MIDAS SHARE TIPS: Warehouses can mean big profit

According to psychologists, it takes little more than nine weeks to form a new habit. And with lockdown starting on March 23, the UK has had plenty of time to develop new routines. Online shopping was already a popular pastime among British consumers. But it has surged to new levels in recent months 

A decade ago, e-commerce accounted for little more than 6 per cent of total retail sales. In May, almost 33 per cent of all shopping was conducted online, according to Government data released last week. Even if there will be some return to the High Street as the lockdown eases, most people say they will carry on clicking now that they realise how easy it is. 

The trend does not just benefit those retailers and manufacturers who get it right. It is also a boon for warehouse owners whose facilities make online shopping feasible. The best among these firms offer a blend of generous income and steady capital growth, combined with a strong element of stability. 

Huge opportunity: With customers such as Amazon, mega-warehouse firms are well placed to cash in on the growth in online shopping

Tritax Big Box 

Tritax Big Box specialises in mega-sheds, massive warehouses used by some of the biggest names in online shopping to satisfy their customers’ needs. Earlier this month, the company announced that it will be developing a 2.3million square foot building – equivalent to 30 football pitches – for a single tenant. No names were confirmed but market insiders say the deal is with Amazon. Highly automated, 60 feet high and with three mezzanine floors, the site will be the largest such facility in Europe, a ringing endorsement of our enthusiasm for e-commerce and Amazon’s commitment to the UK. 

The deal confirms Tritax’s status as a leading player in the big box field and it is good news for shareholders too. Midas recommended Tritax when the business floated at £1 in 2013. Last week, the stock closed at £1.43 and shareholders have benefited from generous dividends along the way, delivering annual income of more than 4 per cent in recent years. 

Tritax is not immune from the economic fall-out from coronavirus – customers include fashion retailers, such as Matalan and New Look, which have been struggling for a while. However Tritax is significantly more resilient than most property groups. 

Top customers include Morrisons, Tesco and Co-op. It is said that Amazon will account for some 20 per cent of total rents once the new mega-shed is up and running. And the majority of rents come from e-commerce, food retail and logistics. 

Even firms that have been hard hit by the lockdown are unlikely to give up their big box spaces – as they tend to be cheaper than other warehouses and play a critical role in efficient distribution. 

Around 96 per cent of rents were collected for the first quarter of the year with active discussions ongoing over the remaining 4 per cent. A similar picture is likely to emerge when second quarter collections are announced next month. 

This should provide a solid floor for dividend payments, which are paid every three months. 

A first-quarter dividend of 1.5625p was declared in April and a second payment, probably at or around that level will be announced in July. 

This could mean the total for 2020 is lower than last year’s 6.8p but, even if four identical payments are made, that will still provide 6.25p of income, keeping the yield at over 4 per cent.

Traded on: Main Market Ticker: BBOX Contact: tritaxbigbox.co.uk or 020 7290 1616 

Warehouse Reit 

Warehouse Reit specialises in so-called multi-let industrial sites, where each space is divided into a number of smaller units. 

They are located near city centres and tenants include well-known names such as Amazon, John Lewis and wine merchant Laithwaites. The firm’s 560 tenants also include hundreds of smaller businesses, many of which are involved in e-commerce or pivoting that way. 

Woolcool, for example, makes 100 per cent wool packaging for the delivery of fresh food and pharmaceutical products. Another firm, which makes outdoor clothing, recently sought more space from Warehouse, as part of a long-term plan to increase online sales and reduce reliance on retailers. 

Midas recommended Warehouse in 2018 when the shares were 96.5p. They have risen to £1.09 and paid rising dividends along the way, including 6.2p for the year to last March, with a similar amount forecast for the current year. 

Boss Andrew Bird is keen to expand and a stock market fundraising of up to £200million is under way, at £1.10 a share. The group has raised £100million from big investors but individual shareholders can apply for new stock until Friday. If the market price rises above £1.10 in the next few days the offer looks attractive. 

Demand for warehouse space close to city centres is growing fast and is likely to continue doing so. Bird and his team are raising funds because they have already identified new sites worth almost £350million and are in advanced negotiations on space valued at £123million. 

Operating multi-let sites can be hard work but the rewards are commensurately greater for landlords who know how to make sites more attractive so they can secure higher rents. Warehouse has already proved that it can do this. Rent collection from existing tenants has been sound in recent months and demand remains strong, with the group securing new lettings and signing lease renewals at higher rates even during the lockdown. 

Bird and his team are also incentivised to succeed as they own around 8per cent of the shares. Bird himself has put all his Isa funds into the new fund-raise.

 Traded on: AIM Ticker: WHR Contact: warehousereit.co.uk or 020 3102 9465

Urban Logistics 

Urban Logistics also operates warehouses that are close to city centres but its sites are designed for single occupancy so almost all tenants are big businesses such as DHL, Sainsbury’s and Boots. 

The group is entirely focused on e-commerce too, with a slant towards food, drugs and other essential products.

Midas recommended Urban Logistics exactly a year ago, when the shares were £1.23. Today, they are £1.38 and chief executive Richard Moffitt is determined to lead them substantially higher. 

Results for the year to March 31 were encouraging. Rental income increased 20 per cent to £12.2million, while the dividend rose almost 9 per cent to 7.6p. Brokers forecast 6.4p for the current year, but this may well prove overly conservative. 

Urban Logistics prides itself on generous payments for shareholders, backed by rental income and in the quarter to June, Moffitt collected 100 per cent of rent due, an almost unparalleled achievement in the property industry. 

Looking ahead, the group expects to increase its portfolio and is already eyeing up a pipeline of assets worth more around £230 million. Expansion will only take place however, if sites satisfy Moffitt’s criteria, with robust tenants and the potential for rent increases.

 Traded on: AIM Ticker: SHED Contact: urbanlogisticsreit.com or 020 7591 1600

Midas Verdict

E-commerce has been a beneficiary of lockdown and warehouse space is an essential cog in the online wheel. 

Tritax Big Box, Warehouse and Urban Logistics each provide slightly different routes into this sector but they all offer generous yields and have done well in recent years. 

Looking ahead, Tritax is probably the safest bet and cautious investors may want to place most of their bets with the big box specialist. 

But Warehouse and Urban Logistics are both well-run businesses with ambitious managers. They too have a place in the income-seeker’s portfolio.  

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— to www.thisismoney.co.uk

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