After a tumultuous few years for South African listed property, the sector has made a strong start to the new year with JSE REITs leading the world through 2021. Equites Property Fund, led by CEO Andrea Taverna-Turisan, has bucked that trend of recent years. This niche property fund, focused on logistics and warehousing properties, has managed to benefit from concentrated bets on a property segment that still has further growth potential. The company produced a solid set of financials, seeing double-digit increases in revenue and distributable earnings, although other important performance metrics such as headline earnings were down by similar percentage points. Looking ahead, an almost non-existent vacancy rate and a weighted average lease expiry profile of over 15 years underpins the sustainability of these earnings.
From a numbers perspective, it was a stellar performance given the pressures of the sector. From a qualitative perspective, there were a few governance related issues pertaining to the independent valuations of the investment properties. Given that net-asset-value is tied to executive directors bonuses, this seems to cause a conflict of interest, which CEO Andrea Taverna-Turisan put to rest on the BizNews Power last night.
The JSE has got a three year rotation on valuations and international norms are that a third of your portfolio should be valued at a point in time. About 18 months ago, our board decided to be a little bit more conservative than that, so we are valuing every single property on an 18-month rotation rather than a three year rotation.
10X founder and former CEO, Steven Nathan, was the co-host for the evening and he gave an articulate and compelling investment case for Equites.
It really looks like a fantastic performance. The share price is around R19.20 and the dividend was R1.55, that’s an 8% yield. The weighted average lease has increased from 10 years to 15 years so there’s a lock in there of roughly 15-years of contracted income. Shoprite is a major tenant with a 5% escalation. So if you think of it in a way, you are buying a quasi-bond, with some great tenants and some great price increases locked into that yield. If you buy a government bond, you get 8% and you get no income or capital growth.
Analysts across the board seem divided on this one. Although the performance was phenomenal, the share price is trading at a premium to net-asset-value. This is unheard of amongst the listed property sector of the JSE, with ‘blue-chip’ diversified REITs such as Growthpoint trading at significant discounts to book value. For good reason, however, with Growthpoint experiencing high vacancy rates, large exposure to retail and office space and a frail balance sheet.
Equites may be seen as expensive on relative valuations metrics. Quality companies with a good track record tend to stay expensive.
“Price is what you pay, value is what you get.” – Warren Buffet
Read also:
- Equites CEO: Andrea Taverna-Turisan on bucking the property trend
- SA e-commerce growth drives demand for logistics spaces: Equites Property Fund
- Property: Where to be positioned in 2021?
