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EQUITES PROPERTY FUND LIMITED - Transactional update

Release Date: 22/01/2020 12:35
Code(s): EQU     PDF:  
 
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Transactional update

EQUITES PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2013/080877/06)
Share code: EQU ISIN: ZAE000188843
(Approved as a REIT by the JSE)
("Equites" or "the group")


TRANSACTIONAL UPDATE


Overview

Since the last reported results at 31 August 2019, the group has continued to focus on securing development
deals with blue chip tenants in key logistics nodes and executing its development pipeline by delivering
modern and efficient logistics facilities to tenants both in South Africa and the United Kingdom.

When evaluating the feasibility of a development deal, the group determines an acceptable rate of return over
the investment horizon by calculating its weighted average cost of capital and adding an appropriate risk
premium which considers the development location, lease length, lease escalation rate, covenant strength and
any other factors that might materially alter the investment risk.

South Africa

Equites has continued to establish itself in South Africa as a developer of choice to some of the biggest names
in logistics, retail and e-commerce and has grown its pipeline through tenant-driven developments.

The group is expected to achieve initial yields of between 7.90% - 8.90% in respect of the deals concluded
below, a level which exceeds the acceptable rate of return for each development.

Development agreement for the construction of Pepkor DC in Hammarsdale, Kwazulu-Natal

As released on SENS on 20 January 2020, Equites concluded binding heads of agreement with Pepkor Trading
Proprietary Limited, a wholly-owned subsidiary of Pepkor Holdings Limited, to develop a 122 734m² logistics
warehouse facility on land situated in Hammarsdale, KwaZulu Natal at an indicative total cost of development
of R1.3 billion.

Equites has agreed to purchase the land, to undertake the development of the warehouse and to conclude a
15-year lease with the right to renew for an additional three five-year periods.

Development agreement for the construction of Altron DC at Meadowview, Gauteng

Equites commenced the construction of a new 25 001m² logistics campus for Allied Electronics Corporation
Limited ("Altron") in October 2019 at Equites Park – Meadowview, one of the Group’s premier logistics
parks in Gauteng. The asset will consist of a modern distribution centre and a significant A-grade office
component. The building is expected to have a capital value of R222 million on completion, when the newly
concluded 12-year lease will commence. Construction is expected to be completed by July 2020.

The development arose out of the consolidation of four of Altron’s existing distribution facilities into a single,
modern distribution centre. This move is expected to result in significant efficiencies for the tenant in future
and Equites expects to see more of this consolidation in the South African market over time.

Development agreement for the construction of Digistics DC at Meadowview, Gauteng

Equites commenced the construction of a new 21 026m² distribution centre for Digistics at Equites Park –
Meadowview in November 2019. The asset will consist of a modern distribution centre (including a chiller
facility) and a small office component. The building is expected to have a capital value of R180 million on
completion in October 2020, when a new five-year lease will commence with the tenant, with the option to
renew for an additional 5 years.

This development deal was concluded as a result of the group’s thorough understanding of this existing
tenant’s requirements for additional distribution space for future expansion in Gauteng.

Conclusion of development agreement for the construction of Sandvik DC at Witfontein, Gauteng

Equites concluded a development agreement with Sandvik Mining RSA Proprietary Limited ("Sandvik") to
develop approximately 22 599m² of warehouse and office facilities in Plumbago, Gauteng. The capital value
of the project is approximately R271 million. The ten-year lease (with a right to renew for a further 5 years)
is expected to commence upon completion of the development which is anticipated to be in January 2021.
Sandvik forms part of the Sandvik AB group of companies, a STO-listed, multinational high-tech engineering
group. This transaction is the first development agreement concluded at Equites Park – Plumbago. The group
continues to see strong occupier demand in this precinct because of its ideal location on the R21 and R23
interchange and its close proximity to OR Tambo International Airport and expects to conclude several other
deals in this location in the coming months.

United Kingdom

Equites has continued to implement its low risk strategy in the UK by focusing on premium logistics facilities
built to institutional specifications in key logistics nodes, let to investment grade tenants on long-dated FRI
leases. The transactions below have been concluded in line with this strategy.

Conclusion of development agreement for the construction of Roche DC at Burgess Hill

Equites has entered into an agreement to forward fund the construction of a 53 400 sq. ft modern distribution
centre for a maximum commitment of £13.3 million to be let to Roche Diagnostics Limited ("Roche"), a Swiss
multinational pharmaceutical group, at The Hub, Burgess Hill, United Kingdom. This facility is prominently
located in Burgess Hill which is less than 20 miles from London Gatwick. This development is expected to be
complete in the next month.

The development is pre-let to Roche on a 15-year FRI lease with RPI linked upward only rent reviews every
5 years with a collar and cap of 1.75% and 3.50%. The initial annual rent has been agreed at £627 450,
reflecting a rent per sq. ft of £11.75, implying an initial yield on the deal of c.4.72%.

Conclusion of development agreement for the construction of last-mile parcel sortation centre for DHL
in Leeds

Equites has entered into an agreement to forward fund a DHL Sortation Centre of 57 383 sq. ft with a
maximum commitment of £12 million. The site is a proposed last mile parcel sortation centre which will be
situated in Total Park, Leeds. Leeds offers excellent labour dynamics and a strategic distribution location with
access to Junction 45 of the M1.

The asset will be let to DHL International (UK) Limited on a new 15-year FRI lease to from practical
completion which is expected to be in July 2020. The initial annual rent has been agreed at £585 307, reflecting
a rent per sq. ft of £10.20, implying an initial yield of c.4.88%. The rent is based upon a ‘base rent’ of £6.00
per sq. ft and applying a rental multiplier of 1.7x to factor in the ultra-low site coverage. The lease is subject
to upwards only open market rent reviews every five years.

22 January 2020


Sponsor
Java Capital

Date: 22-01-2020 12:35:00
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