Tritax Big Box REIT has reached an agreement with the board at Warehouse REIT to acquire the company in a deal valued at around £485mn. The offer will now be taken to shareholders for approval and has been recommended ahead of a rival bid from Blackstone.
Under the terms of the deal, Warehouse shareholders will receive 0.4236 new BBOX shares and 47.2p in cash per share, plus upcoming Warehouse dividends due in July and October. Warehouse shareholders would hold around 6.8% of the enlarged Tritax business on completion.
The shares fell 1.3% in early trading.
Our view
Tritax Big Box REIT (Tritax) is building on recent momentum. The proposed acquisition of Warehouse REIT will expand Tritax’s portfolio, adding £0.8bn in complementary urban logistics assets to the existing £6.5bn portfolio. The deal looks attractive to us, without putting the balance sheet in any danger of carrying too much debt.
This isn’t the first large acquisition in recent years. Last year’s takeover of UK Commercial Property REIT brought in another set of quality urban logistics properties, increasing rental income and lifting earnings in a meaningful way. But not everything fits with the strategy, so some assets are on the chopping block, and there’s been some solid progress on disposals.
Tritax is also dipping its toe into potentially high-yielding new developments like the recently announced energy and datacentre project. Tapping into the growing demand for sites to host new AI datacentres is a shift from the traditional Big Box properties, but the pipeline looks good and we think this will be a growing area – it’s early days but something to watch.
Rents have been getting a helpful boost from new developments coming online and rent reviews. These were snapped up by Tritax’s customers as building a strong logistics network is non-negotiable in this day and age.
Real estate investment trusts (REIT), like Tritax, must pay out the majority of rental profits to investors. Desirable assets mean attractive deal terms, such as upwards-only rent reviews, which are helping boost income. A wide range of high-quality tenants should hopefully add some more security to the dividend, while further expansion could lead to increasing payouts – though not guaranteed.
Paying out rental income makes expansion complicated, too. Tritax is selling lower-yielding mature assets to invest in higher-yielding development opportunities. Against an improving market backdrop, activity here is picking up which helps give options.
Developing new sites is also key, and a shortage of ready-to-occupy premises means customers have been snapping up units before they've been completed. But it's expensive to get sites and running, and if it doesn't get filled, it could become a financial headache.
The valuation has come up in the past few months, but Tritax is still trading at a hefty discount to net asset value. We think that’s overdone, with Tritax having a good selection of growth levers, and a portfolio that carries less debt than peers. As ever there are no guarantees.
Environmental, social and governance (ESG) risk
Real estate is relatively low risk in terms of ESG. One of the principal drivers of this risk is the capacity to integrate material ESG considerations into decision-making, risk management and public reporting; the most material ESG considerations are environmental, like carbon emissions reduction, energy efficiency and physical climate risk. The rise of hybrid working has also reduced demand for commercial property, making product governance and customer satisfaction a top priority. Other risks to monitor include labour relations, business ethics, and emissions & waste.
According to Sustainalytics, Tritax’s overall management of material ESG issues is strong.
Tritax demonstrates strong ESG commitment with board-level oversight, robust reporting standards, and a clear code of conduct that protects employees reporting misconduct. The company integrates physical climate risk into its strategy, conducting full carbon life cycle assessments for new developments, but lacks detailed water management programs and transparency on managerial responsibility for safety.
Tritax Big Box REIT key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. 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.
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 disclosure for more information.