Following January's trading update, there are few surprises in Tritax's full year results. Revenue and profits rose, with the full year dividend up 4.7% to 6.7p per share.
The shares moved slightly higher on the news.
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 situated next to a major motorway and covering 500,000 square feet or more, are reasonably rare. However, Tritax's experienced team have proven adept at securing attractive assets in off-market transactions, meaning sites are snapped up before others even know they're for sale.
After kitting out their Big Box, tenants build up distribution networks around the site, making changing location costly, risky and time-consuming. Some have even sought to extend leases many years before their scheduled expiration, so determined are they to retain the use of the facility.
That means Tritax can impose attractive terms, such as upwards only rent reviews. A wide range of high quality tenants should add security to the dividend, while further expansion could lead to increasing payouts.
With interest costs around 2.6%, using borrowings to part fund purchases with starting yields of over 5% makes perfect sense, and there's likely to be more acquisitions to come.
The LTV ratio of 27% is well below the stated 35%-40% target range, giving the group some dry powder with which to secure more deals. However, longer-term the group will have to go back to shareholders to fund expansion.
That's because 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.
Investors will also need to remember that for all Tritax's attractions, there are drawbacks. For example, capital growth is likely to be steady rather than spectacular, and a rapid rise in interest rates could hit the capital value of the portfolio, and thus the shares.
Still, we view Tritax as an attractive proposition, particularly for income-seeking investors. The prospective yield is 4.7% next year and we'd expect further steady growth, although there are no guarantees.
Full year results
An extra eight assets were added to the portfolio over the year, bringing the total to 54. The extra properties, and a 1.6% increase in existing rents, helped the rent roll (including forward funded developments) rise to £161.1m, with 2018's net rental income up 23% to £132.8m.
After accounting for higher expenses, and an increase in the number of shares following a £155.6m rights issue, underlying earnings per share rose 8% to 6.88p.
Tritax's portfolio, including 114 acres of strategic land, was valued at £3.4bn, up from £2.6bn last year. That meant NAV per share rose 7.4% to 152.8p. The portfolio remains 100% let, or pre-let.
The group has 39 tenants, of which Amazon is the single largest, accounting for 13.7% of the rent roll. All leases provide for upward only rent reviews, of which 45% are inflation-linked, 37% are open market, 11% are fixed and 7% are hybrid. The Weighted Average Unexpired Lease Term (WAULT) across the portfolio stands at 14.4 years.
At year end, Tritax had £47.4m of readily available cash and had drawn on £829.8m of debt facilities, with a further £479m of credit available. The net debt position means the group had a loan-to-value (LTV) of 27.3%.
The author of this article holds shares in Tritax Big Box.
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. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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.