OUR PROPERTY PICK #2: THE IMMATURE PART OF THE LOGISTICS MARKET
TRITAX EUROBOX (EBOX) 103.8P Sep 2019 yield: 2.3% Premium to NAV: 3.8%
While the logistics property market in the UK might be looking very expensive, Mike Prew, the property expert at investment bank Jefferies, says the European logistics space is five years behind the UK.
This should create positive dynamics for Tritax
Eurobox (EBOX), launched in July 2018 by the people behind the £2bn-plus Tritax Big Box REIT (BBOX).
The plan is to take the extremely successful Big Box template to continental Europe. The strategy has been to rent out high quality logistics assets of 500,000 square foot or more to institutional-grade tenants on long leases.
The reason the European logistics sector is lagging the UK is that shoppers do not currently buy as much online in Continental Europe. As the chart shows, 18% of UK retail trade is done online with Germany the next closest in Europe at 15% and many other large European countries having much lower levels of online penetration.
Unsurprisingly these immature markets are expected to grow more quickly. This growth will require warehousing facilities to store and process orders and returns, providing support to the yields Eurobox can achieve from its assets.
The £300m raised alongside its stock market flotation will be invested in a €1.8bn pipeline of logistics properties – with Tritax actively negotiating the purchase of assets worth upwards of €600m.
It is targeting an initial dividend yield of 4.75% once fully invested, to be paid quarterly in sterling, and a total return in the medium-term of 9% a year.
On 26 September the company announced its first acquisition with the purchase of the global distribution centre for clothing retailer Mango in Barcelona for €150m.
The purpose-built facility was constructed in 2016 and is let to Mango on a 30-year lease. There is also potential to extend to an adjacent plot of land.
Eurobox expects to be fully invested by December with several other deals in progress. The shares do trade at a small premium to net asset value, probably reflecting investors’ hopes that it can match the impressive performance of Big Box. We’re certainly confident, so buy its shares now.
THE EUROPEAN LOGISTICS MARKET E-commerce as % of total sales
Estimated online sales growth (2016-2021)