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. Over the past year, demand has increased due to Brexit as companies stockpile stock due to the uncertainty of outcome.
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 e-commerce retailer, Argos and Ocado - the world’s largest dedicated online grocery retailer.
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 this format.
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. In the past year it raised a further £250m which was invested over the year in various acquisitions and brings the market cap to over £3bn.
They have this week issued results for the 12 months to end December 2018 (link via Investegate). Total Shareholder return for the period was 12.1%. The company target a total return (being the increase in EPRA NAV + dividends paid) of 9.0% per year - the figure for 2017 was 15.2%.
Building on payouts for the previous years of 4.15p, 6.0p, 6.2p and 6.4p in 2017, the declared dividend for the full year 2018 is 6.7p with a target of 6.85p in the coming year. At the current share price this provides a fwd yield of ~4.7%. The dividends are covered by adjusted earnings of 6.88p, which are underpinned by strong rental stream and low cost base.
Commenting on the results, chairman Richard Jewson said:
I like what I have seen 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 share price has gained 9% compared to my purchase price of 132p. In addition, I have received a dividends of 13.1p and the prospect of a further 6.85p 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 25% 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 warehouse boxes offered by this REIT is likely to remain strong which means the dividend is reasonably secure and should easily keep pace with inflation.
This article is a record of my personal investment thoughts/decisions and is not a recommendation - as always, please DYOR.