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QD view – EuroBox raise hits the sweet spot

The proposed €200m (£173m) equity raise by Tritax EuroBox should be enthusiastically received by investors.

The group recognises that now is the time to be growing in the burgeoning European logistics sector, with structural tailwinds well and truly in its favour. Like in the UK, online retailing was already rising in Europe before the pandemic, but the trend has accelerated in the last year.

Unlike in the UK, however, online penetration rates are far lower giving the potential for greater growth rates going forward. As a result of the lag in online penetration rates, e-commerce businesses in Europe are far behind their UK counterparts in modernising their supply chains and distribution networks to respond to it. Occupier demand, therefore, is flourishing.

EuroBox has identified a pipeline of investments worth $416m that it will use the proceeds of the equity raise – plus new debt of €160m and proceeds from the recent €65.5m sale of a Polish asset – to acquire.

It is in exclusive negotiations to buy three assets in Germany for a total of €317m. All three assets have been sourced through the group’s exclusive relationship with developers on an off-market basis.

The first, located in Bavaria, is a brand-new property let to a global sportswear brand and has high ESG credentials. The second is located just north of Frankfurt and is let to a fast-growing online retailer, and the third is a development project near Dusseldorf that will see EuroBox receive income during the construction of the property from the developer as well as a one year rent guarantee at practical completion.

It also has a short-term pipeline of three development assets worth €99m – two in Italy (Turin and Milan) and one in Bavaria, Germany – that have also been sourced through its developer relationships. It says all three developments are located in supply constrained markets that have strong demand characteristics.

The strength of the pipeline highlights perfectly the benefits of the group’s exclusive relationships with logistics developers where it has first refusal on all development projects. Being able to source these deals on an off-market basis, in a property sector that has seen investment prices rocket as investors from all over the world clamber to get in on the action, is really quite impressive.

The development projects are a significant step in the group’s move up the investment risk curve to a more value-add approach. Buying sites at an earlier stage in their development presents the group with the opportunity to earn significantly better returns than by buying the finished product.

Assuming it raises its target and acquires its pipeline, which it says it can by the end of March, the company’s gross portfolio value will be worth more than €1.3bn and should see it achieve an investment grade credit rating.

This has several benefits to the company, including an automatic and immediate 30 basis points drop in the cost of its current debt and cheaper future debt as it opens it to a deeper pool of possible lenders and the potential issuing of an investment grade bond.

The proposed raise seems to hit the sweet spot in terms of timing and benefits to investors, so we are optimistic for its chances.

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