Tritax reported first quarter headline rents up across all regions by around 2-3%. New development lettings added £4.1m to annual contracted rent.
Investment transactional activity remains low given uncertain economic conditions, but leasing market demand remains “strong”.
So far this year, £150m of assets have been disposed of, with additional sales underway in line with the target of a further £100-£200m of disposals in 2023. Tritax has acquired an urban logistics location less than three miles from the centre of Birmingham for £58.5m, with a 4.5% net initial yield but upside potential.
100% of rent was collected in the period, and the weighted average lease term is 12.4 years. The Group has access to more than £600m of liquidity, with a 5.1 year average maturity on its debt.
The shares were broadly flat in early trading.
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Our view
Tritax Big Box generates income by renting out giant warehouses. These so-called ‘Big Boxes’ are at the heart of modern logistics and e-commerce, from highly automated large-scale fulfilment centres to small urban or last-journey warehouses.
Despite inflation-linked doom and gloom hanging over many of Tritax's retail customers, building a strong logistics network is non-negotiable. That's helped the group add to its rent collections - firepower that will allow it to continue investing in new growth opportunities.
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 mean attractive deal terms, such as upwards only rent reviews. A wide range of high-quality tenants should hopefully add more 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 to investors.
Tritax’s ambitions lie in development, though, focusing on capturing the increasing demand for e-commerce and the distribution needs that follow. That creates some additional risks. It's expensive to get a logistics hub up and running, if it doesn't get filled it could become a financial ball and chain. Luckily this hasn't proven to be a problem, a shortage of ready-to-occupy premises means customers are snapping up units before they've been completed.
The group’s increasingly managing the development and delivery of assets it doesn’t own for a fee, which should help boost profits without much investment.
Paying out rental income makes expansion complicated, too. In the past, Tritax has recycled its portfolio - selling mature assets in order to invest in development opportunities. Having been on hold for a period, asset sales are back, providing a helpful cash injection that supports new investment.
We think Tritax is in a good position, thanks to its crucial role in the supply chain of major blue chip companies. This insulates it somewhat from growing uncertainty about the impact of inflation.
Nevertheless, serious questions around the health of the UK economy and the knock-on effect that could have on Tritax’s customers has weighed on sentiment. We’ve seen a rebound more recently, but the group still trades at a discount to its longer-term valuation. We continue to believe this could present an attractive entry point, for those willing to ride short-term uncertainty. As with any investment, there are no guarantees.
Tritax key facts
- Forward price/book ratio (next 12 months): 0.80
- Average forward price/book ratio since listing (2016): 0.96
- Prospective dividend yield (next 12 months): 5.1%
All figures 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.
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. 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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