As we anticipate our pre-close presentation that will be livestreamed on 29 August 2024, our Treasurer and Head of Risk Management, Warren Douglas reflects on the key insights discussed in our FY24 Annual Results Presentation and Debt Investor Presentation.
In this blog, Warren unpacks these insights by discussing the ways that we deliver value for tenants and assurance for investors at Equites.
As Equites’ Executive Head of Property Development, Jaun Knoesen, shared in a recent blog, “Every component of our development process is of utmost importance to us, from upholding our baseline specification to ensuring the quality of our final buildings.”
We design and develop warehouses strategically for the sake of our tenants to ensure that they are able to operate as seamlessly as possible in the logistics space. We aim to maximise their efficiencies, in terms of location and design elements, and minimise their environmental impact.
And, we don’t only do so for the here and now – we design with the future in mind, knowing that our buildings need to be able to stand the test of time, both in terms of durability and innovation.
Our dedication to serving tenants in this regard is evident in the following ways:
Investor note: Based on these positive outcomes, we can confidently say that our developments, together with strong lease escalations, result in formidable and consistent revenue streams and, therefore, solid returns.
We have focused efforts on recycling capital through the disposal of assets that no longer fit within our core focus, with the aim of freeing up capital to re-invest into the development of market-leading logistics developments in key nodes in South Africa.
To our advantage, we have a proven ability to successfully recycle capital. We have already recycled R4.8 billion to date and plan to recycle up to R3.5 billion in South Africa and the United Kingdom over the next 12 months.
Another benefit of asset recycling is that it will further reduce our loan-to-value (LTV) ratio. As it is, we are very comfortable with our current LTV of 39.6%. This metric points to the fact that our debt level is well managed and sustainable.
Speaking of our debt levels, our debt margins continue to tighten, and with effective interest rate hedging, we have been able to reduce our all-in cost of debt in both South Africa and the United Kingdom since August 2023. With monetary policy easing, which has already commenced in the United Kingdom and is anticipated to do the same in South Africa this year, our cost of debt will also come down further.
Our long WALE has given investors’ confidence in our balance sheet, and as a result we have been able to raise longer-term debt to replace maturing debt. In fact, we recently secured R650 million of seven-year debt in a private placement and R500 million of five-year debt in a public auction off our JSE-listed note programme, thereby further extending our debt maturity. This indicates the strength of our balance sheet and the confidence debt investors have in our continued success.
In the United Kingdom, we took a decision to reduce capital allocation to developments and exposure to land. Through the exit from the Equites Newlands Group Limited (ENGL) development platform, we have been able to do exactly this while retaining the ability to generate significant profits at Newport Pagnell (a £60 million transaction), Basingstoke and Coton Park.
The proceeds from the disposal of the development platform will be utilised primarily to repay interest-bearing debt and, importantly, will allow us to focus on investment opportunities which generate positive returns for shareholders.
The performance of our £275 million stabilised income-earning portfolio in the United Kingdom has been supported by two recent five-year rent reviews, resulting in sustained distribution growth and the reinforcement of our property valuations.
We place strong emphasis on environmental, social and governance (ESG) matters, enabling our tenants to be more energy efficient. We have begun including green lease provisions into our leases, for both renewals and new agreements, and strive to provide meaningful insights to tenants, helping them to improve energy consumption and reduce waste and water usage.
We invest in initiatives that enhance non-rental income, such as solar panels, to reduce tenant energy costs and create an additional revenue stream for the Group.
Within our portfolio, we have more than 20 MW of installed solar capacity, across half of our buildings, and we expect this to continue to increase with the continued rollout of solar installations on new developments and existing buildings. In May 2024, we began wheeling renewable energy, generated by solar PV, onto the City of Cape Town’s grid from one of these buildings, in Parow.
This wheeling arrangement enables us to receive almost 100% of our daytime energy requirements at our head office in Cape Town from a renewable source, and we will be able to facilitate the supply of green energy to other tenants, which is paid for at a reduced tariff through a Power Purchase Agreement.
We are further committed to expanding our sustainability efforts as we plan to install solar panels on all buildings within our portfolio and aim to use our infrastructure to supply other businesses in the country with renewable energy, ultimately alleviating demand on the grid and clamping down on carbon emissions.
These efforts tie in with our commitment to achieving IFC EDGE Advanced certification for all of our new developments, as stipulated in our baseline specification. Notably, we have achieved the more advanced Zero Carbon certification for one of our buildings and are working to achieve this status for two further buildings in FY25.
Going forward, we plan to bolster our current water-saving initiatives by introducing our first biological waste water treatment plant, where grey and black water can be recycled, at one of our logistics parks. This model is one that would be ideally suited to our other logistic park environments too, enabling the recycling of up to 70% water usage at these facilities.
Another future initiative that we are working towards is becoming a net-zero organisation by 2040, in alignment with the Science Based Target’s Net-Zero Standard. Our sustainability efforts have already been acknowledged in the IFC EDGE Champions award for 2023 and by placing on the Morningstar Sustainalytics’ ESG Top-Rated Companies List for 2024.
Further insights can be obtained in our 2024 Sustainability Report.
A closing note to investors
We regularly come to the debt market with clear objectives. Rather than raising additional funding, our current focus is on replacing maturing debt at a lower cost with a wider range of investors and for a longer duration, given the strength of our balance sheet and our long WALE. This proved to be the case in June when we secured the earlier-mentioned R500 million of five-year debt, and we look forward to what might be achieved when we come to the debt market again in November.
As with all components of our business across the logistics-focused real estate domain in South Africa and the United Kingdom, we are committed to practicing innovation and excellence – from developing best-in-class assets that offer A-grade tenants long-term, sustainability-driven solutions to our financial decision making. These efforts are all underpinned by our trusted experience and proven track record.
Find out more here.
