Equites Property Fund has announced its results for the six months to 31 August 2024, highlighting Dividends Per Share (DPS) of 66.50 cents, well in line with its market guidance.


Equites said that both the South African and the United Kingdom property portfolios are performing well, driven by strong like-for-like net property income growth, record-low vacancies, and improved property valuations.

This is further supported by refinanced debt at significantly tighter spreads and a pleasing 65% uptake of the group’s Dividend Reinvestment Plan (Drip). The group targets a full-year distribution at the upper end of its guidance of 130 to 135 cents per share for FY25.

Equites’ portfolio fundamentals are exceedingly robust. The R28.3bn portfolio is fully let with a Weighted Average Lease Expiry (Wale) of 13.2 years, 99% of rental income derived from A-grade tenants and robust escalation clauses. These fundamentals support high-income certainty over a sustained period, bolstering property valuations.

Equites chief executive officer, Andrea Taverna-Turisan said: “The group continued with its successful recycling of capital out of older, non-core assets into new developments on existing land holdings, disposing of a further R0.6bn of properties.

Together with the Drip programme, this has enabled R0.9bn investment in developing state-of-the-art prime logistics properties on existing land holdings. These developments will further reinforce the quality and durability of the portfolio.”

Equites’ development pipeline

Equites completed a development at Jet Park in March 2024, let to the Spar group and a R0.2bn extension of the Centurion facility under an existing lease, which expires in 2044.

Equites also completed the construction of a groundbreaking campus for Shoprite in Riverfields, Gauteng. The total capital value of the property is R1.4bn and it is let to Shoprite on a 20-year lease.

Equites further completed speculative developments with a total GLA of 15,000m², which were let to a single tenant before practical completion. The group has a development pipeline in South Africa of R1.3bn (capital value) across more than 100,000m² of prime logistics space. The pipeline is aimed at high-quality, ESG-compliant products to serve the top end of the market.

Disposals

Equites continued with its successful disposal programme. In addition to disposing of R0.6 bn of properties in the period, the group expects to dispose of R2.4bn of assets before year-end.

One of the most defining actions of the period was the transaction to exit from the ENGL development platform. This exit marked a change in strategy, which Equites embarked on 12 months ago, necessitated by a change in global macroeconomic conditions. The sale includes a portion of its assets in the platform for £10m.

The remaining sites are excluded from the transaction until these schemes are unlocked through forward-funded developments or outright sales. This will allow Equites to redeploy proceeds to higher-yielding opportunities and not allocate further capital to the schemes included in the disposal.

Debt and funding

The group has R14.5bn in debt facilities with a weighted average debt maturity profile of 3.5 years and R2.2bn in cash and undrawn facilities.

At period end, the group had hedged 86% of debt maturing after one year. The Loan-to-Value (LTV) ratio at 31 August 2024 was 41%, which Equites estimates to reduce to 38% by year-end upon completion of the identified disposals.

The interest coverage ratio increased to 2.4 times in the period, driven by the significant quantum of developments over the preceding 18 months, which is now becoming income-producing, a trend that the group anticipates will continue strongly going forward with the completion of current developments.

The group continues to receive strong support from lending institutions and debt capital markets in South Africa. Equites raised further seven-year funding through the private placement of R400m at 3mJ+153bp and auctioned a R500m, five-year note in July at 3mJ+135bp.

The group has an unencumbered asset ratio of 53.8%, an increase in the proportion of unsecured debt, indicative of the confidence in the strength of the balance sheet of the group. The cost of debt continues to decrease due to tightening credit spreads and effective hedging.

GCR Ratings affirmed the national scale long- and short-term issuer ratings of Equites Property Fund at AA-(ZA) and A1+(ZA), respectively, in June 2024 with a stable outlook.

Sustainable development

The group prioritises natural resource management as a key pillar of its sustainability strategy. The Equites strategy on solar PV is designed to provide occupiers with a comprehensive, maintenance-free solution through a Power Purchase Agreement (PPA). Total installed solar capacity grew to 23.5MW, while the number of buildings with solar PV increased to 32.

Renewable energy as a percentage of total grid energy consumed increased to 18.6%, with 47% of the SA portfolio now equipped with solar. Within the next 18 to 36 months, the installed solar capacity is planned to increase to 29MW.

The group’s extensive roof spaces in key nodes are well-positioned to benefit from the transformation of the South African energy landscape and will continue to expand its revenue generation from this offering in partnership with key industry stakeholders.

Water security in the portfolio is being managed by introducing wastewater treatment plants to minimise the group’s water footprint, thereby reducing reliance on municipal infrastructure. Equites proudly achieved its landmark-first Edge net-zero carbon certification during this period.

Prospects

Globally, the rate-cutting cycle has commenced, and monetary easing is expected to create strong tailwinds for the property sector. The top end of the South African logistics sector remains robust, with vacancy rates of less than 1%, the lowest since 2007.

Demand shows no signs of abating, with retailers focusing more on the supply chain, increased consumer demands, and the rise of e-commerce in the country. Equites remains optimistic about its prospects and the ability to deliver high-quality product to capture the growing demand.

In the United Kingdom, take-up of industrial and logistics space has risen by 44% year-on-year as market sentiment has improved. While vacancies have increased to 6.95% due to a 14% rise in supply, Savills expects the nationwide vacancy rate to trend downwards into 2025 due to strong demand for existing units.

The Board expects the group to achieve full-year DPS at the upper end of its previously guided range of 130 and 135 cents per share.

Taverna-Turisan ended: “Equites remains confident that inexorable structural drivers will support strong, long-term demand for high-quality logistics assets.

"Our impeccable portfolio and track record of developing world-class facilities will continue to attract blue-chip clients and support sustainable value creation for shareholders over time.”

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