Real estate investment trust (Reit) Equites Property Fund achieved a 31.1% year-on-year increase in distributable earnings for the six months ended August 31.

On a per-share basis, dividends increased by 9.3% to 74.43c, compared with 68.12c in the prior comparative period.

This growth, CEO Andrea Taverna-Turisan said during a presentation, held in Sandton, on Thursday, was largely driven by robust like-for-like rental growth of 7.3%.

Equites’ net asset value per share increased by 6% year-on-year to R17.37, with the compounded yearly growth since listing exceeding 10%.

According to Taverna-Turisan, Equites listed on the JSE six years ago, and since then, the average growth of the property portfolio was in excess of 55%.

He described the interim period as “successful”, as the company made significant progress in implementing its vision to be a globally relevant Reit that is focused on logistics assets.

During the period, Equites continued to focus on its development pipeline in South Africa and the UK and delivered logistics facilities to users in both jurisdictions.

Overall, the Equites fund grew by R3.4-billion over the period, equal to 33.7% year-on-year.

The financial results for the first half of the financial year are reflective of the robust health of the portfolio and the value added through developments and acquisitions, Taverna-Turisan commented.

Equites’ focus on high-quality logistics assets, let to A-grade tenants on long-dated leases in key logistics nodes has established the group as a market leader in this space in South Africa, he added, noting that it came with a notable exposure to the UK, which is considered to be one of the most advanced logistics markets in the world.

PORTFOLIO

Equites completed four developments during the period, adding R718-million of value to the fund. The company also commenced four new developments that will add a further R558-million of capital value to the portfolio.

Typically, the fair value of completed developments is between 15% and 18% higher than their cost. 

During the period, Equites delivered 12 assets with a capital value of R1.1-billion and Taverna-Turisan said the company views this as “an increasingly important source of portfolio growth going forward”.

“Equites’ competitive cost of capital allows the fund to develop at sector-beating yields and, since it does not extract any development profits during the process, tenants pay lower comparative starting rentals, which creates value for Equites over the life of the lease,” he explained.

In addition to its own development land and capabilities, the group recently joined forces with UK joint venture (JV) partner Newlands Property Developments to unlock strategic land tracts for development in that region.

Equites invested R455-million into strategic land holdings in the period, consisting of two acquisitions of land and also entered into options over three other land parcels as part of the JV.

BALANCE SHEET

Further, Taverna-Turisan said Equites continued to make strategic progress in respect of the structure of the balance sheet in the period.

Equites also successfully raised R750-million of equity capital through an oversubscribed bookbuild in the period, he added.

The Reit also established several diversified sources of debt funding both in the UK and in South Africa and currently has access to debt facilities of R5.2-billion across term facility agreements, unsecured listed and unlisted notes and working capital facilities.

Of these facilities, R1.4-billion were undrawn at the end of the period and are available to fund acquisitions and developments.

The loan-to-value ratio remained largely flat at 27%, being one of the lowest among South African Reits, according to Taverna-Turisan, who highlighted that Equites continues to benefit from the conservative financial profile employed in disciplined capital management.

The fund’s all-in effective cost of debt has fallen by 95 basis points to 5.76% since the last reporting period, mainly as a result of increased UK debt funding as a proportion of the total outstanding debt, but also owing to the 16 basis point and 19 basis point decreases in the cost of debt capital in South Africa and in the UK respectively.

“All these strategic initiatives have positioned the balance sheet for continued growth with ample headroom for acquisitions and the strong development pipeline, at a reduced cost of capital.”

PROSPECTS

Equites targets strong capital and income growth while minimising the risks that face the company, Taverna-Turisan said.

He added that the fund favoured long-dated leases with low-risk tenants, which is reflected in the fact that 94.3% of its revenue is derived from A-grade tenants. This, in conjunction with the long weighted average lease expiry of nine-and-a-half years, suggests a high level of income predictability and low risk of default on rental streams.

“Combined with strong in-force escalations in South Africa and guaranteed rental increases in most of the UK leases, this will result in predictable, above-market income growth for the foreseeable future,” Taverna-Turisan averred.

Equites said its board had previously guided distribution-per-share growth of between 8% and 10% for the full year.

Given that there are no leases expiring for the remainder of this financial year and currency and interest rate exposures are largely hedged, the board is now satisfied that the company will likely achieve growth in the upper half of this guidance.