Business model and value creation

 

  OPPORTUNITIES   RISKS     KPIs     MEASURE     TARGET     PERFORMANCE  
 

South Africa

  • Non-core properties identified for sale
  • Potential merger and acquisition opportunities due to the high gearing levels within other property companies
  • Potential emergence of positive yield spreads
  • Development capabilities and experience to deliver occupancy that is relevant to tenant needs on a turnkey basis
  • "Capital light" investments
  • Continued demand for office space at the V&A
 
  • Macro-economic fundamentals
  • Low economic growth cycle
  • Economic recession
  • Poor business confidence
  • Sovereign credit rating downgrade and political risks
  • Weak property fundamentals
  • Increasing supply
  • Cost of occupancy impacting rentals across all sectors as a result of increased administered costs
  • Reduced valuations due to lower revenue and increased risk-free rates
  • Weak demand for retail and residential space at the V&A
  • Prolonged effects of Covid-19
   

South Africa

  • RSA property assets as a % of total portfolio
  • Sector diversification
    50%
 
45%
35%
20%
   
 
    59.2%
 
36%
41%
18%
Healthcare – 4%
Trading & Development – 1%
 
 

Australia

  • Low interest rates and inflation
  • Positive yield spreads
  • Stable property fundamentals
  • Experience in and understanding of the market
 
  • Global recession
  • Availability of excess capital driving yields lower
  • Property cycle at a peak
  • Competitive market with limited opportunities
   

International

  • Off-shore property assets as a % of total portfolio
  • Sector diversification
    50%         40.8%  
 

United Kingdom

  • Asset values declining to record lows
  • Yields and discount rates at highs
  • Positive yield spreads
 
  • Global recession
  • Brexit and Covid-19
  • Poor liquidity
  • Access to debt funding for retail assets
  • Retail rentals declining
                         
 

Central and Eastern Europe

  • Better growth than Western Europe
  • High and positive yield spreads
  • Attractive to global corporates due to lower costs
 
  • Global recession
  • The breakdown of the European Union
  • Political uncertainty
  • Regulatory environment
                         
 

Africa

  • Grow an African fund to an optimal size for a possible major stock exchange listing
  • Joint participation with third-party institutional investors
  • East, West and Southern Africa
  • Pricing of assets attractive
  • Develop finance institutions appetite for investment
 
  • Economies that are highly reliant on commodities like oil
  • Lack of Dollar liquidity
  • Raising of capital challenging
  • Political uncertainty
  • Regulatory environment
                         
 

Trading and development

  • External trading and development
  • Internal development and redevelopment
  • Custom designed assets to retain and attract quality clients
 
  • Projects not meeting financial feasibility
  • Break-even letting of developments not attained
  • Financial loss on external trading and development
  • Speculative developments and overexposure thereto
   
  • Return > than comparable completed let building yield
   
  • Internal < 5% of RSA property portfolio
  • External < 3% of SA property portfolio
  • < R500m per project
  • > 90% pre-let unless turnkey project
       
  • 1.9% (R1.4bn) (Approved, not committed)
  • 3.3% (R2.4bn) (Approved and committed)
  • 0.0% (Nil) (Third party)
  • 0.0% (Nil) (Speculative)
 
  OPPORTUNITIES   RISKS     KPIs     MEASURE     TARGET     PERFORMANCE  
 
  • Disposing of assets in pursuance of fund management "capital light" model
 
  • Lower property valuations resulting in higher loan-to-value ratios
  • Breaching of loan covenants
   

RSA

  • Loan-to-value ratio
  • Moody's rating
   
  • < 40% loan-to-value
  • Investment grade rating
       
  • 39.8%
  • Ba1
 
 
  • Local and international debt capital markets including green bonds
  • Equity raising including the distribution reinvestment plan
  • Cross-currency interest rate swaps
  • Optimising the cost of capital
 
  • Size of loan book reaching bank limits
  • Considerable constraints in debt capital market
  • Illiquid bond markets
  • Equity investments trading at discounts to net asset value
  • Capital not deployed optimally
   
  • Debt expiry profile
  • Secured versus unsecured debt
   
  • > 3 years
  • 70/30
       
  • 3.6
  • 43.5/56.5
 
 
  • Global and local interest rates at record lows
  • Limiting the extent of interest rate increases on the cost of finance
  • Keeping finance costs predictable with high level of certainty
  • Reducing earnings volatility
 
  • Interest rates rising
  • Global yield curve rising and impact on share price
   
  • Interest rate hedging
   
  • minimum rolling 12-month fixed to floating ratio on debt of 75%
  • > 2.0x interest cover
       
  • 80.6%
  • 3.4x
 
  OPPORTUNITIES   RISKS     KPIs     MEASURE     TARGET     PERFORMANCE  
 
  • Custom designed assets to retain and attract quality clients
  • Refurbishment and redevelopment of assets
  • The design of new and refurbished buildings to achieve a minimum Green Building Council of South Africa "4-Star Green Star" rating
 
  • Uncertainty regarding land ownership rights
  • Deteriorating infrastructure and service delivery
  • Increasing administered costs

 

 

 

 

   
  • RSA property assets as a % of total portfolio
  • Sector diversification
    50%
 
45%
35%
20%
   
 
    59.2%
 
36%
41%
18%
Healthcare – 4%
Trading & Development – 1%
 
  OPPORTUNITIES   RISKS     KPIs     MEASURE     TARGET     PERFORMANCE  
 
  • Innovative and sustainable property solutions (e.g. SmartMove, UNdeposit, Green Lease Addendum & SmartFlex)
  • Providing more flexible rental solutions
  • Generate additional revenue through value-added services or products
  • Facilitate an online business-to-business network for clients
  • Online retail a growing alternative necessitating more warehousing and logistics
  • Social distancing to increase the need for space
 
  • Continued Covid-19 impact
  • Major tenant failure
  • Increase in vacancies
  • Increase in arrears
  • Downward pressure on rentals and negative rental reversions
  • Increase in administered costs
  • Constrained consumers will be more needs focused
  • Retail centres focused largely on discretionary spend
  • Downsizing of national retailers' footprints
  • Increased work-from-home dynamic and work flexibility
   

RSA

  • Relief discounts
  • Relief deferments
  • Gross revenue growth
  • Overall vacancies
  • Total monthly arrears (as a % of collectables)
  • Renewal success rates
  • Renewal reversions
   
  • Reducing month-on-month
  • Reducing month-on-month
  • > 5%
  • < 9%
  • < 10%
  • > 70%
  • Positive reversions
       
  • R277m
  • R159m
  • (4.2%)
  • 9.5%
  • 31.5%
  • 66.4%
  • (6.7%)
 
  OPPORTUNITIES   RISKS     KPIs     MEASURE     TARGET     PERFORMANCE  
 
  • Preservation of property asset values
  • Improve sustainability performance
 
  • Margin pressure on net property income
  • Overcapitalisation of properties
  • Administered costs escalating at rates in excess of inflation
   

RSA

  • Property expense-to-income ratio
  • Operating expense-to-income ratio
   
  • <30%
  • <5%
       
  • 29.2%
  • 4.5%
 
 
  • Creating and driving a culture of performance
  • Foster entrepreneurial spirit
  • Transformation through diversity and inclusion
 
  • The loss of skills and corporate memory, particularly at a senior management level
  • B-BBEE and Property Sector Charter requirements and targets
   
  • Development of people, culture, and values
  • Overall management review
  • Compliance
  • Industry participation
   
  • B-BBEE level = or > 4
       
  • Level 2
 
 
  • Improved customer retention
  • Efficiencies in property management processes
  • Vertical integration of key suppliers of business services
 
  • Inefficient property management processes
  • Resistance to change
   
  • Property expense-to-income ratio
  • Operating expense-to-income ratio
   
  • <30%
  • <5%
       
  • 29.2%
  • 4.5%
 
 
  • Sell down assets and raise equity
  • Earn asset and property management fees
  • Identification of asset classes that attract institutional investors
 
  • Maintaining REIT status
  • Difficulty in attracting investors
  • Investments illiquid
  • Difficulty in exiting investments
   
  • Assets under management
  • Fees earned
   
  • Increase in assets under management
  • Increase in fees earned
       
  • R6.7bn
  • 5.3%
 
  OPPORTUNITIES   RISKS     KPIs     MEASURE     TARGET     PERFORMANCE  
 
  • Diversify geographical contribution to distributable income
  • Seek balance between growing dividends and retaining capital by reducing pay-out ratio
  • Identifying strategic thrusts and enablers to create sustainable value
  • Funds management – Africa and Healthcare funds
  • Create sustainable profits from trading and development income
 
  • Failure to implement strategy
  • Lack of sustained economic growth
  • Weak RSA property fundamentals
  • Defensive nature of portfolio limits the extent of out-performance
  • Technology innovation by market disruptor
   
  • Dividend growth in absolute terms
  • SA property EBIT as a % of total portfolio
  • Off-shore property EBIT as a % of total portfolio
   
  • CPI + 1%
  • 50%
  • 50%
   
 
 
 
 
   
  • Unknown at date of report
  • 71.8%
  • 28.2%