Monday, 10 October 2016

Tritax Big Box REIT - New Purchase

Over the past few months there have been several disposals to my sipp and ISA portfolios - shares and investment trusts - which has resulted in the accumulation of cash. The markets have been  riding high and sterling has slumped to a 30 yr low against the USD which, for the time being rules out a top-up of my Vanguard Lifestrategy fund.

For a little while I have been thinking it may be a good idea to add one or more property trusts to my portfolio. I was therefore interested in a relative newcomer to the scene. Tritax Big Box is the only Real Estate Investment Trust dedicated to investing in and funding the pre-let development of very large logistics facilities in the UK. The company believes these properties, known as Big Boxes, are one of the most exciting and highest-performing asset classes in the UK real estate market.

Big Boxes offer tenants economies of scale and cost savings not available from smaller, older buildings. They are also crucial to the efficient and effective operation of retailers, and in particular the fulfilment of e-commerce orders. Because the nature of what the companies use these buildings for is so fundamental to their very existence, Tritax is unlikely to suffer from unexpected vacancies.

Big Box have sought to distinguish themselves through the quality of location and modernity of their real estate assets let to high calibre tenants, which provide long term income and attractive prospects for growth.

The group hold a portfolio of distribution assets which are located close to motorways and are let to tenants including some of the leading supermarkets - Sainsbury, Tesco, Morrisons as well as M&S and Next. Some other tenants are:

Amazon - the world’s largest electronic and e-commerce retailer

Argos -  the UK’s leading multi-channel retailer, offering more than 33,000 products both on-line and in-store.

Brake Bros -  the number one food service distribution company in the UK

Ocado -  the world’s largest dedicated online grocery retailer.

Wolseley - the world’s number one distributor of heating and plumbing products



The UK has been one of the fastest global adopters of online retail and continues to exhibit significant growth in the sector, driving new demand for logistics real estate including Big Box assets. Successful large-scale retailers (online and conventional) and logistics providers are increasingly relying on the Big Box asset and demand is evident from companies up-scaling to such facilities.

Company

Tritax Big Box was first listed at the end of 2013 at an initial floatation price of 100p. Earlier this year it raised £200m (substantially over-subscribed) at 124p per share to secure further sites and at the current price of ~135p it is capitalised at £1.2bn.

The company now plan to raise an additional £150m to further expand the operation via a share offer at 132p per share.

The recent interim results for the half yr to end June showed an increase in profits of 62% with adjusted earnings per share up 16% at 3.2p.

Building on payouts for the previous two years of 4.15p in 2014 and 6.0p in 2015, the forecast dividend for the full year 2016 is 6.2p rising to 6.5p in the following year. At the placing price this provides a yield of 4.7%. The company are proposing quarterly dividend payments and will pay an interim dividend of 1.55p on 27th October . The Group's dividends are fully covered by adjusted earnings, which are underpinned by strong rental stream and low cost base.

The company aim for a total return of over 9% p.a. over the medium term. Current average annualised return for the past 3 yrs is 14.4% so well ahead of target.
3 Yr Price Chart (click to enlarge)

Purchase

I like what I have researched so far and I believe the model offered by Big Box which is basically tapping into a part of the online revolution, has potential for growth as well as a fairly secure dividend underpinned by the long leases and upward only rent reviews.

The view of Hargreaves Lansdown (11/8/16) - 'We view Tritax as a "get rich, slowly" scheme. It is not trying to shoot the lights out, simply to deliver a steadily increasing dividend. The prospective 5% yield on the stock is very attractive, compared to gilts or bank deposits currently. The attractions of Tritax are that it has modest leverage and high quality tenants, who occupy strategic assets on long lease terms. Tritax Big Box is one of our 5 Shares to Watch in 2016 for precisely those reasons'.

I have therefore placed my order to purchase some shares at the offer price of 132p and these will be included in my collectives income portfolio when next updated.

This article is a record of my personal investment thoughts/decisions and is not a recommendation - as always, please DYOR

5 comments:

  1. I have a similar issue with averaging into Vanguard All World ETF. I think I'll end up concluding that the £/$ rate could well deteriorate further over the currency of the Brexit negotiations so will likely carry on with the plan. I'll have look at Tritax though and a bit of extra £ exposure may be a reasonable £ contrarian bet.

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    1. Ruby,

      I am surprised that sterling has fallen further in the past week or so, but it does mean anything priced in USD is less attractive. But I agree the pound could slip down even further so continuing with the plan may well be sensible.

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  2. Hi DIY
    I've revisited this post and read up some more on this stock and I'm likely to make an investment shortly. Thanks for drawing it to my attention, it looks like it has a lot of potential.

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    1. Thanks weenie. It has done OK since purchase and is now proposing to raise an additional £200m via a placing at 135p so you may be able to get hold of some shares at this price via your broker.

      I have placed an order for additional shares in both ISA and SIPP.

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    2. The low price of 135p is unfortunately (for me) only available for existing shareholders of BBOX so I'll just be buying at the going rate!

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