Tritax Big Box (BBOX ) has delivered record rent reversion as demand returns to pre-Covid levels but valuations continue to struggle.

In a trading update for the financial year ending 31 December, ahead of annual results on 1 March, the group reported that estimated rental growth grew 6.9% last year to deliver a record 23% portfolio rent reversion – the change in rent between an expiring lease and the rent in a newly-signed lease.

Tritax Big Box chief executive Colin Godfrey added £4.9m to the annual contracted rent from rent reviews while passing rent increased 9.1% across 22.5% of the portfolio subject to rent reviews.

The positive movement in rents was partially offset by a wobble in the value of the underlying assets. The value of the portfolio ticked 0.8% lower over the year, with a 1.7% reduction in the second half of the year cancelling out gains made in the first half.

Demand for logistics space has been strong, and Godfrey said the occupation market has moved back to pre-Covid levels. A total of 22.1m square feet of UK lettings were completed in 2023, with a further 11.1m square feet under offer at the end of the year, meaning last year’s take-up was ‘in line with pre-Covid average’.

However, ready to occupy vacant space has ticked up from 2% in 2022 to 5.1% in 2023 and growth in headline rents has slowed from 12.9% in 2022 to 7.8% last year.

‘We are capturing rental growth through our asset management activities, crystalising attractive returns through our disposal programme, and carefully redeploying the proceeds into higher returning opportunities,’ said Godfrey.

He sold £327m of assets at or above book value last year, resulting in a £14.1m reduction in contracted rent, but said the money was rotated ‘into higher returning development and investment opportunities’.

This included £110m of urban logistics acquisitions delivering a blended yield of 4.2%, which could go up to 6.3% in the near-term. 

‘We continue to make good development progress with ongoing rental growth and a more favourable cost environment improving our yield on cost,’ he said. ‘Our investment activity has complemented our portfolio adding a range of attractive urban logistics assets, and we are making progress in capturing their significant reversionary potential.’

Liberum analyst Bjorn Zietsman said the shares are currently trading at a 13% discount to spot net tangible assets (NTA) versus the UK Reit sector at a 16% discount.

However, he does not think the market is pricing in enough growth over the next two years as it trades on an 18% discount over that forward period, which ‘undervalues the equity considering the robust growth in estimated rental values and steady valuations’. 

The shares rose 1.1% to 163.9p on Monday. They have dipped 2.4% this year after a fourth quarter rally helped them rebound 28% in 2023 following a 40% drop in the previous year’s interest rate rout. Over five and 10 years they have generated a total return of 48% and 135.5% respectively.