Equites Property Fund, SA’s only specialist logistics real estate investment trust (Reit), continues to grow its SA and UK portfolios to meet the rising demand for logistics and warehousing facilities.
The company listed on the JSE in June 2014 with a portfolio valued at R1bn. At the end of August 2022 its portfolio was valued at R26.3bn supported by acquisitions, developments and rising property valuations. In the next five years the company is seeking to grow its assets to R50bn.
Its tenants are multinationals who are prepared to sign leases for 10, 15 and 20 years and who, given their commercial might, tend to meet rental payments on time.
Equites entered the UK logistics sector in 2016 to grow the fund and diversify against investment risk. In 2020, the company partnered with UK property investor Newlands Property Development to build scale in the high end of the logistics sector. At the last valuation, the UK portfolio was worth £450m.
Factors such as online growth and supply-chain optimisation, which drive demand for logistics and warehousing facilities, continue to support Equites’ growth ambition.
Demand will see Equites develop new logistics parks and revamp existing assets of more than 380,000m2 with a development cost of R3.21bn in SA during the 2023/24 financial year. The capital value of the finished projects is estimated at R4.2bn for the period.
In the UK, the company has 10 development sites measuring about 526ha with a gross development value of £2.4bn over the long term.
Business Day sat down with CEO Andrea Taverna-Turisan to unpack the business, and the growing logistics sector.
How have the last five years been for Equites?
If we exclude March and April of 2020 when the pandemic hit, and the meltdown of capital markets in 2022, it has been business as usual for Equites. We came to the market at the right time, in a growth sector, and with the right value proposition, and this has paid off. The decision to enter the UK market was well timed, enabling us to capture some of the momentum and grow the fund as SA had limited growth opportunities at the time.
What is it that many people don’t know about Equites?
We are our biggest critics, always striving to do better with each building we develop, our prudent capital allocation and the way we manage our portfolio — we’ve set ourselves very high standards. We have a diverse team of young people whose voices and opinions matter. About two years ago, the SA Reit Association conducted a survey and asked us to tell them something quirky about the fund and we settled on our age [as a fund] — at the time, the average age of our employees was 33.4 years. The property sector is predominantly male and white, but we pride ourselves in that we have 50-50 female and male, 60-40 black and white, and that is a highly relevant metric for an SA company.
Talk about the R3.9bn disposal programme.
Selling of noncore assets has always been part of our strategy. In March we commenced with the three-phase disposal programme which includes core assets, and completion of the process is scheduled for June 2024. The disposal programme is aimed at strengthening our balance sheet and funding the development pipeline.
Are you going to issue any shares this year?
Not at this price — we cannot afford a capital raise at discount to net asset value. On February 24 2022, we completed a R1bn capital raise at R20.85 per share — but the days of cheap capital are long gone.
Selling of noncore assets and bringing minority equity partners [at asset and not JSE level] are other ways to raise capital in the current environment.
Shoprite gives you leverage to access capital?
The 20-year triple net leases with Shoprite are a strong covenant in debt capital markets especially now when markets are tough for most property companies. We are developing over 600,000m2 of distribution capacity, which will more than double the size of Shoprite’s warehousing capability. The deal enables Shoprite to optimise its supply chain and meet warehousing capacity from new stores, and Equites will grow its SA portfolio, positioning the group as the logistics developer of choice.
Are you still confident about your UK investment?
Though doing business is tough given high inflation and interest rates, as well as energy prices, we think stability will eventually return to the market. The UK attracts large amounts of foreign capital and we believe the logistics sector is massively underserviced and so we see numerous growth opportunities in the logistics sector for the next 10 years. Zoned land will remain a challenge and this will continue to drive demand for logistics and warehousing facilities as supply is limited.
What is the outlook for Equites?
We’ve grown the fund successfully since listing and the company is in good shape and poised for further growth. The group’s 13.9 years weighted average lease expiry will peak in 2025, and SA, currently at 13.3 years, will increase to more than 14 years as we focus on building resilience, particularly with Shoprite.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.