Tritax reported a 17.3% rise in net rental income to £149mn, and a 16.4% rise in operating profit to £144mn. Performance was inflated by the UKCM acquisition, although rent reviews and developments also contributed positively.
The portfolio value increased from £6.6bn to £6.8bn, reflecting gains from developments and higher expected rental income. The loan-to-value (LTV) ratio worsened from 28.8% to 30.9%. Vacancy rates remained broadly flat at 5.6% over the year.
Tritax has increased its long-term disposal guidance to between £250-350mn annually to help fund new growth opportunities, such as developing data centres.
An interim dividend of 3.83p per share was announced, up 4.9%.
The shares were broadly flat in early trading.
Our view
Tritax Big Box REIT (Tritax) continued to build on recent momentum over the first half. Last year’s takeover of UK Commercial Property REIT has flattered figures, but underlying performance is ticking along nicely too.
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. And management has outlined a few levers it can pull to drive further growth over the coming years.
One of those levers is potentially high-yielding new developments, like new energy and datacentre projects. 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.
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.
Tritax’s proposed £485mn acquisition of Warehouse REIT looks stranded in the water. The offer had previously been recommended to shareholders by Warehouses’ management team. But sweetened terms from another suitor now look the most appealing offer on the table.
Tritax’s valuation currently sits well below its long-run average, trading at a hefty discount to net asset value. We think that’s undeserved, 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.
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