Published Date: 2021-10-14 | Source: INCE|Community | Author: The Finance Ghost
Unfortunately, Equities and Eskom Pension and Provident Fund (EPPF) aren't teaming up to solve load shedding for us. We can only dream.
Instead, they've agreed to establish a joint venture company in which Equites will hold 51% and EPPF the remaining 49%. Equites will put R732 million into the pot to kick things off and the joint venture will target an initial loan-to-value (LTV) ratio of 30%.
The first acquisition is a property belonging to logistics company DSV in the bustling metropolis of Witfontein in Gauteng. The property is next to the R21, near Kempton Park. The purchase price is R2.05 billion, which equates to an initial yield of 7.68%.
The bigger strategy is to build a "world-class logistics property portfolio in South Africa" and there's plenty of firepower behind this joint venture, as EPPF manages around R145 billion in assets. The SENS announcement from Equities highlights the possibility of the property fund diluting its exposure to existing South African logistics properties by selling portions to the joint venture, which would free up capital to invest in the development pipeline in the UK and South Africa.
This is a sale-and-leaseback by DSV, which is a transaction in which an operating company sells its properties and then leases them back. This helps to move the capital requirement from an operating company to a property company, which can typically raise cheaper funding and has a lower required return on capital than the operating company.
The DSV property acquisition features a ten-year lease with two renewal options of three years each. DSV's local subsidiary is part of an international group listed on the Copenhagen Stock Exchange, which operates in more than 80 countries and employs 57,000 people. With a major acquisition in the process of being closed, DSV will become the third largest third-party logistics provider globally.
In summary, Equites is very pleased to have DSV as a tenant.
I've often read about triple net leases, which puts all the costs of the property on the tenant and effectively locks in an almost guaranteed return for the landlord (provided the tenant doesn't default). This is a double net lease, which means that the landlord would be responsible for only a limited list of structural items.
One of the conditions of the transaction is that the purchaser (the joint venture) must have an undisclosed minimum level of Black Ownership as measured under the B-BBEE Codes. Equites is cleverly positioning itself to be a partner for companies looking at sale-and-leaseback transactions as a way to boost procurement scores under the Codes.
This transaction will increase Equites' LTV ratio from 28.6% to 31.7%.