Equites’ logistics portfolio delivers impressive returns

Equites' DSV Park in Witfontein, Gauteng.

Equites Property Fund has reported growth in its distribution per share of 5.2% to 162.99 cents for the year ending February 2022 with the company’s net asset value (NAV) per share increasing by 7.9% to R18.61. The REIT delivered a 9.4% distribution yield, culminating in a total return of 17.3% for the year.

The company’s property portfolio has grown from R1 billion on listing in 2014 to R25.7 billion as at the end of February 2022.

Logistics properties globally continue to outperform, supported by sustained demand in the tenant and investor markets”, commented Equites CEO, Andrea Taverna-Turisan. “The UK market is especially strong, and it has set new records across all metrics, which include a record low vacancy rate, a surge in market rental growth as well as a significant increase in land values. Our partnership with Newlands is capitalising on this golden opportunity where there is a significant mismatch between demand and supply in the market, which will ultimately continue to create substantial value for Equites’ shareholders”.

In SA, the prospects have never been better in terms of the potential pipeline of developments as well as rental growth expectations, as the national vacancy rate for A-grade warehousing is at an all-time low and companies increase their focus on supply chain optimisation”.

This demand culminated in Equites’ most active year with investment opportunities of R4.3 billion funded. Its largest transaction during the financial year was the acquisition of the DSV Campus in SA for R2.05 billion, in partnership with Eskom Pension and Provident Fund which unlocked an attractive alternative source of equity for further expansion. The group also purchased a 50% stake in three properties in Waterfall from Attacq Limited, for a total consideration of over R500 million.

The REIT completed a R317 million state-of-the-art logistics campus let to Sandvik in Gauteng on a ten-year lease during the period. Its ongoing developments include a flagship warehouse for Cargo Compass SA (R259 million), a new facility for Nioro Plastics (R88 million), an extension to the Premier FMCG facility in Lords View (R97 million) and an extension to TFG’s facility in Lords View (R190 million) which will be completed during FY23.

In the UK, Equites Newlands Group Limited, the company’s venture with Newlands Property Developments, completed its first development, a last-mile logistics facility tenanted by Amazon on a fifteen-year lease with a capital value of R1 billion. Equites Newlands Group Limited is also in the final stages of completing its second development, a super-hub distribution facility let to Hermes (which recently changed its name to Evri) significantly adding to the scale of the UK portfolio. The property’s expected capital value is c.R2 billion and it is let to Hermes (Ervi) on a twenty-year lease.

To fund its activities, the company raised R2.7 billion in equity capital through two oversubscribed accelerated bookbuilds, as well as dividend reinvestment programmes. It also refinanced over R2.5 billion and raised an additional R3.5 billion of new debt facilities during the period, which was supported by a successful and over-subscribed debt auction in November 2021.

Equites’ portfolio weighted average lease expiry (WALE) of 13.7 years and proportion of A-grade tenants of 97.2% is unrivalled in the sector. This is further underpinned by the three properties in the Shoprite portfolio with initial lease periods of twenty years. Combined with strong in-force escalations, these aspects indicate a high level of income predictability and a low risk of tenant default.

In South Africa, the logistics property market continued to be one of the top performing property sectors with numerous tenants increasing their focus on supply chain optimisation. For the first time in two years, market rental growth is accelerating, supported by an increase in development cost estimated at between 10% – 15% as well as a lack of suitable, vacant A-grade warehousing space in key logistics nodes across the country. Properties are being marketed at rentals of between 15% – 30% higher than levels in 2021, which is predominantly driven by construction cost inflation and a record low vacancy rate for A-grade warehousing space.

Equites’ 1.2 million square metres South African portfolio is fully occupied (as of the 1st of May 2022). The group secured tenants for all three of its speculative developments in South Africa during the financial year with two of the developments already let before practical completion. Like-for-like rental growth in the local portfolio was 6.2%, a function of the robust in-force contractual lease escalation rate.

Ferocious demand triggered a record-breaking performance in the UK logistics market in terms of the take-up of warehousing space, market rental growth, record-low acquisition yields, the lowest ever recorded vacancy rate, the highest growth in land values and the largest transactional volumes. Take-up reached a new annual record of 5 million square metres in 2021, 86% higher than the long-term average according to Savills. Market rental is expected to grow by 12% during 2022 on a national level according to UK property specialist, Gerald Eve, boding well for Equites’ UK property valuations over the next financial year.

The company’s UK portfolio performed above expectations, increasing by 13% in value (independently valued) and generating a geared total return on equity of 25%, in sterling. The increase in value was a combination of increased market rentals as well as a compression of prime distribution yields. The portfolio of ten properties is let to blue-chip tenants including DHL, Tesco, Amazon, and Puma, and has predominantly been developed over the last six years, meeting all modern logistics warehousing requirements.

Equites Newlands Group Limited has enhanced the core UK portfolio’s performance substantially. The combined uplift in property developments during the year was R870 million. During the period, Equites Newlands Group Limited entered into a sale of land agreement and a development funding agreement to develop two distribution facilities for Promontoria in Barnsley. The expected attributable to Equites is c. £5.0 million (R100 million), on a post-tax basis.


Distribution per share grew by 5.2% to 163 cents (FY21: 155 cents), a function of strong growth in like-for-like net rental income, excellent property performance and efficient capital management. The Board has decided to declare 100% of distributable earnings as a dividend on a biannual basis for the foreseeable future and will continue to promote its dividend reinvestment programme as a tax-efficient mechanism to retain a proportion of distributable earnings for future expansion.

Investment pipeline

The potential pipeline of development opportunities has increased substantially, with capital commitments of R1.4 billion as at 28 February 2022.

In South Africa, Equites is currently extending a facility for TFG in Lords View and will also develop a new 50 000m² world-class distribution facility in Witfontein for the retailer, with the potential to expand this facility to over 90 000m² over the medium term. The group has agreed on terms (post-period-end) with a national retailer to develop an 85 000m2 modern logistics warehouse on the remainder of the site, with a total capital value of R1 billion. The developments are being executed on land which Equites controls and will unlock the value embedded in these parcels.

Equites is also currently in the final stages of negotiating five new developments across South Africa, which are estimated to add more than 160 000m² of prime logistics space to the portfolio over the next two years, with a combined capital expenditure in excess of c.R1.8 billion.

In the UK, Equites estimates that the value of the total potential pipeline of opportunities through the Newlands venture will be more than £1 billion (R20 billion) over the next five years. New development opportunities will focus on large-scale, world-class distribution facilities in the UK let to multi-national tenants with strong covenants on long-term leases. Equites Newlands Group Limited recently secured a new land sale and infrastructure development agreement with a retailer for a scheme in Basingstoke. The transaction is forecast to generate an after-tax profit attributable to Equites of R400 million, subject to planning approval. In addition to this transaction, Equites Newlands Group Limited finalised a turnkey development agreement with Promontoria on the remainder of the Basingstoke site, which will result in a post-tax profit of c.R212 million. The net profit generated from the three turnkey and land disposal transactions is estimated to be more than R700 million, after tax, and will be reinvested in the attractive UK pipeline of investment opportunities.

Capital and funding

Equites continues to maintain a conservative capital structure; with a loan-to-value (LTV) ratio of 31.5% and weighted average debt maturity of 2.7 years. The group has debt facilities of R10.2 billion at an all-in effective cost of 5.59%, and cash and undrawn facilities of R1.8 billion to fund acquisitions and developments. As at the 28th of February 2022, the group had hedged 91.3% and 88.8% of the existing term loan balances and total committed future cash outflows, respectively. Where possible, Equites continues to use natural hedges to minimise exposure to fluctuations in foreign exchange rates on distributable earnings.

GCR Ratings recently upgraded the national scale long- and short-term issuer ratings of Equites to AA-(ZA) and A1+(ZA) respectively, with a stable outlook. GCR highlighted “the sustained improvement in portfolio quality, supported by positive externalities impacting the logistics sector…characterised by growth in rental income, elimination of vacancies and stability of margins” and that “liquidity cover is underpinned by strong access to funding through both debt and equity markets, where the REIT is building a good track record.”

During the year, Equites increased its JSE-listed DMTN Programme to R10 billion and held its first public debt auction raising R1 billion and making the company the most tightly priced DCM property issuer in the market in the three-year space.

The REIT continues to pursue in-country funding to support property developments in the UK, and the completion of the Amazon Peterborough facility allowed it to raise a further £24 million from HSBC. Equites also negotiated a new £10 million 1-year loan with RMB in South Africa and the roll of a £25 million 1-year loan into a £50 million 2-year loan with SBSA to fund commitments in the UK.

Equites issued the first GBP sustainability-linked loan in South Africa (traded with SBSA) and the first Green Loan in the African real estate sector (traded with RMB). In addition, Aviva has obtained preliminary approval from its funders to increase the current loan from £77m to £140m (an additional R1.3bn) and extend the tenor out to ten years at an attractive indicative rate, by providing the Hermes (Evri) Hoyland property as security.

Equites’ board expects that the group will achieve between 4% and 6% distribution growth per share for the next financial year. Management is forecasting a positive NAV per share growth for FY23, supported by the development pipeline within the Newlands venture. Equites, therefore, forecast a total return of between 15% and 20% for FY23.