I’m searching for the best UK shares to help generate a healthy passive income. And I’m considering using share price weakness at Tritax Big Box REIT (LSE: BBOX) as an opportunity to boost my holdings.
Warehouse operator Tritax’s share price has slumped below 200p for the first time since last summer. It’s down 20% in May as concerns over the impact of soaring inflation on its retail clients have grown.
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I think the market has overreacted by selling so heavily, though. Tritax’s operations certainly are sensitive to broader economic conditions. But the business lets out its assets to some of the largest retailers, fast-moving consumer goods and delivery firms on the planet.
These sort of firms have the financial clout to see out tough times and to continue paying the rent. Tritax also ties its tenants down on extremely long contracts, which provides earnings with even better visibility.
Tritax Big Box’s clients include Amazon (NASDAQ:AMZN), Unilever, Tesco, DHL, and L’Oreal.
Besides, I would argue that interest in Tritax’s warehouse space should remain resilient even if the broader retail sector sinks. The rate at which e-commerce is growing means that companies can ill afford to scale back investment in warehousing and logistics.
As analyst Sophie Lund-Yates of Hargreaves Lansdown comments, “Despite inflation-linked doom and gloom hanging over many of Tritax’s retail customers, building out a strong logistics network is non-negotiable these days”.
Amazon talks, Tritax sinks
Tritax Big Box’s share price hasn’t simply ducked because of broader macroeconomic worries, though. Investors also sold out as Amazon announced it was going to cool warehouse capacity expansion. This is in response to slowing e-retail activity from the extraordinary levels seen at the height of the pandemic.
The words and actions of the world’s largest online retailer naturally command much attention. However, I think the market might be overestimating Amazon’s changing strategy on Tritax Big Box.
This is because — irrespective of Amazons own actions — demand for space in the UK is likely to continue growing ahead of supply for years to come, pushing rents at Tritax relentlessly higher.
Expanding for growth
Britain is by far Europe’s largest e-commerce market. And online revenues are tipped to reach $285.6bn by 2025. That’s compared with below $200m today.
Tritax Big Box is committed to aggressive expansion to make the most of this opportunity too. The FTSE 250 firm plans to begin development on between 3m and 4m square feet of warehouse space in 2022 alone.
Tritax’s expansion programme does create dangers to shareholder returns. Such large investments can impact dividend levels in the near term. They can open up other dangers, too. For example a poor choice of location could leave the company saddled with a property it might struggle to fill.
That said, Tritax’s strong track record on this front provides me with a lot of confidence. Indeed, I think its commitment to expansion in a fast-growing sector could make the business (which yields a healthy 3.5% for 2022) a great passive income stock in my portfolio for years to come.