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Tritax - rents, profit and dividend rise

George Salmon | 8 August 2019 | A A A
Tritax - rents, profit and dividend rise

No recommendation

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: 201.20 | Buy: 201.60 | Change -0.60 (-0.30%)
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Excluding costs associated with the db symmetry acquisition, operating profit rose 5.7% to £60.7m.

The interim dividend increased 2.2% to 3.425p per share, with the group on track to meet its full year target of 6.85p.

The shares were little moved in early trading.

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Our view

They may not be pretty, but Tritax's 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.

Tritax can also use acquisitions, such as the deal to acquire 87% of db symmetry . It brings in a handful of assets but also shedloads of land for development, thus giving Tritax even more of a share of the market. The £370m deal was largely funded by issuing £250m of new shares, and with the group wanting to keep leverage under control, new issuances will likely remains a feature gong forwards.

That's an attractive position to be in, because once Tritax rents out a big box, it tends to be a long term source of income. 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 also 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.

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 portfolios. The prospectiv e yield is 4.8% next year and we'd expect further steady growth, although there are no guarantees.

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Half Year Results

The new db symmetry portfolio meant 4 assets were added to the group, and helped the portfolio value rise 12.6% to £3.6bn. Underlying net asset value (NAV) per share rose 0.7%.

The new additions, and a 2.2% increase in existing rents, helped net rental income increase 4.7% to £69.2m. The annualised gross rent roll now stands at £166.8m, and the weighted average unexpired lease term (WAULT) fell marginally to 14.3 years.

Adjusted earnings per share, which include licence fees from forward funded developments and exclude exceptional costs, rose 0.9% to 3.41p

Compared with 27% at 31 December, Tritax had a Loan to value (LTV) ratio of 29%. However, including £251.2m of forward funded commitments, the LTV would have been 35%, in line with the longer-term target. The group's upper maximum remains 40%.

Tritax currently has access to £550m of undrawn overdraft facilities.

Find out more about Tritax shares including how to invest

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.