Equites is the only specialist logistics property fund listed on the JSE. Since listing in June 2014, the company has grown from a portfolio of 17 properties valued at R1 billion to 52 properties valued at R6,2 billion at 28 February 2017, less than three years later.
Equites CEO, Andrea Taverna-Turisan, said that “despite facing some of the toughest economic and political challenges to date, the group remained largely insulated from market vagaries. We attribute this to our focus on strong property fundamentals which resulted in virtually no vacancies across the portfolio and no tenant defaults. The range of attractive acquisitions and developments undertaken in recent times, has further served to position Equites as a low risk, high growth fund in a top performing sector”.
- Net Asset Value per share growth of 9.1% from R12.94 to R14.12 for the year.
- Property portfolio increasing by 51.4% from R4.1 billion to R6.2 billion
- Net property expense ratio reducing to 2.5% from 3.5%
- R1 billion of capital raised through an accelerated book-build in November 2016.
- Acquisition of eight A-grade premium logistics properties in Waterfall from Attacq Limited
– Expansion into the United Kingdom through the acquisition of two completed distribution warehouses in key logistics nodes and the conclusion of a third deal to acquire a property currently under development
– 99.9% occupancy
The results were achieved through solid operational performance which included healthy escalations, a high occupancy rate and a reduction in the net property expense ratio to 2.5%. This was further buoyed by the inclusion of yield accretive acquisitions and recently completed developments, as well as lower finance costs following the accelerated book-build in November 2016. Acquisitive and development highlights during the period were:
– The completion of a new distribution centre and head office for Puma South Africa in Cape Town;
– The acquisition of EA Waterfall Logistics JV;
– The completion of a speculative development in Epping which was let to an international tenant on completion;
– The acquisition of two buildings in the United Kingdom coupled with an effective currency hedging strategy.
Whilst building scale, Equites has continued to improve the quality of its portfolio. Almost 92% of revenue is now derived from blue chip tenants, while 70% of leases have tenures in excess of 5 years. Following the acquisitions and disposals during the current year, almost 97% of the portfolio is in the industrial sector. All new acquisitions have been logistics facilities with triple net leases. Logistics facilities now comprise 89% of the portfolio, while 95% of the portfolio have triple net leases. Triple net leases are especially attractive as they not only cover rent, but also taxes, insurance and maintenance of the property.
Equites’ growth strategy is to develop and acquire A-grade logistics and distribution facilities, let to quality tenants on long-term leases. The company continues to see strong demand for modern distribution centres in the major logistics nodes and the value of its committed capital projects has increased to R419 million at year end. This demand is supported by the centralisation of distribution by major retailers, increased levels of imports into South Africa and a shift towards online retailing. Equites has a proven ability to meet major tenants’ requirements to upgrade to modern facilities with high specification levels, which improve the efficiency of their operations.
Equites recently also entered the United Kingdom logistics market. The scarcity of suitable high quality logistics assets for acquisition in the South African market, as well as the need to mitigate emerging market risks, prompted the company to utilise management’s extensive experience in the UK market to expand into a jurisdiction that offers a mature and stable economic and political outlook. The UK is one of the leading countries when it comes to distribution penetration and technology advancement in the distribution warehousing sector of the property market.
The company has recently concluded several significant transactions:
· Acquisition of 80% of the shares in EA Waterfall Logistics (Pty) Ltd - Equites acquired eight prime industrial properties from Attacq Limited. The portfolio represents exceptional property fundamentals, being modern facilities in an excellent logistics property location, let to A-grade tenants on long-dated leases. Attacq is the leading capital growth fund on the JSE and the relationship forged with Attacq through this joint venture presents exceptional opportunities for further collaboration on development opportunities in Gauteng and the Western Cape.
· Acquisition of Tesco, Hinckley, UK - Equites acquired its first property in the UK in 2017, for a purchase consideration of GBP28 million. The property, which meets modern logistics requirements, is located strategically just off the A5 in Hinckley in the Golden Triangle, which is the logistics hub in the UK. The building has a remaining lease term of 7.5 years with Tesco Distribution Ltd., with Tesco PLC being the guarantor in respect of the obligations of the tenant.
· Acquisition of Big Stan, Stoke-On-Trent, UK - Equites acquired a 20 410 m²distribution centre let to Amazon situated at Stanley Matthews Way, Trentham Lakes, Stoke-on-Trent, for the consideration of GBP17 million. The transaction was concluded off-market.
· Acquisition of DSV, Stoke-On-Trent, United Kingdom - Equites acquired a 19 511 m² distribution centre let to DSV Solutions Ltd situated at Prologis Park, Sideway, Stoke-on-Trent, England, for GBP18 million. The transaction was also concluded off-market. The distribution centre is in the process of being developed by Prologis on behalf of the seller and is on track to be completed in July 2017.
Equites has strong in-house development expertise and owns a portfolio of strategic land holdings for future developments. Recent developments include:
· Equites completed the New Epping facility, a 8 133m² speculative distribution warehouse development at 160 Gunners Circle, Epping, Cape Town. Upon completion of the development, it was let to an international tenant at a highly attractive yield.
· The new Puma Apparel South Africa head office and distribution centre at Atlantic Hills, Durbanville was completed shortly after year end and the tenant took beneficial occupation in April 2017. The tenant was an existing tenant of the group – occupying the warehouses and office buildings at Printer’s Way, Montague Gardens. The new warehouse at Atlantic Hills has a GLA of 17 598m² and a capital value of R163 million on completion. This asset clearly illustrates the group’s ability to engage with existing tenants and to develop facilities to suit their growing requirements.
· The 28 527m² state-of-art distribution centre and offices for Rohlig-Grindrod Proprietary Limited, is nearing completion. Equites concluded a joint venture agreement with Grindrod Property Holdings Limited, a wholly owned subsidiary of Grindrod Limited, to develop the property. The completed development will be owned in equal shares by Equites and Grindrod.
Land available for development
Equites has a further 35.7 hectares of prime, serviced industrially zoned land available for development in Cape Town and Gauteng. Equites is pursuing a number of opportunities for distribution centres on these parcels of land which will continue to contribute to a healthy development pipeline.
Following a successful accelerated book build that raised R1 billion in November 2016, the group ended the year with a loan to value of 21.2%. Equites continues to take a prudent approach to interest rate risk, with 100% of outstanding debt and committed expenditure hedged against further interest rate increases on maturities of nearly 5 years.
The low gearing, combined with undrawn bank loans of some R1.3 billion, positions Equites well to pursue opportunities locally to acquire logistics properties that meet its investment criteria and that are expected to contribute to long-term, predictable distribution growth. This will be complemented by a measured diversification into the United Kingdom, which will be limited to 25% of the portfolio value in the medium term. Equites has agreed funding arrangements with the Royal Bank of Scotland and HSBC in the UK to fund its acquisitions there. 100% of UK debt is hedged on 5 year maturities with all in rates around 3%.
The board is confident that the company will achieve 10%-12% distribution growth over the next financial year, should stable macro-economic conditions prevail.
Taverna-Turisan concluded: “Modern logistics properties, as an asset class, has proven its resilience and we continue to see strong demand for modern distribution centres in the major logistics nodes. We will grow our portfolio value and distributions through further acquisitions of quality logistic assets and portfolios in South Africa and the UK and our healthy development pipeline.
Our focus on strong property fundamentals and low gearing provides protection from the volatile economic climate and should enable Equites to continue delivering sector beating returns.”