Equites on track for Shoprite deal
• Company declares final dividend, which has grown at least 9% a year since listing
Equites Property Fund, the only industrial real estate specialist listed on the JSE, says its joint venture with Shoprite will set the company up for success over the next 20 years, even as it refrained from making future payout projections due to the pandemic.
Equites Property Fund, the only industrial real estate specialist listed on the JSE, says its joint venture with Shoprite will set the company up for success over the next 20 years, even as it refrains from making future payout projections due to the Covid-19 outbreak.
The group, which grew its dividend by almost double digits in its year ended February 2020, making it the best-performing property stock in the current reporting season, says it is on track to complete a R4.1bn deal with the retailer in the next few weeks. This will enable it to lease warehouses to Shoprite for the next two decades. The retailer has a large network of distribution needs across SA, and Equites will develop new sites.
“We have agreed the financials ... and are now waiting for the administrative processes to be completed,” CEO Andrea Taverna-Turisan said.
In terms of the R4.1bn deal, which was announced in February, Shoprite will contribute its distribution centre in Brackenfell in the Western Cape and a 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 to be used partly to buy the centre in Climor in Cape Town and undeveloped bulk land in Brackenfell for R1.2bn.
The joint venture will then manage this logistics portfolio and exploit future property acquisition and development opportunities as they arise, with Equites as the developer. Shoprite will hold a 49.9% stake and Equites 50.1%.
Equites reported on Tuesday that its dividend per share rose 9.4% to 151.39c for the year ended February, with the group declaring a final dividend of 75.957c, rewarding shareholders with about R453m. The company has managed to grow its dividend at least 9% each year since listing in 2014. Numerous other property companies have either grown their dividends at a rate that was lower than 2% or their annual income payouts have fallen.
Equites has a portfolio worth R14.9bn and has given guidance of 8%-10% distribution growth for its year ended February 2020. It owns assets in the UK and SA. Its UK assets make up 25.5% of its contractual revenue.
Its locations of preference are Cape Town and Gauteng in SA, and in the UK the central Midlands and “last-mile” fulfilment centres near major conurbations.
However, Taverna-Turisan said, uncertainty around the effects of the Covid-19 pandemic means the company cannot make any forecasts about dividends for its 2021 financial year to February.
“A problem around the Covid outbreak is that we don’t know when our tenants will be able to return to work and consequently if some of them will be unable to pay rent,” he said.
Since February 29, a total of R97m has been due in terms of contractual rental agreements in SA, with Equites collecting 92.8% of this rental. This is “a testament to the credit quality of our portfolio,” Taverna-Turisan said. “There is just too much uncertainty around our operating environment for us to say anything about dividends for the 2021 year.”
He said the company’s UK assets are performing especially well, on the back of increased ecommerce during that country’s lockdown.
The group’s weighted average lease expiry — the average time for leases on a property to expire — increased to 10.2 years in the period ended February 2020, from 8.8 years in the prior comparative period.
Nesi Chetty, a senior fund manager at Stanlib, said Equites is “nicely positioned” with a long-lease expiry profile backed by 94% A-grade tenants and rents escalating at 7.6%.
“This sector has bucked the trend, and cap rates are still at comfortable levels in logistics. The rise in e-commerce in SA and other emerging markets is a strong”catalyst sector, he said. for this property
“Equities has a singular focus on logistics and is unlikely to be a consolidator of other sectors in the SA property market.”
THIS SECTOR HAS BUCKED THE TREND. THE RISE IN ECOMMERCE IN SA AND OTHER EMERGING MARKETS IS A STRONG CATALYST
10.2 the group’s weighted average lease expiry in number of years for 2020, up from 8.8 years in the same period for 2019