Tritax Big Box REIT reported a 7.8% rise in net rental income to £222.1mn. Acquisitions, developments and rent reviews (to a small extent) all contributed to growth, offset by disposals. Operating income rose 5.5% to £193.2mn.
The portfolio value was broadly flat at £5.0bn. As of 31 December 2022, occupancy was 97.5% (2022: 97.9%) and the portfolio loan to value was 31.6% (2022: 31.2%).
An interim dividend of 2.05p was announced, taking total dividends for the year to 7.3p, up 4.3%.
Build costs are easing, expected to support development yields in 2024. As previously announced, a proposal is in place to buy UK Commercial Property REIT Limited in an all-share offer worth around £924mn. Tritax has until 5pm on 8 March to make a firm offer.
The shares rose 2.1% in early trading.
Our view
At its core, Tritax Big Box generates income through renting out large warehouses, or 'Big Boxes', which are central to modern logistics and e-commerce. But the strategy is slowly shifting toward smaller, urban, logistics centres that offer better yields.
There’s no firm deal on the table, but a potential acquisition of UK Commercial Property REIT would offer some complementary assets, at both the large and small end of the size scale. If a firm offer comes, we’d like to know a little more about Tritax’s plans for the c. 40% of UKCP’s portfolio that isn’t in the industrial logistics space (retail parks, offices etc).
2023 results offered no major surprises. Despite an uncertain market backdrop, rents got a helpful boost from new developments coming online. These were snapped up by Tritax’s customers as building a strong logistics network is non-negotiable in this day and age.
Once Tritax rents out a site, 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 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 more security to the dividend, while further expansion could lead to increasing payouts. Real estate investment trusts (REIT), like Tritax, must pay out the majority of profits to investors.
Development is also key, with a focus on capturing the increased demand for e-commerce and the distribution needs that follow. But it's expensive to get a logistics hub up and running, and if it doesn't get filled, it could become a financial headache. Luckily, this hasn't proven to be a problem so far. A shortage of ready-to-occupy premises means customers are snapping up units before they've been completed.
Paying out rental income makes expansion complicated, too. Tritax is having to recycle its portfolio - selling lower-yielding mature assets in order to invest in higher-yielding development opportunities. Against an improving market backdrop, asset sales are now well underway.
As inflation cools and markets look to interest rate cuts over 2024, we’ve seen a rebound in Tritax’s valuation. But the group still trades at a discount to its longer-term average. We continue to believe this could present an attractive entry point, for those willing to ride short-term uncertainty. As with any investment, there are no guarantees.
Tritax Big Box REIT key facts
All ratios are sourced from Refinitiv, 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.
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