Business Overview
Tritax Big Box Reit Plc (LON: BBOX) is a Real Estate Investment Trust (REIT), headquartered in Bristol, United Kingdom. It is the UK’s only REIT focused on investing in and funding the pre-let development of very large logistics facilities, known as Big Boxes, in the country, helping business by improving operational efficiency, reducing costs and enabling the fulfilment of fast-growing e-commerce sales. The company manages and develops some of the UK’s most sought-after Big Boxes and follows a ‘core-plus’ strategy, wherein the core, low-risk income is provided by the Foundation assets and enhanced returns are generated by Value-Add assets, Growth Covenant assets and strategic land offer. The company’s clients include some of the biggest corporations in retail, logistics, consumer products and automotive.

The current Independent Chairman is Sir Richard Jewson and was appointed on 18^th November 2013 . Colin Godfrey holds the responsibilities of the Fund Manager Partner.

Key Statistics



Top Shareholders

 

Trading Update (for the period ending 31^st December 2019)

On 3^rd February 2020, Tritax Big Box Reit Plc released an update for full-year trading period ending 31^st December 2019. The company remained well-positioned with sustainable, growing and strong income for the long-term period. The total value for the company’s portfolio (including Development Assets and Investment Assets) was at GBP 3.94 billion as at 31st December 2019 versus GBP 3.85 billion as at 30th June 2019. The company’s portfolio showed a valuation uplift of 1.8 per cent for FY2019 and 0.9 per cent in the second half of the financial year 2019. The company pre-let or let 58 Investment Assets to 40 institutional tenants with GBP 166.6 million as annual rental income in the financial year 2019, with Amazon being the largest tenant with 13.1 per cent in total rental income. The company’s vacancy rate remained on the lower side with 1.3 per cent for the period.

The company made a decent progress on the development programme and Pre-let Development programme. The targeted average yield on cost for the entire portfolio remained in between 6 per cent to 8 per cent for the period. The current valuation yield for portfolio remained at 4.5 per cent as at 31st December 2019. As a part of recycling capital efficiently for its development portfolio, the company is planning to dispose of selective Investment Asset. In the financial year 2019, the company completed five pre-let forward funded developments and three Tritax Symmetry developments totalling 4.3 million sq. ft and 0.4 million Sq. ft, respectively.

The company in the financial year 2019, with its active asset management, settled 7 rent reviews, comprising 15.4 per cent of total rental income annually. The company added GBP 0.7 million to its annual rent, reflecting an increase of 2 per cent on a like-for-like basis. The company concluded two lease extensions with Sainsbury and Whirlpool in FY2019. With a focus on the sustainable development programme, the company is developing logistics facilities with net-zero carbon.

The company saw an oversubscribed equity issue of around GBP 250 million in February of FY2019. The company made a debt financing of GBP 1.7 billion, with 87 per cent done on an unsecured source. The maturity of debt facilities was 7.5 years on the weighted average term as at 31st December 2019 versus a weighted average term of 7.8 years as at 30th June 2019. Following the progressive dividend policy, the company targets a dividend of 6.85 pence as at 31^st December 2019. The company expects to publish its full-year results on 17^th March 2020.

Financial Highlights – H1 Financial Year 2019 (30th June 2019, £, million)


(Source: Interim Report, Company Website)
 
In the first half of the financial year 2019, the company’s gross rental income stood at GBP 69.2 million as against GBP 66.5 million in H1 FY2018. Driven by rent review settlement in FY2019 and H1 FY2019 and rent commencement on Corby, the company’s net rental income stood at GBP 69.2 million in H1 FY2019 versus GBP 66.1 million in H1 FY2018. Operating profit for the H1 FY19 (before changes in fair value of investment properties, share-based payment charges and share of profit before joint ventures) stood at GBP 56.6 million versus GBP 57.4 million in H1 FY2018. The company’s reported operating profit declined to GBP 87.6 million in H1 FY2019 from an operating profit of GBP 119.5 million in H1 FY2018. The company’s PBT (Profit before tax) was at GBP 67.8 million in the first half of the financial year 2019 as against a PBT (Profit before tax) of GBP 107.1 million in the first half of the financial year 2018. The company’s profit reduced to GBP 67.6 million for H1 FY2019 from GBP 107.1 million in the half-year of 2018. The basic earnings per share were recorded at 4.08 pence in H1 FY2019 versus basic earnings per share of 7.62 pence in H1 FY2018. During the period under consideration, the company declared an interim dividend of 3.425 pence/share, which was 2.2 per cent higher against 3.35 pence/share recorded in the year-ago period and the REIT group is all set to hit its full-year dividend target of 6.85 pence/share.

Key Performance Indicators

Total return (TR)
The total return gives the outcome derived from the company’s strategy. The company’s Total return stood at 12.1 per cent in the FY2018, which is over a medium-term target of more than 9 per cent but is less than FY2017’s total return of 15.2 per cent.

Dividend

Dividend shows the company’s ability to deliver a growing income stream with low risk. In the financial year 2018, the company’s dividend increased to 6.70 pence from 6.40 pence in FY2017. The company achieved its set target in the financial year 2018 and set dividend target of 6.85 pence in the financial year 2019.

EPRA NAV per share

EPRA NAV indicates the company’s ability to add value to the lifecycle of its assets and grow its portfolio. The company’s EPRA NAV surged by 7.5 per cent (10.59 pence) to 152.83 pence in the financial year 2018 from 142.24 pence in the financial year 2017.

Loan to value ratio (LTV)

LTV measures the practicality of the company’s financing strategy, balancing portfolio diversification and potential expansion of returns with the use of debt. In FY2018, the LTV ratio stood at 27.3 per cent versus 26.8 per cent in FY2017. The LTV remained in the set target of 40 per cent for the period.

Adjusted earnings per share

Adjusted EPS is used to measure the company’s ability to generate earnings from its portfolio. The company’s adjusted earnings per share stood at 6.88 pence in FY2018 versus 6.37 pence in the financial year 2017.

Total expense ratio (TER)

TER is the key measure to measure the operational performance of the company. The company’s TER stood at 0.87 per cent in FY2018 versus 0.84 per cent in FY2017. The company expects its TER to decline as the company grows.

Weighted average unexpired lease term (WAULT)

WAULT is used to measure the quality of the company’s portfolio. In FY2018, the WAULT stood at 14.4 years versus 13.9 years in FY2017. The company is above its set target of 12 years by 2.4 years in FY2018.

Financial Ratios

 

The reported occupancy rate in H1 FY2019 declined by 1 per cent to 99 per cent against 100 per cent reported last year for the same period. The reported EBITDA margin of 85.7 per cent for the H1 FY2019 stood higher than the industry median of 69.1 per cent. The reported operating margin in H1 FY2019 declined by 54.2 per cent to 126.6 per cent from 180.8 per cent reported last year for the same period. The reported Pretax margin of 98 per cent for the H1 FY2019 stood higher than the industry median of 76.7 per cent. Net margin reported was 97.7 per cent for the first half of the financial year 2019, reflecting a decrease of 64.3 per cent when comparedwith last year data for the same period. Return on equity for the first half of the Financial year 2019 stood at 2.8 per cent, which was lower than the industry median of 3.9 per cent. On the liquidity front, Tritax Big Box Reit Plc’s current ratio was higher than the industry median of 0.89, reflecting sufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the Tritax Big Box Reit Plc’s was 0.43x, which was lower as compared to the industry median of 0.58x, reflecting that the company is less leveraged as compared to its peers.
 
Share Price Performance
 

Daily Chart as of  February 3^rd, 2020, before the market close (Source: Thomson Reuters)

Tritax Big Box Reit Plc shares were trading at GBX 139.60 at the time of writing before the market close (at 11:14 AM GMT) on 3^rd February 2020 and were down by 0.07% versus the previous day closing price. Stock's 52 weeks High is GBX 162.60 and Low is GBX 135.10. Stock’s average traded volume for 5 days was 5,470,270.80; 30 days – 5,194,910.27 and 90 days – 5,168,896.24. The average traded volume for 5 days was up by 5.30 per cent as compared to 30 days average traded volume. The company’s stock has given investors 0.36 per cent of a positive return in the last year. The company’s stock beta was 0.63, reflecting lower volatility as compared to the benchmark index. The outstanding market capitalisation was around £2.38 billion, with a dividend yield of 4.88 per cent.

Valuation Methodology

Method 1: Price to Book Value Approach (NTM)
 


To compare Tritax Big Box Reit Plc withits peers, Price/Book Value multiple has been used. The peers are Hammerson Plc (NTM Price/Book Value was 0.46), Workspace Group Plc (NTM Price/Book Value was 0.93), Safestore Holdings Plc (NTM Price/Book Value was 1.60), Londonmetric Property Plc (NTM Price/Book Value was 1.24) and Great Portland Estates Plc (NTM Price/Book Value was 0.88). The Median of Price/Book Value (NTM) of the company’s peers was 1.02x (approx.)

Method 2: Price to Earnings Approach (NTM)
 


To compare Tritax Big Box Reit Plc withits peers, Price/Earnings multiple has been used. The peers are Hammerson Plc (NTM Price/Earnings was 10.73), Workspace Group Plc (NTM Price/Earnings was 22.31), Safestore Holdings Plc (NTM Price/Earnings was 23.11), Londonmetric Property Plc (NTM Price/Earnings was 23.70) and Great Portland Estates Plc(NTM Price/Earnings was 28.50). The Median of Price/Earnings (NTM) of the company’s peers was 21.67x (approx.)
 
Growth and Risk Assessments

The company witnessedstrong occupier demand with a limited supply of buildings, which has resulted in rental growth from all the regions in which the company operates. Higher demand with constrained supply, the rising construction and labour costs are feeding into rents, providing a growing and secure income to the company. The company’s supply chain is impacted negatively by the uncertainty created due to an ongoing Brexit. The company also need to raise the appropriate balance of debt and equity to implement its growth plans successfully. The company’s performance is impacted by Default risk in which one or many tenants can default.

Conclusion

The company’s financial performance has declined in the first half of the financial year 2019.The top-line performance has improved, while the bottom-line performance declined for the period.

Tritax Big Box REIT Plc based on its unique business model, focuses on investing in logistics companies in the UK. Also, long-term fundamentals of the market in which the company operates are favourable, as the company is among the beneficiaries from a structural change in shopping habits, as shoppers are shifting from high street shopping to online shopping, which leads to an increase in demand for logistics companies to meet these demands.

Also, the changing preferences in the real estate market are generating demand for modern, automated and energy-efficient properties or buildings like the ones that Tritax possesses. This will support their customer's sustainability objectives. Despite challenging market situation primary related to Brexit related uncertainties, the company increased its dividend pay-out and also managed to increase its earnings per share as well.

Over the course of 4 years (FY14 - FY18), the company’s revenue surged from GBP 18.60 million in FY14 to GBP 132.80 million in FY18. Compounded annual growth rate (CAGR) stood at 63.46 per cent.

Based on decent prospects and support from the valuation as done using the above two methods, we have given a “BUY” recommendation at the current price of GBX 139.00 (as on 3^rd February 2020, before the market close at 1:11 PM GMT), with single-digit upside potential based on 1.02x NTM Price/Book Value (approx.) on FY19E book value per share (approx.) and 21.67x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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