SAREIT

Highlights for the six months to 31 December 2019

• Distribution for the period increased by 5.1%to 11.155 cents per share
• Total property portfolio increased by 10.4% to R3.49 billion
• Net asset value up by 2.0% to 233.97 cents per share
• Vacancies reduced to 3.2% of total lettable area
• Arrears continue to remain low at 1.7% of revenue
• Conservative balance sheet with LTV of 34.0%
• 21.9 million treasury shares acquired at R1.86 per share Distribution growth of 4% to 6% expected for the 2020 financial year

Cape Town, 2 March 2020. Fairvest Property Holdings Limited (“Fairvest”) today again announced solid results for the six months to December 2019, with above market distribution growth of 5.1%, net property income growth of 2.2%, 5-year lows in vacancy rates and consistently low arrears. Chief Executive Officer, Darren Wilder said: “Fairvest’s focus on a differentiated sector of the market and its persistent drive to get the property basics right have again demonstrated the defensiveness of its portfolio amid market conditions that have proven extremely challenging.

Fairvest maintains a unique focus on retail assets weighted predominantly toward non-metropolitan and rural shopping centres, as well as convenience and community shopping centres servicing the lower income market in high growth nodes, close to commuter networks. The Fairvest property portfolio consists of 44 properties, with 261 431m² of lettable area valued at R3.49 billion and a sectoral split of 95.6% retail and 4.4% office properties.

Wilder said that Fairvest is fortunate to have a team of hands-on property professionals who have deep experience in both bull and bear markets. In tough times, this experience is brought to bear to continue to achieve healthy results and sustained value creation.

Fairvest’s investment philosophy is to differentiate the fund through performance not size, with acquisitions considered in its property niche exclusively and only at the right price, with a strong focus on value extraction.

Healthy distribution growth

Total property revenue increased by 11.9% to R267.7 million, due to income growth in the historic portfolio, as well as an acquisition and a completed development during the period. A strong focus on arrears management reduced arrears to 1.7%, on par with the lowest level achieved in the past seven years. Cost containment and efficient recoveries of municipal charges remains a strategic focus, with the gross cost to income ratio increasing slightly from 36.7% to 37.1%, which is in line with the company’s strategic objective of maintain a cost to income ratio of below 38%.

Continued portfolio growth

The value of the property portfolio increased by 10.4% from R3.16 billion at year-end, to R3.49 billion at 31 December 2019. This increase is mainly as a result of the Nonkqubela Mall acquisition to the value of R162.9 million, the Qumbu Plaza development to the value of R54.8 million, capital expenditure incurred of R45.3 million and a 3.1% increase in the historic portfolio

The success of our asset management initiatives is best indicated by the improved asset quality ratios, with average value per property increasing to R79.3 million and average value per square metre increasing to R13 350.

Robust property fundamentals

The portfolio remains strongly diversified with a broad, geographically dispersed representation and the top ten tenants occupying only 52% of the portfolio. The low risk investment profile is further augmented by A- and B-grade tenants who occupy 80% of gross lettable area.

The weighted average contractual escalation for the portfolio decreased from 7.4% to 7.2% in the period. Gross rentals across the portfolio trended upwards, with in the weighted average retail rental increasing to R126.10/m². Vacancies were maintained at the lowest level achieved in the past five years. There is a strong focus on tenant retention and Fairvest successfully renewed 11 774 m² of leases, with an average escalation of 0.8%. The weighted average lease term increased from 35 to 38 months, which further negates the risk to its income stream. Letting of vacant space remained a focus area and during the period vacancies were reduced from 4.0% to 3.2%.

The company completed the installation of photovoltaic rooftop solar systems on ten of its properties at a cost during the period of R36.6 million. Solar installations on seven more properties commenced with a further R24.7 million committed. These installations will reduce Fairvest’s environmental footprint and further increase the attractiveness of its shopping centres for tenants.

Disciplined, conservative financial management

Fairvest’s loan to value remains conservative at 34.0%, in line with the board approved strategy. Of the debt, 67.1% was fixed through interest rate swaps as at 31 December 2019, with a weighted average expiry for the fixed debt of 42 months. The weighted average all-in cost of funding decreased to 8.92%. The weighted average maturity of debt was 22 months.

During the period the company repurchased 21 918 276 ordinary shares, or 2.2% of the issued share capital, in the open market at an average price of R1.86 per share, which represents a yield in excess of 12%. The shares are held in treasury in a wholly owned subsidiary.

Prospects

Fairvest said that while economic conditions are expected to remain challenging; the company is confident that the nature of its portfolio, its low-risk tenant base and letting expertise will continue to be defensive in the face of current economic challenges. The company continues to target growth in distributions per share at the top end of the market, approximating or exceeding current inflation. Management remains confident that growth in distribution per share of between 4% and 6% for the full 2020 financial year is achievable, against the market expectation for the listed property sector which is to deliver negative to flat distribution growth.

Wilder said that Fairvest’s philosophy has always been to maintain a simple property business with an income statement and balance sheet devoid of complex financial structuring. This approach has resonated with investors, allowing the company to deliver a 5-year cumulative total return of 94.03%, relative to a SAPY return of 6.18% over the same period. “We are determined to continue to keep a simple traditional property business with no off-balance sheet structuring. We continue to seek out quality assets with strong property fundamentals and to provide hands-on property management, as we strive to continue to add value for our shareholders.”

Cape Town – Tower Property Fund reported a strong performance from itsproperty portfolio in Croatia while weak market conditions in South Africa continued to weigh on the fund’s overall performance in the six months toNovember 2019. In this environment Tower performed well to keep its SouthAfrican net property income unchanged for the period.

Tower owns a portfolio of 43 properties in South Africa and Croatia valued at R5.0 billion. The six properties in Croatia represent 32% of the fund’s total value. Tower’s sectoral focus is mainly on convenience retail (48% by value) and office properties (46% by value).

Chief executive Marc Edwards said the Croatian property portfolio performed well, generating a total return of 8.9% in Euros in the 12-months to November 2019. Net property income grew by 1.4% in Euros over the prior period as a result of inflation-linked escalations while the portfolio value has increased by €5.2 million over the purchase price.

“However, listed property owners continue to face real challenges in the South African operating environment with failing municipalities, power outages and the threat of ratings downgrades. This is particularly evident in our letting activities where vacant space takes longer than expected to fill, while tenant renewal soften do not materialise or are concluded at significantly lower levels,” he said.

Tower’s vacancy level across the portfolio is currently 5.5% compared to 4.4% a year earlier.

Edwards said building disruptions, opening delays and tenant changes at three key properties had a R6 million negative impact on the fund’s property income.“These properties have all undergone proactive asset management initiatives or planned changes in tenants which result in temporary vacancies but improve the overall portfolio.”

Revenue increased by 1% to R207 million while rental income was 1% lower at R201 million following the sale of the Medscheme head office and Meadowbrook distribution centre properties during the period.

Operating profit declined 53% to R64 million owing mainly to the impairment of goodwill and fair value adjustments.

Tower’s distribution paid to shareholders was 4.9% lower at 35.0 cents per share as a result of additional fund costs, including interest on capital spent on the South African property portfolio.

Edwards said key strategic decisions made by the company over the past few years have strengthened the balance sheet, improved the defensiveness and marketability of the portfolio and positioned the fund “to weather the storms in these times”.

These strategies include investing in Croatia, reducing the portfolio’s loan to value, particularly paying down Euro debt secured by SA properties, and repositioning the Cape Quarter Precinct as a lifestyle-focused area by developing 55 residential units and redeveloping retail space. The fund has also disposed of non-core properties to reduce debt and invest in properties with better growth prospects, while also refurbishing and reinvesting into properties to enhance the quality of the portfolio.

Edwards said Tower’s focus will remain on developing and selling the residential apartments at Cape Quarter and extracting value from existing properties in key nodes including Croatia, Claremont (Cape Town) and Rosebank (Johannesburg).The fund is also investing significant resources in re-letting the expiring Deloitte and Pernod Ricard premises in the Cape Quarter.

“While we expect distributions for the full year to May 2020 to be slightly down on last year, we are confident that the fund will deliver real growth to shareholders in the medium to long term,” he said.

Cape Town, 25 February 2020 – Equites Property Fund Limited (“Equites”) has concluded heads ofagreement with Africa’s largest fast-moving consumer goods retail operation, Shoprite HoldingsLimited (“Shoprite”), to establish a strategic joint venture which will facilitate the unlocking ofsignificant value for both parties.

The partnership will manage a portfolio of Shoprite’s distribution centres, serve as a platform for the development of undeveloped bulk land situated at Cilmor and Centurion, and pursue future property acquisition and development opportunities.

The transaction

Shoprite will contribute its Brackenfell and Centurion distribution centres valued at R2.0 billion to the joint venture. In exchange for a majority stake, Equites will inject cash of R2.1 billion which will partially be utilised to acquire the Cilmor distribution centre and the undeveloped bulk land in Brackenfell in the Western Cape for R1.2 billion. The joint venture will manage this logistics portfolio and will undertake future property acquisition and development opportunities as they arise, with Equites as the developer.

In addition, Equites and Shoprite will conclude three, 20-year “triple net” (fully repairing and insuring)lease agreements in respect of the Brackenfell, Cilmor and Centurion distribution centres within the joint venture, with a right to renew each of the leases for three further 10-year periods on the same terms and conditions. The initial yield on the leases will be 7.5% and the rental shall escalate at a rate of 5% per year.

Strategic benefits

The establishment of the joint venture will have the following benefits to both

Equites and Shoprite:

Equites, as a leading, specialist logistics REIT, will add to its existing property portfolio a high quality portfolio of distribution centres underpinned by long term leases with Shoprite;

The release of capital for Shoprite will allow for it to optimise its return on invested capital through redeployment into higher yielding retail projects and technology while providing both operational and capital flexibility going forward;

Equites and Shoprite will have forged a strategic partnership for their mutual, long-term benefit; and

Through their strategic partnership in the JVCo, Shoprite and Equites will share in any value which may be unlocked in the JVCo through future property acquisitive and development activities.

The transaction enhances Equites’ existing competitive advantage and, in addition, further distinguishes itself through the formation of this strategic partnership. This partnership provides Equites with the following strategic benefits:

Enhanced income certainty – this portfolio would constitute approximately 19% of Equites’property portfolio and its inclusion thereby improves the weighted average lease expiry periodfrom 9.5 years to 11.7 years;

Diversification of tenant base – the inclusion of Shoprite, Africa’s largest food retailer, as oneof Equites’ major tenants further diversifies its exposure to credit risk;

Superior quality builds – both the logistics campus and the modern distribution centres wereall built to Shoprite’s exacting requirements and to institutional standards;

Low expected volatility – through the conclusion of three, 20-year leases with a predictable,escalating cash flow profile, Equites is shielded from certain market risks which it wouldotherwise be exposed to; and

Cost-effective funding opportunities created – the long-dated, annuity income stream presentssignificant opportunities to reduce Equites’ cost of debt funding over the medium to long term.Equites CEO, Andrea Taverna-Turisan, said the company is delighted with the transaction as it has been challenging to acquire properties within the South African context which meet Equites’ strict investment criteria and these assets represent the top segment of the market. The transaction also presents the opportunity to partner with Shoprite in this strategic joint venture which we expect to culminate in the acquisition and development of further high-quality property assets into the portfolio.

About the properties

The Cilmor and Brackenfell distribution centres are situated in Brackenfell, one of the oldest and largest industrial hubs in Cape Town. Its major access routes are the N1 and the R300, providing easy access to Cape Town International Airport, Cape Town Harbour and Container Depot and Cape Town CBD while also conveniently located in close proximity to a large labour pool.

The Cilmor distribution centre is one of the most technologically advanced distribution centres on the African continent. The warehouse consolidates deliveries from about 500 suppliers and comprises frozen, ambient and chilled sections which house a variety of Shoprite’s retail products, reducing the requirement for storage space at retail sites.

The Brackenfell distribution centre comprises two ambient distribution warehouses including office and staff facilities, a refrigeration facility including office and staff facilities, a returns centre including office and staff facilities, a flow through facility including a flow through office and a receiving office and an office park.

The Centurion campus is situated in Louwlardia, which is an established logistics hub and is home to many national distribution centres. This location also provides access to a large labour pool.

The Centurion logistics campus consists of a dry goods warehouse including a safety store and staff facilities, a refrigeration facility including office and staff facilities, a returns centre including office and staff facilities, a truck workshop and ancillary buildings, as well as an office park housing Shoprite’s Gauteng regional head office. This campus not only services the Gauteng, Free State and Northern Cape markets but is also the platform for distribution into several other African countries.

Taverna-Turisan concluded: “The joint venture will enhance Equites’ existing competitive advantage as a specialist logistics investor and developer and create further scale in our high-quality logistics portfolio. A strategic partnership with Shoprite as the premier supermarket retailer in South Africa and Africa is an important milestone in the company’s aim to be recognised as a developer of choice to the largest logistics, retail and e-commerce participants in the South African market. “

Cape Town, 25 February 2020 – Equites Property Fund Limited (“Equites”) has concluded heads of agreement with Africa’s largest fast-moving consumer goods retail operation, Shoprite Holdings Limited (“Shoprite”), to establish a strategic joint venture which will facilitate the unlocking of significant value for both parties.

The partnership will manage a portfolio of Shoprite’s distribution centres, serve as a platform for the development of undeveloped bulk land situated at Cilmor and Centurion, and pursue future property acquisition and development opportunities.

The transaction

Shoprite will contribute its Brackenfell and Centurion distribution centres valued at R2.0 billion to the joint venture. In exchange for a majority stake, Equites will inject cash of R2.1 billion which will partially be utilised to acquire the Cilmor distribution centre and the undeveloped bulk land in Brackenfell in the Western Cape for R1.2 billion. The joint venture will manage this logistics portfolio and will undertake future property acquisition and development opportunities as they arise, with Equites as the developer.

In addition, Equites and Shoprite will conclude three, 20-year “triple net” (fully repairing and insuring) lease agreements in respect of the Brackenfell, Cilmor and Centurion distribution centres within the joint venture, with a right to renew each of the leases for three further 10-year periods on the same terms and conditions. The initial yield on the leases will be 7.5% and the rental shall escalate at a rate of 5% per year.

Strategic benefits

The establishment of the joint venture will have the following benefits to both Equites and Shoprite:

Equites, as a leading, specialist logistics REIT, will add to its existing property portfolio a high-quality portfolio of distribution centres underpinned by long term leases with Shoprite;

The release of capital for Shoprite will allow for it to optimise its return on invested capital through redeployment into higher yielding retail projects and technology while providing both operational and capital flexibility going forward;

Equites and Shoprite will have forged a strategic partnership for their mutual, long-term benefit; and

Through their strategic partnership in the JVCo, Shoprite and Equites will share in any value which may be unlocked in the JVCo through future property acquisitive and development activities.

The transaction enhances Equites’ existing competitive advantage and, in addition, further distinguishes itself through the formation of this strategic partnership. This partnership provides Equites with the following strategic benefits:

Enhanced income certainty – this portfolio would constitute approximately 19% of Equites’ property portfolio and its inclusion thereby improves the weighted average lease expiry period from 9.5 years to 11.7 years;

Diversification of tenant base – the inclusion of Shoprite, Africa’s largest food retailer, as one of Equites’ major tenants further diversifies its exposure to credit risk;

Superior quality builds – both the logistics campus and the modern distribution centres were all built to Shoprite’s exacting requirements and to institutional standards;

Low expected volatility – through the conclusion of three, 20-year leases with a predictable,

escalating cash flow profile, Equites is shielded from certain market risks which it would otherwise be exposed to; and

Cost-effective funding opportunities created – the long-dated, annuity income stream presents significant opportunities to reduce Equites’ cost of debt funding over the medium to long term.

Equites CEO, Andrea Taverna-Turisan, said the company is delighted with the transaction as it has been challenging to acquire properties within the South African context which meet Equites’ strict investment criteria and these assets represent the top segment of the market. The transaction also presents the opportunity to partner with Shoprite in this strategic joint venture which we expect to culminate in the acquisition and development of further high-quality property assets into the portfolio.

About the properties

The Cilmor and Brackenfell distribution centres are situated in Brackenfell, one of the oldest and largest industrial hubs in Cape Town. Its major access routes are the N1 and the R300, providing easy access to Cape Town International Airport, Cape Town Harbour and Container Depot and Cape Town CBD while also conveniently located in close proximity to a large labour pool.

The Cilmor distribution centre is one of the most technologically advanced distribution centres on the African continent. The warehouse consolidates deliveries from about 500 suppliers and comprises frozen, ambient and chilled sections which house a variety of Shoprite’s retail products, reducing the requirement for storage space at retail sites.

The Brackenfell distribution centre comprises two ambient distribution warehouses including office and staff facilities, a refrigeration facility including office and staff facilities, a returns centre including office and staff facilities, a flow through facility including a flow through office and a receiving office and an office park.

The Centurion campus is situated in Louwlardia, which is an established logistics hub and is home to many national distribution centres. This location also provides access to a large labour pool.

The Centurion logistics campus consists of a dry goods warehouse including a safety store and staff facilities, a refrigeration facility including office and staff facilities, a returns centre including office and staff facilities, a truck workshop and ancillary buildings, as well as an office park housing Shoprite’s Gauteng regional head office. This campus not only services the Gauteng, Free State and Northern Cape markets but is also the platform for distribution into several other African countries.

Taverna-Turisan concluded: “The joint venture will enhance Equites’ existing competitive advantage as a specialist logistics investor and developer and create further scale in our high-quality logistics portfolio. A strategic partnership with Shoprite as the premier supermarket retailer in South Africa and Africa is an important milestone in the company’s aim to be recognised as a developer of choice to the largest logistics, retail and e-commerce participants in the South African market. “

Contacts:

Andrea Taverna-Turisan		Lydia du Plessis
Chief Executive Officer –		Investorsense
Equites Property Fund Limited		082 491 7583
021 460 0404 or 083 444 6997		lydia@investorsense.co.za

 

About Equites Property Fund

Equites Property Fund Limited listed on the Johannesburg Securities Exchange (“JSE”) in 2014 and has established itself as a market leader in the logistics property space, with a vision of becoming a globally relevant Real Estate Investment Trust (“REIT”). The value of the fund has grown significantly from R1 billion on listing to R13.5 billion at 31 August 2019.

Equites focuses on owning and developing modern, well-located logistics properties let to A-grade tenants on long-dated leases. The fund has established itself as a leading owner and developer of high-quality logistics assets in South Africa and the United Kingdom.

Equites is the only specialist logistics REIT listed on the JSE. All the group’s assets are in proven logistics nodes near large population centres and major transport links that have predictable patterns of strong rental growth. The group focuses on premium “big-box” distribution centres, let to investment-grade tenants on long-dated” triple net” leases, built to institutional specifications. The locations of preference are Cape Town and Gauteng in South Africa and the central Midlands and “last-mile” fulfilment centres near major conurbations in the United Kingdom. While its exposure to the UK has been increasing, Equites remain a South Africa-focused fund and continues to focus on growing the South African portfolio through acquisitions and developments.

About Shoprite

The Shoprite Group operates a total of 2 842 outlets, supported by considerable distribution infrastructure and an integrated enterprise-wide information and technology system across 15 countries – a profile unmatched by any other retailer on the continent.

The Group includes four major corporate-owned and -operated food retail brands: Shoprite, Usave, Checkers and Checkers Hyper, together with operations serving the furniture, pharmacy and food services market. The Group generates the majority of its R150 billion turnover from food retailing.

Johannesburg, South Africa – 24 February 2020: While the overall risk environment has heightened since last year, a strategic focus on balance sheet management and a relentless pursuit on delivering sustained value is providing Redefine with a buffer against the economic challenges.

Weak business sentiment, ongoing load-shedding, “confidence-zapping” policies and uncertainty about prospects are combining to constrain domestic growth prospects and impact the outlook for the local property sector, says Redefine CEO Andrew Konig.

In his pre-close presentation made available to investors today, Konig said global macroeconomic and political uncertainty, the impact of the coronavirus and climate change risks, are among additional factors weighing on prospects.

“A robust balance sheet remains a critical lever to absorb the risks as weak local property fundamentals are likely to prevail in the medium term and growth prospects to remain tepid due to Eskom risks, a slow reform agenda and the weak global environment,” he says.

“We have adopted a purpose-driven strategic approach, which is highly appropriate for this environment. Redefine is on track to deliver sustained value, while ensuring it is well insulated from the storm,” emphasises Konig.

Distributable income per share for the 2020 financial year is set to be between 5% to 7% lower than 2019, given the weak global and local economic backdrop and with recycling activities having a dilutionary effect on current year earnings.

“Our emphasis on managing and improving recurring income streams continues, with non-recurring income being phased out. We have also embarked on a process to dispose non-core assets, which is a key pillar in our plan to lower our loan to value ratio,” he says.

Solid progress has been made to date on disposals and most transactions are expected to be implemented before year end. This process will also simplify and streamline the investment property asset platform, allowing for enhanced management focus.

Total non-core asset sales across the total portfolio are targeted at R8 billion.

The transfer of local property assets for sale, the disposal of a 48.5% interest in European Logistics Platform, and the disposal of interests in student accommodation are among the major sales of non-core assets currently on the agenda.

Redefine FD Leon Kok says while Redefine’s loan-to-value ratio was 43.9% at the end of August last year, the disposal activities will see this drop to below 40%, with head room to absorb potential adverse loan-to-value triggers.

“We are focusing on what matters most to deliver sustained value to all our stakeholders,” he says.

Kok also points out that the recent move to adopt a dividend payout policy ratio to fund operational capital expenditure resulted in R200 million of the 2019 distributable income being retained.

Redefine’s commercial portfolio, meanwhile, remains firmly focused on retaining existing tenants and reducing vacancies through continued leasing campaigns, direct canvassing and relationship building with broker houses.

While Redefine is concerned about the trading performance and valuations of regional and small regional shopping centres, its retail unit is focusing on several strategic initiatives to stay a step ahead. These include tenant retention and vacancy reduction in order to counter the impact of rental reductions, a further reduction of space with Edcon, driving sales growth to support rentals, innovative entertainment offerings and the roll-out of minor capex refurbishment projects.

Among positives, Rosebank Link – reached full occupancy in January 2020 and WeWork at 155 West Street opened in December 2019, with two floors already occupied

“In this challenging trading environment, it is important to get the basics right, while limiting speculative capital expenditure, and this is exactly what we are doing. We will continue to target organic growth and take advantage of opportunities as they arise, we are also focusing on delivering sustained value while ensuring we weather the economic storm,” concludes Konig.