The cash registers ring at warehouse Reits as generalist property trusts chase rents

Trading updates from commercial property trusts paint a contrasting picture as distribution hub investors like Tritax Big Box and LondonMetric enjoy the boom in online shopping while generalist funds exposed to offices and retail suffer.

Logistics and warehouse investors continue to ride the boom in online shopping caused by Covid-19 disruption while British Land (BLND) reinstates its dividend despite bricks and mortar retail weighing heavily on the real estate sector.

Tritax Big Box (BBOX ), the £2.7bn specialist industrials and logistics investor, said it continues to benefit from the shift to online shopping caused by the outbreak of coronavirus as it rents to businesses that have seen internet orders boom.

This has ensured the trust has collected almost all of its rent since the pandemic gripped the UK, and is expecting 99% of fourth quarter to the end of November rent to be paid - it has already collected 89%, 10% is due, and there are payment plans in place to cover the remaining 1%.

‘In line with our expectations, 97% of second quarter rents have now been paid along with 99% of third quarter rents,’ said the trust in a trading update. 

Colin Godfrey, manager of the 4.1% yielding trust, said it had made ‘good operational and strategic progress’ and owning good quality assets and ‘maintaining a strong tenant roster continues to position us well to weather the worst of the pandemic and deliver on our expectation that 100% of all rent for 2020 will be paid’. 

The trust is also selling properties ‘into a strong market’ in order to deliver returns to shareholders, including the sale of a Chesterfield warehouse, which is currently leased to Amazon, for £57.3m. 

Four assets were sold for £134m during the quarter and Godfrey plans to redeploy the cash into developing new warehouses. 

‘Our development landbank is the UK’s largest focused on industrial logistics assets providing opportunity to deliver a yield on cost of 6-8%,’ he  said. 

‘Demand for large-scale logistics assets continues to increase while supply remains constrained. During the quarter, we have seen an uptick in interest from a range of customers requiring additional logistics capabilities further supporting our confidence in the market.’ 

The unwavering interest in logistics assets has seen Tritax’s share price jump 12.4% this year while its net asset value has ticked up 3.4%, leaving it trading at a premium of 6.8%.

LondonMetric rakes in rent

It’s a similar story over at highly-rated LondonMetric Property (LMP), the £2bn investor and developer of large, modern warehouses, which has collected 94% of rent due for 1 October and another 3% is due imminently. 

The trust, which trades at a premium of 33.3%, has collected 100% of distribution rent, 97% of office rent and 83% of retail parks. It has granted no further deferrals or concessions to clients in the most recent quarter but forgave £260,000 of rent in previous quarters and another £350,000 remains unpaid ‘largely relating to a property where we are securing vacant possession for a new letting to Lidl’.

The fund has grown its NAV 1.4% this year but the shares have ticked down 1.5%.

Retail burden persists

The rental story at Great Portland Estates (GPE) and British Land (BLND) was not as bright as their logistics peers but the latter has reinstated its dividend.

In a trading update last week British Land said it had collected 74% of June rents and 69% of  September rents. Although around half of retail rents are being collected, the reopening of office has buoyed its collections and will allow the FTSE 100 property company to reinstate its dividend in February, although the payments will be half-yearly not quarterly, and paid at 80% of underlying earnings per share.

Hargreaves Lansdown analyst Nicholas Hyett said it was ‘quite something’ when collecting 74% of rent in a month was ‘considered a success’.

He said there was an ‘undercurrent of uncertainty and fear’ in British Land’s trading update as bankruptcies and rent negotiations among retail tenants had increased and ‘that’s a trend we expect to gather pace’. 

‘British Land’s higher end estate means it’s better positioned than many landlords. But unfortunately its estate won’t escape the twin winds of e-commerce and remote working that are currently sweeping the economy,’ said Hyett. 

Great Portland Estates, the London-focused property developer, has seen a similar level of rental collection with 73% of September rent coming in, although just 28% of retail rent has been delivered. 

Chief executive Toby Courtauld said rental collection and occupancy rates have improved since March but ‘many sectors remain challenged’. 

‘We remain firm believers in the long-term appeal of well-designed and located offices and of London’s role as a dominant global city,’ he said.

‘Great Portland Estates is well positioned for any eventuality: our low leverage and high liquidity provides resilience and significant capacity for growth.’ 

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