EQUITES, the logistics-focused real estate investment trust on the JSE, lifted its distribution per share by 5.3 percent to 78.38 cents in the six months to August as it continues to ride a wave of global change in trade that is causing unprecedented demand for additional “big box” warehouse and distribution centres.
The balance sheet was also strengthened by loan-to-value falling to 28.6 percent from 31.2 percent. Net asset value (NAV) per share increased 2.2 percent to R17.63. Both NAV and distribution per share exceeded 2019 levels.
Chief executive Andrea Taverna-Turisan said in a telephone interview that they were also “very optimistic” about the outlook for the second half, and there were developments and acquisitions in the pipeline in South Africa and the UK.
Some non-core assets were being held for sale, and because UK logistics property prices were “unbelievably aggressive”, some UK assets might be sold, with the funds to be recycled on developments with joint venture partner Newlands Property Developments, a development team in the UK.
Equites’ like-for-like (LfL) portfolio valuation in the UK increased by 5.1 percent in pound sterling during the six months, while LfL property valuations in South Africa were flat.
Net property income grew 7.5 percent in South Africa - 96 percent of the portfolio is in logistics. Average rental collection rates were 99.6 percent and 100 percent in SA and the UK, respectively. The vacancy rate was 1 percent.
Taverna-Turisan said global developments, such as Brexit, uncertainty in China, the development by Amazon of distribution centres around the world and changing e-commerce trends, were causing a rethink in just-in-time based and sustainable stock holdings, and putting higher stock levels at warehouse and distribution centre level, closer to where consumers were.
He did not expect this wave of global growth to end in the short term.
The fair value of the investment property portfolio increased by 9.4 percent from February 28, 2021 to R21.1 billion at August 31.
Some 97 percent of revenue was from A-grade tenants. Taverna-Turisan said it had become apparent through their dealings with clients that international investor perceptions about South Africa had been damaged through the July civil unrest.
“Supply chain optimisation, the growth in e-commerce and consumer requirements for faster fulfilment continue to drive strong occupier demand for warehousing space. While the UK portfolio has been steadily increasing, the group is still an SA-focused Reit and continues to focus on growing the domestic portfolio through acquisitions and developments,” he said.
Equites invested R1.2bn in its UK and SA development pipelines during the period.
The civil unrest in South Africa in July 2021 impacted only one property in the portfolio, with damages estimated to be less than R1 million, which was fully recoverable under Sasria insurance.
The 2.2 percent increase in the NAV per share was driven by progress on two major UK developments, Hermes and Amazon, which resulted in a R348m uplift in value, along with the completion of pre-let developments in South Africa.
In the UK, property valuations had reached an all-time high, driven by structural changes in the logistics space, resulting in strong demand for this asset class.
Higher property values were also being supported by strong rental growth in all key logistics nodes in the UK.
The occupier market in the UK logistics market has reached record levels, with the take-up of warehousing space now 50 percent higher than pre-Covid-19 levels and the national vacancy rate decreasing to 4.4 percent.
Equites’ first development in the Newlands venture reached practical completion on September 15. The development is a world-class last-mile distribution facility in Peterborough, with a total development cost of £35m (about R715m).
The development for Hermes on Hoyland Plot 1 was on track to be completed in February 2022. The total development cost was estimated to be £72m (R1.4bn) and Hermes had signed a 20-year triple-net, fully repairing and insuring lease.
Equites Newlands Group (“ENGL”) entered into agreements for the development of two DCs for Promontoria on Hoyland Plot 2, with a total funding commitment to Equites of approximately £24m (about R490m).
The group estimated the pipeline of development opportunities within the joint venture to exceed £800m (R16bn) over the next three to five years, which would provide Equites with an opportunity to build scale in the top-end of the UK logistics market.
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