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High yielding ‘Big Box’ trust bucks property slowdown
Tritax Big Box, one of 2015's best performing UK property funds, looks to raise £100 million to invest in warehouses and back a 5% dividend yield.
(Update) Tritax Big Box (BBOX ), the UK’s only listed fund specialising in warehouses or ‘big boxes’ or 'sheds', is looking to raise £100 million from investors.
The £900 million real estate investment trust, which offers a dividend yield of 5.1%, owns 25 distribution centres let to retailers such as Sainsbury’s, Next and B&Q. It has announced a placing and open offer for 80.6 million new shares at 124p, a 5.8% discount to yesterday’s closing price.
The company, which before Christmas spent £42 million buying a warehouse near Liverpool from Matalan, the clothing retailer, wants to use the money to acquire new assets and expand its geographical reach.
It says increasing the size of the fund will also help make it more cost-efficient and reduce last year's total expense ratio of 1.1%.
The fund raising comes at a buoyant time for Tritax, which by yesterday’s close had bucked the stock market turmoil with a 1.5% gain in its share price this year.
Last year, its net asset value advanced 19.4%, according to Numis Securities, as property investors switched their attention to good quality assets outside London and the South East. Total shareholder returns since launch in December 2013 have exceeded 40%.
Numis analyst Ewan Lovett-Turner said that with around three quarters of the portfolio offering relatively low yields as a result of the surge in prices, Tritax was now focusing a quarter of its assets on warehouses that it could upgrade and improve.
'Performance of the "value add/growth covenant" part of the portfolio, along with the ability to continue to source low cost debt will be increasingly important to shareholder returns in our view,' he added.
The company has declared a 3p interim dividend, which will not be paid to new shareholders, and is targeting total dividends of 6.2p per share this year which it expects to be covered by earnings.
The shares closed at 131.6p yesterday, a 5.7% premium to the unaudited net asset value per share of 124.5p at 31 December. They have dipped 1.9p or 1.5% today.
Property trusts lose lustre
The past year has been difficult for big real estate investment trusts offering below sector average yields. Shares in F&C Commercial Property (FCPT ) and UK Commercial Property (UKCM ), which, like Tritax, invest in physical 'bricks and mortar', have dropped below net asset value (NAV) having traded at double-digit premiums last spring.
TR Property (TRY ), which largely invests in the shares of property developers, has also de-rated and stands 11% below NAV.
However, Standard Life Investments Property Income (SLI ) remains on one of the biggest premiums of 5% supported by a 5.5% yield compared to the sector average of 4.6%.
The future for 'boxes'
Although Tritax is the only dedicated retail warehouse fund listed on the London Stock Exchange, all the generalist property funds have some exposure to the sector. F&C Commercial Property, F&C UK Real Estate (FCRE ) and UK Commercial Property each have a 23% weighting to retail warehouses, according to Numis data.
Last year UK commercial property generated an overall return of 13.8%, with 7.8% from capital, or price increases, and 5.6% from income, according to the IPD UK Property Index. This year capital growth is expected to slow with an increasing proportion of total returns coming from income, or rental growth, says the Investment Property Forum (IPF). IPF forecasts industrial assets, which includes warehouses, will generate a total return of 10%, behind offices at 10.4%.
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In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
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Look up the investment trusts
- Tritax Big Box (Ordinary Share)
- F&C Commercial Property (Ordinary Share)
- UK Commercial Property (Ordinary Share)
- TR Property (Ordinary Share)
- Standard Life Inv. Prop. Inc. (Ordinary Share)
- F&C UK Real Estate Investments (Ordinary Share)
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by Daniel Grote on Mar 30, 2017 at 16:21