ii view: dividend play Tritax Big Box flags higher rents

Top ten tenants include Amazon and Tesco, and the shares offer an attractive dividend yield. Buy, sell, or hold?  

Trading update for the year-to-date

Chief executive Colin Godfrey said:

“We continue to make positive progress delivering our strategy despite a more challenging economic backdrop. 

“Our high-quality portfolio, strong balance sheet, accretive development pipeline and visibility on an attractive range of investment opportunities mean we remain well placed to continue generating long-term value for shareholders."   

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ii round-up:

Warehouse owner Tritax Big Box Ord (LSE:BBOX) has flagged resilient occupational demand and continued progress despite a more challenging economic backdrop. 

Occupational take by tenants for the year-to-date remained broadly in line with the average for the last five years at 6.6 million square feet with prime headline rents typically increasing across all regions by between 2% to 3%. 

Shares in the FTSE 250 company rose marginally in UK trading having come into this latest news down by close to 30% over the last year. That’s similar to rival and sector giant Segro (LSE:SGRO) and in contrast to a near 4% fall for the 250 index itself over that time. 

Tritax owns, manages, and develops more than 70 small to big box properties in prime UK locations at major distribution hubs and close to key transport infrastructure.

New development lettings of 0.5 million square feet during the period added £4.1 million to its annual contracted rent, with 0.9 million square feet of new planning consents secured, taking its total consented undeveloped land portfolio to 8.1 million square feet.  

Property sales and better investment opportunities continue to be sought. Sales year-to-date total £150 million with a further £150-to-£200 million targeted for 2023. One industrial park has been  acquired for £58.5 million. 

Tritax summarised its balance sheet as ‘strong’, including an average debt maturity of 5.1 years and with its next refinancing event not until December 2024. Interim results are likely to be announced in early August. 

ii view:

Real estate investment trust Tritax has a stock market value of around £2.7 billion, bigger than health property specialist Primary Health Properties (LSE:PHP) at close to £1.4 billion although below office and shop owners Land Securities Group (LSE:LAND) and British Land Co (LSE:BLND) at £4.5 billion and £3.4 billion respectively. Its biggest tenant is Amazon.com Inc (NASDAQ:AMZN), generating around 14.5% of contracted rent, followed by Morrisons at 5.3% and Tesco (LSE:TSCO) at 4.7%. Other top ten tenants include Howden Joinery Group (LSE:HWDN), Marks & Spencer Group (LSE:MKS) and Ocado Group (LSE:OCDO). 

For investors, the more challenging economic backdrop, including higher interest rates, needs to be remembered. A near one-fifth fall in the value of its EPRA Net Tangible Assets per share to 180p over its last financial year to the end of December warrants consideration, with its overall portfolio valuation retreating 7.7% to £5.06 billion.  

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On the upside, accompanying management comments pointed to a stabilisation of the investment market. Contracted rents continue to increase having climbed 14% in 2022 to £224 million, while the share price now sits on an approximate one-fifth discount to its estimated net asset value per share.   

For now, and while some caution remains sensible, a historic and forecast dividend yield of over 4.5% is likely to keep income investors sitting tight. 

Positives: 

• Exposure to structural change in shopping habits
• Attractive dividend payment (not guaranteed)

Negatives:

• Uncertain economic outlook
• Lacks international diversity

The average rating of stock market analysts:

Strong hold