Tritax has collected 89% of third quarter rents to date, and expects to collect 99% by the end of November (with some rents subject monthly payments). The group expects to collect the remaining 1% in "the near-term".
The group agreed the sale of £134m of assets in the third quarter, with sales on a net initial yield of 5% compared to a purchase of 6.6%. The group also completed rent reviews during the quarter that resulted in £1m of additional rent, equivalent to an 8.5% rental increase.
A dividend of 1.6p was also announced.
The shares rose 1.1% in early trading.
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 has proved pretty secure despite the coronavirus disruption.
But Tritax has moved away from simply collecting rents, increasingly getting involved in development too. Demand so far has been strong, however, if global growth stalls fewer companies will be looking to expand, and that could hit valuations.
Given the potential challenges the board has decided to take a more cautious approach to the dividend. The group's on course to pay 6.25p per share for year as a whole, some way off the 6.85p it paid last year. Management have said they will consider increasing the payout as conditions become clearer, but it could be a few years before the dividend is back to where it once was.
Longer term though 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.
However, paying out rental income makes expansion complicated. Historically Tritax has funded growth by selling new shares to shareholders. More recently the group has been recycling its portfolio - selling mature assets in order to invest in development opportunities. However, we can't rule out the group tapping-up shareholders for extra cash in the future.
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: 1.08
- Average Price/book ratio since listing: 0.96
- Prospective yield: 4.1%
Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
First Half Results - (06/08/20)
Tritax reported a 24.7% increase in underlying operating profit to £70.6m for the first half. This reflects higher rental income and a small rise in management fee income, partially offset by higher administrative and other expenses.
Tritax collected 97% of Q2 rents and expects to receive 99% of Q3 rents by the end of the quarter.
The group declared a dividend of 1.5625p per share, bringing the first half dividend to 3.125p per share, down from 3.425p per share last year. This corresponds to a 96% payout ratio.
Underlying earnings per share fell 4.4% to 3.26p, reflecting stable earnings but an increase in the number of shares in issue.
Net rental income rose 13.9% to £78.8m, reflecting development in prior years and some upwards rent reviews. The contracted annual rent roll rose from £166.6m to £178.9m. The portfolio's weighted average unexpired lease term was stable at 14.1 years.
Three assets were added to the portfolio during the first half, bringing the total up to 61. These were two speculative developments at Aston Clinton and the 2.3m sq ft pre-let to Amazon at Littlebrook, Dartford. The value of the portfolio increased 6.1% to £4.2bn, reflecting the strength of the logistics sector compared to other property sectors. Net assets per share rose 2.0% to 154.85p.
Net debt increased from £1.1bn at the start of the year to £1.3bn, bringing the loan to value ratio up 1.4 percentage points to 31.8%.
Tritax believes the financial performance for the full year will be weighted towards the second half, and several disposals are expected to complete by the end of the year.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. 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.