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Tritax Eurobox is too cheap

The logistics property group is positioned to benefit from the accelerating shift towards e-commerce and a post-coronavirus strengthening of supply chains
May 28, 2020

European warehouse landlord Tritax Eurobox (EBOX) is not only more defensively positioned against the economic pressure of Covid-19, but also stands to benefit from the longer-term trends. The logistics property specialist has suffered minimal disruption to its rent collection over the past two months and has a healthy balance sheet, yet its shares trade at a substantial discount to their one-year historical average.

IC TIP: Buy at 81p
Tip style
Value
Risk rating
Medium
Timescale
Long Term
Bull points

Growing asset values

Shares trade at significant discount to NAV

Robust rent collection

Ample headroom within covenants

Bear points

Potential slowdown in rental growth

Exposure to store retailers

The group which was listed on the main market in 2018 by the investment managers of UK-focused Tritax Big Box (BBOX) – owns 12 big box logistics assets across six European countries that are leased to 21 tenants. The group’s largest tenant is fashion retailer Mango, which constitutes 19 per cent of headline rental income, followed by Amazon (US:AMZN) and French retailer Action. Some of the discount being applied to the shares reflects investor anxiety around the group’s exposure to retailers operating store estates, such as Action and Mango.

However, store-only retail tenants account for only a tenth of headline rent. And looking further out, demand for warehouse space should benefit from two trends coronavirus is expected to accelerate: the shift to e-commerce and investment to strengthen supply chains. Meanwhile, all rent due by 31 March was received and deferral plans have been agreed with four tenants for rent equivalent to 6.8 per cent of the annualised total. Just under 4 per cent of that total is due beyond September this year. 

The group has the ability to withstand a substantial fall in income and asset values before breaching its debt covenants, with rental income needing to fall by half and asset values by 30 per cent. What’s more, the earliest debt refinancing date is September 2023, with the majority of maturing in 2024.

Unsurprisingly, growth in industrial asset values tempered during the first quarter of the year. Across Europe property values rose an average 0.2 per cent, compared with 2 per cent during the final three months of 2019, according to data from CBRE. However, on a trailing 12-month basis the sector posted 5.7 per cent growth, outperforming retail and office assets.

Tritax has been a beneficiary of that, reporting 2.6 per cent underlying growth in the value of its portfolio in the half year to the end of March and a 1.7 per cent increase in like-for-like rental income. Just under three-quarters of rental income is linked to country-specific inflation measures, with a further 23 per cent subject to fixed uplifts. However, that could mean that the rate of growth slows during the second half of the year, given early signs of falling European inflation. 

TRITAX EUROBOX (EBOX)    
ORD PRICE:81pMARKET VALUE:£342m
TOUCH:81-84p12-MONTH HIGH:98pLOW: 65p
FORWARD DIVIDEND YIELD:5.6%TRADING PROPERTIES:nil
FORWARD DISCOUNT TO NAV:28%NET DEBT:64%
INVESTMENT PROPERTIES:€816m  
Year to 30 SepNet asset value (¢)Pre-tax profit (€m)Earnings per share (¢)Dividend per share (¢)
201911326.33.03.0
2020*11736.85.05.0
2021*12347.35.05.0
% change+5+29  
Normal market size:5000   
Beta: 0.58   
£1=€1.10
*Jefferies forecasts, adjusted NAV, PTP and EPS figures