Cape Town-headquartered Equites Property Fund, SA’s only exclusively logistics-focused real estate investment trust (Reit), says the country’s economic hub of Gauteng is where it will be focusing most of its investment over the next five to seven years.
Equites CEO Andrea Taverna-Turisan tells Moneyweb the fund is planning around R4 billion in logistics property development in the province. He was speaking on Thursday following the fund’s results presentation for the half-year to August at the Michelangelo Hotel in Sandton.
The top-performing Reit continued its sector-beating performance, delivering a 9.3% increase in distribution per share to 74.43 cents for the period. With its net asset value per share increasing 6% year on year, its total compounded annual growth came in the double digits at over 10%. While its share price was up marginally following the release of its results, the stock has gained 10.25% so far this year.
Equites announced during its results presentation that construction on three new developments, worth just over R460 million, commenced at its flagship Equites Park Meadowview West precinct in Joburg in August. Another R120 million logistics warehouse was completed in the same park in July.
“This gives you an idea of the kind of investment we are making in Gauteng. There is much more to come with some 400 000m2 in our development pipeline in the province over the next five to seven years,” says Taverna-Turisan.
“We have three major landholdings in the province. In addition to developments at Equites Park Meadowview West, we have strategic land parcels near Waterfall on Allandale Road and at the new Plumbago precinct, near OR Tambo International Airport east of Joburg,” he adds.
Taverna-Turisan says Gauteng, and Joburg in particular, remains the economic hub for any distribution operation in sub-Saharan Africa. “It continues to have considerable wealth, and with the mass urbanisation it is seeing, the region will remain a hub and gateway to southern Africa,” he notes.
He nevertheless cautions that SA’s macro-economic conditions are critical to the group’s roll-out of its R4 billion Gauteng development pipeline. “While the economy remains under pressure, Equites’ focus exclusively on high-quality logistics assets has given it a defensive edge. A turnaround in the SA economy will increase the demand for warehousing space with increased demand for goods.”
Of Equites current R13.5 billion logistics property portfolio and land holdings, 43% is located in Gauteng, 38% in the UK, 17% in the Western Cape and 2% in KwaZulu-Natal (KZN). In the Western Cape, the fund has just completed a R46 million development at Equites Park Bellville.
It has completed two new developments worth £25 million in the UK since the beginning of the year and commenced construction on another £12 million project. It also acquired an existing property worth £30.7 million.
Taverna-Turisan says Equites’ UK portfolio may well overtake the value of its SA portfolio in a few years due to property prices being higher in the UK. However, he says the size of the SA portfolio will be larger based on its development pipeline in SA, largely in Gauteng.
“We are not looking beyond SA’s borders in Africa and will focus on the three big cities of Joburg, Cape Town and Durban,” he adds. “We have a small presence currently in KZN and are looking for opportunities in Durban. As the country’s and sub-Saharan Africa’s biggest port, we believe we need to have a bigger presence in Durban.”
Commenting on Equites’ interim results, Reitway Global’s chief investment officer Garreth Elston says it was a strong performance compared to the rest of the sector.
“The fund has delivered a rare dose of positivity to the local market as regards current earnings. Conditions for a sustained improvement in SA’s economy are still a way off. The company’s management is still exercising good prudence as regards debt levels and hedging operations.”
However, Elston raises concerns around the negative impact of Brexit in the UK. “Looking ahead, I am concerned that the UK will not continue to deliver the growth that is being expected under current conditions.
“Under a ‘hard Brexit’ situation it will become even more difficult to meet projections.”