Tritax Big Box REIT plc (BBOX) Ordinary 1p
HL comment (28 January 2021)
Tritax has collected 99% of rents due in 2020. The remaining 1% is subject to deferral agreements, and the group expects to collect this by mid-2021.
Tritax's properties have seen their valuations increase by 8% on average since the end of June last year. That reflects increased demand across the sector. The group completed three rent reviews during the final quarter, with rents rising an average of 8.4%, adding £0.65m to the rent roll.
The shares were broadly flat 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 remarkably secure despite the coronavirus disruption.
But Tritax has moved away from simply collecting rents, increasingly getting involved in development too. And the group's speculative developments have come good. All such developments are now pre-let - boosted by demand from tenants like Ocado who're seeing business swell as demand for online shopping balloons.
There is still some uncertainty. A worse than expected economic outlook could see fewer business trying to expand in the future. 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. Tritax 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. Real estate investment trusts (REIT), like Tritax, must pay out the majority of profits, 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.
We think Tritax is in a good 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: 1.22
- Average Price/book ratio since listing: 0.98
- Prospective dividend yield (next 12 months): 3.7%
All ratios are sourced from Refinitiv. 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.
Fourth Quarter Trading Update
Across the industry demand for logistics space has increased 50% in 2020, with demand at record levels. Supply of prime logistics space remains constrained, and as a result rental yields on prime properties fell below 4%.
During the quarter Tritax acquired a new £44.2m property in Southampton, in an off-market transaction, and at an initial yield of 5.24%. The group has also fully pre-let all of its speculative built units following deals with Ocado and Amazon.
Planning consents at Rugby (1.9m sq.ft) and Biggleswade (0.6m sq.ft.) have further increased the size of the Tritax's landbank - the largest logistics focused landbank in the UK.
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 Refinitiv. 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 disclosure for more information.
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