Equites grew distributable earnings by 9.4% before Covid-19 hit locally

5th May 2020

By: Marleny Arnoldi

Deputy Editor Online

     

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JSE-listed real estate investment trust (Reit) Equites Property Fund in the year ended February 29 increased its distributions a share by 9.4% year-on-year to 151.39c apiece.

The company attributes the growth mainly to a healthy 6.9% growth in like-for-like net rental income in the year under review, which is a product of the longevity of the company’s weighted average lease expiry period of 10.2 years.

CEO Andrea Taverna-Turisan says the company’s financial leverage also contributed to the increase in distributable earnings, as the company maintained a low loan-to-value ratio of 26.1%.

In the year under review, Equites increased its net asset value a share by 3.7% year-on-year to R17.55 and generated R202-million in cash from its operations – which was an almost 30% year-on-year increase in cash generation.

Taverna-Turisan points out that the 2020 financial year was a successful one for the company, with it having made significant progress in implementing its vision to be a globally relevant Reit, focused exclusively on high-quality logistics assets.

“Equites has established itself as a market leader in the logistics property space in South Africa and the UK, with a portfolio of premium logistics properties which has grown from R1-billion at listing in 2014, to R15-billion at the end of the year under review.

“The Equites portfolio continues to present a compelling investment case and generate strong shareholder returns, with a compounded annual growth rate in Equites’ share price and market capitalisation exceeding 10% and 48%, respectively,” he adds.

Equites increased its property portfolio value by R2.9-billion to R14.9-billion during the financial year, while also increasing its weighted average lease expiry period and the credit quality of the portfolio.

The weighted average lease expiry period increased to 10.2 years at the end of the reporting year, compared with 8.8 years as at the end of February 28, 2019.

In the year under review, Equites completed seven developments valued at R1.3-billion and started development of six new logistics facilities valued at R1.1-billion, spread between South Africa and the UK.

“Our financial performance over the past 12 months is testament to a strong tenant base, a sound investment philosophy and prudent financial risk management policies,” notes Taverna-Turisan.

While the company’s UK portfolio continues to grow, the South African portfolio still contributed 74.5% of revenue in the reporting year.

Vacancies for the year under review were 3.4% by gross lettable area; however, this decreased to 2.2% shortly after year-end.

The company is confident that its robust balance sheet, decent loan-to-value ratio, interest rate hedging levels and undrawn facilities of R1.4-billion provide the necessary flexibility for Equites to pursue growth opportunities.

Meanwhile, the company advised that its rental collections in South Africa and the UK in the year under review had been minimally impacted on by Covid-19.

Since year-end, Equites has engaged with its South African tenants and granted a three-month cash flow relief to tenants, representing 3.7% of total contractual rental, and a six-month cash flow relief to a further 1.1% of tenants.

More than 80% of Equites’ tenants have remained operational and more tenants should be able to resume operations as lockdown restrictions are relaxed.

These types of relief have not been necessary in the UK during or since the end of the year under review.

Further, Equites has agreed to assist contractors and subcontractors in ensuring that their low-income workers are provided with a living wage, by contributing R1-million to the various organisations.

Through the Michel Lanfranchi Foundation, Equites has also committed financial resources to feed some of the most vulnerable families in the environments in which it operates and the executive team has uniformly agreed to forfeit a third of their salaries for three months to be donated to charities of their choice.

“Through focusing on the strength and quality of its underlying portfolio, being disciplined in capital allocation, and managing the flexibility of its balance sheet, Equites has demonstrated a large degree of resilience in the face of adversity.

“The economic consequences of Covid-19 will, however, be far-reaching, and the economic pain has yet to be fully experienced. While Equites is continually stress-testing its forecasting models and planning for various extremely unlikely eventualities, the level of unpredictability continues to rise,” Taverna-Turisan says.

It is for these reasons that providing detailed guidance proves to be challenging.

The Equites board will communicate guidance once the situation surrounding the pandemic becomes clearer and the board is comfortable that the guidance is highly probable.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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