Equites Property Fund’s South Africa and UK logistics focused property portfolios were performing well, vacancy rates were at a record low, and there had been an uptick in property valuations in the interim period.
However, the dividend per share fell 19% to 65.37 cents in the six months to August 31, in line with market guidance, and distributable net income was down by the same percentage to R511.92 million.
These are the first results since Equites announced a revised strategy in May this year, due to the impact of unexpectedly high interest rates and constrained capital markets, on the business, particularly in the UK.
Like-for-like property income grew in the six months, but the dividend fell in line with guidance due to cross currency swaps and a 20% loss in the valuation of the UK properties in the prior period, CEO Andrea Taverna-Turisan said in an interview yesterday.
“Despite the challenges posed by a capital-constrained and higher interest rate environment, management remains confident in its ability to drive sustainable value creation for shareholders over time, driven by an impeccable property portfolio and structural tailwinds in the sector,” the directors said in the results.
Portfolio optimisation through selling non-core assets, reinvesting the proceeds into distribution centres tenanted by blue chip tenants, less exposure to land holdings, efficient balance sheet management, and disposal of the UK development pipeline remained top short term priorities..
The adjusted loan-to-vale ratio was broadly unchanged at 38.1%, but Taverna-Turisan said they were targeting 35% by year-end, even though the timing to reach this may vary a month or two given, depending on circumstances.
Of a R6.3 billion property disposal programme, property worth R2.4bn still had to be concluded. By the end of the six months, the property portfolio value increased by 4.8% to R28.2 billion. Gross lettable area grew 5.8% to 1.45 million square metres.
“We are pleased with the strong momentum generated in our portfolio optimisation drive. We divested R1.9bn of non-core assets and reinvested into world-class logistics campuses and state-of-the-art distribution centres,” he said.
He said a notable example of value created was the disposal post-period end of a Tesco tenanted property in Hinckley at a 16.2% premium to book value, releasing R710m in equity, which, he said, also indicated that past valuations of UK properties may have been a bit harsh.
The group expected to report a distribution per share of between 130 and 140 cents per share.for the year, below the previous year’s 169.60 cents per share.
The national vacancy rate for A-grade warehousing space in South Africa was below 1%, and demand continued to be strong.
Market rentals have increased by more than 23% from R65 per square metre in 2020 to at least R80 square metre in 2023.
He said Equites’ portfolio was fully let, with the only remaining vacancy in the UK subsequently let in September 2023 on a five-year lease.
“These fundamentals all support a high degree of income certainty over a sustained period,” said Taverna-Turisan.
Equites had reduced its land holdings from 8% of the portfolio at year-end to 5%.
The pipeline of developments and acquisitions in South Africa stood at R2.5bn. The investment opportunities were focused on pre-let development agreements in South Africa, with no substantial development spend anticipated in the UK.
The R591m TFG Witfontein development was completed in August 2023. Equites also completed two speculative developments of 26 000 square metres, which attracted new tenants such as Emirates Logistics and Ricoh.
RLF, a subsidiary, was progressing well with the development of two logistics campuses located in Canelands, KwaZulu-Natal and Wells Estate, Eastern Cape, which would both be let to Shoprite. Equites was also progressing with a campus for Shoprite in Witfontein, Gauteng.
A second facility for Cargo Compass SA was being built with a capital value of R142m, and a development for Normet Group with a capital value of R82m in Jet Park.