Invested in a thriving asset class

Andrea Taverna-Turisan is the CEO of Equites. (Picture: Supplied)
Andrea Taverna-Turisan is the CEO of Equites. (Picture: Supplied)

A listed property company upping its distribution guidance is a rare event nowadays. Yet Equites Property Fund has done just that announcing a 12.02% increase in distributions, to 60.98c per share, for its half-year to 31 August 2017.

The company expects to meet – or slightly exceed – the top end of its previous guidance of 10% to 12% distribution growth for the full 2018 financial year.

Equites, a specialist logistics real estate investment trust (REIT) which is also included in the SPY20 index, owns a R6.8bn portfolio of logistic assets located in Gauteng, Cape Town and the UK. It remains the only pure play logistics fund on the JSE. More than 97% of the fund’s total revenue is now derived from high quality industrial and logistics assets.

The logistics and industrial asset class is thriving due to a rise in e-commerce. In tandem with a rising demand comes a limited supply of warehousing space.

“For e-tailing you need three times the amount of warehousing space than a normal retail outlet,” Equites CEO, Andrea Taverna-Turisan tells finweek.  

In the UK, e-sales constitute 16.2% of total retail sales, and that figure will haver risen to 23% by 2020, he says. SA remains Equites’ focus, but the first-tier UK market is the company’s hedge.

Post the company’s £41m Kuehne + Nagel Ltd UK transaction (due for completion by the end of November) the offshore percentage, currently 15.6%, will rise to around 23% to 24%, says Taverna-Turisan.

The portfolio value is also set to grow. “With the Kuehne + Nagel transaction and others, as well as development uplifts, I am fairly confident we will be comfortably above R8bn at year-end,” he adds.

Vacancies are often a telling tale of a sector under pressure, yet Equites currently boasts 0% vacancies and a weighted average lease expiry in excess of seven years. More than 91% of the company’s income is derived from A-grade tenants.

Additional factors have buoyed the fund’s performance. Operational costs are low, a function of the asset class and in-house knowledge. It’s a modest 2.4% in comparison to the next best in the sector at around 7.5%.

Even the construction industry’s woes are counting in its favour. “We are getting better prices today on our builds than we did three years ago,” says Taverna-Turisan.

In ‘purifying’ its portfolio, only two office properties remain, after three were sold during the period.

An accelerated book build raised R1.015bn and reduced the company’s loan-to-value (LTV) to 19.8%. Following the R1.3bn development pipeline (to June 2018), LTV is expected to be just shy of 30%.

The company is now sitting on R1bn in cash, with an extra R1.4bn access facility. Fair value of investment property increased by 8.58% to R6.8bn during the period, net asset value per share (NAV) increased by 7.4% to R15.22, and escalations averaging 7.95% were achieved on the SA portfolio.

“Equites’ developments, 100% occupancy, high quality assets and long leases make for a very stable portfolio,” says analyst Wessel Badenhorst of 36ONE. “The share is quite expensive but then it is difficult to find a property company that is upping their guidance. Most other companies are cutting theirs.”

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