Tritax Big Box takeover of UKCM already paying dividends

Last year’s takeover of UK Commercial Property (UKCM ) is already paying dividends for Tritax Big Box (BBOX ) as the acquired assets turbocharge rental growth and help power shareholder gains.

The £4.7bn logistics giant acquired UKCM in a more than £900m all-share deal in February last year but it is already proving money well spent. In the six months to end of June, the real estate investment trust (Reit) confirmed rental income had risen 17.3% to £149.2m, with chair of the trust Aubrey Adams confirming the UKCM logistics assets ‘delivered 13.2% rental growth since acquisition’.

The rent rises in turn led to a 6.4% increase in earnings per share to 4.63p per share that allowed the Reit to boost its dividend payout by 4.9% to 3.83p per share.

The EPRA net tangible assets per share grew marginally at 1.4% to 188.2p per share at the end of June, from 185.6p, while the total portfolio value moved 4.1% higher to £6.82bn.

Tritax Management’s Colin Godfrey, who is chief executive of BBOX, has been focusing on offloading non-core assets acquired in the UKCM deal, selling £125.8m of assets. Another £79m of logistics assets have also been disposed of, with the cash raised from sales being recycled into higher returning opportunities.

Chair Adams said the manager was on track to ‘complete this disposal programme in line with the 24-month timetable we set out’ and that in total around £350-450m of disposals are planned for 2025, ‘including logistics assets where we have maximised their value in our ownership’.

‘We have significant headroom in our debt facilities and successfully refinanced two facilities in the period with no further maturities falling due before December 2026,’ he said.

With the successful acquisition of UKCM, it is no surprise that BBOX has other rivals in its sights, as it continues to woo Warehouse Reit (WHR ) having proposed a cash and share offer that valued the fund at £485m in June after going head-to-head with US real estate giant Blackstone.

‘The board believes the combination with Warehouse Reit would further diversify our logistics portfolio by property size, location and use, offers sizeable near-term rental reversion we can capture, creates immediate financial synergies and generates returns above our cost of capital over the short to medium term,’ said Adams.

He added that the deal was ‘compelling’ for WHR shareholders who will be able to remain invested and benefit from future growth.

Adams said the board will continue to assess ‘any M&A opportunities relative to our range of organic opportunities to ensure that capital is appropriately and most efficiently allocated’.

Three growth drivers

It is not just BBOX’s acquisitive nature that is driving the fund forward. Adams said there are three growth drivers at play, including ‘capturing record rental reversion through active management’, an attractive development pipeline generating best-in-class assets that has ‘the potential to more than double our rental income over the longer term’, and ‘delivering exceptional returns’ through a move into data centre development.

BBOX’s two data centre development schemes have an estimated rent of £58m a year, with the Manor Farm site potentially becoming income producing in 2027.

‘These core growth drivers have the capacity to increase our adjusted earnings by 50% by the end of 2030,’ said Adams.

Godfrey said the first half of 2025 had been ‘positive overall’ despite ‘significant uncertainty created by higher employment costs and US tariffs at the beginning of the year’, meaning activity was subdued in the first quarter before picking up from May.

Demand for logistics property has remained resilient thanks to e-commerce and retail operators continuing to ‘build out their networks and adopt more technology-based solutions, supported by larger power demands’.

Manufacturers have also been investing domestically as they reshore supply chains, while food retailers are ‘refreshing networks as they look to drive economies of scale by consolidating into larger units’.

Further growth has come from defence companies which have been more active in the market on the back of the ‘government’s announcement of additional spending’.

‘Experiencing some uncertainty’

Stifel analyst Denese Newton noted BBOX shares are up 7.5% this year, versus the broader UK EPRA index which has risen 3.4%, and the shares now stand at a 23% discount to net tangible assets.

However, she said the ‘logistics sector as a whole is now experiencing some uncertainty’.

‘Although demand levels remain robust, customers are reluctant to enter into build-to-suit agreements due to the lack of macroeconomic visibility,’ said Newton, adding that vacancies across the market are rising.

BBOX has diversified, including into data centres, which Newton said ‘could well see improved growth prospects’ but ‘this may take some time’.

‘In the meantime, the uncertainty in the wider logistics market could well hamper any material closing of the discount, in our view, and we retain our “hold” rating,’ she added.