Equites said that both the SA and the UK property portfolios are performing in line with expectations, driven by robust like-for-like net property income growth, zero vacancy, and an uptick in property valuations.
The SA portfolio increased by 4.2%, and the UK portfolio by 2.1% in GBP terms, both on a like-for-like basis. Net asset value per share grew by 3.0% to R17.14 over the last twelve months. Total GLA under management increased to 1.45 million square metres at year-end.
Equites CEO, Andrea Taverna-Turisan said: “We are pleased with the strong progress this year in building Equites’ resilience. We divested R4.8 billion of older, non-core assets and improved the portfolio by reinvesting into state-of-the-art, ESG compliant logistics campuses and distribution centres, tenanted by blue-chip companies on long-term leases. The portfolio is fully let with a WALE of 12.6 years, demonstrating the quality and durability of the assets. Equites also continues to receive strong support in the debt capital markets, as evidenced by the very positive outcome of the debt auctions and private placements during the financial year”.
Operational performance
South African portfolio
Like-for-like rental growth in South Africa in FY24 was 6.4%. The WALE remained stable at 13 years, and the weighted average escalation by GLA saw a slight reduction to 6.2% from 6.5%. This was due to the inclusion of two more Shoprite assets with lease escalations of 5% on 20-year lease terms.
The Group predicts that the national vacancy rate for high-quality, environmentally sustainable warehousing space in South Africa will remain below 1.0%. This is due to the continued demand for quality warehousing space in key logistics nodes, combined with the scarcity of appropriately zoned and serviced land.
The low vacancy rate and construction cost inflation have led to an increase in market rentals, with Equites’ base rentals on generic warehouses now starting at R85/sqm. This represents a 31% increase from base rentals of R60/sqm for comparable warehouses in 2020 (CAGR of 9%).
UK portfolio
The UK portfolio has shown a like-for-like rental growth uplift of 5.0% (in GBP terms), as a result of a single rent review concluded during the period. The UK WALE has reduced to 10.6 years from 15.8 years due to the sale of assets with 25-year leases.
The logistics property market in the UK has seen an increase in take-up rates that are even higher than those before the COVID-19 pandemic. The lack of available new space has led to a consistent rise in rental prices. Equites’ UK portfolio remains under-rented.
The Group has recently agreed to a 39% increase in rental at the GXO property located in Coventry, resulting in a 13% valuation uplift of the property. In addition, a rent review was conducted at the DPD site in Burgess Hill in March 2024, which led to a 68% increase in annual rentals.
These rental uplifts, along with the expected yield compression, are anticipated to unlock value over the medium term.
Streamlining and optimisation of the portfolio
The Group disposed of South African assets to the value of R1.2 billion, at a 0.1% discount to its last external valuation, underpinning the soundness of the valuations. The proceeds were utilised to repay debt and fund development activities. A further R0.4 billion of SA assets have been classified as held for-sale at year-end, with transfers expected to occur during FY25. UK property disposals amounted to R3.0 billion, including the first of two payments relating to the Newport Pagnell forward-funding transaction.
The Group concluded the sale of Newport Pagnell in January 2024 for £59.8 million, of which £30.8 million was received in January 2024 with the balance expected to be received in October 2025 on completion of the development. The Group has a further R1.8 billion of UK assets held for sale.
During FY24, Equites initiated the sale process for the ENGL development platform in the UK. Equites continues to engage with Newlands and potential acquirers.
Recently completed developments
Equites completed a new regional hub for TFG at Equites Park Riverfields at an all-in cost of R591 million. An external valuation of R600 million is reflective of the positive total return generated by new A-grade developments. The Group further completed two pre-let developments at Equites Park Jet Park with a total GLA of 14 784m² and a capital value of R197 million. These facilities are both let to A-grade tenants with leases expiring in 2028 and 2032, respectively.
Equites completed two speculative developments with a total GLA of 26 005m², with both let within the vacancy provision period. To further capitalise on demand, the Group commenced construction on three new speculative developments at Meadowview with a combined GLA of c.20 000m², expected to reach practical completion in Q4 2024. Through RLF, the Group acquired and completed an R185 million extension of the Shoprite Canelands facility in KwaZulu-Natal on a lease which is coterminous with the existing Shoprite Canelands’ lease that expires in 2043.
Equites’ development pipeline
Equites’ share of the total pipeline of development and acquisition opportunities in South Africa amounts to R2.5 billion across 177 000m² of prime logistics space.
The R0.6 billion of capital expenditure outstanding at the reporting date will be disbursed over the next 12-month period and will be funded from cash on hand, undrawn debt facilities, debt raised against completed developments, and equity that will be released from property disposals. Given the process currently underway for the ENGL platform, the Group is still committed to funding any expenditure on progressing planning on current land parcels.
Strong balance sheet
The Group spent R3.2 billion on new developments, funded through the successful asset disposal programme during the year which culminated in a Group LTV ratio at year-end of 39.6% (FY23: 39.7%). Equites was successful in increasing debt maturity to 3.7 years and reducing the all-in cost of debt from August 2023. 83% of all long-dated debt maturing after FY25 is hedged, with an overall 33% sensitivity to interest rate changes. All CCIRS were terminated this year and the net interest income received of R95 million was not included in distributable income due to the non-recurring nature.
The termination of CCIRS benefits shareholders, as this allows investors to participate in Rand weakness through improved growth in NAV per share over time. The Group also focused on rebalancing the offshore LTV and streamlining the UK portfolio.
The UK LTV at year-end was 45.8%. Equites held several successful listed debt auctions during the financial year, with debt raised in November 2023 clearing at the lowest levels for 1-, 3- and 5-year debt to date. In February 2024, the Group raised its first 7-year listed debt at 3-month JIBAR plus 153 bps, a clear indication of investors’ belief in the strength of Equites’ balance sheet and their positive outlook for the Group.
Sustainable development and alternative revenue streams
Sound environmental stewardship is a crucial aspect of the Group's strategic positioning and continues to be core to its operations and tenant proposition.
The Group has achieved its target of certifying R500 million of existing buildings with EDGE Advanced certification by 2024. The Group continued with the expansion of its solar PV roll-out to meet the demand for greener sources of energy and to mitigate against the impacts of load shedding.
Equites grew its total installed solar capacity to 20.2MW from 9.4MW in FY23, while the number of buildings with solar PV increased from 19 to 29. Almost 50% of the portfolio is now supplied with solar energy. The opportunities presented by the global shift to renewable energy have the potential to unlock significant value for the business.
The Group’s first energy wheeling agreement was concluded in the Western Cape, and this project is expected to commence revenue generation in FY25.
Outlook
The Board expects the distribution per share to remain relatively in line with FY24, within a target range of 130 cps and 135 cps.
Equites CEO, Andrea Taverna-Turisan ended: “Our track record of developing world-class facilities for our clients continues to unlock opportunities for the fund to grow. The R2.3 billion in cash and available facilities at year-end places the Group in a favourable position to take advantage of performance-enhancing development opportunities in the coming year.
The Group remains confident in its ability to drive sustainable value creation for shareholders over time”.
