JSE-listed real estate investment trust Equites Property Fund says its subsidiary Equites Newlands Group (ENGL) has sold the 16.19 ha Equites Park, in Basingstoke, in the UK, to fresh produce retailer Lidl Great Britain for R1.55-billion.

The expected post-tax profit attributable to Equites from the transaction is £20.8-million, or R400-million, which will contribute significantly to growth in net asset value (NAV) a share in the current financial year (2023), the company says.

In terms of the additional infrastructure works agreement, ENGL has been appointed by Lidl to implement certain infrastructure, landscaping and other works on the property at a cost of £38-million, or R729.6-million. It is expected that all the conditions for the transaction will be met by the third quarter of 2022.

The total net site area is 16.19 ha of undeveloped land. Following the implementation of the infrastructure and associated works, Lidl will be developing a modern distribution warehouse, which it will own and form an integral part of its supply chain network in the UK, Equites says.

“Equites’ offshore strategy is to build scale in the top-end of the UK logistics market through its partnership with Newlands Property Developments, which affords Equites the opportunity to unlock world-class distribution facilities in the UK at a discount to open market values.

“The potential pipeline of development opportunities is estimated to be about £1-billion, or R19.2-billion, over the next five years, on a cost basis. To implement and fund this strategy, Equites will, from time to time, undertake turnkey developments for third parties and/or land disposals,” the company says.

A key reason for the transaction is that it serves as a source of capital. Equites is currently exploring various alternatives to fund its attractive pipeline of development opportunities in the UK.

Equites will not distribute capital profits on turnkey developments and/or land disposals, but will use the proceeds as part of the equity required for new projects, the Reit adds.

From a tax perspective, the profits are deemed to be capital in nature and nondistribution thereof will not result in any tax leakage in South Africa.

“Crystallising development profits will unlock a portion of ENGL’s value creation on a cash basis,” Equites explains.

The transaction will also contribute to NAV growth, and Lidl is a strong counterparty to the transaction, having been founded in Germany in 1973 and having grown to become one of Europe's leading food retailers. Lidl has more than 900 stores and 13 regional distribution centres across Britain, employing more than 22 000 people.

“The transaction affords Equites the opportunity to crystallise development profits and generate capital internally for further opportunities in the attractive pipeline of development opportunities within ENGL,” the company says.