Specialist logistics real estate investment trust Equites Property Fund achieved distributions a share of 65.37c for the half-year to August 31, in line with market guidance, and is on track to meet full-year guidance.

Both the South Africa and the UK property portfolios are said to be performing in line with expectations, driven by strong like-for-like net property income growth, record-low vacancy rates and an uptick in property valuations.

Equites’ investment property portfolio increased by 4.8% to R28.2-billion and gross leasable area (GLA) grew by 5.8% to 1.45-million square metres in the six months.

CEO Andrea Taverna-Turisan highlighted the strong momentum generated in the portfolio optimisation drive during the period under review.

Equites divested R1.9-billion of noncore assets and reinvested into logistics campuses and distribution centres that are tenanted by blue-chip tenants on long-term leases.

Taverna-Turisan averred that this would further reinforce the quality and durability of the portfolio.

Equites’ portfolio fundamentals are noted to be robust, with a weighted average lease expiry of 13.7 years and 97.3% of rental income derived from A-grade tenants. The portfolio is fully let with the only remaining vacancy in the UK subsequently let in September on a five-year lease.

These fundamentals are posited to support a high degree of income certainty over a sustained period.

Equites has R14.5-billion in debt facilities with a weighted average debt maturity profile of 3.3 years and R2.1-billion in cash and undrawn facilities.

At period-end, the group had hedged 84% of debt maturing within one year.

The adjusted loan-to-value (LTV) ratio (including property disposals contracted but expected to complete post-period-end) remained broadly unchanged at 38.1%.

Management is targeting an LTV ratio of 35% by year-end.

Equites raised R750-million in three- and five-year notes at its most recent debt auction in September.

Equites has, to date, repurchased 10.3-million shares in the open market for a total value of R143-million. It says that careful consideration is being applied to the impact of the buybacks on gearing levels.

Total installed solar capacity had grown to 18.2 MW (21 buildings) year-on-year, from 8.5 MW (15 buildings), with a further 8 MW targeted in the next 18 to 36 months.

DISPOSALS

Equites is undertaking a R6.3-billion property disposal programme for full-year 2024, to recycle capital, optimise the property portfolio and lower the LTV ratio.

Moreover, Equites has rightsized its land holdings from 8% of the portfolio at year-end to 5%, driven largely by the contracted sale of land at Newport Pagnell, UK and land development for TFG, Shoprite, Cargo Compass SA, SPAR Encore and Normet Group.

Equites also concluded the disposal of its Hinckley property to Relif, a Realterm Europe Logistics Income Fund company, for £29.75-million (about R710-million) in September.

Equites says it continues to engage with interested parties regarding the ten sites on the ENGL development platform in the UK and expects to conclude a transaction in the second half of full-year 2024.

DEVELOPMENTS

The total pipeline of development and acquisition opportunities in South Africa amounts to R2.5-billion across 192 609 m² of prime logistics space (Equites’ share).

The R1.2-billion of capital expenditure outstanding at the reporting date will be disbursed over the next 18-month period. The group’s investment opportunities are focused on pre-let development agreements in South Africa, with no substantial development expenditure anticipated in the UK.

The R591-million TFG Witfontein development was completed in August.

Equites also completed two speculative developments with a total GLA of 26 000 m².

Its subsidiary, RLF, is noted to be progressing well with the development of two logistics campuses, located in Canelands, KwaZulu-Natal, and Wells Estate, Eastern Cape, which will both be let to Shoprite on 20-year leases.

Equites is also progressing with the construction of a campus for Shoprite in Witfontein, Gauteng.

The group is constructing a second facility for Cargo Compass SA with a capital value of R142-million and a development for Normet Group with a capital value of R82-million in Jet Park, Gauteng.

Equites concluded a development agreement with Spar Group subsidiary SPAR Encore for a 17 066 m² facility with a capital value of R189-million.

OUTLOOK

Several more disposals are being targeted by year-end.

In line with previous guidance, a full-year distribution a share of between 130c and 140c is expected.

Equites says that the national vacancy rate for A-grade warehousing space in South Africa is below 1% and demand continues to be strong.

It adds that continued market rental growth in lease renewal negotiations with existing tenants, as well as lease agreements for new builds with new tenants, should continue to support property valuations.

In the UK, owing to the under-rented nature of Equites’ portfolio, the reversionary yield on the portfolio is estimated to be 6%, above average prime distribution yields of between 5% and 5.25%.