Equites Plans UK Exit, Redirects Attention to Domestic Market

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DUDU RAMELA: In the financial year ending February 28th, the logistics real estate investment trust (Reit) Equites Property Fund reported strong performance across both its South African and UK portfolios. The group declared a distribution per share of 133.92 cents, at the higher end of their guidance. Distributable earnings increased by 8.9% year-on-year to R1.1 billion, while earnings per share decreased by 21% year-on-year to 166.6 cents. We now turn to Laila Razak, CFO of Equites Property Fund. Thank you for joining us this evening, Laila. How would you summarize the results?

LAILA RAZAK: Thank you for having me. I regard these results as exceptionally strong and resilient, particularly given the tough economic landscape. We take pride in our performance—not just in the results achieved but also in the guidance provided, which indicates an expected distribution growth of 5-7% for the coming year.

DUDU RAMELA: The company’s portfolio is valued at R27.7 billion and includes 65 properties. Of these, 59 are based in South Africa, valued at R21.1 billion, with the remaining six situated in the United Kingdom. Let’s explore the South African property portfolio and its developments. Could you elaborate on that?

LAILA RAZAK: Absolutely. For the first time in years, we’re seeing notable valuation growth in our South African portfolio, with an increase of 6%. This growth is primarily supported by properties with long leases from A-grade tenants.

We are proud to include Shoprite assets as a core part of our portfolio.

This year, we brought three new Shoprite properties online: one in Riverfields, Gauteng, one in Wells Estate, Eastern Cape, and one in Canelands, KZN. These additions greatly enhance our South African property portfolio. Furthermore, we have initiated an extensive disposal program, selling older non-core assets, which means we currently possess a premier portfolio in South Africa.

DUDU RAMELA: What about the Jet Park Precinct? Has it been successful?

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

We acquired it from Aveng as a brownfield site six years ago, demolished the existing offices, and developed world-class logistics facilities for companies such as Cargo Compass. Recently, in March 2024, we completed a warehouse for Encore, a subsidiary of the Spar Group. We’re very pleased with this outcome. Only two sites remain before the park is fully developed, demonstrating our ability to transform a brownfield site into a premier logistics park.

DUDU RAMELA: When do you expect to complete the development?

LAILA RAZAK: We anticipate the completion of development within the next 18 months.

DUDU RAMELA: Now, let’s turn our attention to the UK portfolio. What highlights stood out?

LAILA RAZAK: A standout highlight in our UK portfolio was the completion of three rent reviews during the period. We achieved outstanding results, with rent increases ranging between 28% and 69%, demonstrating strong rental growth.

In terms of valuation, we saw a slight increase of 1%, reflecting stability in the UK valuations. However, we expect this to improve as UK gilts align with decreasing base rates.

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DUDU RAMELA: Equites has made a noteworthy commitment to developing assets that comply with environmental, social, and governance standards. Can you share your sustainability objectives?

LAILA RAZAK: Certainly. Firstly, we prioritize ensuring that our tenants do not experience disruptions due to electricity or water outages, which is a fundamental responsibility. Additionally, we aim to act as responsible corporate citizens.

Currently, we’ve installed 26MW of solar capacity across our portfolio, planning for annual expansion. We continuously evaluate our properties for prospective solar PV installations, with an objective to implement this as broadly and swiftly as possible.

DUDU RAMELA: As a follow-up, how would you characterize the vacancy rates in both portfolios?

LAILA RAZAK: Our South African portfolio boasts zero vacancy, while the UK portfolio has an incredibly low vacancy rate of just 0.1%. Basically, our portfolio is fully leased, a result we greatly appreciate.

DUDU RAMELA: Your loan-to-value ratio stands at 36%, reduced from 39.6% in the previous year. What caused this decrease?

LAILA RAZAK: This decrease is primarily due to our disposal program. As mentioned earlier, we targeted the sale of non-core and older assets that did not meet our ESG criteria. The proceeds were allocated towards repaying debt or funding new developments in South Africa.

DUDU RAMELA: The company reported R2.9 billion in cash and unused facilities at the end of the reporting year. What does this signify?

LAILA RAZAK: This reflects the disposals we undertook, which occurred close to the year-end. Furthermore, we implemented two highly successful dividend-reinvestment programs, raising R700 million during the year. These factors together resulted in a substantial cash balance and undrawn facilities at the year’s end.

DUDU RAMELA: Finally, what is the outlook for the group?

LAILA RAZAK: We’re very excited about our results. We’ve managed to reduce our LTV, demonstrated solid distribution growth, and achieved significant portfolio expansion. We look forward with eagerness. Our focus will remain on bolstering developments in South Africa as we strive to enhance our portfolio here. Importantly, we aim to provide our investors with above-inflation distribution growth, hence our guidance of 5-7% for the upcoming year.

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

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