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Does Tritax tick the big ESG box, too?

The warehouse landlord has made some bold claims about its portfolio’s impact
August 12, 2021
  • Half-year results see 10.6 per cent rise in EPRA NAV
  • ESG push includes carbon reduction efforts and biodiversity impacts

After posting a 100 per cent total return over five years, including a 30 per cent share price rise so far in 2021, Tritax Big Box (BBOX) has ticked one big investor box.

Half-year results find the logistics warehouse landlord firing on all cylinders. Management described current demand for prime big box assets as “unprecedented”, reflected in a record take-up in space, a constrained development pipeline, good rental growth and a growing wall of investor money waiting to pile in.

This positive backdrop, combined with big valuation gains and canny asset management, helped to boost EPRA net tangible assets by 10.6 per cent to 194.2p per share in the six months to June, in line with the rise in the value of the portfolio to £4.89bn. Furthermore, none of Tritax’s 60 assets are empty, and 99.5 per cent of rent due for the first half of 2021 has been paid.

“It’s been astonishing,” chief executive Colin Godfrey told us. “There’s so much good news, it’s quite ridiculous really.”

The good news has also led to a premium rating. At 218p, the shares trade 16 per cent above statutory net asset value, versus a five-year average of close to book value. A share sale could therefore benefit existing investors, by lowering the group’s cost of capital.

Godfrey has no plans for equity issuance, however. “We’re already comfortable financing all of this through disposals and investments in the wider portfolio,” he says, citing a recent £90m off-market purchase of a 0.9 million square foot facility as an example of fleetfooted deal-making.

The asset’s net initial yield of 5.1 per cent, attractive in an income-starved world, has already climbed 50 basis points since the acquisition completed.

In years gone by, trust holders might not ask for much more. But this is 2021, and Tritax is keen to paint itself as a worthy constituent in any ethical fund. Investors now have a sustainability strategy to thank for an improved ESG risk rating score and inclusion in the FTSE4Good benchmark index.

Intuitively, the landlord’s credentials here are less obvious, given the huge amounts of land that modern distribution hubs require. But it hasn’t stopped it from making the case. And since 2020’s issue of a £250m green bond at a coupon of 1.5 per cent, the group is mandated to improve its green initiatives where possible.

So far, this has included the practical completion of a net zero carbon development, though this required offsets of around 25p per square foot even after solar panels were fitted. “It’s impossible right now to construct a building without carbon,” Godfrey acknowledges.

Claims about impacts on local habitats are even loftier. Godfrey told us that the installation of nearby beehives mean new warehouses can have a net positive impact on biodiversity, at least compared with the diminished species-supporting capacity of modern farming.

But ultimately, Tritax has little control over its assets’ greatest footprint, which is the day-to-day use of its warehouses. Lease agreements do not allow it to dictate customers’ practices, including waste policies. Amazon, its largest tenant, was recently accused of destroying millions of unsold items at a fulfilment centre in Dunfermline, which Tritax never owned but bought for a third-party investor in 2017.

A harder line on tenant oversight might be the boldest step an ESG-minded commercial landlord could take.