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 include:
Amazon - the world’s largest electronic and ecommerce 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.
Tritax Big Box was first listed at the end of 2013 at an initial floatation price of 100p. During 2016 it raised £550m of equity through two substantially oversubscribed share issues.
They have today issued results for the full year to end December 2016 (link via Investegate). Total Shareholder return for the period was 15.1% which compares very favourably to the FTSE All-Share REIT Index return of -7.0%. The company target a total return (being the increase in EPRA NAV + dividends paid) of 9.0% per year - the figure for 2016 was 9.6%.
Building on payouts for the previous two years of 4.15p in 2014 and 6.0p in 2015, the declared dividend for the full year 2016 is 6.20p rising to 6.40p in the coming year. At the current share price this provides a fwd yield of ~4.4%.
The company are now moving to quarterly dividend payments. The Group's dividends are fully covered by adjusted earnings of 6.51p, which are underpinned by strong rental stream and low cost base.
Commenting on the results, chairman Richard Jewson said:
"The outlook for the Group remains positive. We are in a strong financial position and see further opportunities to acquire high-quality standing assets and to forward fund pre-let developments.
We consider there to be limited potential for capital growth through further yield compression and whilst more challenging, we have maintained a 9% per annum total return target. Capital growth is therefore likely to come from steady state capitalisation rates being applied to growing income. We believe that income will remain the most important component of total return over the next 12 months. There are strong drivers to rental growth in the market, both due to the ongoing imbalance between occupational supply and demand and the increase in build costs in 2016, which we expect will feed through to rents. This rental growth will help to support the Group's progressive dividend policy. For 2017, we have increased our dividend target to 6.40 pence per share.
In uncertain times, investors are often drawn to companies that can deliver low-risk and growing income. Since our IPO, we have deliberately constructed a portfolio that offers secure income from high-quality tenants on long leases that generate an element of predictable growth through upward only-rent reviews.
In summary, our market is resilient and we expect 2017 to be another positive and stable year for the Group."
|My grandchildren would prefer this big box!|
I am pleased with this recent addition to my income portfolio. The share price has gained 13% compared to the offer price of 132p last October. In addition, I have received a dividend of 1.55p and the prospect of 6.4p for the coming year.
The way we shop has changed quite significantly over the past decade and internet sales are forecast to account for over 20% of total sales by 2020. To remain competitive in this environment, retailers need to have large, highly efficient distribution facilities that can fulfil orders quickly and accurately. This need is only becoming more acute as customers demand ever-shorter delivery times.
The demand for the BIG boxes offered by this REIT is likely to remain strong. I may well be looking for an opportunity to add to my initial purchase over the coming year.
This article is a record of my personal investment thoughts/decisions and is not a recommendation - as always, please DYOR.