ii view: Tritax Big Box collects nearly all the rent owed

Benefiting from e-commerce trends, this warehouse owner offers a potential income yield of over 4%. 

Operational update

Chief executive Colin Godfrey said:

"We expect 97% of our Q3 rent to be paid by the end of August 2020 highlighting the strength and critical nature of our Big Box logistics portfolio and underpinning our resilient income generating model. Our Big Box logistics assets, all of which have remained operational during the pandemic, have enabled our customers to continue working safely and meet significant surges in demand as more consumers than ever shop online.

"We entered this period of uncertainty in a robust position, and while our rent collection performance and financing structure is strong, we believe it remains appropriate to maintain a cautious approach. Throughout this crisis we have continued to make good strategic progress, managing our assets effectively and progressing our development pipeline in our customers' and shareholders' interests."

ii round-up:

Large warehouse owner Tritax Big Box (LSE:BBOX) expects to collect 97% of third-quarter rents by the end of August 2020. 

A total of 84% of rents against the backdrop of the corona crisis have been paid to date. A further 13% is scheduled to be collected on a monthly basis over the remainder of the quarter, and the company is in talks regarding deferred rental payments for the balance of 3%. 

Tritax shares were marginally higher in afternoon UK trading having declined by less than 2% year-to-date. Office and shop owners Land Securities (LSE:LAND) and British Land (LSE:BLND) have both seen their shares fall by around 40% in 2020.

Rival warehouse owner Segro (LSE:SGRO) also announced today that it had collected 93% of its latest quarterly rent bill. Its shares are marginally higher year-to-date, and its stock market value now comfortably leads the UK Real Estate Investment Trust sector. 

Tritax Big Box tenants include Amazon (NASDAQ:AMZN), Morrison's (LSE:MRW), Howdens (LSE:HWDN) and Tesco (LSE:TSCO). In April, and in contrast to a wealth of other companies suspending their dividend payments, it announced the continued payment of its quarterly dividend.

It then declared a first-quarter dividend of 1.5625p per share, down from the 1.7125p paid in the first quarter last year. Given uncertainties, management felt it prudent to withdraw its previously announced target for a 2020 full-year total dividend of 7p per share – a rise from 6.85p paid in 2019. 

Both Land Securities and British Land have previously suspended their dividend payments. Land Securities only recently outlined plans to recommence its payment. 

Segro previously paid its 2019 final dividend of 14.4p per share and currently intends to declare a 2020 interim dividend of 6.9 pence per share – up from 6.3p in 2019.

Tritax Big Box’s weighted average debt maturity extends to just over seven years. It is scheduled to announce its first half results on 6 August. 

ii view:

Tritax Big Box continues to benefit from the structural change in shopping habits, as consumers switch from the high street to buying online, creating ongoing demand for logistics space to fulfil these orders.

Although suffering some challenges itself, Tritax management previously noted their belief that the Covid-19 crisis may act as a catalyst for change, accelerating the use of e-commerce platforms as consumers shop even more online. 

For investors, the dividend payment, underwritten by the group’s rental income, provides the major attraction. Expectations for a 97% collection of rent payments is clearly reassuring. Although far from guaranteed, assuming further quarterly dividend payments of 1.5625p per share, the shares trade on a prospective dividend yield of over 4% at a share price of 146p. In a Covid-19 world, income yields of this magnitude are tough to find.
Positives: 

• Exposure to structural change in shopping habits
• Attractive dividend payment (not guaranteed)

Negatives:

• Year-end 2019 net asset value per share down 1.2% to 151.06p
• 7p per share dividend target previously withdrawn

The average rating of stock market analysts:

Strong hold