Equites on track to wrap up its R4.1bn deal with Shoprite within weeks
Property group to lease warehouses to Shoprite for the next two decades
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 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 national retailer in the next few weeks, which will enable it to lease warehouses to Shoprite for the next two decades. Shoprite has a large network of distribution needs across SA, and Equites will develop new sites for the retailer.
“We have agreed the financials of the deal 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 located 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 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 then 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 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 between 0% and 2% or have seen their annual income payouts fall.
Equites has a portfolio worth R14.9bn and had 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 the central Midlands and “last-mile” fulfilment centres near major conurbations in the UK
However, Taverna-Turisan said uncertainty around the effects of the Covid-19 pandemic meant the company could not 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 was due in terms of contractual rental agreements in SA, with Equites collecting 92.8% of this rental, which was “a testament to the credit quality of our portfolio”.
“There is just too much uncertainty around our operating environment for us to say anything about dividends for the 2021 year,” Taverna-Turisan said. He said the company’s UK assets were performing especially well, off the back of increased e-commerce during that country’s lockdown.
The group’s weighted average lease expiry — the average time leases on a property will 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 was “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 for this property sector. Equities has a singular focus on logistics and is unlikely to be a consolidator of other sectors in the SA property market,” he said.
With Karl Gernetzky
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