REG - Tritax Big Box REIT - 147 MW data centre development opportunity

Tritax Big Box REITAnnouncement

21/01/2025 07:00

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RNS Number : 0329U  Tritax Big Box REIT plc  21 January 2025

Targeting exceptional returns from 147 MW data centre development opportunity

Delivering potential 9.3% yield-on-cost and significant development profits to
shareholders

Targeting delivery of 107MW Phase 1 data centre in H2 2027

Expected to be one of the largest data centres in the UK on completion

Additional c.1GW pipeline of data centre opportunities across the UK

21 January 2025, Tritax Big Box REIT plc ("Tritax Big Box" or "the Company")
has purchased a 74-acre site at Heathrow, London within the Slough
Availability Zone, a key FLAP-D prime EMEA data centre location (the "Manor
Farm site").

 

Simultaneously, the Company has acquired a 50% share in a joint venture ("the
JV") with a leading European renewable and low carbon energy power generator
("the JV Partner"). The JV enables accelerated power delivery to the Manor
Farm site using pre-existing grid connection agreements. The acquisition of an
interest in the JV constitutes a related party transaction for the purposes of
the UK Listing Rules, further details of which are set out below.

 

Subject to receiving planning consent, the acquisition of the land and stake
in the JV facilitates an accelerated timeline to the potential delivery of up
to 147 Megawatts ("MW") of power to support the development of a major data
centre scheme at Manor Farm.

 

In addition, Tritax Management LLP ("Tritax Management" or "the Manager"),
working with the JV partner, has created a further pipeline of potential data
centre opportunities in key locations within the UK utilising power
availability of c.1 gigawatt ("GW").

 

A prime location for a latest generation data centre of significant scale

-       The 74-acre Manor Farm site, located within the Slough
Availability Zone near Heathrow Airport, is adjacent to key data cable routes
providing high levels of connectivity and making it attractive to hyperscaler
and co-location operators.

-       The site has the potential for an initial data centre of 107 MW
("Phase 1") on land currently used for open industrial storage, targeting
commencement of construction in H1 2026.

-       The site also offers the potential for further expansion with a
possible second phase data centre ("Phase 2") of 40 MW (both of which are
subject to planning) bringing the site's total potential to 147 MW.

-       Phase 1 is expected to be one of the most advanced data centres
in Europe totalling 448,000 sq ft of data halls across three floors.

-       The JV provides the site with grid connections to two
independent transmission substations providing exceptional resilience in
addition to co-located utility scale battery storage.

 

Targeting exceptional returns and accelerated timeline with 9.3% yield on
cost 1  (#_ftn1) and significant development profits

-       The Phase 1 data centre will be developed on a "powered shell"
basis, conditional on the receipt of planning consent and securing a pre-let:

o  Indicative capex costs of approximately £365 million are inclusive of
land, construction, JV stake acquisition, transaction costs and fees, and the
Company's 50% share of the power related infrastructure costs.

o  The Company expects to fund this project through a combination of existing
financial resources and its ongoing capital recycling programme.

o  The Company believes the "powered shell" model provides attractive returns
without taking on operational risk and draws upon its strong track record in
delivering large scale logistics buildings let to sophisticated and demanding
clients.

-       Based upon expected rental levels 2  (#_ftn2) , the anticipated
yield on cost from Phase 1 is approximately 9.3%, complementing the returns
within our logistics development pipeline which typically targets a 6-8%
range, and is particularly attractive given the prime London location, the
scale of data centre and the accelerated timeline for delivery.

-       With prime data centre assets currently commanding a stabilised
investment yield of 5.0-5.5% the scheme is expected to deliver significant
development profit to the Company's shareholders, in addition to generating an
attractive income stream and diversifying the Company's range of clients.

-       A planning application for the development of Phase 1 has been
submitted, and a determination is expected in H2 2025. Assuming a pre-let is
achieved ahead of this, construction of Phase 1 would commence in H1 2026 with
practical completion and income recognition expected in H2 2027.

 

Tritax Management has created a potential data centre pipeline of up to 1 GW

-       Acute scarcity of deliverable grid connections has restricted
the development of data centres in this prime location.

-       The Manager, having identified the site's potential for a data
centre, has secured a JV partner enabling contracted and accelerated power
delivery to Phase 1 of the Manor Farm site in H2 2027, using the JV partner's
pre-existing grid connection agreements.

-       Through this approach, the Manager has unlocked power faster
than applying directly to the grid where power could have taken more than 10
years to secure.

-       The JV holds the rights to the Manor Farm grid connections and
will own the power infrastructure, with the JV Partner responsible for the
delivery of power and the associated infrastructure. Meanwhile the Company can
utilise 100% of the power and is responsible for delivering the land and real
estate components (which sit outside the JV and will be owned outright by the
Company).

-       Based upon independent valuations, given the intrinsic value of
the JV attached to the land purchased, the Company expects to benefit from an
initial value increase above the cost of investment in the site.

-       In a similar manner to land options used within the Company's
development pipeline, the Manager has built a pipeline of additional grid
connection agreements across the UK which could provide c.1 GW of power for
further data centre opportunities, beyond those at Manor Farm, and are
expected to be deliverable from 2028 onwards.

 

An attractive market at a key inflection point, underpinned by long-term
demand drivers and scarcity of powered land

-       Global demand for data centres, driven by growth in cloud
computing and higher AI adoption, is expected to rise between 19-22% annually
from 2023 to 2030 3  (#_ftn3)

-       London's global standing and connectivity has made it Europe's
primary data centre market and one of the largest globally.

-       Data centre providers are struggling to keep pace with strong
demand for capacity. The market is constrained by significant barriers to new
supply due to a lack of suitably located land with access to appropriate power
within an acceptable timeframe.

-       The UK Government has recently classified data centres as
critical national infrastructure, emphasising their importance to the UK
economy.

 

Contractual arrangements

The land at Manor Farm is being acquired from Airport Industrial Property Unit
Trust 4  (#_ftn4) ("AIPUT"). The JV stake is being acquired from Tritax
Management. All return related figures in this announcement are presented net
of the following consideration and fees payable to AIPUT and Tritax Management
as outlined below:

-       AIPUT will receive:

o  An initial £70 million consideration for the land at the Manor Farm site,
based on a logistics underwrite; and

o  A further consideration of 21% of the Phase 1 development profits 5 
(#_ftn5) , contingent upon full delivery of a practically complete and let
data centre.

-       Tritax Management, which has made significant investments in its
power capabilities, including establishing a dedicated power team who have
been instrumental in originating the data centre opportunity for the Company,
will receive:

o  £6.1 million in consideration for its 50% ownership of the JV, including
a first right of refusal for the Company on the Manager's data centre
pipeline;

o  A development management fee, in line with market terms, of up to 5% of
the development cost 6  (#_ftn6) of the scheme, contingent upon receiving
planning consent; and

o  A profit share 7  (#_ftn7) of 17.5% of the total Phase 1 development
profits, contingent upon full delivery of a practically completed and let data
centre, of which 50% will be applied to the subscription or acquisition of
shares in the Company 8  (#_ftn8) .

-       In connection with these arrangements, the Company has entered
into a development management agreement with Tritax Management pursuant to
which Tritax Management has been appointed to provide development management
and technical services, including pursuing planning, overseeing construction,
pre-letting services, technical electricity expertise and overseeing the
technical aspects of the Company's role in the JV and all power related
elements.

-       Tritax Management is a related party of the Company pursuant to
UKLR 11.5.3R. The development management fee and profit share payments
outlined above to Tritax Management are deemed to be relevant related party
transactions under UKLR 11.5.4R.

-       The Board considers that the agreement regarding the development
management fee and profit share payment is fair and reasonable as far as the
shareholders of the Company are concerned and the Directors have been so
advised by Jefferies International Limited in its capacity as sponsor.

 

Aubrey Adams, Chairman of Tritax Big Box, commented

"This is a decisive and exciting first step for the Company in the very
attractive data centre market which the Manager has unlocked with its power
and real estate capabilities. This gives the Company a considerable
competitive advantage in capturing the growing demand for data centre
infrastructure. The combination of Manor Farm's prime London location and
accelerated access to critical grid connection agreements creates the
opportunity to develop quickly one of the UK's largest data centres and
deliver exceptional returns for our shareholders.

 

"Over the past four years, the Manager has independently developed and
invested in its power capabilities, securing a joint venture arrangement with
one of Europe's largest major renewable and low-carbon energy generators which
the Company is now acquiring at Manor Farm. This provides accelerated access
to power in this prime data centre location, where a lack of power has
significantly restricted the development of these nationally critical
infrastructure projects. Having taken extensive and independent professional
advice, the Board of Tritax Big Box has successfully negotiated preferential
access and terms for this opportunity, which generates exceptional returns and
complements our logistics development pipeline. The Board has also negotiated
a right of first refusal with the Manager for all future data centre
opportunities with up to c.1 GW of power capacity."

 

 

Investor call

 

A Company presentation for analysts and investors will take place via a
webcast with live Q&A at 8.00am (GMT) today and can be viewed at:
https://stream.brrmedia.co.uk/broadcast/6777d05d139c6b2fd9c4b3e4
(https://stream.brrmedia.co.uk/broadcast/6777d05d139c6b2fd9c4b3e4) .

 

If you would like to ask a question verbally rather than through the webcast
viewer, please join the presentation conference call:

UK: +44 (0) 33 0551 0200

USA: +1 786 697 3501

Password: Tritax Company Announcement

 

For further information, please contact:

 

Tritax Group

Colin Godfrey,
CEO
                +44 (0) 20 8051 5060

Frankie Whitehead,
CFO
                bigboxir@tritax.co.uk

Ian Brown, Head of Corporate Strategy & Investor Relations

 

Kekst CNC

Tom Climie/Guy Bates
 
                                +44 (0) 77 601
60 248

               +44 (0) 75 810 56 415

Email: tritax@kekstcnc.com (mailto:tritax@kekstcnc.com)

The Company's LEI is: 213800L6X88MIYPVR714

 

 

NOTES:

 

Tritax Big Box REIT plc (ticker: BBOX) is the largest listed investor in
high-quality logistics warehouse assets and controls the largest
logistics-focused land platform in the UK. Tritax Big Box is committed to
delivering attractive and sustainable returns for shareholders by investing in
and actively managing existing built investments and land suitable for
logistics development. The Company focuses on well-located, modern logistics
assets, typically let to institutional-grade tenants on long-term leases with
upward-only rent reviews and geographic and tenant diversification throughout
the UK.

 

The Company is a real estate investment trust to which Part 12 of the UK
Corporation Tax Act 2010 applies, is listed on 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 (http://www.tritaxbigbox.co.uk/)

 

 1  (#_ftnref1) This is a target only and not a profit forecast. There can be
no assurance that this target will be met and it should not be taken as an
indication of the Company's expected or actual future results. Accordingly,
investors should not place any reliance on this target in deciding whether or
not to invest in the Company.

 2  (#_ftnref2) Independently verified by a third-party agency using
comparable evidence

 3  (#_ftnref3) Source: McKinsey & Company

 4  (#_ftnref4) AIPUT is an independently owned Jersey Property Unit Trust
managed by Tritax Management LLP which, for the avoidance of doubt does not
form part of the Manager's group, and therefore, is not a related party of the
Company for the purposes of the UK Listing Rules. The independent unit holders
of AIPUT approved the sale of land at Manor Farm to the Company via a vote.

 5  (#_ftnref5) AIPUT will receive 30% of the real estate and battery storage
related profits equivalent to 21% of total Phase 1 profits.

 6  (#_ftnref6) The development management fee is payable by reference to
different milestones, with 3.5% payable in quarterly instalments contingent
and commencing from the grant of satisfactory planning permission and 1.5%
payable following the later of the date of grant of satisfactory planning
permission and the date of exchange of an acceptable pre-letting agreement.

 7  (#_ftnref7) The Phase 1 profit in respect of the above contingent profit
share arrangements is calculated as the fair value of the asset base at the
time of completion (as confirmed by an independent valuer) less all associated
costs.

 8  (#_ftnref8) Subject to a 12 month lock up arrangement.

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