
  relation to management 
  contract                      0.01       1.07            -           -       1.08 
 Share based payments 
  Transfer of share 
  based payments to                -          -            -        1.25       1.25 
  liabilities to reflect 
  settlement                       -          -            -      (1.25)     (1.25) 
 
 Dividends paid: 
 Fourth interim dividend 
  in respect of period 
  ended 31 December 
  2015 at 3.00 pence 
  per Ordinary Share               -          -      (20.34)           -    (20.34) 
 First interim dividend 
  in respect of year 
  ended 31 December 
  2016 at 3.10 pence 
  per Ordinary Share               -          -      (26.02)           -    (26.02) 
 Second interim dividend 
  in respect of year 
  ended 31 December 
  2015 at 1.50 pence 
  per Ordinary Share               -          -      (13.03)           -    (13.03) 
 31 December 2016              11.05     589.39       546.38       82.91   1,229.73 
-------------------------  ---------  ---------  -----------  ----------  --------- 
 

NOTES TO THE COMPANY ACCOUNTS

1. Accounting Policies

Basis of preparation

The financial statements have been prepared in accordance with Financial Reporting Standard 100 Application of Financial Reporting Requirements ("FRS 100") and Financial Reporting Standard 101 Reduced Disclosure Framework ("FRS 101").

Disclosure exemptions adopted

In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS 101.

Therefore these financial statements do not include:

   --      Certain comparative information as otherwise required by EU endorsed IFRS; 
   --      Certain disclosures regarding the Company's capital; 
   --      A statement of cash flows; 
   --      The effect of future accounting standards not yet adopted; 
   --      The disclosure of the remuneration of key management personnel; and 

-- Disclosure of related party transactions with other wholly owned members of Tritax Big Box REIT plc.

In addition, and in accordance with FRS 101 further disclosure exemptions have been adopted because equivalent disclosures are included in the Company's consolidated financial statements. These financial statements do not include certain disclosures in respect of:

   --      Share based payments; 
   --      Financial instruments; 

-- Fair value measurement other than certain disclosures required as a result of recording financial instruments at fair value.

Principal accounting policies

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

Basis of accounting

These financial statements have been presented as required by the Companies Act 2006 and have been prepared under the historical cost convention and in accordance with applicable Accounting Standards and policies in the United Kingdom ("UK GAAP").

Currency

The Company financial information is presented in Sterling which is also the Company's functional currency and all values are rounded to the nearest million (GBPm), except where otherwise indicated.

Other income

Other income represents dividend income which has been declared by its subsidiaries and is recognised when it is received.

Dividends payable for shareholders

Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised when approved by the shareholders at an annual general meeting.

Financial instruments

Financial assets and financial liabilities are recognised in the Balance Sheet when the Company becomes a party to the contractual provisions of the instrument.

Trade and other receivables

Trade and other receivables are initially recognised at fair value and subsequently at amortised cost or their recoverable amount. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Company will be unable to collect all of the amounts due under the terms receivable. The amount of such a provision is the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade debtors, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses. On confirmation that the trade debtor will not be collectable the gross carrying value of the asset is expensed to the profit and loss against the associated provision.

Financial liabilities

Financial liabilities including trade payables, other payables, accruals and amounts due to Group undertakings are originally recorded at fair value and subsequently stated at amortised cost under the effective interest method.

Investments in subsidiaries

The investments in subsidiary companies are included in the Company Balance Sheet at cost less provision for impairment.

Share based payments

The expense relating to share based payments is accrued over the year in which the service is received and is measured at the fair value of those services received. The extent to which the expense is not settled at the reporting period end is recognised as a liability as any shares outstanding remain contingently issuable. Contingently issuable shares are treated as dilutive to the extent that, based on market factors prevalent at the reporting year end date, the shares would be issuable.

Significant accounting judgements, estimates and assumptions

The preparation of the Company's financial information requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future years. There were no significant accounting judgements, estimates or assumptions in preparing these financial statements.

2. Taxation

 
 
                                 Year      Year ended 
                                ended     31 December 
                          31 December            2016 
                                 2017            GBPm 
                                 GBPm 
-------------------    --------------  -------------- 
 UK corporation tax                 -               - 
-------------------    --------------  -------------- 
 

3. Dividends paid

 
 
                                                  Year      Year ended 
                                                 ended     31 December 
                                           31 December            2016 
                                                  2017            GBPm 
                                                  GBPm 
-------------------------------------   --------------  -------------- 
 Third interim dividend in respect 
  of period ended 31 December 
  2016 at 1.55 pence per Ordinary 
  Share (Fourth interim for 31 
  December 2015 at 3.00 pence 
  per Ordinary Share)                            17.13           20.34 
 First interim dividend in respect 
  of year ended 31 December 2017 
  at 1.60 pence per Ordinary Share 
  (31 December 2016: 3.10 pence)                 17.69           26.02 
 Second interim dividend in respect 
  of year ended 31 December 2017 
  at 1.60 pence per Ordinary Share 
  (31 December 2016: 1.55 pence)                 21.81           13.02 
 Third interim dividend in respect 
  of year ended 31 December 2017 
  at 1.60 pence per Ordinary Share               21.82               - 
 Total dividends paid                            78.45           59.38 
 Total dividends paid for the 
  year                                           4.80p           4.65p 
 Total dividends unpaid but declared 
  for the year                                   1.60p           1.55p 
--------------------------------------  --------------  -------------- 
 Total dividends declared for 
  the year                                       6.40p           6.20p 
--------------------------------------  --------------  -------------- 
 

On 24 April 2017, the Company announced the declaration of a first interim dividend in respect of the period from 1 January 2017 to 31 March 2017 of 1.60 pence per Ordinary Share, which was payable on 22 May 2017 to Ordinary Shareholders on the register on 5 May 2017.

On 13 July 2017, the Company announced the declaration of a second interim dividend in respect of the period 1 April 2017 to 30 June 2017 of 1.60 pence per Ordinary Share which was payable on 10 August 2017 to Shareholders on the register on 21 July 2017.

On 12 October 2017, the Company announced the declaration of a third interim dividend in respect of the period 1 July 2017 to 30 September 2017 of 1.60 pence per Ordinary Share which was payable on 20 October 2017 to Shareholders on the register on 19 October 2017.

On 7 March 2018, the Company announced the declaration of a fourth interim dividend in respect of the period 1 October 2017 to 31 December 2017 of 1.60 pence per Ordinary Share which will be payable on or around 29 March 2018 to Shareholders on the register on 15 March 2018.

4. Investments

 
 
                               Shares     Loan      Total 
                                 GBPm     GBPm       GBPm 
-------------------------   ---------  -------  --------- 
 As at 1 January 2017          812.67        -     812.67 
 Increase in investments 
  via share purchase           215.55        -     215.55 
 As at 31 December 2017      1,028.22        -   1,028.22 
--------------------------  ---------  -------  --------- 
 
 As at 1 January 2016          547.81        -     547.81 
 Increase in investments 
  via share purchase           264.86        -     264.86 
 As at 31 December 2016        812.67        -     812.67 
--------------------------  ---------  -------  --------- 
 

The Company has the following subsidiary undertakings as at 31 December 2017:

 
                              Principal Activity     Country              Ownership 
                                                      of incorporation            % 
---------------------------  ---------------------  -------------------  ---------- 
 TBBR Holdings 1              Investment Holding 
  Limited                      Company                           Jersey        100% 
 TBBE Holdings 2              Investment Holding 
  Limited                      Company                           Jersey        100% 
 Baljean Properties                                             Isle of 
  Limited                     Property Investment                   Man        100% 
 Tritax Acquisition           Investment Holding 
  2 Limited                    Company                           Jersey        100% 
 Tritax Acquisition           Investment Holding 
  2 (SPV) Limited              Company                           Jersey        100% 
 The Sherburn RDC 
  Unit Trust                  Property Investment                Jersey        100% 
 Tritax REIT Acquisition 
  3 Limited                   Property Investment                    UK        100% 
 Tritax Acquisition 
  4 Limited                   Property Investment                Jersey        100% 
 Tritax Acquisition 
  5 Limited                   Property Investment                Jersey        100% 
 Sonoma Ventures 
  Limited                     Property Investment                   BVI        100% 
 Tritax Ripon Limited         Property Investment              Guernsey        100% 
 Tritax REIT Acquisition      Investment Holding 
  8 Limited                    Company                               UK        100% 
 Tritax Acquisition 
  8 Limited                   Property Investment                Jersey        100% 
 Tritax REIT Acquisition      Investment Holding 
  9 Limited                    Company                               UK        100% 
 Tritax Acquisition 
  9 Limited                   Property Investment                Jersey        100% 
 Tritax Acquisition 
  10 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  11 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  12 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  13 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  14 Limited                  Property Investment                Jersey        100% 
 Tritax Worksop 
  Limited                     Property Investment                   BVI        100% 
 Tritax REIT Acquisition      Investment Holding 
  16 Limited                   Company                               UK        100% 
 Tritax Acquisition 
  16 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  17 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  18 Limited                  Property Investment                Jersey        100% 
 Tritax Harlow Limited        Property Investment              Guernsey        100% 
 Tritax Lymedale 
  Limited                     Property Investment              Guernsey        100% 
 Tritax Acquisition 
  21 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  22 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  23 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  24 Limited                  Property Investment                Jersey        100% 
 Tritax Knowsley                                                Isle of 
  Limited                     Property Investment                   Man        100% 
 Tritax Burton Upon 
  Trent Limited               Property Investment                   BVI        100% 
 Tritax Acquisition 
  28 Limited                  Property Investment                Jersey        100% 
 Tritax Peterborough 
  Limited                     Property Investment                Jersey        100% 
 Click Peterborough 
  SARL                        Dormant Company                Luxembourg        100% 
 Tritax Holdings              Investment Holding 
  CL Debt Limited              Company                           Jersey        100% 
 Tritax Portbury 
  Limited                     Property Investment                Jersey        100% 
 Tritax Newark Limited        Property Investment                Jersey        100% 
                              Investment Holding 
 Wellzone Limited              Company                               UK        100% 
                              Investment Holding 
 Sportdale Limited             Company                               UK        100% 
 Tritax Holdings              Investment Holding 
  PGIM Debt Limited            Company                           Jersey        100% 
 Tritax Merlin 310 
  Trafford Park Limited       Property Investment                Jersey        100% 
 Tritax West Thurrock 
  Limited                     Property Investment                Jersey        100% 
 Tritax Tamworth 
  Limited                     Property Investment                Jersey        100% 
 Tritax Acquisition 
  34 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  35 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  36 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  37 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  38 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  39 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  40 Limited                  Property Investment                Jersey        100% 
 Tritax Acquisition 
  41 Limited                  Property Investment                Jersey        100% 
 Tritax Littlebrook 
  1 Limited                   Property Investment                Jersey        100% 
 Tritax Littlebrook 
  2 Limited                   Property Investment                Jersey        100% 
 Tritax Littlebrook 
  3 Limited                   Property Investment                Jersey        100% 
 Tritax Littlebrook 
  4 Limited                   Property Investment                Jersey        100% 
 Tritax Atherstone            Investment Holding 
  Limited                      Company                           Jersey        100% 
 Tritax Atherstone 
  Limited (formerly 
  Aequitas Estates 
  (Midlands) Limited)         Property Investment                    UK        100% 
 Tritax Acquisition 
  42 Limited                  Property Investment                Jersey        100% 
 Tritax Stoke DC1&2           Investment Holding 
  Limited                      Company                           Jersey        100% 
 Tritax Luxembourg 
  DC1&2 Limited               Property Investment            Luxembourg        100% 
 Tritax Stoke DC3             Investment Holding 
  Limited                      Company                           Jersey        100% 
 Tritax Luxembourg 
  DC3 Limited                 Property Investment            Luxembourg        100% 
 Tritax Stoke Management      Property Management 
  Limited                      Company                               UK        100% 
 Tritax Acquisition 
  43 Limited                  Property Investment                Jersey        100% 
 Tritax Carlisle              Investment Holding 
  Limited                      Company                           Jersey        100% 
 Tritax Carlisle 
  UK Limited                  Property Investment                    UK        100% 
 Tritax Worksop 
  18 Limited                  Property Investment                Jersey        100% 
 Tritax Edinburgh             Investment Holding 
  Way Harlow Limited           Company                           Jersey        100% 
 Tritax Edinburgh 
  Way Harlow (Luxembourg) 
  Limited                     Property Investment            Luxembourg        100% 
                              Investment Holding 
 Tritax Crewe Limited          Company                           Jersey        100% 
 Tritax Crewe (Luxembourg) 
  Limited                     Property Investment            Luxembourg        100% 
 Tritax Acquisition 
  44 Limited                  Property Investment                Jersey        100% 
 
 

The registered addresses for subsidiaries across the Group are consistent based on their country of incorporation and are as follows:

Jersey entities: 13--14 Esplanade, St Helier, Jersey JE1 1EE

Guernsey entities: PO Box 25, Regency Court, Glategny Esplanade, St Peter Port, Guernsey GY1 3AP

Isle of Man entities: 33--37 Athol Street, Douglas, Isle of Man IM1 1LB

BVI entities: Jayla Place, Wickhams Cay 1, PO Box 3190, Road Town, Tortola, BVI VG1110

UK entities: Aberdeen House, South Road, Haywards Heath, West Sussex RH16 4NG

Luxembourg entity: 46A Avenue J F Kennedy L--1885, Grand Duchy of Luxembourg.

5. Trade and other receivables

 
                                   31 December   31 December 
                                          2017          2016 
                                          GBPm          GBPm 
 Amounts receivable from Group 
  companies                           1,073.90        362.80 
 Prepayments                              0.14          0.04 
 Other receivables                        1.13          0.65 
                                      1,075.17        363.49 
 -------------------------------  ------------  ------------ 
 

All amounts fall due for repayment within one year.

6. Cash held at bank

 
                       31 December   31 December 
                              2017          2016 
                              GBPm          GBPm 
-------------------   ------------  ------------ 
 Cash held at bank           21.25        109.81 
                             21.25        109.81 
 -------------------  ------------  ------------ 
 

7. Trade and other payables

 
                              31 December   31 December 
                                     2017          2016 
                                     GBPm          GBPm 
--------------------------   ------------  ------------ 
 Trade and other payables            3.84          1.59 
 Accruals                            4.01          3.42 
                                     7.85          5.01 
 --------------------------  ------------  ------------ 
 

8. Loan notes

Bonds

 
                                31 December   31 December 
                                       2017          2016 
                                       GBPm          GBPm 
---------------------------    ------------  ------------ 
 2.625% Bonds 2026                   249.01             - 
 3.125% Bonds 2031                   246.55             - 
 Less: unamortised costs on          (3.39)             - 
  loan notes 
 Non--current liabilities:           492.17             - 
  net borrowings 
---------------------------    ------------  ------------ 
 

Maturity of borrowings

 
                               31 December   31 December 
                                      2017          2016 
                                      GBPm          GBPm 
--------------------------    ------------  ------------ 
 Repayable between 1 and 2               -             - 
  years 
 Repayable between 2 and 5               -             - 
  years 
 Repayable in over 5 years          495.56             - 
                                    495.56             - 
--------------------------    ------------  ------------ 
 

On 14 December 2017, the Group announced the pricing of senior unsecured loan notes (the "notes") with an aggregate principal amount of GBP500 million split evenly over a nine and 14 year term. The notes were issued under the Company's GBP1.5 billion Euro Medium Term Note Programme. The Group issued two tranches of loan notes, comprising (i) GBP250 million senior unsecured loan notes maturing on 14 December 2026 and (ii) GBP250 million senior unsecured loan notes maturing on 14 December 2031. The 2026 Notes and the 2031 Notes were priced at a fixed interest rate of 2.625% and 3.125% per annum respectively.

On the same date, the Company also announced a new GBP350 million unsecured revolving credit facility with its core relationship lender group and selected new lenders. The new unsecured revolving credit facility has an initial maturity of five years and can be extended (subject to obtaining the prior consent of the lenders) by a further two years to a maximum of seven years. The new facility also contains an uncommitted GBP200 million accordion option. The new facility had an opening margin of 1.10% per annum over Libor.

The syndicate for the unsecured revolving credit facility comprises Barclays Bank PLC, BNP Paribas London Branch, HSBC Bank plc, ING Bank N.V. London Branch, The Royal Bank of Scotland plc, Santander UK plc and Wells Fargo Bank N.A. London Branch.

Following the issue of the notes and the entering into of the unsecured revolving credit facility, the Company's existing GBP550 million secured syndicated facility due October 2020 and the GBP7.06 million and GBP11.60 million Helaba facilities due November 2019 were repaid in full on 11 December 2017 and 7 December 2017 respectively.

9. Share capital

The share capital relates to amounts subscribed for share capital at its nominal value:

 
                                  31 December   31 December     31 December   31 December 
                                         2017          2017            2016          2016 
                                       Number          GBPm          Number          GBPm 
-----------------------------  --------------  ------------  --------------  ------------ 
 Issued and fully paid 
  at 1 pence each               1,363,598,083         13.64   1,105,159,529           11.05 
-----------------------------  --------------  ------------  --------------  -------------- 
 At beginning of year 
  - GBP0.01 Ordinary 
  Shares                        1,105,159,529         11.05     677,840,088            6.78 
-----------------------------  --------------  ------------  --------------  -------------- 
 Shares issued in relation 
  to further equity issuance      257,352,941          2.58     426,441,838            4.26 
 Shares issued in relation 
  to management contract            1,085,613          0.01         877,603            0.01 
-----------------------------  --------------  ------------  --------------  -------------- 
 Balance at end of year         1,363,598,083         13.64   1,105,159,529           11.05 
-----------------------------  --------------  ------------  --------------  -------------- 
 
 

On 13 April 2017 the Company announced that, in accordance with the terms of the management fee arrangements with the Manager pursuant to which 25% of the management fee is payable in new Ordinary Shares, it issued 528,528 Ordinary Shares at an issue price per Ordinary Share of 126.45 pence.

On 24 April 2017, the Company announced that it intended to proceed with a proposed Placing, Open Offer and Offer for Subscription of new Ordinary Shares at a price of 136 pence per share to raise GBP200 million. Following this on 11 May 2017 the Company announced it had exercised its right to increase the size of the issue, due to excess demand, to GBP350 million. As a result, a total of 257,352,941 Ordinary Shares were issued at a price of 136 pence per Ordinary Share, of which 100,517,096 Ordinary Shares were issued pursuant to the Open Offer, 12,075,902 Ordinary Shares were issued pursuant to the Offer for Subscription, 144,759,943 Ordinary Shares were issued under the Placing.

On 3 October 2017 the Company announced that, in accordance with the terms of the management fee arrangements with the Manager pursuant to which 25% of the management fee is payable in new Ordinary Shares, it issued 577,085 Ordinary Shares at an issue price per Ordinary Share of 130.83 pence.

10. Share premium

The share premium relates to amounts subscribed for share capital in excess of nominal value:

 
                                           31 December   31 December 
                                                  2017          2016 
                                                  GBPm          GBPm 
---------------------------------------   ------------  ------------ 
 Balance at beginning of year                   589.39         52.74 
 Share premium on Ordinary Shares 
  issued in relation to further equity 
  issuance                                      347.42        545.74 
 Share issue expenses in relation 
  to further equity issuance                    (5.83)       (10.16) 
 Transfer to capital reduction reserve 
  (see note 26)                                      -             - 
 Share premium on Ordinary Shares 
  issued to management                            1.39          1.07 
----------------------------------------  ------------  ------------ 
 Balance at end of year                         932.37        589.39 
----------------------------------------  ------------  ------------ 
 

11. Capital reduction reserve

 
                                          31 December   31 December 
                                                 2017          2016 
                                                 GBPm          GBPm 
---------------------------------------  ------------  ------------ 
 Balance at beginning of year                  546.38        605.77 
 Transfer from share premium                        -             - 
 Third interim dividend for the period 
  ended 31 December 2016                      (17.13)       (20.34) 
 First interim dividend for the year 
  ended 31 December 2017                      (17.69)       (26.02) 
 Second interim dividend for the year 
  ended 31 December 2017                      (21.81)       (13.03) 
 Third interim dividend for the year          (21.82)             - 
  ended 31 December 2017 
---------------------------------------  ------------  ------------ 
 Balance at end of year                        467.93        546.38 
---------------------------------------  ------------  ------------ 
 

Please refer to note 3.

12. Net asset value (NAV) per share

Basic NAV per share amounts are calculated by dividing net assets in the Company Balance Sheet attributable to ordinary equity holders of the parent by the number of Ordinary Shares outstanding at the end of the year. As there are dilutive instruments outstanding, both basic and diluted NAV per share are shown below.

 
                                           31 December     31 December 
                                                  2017            2016 
                                                  GBPm            GBPm 
--------------------------------------  --------------  -------------- 
 Net assets per Company Balance Sheet         1,572.43        1,229.73 
--------------------------------------  --------------  -------------- 
 EPRA NAV                                     1,572.43        1,229.73 
--------------------------------------  --------------  -------------- 
 
 Ordinary Shares: 
 Issued share capital (number)           1,363,598,083   1,105,159,529 
--------------------------------------  --------------  -------------- 
 Net asset value per Share - Basic             115.31p         111.27p 
 Potentially issuable dilutive shares 
  (number)                                     590,881         533,132 
--------------------------------------  --------------  -------------- 
 Net asset value per Share - Diluted           115.26p         111.22p 
--------------------------------------  --------------  -------------- 
 EPRA net asset value per Share - 
  Basic                                        115.26p         111.22p 
--------------------------------------  --------------  -------------- 
 
 

EPRA NAV is calculated as net assets per the Company Balance Sheet excluding fair value adjustments for debt--related derivatives.

13. Related party transactions

The Company has taken advantage of the exemption not to disclose transactions with other members of the Group as the Company's own financial statements are presented together with its consolidated financial statements.

For all other related party transactions please make reference to note 30 of the Group accounts.

14. Directors' remuneration

 
                                   31 December   31 December 
                                          2017          2016 
                                          GBPm          GBPm 
-------------------------------   ------------  ------------ 
 Directors' fees                          0.24          0.18 
 Employer's National Insurance            0.03          0.02 
--------------------------------  ------------  ------------ 
                                          0.27          0.20 
 -------------------------------  ------------  ------------ 
 

A summary of the Directors' emoluments, including the disclosures required by the Companies Act 2006, is set out in the Directors' Remuneration Report. As Chairman of the Company's Manager, Mark Shaw is not entitled to receive a fee.

NOTES TO THE EPRA PERFORMANCE MEASURES

1. EPRA Earnings per share

 
 
                                                Year ended            Year 
                                               31 December           ended 
                                                      2017     31 December 
                                                      GBPm            2016 
                                                                      GBPm 
------------------------------------------  --------------  -------------- 
 Total comprehensive income (attributable 
  to Shareholders)                                  247.80           91.90 
 Adjustments to remove: 
 Changes in fair value of investment 
  properties                                      (175.98)         (47.51) 
 Changes in fair value of interest 
  rate derivatives                                    2.04            7.15 
 One-off cost of extinguishment 
  of bank loans (note 11)                             4.75               - 
 Profits to calculate EPRA Earnings 
  per share                                          78.61           51.54 
------------------------------------------  --------------  -------------- 
 
 Weighted average number of Ordinary 
  Shares                                     1,268,540,113     873,562,775 
 EPRA earnings per share - basic                     6.20p           5.90p 
 
 Dilutive shares to be issued                      590,881         533,132 
 EPRA earnings per share - diluted                   6.20p           5.90p 
 

2. EPRA NAV per share

 
 
                                         Year ended            Year 
                                        31 December           ended 
                                               2017     31 December 
                                               GBPm            2016 
                                                               GBPm 
-----------------------------------  --------------  -------------- 
 Net assets at end of period               1,929.46        1,414.54 
 Adjustments to calculate EPRA 
  NAV: 
 Changes in fair value of interest 
  rate derivatives - 2017                    (0.69)               - 
 Changes in fair value of interest 
  rate derivatives - 2016                      7.08            7.08 
 Changes in fair value of interest 
  rate derivatives - 2015                      1.99            1.99 
 Changes in fair value of interest 
  rate derivatives - 2014                      2.58            2.58 
 EPRA net assets                           1,940.42        1,426.19 
-----------------------------------  --------------  -------------- 
 
 Shares in issue at 31 December 
  2017                                1,363,598,083   1,105,159,529 
 Dilutive shares in issue                   590,881         533,132 
-----------------------------------  --------------  -------------- 
                                      1,364,188,964   1,105,692,661 
 Dilutive EPRA NAV per share                142.24p         129.00p 
 

3. EPRA NNNAV

 
 
                                           Year ended            Year 
                                          31 December           ended 
                                                 2017     31 December 
                                                 GBPm            2016 
                                                                 GBPm 
-------------------------------------  --------------  -------------- 
 EPRA net assets                             1,940.42        1,426.19 
 Include: 
 Fair value of financial instruments          (10.96)         (11.65) 
 Fair value of debt(1)                           9.89            2.09 
 EPRA NNNAV                                  1,939.35        1,416.63 
-------------------------------------  --------------  -------------- 
 
 Shares in issue at 31 December 
  2017                                  1,363,598,083   1,105,159,529 
 Dilutive shares in issue                     590,881         533,132 
-------------------------------------  --------------  -------------- 
                                        1,364,188,964   1,105,692,661 
 EPRA NNNAV per share                         142.16p         128.12p 
 
   (1 Difference between interest) (--) (bearing 
   loans and borrowings included in Balance Sheet 
   at amortised cost, and the fair value of interest 
   bearing loans and borrowings.) 
 

4. EPRA Net Initial Yield (NIY) and EPRA "Topped Up" NIY

 
 
                                             Year ended            Year 
                                            31 December           ended 
                                                   2017     31 December 
                                                   GBPm            2016 
                                                                   GBPm 
---------------------------------------  --------------  -------------- 
 Investment property - wholly 
  owned                                        2,607.28        1,803.11 
 Less: development properties                         -         (88.14) 
---------------------------------------  --------------  -------------- 
 Completed property portfolio                  2,607.28        1,714.97 
 Allowance for estimated purchasers' 
  costs                                          176.77          116.62 
 Gross up completed property portfolio 
  valuation (B)                                2,784.05        1,831.59 
---------------------------------------  --------------  -------------- 
 Annualised passing rental income                112.56           99.66 
 Less: contracted rental income 
  in respect of development properties                -          (9.11) 
 Property outgoings                              (0.02)          (0.08) 
 Annualised net rents (A)                        112.54           86.13 
 Contractual increases for fixed 
  uplifts                                         18.52            4.35 
 Topped up annualised net rents 
  (C)                                            131.06           90.48 
 
 EPRA Net Initial Yield (A/B)                     4.04%           4.70% 
 EPRA Topped Up Net Initial Yield                 4.71%           4.95% 
 

5. EPRA Vacancy Rate

 
 
                                           Year ended            Year 
                                          31 December           ended 
                                                 2017     31 December 
                                                 GBPm            2016 
                                                                 GBPm 
-------------------------------------  --------------  -------------- 
 Annualised estimated rental value 
  of vacant premises                                -               - 
 Portfolio estimated rental value(1)           135.23           97.95 
 EPRA Vacancy Rate                                 0%              0% 
 

(1 Excludes development properties)

6. EPRA Cost Ratio

 
 
                                           Year ended            Year 
                                          31 December           ended 
                                                 2017     31 December 
                                                 GBPm            2016 
                                                                 GBPm 
-------------------------------------  --------------  -------------- 
 Property operating costs                        0.02            0.07 
 Administration expenses                        14.16           11.71 
-------------------------------------  --------------  -------------- 
 Total costs including and excluding 
  vacant property costs (A)                     14.18           11.78 
-------------------------------------  --------------  -------------- 
 
   Total gross rental                          108.54           74.66 
 Total EPRA cost ratio (including 
  and excluding vacant property 
  costs)                                        13.1%           15.8% 
 

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