Property Flash


Equites Property Fund, the only specialist logistics property fund on the JSE, will deliver dividend growth in line with inflation, at the least, for its full financial year to end-February 2023, the group said in its results presentation on Wednesday.

Equities’ CEO Andrea Taverna-Turisan spoke to media on Wednesday, following the release of financial results for the six months to end-August 2022. He said Equites has been a consistent performer since it listed in 2014. The group continued to deliver positive dividend growth despite a weak SA economy.

“We are on track to deliver dividend growth of between 4% and 6% for the year to end-February. Equites is performing in line with our strategies in the UK and SA,” he said.

The company achieved 4.1% growth in its interim distribution per share to 81.58 cents, with its net asset value (NAV) per share climbing 0.8% to R18.77. The fair value of the group’s investment property portfolio, including assets held-for-sale, increased 2.3% from R25.7bn at February 28 2022 to R26.3bn at August 31 2022.

“We are pleased with the strong set of operational and financial results. Our performance was underpinned by compelling, long-term external trends such as the importance of supply chain optimisation, growth in e-commerce and consumers’ demand for faster fulfilment, as well as by Equites’ own internal strengths, which include robust property fundamentals, disciplined capital allocation and a strong balance sheet,” said Taverna-Turisan.

He said Equites’ property fundamentals are exceedingly robust, with 0.1% portfolio vacancy, 97.5% of its revenue derived from A-grade tenants and a weighted-average lease expiry (WALE) of 13.9 years, all providing a high degree of income certainty over a sustained period.  

The growth in distribution per share was a function of strong growth in like-for-like net rental income, consistent property performance and efficient capital management. The company’s board maintained its policy of distributing 100% of distributable earnings as a dividend on a biannual basis.

Taverna-Turisan said Equites’ SA assets contributed 62% to the group’s portfolio and 84% by revenue.

The South African portfolio achieved net rental growth of 6.5%, benefiting from the group’s robust in-force contractual lease escalation rate and exposure to A-grade tenants, who contributed more than 97% of revenue.

South Africa was experiencing record levels of demand for warehousing space which Equites was well- positioned to capitalise on, given its strategic land bank, conservative loan-to-value ratio, and well-diversified funding structure. 

“Equites is actively participating in the sharp rise in the number of development opportunities, with a contracted development pipeline of 228 000m2 of prime logistics space with a combined capital value of R2.7bn,” said Taverna-Turisan.

Equites said im a statement that the number of enquiries for logistics facilities within its strategic nodes was remarkable and this was also evidenced in rental growth achieved of between 15% and 20% for A-grade warehousing space, with prime rents recently breaching R80/m2 following a period of benign rental growth. This upsurge was driven by a record-low national vacancy rate, higher construction cost inflation and substantial warehousing demand across various types of occupiers. Equites believed that these trends would translate into improved property valuations going forward.

Taverna-Turisan said Equites’ UK assets contributed 38% to the group’s portfolio and 16% by revenue.

“The UK logistics market continues to experience record levels of take-up, which against the lack of supply, is driving significant market rental growth. Take-up from non-ecommerce related retailers increased by a staggering 54% year-on-year. The national vacancy rate was 3.0% compared with 6.7% pre-Covid, demonstrating that supply has struggled to keep up with demand over the last two to three years. Market expectations for rental growth were expected to exceed 15% on a national level for 2022,” he said.

UK property valuations were under pressure with an increase in the prime yield from 3.25% at the start of 2022 to 3.75% at the reporting date, with a further 25 basis points yield expansion expected by the end of 2022. The repricing of assets was predominantly driven by higher interest rates and associated debt costs. 

“While the UK logistics sector will not be immune to such macro challenges, the sector should continue to benefit from structural changes and ecommerce penetration, low vacancies, and the strong rental growth,” Taverna-Turisan said.

But Equites’ UK development profits and valuation uplifts provided a cushion against the re-pricing of assets on the back of yield expansion. The company’s Equites Newlands development venture completed the Evri, formerly Hermes development in Barnsley, UK in July 2022, with a capital value of £107m (R2.1bn). This led to a fair value uplift of 43%. Evri signed a 20-year triple net, fully repairing and insuring lease which will afford Equites cashflows of £3.8m (R76m) per annum, with five-yearly rent reviews.

“The UK portfolio is estimated to be under-rented by between 30% and 40%, with the embedded growth in cash flows to be unlocked over the next 36 months, as each lease reaches its five-year rent-review cycle,” said Taverna-Turisan.

Equites’ balance sheet was in a healthy position. At August 31 2022, the group had net debt of R9.1bn at an all-in effective cost of 5.89%, and cash and undrawn facilities of R1.2bn to fund acquisitions and developments.

The company’s loan-to-value (LTV) ratio increased from 31.5% to 33.3% in the past six months, mainly due to development capital expenditure of R977m, with R614m in SA and R363m in the UK. The LTV remained well within its target LTV ratio of between 30% and 40%.

LTV is used to indicate the strength of a property fund’s balance sheet. It measures a property fund’s debt relative to the value of its asset portfolio. Fund managers advocate that LTVs should not exceed 40% as a prudent ceiling.

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