The sale through an off-market, accelerated book-building initially sought to raise R500m and was increased due to strong demand. Even at R1bn, it was oversubscribed, Taverna-Turisan says from Cape Town. The firm could have raised more money but prefers to avoid the risk of “cash drag” caused by having too much undeployed capital on the balance sheet, he adds.
Equites is a specialist logistics real estate investment trust (REIT) listed in Johannesburg. Tenants in South Africa include Shoprite, Pick n Pay, Imperial Logistics and Nestlé. The firm has been seeking ways to diversify away from the South African market and is betting that the rise of e-commerce will mean increased demand for warehouse space in the UK.
At R12.8bn, the value of the South African portfolio is nearly double the R6.5bn value of the UK holdings. Taverna-Turisan expects that the two portfolios will be of roughly equal value in three to five years.
The size of the projects available in the UK is one attraction.
- The value of UK developments is about 3.5 times bigger than those in South Africa, Taverna-Turisan says. Tenants in the UK include Tesco, Puma and DHL.
- The British pound also offers a hedge against rand volatility, Taverna-Turisan says.
Equites has a 60% stake in a joint venture with UK property developer Newlands. As part of the venture, it has signed agreements to develop facilities for Hermes Parcelnet in Barnsley, in the north of England, with a forecast yield of 5.3%; and for Amazon at Cambridge, in the east, with a 5.68% yield, both net of Newlands profits.
- The fact that the yields exceed UK market levels of about 3% reflects the value added by the partnership, Taverna-Turisan says.
- Newlands is also in negotiations with a global e-commerce provider to develop a £200m facility in Basingstoke, southern England. Equites is not funding the development but expects a profit on its land holding.
Taverna-Turisan says he is positive about the outlook for the British economy. “The UK has an ability to attract international capital better than anywhere in the world relative to the size of its economy,” he says. The country’s prospects are “stronger” after Brexit, and the UK will compensate for lost trade with the European Union by finding new opportunities elsewhere, he says.
- Still, there are European countries where Equites might consider investing, such as the Netherlands, Germany and Scandinavian countries.
- France, Spain, Italy and eastern Europe are off the radar, he adds.
- Equites does not plan to invest in the rest of Africa due to legal unpredictability.
- Taverna-Turisan says he prefers a more “conservative” approach to risk and return, pointing to the example of the MultiChoice pay-TV group, which has had its bank accounts in Nigeria frozen amid a tax dispute. “Where did that come from?,” he asks
Equites is eschewing growth prospects in African logistics and betting on post-Brexit Britain.
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