SA Corporate Dec 2019 Results Presentation March 2020 AGENDA - - PowerPoint PPT Presentation

SA Corporate Dec 2019 Results Presentation

March 2020

AGENDA

01 03 04 05 02

Overview Portfolio Performance Financial Performance Strategy Update Outlook

Rory Mackey Rory Mackey Antoinette Basson Rory Mackey Rory Mackey

OVERVIEW RORY MACKEY

Total distribution of R960,0m

(2018: R1 068,2m)

Annual distribution of

38.04cps (2018: 42.22cps),

a decline of 9.9%

Final distribution

Overview

H2 Detractors

• R74,6m

NPI Like-for-like Retail Portfolio R16,5m Municipal accrual reversals and back charges R4,7m Increased vacancy, reduced turnover rental & non-GLA income R11,8m Redeveloped Retail Properties R18,5m Longer leasing take-up of redeveloped space R13,7m Municipal accrual reversals and back charges R4,8m Industrial R4,2m Prolonged vacancy in Springfield property (subsequently contracted sale) Commercial R5,7m Worsening vacancy Afhco R18,3m Xenophobic attacks R10,3m 120 End Street incident Municipal accrual reversals and back charges R8,0m Increase in bad debt provisions R11,4m

4

Capital structure

Weighted average cost of funding

• f 8.15% exclusive of swaps &

8.47% inclusive

Weighted average maturity of debt

• f 2.9 years

Effective fixed debt of 72.4% with a weighted average tenor of

3.4 years R4,6bn of debt refinanced

Loan to value ratio of 37.9%

Overview

Property activity

Contracted and executed acquisitions

• f R359,5m

(2019 transferred: R120,6m; R238,9m contracted and paid)

Contracted and executed disposals of

R834,4m

(2019 transferred: R427,7m; 2019 contracted: R177,0m; 2020 contracted: R229,7m)

Completed developments of

R322,3m Portfolio performance

Total net property income of

R1,35bn

(2018: R1,43bn)

Total like-for-like net property income declined by 1.5% to R944,6m

(2018: R959,2m)

Traditional portfolio vacancies of 4.2%

• f GLA

(2018: 2.1%)

5 Independently valued property portfolio of

R17,37bn

(2018: R17,44bn)

PORTFOLIO PERFORMANCE RORY MACKEY

SA Portfolio: Retail

7

1 Excludes Storage as only significant sectors reflected.

Like for like NPI growth

1.4%

2018: 2.9%

Value of total portfolio

42.8%

2018: 43.3%

Arrears

7.9%

2018: 7.9%

Vacancy1

4.4%

2018: 4.1%

WALE

3.6 Years

2018: 3.9 Years

Rental escalation

7.5%

2018: 7.6%

Rental reversion

• 5.4%

2018: -4.6%

Trading density growth

5.8%

2018: 2.4%

Non-GLA income growth

9.4%

Vacancy

16.0%

2018: 6.2%

WALE

1.6 Years

2018: 1.9 Years

Tenant retention success rate

51.5%

2018: 78.8%

SA Portfolio: Commercial

8

Rental reversion

2.7%

2018: -1.5%

Rental escalation

7.8%

2018: 8.0%

Buildings Sold 2019: 6 Buildings sold

2018: 3 Buildings sold

Value of total portfolio

3.2%

2018: 5.2%

Like for like NPI decline

• 16.4%

2018: 1.7%

Arrears

6.0%

2018: 2.1%

Arrears

4.4%

2018: 1.8%

WALE

2.5 Years

2018: 3.1 Years

Rental escalation

7.4%

2018: 7.8%

SA Portfolio: Industrial

9

Logistics

67.8%

2018: 67.0%

Value of total portfolio

26.3%

2018: 27.9%

Like for like NPI decline

• 4.0%

2018: -2.7%

Vacancy

3.2%

2018: 0.6%

Rental reversion

0.3%

2018: -13.5%

Rental reversion

• 2.2%

2018: 7.7%

Rental escalation

8.5%

2018: 8.9%

Tenant retention success rate

59.5%

2018: 62.6%

8.2%

2018: 13.4%

Vacancy - Retail

4.1%

2018: 4.8%

SA Portfolio: Afhco

10

1 Vacancy calculated on number of units and reflects tenanting of newly

acquired vacant units.

Vacancy – Residential 1

RESIDENTIAL (81%) RETAIL (19%)

3.9%

2018: 4.0%

Rental Increase Value of total portfolio

27.7%

2018: 23.7%

Like for like NPI growth

1.8%

2018: 5.9%

Vacancy Retention rate

95%

2018: 73%

Rental reversion (USD)

Zambian Portfolio: Zambian JV

11

East Park Mall Acacia

Vacancy

97%

2018: 100%

Vacancy Retention rate

Jacaranda

Retention rate Rental reversion (USD) Rental reversion (USD)

85%

2018: 100%

50% Property value:

R961,4m

2018: R979,8m

50% NPI Growth -3.3% (USD) 5.5%(ZAR)

2018: 13.7% (USD) 13.0% (ZAR)

Rental escalation (USD)

1.6%

2018: 1.0%

• 2.5%

2018: 3.0%

Rental escalation (USD)

4.5%

2018: 1.1%

• 3.7%

2018: 0.7%

11.6%

2018: 6.6%

0.9%

2018: 0.0%

Rental escalation (USD)

2.7%

2018: 2.9%

1.8%

2018: 1.5%

2.9%

2018: 2.8%

FINANCIAL PERFORMANCE ANTOINETTE BASSON

Distribution at a Glance

13 Dec 2019 Dec 2018 % Rm Rm Variance Net Property Income - Like for Like

944.584 959.224 (1.5)

Net Property Income - Developments

309.605 336.602 (8.0)

Net Property Income - Acquisitions

65.755 60.052 9.5

Net Property Income - Buildings sold

29.142 73.463 (60.3)

Net Property Income

1,349.086 1,429.341 (5.6)

Taxation on distributable earnings

(0.190) (0.136) (39.7)

Investment in Joint Ventures

73.752 61.668 19.6

Net finance costs

(431.474) (391.958) (10.1)

Net income from investments

11.386 13.954 (18.4)

• Dividends from listed investments

12.908 13.954 (7.5)

• Impairment of unlisted shares

(1.522)

• Distribution related expenses

(44.113) (44.653) 1.2

Antecedent distribution

1.527

• Distributable earnings

959.974 1,068.216 (10.1)

Distribution per share (cents)

38.04 42.22 (9.9)

Interim

20.38 21.70 (6.1)

Final

17.66 20.52 (13.9)

Net Asset Value (cps)

14

Investment Properties Growth Analysis

15

Portfolio growth underpinned by acquisitions, development expenditure and upward revaluation

17,373 17,801 ( 313 ) 121 740 ( 428 ) ( 548 ) 16,500 17,000 17,500 18,000 18,500 19,000 19,500 Investment Properties December 2018 Calgro NCI adjustment Acquisitions Improvements / Development costs Disposals Fair value adjustment Investment Properties December 2019

Group Debt Structure – at 31 December 2019 (excl. fixes)

16

378 500 500 550 300

• 629

114

• 132

140 1,000

• 120

140 637 513 77 585 564 307 300

• 300
• 86
• Term Loan (US$), 3.69%

Term Loan (Syndication), 8.62% Term Loan (Syndication), 8.75% Term Loan (Syndication), 8.65% Term Loan (Syndication), 8.34% Revolving Credit, 8.39% Term Loan (Syndication), 8.45% Revolving Credit, 8.25% Cross Currency (ZAR), 8.81% Cross Currency (US$), 3.98% Term Loan (Syndication), 8.81% Cross Currency (ZAR), 8.79% Cross Currency (US$), 4.36% Term Loan (Syndication), 8.47% Term Loan (Syndication), 8.62%

1 Amortising, 6.88%

Term Loan (Syndication), 8.57% Term Loan (Syndication), 8.68% Term Loan (Syndication), 8.74% Term Loan (Syndication), 8.79%

• 200

400 600 800 1,000 1,200 Nov 2020 Dec 2020 Dec 2021 Dec 2021 May 2022 May 2022 May 2022 Jun 2022 Sep 2022 Sep 2022 Dec 2022 Jan 2023 Jan 2023 May 2023 May 2023 Apr 2024 May 2024 May 2024 May 2025 May 2025

Amount Drawn (Rm) Amount Available (Rm)

1 AFD Fixed rate debt

WAR of 8.2%, WAM of 1.7% and weighted average tenor of 2.9 years.

Group Debt Structure – at 31 December 2019 (incl. fixes)

17

378 500 500 550 300

• 629

114

• 132

140 1,000

• 120

140 637 513 77 585 564 307 300

• 300
• 86
• Term Loan (US$), 3.21%

Term Loan (Syndication), 9.00% Term Loan (Syndication), 9.13% Term Loan (Syndication), 9.03% Term Loan (Syndication), 8.73% Revolving credit, 8.78% Term Loan (Syndication), 8.83% Revolving Credit, 8.63% Cross Currency (ZAR), 9.19% Cross Currency (US$), 3.98% Term Loan (Syndication), 9.19% Cross Currency (ZAR), 9.18% Cross Currency (US$), 4.36% Term Loan (Syndication), 8.86% Term Loan (Syndication), 9.00%

1 Amortising, 6.88%

Term Loan (Syndication), 8.95% Term Loan (Syndication), 9.06% Term Loan (Syndication), 9.13% Term Loan (Syndication, 9.17%

• 200

400 600 800 1,000 1,200 Nov 2020 Dec 2020 Dec 2021 Dec 2021 May 2022 May 2022 May 2022 Jun 2022 Sep 2022 Sep 2022 Dec 2022 Jan 2023 Jan 2023 May 2023 May 2023 Apr 2024 May 2024 May 2024 May 2025 May 2025

Amount Drawn (Rm) Amount Available (Rm)

1 AFD Fixed rate debt

Maturity and interest rate profile of interest-bearing debt – WAR inclusive of fixes of 8.5%. Current LTV 37.9%

Debt Repayment Profile – at 31 December 2019

18

Weighted average rate excluding fixes 8.15% Weighted average rate including fixes 8.47% Weighted average tenor 2.9 years

895 1,067 2,454 1,186 1,158 608 6.4% 8.6% 8.2% 7.9% 9.0% 8.8% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

• 500

1,000 1,500 2,000 2,500 3,000 2020 2021 2022 2023 2024 2025 R'm Rate

Interest Rate Swap Expiry – 31 December 2019

19

1 No swaps expiring in 2021 2 Includes $27m swap at a rate of 1.41%

70.9% of variable debt fixed at a weighted average rate of 6.87% and tenor of 3.4 years at 31 Dec 19.

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%

• 500

1,000 1,500 2,000 2,500 2019 2020 2021 2022 2023 2024 2025 Total swaps at Dec19 Total swaps post Dec19 Rate at Dec19 Rate post Dec19

1 2

STRATEGY UPDATE RORY MACKEY

Strategy

21

SUSTAINABLE DISTRIBUTION

• Convenience Retail
• Quality Industrial

Property Portfolio

• Divesting from

Commercial

• Quality Residential

Rental Portfolio

Portfolio Focus:

• Human Capital

Development

• Operational

Optimisation

• Financial

Sustainability

• Execution Discipline

Enablers:

22

Portfolio Focus

• 1. Convenience Retail
• 2. Quality Industrial Property

Portfolio

• 3. Divesting from Commercial
• 4. Quality Residential Rental

Portfolio

WHY ? HOW ?

Sustainable Distribution

WHY – Convenience Retail?

Convenience offerings non-discretionary Pharmaceutical spending non-discretionary Convenience retail is defensive Convenience retail is less sensitive to e-commerce competition Improving income returns of smaller format centres SA Corporate portfolio is well positioned

23

01 02 03 04 05 06

WHY – Convenience Retail?

24

Convenience offerings non-discretionary

01

WHY – Convenience Retail?

• 1. Non-Discretionary Nature of Food Offering
• Resilient trading densities in respect of food offering despite current economic

climate

25

WHY – Convenience Retail?

26

Convenience offerings non-discretionary Pharmaceutical spending non-discretionary

01 02

WHY – Convenience Retail?

• 2. Non-discretionary nature of pharmaceutical spending
• Pharmaceutical and healthcare consumer spending is generally non-discretionary

in nature

• Consistent growth in the sale of pharmaceutical, health and beauty products
• Supported by improving living standards, urbanisation and longer life expectancy
• Above inflationary price increases (below)

27

• Pharmaceutical retailers, Clicks and

Dischem, have shown above average growth in bottom line profits

• Historically, the ROE for this sector has

been above 30%

• SAC pharmaceutical December 2019 y-o-y

trading density growth 12.73%

WHY – Convenience Retail?

28

Convenience offerings non-discretionary Pharmaceutical spending non-discretionary Convenience retail is defensive

01 02 03

WHY – Convenience Retail?

29

• 3. Convenience retail is defensive
• Convenience retail has been defensive with higher trading density growth, driven by

food (grocer) and food service offerings

• The lower cost of occupancy, reduced vacancy levels and current gross rent to sales

ratios of small format centres makes the tenants more resilient

WHY – Convenience Retail?

30

Convenience offerings non-discretionary Pharmaceutical spending non-discretionary Convenience retail is defensive Convenience retail is less sensitive to e-commerce competition

01 02 03 04

WHY – Convenience Retail?

• 4. Convenience retail is less sensitive to e-commerce competition
• Expected revenue in the e-commerce market amounts to R55 119m in 2020
• Revenue is expected to increase by almost 40% over the next 5 years
• The market's largest segment is electronics & media

31

WHY – Convenience Retail?

32

Convenience offerings non-discretionary Pharmaceutical spending non-discretionary Convenience retail is defensive Convenience retail is less sensitive to e-commerce competition Improving income returns of smaller format centres

01 02 03 04 05

WHY – Convenience Retail?

• 5. Improving income returns of smaller format centres
• Since June 2015, smaller format centres have provided a higher total return

than larger format centres

33

Source: MSCI data not shown, interpolated for 2018 super regional

WHY – Convenience Retail?

34

Convenience offerings non-discretionary Pharmaceutical spending non-discretionary Convenience retail is defensive Convenience retail is less sensitive to e-commerce competition Improving income returns of smaller format centres SA Corporate portfolio is well positioned

01 02 03 04 05 06

WHY – Convenience Retail?

35 IPD Sectorial Spread by GLA:

• 6. SA Corporate portfolio is well positioned
• Grocer GLA 29% of total portfolio
• Over half of shopping centres cater to convenience shopping
• Community & neighbourhood shopping centres that dominate their catchment

areas

HOW – Convenience Retail?

36

Enhance Grocer Offering Promote Health & Beauty Improve Services Expand Fast Food Ease Accessibility

01 02 03 04 05

HOW – Convenience Retail?

37

Enhance Grocer Offering

01

• 1. Enhance Grocer Offering

LAST 12 MONTHS NEXT 12 MONTHS Food Lover’s Market – Morning Glen Food Lover’s Market – Musgrave Centre Woolworths Upgrade – Cambridge Crossing Shoprite – 51 Pritchard, Jhb Inner-City Pick n Pay Upgrades – Comaro Crossing, Stellenbosch Square & Morning Glen Shoprite – De Villers Street, Jhb Inner- City Grocer – Northpark Mall Shoprite Liquor – Bluff Towers Pick n Pay Liquor – Stellenbosch Square

38

Food Trading Density: PY 2018 – R3 123/M² CY 2019 – R3 469/M²

HOW – Convenience Retail?

39

Enhance Grocer Offering Promote Health & Beauty

01 02

• 2. Promote Health & Beauty
• Pharmaceutical

– Clicks extensions undertaken at 6 centres

• Spas & Salons

– Introduced in 5 centres

• Medical

– New medical centre & dental clinic at 2 centres

• Gyms & Fitness Centres

– Niche fitness centres introduced at 5 centres

• Strategic relationship being explored with wellness

market leader

40

HOW – Convenience Retail?

41

Enhance Grocer Offering Promote Health & Beauty Improve Services

01 02 03

• 3. Improve Services

42

Improve Services:

• Laundromat
• Postal Agency
• Tailor
• Self Storage
• Fitment Service

Centre

• Pet Products &

Services

HOW – Convenience Retail?

43

Enhance Grocer Offering Promote Health & Beauty Improve Services Expand Fast Food

01 02 03 04

• 4. Expand Fast Food

44

• Convenience centre fast food:

R3 467/m² (11% PY )

• Exploring future opportunities of

“Dark Kitchens” in East Point & Musgrave Centre unlettable space

• Midway Mews Chicken Licken

is top site in South Africa (R5 508/m²)

HOW – Convenience Retail?

Enhance Grocer Offering Promote Health & Beauty Improve Services Expand Fast Food Ease Accessibility

45

01 02 03 04 05

• 5. Ease Accessibility

46

• Improved vehicle access &

free parking – Decathlon at East Point, Celtis Ridge & Morning Glen

• Parking reconfiguration

planned for Coachmans Crossing to provide short- term parking for convenience shopping

• Improved vertical circulation –

51 Pritchard, Morning Glen, Cambridge Crossing & Northpark Mall

WHY – Quality Industrial?

47

Positive investor sentiment i.r.o. Logistics Tailwinds from e-commerce SAC favourably positioned for the future

01 02 03

WHY – Quality Industrial?

48

Positive investor sentiment i.r.o. Logistics

01

WHY – Quality Industrial?

• 1. Positive investor sentiment i.r.o Logistics
• Predictable NPI growth
• Premium rating for logistics consistent since beginning 2018
• Uncomplicated and straight forward for investors to understand
• Reduced management & oversight requirement
• Tenants liable for local authority charges, insurance and maintenance

49

Source:MSCI

WHY – Quality Industrial?

50

Positive investor sentiment i.r.o. Logistics Tailwinds from e-commerce

01 02

WHY – Quality Industrial?

• 2. Tailwinds from e-commerce
• E-commerce currently growing faster than traditional retail
• Increased demand in respect for the final tier of logistics supply chain closer to end

users

• E-commerce vendors and logistics providers require 3x more warehouse and logistics

space than traditional retail warehousing & increased height

• E-commerce is growing substantially and demand for these big box industrial

properties will continue to increase as they have in developed markets

51

WHY – Quality Industrial?

Positive investor sentiment i.r.o. Logistics Tailwinds from e-commerce SAC favourably positioned for the future

52

01 02 03

WHY – Quality Industrial?

• 3. SAC favorably positioned for the future
• Improving portfolio quality

– 67.8% logistics – 61% of the SA Corporate’s industrial portfolio have triple net leases – Securing longer term tenancy with covenant strength

• Divestment from poorer quality industrial properties
• Substantial investment in SA’s premium pharmaceutical DC (Current Valuation R576m)
• Robust relationships with dominant logistics companies

– RTT, Grinrod, large listed FMCG group

• Redevelopment capability to meet generic tenant operational needs

53

HOW – Quality Industrial?

54

Secure tenancy with covenant strength Divest from properties not meeting investment criteria Redevelop properties to meet tenant

• perational requirements

01 02 03

HOW – Quality Industrial?

55

Secure tenancy with covenant strength

01

• 1. Secure tenancy with

covenant strength

56

5 year lease 5% escalation

• 33%

VALUE = DCF (Future Cash Flows)

Capitalisation of 1 Year Income

115 769 m2 Rental Reversion

27 681m2 70 037m2 18 051m2

• 23%
• 46%

12 year lease 7% escalation

5% reversion Year 6

5 year lease 7% escalation

HOW – Quality Industrial?

57

Secure tenancy with covenant strength Divest from properties not meeting investment criteria

01 02

• 2. Divest from properties not

meeting investment criteria

58

Divestment of R551m Non-Core Industrial Properties @ a weighted average exit yield of 9.0%

Industrial disposals

Property Transfer date Gross Selling Price (Rm) Carrying value at date of sale (Rm) 14/24 Mahoganyfield Way, Springfield Park Jan-19 36.0 27.0 40 Electron Avenue, Isando Jan-19 59.7 59.7 89 Flanders Drive, Mount Edgecombe Aug-19 53.5 51.0 Cnr Bridge and Molecule Roads, Bellville Dec-19 56.2 56.2 96 15th Road, Randjespark Jan-20 77.5 78.8 530 Nicholson Road, Denver # Mar-20 40.0 37.5 Stondell Investments, 684 Pretoria Main Road, Wynberg # Mar-20 4.0 7.4 59 Intersite Avenue, Springfield # Jun-20 87.2 92.0 11 Enterprise Close, Linbro Park # Jun-20 12.0 9.4 The Eveready Building, Port Elizabeth # Oct-20 125.0 122.0 551.1 541.0 # - Still to transfer.

HOW – Quality Industrial?

Secure tenancy with covenant strength Divest from properties not meeting investment criteria Redevelop properties to meet tenant operational requirements

59

01 02 03

• 3. Redevelop properties to meet

tenant operational requirements

• Sarel Baard Solar PV Initial Yield of 17% on R11.3m development cost
• 990kWAC

60

WHY – Divesting from Commercial Properties ?

61

Increasing vacancies Poor rental growth prospects Increasing tenant installation capex effect Changing work behaviours

01 02 03 04

WHY – Divesting from Commercial Properties ?

62

Increasing vacancies

01

WHY – Divesting from Commercial Properties ?

Increasing Vacancies: Current market vacancy

• Office vacancy levels have increased from 0.65 million m² in 2008 to 2.07 million m²

currently

• The vacancy has increased significantly since 2013 – despite vacancy rate trending

sideways as new supply continued to come onto market

• December 2019 SAC commercial vacancy was 15.96%, higher than the rest of portfolio

63

WHY – Divesting from Commercial Properties ?

Future vacancy

• Gauteng (Waterfall, Rosebank and Sandton) have substantial developments over

previous 5 years as well as future development coming online

64

WHY – Divesting from Commercial Properties ?

65

Increasing vacancies Poor rental growth prospects

01 02

WHY – Divesting from Commercial Properties ?

• 2. Poor rental growth prospects

2.1 Poor rental growth:

• Inflation adjusted asking rental growth has declined more than 10% since 2010

66

2.2 Increasing expense ratio:

• Office sector expense ratio increased from 31.6% in 2017 to 32.9% in 2019

(MSCI)

• Increasing cost base not recoverable from tenants

WHY – Divesting from Commercial Properties ?

67

Increasing vacancies Poor rental growth prospects Increasing tenant installation capex effect

01 02 03

WHY – Divesting from Commercial Properties ?

• 3. Increasing tenant installation capex effect
• Competition driving increasing requirement for substantial TI’s to secure new

tenancies

• Amortised TI expense increased by shortening lease terms
• Exacerbated by tenant failures

68

WHY – Divesting from Commercial Properties ?

Increasing vacancies Poor rental growth prospects Increasing tenant installation capex effect Changing work behaviours

69

01 02 03 04

WHY – Divesting from Commercial Properties ?

• 4. Changing work behaviours
• Trends will continue to suppress the demand for traditional office space:

– Buffer (social media management company) study: Most desirable employment benefits: – Working from any location – A flexible work schedule – New technologies allow workers to “telecommute” instead of working in an office – Proliferation of co-working spaces and Wi-Fi enabled coffee shops, restaurants and public spaces – Millennials seek greater work flexibility whilst Gen Z have a greater aspiration for “cottage industries” (own businesses)

70

HOW – Divest from Commercial Portfolio?

71

Divest from properties Tenanting-up & Sale of GreenPark Corner

01 02

• 1. Divest from properties
• 2. Tenanting-up & Sale of GreenPark Corner

72

GreenPark Corner Initiatives

• Sale of sections, conditional on pre-sale

threshold

• Shared workspace joint initiative being

explored

• Building initiatives (reception

improvement, staff orientated to hospitality, enhanced service offerings)

Commercial disposals

Property Transfer date Gross Selling Price (Rm) Carrying value at date of sale (Rm) Exit yield on sale price (%) Lebombo Road, Garsfontein (Remaining portion) Jul-19 27.1 27.1 9.3 Cnr Handel and Crownwood Roads, Ormonde Aug-19 60.0 52.5 9.3 1 Holwood Park, Umhlanga Ridge Dec-19 113.5 113.0 9.0 31 Allen Drive, Bellville # Mar-20 29.4 26.7 8.4 Cnr Old Pretoria and Alexandra Roads, Midrand # Mar-20 8.9 8.9

• 34 Mangold Street, Port Elizabeth #

Mar-20 5.5 5.5 9.0 Non Core Commercial Properties Divested 244.4 233.7 8.7 # - Still to transfer.

WHY – Quality Residential?

73

Residential property sector is under- represented in South African Listed Sector Robust growth prospects Defensive characteristics AFHCO competitive advantage

01 02 03 04

WHY – Quality Residential?

74

Residential property sector is under- represented in South African Listed Sector

01

WHY – Quality Residential?

• 1. Residential property sector under-represented in South

Africa Listed Sector

• Despite higher than average global returns, residential exposure

in SA REITs versus global REIT exposure is substantially under- represented

75

Source:MSCI Source:MSCI

WHY – Quality Residential?

76

Residential property sector is under-represented in South African Listed Sector Robust growth prospects

01 02

WHY – Quality Residential?

• 2. Robust growth prospects
• Increasing urbanisation in SA and inner-city densification will continue to stimulate

demand for affordable residential rental property

• SA housing need = 2.2 million households (36% in main urban areas)
• Behavioural trends

– Millennials are choosing to rent over owning property – 28 million Millennials in SA

77

WHY – Quality Residential?

78

Residential property sector is under-represented in South African Listed Sector Robust growth prospects Defensive characteristics

01 02 03

WHY – Quality Residential?

• 3. Defensive characteristics
• Disposal liquidity with opportunity to exploit pricing premium for ownership without a

regulatory restriction

• Reduced tenant dependency risk due to tenant diversification over large tenant base

79

PORTFOLIO SECTOR NO OF TENANTS VALUATION (Rbn) TENANTS PER Rbn RETAIL 691 7.2 96 INDUSTRIAL 95 4.5 21 OFFICE 48 0.5 88 RESIDENTIAL 9600 4.8 2000

• Rental accommodation is relatively

non-discretionary - resilient through economic cycles

• AFHCO tenants generally pay in

advance

• Inner-city rentals - R3000 -

R7000

• Suburban rentals – up to

R12,000

Source:TPN

WHY – Quality Residential?

Residential property sector is under-represented in South African Listed Sector Robust growth prospects Defensive characteristics AFHCO competitive advantage

80

01 02 03 04

WHY – Quality Residential?

• 4. AFHCO competitive advantage
• Current residential focused listed funds are illiquid & do not have critical mass
• Well established vertically integrated business:

– Team of 170 people – Competencies: Identifying investment and development nodes, development planning and project execution, stakeholder relationships, in-house marketing, construction management, property management platform & systems including 54 leasing agents, collections, facilities management, customer services platform, social network & IT platforms and sales – Established tenant base 81

• 23 years’ worth of brand equity in the market
• Established relationships with developers
• Ability to sell apartments at a premium to NAV
• Continuous improvement in IT and systems
• Focus on mixed-use precincts:

– Close proximity to transport hubs – Safe & secure – Clean and well maintained – Access to amenities & retail offerings

WHY – Quality Residential?

• Quality refinement through

recycling of portfolio from old to new developments

82

Portfolio

• No. of

Units/SQM Inner-city (units) 6 429 Suburban (units) 3 213 Inner-city Retail (SQM) 80 697

• 4. AFHCO competitive advantage (cont.)
• Diversification between inner-city and suburban tenants
• Quality upgrading

HOW – Establishing a Quality Residential Rental Portfolio

83

Portfolio optimisation Johannesburg inner-city lifestyle developments Divestment of poorer quality, low growth properties Reduced pipeline to promote focus

01 02 03 04

HOW – Establishing a Quality Residential Rental Portfolio

84

Portfolio optimisation

01

• 1. Portfolio Optimisation
• 1. Marketing of trusted brand
• 2. Loyalty programme
• 3. Real-time market competitive rental analysis and yield management
• 4. Planned unit & common area refurbishment program
• 5. Wi-Fi & amenity roll-out
• 6. Solar PV generation, energy efficient lighting & equipment & standby

functionality to address load shedding

• 7. Operational excellence in customer services, facility management

and cleaning

• 8. Holistic security solution (CCTV & on-site presence interfacing with

control room engaging tactical response)

85

HOW – Establishing a Quality Residential Rental Portfolio

86

Portfolio optimisation Johannesburg inner-city lifestyle developments

01 02

• 2. Johannesburg inner-city lifestyle

developments

End Street Precinct Complete

• 1 832 residential units (including

student accommodation rooms)

• 9 242 sqm retail (anchored by

Shoprite)

• Lifestyle amenities including gym,

park, soccer fields, medical facilities

• Integrated Precinct security

87

• 2. Johannesburg inner-city lifestyle

developments (cont.)

End Street Precinct In Progress

• 90 residential units
• 3 496 sqm retail leasing
• Pedestrianisation of Davies

Street and traffic calming measures on End Street

• Streetscaping
• Improved access to and

from Doornfontein Station

88

• 2. Johannesburg inner-city lifestyle

developments (cont.)

Jeppe Street Post Office Complete

• 244 residential units
• 8 852 sqm retail

(anchored by Boxer)

• Lifestyle amenities

including Wi-Fi, kiddies play area, laundry facilities

89

• 2. Johannesburg inner-city lifestyle

developments (cont.)

Jeppe Street Post Office In Progress

• 242 residential units
• 410 sqm food court
• Lifestyle amenities including

gym, cinema room, braai / chill areas

• Precinct security
• Storage for Cross Border

shoppers and retail tenants

• Parking

90

HOW – Establishing a Quality Residential Rental Portfolio

91

Portfolio optimisation Johannesburg inner-city lifestyle developments Divestment of poorer quality, low growth properties

01 02 03

• 3. Divestment of poorer quality, low

growth properties

• 1. Review of residential rental portfolio to establish poorer

quality, low growth properties not meeting investment criteria

• 2. Sale of sections to owner occupiers
• 3. Aesthetic upgrade to enhance sales
• 4. Marketing and sales team target FLISP buyers
• 5. Historic cost competitive vs new build

92

HOW – Establishing a Quality Residential Rental Portfolio

Portfolio optimisation Johannesburg inner-city lifestyle developments Divestment of poorer quality, low growth properties Reduced pipeline to promote focus

93

01 02 03 04

• 4. Reduced pipeline to promote

focus

• 1. Cancelled Calgro M3 pipeline in Cape Town
• 2. Cancelled Founders Hill JV with M&T
• 3. Re-evaluation of Menlyn East End JV with M&T

94

OUTLOOK RORY MACKEY

Outlook

96

Fragile South African economy Defensive income focus

Retail:

• Increase exposure to grocer &

convenience offering

• Leasing responsive to changing market

& catchment demand Industrial:

• Strong tenant covenant & longer lease

terms notwithstanding short-term rental sacrifice

• Position portfolio to be quality logistics

by divesting properties not meeting investment criteria & having vacancy risk Commercial:

• Divest methodically at best possible

pricing Afhco:

• Leverage quality, security and

amenity offering concentrated in mixed use precincts in close vicinity to transport nodes to be competitive Capital Structure:

• Managed to be supportive of sustainable

distribution Green Strategy:

• Continued roll-out of rooftop PV solar

installations

(Leasing vs Target) (Vacancy) (Leasing vs Target) (Divestment vs Target) (Vacancy) (Divestment vs Target) (NPI) (Vacancy) (Quality, security & amenity activation vs Target) (MW rolled-out) (LTV) (Distribution vs Cash)

Annual distribution per share decline of -3% to -6%

Guidance

2020 Forecast

2020 Detractors

• R60m

116 000m2 Industrial –ve reversions Sold buildings interest saving vs NPI

51 Pritchard cap interest vs NPI Organisational capacity

97 2019 H2 was 14% lower than 2019 H1 2020 H2 is anticipated to be higher than 2020 H1 YOY growth 2020 H1 & H2 : 12% to 18%

ACKNOWLEDGEMENTS

QUESTIONS

APPENDICES

Retail Portfolio Overview

101 Portfolio value R7,3bn 39 Properties GLA 383,778m2 29% Grocer GLA

• f total

Cost to revenue 41.6% (2018: 41.3%)

Portfolio1

Top 10 tenants National exposure GLA 35.5% 49.1% Rental 27.1% 45.0% Tenant retention success rate 80.1% Vacancy Monthly 2020 2021 2022 2023 2024+ % of GLA 4.4% 8.8% 19.1% 18.2% 16.9% 6.3% 26.3% Cumulative 4.4% 13.2% 32.3% 50.5% 67.4% 73.7% 100.0%

0% 20% 40% 60% 80% 100% 120% 0% 5% 10% 15% 20% 25% 30% % of GLA

Lease Expiries

1 Excludes bulk being (re)developed valued at R253,9m.

Commercial Portfolio Overview

102 Portfolio value R0,5bn 8 Properties GLA 38,858m2 3% GLA of total portfolio Cost to revenue 50.7% (2018: 43.5%)

Portfolio

Vacancy Monthly 2020 2021 2022 2023 2024+ % of GLA 16.0% 3.9% 18.1% 39.4% 12.5% 4.5% 5.6% Cumulative 16.0% 19.9% 38.0% 77.4% 89.9% 94.4% 100.0%

0% 20% 40% 60% 80% 100% 120% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% % of GLA

Lease Expiries

Industrial Portfolio Overview

103 Portfolio value R4,5bn 74 Properties GLA 647,814m2 43% GLA of total portfolio Cost to revenue 29.5% (2018: 26.1%) Vacancy Monthly 2020 2021 2022 2023 2024+ % of GLA 3.2% 8.3% 17.5% 25.6% 12.6% 15.1% 17.7% Cumulative 3.2% 11.5% 29.0% 54.6% 67.2% 82.3% 100.0%

0% 20% 40% 60% 80% 100% 120% 0% 5% 10% 15% 20% 25% 30% % of GLA

Lease Expiries

Portfolio

Afhco Portfolio Overview

104 Portfolio value R4,7bn 63 Properties GLA Apartments 346,712m2 Retail 79,042m2 Cost to revenue 38.8% (2018: 38.0%) 81% 19% By GLA

Residential Retail / Commercial

1 Excludes bulk being developed valued at R97,7m.

Portfolio1

Portfolio

Zambian JV Overview

105 Zambian JV value $66,5m R930,m Cost to revenue 27.9% (2018: 29.9%) JV Income USD$ 5,1m (2018: USD$ 4,7m) Growth 8.5% JV Income ZAR 73,8m (2018: ZAR 61,7m) Growth 19.6% Property Sector GLA % of total GLA Acacia Business Park Commercial 12,564 20.9% East Park Mall Retail 33,400 55.6% Jacaranda Mall Retail 14,156 23.5%