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Tritax Big Box - Rents still coming in

Nicholas Hyett, Equity Analyst | 8 July 2020 | A A A
Tritax Big Box - Rents still coming in

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Tritax Big Box REIT plc Ordinary 1p

Sell: 191.10 | Buy: 191.40 | Change 0.20 (0.10%)
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Tritax collected 96% of Q2 rents, with a further 1% expected to be paid imminently and 3% to be collected over the remainder of the financial year. The group expects to collect 97% of third quarter rents by the end of August.

The interim dividend will be declared alongside half year results.

The shares opened flat following the announcement.

View the latest Tritax share price and how to deal

Our view

Tritax's giant warehouses are at the heart of modern logistics and e-commerce - housing the equipment that keeps stock flowing as efficiently as possible. Playing a crucial role in the supply chain of mostly blue chip tenants means the rent roll should still be pretty secure despite the coronavirus disruption.

But Tritax has moved away from simply collecting rents, increasingly getting involved in development too. If global growth stalls, fewer companies will be looking to expand, and demand for Tritax's new mega-warehouses will be lower. In the medium term that's likely to hit the valuation of existing warehouses too.

Given the challenges facing tenants and possible declines in asset values the board has decided to take a more cautious approach to the dividend. If the first quarter dividend were repeated across the remainder of the year it would represent an 8.8% cut compared to 2019. Management have said they will consider increasing the payout as conditions become clearer - but there's certainly no guarantee things improve as the year progresses.

However, long term we still think Tritax is in a good position.

Suitable sites, ideally situated next to a major motorway and covering 500,000 square feet or more, are reasonably rare. Tritax's experienced team has proven adept at securing attractive assets in off-market transactions, meaning sites are snapped up before others even know they're for sale.

Once Tritax rents out a big box it's 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.

Highly desirable assets also mean 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.

That obligation offers some protection for the dividend compared to other businesses. However, we're in turbulent times and the old warning that "no dividend is guaranteed" has never been more true. Fellow REIT British Land has already said that it may not meet its pay-out obligation this year.

Overall we still think Tritax is in a relatively defensive position, thanks to its crucial role in the supply chain of major blue chip companies. A lot is resting on how the coronavirus outbreak progresses though, and if its retail customers start to go under Tritax will not be immune.

Tritax key facts

  • Price/Book ratio: 0.97
  • Prospective yield: 4.5%

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Third Quarter Update

Tritax has already collected 84% of Q3 rents. Of the outstanding rent 13% is scheduled to be paid monthly over the remainder of the quarter and 3% is subject to deferment to support tenants' short term cash flows.

To date no rent free periods of rent reductions have been agreed across the portfolio.

The company has extended a £190m revolving credit facility from June 2024 to June 2025, with an additional £100m accordion facility. As a result the group's weighted average debt maturity has increased to 7.1 years.

CEO Colin Godfrey said "We entered this period of uncertainty in a robust position, and while our rent collection performance and financing structure is strong, we believe it remains appropriate to maintain a cautious approach."

Find out more about Tritax shares including how to invest

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.

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