Tritax, one of our five shares to watch in 2016, have this morning released first half results for the six months to 30 June 2016. The shares moved higher by 1.4% on the news.
The interim dividend has increased by 3% to 3.1p per share, with adjusted earnings per share up 16% year-on-year to 3.16p. Tritax are targeting a full year dividend of 6.2p.
The portfolio's valuation has increased by 16.6% to £1.53bn. EPRA net asset value (NAV) per share is 128.91p per share, up 3.4% on the full year stage.
During the period, £200m of net equity was raised, via an over-subscribed share issue. Tritax have since invested effectively all of the proceeds, with £177m invested into three Big Box assets over the first half, and another three acquired post period end for a further £123m.
Acquisitions include sites leased to Kellogg's, Amazon and Argos. Tritax now have 31 big box assets.
The weighted average unexpired lease term "WAULT) was 16.3 years, compared to 16.5 years at the full year stage.
Period end loan to value (LTV) is 32% (FY15: 33%), which increases to approximately 40%, including forward funded development commitments.
Although conceding that it may be too early to tell, Tritax believe that values for prime logistics have largely remained unchanged either side of the Brexit vote, and that the company remains well placed to capitalise on the continuing shift to e-commerce.
The Big Box is in demand. They may not be pretty, looming alongside major roads and motorways, but they are at the heart of modern logistics and e-commerce. Companies need these huge buildings to house automated goods handling equipment, keeping stock flowing through to the end point of demand as efficiently as possible.
The portfolio is let to Blue Chip clients on long leases, with upward-only rental reviews providing the income growth to fund a dividend that Tritax hope will steadily increase. Because the nature of what the companies use these buildings for is so fundamental to their very existence, Tritax is unlikely to suffer from unexpected vacancies. Indeed, the company have found tenants seeking to extend leases many years before their current term expires, so determined are they to retain the use of the facility.
The business is very simple; they use the experience of the executive team to build a portfolio of in-demand assets where rental growth prospects look encouraging. The level of leverage is kept low, to limit risks. With average interest rates on debt of 2%, using borrowings to part fund the purchase of assets that have typically yielded 5.8% at cost makes perfect sense, and raises the return on shareholders' equity.
With open-ended retail funds forced to sell assets in order to meet redemption requirements, Tritax could be able to pick up some attractive buys. Options to fund purchases are limited, however. As a REIT, Tritax is obliged to pay out the majority of profits after management costs, so can't retain much. There isn't much left to draw from the debt facilities, so the company will likely be looking to issue more shares to fund further growth.
We view Tritax as a "get rich, slowly" scheme. It is not trying to shoot the lights out, simply to deliver a steadily increasing dividend. The prospective 5% yield on the stock is very attractive, compared to gilts or bank deposits currently. The attractions of Tritax are that it has modest leverage and high quality tenants, who occupy strategic assets on long lease terms. Tritax Big Box is one of our 5 Shares to Watch in 2016 for precisely those reasons.
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