JSE-listed Equites Property Fund recorded growth of 11.8% in its per-share distribution for the year ended February 28, to 138.43c, along with robust growth in the net asset value (NAV) a share of 10.2% to R16.92.
Speaking at a results presentation in Johannesburg on Thursday, Equites COO Riaan Gous acclaimed the results, with the company “proud” of its growth over the past five years.
The company highlighted that the year had been one of outperformance, with considerable progress achieved in operational, financial and strategic spheres.
The distribution growth was largely underpinned by strong like-for-like rental growth, acquisitions and developments in South Africa and the UK and a reduction in the overall cost of debt.
For the period, the company’s distributable earnings were up 37.2%; and loan-to-value reduced to 26.9% at year-end, 94.5% hedged.
The company’s UK exposure now constitutes 32.7% of its portfolio, with ten new acquisitions and developments at 5.4% yield.
During the period, cost of funding reduced from 8.0% to 6.7%.
During the year, the structure of the balance sheet was an area of considerable strategic progress, Equites highlighted, noting that it had further diversified its sources of borrowing.
The company obtained robust first-time issuer national scale credit ratings. There was also the successful issue of R300-million commercial paper under a new R2-billion domestic medium-term note programme. R1.5-billion in new equity was raised through two over-subscribed accelerated bookbuilds.
These strategic initiatives, together with undrawn facilities of R0.9-billion and unencumbered assets comprising 18.5% of the total portfolio, have positioned the balance sheet for continued growth with head room for acquisitions and a strong development pipeline, at a reduced cost of capital.
During the period, the company’s portfolio value increased by 47.6% to R12.0-billion.
Total gross lettable area (GLA) of the portfolio increased by 45.0% to 643 965m², with a further 105 235m² under development.
Vacancies increased from 2.0% of GLA in 2018, to 3.9% at 2019 year-end, owing to completion of speculative developments. The current vacancy rate has been reduced to 0.9%.
The weighted average lease expiry (WALE) increased from 7.9 years to 8.8 years.
During the period under review, the group’s portfolio has evolved owing to a range of acquisitions, developments and disposals. These include the acquisitions of three completed prime logistics properties with a capital value of R1.1-billion and a WALE of 8.5 years; and seven completed developments in the period, five in South Africa and two in the UK.
Moreover, the group began a new speculative development in Bellville, Cape Town for a 6 003 m² warehouse with an anticipated capital value on completion of R55-million, as well as two new tenant developments; one at Equites Park-Lord’s View with a GLA of 23 280 m² and the other at Equites Park-Meadowview, with a GLA of 25 000 m².
Further, the group has started seeing interest for new development leases for large-scale warehouses as part of corporates’ supply chain optimisation strategies. Owing to this demand, it has acquired a further 66 ha of land in key logistics nodes, bringing its total holding to 101 ha of land available at various stages of zoning and infrastructure development. The group is currently pursuing several opportunities for distribution centres on these parcels of land.
In addition to its own development land and capabilities, Equites has also recently joined forces with UK joint venture partner Newlands Property Developments to further unlock strategic land tracts for development in that region.
The group disposed of one of its commercial properties situated in Illovo, Gauteng for R60-million.
For the next financial year, Equites said that it expected distribution growth of 8% to 10%, taking cognisance of currency fluctuations and other commercial risks.
During the results presentation, Equites CFO Bram Goossens indicated this this figure could potentially increase, as the company was currently negotiating a higher rental with its tenant Tesco.
The company mentioned that owing to global e-commerce growth and trends, there was a demand for high-quality logistical assets, with investors and property owners re-weighting their portfolios toward these.
Equites indicated that in South Africa, prolonged tough business conditions had necessitated innovation from South African retailers, with a focus on supply chains and e-commerce to maintain margins. In the UK, the growth in online sales had been rapid and was approaching 20% of total retail.
Therefore, the property firm posited that well-located, efficient distribution centres would be vital to maintaining and growing market share in this segment, and that Equites was well-placed to capitalise on this pent-up demand from occupiers in both these regional nodes.