Amazon’s founder Jeff Bezos may be the world’s third richest person, but he still has to pay rent. And using my Stocks & Shares ISA, I have bought a stake in his landlord!
Of course, Bezos does not pay rent to put a roof over his head; he pays rent to house billions of pounds’ worth of items ready to be trucked to doors around the UK at the click of a mouse.
Enter Tritax Big Box (LON:BBOX). This real estate investment trust (REIT) leases out storage space to Amazon, meaning shareholders collect a portion of the rent paid by Bezos and co.
A precipitous crash in Tritax Big Box’s price this year has made owning shares in the REIT appear even more attractive to me.
Big Box, big crash…big opportunity?
At the end of April, after Amazon’s first-quarter earning results showed rising costs for the e-commerce giant, investors dumped its stock, leading to more than a 30% fall in its price.
Tritax Big Box seems to have got caught up in that pessimism, with its stock price down by 25% over the same period.
But Amazon only makes up 17% of Tritax Big Box’s rental revenue, and for all the e-commerce giant’s woes, it is already locked into renting over six million square-feet of warehousing space (equivalent to 78 football pitches) from Tritax Big Box on leases that last for up to 20 years. There is no danger of this income evaporating overnight.
Meanwhile, Tritax Big Box’s other tenants are massive businesses (with two-thirds having an annual revenue over £10bn), focused in stable sectors like food retail (Co-Op, Ocado, Morrisons, Tesco), homewares and DIY (Howdens, B&Q) and post and parcels (Royal Mail), to name but a few.
With the High Street in terminal decline and work-from-home culture posing a threat to office rents, it is not an easy time to be a commercial real estate investor. On the other hand, warehousing for e-commerce is a booming sector benefiting from structural changes in the way people shop.
The price is right!
In 2021, when investors were still in the grips of ‘pandemic mania’, businesses with a link to working and shopping from home saw their share prices rally to dizzying heights, and Tritax Big Box was no exception, with its stock price reaching a 20% premium to book value.
Today, opportunistic investors can scoop up shares in the business at close to a 20% discount to book value – a considerable margin of safety!
As well as looking like a good play as a value investment for me, Tritax Big Box has ambitious growth plans, with 29 new sites on its radar, which – taken together – would more than double its existing portfolio if acquired. With a light debt load equal to just 33% of capital, and fixed interest rates and hedging arrangements covering all of its loans, I am not worried about the business being overleveraged or vulnerable to rising rates.
However, Tritax Big Box is not immune to inflationary pressures. CFO Frankie Whitehead noted in the 2021 annual report that ‘supply chain disruption’ and rising labour costs could begin to eat into the bottom line.
Despite the headwinds posed by soaring input costs for a brick-and-mortar business like Tritax Big Box, I’d be happy to buy shares at the current depressed price.
With net income up nearly 300% from 2017 to 2021 and high-calibre tenants like Bezos’ Amazon locked into 20-year leases, I am optimistic about Tritax Big Box’s long-term prospects.