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Tritax Big Box - Dividend ticks up

George Salmon | 7 March 2018 | A A A
Tritax Big Box - Dividend ticks up

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Tritax Big Box REIT plc Ordinary 1p

Sell: 239.80 | Buy: 240.20 | Change -0.60 (-0.25%)
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A fourth quarterly dividend of 1.6p per share ensures Tritax's full year dividend rises 3.2% to 6.4p per share, in-line with its pre-stated target. The group intends to pay 6.7p per share in 2018.

The shares rose 1.6% on the news.

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Our View

Tritax buys and rents out Big Boxes, and the Big Box is in demand.

They may not be pretty, but these giant warehouses are at the heart of modern logistics and e-commerce. They house the automated handling equipment that keeps stock flowing as efficiently as possible.

Suitable sites, ideally covering half a million square feet or more next to a major motorway, are few and far between. The combination of limited supply and a crucial role in company infrastructure means Tritax is unlikely to suffer unexpected vacancies.

Its warehouses are let to blue-chip clients on long leases, with upward-only rental reviews providing the income growth to fund a policy of steadily increasing dividends. Indeed, some tenants have sought to extend leases many years before their current term expires, so determined are they to retain the use of the facility.

Tritax itself is very simple business. An experienced executive team helps build a portfolio of in-demand assets where prospects for rental growth look encouraging. Debt is kept low to limit risks. With average interest rates on debt of below 2.4%, using borrowings to part fund purchases that have typically offered starting yields of 5.7% makes perfect sense.

Upwards only rent reviews, and high quality lessors, should mean the dividend is secure, although a rapid rise in interest rates could hit the capital value of the portfolio, and indeed the shares.

However, we view Tritax as a 'get rich, slowly' scheme. It's not trying to shoot the lights out, simply deliver a steadily increasing dividend. At present, the shares offer a prospective yield for 2018 of 4.7%.

As a real estate investment trust (REIT), Tritax is obliged to pay out the majority of profits after management costs, so it can't retain much cash. That limits its ability to fund acquisitions, so the company frequently raises the extra cash it needs through rights issues - where shareholders are invited to increase their holding. That will remain a major feature as the company grows.

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Full year results highlights

As at the year-end, the portfolio comprised 46 assets, covering more than 22.7m sq ft of logistics space, and 114 acres of strategic land in Dartford. All 46 are fully let or pre-let, with a weighted average unexpired lease term of 13.9 years.

Tritax acquired 11 big box assets during the year for an aggregate price of £435m. Combined with an 8.7% increase in the value of existing assets, this helped the group deliver a 10.3% increase in NAV per share, to 142.24p.

The total portfolio was independently valued at £2.6bn as at 31 December 2017, up from £1.9bn last year. The annual rent roll has also risen, up 26.2% to £126m. Since the year end, the group has added three more assets for a total of £140m.

Adjusted earnings per share totalled 6.37p, down 2.2% on 2016. However, this was impacted by the timing of the rights issue in May that funded growth over the year.

The group's loan to value ratio was 26.8%, well below the medium-term target of 35%.

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Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.