EQUITES Property Fund had no defaults among the tenants of its logistics properties in the year to February 28, despite the devastating effects of Covid-19 lockdowns on the commercial property markets in the UK and South Africa.
Equites chief executive Andrea Taverna-Turisan said yesterday in an interview the fact there were no rent defaults, and assistance was provided to tenants that occupied only a fraction of the gross letting area, indicated the defensiveness of the portfolio and the resilience of the company’s mainly blue-chip clients.
The only vacancy related to a single logistics unit in the UK and the portfolio vacancy rate was 0.1 percent.
The average collection rate over the past year was 99.3 percent in South Africa and 100 percent in the UK.
The company did not expect further rental deferrals.
Equites lifted its annual distribution a share by 2.4 percent to 155 cents, in line with market guidance, after strong 6.7 percent like-for-like rental income growth in South Africa.
Taverna-Turisan expected that Equites would achieve distribution growth per share of 5 to 6 percent in the next financial year.
Positive net asset value per share growth was also targeted, supported by the development pipeline within the Newlands joint venture (JV) in the UK, and a total return “north of 10 percent” was expected for 2022, he said.
He said the past year had been one of the most challenging, and some of the ongoing challenges in South Africa were its weak economy, rising taxes and rates, municipalities not operating optimally, and power cuts that affected tenants, even though Equites was installing generators and solar panels at all its new developments.
He said the fair value of the portfolio increased 32 percent to R19.7 billion at February 28.
The largest transaction in the year was the joint venture with Shoprite Checkers for the acquisition of a 50.1 percent equity stake in three distribution centres, with an initial portfolio value of R3.2bn.
These were let to Shoprite on 20-year leases and an annual rental escalation rate of 5 percent.
Equites invested R2.2bn in development pipelines in South Africa and the UK. Four logistics developments were completed in South Africa with a value of R887 million, with another two completed in April with a combined value of R361m.
In the UK, Equites developed a £12m (about R240m) pre-let building in Leeds, let to DHL on a 15-year lease. Two UK properties were disposed of at a 5.8 percent premium to book value.
The sale proceeds would be reinvested into the development of prime distribution warehouses by the Equites/Newlands JV, with the new world-class logistics facilities let on 20- and 15-year leases to Hermes and Amazon, respectively.
Equites focuses its investment in locations with strong potential for capital and rental growth and which serve as nodes, because of their proximity to road networks, densely populated areas, and accessibility to a large labour force.
He said the decision to partner with Newlands Property Developments afforded Equites an opportunity to build scale in the premium sector of the UK logistics market at a discount to open market values.
Equites estimated the potential pipeline of opportunities through the Newlands partnership to be more than £800m over five years.
Due to the size of the potential pipeline, Equites was exploring sources of funding to capitalise on the pipeline of development opportunities in the UK.
New development opportunities would be focused on large-scale distribution facilities in the UK, which would be let to multinational tenants.
“As there are significantly more development opportunities in the UK compared to South Africa, especially in terms of the opportunity to unlock value, Equites expects the UK portfolio to outgrow the South African portfolio in the medium to long term,” the group said in its results.
Equites shares closed 5.92 percent lower at R19.23 on the JSE yesterday.
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