Safe as (ware)houses
Equites has emerged unscathed from the pandemic, and a global e-commerce explosion bodes well
ý Results released this week by Equites Property Fund serve as a fresh reminder of why SA investors can’t afford to overlook the logistics sector.
Equites is the JSE’s only real estate investment trust (Reit) that invests solely in state-ofthe-art logistics properties — warehouses and distribution centres used by retailers and ecommerce platforms to store goods before delivery.
Its R19.3bn portfolio is split roughly 66/34 between SA and the UK and its tally of A-grade tenants include Amazon, Shoprite Checkers,
TFG, DHL, Altron and
Imperial.
Unlike most other
Reits that have been dogged by falling rentals and rising vacancies,
Equites grew like-forlike net rental income by an impressive 6.7% in the year to endFebruary.
That’s despite granting R42m in cash flow relief to its tenants. The company had a negligible vacancy rate of 0.1% and there’s hardly been a dent in rental collection rates, which stood at 99.3% in SA and 100% in the UK at end-February.
The upshot is that Equites was able to declare a dividend of 155c a share, up 2.4% year on year — one of the few Reits that didn’t have to slash or postpone payouts to shareholders.
And management expects to achieve 5%-6% dividend growth for the year to February 2022.
Co-founder and CEO Andrea Taverna-Turisan says the pandemic has accelerated a dramatic shift to e-commerce across the globe.
“People who were uncomfortable to adopt ecommerce before had no choice but to do so last year. And many are likely to continue to shop online post-pandemic,” he says. “Global supply chains have been thrust into the spotlight and retailers have been forced to bolster their ecommerce offerings. As a result, every retailer in the world has to relook at their real estate platforms.”
Taverna-Turisan expects the logistics sector to be a major beneficiary of this trend.
Last year, take-up of warehouse space in the UK jumped 52% to a record 4.6-million square metres. Online shopping is also steadily gaining traction in SA. And though e-commerce still represents only about 2%-4% of overall retail sales in SA, Taverna-Turisan says there have been interesting developments.
“Mr Price recently acquired Yuppiechef to bolster its online platform, global online store Wish has finalised a deal with the SA Post Office to deliver products faster and JD Group, a division of Pepkor Holdings, launched Everyshop, becoming a direct competitor to Takealot,” he says.
Taverna-Turisan cites recent figures from the SA Express Parcel Association that show turnover grew from R8bn in 2012 to R20bn last year.
Given expectations of continued demand for modern warehouse and distribution facilities, Equites is sticking to its plan to aggressively grow its footprint across SA and the UK.
Last year alone, the portfolio surged 30% in value, with R4.4bn worth of properties added to the mix. The largest transaction was a R3.2bn distribution centre joint venture with Shoprite Checkers.
The portfolio will be further bulked up over the next 12 months with the continued rollout of its development pipeline. This includes two premium logistics facilities that will be built in the UK at a combined cost of £113m for Amazon and German parcel delivery company Hermes.
Latest figures released by MSCI confirm that distribution centres and warehouses were the best-performing subsectors of the SA real estate market last year with total returns of 5.1% and 2.2% respectively. That compares with an overall –3% return for the MSCI SA annual property index as a whole and is way ahead of the –10.7% and –9.3% delivered by hotels and super regional shopping centres — SA’s worstperforming subsectors last year.
MSCI’s index tracks the annual performance of a R400bn portfolio of more than 2,400 office, retail, industrial and other buildings in SA.
Despite Equites trading at a seemingly demanding dividend yield of just under 8%, vs the sector’s 10%, Stanlib senior property fund manager Nesi Chetty believes it remains an attractive longer-term “buy and hold”. He says the premium at which the stock trades is justified given the popularity of the logistics subsector it operates in and the strong performance of its underlying assets.
Chetty foresees further strong growth opportunities for Equites in the UK in particular, given robust demand for quality logistics assets and the swing to e-commerce. He adds that a conservative loan-to-value ratio of 31% also means Equites has enough balance sheet flexibility to develop the properties in its pipeline.
Equites’ share price last week for the first time surpassed pre-Covid levels of about R20, up from five-year lows of R14 in late March last year after the pandemic hit SA’s shores. That suggests the company is on track to again deliver above-market total returns (income and capital growth) this year.
The stock has consistently outperformed the listed property index since listing in mid-2014. In the year to end-February alone, Equites outperformed the SA listed property index by a hefty 30% on a total return basis.