ii view: Tritax Big Box – an online warehouse income play

Tenants include Amazon and Tesco, and there's potential dividend income of over 3.5%.  

Operational and dividend update

• Expects to collect 99% of fourth-quarter rents
• Third interim dividend of 1.5625p per share

Chief executive Colin Godfrey said:

"This has been another strong quarter across our business with good operational and strategic progress. Our focus on owning the highest-quality assets and maintaining a strong tenant roster continues to position us well to weather the worst of the pandemic. 

"We are selling assets into a strong market, delivering attractive returns to shareholders, enabling us to redeploy proceeds into higher returning opportunities both within the portfolio and in the market. Combining a high-quality portfolio, growing development pipeline and asset management initiatives with increasing demand for logistics space, we are well positioned to continue to deliver both attractive and secure income and capital growth for investors."

ii round-up:

Large warehouse owner Tritax Big Box (LSE:BBOX) today announced that it expects to collect 99% of fourth-quarter rents by the end of November having already collected 89%.

The collection rate was up from 97% expected in the third quarter, and contrasts with a 50% collection rate recently reported by property heavyweight British Land (LSE:BLND) for its shop properties in the September quarter. 

Tritax Big Box shares rose by more than 2% in UK trading and are up by around 10% year-to-date. Shares for rival warehouse owner Segro (LSE:SGRO) are up around 5%, while shares for shop and office owners British Land and Land Securities (LSE:LAND) are down by approximately 40% in 2020. 

Pandemic lockdowns and continued restrictions have seen shops close and eventually reopen, with many smaller to medium sized retailers struggling to pay rents. Online retailers have on the other hand proved Covid-19 winners, using their warehouse stored goods to full fill online consumer orders regularly made from home.  

Tritax Big Box customers or tenants currently include Sainsbury's (LSE:SBRY), Kellogg's (NYSE:K), Amazon (NASDAQ:AMZN), Tesco (LSE:TSCO), Next (LSE:NXT) and Ocado (LSE:OCDO). In line with management expectations, 97% of second-quarter rents have now been paid along with 99% of third-quarter rents. 

To date, no rent-free periods or rent reductions have been agreed across the portfolio, and its overarching expectation is that 100% of all rents for the 2020 year will be paid over the remainder of 2020 and into 2021.

Along with the operational update, Tritax also declared a third-quarter dividend payment of 1.5625p per share, inline with the first and second quarters, although down from the 1.7125p paid every quarter last year. Both British Land and Land Securities omitted recent payments due to the pandemic, although both have now confirmed their planned resumption.

Tritax's first-half results to the end of June saw its overall portfolio value rising by 6.1% to £4.18 billion, with the Net Asset Value (NAV) per share up 2% to 154.85p. Contracted annual rent roll climbed by 7.4% to £178.4 million.

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 initially suffering some minor challenges, Tritax management believes that the pandemic may act as a catalyst for change, accelerating the use of e-commerce platforms as consumers shop more and more online. 

For investors, a share price of around 164p means the shares trade at a premium to NAV, so are not obviously cheap, but the quarterly dividend assumes a total full-year payment of 6.25p per share. That leaves the shares on an estimated dividend yield in the region of 3.8%, still relatively attractive in today’s Covid uncertain ultra-low interest rate world.  

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%
• 7p per share dividend target previously withdrawn

The average rating of stock market analysts:

Strong hold