By Annabel Brodie-Smith
Well the much-predicted interest rate rise in May didn’t happen. GDP slowed down to just below 0.3% in the first quarter and we will have to see if it was just down to the ‘beast from the east’ or a wider slowdown. What’s certain is that many income seekers are looking further afield for income and investment companies are high on their list of possible investments.
Last month we looked at the dividend heroes, the 21 investment companies that have increased their dividends for over 20 years by largely investing in equities.
This month we’re looking at investment companies which invest in other assets which generate income including debt, property, infrastructure and more specialist assets. These types of assets do not trade on stock markets and are generally known as alternative assets. Please do see our guide to alternative assets, Something a bit different?
Today alternative assets make up nearly half of the investment company industry, having grown rapidly over the last twenty years. Many alternative assets seek to provide a high level of income and are quite specialist and illiquid, namely difficult to buy or sell. Alternative assets may also require sizeable minimum investments so investment companies enable private investors to access these asset classes more easily.
"This month we’re looking at investment companies which invest in other assets which generate income including debt, property, infrastructure and more specialist assets"
Annabel Brodie-Smith, AIC
The closed-ended structure of investment companies is particularly suitable for alternative assets as their shares are traded on the stock market, allowing managers to take a long-term view of their portfolio. In contrast, open-ended managers have to manage their portfolios so they can give investors back their money at any time.
This month our renowned investment reporter, Ian Cowie, is covering alternative investment companies looking specifically at the property sectors, infrastructure and renewable energy infrastructure sectors. Wisely, Ian concludes after nine years of interest rates frozen near historic lows, “an acceptable, sustainable income is hard to find. Alternative assets can provide answers but are not risk-free. Investment companies offer unique advantages, enabling income-seeking investors in infrastructure and property to minimise risks and maximise rewards.”
The AIC takes a look at the Sector Specialist: Debt sector which has one of the highest yields at 6.5% and has grown to become the sixth largest AIC sector, with 29 companies. These
"We also take a look at some specialist investment companies which include those investing in the uranium industry, shipping, specialist equipment such as helicopters and aircraft leasing"
Annabel Brodie-Smith, AIC
yields have been achieved through a wide range of different strategies including corporate, asset-backed, distressed and peer-to-peer loans. Several managers explain what debt they have in their portfolio and why. We also take a look at some specialist investment companies which include those investing in the uranium industry, shipping, specialist equipment such as helicopters and aircraft leasing.
Finally, we have an article from Colin Godfrey, manager of Tritax Big Box REIT which invests in a fascinating sector of the property market, large logistics buildings for customers like Morrisons and Amazon, known as Big Boxes.
I’m looking forward to embracing spring at Chelsea Flower Show soon.
Hope you have a good month.
Communications Director, AIC
Alternative routes to income
Ian Cowie explains the income attractions of alternative assets
Income-seeking investors struggling with low interest rates on bonds and deposits plus high share prices, should consider investment companies holding alternative assets.
Infrastructure - such as public buildings funded through the private finance initiative (PFI) or sources of renewable energy such as wind farms - and many forms of commercial property can generate high and rising levels of income, sometimes with indexation or protection against inflation.
Property Direct - UK
For example, the average yield - that is, dividend income expressed as percentage of share price - in the AIC Property Direct - UK sector is 5%. That’s more than double the 2.3% annual rate of increase in the Consumer Prices Index (CPI) in the year to March. In addition to an inflation-busting yield, investment companies in this sector - such as F&C Commercial Property, Schroder Real Estate and Standard Life Investments Property Income - have delivered average total returns of 85% over the last five years.
This type of investment company enables individual investors of all sizes to gain access to rental income and potential capital gains that can be generated by office buildings and supermarkets, among other forms of commercial property.
Each of the underlying buildings might cost several million pounds but the pooled fund structure of investment companies enables individuals who can set aside perhaps just £50 a month to obtain a stake in these assets and to share the cost of professional fund management, such as selecting sites, collecting rent and arranging maintenance.
Similarly, the Specialist: Infrastructure AIC sector enables individual investors to share predictable revenue streams from massive PFI-funded public buildings such as bridges, hospitals and schools. As governments in several countries try to avoid increasing taxes, this form of raising finance has proved increasingly popular - although it is subject to political risk from opponents of PFI who call for nationalisation. However, many of these investment companies are now reducing their exposure to UK PFI projects and have increased their investment in overseas projects, regulated utilities and other infrastructure projects to diversify their portfolios. Funds in this sector - such as HICL Infrastructure, John Laing Infrastructure and International Public Partnerships - yield an average of 5.1%. Total returns over the last five years were 51%.
Property - Specialist
Depending on each individual investors’ attitudes to risk and reward, it might be worth considering other alternative assets. For example, the Property - Specialist sector includes companies such as the self-descriptive Empiric Student Property, Primary Health Properties and Tritax Big Box REIT.
The latter fund invests in large distribution centres necessary for online shopping, a growth sector of the economy to which I recently obtained exposure via another investment company called Aberdeen Standard European Logistics Income.
Renewable Energy Infrastructure
Investors for whom ethical and environmental concerns are paramount, might prefer the Renewable Energy Infrastructure sector - which includes the Foresight Solar Fund and Greencoat UK Wind. Investors can do well by doing good, at least in terms of income, because this sector currently yields an average of 5.9%.
Alternatively, investors who are willing to accept lower yields in pursuit of capital growth may prefer the Property Direct - Europe sector where average total returns over five years were 164%, or Property Direct - UK, where average returns over five years were 85%. Another option is Property Direct - Asia Pacific, where average returns over five years were 73%.
As their names suggest, companies in these sectors invest directly in buildings in these geographical regions. That can concentrate risk and rewards, as well as raising costs. For example, average ongoing charges in the three Property Direct sectors are, respectively, 10%, 1.8% and 12%. By contrast, TR Property, the sole fund in the Property Securities sector holds shares in other property companies, increasing diversification and reducing ongoing charges to 0.9%. Total returns over the last five years were 142%.
Benefits of investment companies
However, it is very important to understand that neither capital nor income is guaranteed with any of these funds. Asset prices can fall without warning and you might get back less than you invest. More positively, pooled funds can diminish the risk of investment by diversification - or spreading individuals’ money over many different underlying assets - and deliver other valuable advantages.
For example, investment companies have the unique ability to smooth out some of the shocks of stock markets by holding back up to 15% of returns in good years to top-up dividend distributions in bad years. This has helped 21 investment companies to raise their dividends for more than 20 consecutive years and many others can boast more than a decade of sustained, rising income for shareholders.
Another unique advantage is that the closed-end structure of investment companies means fund managers do not have to sell underlying assets to meet redemptions, if a sector falls from favour and investors want to get back into cash. This advantage can be very important with commercial property or infrastructure, where it might be difficult to turn assets into cash quickly.
More than nine years after many bond and share prices began rising in recovery from the global credit crisis - and while interest rates remain frozen near historic lows - an acceptable, sustainable income is hard to find. Alternative assets can provide answers but are not risk-free. Investment companies offer unique advantages, enabling income-seeking investors in infrastructure and property to minimise risks and maximise rewards.
Ian Cowie is a columnist at The Sunday Times
Sector Specialist: Debt
One of the highest-yielding investment company sectors
With interest rates at all-time lows over the past decade, investors have increasingly been looking to alternative assets in their search for income. Sector Specialist: Debt is one of the highest-yielding investment company sectors and since launching in 2006 it has grown to become the sixth largest sector with total assets of £8.6 billion as at 30 April 2018.
Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC) said: “With interest rates at such low levels, demand has been strong for the debt sector which has grown to become the sixth largest AIC sector, with 29 companies, the most in any sector. Investors seeking income have been attracted by the generous yields achieved through a wide range of different strategies including corporate, asset-backed, distressed and peer-to-peer loans. Clearly, these companies invest in alternative assets and should be considered as part of a balanced portfolio for the long term. If investors are in any doubt as to whether investment companies are suitable for them they should speak to a financial adviser.”
On 14 May 2018, the AIC held a media roundtable with managers from the investment company debt sector. Martin Rotheram, Senior Portfolio Manager of NB Global Floating Rate Income Fund, Loic Fery, CEO of Chenavari Investment Managers, Investment Adviser to Chenavari Toro Income Fund and Pietro Nicholls, Portfolio Manager of RM Secured Direct Lending, discussed their investment strategies and how debt investments would be affected by potential volatility. Their views have been collated alongside other managers from the sector.
Pietro Nicholls, Portfolio Manager of RM Secured Direct Lending (RMDL) said: “In an increasingly volatile market, RMDL’s direct lending strategy offers investors the ability to preserve capital, protect against inflation and rising rates, whilst generating attractive risk-adjusted returns. Since its launch in 2016, the investment trust has invested in over 25 corporates across 16 sectors in the UK and Europe. This includes three investments into healthcare, providing finance to support the care of over 11,000 patients, five investments into renewables, enough to power 35,000 homes and twelve investments into specialist real estate, financing over 250,000 square feet of space.”
Martin Rotheram, Senior Portfolio Manager of NB Global Floating Rate Income Fund said: “The NB Global Floating Rate Income Fund invests in a global portfolio of senior secured floating rate loans. These are loans made to non-investment grade companies to finance some type of corporate activity, typically a merger or acquisition but could be used for other purposes for example a capital expenditure project. They are typically arranged by banks and then syndicated to institutional investors. The portfolio, which typically contains 175 to 225 loans is diversified by borrower and industry. These loans are managed by four experienced portfolio managers and backed by what we believe to be one of the largest and most experienced credit teams in the industry. We are active managers and typically select higher quality assets – around 50% of the portfolio is currently invested in credits rated BB or higher – with a focus on keeping duration low and limiting potential areas of volatility.”
Loic Fery, CEO of Chenavari Investment Managers, Investment Adviser to Chenavari Toro Income Fund said: “As an opportunistic alternative lender, Chenavari Investment Managers, the investment adviser of Chenavari Toro Income Fund provides secured lending to niche and fragmented sectors with high barriers to entry through a precise partnership selection. For instance, Chenavari Toro Income Fund has partnered with an Irish company to originate buy-to-let mortgages on the back of regulatory
"Chenavari’s partners and employees own about 19% of the share capital"
Loic Fery, Chenavari Toro Income Fund
tightening for Irish banks and an attractive macroeconomic backdrop. The firm intends to securitise the Irish mortgage portfolio and should receive the net excess return between the mortgage pool interest (over 5%) and funding costs.
“Chenavari Investment Managers has invested $3.4 billion in alternative private credit loans in 12 European countries over the past three to four years and Chenavari Toro’s investments consist of residential mortgage loans, senior secured corporate loans and asset-backed lending. Finally, it is important to say that Chenavari’s partners and employees own about 19% of the share capital.”
Ron Miao, Chief Operating Officer of Hadrian’s Wall Capital Limited, Investment Adviser to Hadrian's Wall Secured Investments said: “Hadrian’s Wall Secured Investments Limited (HWSIL) is a London Stock Exchange Main Market listed closed-ended investment company. The company focuses on lending only to UK real economy SME businesses secured by a range of underlying assets and collateral including transportation equipment, production equipment, plant and machinery, property, inventory and financial assets. Hadrian’s Wall Secured Investments focuses on market segments which it believes are under-served by the mainstream banking sector. Among others, the company has provided loans to an auto lease company, social-healthcare developer, equipment manufacturer, construction and engineering company, renewable energy engineering company, and commercial property company across the UK. Typical loan sizes are between £1 million to £15 million. The borrowers are typically seeking funds for growth and expansion.”
Pedro Gonzalez de Cosio, Co-founder and CEO of Pharmakon Advisors, Investment Manager of BioPharma Credit said: “BioPharma Credit provides investors with exposure to debt assets in the growing life sciences industry. The company primarily invests in corporate and royalty debt instruments secured by cash flows from sales of approved life sciences products.
“We are a relative newcomer to the investment company universe in London having listed on the Main Market of the London Stock Exchange in 2017 but have been applying and honing this investment strategy in private investment funds since 2009. We invested $1.6 billion across four private funds which averaged gross internal rates of return of ~13% and ~10% per annum net of all fees and expenses, without leverage, and with no defaults.”
What this offers to investors
Ron Miao, Chief Operating Officer of Hadrian’s Wall Capital Limited, Investment Adviser to Hadrian's Wall Secured Investments said: “Hadrian’s Wall Secured Investments Limited targets a stable dividend of 6p per share annually, paid quarterly. To date, the company has successfully raised approximately £145 million in capital. All loans are made in sterling. The company believes its strategy provides stable returns to investors with low volatility and low default rates in the targeted sector of SME lending. The company’s strategy is to focus on secured lending, where the company can obtain multiple layers of credit protection and security. The company does not use leverage to achieve its dividend target, but may use financing to manage its cash flow timing. Ultimately the strategy seeks to provide the investor with consistent safe returns over the long term.”
Loic Fery, CEO of Chenavari Investment Managers, Investment Adviser to Chenavari Toro Income Fund said: “Chenavari Toro Income Fund, a listed investment company with a market capitalisation of over £230 million, offers a target net return of 8 to 10% annually and a targeted dividend distribution in excess of 8%. Chenavari Toro Income Fund offers a unique and diverse exposure to European corporate and consumer lending. It leverages Chenavari’s extensive network of long-standing industry relationships as well as proven track record in securitisation to enhance returns via a proprietary source of cheap term financing.”
Pedro Gonzalez de Cosio, Co-founder and CEO of Pharmakon Advisors, Investment Manager of BioPharma Credit said: “BioPharma Credit aims to provide investors with attractive uncorrelated returns of 8-9% and a robust 7% dividend income stream per annum once substantially invested. We intend to achieve this through disciplined investments in debt assets of life sciences companies with approved drugs or medical devices which offer predictable cash flows and significant downside protection.”
Outlook for the sector
Martin Rotheram, Senior Portfolio Manager of NB Global Floating Rate Income Fund said: “Our outlook for the loan market remains positive. The US and European economies continue to show signs of strong growth, and revenue, earnings and cash flow metrics continue to improve while US corporate tax reform should provide a modest benefit to most companies that we are invested in. Given the positive interest rate optionality that floating rate loans exhibit, with the US market currently pricing in two further hikes this year we believe that the asset class should continue to demonstrate lower volatility whilst offering an attractive source of income-driven return for investors.”
Ron Miao, Chief Operating Officer of Hadrian’s Wall Capital Limited, Investment Adviser to Hadrian's Wall Secured Investments said: “As banks have cut back on lending and tightened their criteria for UK SME lending, the prospect for direct lenders in the sector has never been greater. SMEs are approximately 28% of the UK (non-financial) real economy. According to the Bank of England, the targeted market is greater than £200 billion in size. The company believes its targeted sector will continue to need financing. Given the size of the sector, the company believes its lending opportunities will remain stable regardless of overall financial market sentiment, and its prospects should remain largely uncorrelated with other investment sectors.”
Pietro Nicholls, Portfolio Manager of RM Secured Direct Lending said: “We are cautiously optimistic on the market outlook. US monetary and fiscal policies present a complex picture, whilst European and UK markets are experiencing a slowdown in GDP growth. The UK also needs to contend with Brexit negotiations, a deteriorating credit cycle and rising interest rates.
"We believe that the asset class should continue to demonstrate lower volatility whilst offering an attractive source of income-driven return for investors"
Martin Rotheram, NB Global Floating Rate Income Fund
“Defensive investment strategies such as direct lending are well positioned to benefit from any normalisation of interest rates and are well protected from a deteriorating credit cycle due to the various security packages in place with underlying borrowers.”
The investment companies that offer exposure to uranium, shipping and aircraft
150 years after the first investment company was launched, the industry is still expanding investors’ and advisers' options to new and innovative areas. Of course there are many well-known investment companies investing in equities and alternative assets, but today we are looking at some specialist investment companies which include those investing in the uranium industry, shipping, specialist equipment such as helicopters and aircraft leasing.
Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC) said: “As the oldest form of collective investment, investment companies are the trailblazers of the investment world. It’s good to see this pioneering spirit prevails today with investment companies investing in innovative areas, offering investors even more choice.
“Investment companies are particularly suitable for investing in these sorts of illiquid assets as their closed-ended structure means managers do not have to buy and sell their holdings to meet redemptions. Clearly, these companies
"Air passenger transport, which has historically roughly doubled every 15 years, is forecast to continue growing as the emerging middle class increasingly travel more"
Robin Hallam, Amedeo Air Four Plus
have specialist strategies and could be considered as part of a balanced portfolio for the long term. If investors are in any doubt as to whether investment companies are suitable for them they should speak to a financial adviser.”
The AIC has collated comments from managers and directors of specialist investment companies on the opportunity their asset class presents and what it could offer to investors.
What are they investing in?
Robin Hallam, Chairman of Amedeo Air Four Plus said: “Wide body aircraft are assets with long useful lives (typically 25-30 years), are regularly inspected and overhauled and are typically operated by only the largest international airlines. The wide body sector possesses some unique characteristics relative to other asset classes: namely the manufacturing market is a duopoly, Boeing or Airbus, which provides excellent visibility of future supply and new model development.
“Furthermore, air passenger transport, which has historically roughly doubled every 15 years, is forecast to continue growing as the emerging middle class increasingly travel more – thus supporting the case for larger aircraft.”
Paulo Almeida, Fund Manager of Tufton Oceanic Assets said: “Over the past few years, Tufton has invested over $1 billion in shipping. This asset class took much longer than most to recover from the global financial crisis. Due to the supply-side improvement of the past few years in both shipping and shipbuilding, we believe that the current risk-return profile in shipping is superior to many other asset classes. We also believe this is the first listed equity anywhere that aims to offer institutional investors exposure to a diverse portfolio of ship types with low revenue volatility and low to moderate leverage.”
Jeremiah Silkowski, CEO of SQN Capital Management, the Manager of the SQN Asset Finance Income Fund said: “The SQN Asset Finance Income Fund invests in a diversified portfolio of business-essential, revenue-producing hard assets and equipment. The fund invests across more than 12 different asset classes and industries. Each investment that the fund makes generates recurring income and is secured by tangible underlying assets. A sample of investments in the portfolio have included manufacturing equipment in the automotive industry, ground support equipment at major UK airports, and project and equipment lease financing for both traditional and renewable energy assets.”
What’s the opportunity?
Keith Watson, Portfolio Manager of Geiger Counter said: “The uranium market is just exiting a seven-year bear market following the 2011 tsunami in Fukushima which led the Japanese to close their reactors. This removed approximately 12% of global demand and caused uranium to fall 85% to $20/lb. We believe this forgotten sector has seen significantly improved fundamentals over the last 12 months and looks ready to enter a far more bullish environment. Demand growth is strong, led by China which is rolling out nuclear power capacity at a rapid pace and which is expected to rise over 50% during the next three to four years as they tackle chronic domestic air quality.”
“The supply side of the market has also significantly improved as supply reductions have
"We believe that the current risk-return profile in shipping is superior to many other asset classes"
Paulo Almeida, Tufton Oceanic Assets
been seen across the board. Kazatomprom, the largest global producer, announced a 10% cut to their production, 3% of global supply, latterly followed by Cameco which has mothballed McArthur River, equivalent to 5% of global supply. Cuts by Rio Tinto at their Rossing and Ranger mines and a general lack of investment in the sector is leading to further decline on existing assets. As a result market conditions are tightening appreciably and the prospect of deficits emerging should lead to an improvement in the uranium price.”
Robin Hallam, Chairman of Amedeo Air Four Plus said: “Amedeo Air Four Plus (AA4) owns high quality assets namely wide body aircraft and leases them to internationally recognised ‘flag carriers’ on leases where all operational, insurance and maintenance risk is passed to the lessee. We finance these transactions with structured, currency matched, partly amortising debt.
“The leases have fixed terms, typically 12 years, with no early termination option and either fixed or hedged floating rate lease rental. The rent that the airlines pay goes to service the debt (both the interest cost and paying off senior principal) and also enables Amedeo Air Four Plus to deliver a high level of income – approximately 7.8% annually based on the current share price and target dividend distribution of 8.25p paid quarterly.”
Andrew Hampson, Fund Manager of Tufton Oceanic Assets said: “We believe there is currently an attractive opportunity in shipping to buy assets at a significant discount to their depreciated replacement cost and lock in long-term employment producing mid-teen cash yields. This is a strategy we've been following with success for the last couple of years and see limited competition due to the lack of capital currently being invested in shipping. At the end of Q1, Tufton Oceanic Assets had invested approximately half of its IPO proceeds.”
What do they offer to investors?
Jeremiah Silkowski, CEO of SQN Capital Management, the Manager of the SQN Asset Finance Income Fund said: “The SQN Asset Finance Income Fund pays a monthly dividend to investors at a rate of 7.25% annually, at par value. The portfolio performance is designed not to be correlated with equity, debt, or real estate markets. This is achieved through direct non-tradable investments that are subject to non-cancellable contracts spread across an array of industries and asset classes.”
"The SQN Asset Finance Income Fund pays a monthly dividend to investors at a rate of 7.25% annually"
Jeremiah Silkowski, SQN Asset Finance Income Fund
Robin Hallam, Chairman of Amedeo Air Four Plus said: “The portfolio currently consists of 14 aircraft diversified both across three model types (Airbus A380, A350 and Boeing 777) and airline (Emirates, Etihad and Thai Airways). Amadeo Air Four Plus has a market capitalisation of some £675 million and also offers the possibility of a future capital gain at the end of the leases once junior debt is repaid. This long-term stream of high income combined with an easily understood structure has proven popular with investors and the vehicle has increased its size more than three-fold since IPO in May 2015. For investors seeking a high level of income backed by real assets in a transparent structure the aircraft investment vehicles have proven interesting.”
Thinking inside the box
By Colin Godfrey, Fund Manager of Tritax Big Box REIT
Colin Godfrey, Fund Manager, Tritax Big Box REIT plc
What is Tritax Big Box REIT?
Tritax Big Box REIT plc is a FTSE 250 listed company dedicated to investing in and actively managing large “Big Box” logistics real estate assets in the UK, land suitable for Big Box development and pre-let forward funding developments. Our assets are let to some of the biggest names in retail, logistics, consumer products and automotive, including Amazon, Morrisons, DHL, Unilever and Rolls Royce.
Since our IPO in December 2013, we’ve acquired on average one investment per month, carefully assembling a well-diversified and high-quality UK portfolio with assets that are:
- modern (over 90% built since 2000)
- large and highly sought after by occupiers (more than 90% over 300,000 sq ft, 64% over 500,000 sq ft)
- well located in key logistics locations (66% located in highly sought after South East and Midlands)
- let or pre-let on long leases, all providing for upward only rental reviews, to some of the strongest tenant covenants (over 81% of tenants are members of major stock market indices in the UK, Europe and USA)
At 31 December 2017, our portfolio was valued at £2.61 billion (up 38.1% on the 2016 financial year), with a portfolio average net initial yield
"Our assets are let to some of the biggest names in retail, logistics, consumer products and automotive, including Amazon, Morrisons, DHL, Unilever and Rolls Royce"
Colin Godfrey, Tritax Big Box REIT
since IPO of 5.7% (4.6% valuation yield at 31 December 2017).
We are committed to delivering attractive and sustainable returns for shareholders. Our core-plus strategy is supported by high-quality income which underpins our desire to deliver secure, attractive and growing dividends for our shareholders. Our target aggregate dividend is 6.7p per share for 2018 (4.7% increase over 2017) which provides a dividend yield, on the current share price, of approximately 4.5% per annum. During 2017 we delivered a profit of £248 million and a 15.2% total return, against our target of 9% per annum over the medium term.
What are we investing in at the moment?
During 2017, investor demand for Big Box logistics assets remained strong. However, we continued to exercise patience and capital discipline, acquiring 11 high quality assets for £435 million, adding seven new occupiers to the portfolio, comprising 36 tenants across 46 assets.
The company also acquired a 114-acre prime London development site at Dartford for £62.5 million, with the aim of delivering one of London’s largest Big Box logistics parks. Currently, this is the only site within the M25 that can potentially accommodate Big Box logistics assets in excess of 450,000 sq ft. Since the beginning of January, we’ve acquired four further Big Box assets with an aggregate price of £221.6 million, increasing the portfolio to 50 assets and the weighted average unexpired lease term to 14.7 years.
In April 2018, we raised £155.6 million via a significantly oversubscribed share placing. The proceeds will enable us to fund specific acquisition opportunities under advanced negotiation, alongside several specific asset management initiatives within the existing portfolio.
How will our market develop?
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 to improve operational efficiency and meet the requirements of fast-evolving markets, in particular to fulfil e-commerce sales.
The take-up of industrial/logistics space by online retailers has grown by 731% since 2008, as occupiers continue to build their supply chains to keep up with consumer demand.
Consequently, occupational demand is strong and outstrips the limited supply of Big Box assets. This dynamic is favourable for owners
"Brexit may further support our business, since with increased border controls our customers may require more warehousing domestically"
Colin Godfrey, Tritax Big Box REIT
such as ourselves as it drives attractive levels of rental growth and in turn underpins investment demand, which produced yield compression during 2017.
We expect the Big Box logistics sector to continue to benefit from the structural change driven by increasing e-commerce penetration, and the operational and financial advantages they deliver to occupiers.
The fundamentals of our market are largely untouched by the current geopolitical and economic uncertainties. Brexit may further support our business, since with increased border controls our customers may require more warehousing domestically.
Low gearing (27% as at 31 December 2017), a largely fixed cost of debt and one of the lowest cost ratios with in the UK REIT market (13.1% as at 31 December 2017), applied to our high quality transparent rental income stream should contribute to earnings growth and support our progressive dividend target. We see opportunities to acquire high-quality assets and forward-funded developments to further diversify our portfolio, with a potential investment pipeline of £2.3 billion.