Making Sense of Reits

Making Sense of Reits

EPP posts 12% half-year distribution per share growth

Hadley Dean, CEO, EPP

EPP, is the largest owner of retail real estate in Poland. EPP is listed on the stock exchanges in Johannesburg (JSE) and Luxembourg (Euro MTF). It operates like a REIT, with a current portfolio of 19 retail properties, six office buildings and two development sites in Warsaw, Poland with one currently under construction, offering a total of over 835,000 sqm in Poland’s 20 biggest cities.

EPP grew closer to its stated goal of becoming a pure retail-focused company by expanding the share of retail property in its portfolio from 74% from the previous year to 85%, with retail gross lettable area (GLA) rising to 638,815m2.

EPP posted distribution growth of 12% per share to EUR 5.82 cents for the six months ended 30 June 2018. EPP’s results show distributable earnings increased 32% to EUR48.3 million. Net property income growth increased 45% to EUR66.2 million.

EPP’s successful acquisition of the first tranche of its three-phase M1 portfolio deal added 194,000m2to its retail property portfolio, increasing total income-producing assets to more than EUR2 billion.

Hadley Dean, CEO of EPP, comments: “We are pleased with the performance in the first half. Even with the new Sunday sales ban, our asset and property management teams were able to achieve strong returns. The retail sector in Poland continues to be fuelled by a growing middle class, and our vacancy rates remain below 1%.”

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Octodecpositions itself for sustainable value creation

Jeffrey Wapnick, CEO, Octodec

JSE listed REIT Octodec Investments Limitedtoday announced its full year results which were impacted by pressure on rental income growth. Octodec’s R12.9 billion portfolio comprising 306 properties, realised like-for-like growth of 2.6% in rental income and had a total core occupancy level of 88.4%. Total revenue increased by 3.1% while property operating expenses increased by 2.5%.

Jeffrey Wapnick CEO of Octodec says, “We achieved some rental income growth and kept the increase in operating costs relatively low while bad debt write-offs were maintained at acceptable levels. Residential vacancies which saw significant competitive pressures, specifically in Johannesburg CBD and Hatfield, was a key focus area for us. Marketing efforts and an enhancement of the tenant offering resulted in a reduction in vacancies to 5.8% at year end.”

Octodec acquired the remaining 50% of Gerlan Properties Proprietary Limited (Gerlan), at an initial yield of 9.25%. The property houses a Toyota dealership, situated in Gezina, Tshwane.

Twenty non-core or underperforming properties were sold during the period at a combined exit yield of 7.9% and a combined premium of 1.9% to book value. Ten of the sales transferred during the financial year for a total consideration of R61.6 million. A further two properties were transferred after the year end for a total consideration of R69.8 million. Transfer of the remaining eight properties for a total consideration of R92.1 million is expected to take place within the first half of the 2019 financial year.

Wapnick concluded: “The country continues to experience pressure from poor economic growth, increasing unemployment and higher costs of living. Strong demand continues to be experienced in our core CBD nodes for both retail and residential space however affordability remains depressed in the current environment.

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Atlantic Leaf Properties declares a 4.65 GBP pence interim dividend

Paul Leaf-Wright, CEO, Atlantic Leaf

 Atlantic Leaf Properties Limited (ALP), the Mauritian-based real estate company that focuses on commercial property assets in strategically positioned light-industrial and distribution nodes in the UK, today reported its results for the six months ended 31 August 2018. The company had a total of GBP 374 million in assets under management and a net asset value of GBP 204 million (NAV per share of GBP 1.08 per share).

Atlantic Leaf produced a solid set of results for the period under review. Earnings were up 5.5% and the Company declared an interim distribution of 4.65 GBP pence per share, up 3.3% over the prior year.

Commenting on the results, CEO Paul Leaf-Wright said:“Over this past 6 months we have focused on delivering our earnings target whilst also refinancing a major portion of our long-term debt. We are pleased to have been able to continue to grow our distribution to shareholders. The property market in the UK continues to perform well especially in the industrial sector, where the majority of our assets are exposed.”

In April 2018, Atlantic Leaf announced its plan to convert to a UK REIT and redomicile to Jersey. These plans are well on track with regulatory approvals and consents being obtained.

Commenting on the outlook for the Company, Leaf-Wright continued:

“The second half of the financial year will be challenging for us due to the lower income from the Brecon asset as well as the slightly higher cost of our new debt package which has increased our cost of debt from 3.3% to 3.6% (UK interest rates having increased slightly over the last few months). The refinance removes the risk of possible disruption in the finance market that could be caused by Brexit in 2019 and 2020. However, if we covert to a REIT in November our full year distribution would be nearer to 9,5 GBP pence and thus closer to the full 5% growth target previously communicated.”

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Equites Property Fund Limitedannounces growth of 11.7% in its distribution

Andrea Taverna- Taurisan, CEO, Equites Property Fund

Equites remains the only property fund listed on the JSE that offers shareholders pure exposure to modern logistics assets, combined with a proven in-house development expertise. Prime logistics has outperformed retail and commercial property, with strong demand being driven by the growth in e-commerce and retailers increasing efficiencies through sophisticated distribution networks.

The group increased its portfolio value from R1.0 billion to R10.1 billion in the four years since listing. Equites’ track-record of double-digit distribution growth, as well as strong net asset value growth continues to be acknowledged by investors, again awarding it the position of top performing Real Estate Investment Trust over the past three years, with an annualised total return of 24.8% per year.

Equites achieved an 11.7% growth in distribution, despite a tough macroeconomic climate. This growth was underpinned predominantly by:

–   a solid operational performance, including like-for-like rental growth of 7.8%,

–   acquisitions and developments which contributed 2.3%, at net initial yields that exceeded the underlying weighted average cost of capital;

–    a successful R800 million capital raise, lower financial leverage and a decrease of the group’s cost of debt.

Equites CEO, Andrea Taverna-Turisan, commented that “Its unrelenting pursuit of strong property fundamentals has resulted in a tenant profile of almost 93% blue chip companies, a long lease profile which further increased to 8.3 years and a strong contractual weighted average lease escalation profile of 7.9%, which supported robust like-for-like income growth. Continuous operational focus reduced vacancies across the portfolio to 0.2% and administrative costs were maintained at well-below sector averages. The group has successfully renewed 91% by GLA of industrial leases expiring in the year to February 2018 and is pleased that this was achieved with a positive average rental reversion of 4.3%. This represents a retention rate of 83% by GLA. 

The disruptive impact of e-commerce is creating profound structural tailwinds to prolong the cyclical upturn despite Brexit concerns and makes this market increasingly desirable.”

Taverna-Turisan concluded: “The South African economy is undoubtedly under severe strain, but the group continues to see demand for modern logistics space. Our conservative approach and focus on strong property fundamentals should enable Equites to continue delivering sector beating returns, despite economic constraints. “

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 Tradehold on track after restructuring

Friedrich Esterhuyse, CEO, Tradehold

In the six months to end August Tradehold repositioned itself as a dedicated property business after unbundling its financial services and solar energy business interests to shareholders and listing these separately on the JSE’s AltX as Mettle Investments.

It has 40% of its net property interests in the United Kingdom, 52% in South Africa and Namibia, and the remaining 8% elsewhere in Southern Africa. Pound sterling has been used as Tradehold’s reporting currency since its establishment.

As a result of the restructuring, Tradehold’s financial results for the six months are not directly comparable with the corresponding period in 2017 which included those of the financial services businesses.

During the reporting period tangible net asset value per share, which the board has accepted as the company’s measure of performance, came to 119 pence (R22.73) as against 127 pence (R21,33) in the corresponding period if the unbundled financial services are excluded. This represents a very substantial discount to the company’s share price which currently trades at about R12.50 a share.

Tradehold joint CEO Friedrich Esterhuyse said during the reporting period, subsidiaries in both its main markets had operated under the most challenging trading conditions.  In the UK this was due mainly to Brexit uncertainty and the rise in online shopping, while in South Africa the economy has slipped into a recession with little promise of a sustained recovery in the near future.

“In South Africa, we are increasing our focus on high-quality industrial warehousing which already represents 91% or 1.46m m² of our total of 1.61m m² gross lettable area. The weighted average lease profile of these properties, which counts companies such as Sasol, Pep, Unilever, MassMart and Nampak among their long-term tenants, is 7.17 years while vacancies have been maintained at 2%.”

To strengthen this focus, Collins Group, the name under which Tradehold operates locally, has started selling off certain non-core assets in its portfolio of 150 properties, these being 37 smaller buildings.  At the end of August, the total value of Collins portfolio, including the properties Tradehold owns in Namibia, was £501m (R9,57bn) compared to £576m (R9,4bn) as at 28 February 2018.  The Collins Group contributed 63,8 pence (R12,18) to net asset value per share.

In the UK, Moorgarth, Tradehold’s main subsidiary in that country which owns a portfolio of 23 properties diversified across a number of sectors, experienced a tough six months especially in terms of retail and commercial properties lettings. During that time it launched a concerted campaign to change the nature of its four shopping centres that account for just over 50% of the value of its portfolio. This was to accommodate the major shifts currently occurring in consumer buying patterns, online shopping in particular.

Esterhuyse added that the development pipeline on Moorgarth’s portfolio was in excess of £150m. “This will ensure, once planning approval has been granted, a significant reduction in the company’s reliance on conventional retail.” Moorgarth contributed 48.2 pence (R9.20) to net asset value per share.

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