Top-performing Cape Town-headquartered real estate investment trust (Reit) Equites Property Fund has won a plum contract to develop a massive warehouse for retail giant Pepkor in KwaZulu-Natal’s burgeoning Hammarsdale logistics node, midway between Durban and Pietermaritzburg.
In a JSE Sens statement announcing the deal late on Monday, the logistics-focused fund said the indicative total cost of the development is R1.3 billion, which excludes Vat but includes R281 million for the cost of the land.
Equites has secured a 15-year ‘triple net’ lease with Pepkor on the mega-warehouse property, which is expected to come into effect upon completion of the development in November 2021.
Speaking to Moneyweb about the deal on Tuesday, Equites CEO Andrea Taverna-Turisan said it was a coup for the group considering the size of the development and the fact that it beat other property sector players to win the lucrative Pepkor tender.
A series of firsts
“This will be our biggest single development to date and our first development and lease contract with Pepkor. It also represents Equites’s first major foray into the KZN logistics property market. At 122 734m2, the state-of-the-art logistics facility will cover an area of roughly 19 football fields,” he noted.
Taverna-Turisan said the location of the new warehouse in Hammarsdale is strategic, due to its prime position along the busy N3 national road and rail corridor between the Port of Durban and Gauteng.
“Durban is SA’s busiest port and handles most containerised imports and exports, much of which is transported on the route to Johannesburg,” he added. “With infrastructure constraints around the port leading to trucking and other delays, the Hammarsdale/Cato Ridge area along the N3 is emerging as a logistics hub west of Durban.”
He pointed out that Pepkor already has a warehouse for its Ackermans chain in Hammarsdale, while fellow JSE-listed retailer Mr Price also has a massive distribution facility there, as do other companies. “This all points to the attractiveness of Hammarsdale as a prime logistics node, however it is also in line with plans by the KZN provincial government and eThekwini Municipality to establish an inland port at Cato Ridge.”
Sod-turning set for April
Equites purchased the land on which the new Pepkor warehouse will be built from Keystone Park CC, which is behind the 152 hectare Keystone Park logistics, warehousing and light industrial development precinct in Hammarsdale. Transfer is expected by April, when construction is set to commence.
The Keystone Park project is led by KZN-based property developer Rod Stainton of Rokwil Property Development.
Speaking to Moneyweb, Stainton said the Mr Price, Ackermans and other warehouses already developed at Keystone Park have seen around R4.5 billion invested in the precinct to date. “Our land deal with Equites will see further major investment into the Hammarsdale node, with more than R1 billion earmarked for their new development.
“It will be the biggest warehouse here when it is complete.”
He added: “We welcome Equites’s first major foray into the KZN market, especially as it is an investment by a leading JSE-listed player in the logistics property space in SA. It will add impetus to development at Hammarsdale as well as to the Cato Ridge inland port plans of local government.”
Equites, which has a logistics property portfolio in SA and the UK valued at around R14 billion, has been eyeing an expansion into the KZN market for a while. Its biggest presence is currently in Gauteng, followed by the UK and the Western Cape.
During the group’s half-year results presentation in October, Taverna-Turisan told Moneyweb most of the fund’s new developments are located Gauteng, with 400 000m2 of new logistics space in the pipeline over the next few years.
The new KZN development in Hammarsdale is expected to significantly boost its presence in the province. Taverna-Turisan now tells Moneyweb the group is actively looking at further projects in the province. “We are always open to good opportunities that come our way and it is important for us to have a presence here.”
Commenting on the Pepkor deal, Nesi Chetty, a senior listed property fund manager at Stanlib, said: “It is quite a sizeable development transaction at R1.3 billion for Equites relative to its current asset base … The deal will give Equites exposure to KZN where it has been underrepresented geographically.”
Chetty said logistics property companies saw a rerating globally last year, as a result of higher demand on the back of the growth in e-commerce.
“Equites is one of the few companies that [was] able to successfully raise capital last year given their track record and specialisation in the logistics property market.”
Craig Smith, head of research and property at Anchor Stockbrokers, noted that the Equites deal with Pepkor demonstrates the fact that there is demand for new logistics facilities in well located nodes. He said demand is being driven by the optimisation of supply chains, growth in e-commerce and lack of availability of high-quality logistics facilities
“This will be a great asset for Equites, with a very long lease (15 year) to a blue-chip tenant, Pepkor… The yield on the deal is fairly sharp, but this is a function of the strength of the counter-party and the length of the lease,” he added.