Equites Property Fund: Price vs Value

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:

 

 

GoHighLevel
gohighlevel gohighlevel login gohighlevel pricing gohighlevel crm gohighlevel api gohighlevel support gohighlevel review gohighlevel logo what is gohighlevel gohighlevel affiliate gohighlevel integrations gohighlevel features gohighlevel app gohighlevel reviews gohighlevel training gohighlevel snapshots gohighlevel zapier app gohighlevel gohighlevel alternatives gohighlevel pricegohighlevel pricing guidegohighlevel api gohighlevel officialgohighlevel plansgohighlevel Funnelsgohighlevel Free Trialgohighlevel SAASgohighlevel Websitesgohighlevel Experts