Equites looks to exit UK, turns focus locally

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DUDU RAMELA: In its results for the financial year ended February 28th, logistics real estate investment trust [Reit] Equites Property Fund reported a strong performance from both its South African and UK portfolios.

The group delivered distribution per share of 133.92 cents at the upper end of guidance. Distributable earnings grew by 8.9% year on year to R1.1 billion, while its earnings per share decreased by 21% year on year to 166.6 cents.

We speak now to Laila Razak. She is the CFO of Equites Property Fund. Thank you very much, Laila, for your time this evening. How would you characterise the results?

LAILA RAZAK: Thank you so much for having me. I think it’s an incredibly strong and resilient set of results amid quite a tough economic background. We’re quite proud of our results – not only the results that we’ve been able to show, but also the guidance that we provided to the market in saying that we expect to grow distribution per share by 5-7% for the upcoming year.

DUDU RAMELA: The company’s portfolio is currently valued at R27.7 billion across 65 properties, 59 of which are based in South Africa and valued at R21.1 billion, and six in the United Kingdom making up the balance of the portfolio value.

Let’s start with the South African property portfolio and developments there. Please unpack them for us.

LAILA RAZAK: Sure. For the first time in a few years we’re actually seeing really strong valuation growth in the South African portfolio. That’s shown growth of 6%, and that’s really underpinned by our properties with long leases signed with A-grade tenants.

So we have an underpin of Shoprite assets in our portfolio.

Three of those came online during the current year, one in Riverfields in Gauteng, one in Wells Estate in the Eastern Cape, and one in Canelands in KZN. All of those really serve as an underpin to our property portfolio in South Africa.

What we are seeing is that we did undertake quite an extensive disposal programme where we sold some of our older non-core assets and we’re really sitting with a prime portfolio in South Africa now.

DUDU RAMELA: What of the Jet Park Precinct? Has it proved successful?

LAILA RAZAK: Yes, the Jet Park Precinct has proved to be one of our most successful parks.

We actually bought it from Aveng as a brownfield site about six years ago, and we then demolished the offices that were on the site and we’ve developed world-class logistics facilities for groups like Cargo Compass.

More recently, in March of 2024, we delivered a warehouse for Encore, which is a subsidiary of the Spar Group. So we are very pleased with that result. We only have two sites left in that park before it will be fully developed – and that’s an example of how we take a brownfield site and transform it into a world-class logistics park.

DUDU RAMELA: And when do you expect completion of the development?

LAILA RAZAK: We expect it all to be developed out in the next 18 months.

DUDU RAMELA: All right. Let’s take a look at the UK portfolio and some of the highlights.

LAILA RAZAK: Okay. In the UK portfolio what was a highlight for us was there were three rent reviews undertaken during the period. On those rent reviews we achieved exceptional outcomes, with between 28% and 69% uplifts on the rents there. So really strong rental growth coming through.

From a valuation perspective, it was up by 1%, so we’re not seeing the same movements in UK valuations.

However, we do expect this to be bolstered once [UK] gilts come in and they move in line with base rates, which we have seen coming down.

DUDU RAMELA: Equites has increasingly focused on developing environmental, social, and governance-compliant assets. Talk us through your commitment to your sustainability objectives.

LAILA RAZAK: Okay. Firstly we want to assure tenants that there is no business interruption as a result of any electricity outages or water outages. That is part of our primary responsibility to our tenants.

Secondly, we want to be good corporate citizens.

At this point in time we’ve installed 26MW of solar capacity across our portfolio and it’s our intention to grow this annually.

We’re constantly looking at our portfolio, looking at where there’s space or roof space for us to install additional solar PV, and we’re looking to roll this out as quickly and aggressively as possible.

DUDU RAMELA: Just going a step further, in terms of the vacancy rate of both portfolios, how would you characterise that?

LAILA RAZAK: We have zero vacancy in the South African portfolio, and we have 0.1% vacancy in the UK portfolio. So the portfolio for all intents and purposes is fully let, and we’re very pleased with that result.

DUDU RAMELA: Your loan-to-value ratio is currently 36%, down from 39.6% in the prior year. What drove the reduction?

LAILA RAZAK: The disposal programme. In the disposal programme which I alluded to earlier we really identified non-core assets, older assets, or assets that didn’t meet our ESG criteria, and we looked to dispose of those. We redeployed those proceeds into repaying debt facilities or new developments in South Africa.

DUDU RAMELA: The company had R2.9 billion in cash and unused facilities at the end of the reporting year. What should we read into that?

LAILA RAZAK: It was the disposals we conducted. They happened quite close to the end of the year.

But we also had two very well-subscribed dividend-reinvestment programmes, where we raised R700 million during the year.

All of that combined led to that fairly high cash and undrawn facility balance at the end of the year.

DUDU RAMELA: Okay. And the outlook, I guess, for the group?

LAILA RAZAK: We are very pleased with the results. We’ve managed to reduce our LTV [loan to value], show strong distribution growth – and we’re showing strong portfolio growth. Like I said, we’re very excited for the future.

We’re looking to focus on South African developments; we are looking to really grow our South African portfolio. And importantly we’re looking to give investors above-inflationary distribution growth. That’s why we’re guiding 5-7% for the upcoming year.

DUDU RAMELA: Laila, thank you very much for your time this evening. Laila Razak is the CFO of Equites Property Fund.

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