Despite a challenging economic climate, JSE-listed real estate investment trust Equites Property Fund's portfolio continued to perform well during the six months ended August 31, which translated into an 11.7% year-on-year growth in distributions a share.
Distributions a share for the period amounted to 68.12c, which is at the upper end of guidance.
The growth in distributions a share was underpinned by like-for-like rental growth of 7.8%, mainly owing to the group's strong contractual lease escalations, while financial leverage contributed 0.8% as a result of comparatively low levels of gearing throughout the period.
Additionally, acquisitions and developments contributed 2.3% to distributions a share growth, predominantly through the deployment of equity and debt capital at net initial yields that exceeded the underlying weighted average cost of capital.
In June, the company raised R800-million of equity capital and the differential between the marginal cost of debt and the effective yield of the equity price achieved added 1.1% to the distribution growth a share.
During the reporting period, Equites raised its black economic empowerment scorecard accreditation to level four and is now 53% black-owned.
The company also completed the first of four UK developments in August, with a further 67 664 m2 of modern logistics properties currently in development in both South Africa and the UK.
Equites concluded an agreement to acquire two properties from Investec Group Holdings – a 37 834 m2 distribution centre let to Nestle South Africa in Longmeadow Business Estate, Gauteng, and a 26 857 m2 distribution centre let to Pick n Pay Retailers, situated in New Germany, KwaZulu-Natal.
The properties have a capital value of R648-million and represent well-located, high-quality modern logistics assets that meet Equites' strict investment criteria. The Nestle property transferred during August and the Pick n Pay property shortly after the end of the reporting period.
In August, Equites also announced the acquisition of a 40 426 m2 distribution centre from Investec Property Fund for R462-million.
The distribution centre is situated on a 101 769 m2 site in Germiston and is let to Simba on a ten-year lease, which commenced in November 2017. The transaction has now been finalised, pending Competition Commission approval, and transfer should occur within the next three months.
“We continue to see an increase in the demand for logistics assets, despite the headwinds facing the South African economy. Equites has started to see significant interest for new development leases, with retailers investigating options for large-scale distribution centres as part of their supply chain optimisation strategies.
“These development opportunities are essential to grow the scale of the portfolio and, to execute these, it is necessary for the group to hold strategic land holdings in proven or emerging logistics nodes,” noted Equites CEO Andrea Taverna-Turisan.
Meanwhile, current developments include a 12 609 m2 warehouse in Peterborough, UK, to be let to Coloplast on a ten-year lease, to be completed by April 2019, and a 4 024 m2 warehouse in West Sussex, in the UK, to be let to DPD Group on a 25-year lease, to be completed by March 2019.
Equites is also developing a 10 147 m2 warehouse for Federal Mogul, to be completed by May 2019, which will also serve as its head office, and is in talks to build a 7 000 m2 distribution centre for JSE-listed Famous Brands, in Cape Town.
The company continues to actively asset manage its portfolio and recycle capital. With its focus on large logistics properties, Equites concluded a transaction to sell four smaller, noncore assets to Texton Property Fund for R205.3-million. Transfer of this portfolio is expected to be completed before the end of the current financial year.
Equites also concluded an agreement to dispose of one of its commercial properties situated at 8 Melville Road, Illovo, for R60-million. The transfer of this property is expected to be completed during October.
Following this transaction, the group will only have one remaining office building in the portfolio valued at R50-million.
The R265.3-million that will be raised from these disposals has been earmarked to contribute to the group's development pipeline.
Taverna-Turisan expects the company to achieve the upper quartile of its distribution growth guidance of between 10% to 12% for the full financial year.