Tritax reported half-year net rental income of £109.3m, reflecting organic growth of 3.6%. Annual rent roll was flat, with new lettings and rent reviews offset by asset sales.
The portfolio value was broadly flat at £5.1bn, rent collection was at 100% and there was a 1.9% vacancy rate.
Operating costs were down 9.8%, largely a result of lower management fees. That helped underlying operating profit rise 7.5% to £95.5m.
Net debt was £1.5bn, with a portfolio loan to value that improved from 31.2% to 30.3%.
Two dividends were declared over the half for a total of 3.5p, a rise of 4.5%.
The shares rose 1.1% 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 a tricky economic environment 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 which are helping boost income. 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.
We are seeing a subtle shift to bring on more assets in the last mile area, these are smaller units so a little different to the big boxes that make up the bulk of the portfolio. It’s very much on a deal-by-deal basis for now, but yields here look attractive, so we’re supportive of the strategy flex and it enables Tritax to serve a broader range of customers.
Development is also key, with a focusing on capturing the increased 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.
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 and the 5 non-core assets sold over the half were all at attractive prices. Cost pressures on the build side are easing, but we’re still expecting to see total development at the lower end of guidance.
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): 0.74
- Average forward price/book ratio since listing (2016): 0.95
- Prospective dividend yield (next 12 months): 5.6%
- Average prospective dividend yield since listing (2016): 4.7%
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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