SAREIT

Growthpoint Properties (JSE: GRT) has entered into a milestone Power Purchase Agreement (PPA) with Etana Energy for 195GWh* of renewable energy a year, representing 32% of its total current annual electricity consumption (612GWhs in FY23).

In November 2023, South Africa’s leading REIT, Growthpoint, signed a PPA with licenced electricity trader Etana Energy to wheel** electricity to its commercial property buildings in several jurisdictions across the country.

The deal has set in motion the country’s first multi-jurisdiction, multi-building, multi-source renewable energy wheeling arrangement, and will enable Growthpoint’s tenants to access green energy and reduce their carbon footprint.

Through this agreement, Etana will cover 70% of the power consumed by Growthpoint’s participating buildings, and in some buildings, Growthpoint will even be able to provide its tenants with the ability to purchase 100% renewable energy and actively drive carbon reduction.

“The wheeled renewable energy will mainly consist of wind, with a smaller component of hydro and large-scale solar electricity. The combination of generation sources allows for a high coverage of Growthpoint’s energy use, as electricity is generated throughout the day and night.

Estienne de Klerk, SA CEO of Growthpoint Properties, says, “This initiative significantly advances Growthpoint’s progress towards our climate commitment of being carbon neutral by 2050. We are extremely pleased to collaborate with energy innovators like Etana and Serengeti to support our tenants to reach their own environmental goals by giving them access to renewable energy.”

As a result of the agreement with Etana Energy, Growthpoint has exclusive rights to purchase all of the roughly 30GWh that will be generated annually by a 5MW hydroelectric power plant developed, owned and operated by Serengeti Energy. The project is situated on the Ash River within the Lesotho Highlands Water Scheme (LHWS), close to Clarens in the Free State, which provides the added benefit of effectively generating 24/7 baseload power***. Growthpoint has also shown some interest in investing in the power plant by signing a Memorandum of Understanding with Serengeti Energy. Serengeti Energy owns and manages renewable energy projects of up to 50MW (mainly hydro) in sub-Saharan Africa and currently operates nine plants in five countries.

Initially targeted for South Africa’s Renewable Independent Power Producer Programme (REIPPPP), which contributes private sector-produced electricity to the national grid, Serengeti’s focus for this hydro plant shifted, and it advanced the project for the commercial and industrial sectors.

Strafford Harris, Managing Director SA, Serengeti Energy, comments, “Hydro as a technology most definitely has a role to play in the energy mix in South Africa. It is encouraging for our sector to have concluded a PPA with Etana and Growthpoint, supporting appreciation for this technology not only for industrial use but also in the commercial sector.”

The project is being constructed on the water transfer scheme between Lesotho and South Africa, within the LHWS and positioned to produce reliable baseload power. It is also well placed to capitalise on the LHWS Phase 2 future expansion. The hydroelectric power plant has reached financial close and is currently under construction. The commercial operations date is expected to be 1 July 2025, when it will supply its first electricity to Growthpoint, wheeled via the Eskom grid and traded through Etana.

Thereafter, the commissioning of wind and additional solar production from Etana’s portfolio of renewable energy projects connected to the national electricity grid will commence.

Reyburn Hendricks, Director of Etana Energy, comments, “We’re tremendously excited to be partnering with Growthpoint and Serengeti to help address SA’s electricity crisis and reduce the carbon intensity of our energy system. Business has a clear role to play in solving our biggest challenges, and this is a highly replicable, scalable example of how to achieve this while creating value for all involved.”

Etana provides cost-competitive clean energy access from new large-scale renewable energy projects connecting to the SA grid. It has partnered with IPPs on multiple ready-to-build wind, hydro and solar projects with secured grid connections, which will come online over the course of 2025 and 2026. The company’s strategic focus on wind (and, in this case, hydro) projects enables greater renewable energy supply coverage compared to solar options alone, optimising cost savings and environmental benefits.

Emira Property Fund (JSE: EMI) has finalised a scheme of arrangement resulting in Transcend Residential Property Fund becoming wholly owned by Emira.

In 2018, Emira took its first 34.9% stake in the then JSE-listed REIT Transcend, thereby diversifying its investments to include the value suburban multifamily residential rental property segment.

Geoff Jennett, CEO of Emira Property Fund, comments, “Our journey with Transcend is a success story for Emira. We partnered with the right asset management team to advance our diversification and earn good returns.”

Since the initial investment, shifts in the market saw the appetite for small-cap stocks dry up and, being very illiquid, there was no longer value in Transcend remaining listed. Emira responded by increasing its ownership in Transcend with a view to bringing it in-house. Emira grew its holding in Transcend to 68%, eventually reaching 100% late last year. Subsequently, Transcend has been delisted from the JSE.

Jennett adds, “We are pleased to have successfully converted a good indirect equity investment into a wholly owned subsidiary, adding another powerful lever to Emira’s overall diversified strategy. Residential property now represents about 16% of our South African portfolio, although this is likely to change in line with market opportunities.”

This transaction continues Emira’s track record of advancing its strategies incrementally, starting by taking an initial position in opportune investments to establish a springboard from which to assess, create and grow value for shareholders over time.

Emira’s investment approach has played out advantageously in its take-up and subsequent sale of a stake in Growthpoint Properties Australia and its co-founding and accretive sale of its stake in specialist retail fund Enyuka. This tactic is also driving Emira’s incremental investment into the US where its asset-by-asset capital allocation approach with in-country specialist co-investment partner, The Rainier Companies, has secured a meaningful 19% of Emira’s asset base offshore in equity investments of R2.8bn (USD151.9m) comprising 12 grocery-anchored open-air convenience shopping centres.

Jennett notes, “At Emira, we actively manage our capital allocation, and constantly assess assets for their optimal use and act accordingly. There is nothing passive about our approach to our assets even though it does take time.”

Emira has a diversified portfolio that is balanced with a mix of assets across sectors and geographies. In South Africa, Emira’s 91-property strong portfolio includes commercial (retail, office and industrial) and residential assets valued at R12.1bn.

Ensuring consistency for the Transcend portfolio’s 4,000 tenants, the properties will continue to be managed by highly-regarded International Housing Solutions (IHS) while also benefitting from greater alignment with Emira’s systems and a bigger bank of industry knowledge, which includes a wealth of experience across property sectors as well as solar PV plants, biodiversity and community projects.

Eco-friendly, green and relaxing – trees and plants benefit everyone. They bring more biodiversity to big cities, reduce CO2 emissions, feed people and attract pollinators that are vital for food security and environmental sustainability.

Emira Property Fund (JSE: EMI), the diversified, balanced REIT with a track record of delivering stability and sustainability through different cycles, keeps improving its surroundings for the good of its stakeholders, including serving communities. To make a greater positive impact on the environment, Emira strategically partners with the World Wide Fund for Nature (WWF) and Trees for Africa.

By creating a sustainable environment of indigenous plant life, Emira provides a better overall experience for tenants and visitors at its properties, while also enhancing nearby communities. The company plants fruit and shade trees, as well as spekboom (Portulacaria Afra), at its properties, blending real estate with nature and demonstrating ecological responsibility.

As an indigenous succulent, spekboom is a hardy xeriscaping plant that is drought-tolerant, 670 spekbooms have been planted at 26 of Emira’s properties across South Africa, bringing nature closer to people, making cities greener and the air cleaner, and enhancing biodiversity. Significantly, spekboom contributes to cleaner air by directly catching pollution with leaves. This resilient plant has an exceptional capacity to offset carbon emissions and helps fight climate change and air pollution by acting like a carbon sponge and removing carbon dioxide from the atmosphere.

Continuing its annual tradition, Emira has again partnered with Food & Trees for Africa to offset its operational carbon emissions for company travel, staff commute and paper consumption. In 2023, Emira donated 150 fruit trees and indigenous shade trees of different varieties through the Trees for All programme. The trees were planted at Watercrest Primary School, Cedar High School and Sivile Primary School, all in the Western Cape. During their 40-year growth period, these 150 trees will offset 55,35 tonnes of CO2 and provide a healthier environment.

Ulana van Biljon, Chief Operating Officer of Emira, says, “Emira is dedicated to sustainable business. We focus on environmental protection and addressing our clients’ needs, many of whom expect their business partners to consistently act responsibly in response to present-day challenges, such as renewable energy, water security, clean air and urban biodiversity conservation. Our local efforts, such as planting trees in communities and growing spekboom around our properties, demonstrate that we believe that even the smallest initiative is meaningful. We promote this attitude to encourage others to care for our shared home, Planet Earth.”

Planting is one of the various ways that Emira makes a positive contribution to biodiversity. Since 2020, it has installed 16 beehives at eight of its properties in Gauteng and KwaZulu-Natal to address the decline of global bee populations, which contribute so much to society, as well as the biodiversity at its properties.

Additionally, Emira undertakes recycling for its tenants and shoppers, uses solar energy from rooftop installations, harvests rainwater, applies various energy- and water-saving initiatives, plants community gardens and composts plant matter.

“As biodiversity is a crucial part of healthy ecosystems, protecting it is inextricably linked to the well-being of people and communities. Whether or not people appreciate it, healthy ecosystems need to co-exist with the world of business, the natural world provides economic support and forms the country’s ecological infrastructure, offering clean air, water, arable land and food for its people,” says van Biljon.

Growthpoint Properties (JSE: GRT) has let the first two of six units in phase one of its new Arterial Industrial Estate development in Cape Town to Jotun, one of the world’s leading paints and coatings manufacturers.

Arterial Industrial Estate is a ground-breaking industrial development by Growthpoint on a sizable 71,656sqm site in the heart of the growing and modernising established industrial area of Blackheath, Cape Town.

The ambitious R509m two-phase development plan will create a high-quality industrial park that meets the needs of contemporary industries. Construction of the first phase spanning 19,741sqm is already in progress, having commenced in July 2023. This phase features six warehouse units, ranging from 2,945sqm to 5,713sqm, each with a two-storey office block. The clever design includes the flexibility to link units and create larger spaces either from the outset or to accommodate future expansion.

Jotun has opted to combine two units for its new larger head office premises of 5,713sqm. Growthpoint’s ability to respond to the international company’s extensive fire protection needs at Arterial Industrial Estate has resulted in a significant investment from Jotun in South Africa for the next decade.

Timothy Irvine, Growthpoint Regional Asset Manager for the Western Cape, remarks, “We are pleased to extend our good relationship with Jotun, and to accommodate the bespoke solutions necessary to match their specialised requirements and high standards.”

He adds, “We remain committed to creating a state-of-the-art environment for businesses and we are excited to see this new investment in industrial real estate in Cape Town taking physical form. This new product in an up-and-coming area is attracting keen interest and achieving rentals that match its high quality.”

Jotun will begin trading from its new home upon completion of the first phase of Arterial Industrial Estate from April 2024.

Martin Trane Ibsen, MD of Jotun Paints South Africa, says, “Our newest, state-of-the-art warehouse, factory and Southern Africa head office hub situated in Cape Town will increase our capacity and capabilities in Southern Africa. It is a huge step forward in supporting our customers across the region and the country, and we are pleased to partner with Growthpoint for the long term as we continue to grow our presence in this market.”

Key features and amenities of the industrial estate include a central location – close to the airport, public transport and local eateries – 24-hour security and access control, water efficiency and energy efficiency.

The estate’s strategic position adds to its appeal, being in an already thriving district with exceptional connectivity to key main routes. Its proximity to the R300, N1, N2 and the Cape Town International Airport, combined with prominent visibility along the Stellenbosch Arterial Road, further accentuates its advantageous location. The development’s proximity to arterial roads and air and sea ports ensures businesses can efficiently connect with local and global markets.

Growthpoint’s development of Arterial Industrial Estate is not only driving economic growth, but its commitment to sustainability aligns with the climate targets of many local and international companies, such as Jotun’s global initiative to reduce its carbon footprint by 50% by 2030. The integration of energy-efficient features and eco-conscious design elements sets a benchmark for environmentally responsible industrial spaces.

“Embracing green building practices is our standard. Sustainability is deeply ingrained in our approach. Arterial Industrial Estate will achieve a 4 Star Design and Built Green Star ratings. With regulations getting stricter and utility costs rising, prioritising efficient buildings has become even more crucial,” says Irvine.

Upon completion of phase one of Arterial Industrial Estate, the development will advance to its demand-driven second and final phase, encompassing 21,728sqm. Phase two will add a further six warehouse units, ranging from 2,831sqm to 5,229sqm, enhancing the park’s capacity to cater to diverse business needs.

Fairvest Limited today announced results for the year to 30 September 2023, with an annual distribution of 132.53 cents per A share and 41.29 cents per B share, within the guidance issued to the market. Chief Executive Officer, Darren Wilder said: “Fairvest has made excellent progress to de-risk its balance sheet, reduce vacancies and
dispose of non-core assets. He said Fairvest was pleased with its disposals of just under R1 billion this year and achieving like-for-like net property income growth and positive rental reversions. This is notwithstanding exceptional headwinds in the form of a weak economy, high-interest rates and sustained load shedding.” He said that Fairvest is operationally strong and agile in a rapidly changing environment.

Operations

In what has been a challenging economic environment, Fairvest experienced positive letting activity and a strong performance from the portfolio. Vacancies decreased from 5.9% in the prior year to 4.5% at 30 September 2023, with an aggregate retention of 86.5% of GLA. Rental reversions were positive at 2.8% overall, comprising retail +3.3%, office -0.4% and industrial +5.8%. The weighted average lease escalation across the portfolio was 6.6%, with retail at 6.5%, office at 6.9% and industrial at 7.0%. The weighted average lease expiry was 29.0 months.

Expenses have been exceptionally well contained at 1% growth despite most expense items increasing in line with inflation. The Group continued to invest in its property portfolio, incurring a capital expenditure of R190.3 million, of which R26.2 million was for further solar investments.

Disposals
The Group’s stated strategic objective remains to continue its move towards a retail-focused fund by disposing of non-core assets. Great strides were made during the year, with a total disposal of R989.3 million. Seven disposals valued at R338.0 million were finalised at an average yield of 10.5% and a 3.2% premium to book value. SA Corporate Real Estate Limited also acquired all the issued shares of Indluplace at R3.40 per share, equating to R651.4 million for Fairvest’s shareholding. The scheme was concluded on 31 July 2023. This disposal of its entire residential portfolio marks significant progress in Fairvest’s strategic realignment to a retail-focused fund. A further six properties valued at R307.3 million are currently held for sale, pending registration and transfer.

Debt funding
The Group reduced its net debt ratio from 38.1% to 33.3% through these disposals and is now well within the Group and portfolio LTV covenants for its facilities. The weighted average interest rate for the year was 9.74% (2022: 8.97%), increasing in line with the SARB repo rate.

The weighted average maturity of the debt was 2.2 years, with 64.8% of the debt being
hedged. The interest rate swaps have a 1.6-year weighted average maturity.

The Group interest cover ratio (“ICR“) is 2.5 times, above the two times cover required by its funders and well above the portfolio ICR covenants of all funders.

“At year-end, the Group had cash on hand and undrawn debt facilities of approximately R1.0 billion to execute its strategic initiatives”, said CFO; Jacques Kriel. The Group also finalised a syndicated loan process to re-finance various maturities and streamline the borrowing structure for the Group. This has resulted in a new consolidated debt pool consisting of R3.1 billion of debt facilities, of which R2.1 billion are new. The average margin to three-month JIBAR achieved on the new facilities is 1.62%.

Environmental, Social and Governance Projects
The Group made considerable progress with its integrated backup power strategy, aimed at maintaining business continuity in adverse conditions. The Group has 38 solar plants with 16.4MWp of installed capacity, producing 10.1% of the combined portfolio’s electricity requirement for the year. Fairvest’s first ground mount solar farm of 1MWp at Cleary Park Shopping Centre was switched on in January 2023, followed by Eersterust Shopping Centre of 402kWp in February and a 134kWp plant at Midrand IBG in March. A further 12 approved plants are in various stages of implementation, which will add 7.5MWp capacity. In combination with its 58 generators with 14.2MVA capacity, 45% of the portfolio now has access to partial or full backup power.

Several water management projects are also underway, including 18 groundwater harvesting plants that are in operation, with a further two currently in the construction phase.

Outlook
The challenging operating environment is expected to persist, with interest rates expected to remain higher for longer. The Group made excellent progress in reshaping its portfolio to a retail-focused fund, and disposals will continue in 2024 while also starting to explore acquisition opportunities in the non-metropolitan rural retail sector.

Fairvest again expects net property income growth from all sectors on a like-for-like basis for the 2024 financial year. Combined with synergies achieved through the merger, this should generate growth in distributable earnings per B share, with the anticipated distribution per B share to be between 41.50 cents and 42.50 cents per share for the 2024 financial year, despite the significant increases in interest rates during the year. Distribution per A share will increase by the lesser of 5% or the most recent Consumer Price Index (“CPI”). The Board has resolved to maintain the current 100% dividend payout ratio of distributable earnings.