One of the most unusual property investment trusts is the Tritax Big Box REIT (LON:BBOX), which invests in warehouses for large blue-chip clients. It has delivered strong returns since the launch in 2013 and expects a further boost from Brexit as more companies look for UK warehouse facilities to avoid the new border controls.
BBOX is the only listed fund in the UK to invest in large logistics warehouses – known as big boxes − and aims to benefit from the strong demand and limited supply in this area. It focuses on well-located, modern facilities and at the end of 2017 had built up a £2.61 billion portfolio of 46 fully let assets as well as 114 acres of development land at Dartford.
The company has benefited from the inexorable growth in online shopping, which has forced retailers to increase their warehouse space to meet the shorter expected delivery times. Its largest clients include the likes of Morrisons, Tesco, M&S, Argos and Ocado.
At the end of 2017 the weighted average unexpired lease term was 13.9 years with all the contracts subject to upwards-only rent reviews. Rents are forecast to grow by an average of 4.25% per annum for the next four years and this will mostly feed through to the bottom line on account of the fixed nature of the cost base.
Rents are forecast to grow by an average of 4.25% per annum for the next four years.
The purchase of the 114 acres of prime land at Dartford last September was the first acquisition of development land and the site is capable of supporting around 1.7 million square feet of logistics facilities. Planning consent already exists for the equivalent of almost 500,000 square feet and discussions are underway for the rest. This sort of project adds to the risk and return potential of the fund, although the managers have said that construction of new buildings will only begin on a pre-let basis.
Tritax paid a dividend of 6.4p per share last year, which was substantially covered by adjusted earnings of 6.37p. The company has a progressive dividend policy and has declared a target pay-out of 6.7p this year that the manager expects to be fully covered by earnings with an increasing level of headroom.
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In 2017 the net asset value (NAV) per share increased by 10.3% and when you add in the dividends the total return was an impressive 15.2%, which was well ahead of the fund’s medium-term target of returns in excess of 9% per annum. The strong performance has pushed the shares onto a small premium to NAV, but they are still yielding an attractive 4.5%, especially in view of the switch to equal quarterly dividends.
The growth in internet shopping is killing traditional high street retailers that fail to develop an imposing online presence backed up by the sort of fast, reliable delivery times that people have come to expect. Tritax offers a way to benefit without having to pay the sky-high valuations afforded to stocks like Amazon. Investors should also receive a further boost as companies seek to protect themselves from the post-Brexit border controls and all the associated costs and delays.