Equites lands ‘rare’ R4.1bn joint venture with Shoprite

• Retailer to transfer distribution centre and land to deal

Specialist high-end warehouse owner Equites Property Fund is going into business with retail giant Shoprite, creating a joint venture worth more than R4bn, giving the property company exposure to some of the best distribution centres on the continent.

Equites CEO Andrea Taverna-Turisan said the joint venture agreement was a “landmark deal” for Equites.

“The partnership will manage a portfolio of Shoprite’s distribution centres, serve as a platform for the development of undeveloped bulk land situated at Cilmor and Centurion, and pursue future property acquisition and development opportunities,” he said.

Equites, the only industrial specialist property fund listed on the JSE, has been a strong performer since it listed on the bourse in mid-2014, achieving double-digit dividend growth each year. Its share price has climbed 82% from R10 at listing to R18.20 on Tuesday.

Equites last reported financial results late in 2019. As at the end of August 2019, it owned a property portfolio worth R13.5bn. As much as 62% worth of its assets are in SA and 38% are in the UK.

In terms of the R4.1bn deal, the retailer will contribute its distribution centre located in Brackenfell in the Western Cape and its property in Centurion in Gauteng, which are valued at R2bn, to the joint venture.

In exchange for a majority stake, Equites will inject R2.1bn in cash that will be used partly to acquire the centre in Climor in Cape Town and undeveloped bulk land in Brackenfell for R1.2bn.

The joint venture will manage this logistics portfolio and will undertake future property acquisition and development opportunities as they arise with Equites as the developer.

Shoprite will hold a 49.9% stake in the venture and Equites will hold a 50.1% stake.

Equites and Shoprite would also agree to three 20-year triple-net leases in respect of the three distribution centres, with a right to renew each of the leases for three more 10-year periods on the same terms and conditions.

A triple-net lease is an agreement on a property whereby the tenant or lessee promises to pay all the expenses of the property, including real estate taxes, building insurance and maintenance.

The initial yield on the leases will be 7.5% and the rental will escalate at a rate of 5% per year.

Taverna-Turisan said Equites had been trying to buy the Brackenfell property from Shoprite for some time. The retailer told the market in 2019 it wanted to sell some of its sought-after properties.

Shoprite CFO Anton de Bruyn said during a results presentation in August 2019 that the firm would sell non-strategic assets, including warehouses and distribution centres, which it would lease back, thereby improving its cash position.

Retailers of Shoprite’s size rarely sell such highly rated industrial properties, TavernaTurisan said.

He would try to replicate the joint venture strategy with other retailers in the future but said this was “a very rare deal”.

Shoprite said the deal enabled it to release capital that it can use for higher-yielding retail projects and technology.

It said the properties did not generate rental profits for the group, as they were used for operational purposes.

Head of listed property funds at Stanlib, Keillen Ndlovu, said the deal was very beneficial for Equites.

“It’s a great deal. It represents a nice 20-year income stream growing at 5% per annum with a dominant listed-food retailer.

“The joint venture at a landlord level helps to reduce concentration risk or key tenant risk. On top of that, its triple-net lease covers all the costs, including maintenance. We look forward to seeing the terms of the loan, which we hope will be favourable,” he said.