JSE-listed Equites Property Fund achieved a 4.1% year-on-year increase in its interim distribution a share to 81.58c for the period to August 31, while its net asset value (NAV) per share was also 0.8% higher at R18.77.

Moreover, fair value of the group’s investment property portfolio (including assets held for sale) also grew, 2.3% from R25.7-billion as at February 28 to R26.3-billion at period’s end.

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 distribution policy remains unchanged at a 100% payout ratio.

Equites’ loan-to-value (LTV) ratio increased from 31.5% to 33.3% in the past six months, mainly owing to development capital expenditure of R977-million (R614-million in South Africa and R363-million in the UK).

The LTV is noted to remain well within its target LTV ratio of between 30% and 40%.

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

While discount rates have started to increase owing to rising interest rates, market rental growth has more than offset this increase, resulting in property valuations growing by 2% on a like-for-like basis over the six months.

The UK like-for-like portfolio declined by 2.9% in sterling. While the UK logistics sector will not be immune to such macro challenges, the sector should continue to benefit from structural changes and e-commerce penetration, low vacancies, and the strong rental growth, Equites said.

South Africa is noted to be experiencing record levels of demand for warehousing space, which Equites says it is well positioned to capitalise on, given its strategic land bank, conservative LTV ratio, and diversified funding structure.

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

Equites’ pipeline of potential development and acquisition opportunities in South Africa has increased considerably, comprising R3.7-billion across 329 788 m² of prime logistics space, with R2.5-billion of capital expenditure outstanding at the reporting date, to be disbursed over the next two years.

These include agreements with Shoprite Checkers to sell and lease back two of its distribution centres for R576-million and R165-million, respectively. The assets will be let to Shoprite on 20-year leases.

Notable ongoing developments include two developments for TFG – an extension to its facility in Lords View for a capital value of R185-million and a new development in Riverfields with an expected capital value of R607-million.  

Equites also agreed commercial terms for a large-scale development in Gauteng for Shoprite, with a total expected cost of R1.2-billion.

Presenting the results, CEO Andrea Taverna-Turisan enthused that the South African portfolio of 1.3-million square metres is fully occupied.

During the period, Equites refinanced a ten-year debt facility in the UK at an all-in rate of sub-4%.

“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,” Taverna-Turisan said.

He highlighted that 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 of 13.9 years.  

The weighted average debt maturity was successfully increased from 2.7 years to 3.3 years in two significant long-term funding transactions in the period.

The purchase of DSV Campus in Gauteng by the venture between Equites and Eskom Pension and Provident Fund for R2.05-billion was facilitated by R615-million five-year debt funding provided by Absa Bank.

To free up capital, the group disposed of six noncore assets for R190-million and is actively managing its existing portfolio to identify further capital recycling opportunities in both jurisdictions.

OUTLOOK

Taverna-Turisan said the medium-term outlook for Equites remains positive, even in a challenging macroenvironment, supported by long-term leases with A-grade tenants and a strong balance sheet.

He pointed out that vacancy levels in both jurisdictions are at all-time lows.

In South Africa, the group is focused on its considerable pipeline of potential opportunities; while in the UK, it is focused on unlocking capital though turnkey developments, land disposals and property disposals.

Taverna-Turisan noted that management is forecasting a lower but still positive total return for full-year 2023.

The group’s DPS guidance of between 4% and 6% for the current financial year remains unchanged.

This guidance assumes no major corporate failures will occur, the pound:rand exchange rate remaining materially unchanged and rising utility costs and municipal rates will be recovered from tenants.