BDTV: In an interview with Business Day TV‚ Andrea Taverna-Turisan‚ CEO of Equities Property Fund‚ discusses half-year results from the specialist logistics property developer and landlord.
BUSINESS DAY TV: The JSE’s only listed specialist logistics property developer and landlord‚ Equities Property Fund‚ today announced a 20% increase in half-year distributions to 54.44c a share. CEO Andrea Taverna-Turisan joins us now in the News Leader studio with more of the detail.
Andrea‚ you described the results as exceptional and that has not been heard much in the current economic climate so your focus on logistics properties is holding you in good stead.
Is it too much of a >rem 1‚1<far>rem 0‚0< stretch to say that the current economic climate is actually doing you a >rem 1‚1<more>rem 0‚0< favour as companies perhaps focus more on strategic logistic nodes and distribution centres that enhance their efficiencies?
ANDREA TAVERNA-TURISAN: The key element here is that when we listed we listed with a very defensive portfolio that was developed by the three parties that put their properties in on long-term leases. Coupled with that‚ we’ve been very successful in growing the fund with the Intaprop acquisition in 2015‚ and then obviously the Attacq acquisition this year.
The consequence of all these things is that we’ve stuck to our knitting. >rem 1‚1<if you will‚>rem 0‚0< We strategically made a decision that we were going to be a logistics fund. We understand logistics‚ we’ve been logistics developers for many years. The consequence of that is >rem 1‚1<that>rem 0‚0< we have this defensive portfolio with long-dated leases and >rem 1‚1<with>rem 0‚0< A-grade tenancy almost entirely.
We have five office buildings in the portfolio which we are >rem 1‚1<in the process of>rem 0‚0< looking to dispose of and then we will become a pure logistics play. So it’s a combination of focus‚ of quality assets‚ sticking to that knitting again‚ I can’t reiterate that enough really‚ and the consequence of having quality tenants in quality buildings.
BDTV: Okay‚ so let’s take a look at it‚ focus‚ quality assets‚ quality tenants. How much more scope for growth is there because you’ve achieved rapid growth in your portfolio over the past couple of years‚ R1bn at listing in June 2014‚ you’re sitting at R5.9bn now. How rife are the opportunities locally for expansion?
ATT: They are there. It’s definitely much tougher trading conditions than let’s say three or four years ago. The number of opportunities available in the market in terms of the development side of the business‚ it’s definitely tougher. However‚ SA has got the benefit of having some pretty remarkable entrepreneurs that have developed substantial portfolios over the years. From time to time‚ these peoples’ circumstances change‚ their investment strategies change‚ and we try and stay close to as many people as possible within the market‚ people we’ve known for many years. If the opportunity arises‚ we’d like to think that we’ll be on everybody’s list in terms of having the opportunity to acquire.
So there are portfolios out there. They’re not for sale‚ but things happen. Having a strong balance sheet and having disposable cash‚ having also a strong quality paper‚ there are some of these developers that sometimes take paper. Intaprop is a classic case in point when we did the deal. The Intaprop directors took our paper in the deal.
BDTV: Let’s talk about some of the demand that you’re actually catering to because you’ve got 100% occupancy rate‚ and the assumption is that it gives you quite a bit of negotiating power‚ then when it comes to your rental free front if the demand for your properties is so high?
ATT: We take pride in that. In the coming year we have three of our leases coming up. We are already negotiating with the tenants on those leases with a view to renewal. Invariably‚ there are reversionary pressures on those leases which are coming to an end. Fortunately‚ the instances in our portfolio‚ there were leases that weren’t signed that long ago‚ so the compounding effect of escalations will not result in a massive reversion‚ and maybe it might even have an increment. At the moment‚ we’re almost in the perfect place. We’ve got a 5.8 year whale‚ we’ve got 0.44% vacancy which is just in our office buildings‚ so if we were to sell our office buildings we’d have no vacancies. We’ve grown this portfolio substantially. The incremental cost of running the business has been negligible compared with the size‚ so our cost of head office if you like‚ has gone from 1% at listing to probably about 0.35% today.
BDTV: And you’ve managed to reduce your finance costs as well with your accelerated book build. Let’s take a look at some of your opportunity offshore‚ because you’ve now started expanding your footprint in the UK. What are some of the hot spots you’ve identified there and the current economic climate on that end‚ how does it influence some of your strategy?
ATT: Obviously the word on everybody’s mouth is Brexit and I’m not a Brexit specialist. I come from a history of having lived in the UK for many years. I went to school there‚ I went to university there so I know that market quite well. Subsequent to Lehman Brothers in 2008 I was involved with a couple of partners‚ and we created a logistics portfolio there which I have subsequently traded out of because of the potential conflicts‚ so it’s not like we’ve entered a market that we don’t know anything about. We’re entering a market where management has a certain degree of expertise‚ a certain degree of connectivity‚ so we were looking to create a bit of a defensive strategy for 25% of the fund; because of management’s position‚ and management’s knowledge in that market‚ but also because of the cultural similarities between SA and the UK‚ ultimately being a colonial country‚ there are a lot of similarities‚ language being an important factor as well...
BDTV: And of course there’s the hard currency factor to consider as well‚ and we’ve seen many South African companies start to diversify their footprint internationally because of that. In terms of your prospects moving forward‚ what is the biggest risk or the biggest hurdle?
ATT: The biggest risk at this stage — there are literally four months left in this financial year — the biggest risk is a tenant failure‚ a dramatic tenant failure‚ and now in lieu of the quality of our tenants it’s highly unlikely but obviously always possible.
Enron is a very classic case in point. Everybody thought they were impregnable‚ and we all know what happened there. So we must never be complacent about our tenants‚ but at the moment >rem 1‚1<where we’re standing‚>rem 0‚0< we’re hedged 102% so we have no risk to interest rate fluctuations at all. We’ve got a loan to value which is sitting at around 32% so we do have money available to us on our balance sheet. We’ve got a strategic 40% cutoff‚ we’ve got a loan to value covenant at 50% and as you know the REIT legislation is 60% so we’ve still got lots of headroom to operate and do deals. We’re in a wonderful place at the moment‚ and I’m sure in the cycle of business you’re not always in such a wonderful place.
BDTV: Absolutely.
ATT: ...and we’ll enjoy it while we’re there.
source: BDpro
