Progress in 2018

South African portfolio

Overview

The value of our existing South African portfolio increased to R21.1 billion (2017: R18.1 billion), making up 72.5% (2017: 66.1%) of our total gross assets.

The MOA is at the heart of the Waterfall development, our competitive advantage. Office and mixed-use, as well as light industrial buildings, surround the mall, densifying Waterfall City. The future first-class residential offering will further complement the city and support a “work, live, play” lifestyle.

First key value driver: South African portfolio

Our property management vision

We introduced the FRESH (fun, relevant, easy, social and helpful) concept as a focus point for our property management team. The aim is to create a compelling, enjoyable experience that surprises and delights our customers (shoppers and tenants) and makes them smile.

Leasing and vacancy management

Leasing and vacancy management is aimed at attracting new tenants and long-term tenant retention. A number of our newer properties have single tenants with long-term leases, resulting in a longer-dated lease expiry profile (below). Our weighted average lease expiry profile increased to 6.8 years (2017: 6.4 years).

Lease expiry profile (PGLA m²)

Lease expiry profile (revenue R000)

			Vacant	Monthly	2019	2020	2021	2022	2023+
Retail			–	2 367	5 641	8 148	23 046	3 054	22 059
Office			–	–	483	3 264	5 068	934	32 140
Industrial			–	–	–	–	–	–	7 388
Hotel			–	–	–	1 510	–	–	1 604
Total			–	2 367	6 124	12 922	28 114	3 988	63 191

			2018				2017
Sector vacancies as at 30 June 2018			Vacancy %		Vacant  PGLA m2		Vacancy %		Vacant  PGLA m2
Retail			2.8		9 170		2.4		7 869
Office and mixed-use			15.3		44 944		5.0		13 094
Light industrial			5.3		8 518		–		–
Hotel			–		–		–		–
Portfolio vacancy			7.8		62 632		3.0		20 963
Less: Vacancies filled post year end			(2.7)		(21 791)		(0.6)		(4 431)
Current portfolio			5.1		40 841		2.4		16 532
Waterfall			11.2		4 573		23.4		3 870
Balance of portfolio			88.8		36 258		76.6		12 662

Through close relationships with our tenants and understanding their needs and business challenges, we are managing arrears effectively and proactively to mitigate potential losses.

Breakdown of trade receivables			2018  R000		2017 R000		% movement
Current			38 771		24 370		+57.5
30 and 60 days			10 095		15 027		-32.8
>90 days			16 228		12 979		+25.0
Total arrears			64 694		52 376		+23.5
Less: Provision for doubtful debt			(19 586)		(16 021)		+23.5
Trade receivables			45 108		36 355		+24.1
Net arrears (trade receivables past due but not impaired)			6 737		11 985		-43.8
Rental income			2 035 494		1 861 093		9.4
Total arrears* (% of rental income)			2.8		2.5		–
Trade receivables* (% of rental income)			1.9		1.7		–

* Excluding VAT.

Valuations

The capitalisation and discount rates for the 2018 valuations remained largely unchanged when compared with the previous year. Fair value adjustments on buildings in the South African portfolio were negatively impacted by impairments on 2 Eglin, Newtown precinct and Brooklyn Mall. The negative fair value adjustment on Newtown precinct is due to lower rental projections while Brooklyn Mall’s valuation decreased due to rental income being negatively impacted by increased competition in the area.

Summarised highlights			2018  R000		2017 R000
Number of properties			41		36
Total investment property (R000)			19 356 465		16 362 284
Total rental income (R000)			2 028 821		1 848 303
PGLA (m2)			802 256		703 392
Value per PGLA (R/m2)			24 128		23 262
Weighted average monthly gross rentals per m2 (R/m2) – including rates			178		175
Historical average annualised property yield (%)			6.3		6.5
Weighted average rental escalation^ (%)			7.2		7.5
Weighted average escalation on new/renewed leases^ (%)			6.9		7.8
Weighted average lease period^ (years)			6.8		6.4
Vacancy^ (%)			7.8		3.0
Retention success rate (%)			96.8		97.1
Average cap rate (%)			7.3		7.3

^ Based on PGLA.

Retail

Our retail and mixed-use precincts by effective value

		Mall of Africa, Waterfall
		Total PGLA 124 713m2 Our 80.0% share of the valuation R4.5 billion Valuation R5.6 billion Value per m2 R44 903		Anchor tenants Checkers Hyper, Edgars, Game, Woolworths

		Lynnwood Bridge precinct, including Glenfair Boulevard, Pretoria
		Total PGLA 81 992m2 Our share of the valuation R2.8 billion Valuation R2.8 billion Value per m2 R34 385		Anchor tenants Adams & Adams, Aurecon, City Lodge, Dis-Chem, Planet Fitness, Safari and Outdoor warehouse, Shoprite Checkers, Woolworths

		Garden Route Mall, George
		Total PGLA 53 813m2 Our share of the valuation R1.4 billion Valuation R1.4 billion Value per m2 R25 547		Anchor tenants Dis-Chem, Edgars, Game, Pick n Pay, Woolworths

		MooiRivier Mall, Potchefstroom
		Total PGLA 49 696m2 Our share of the valuation R1.2 billion Valuation R1.2 billion Value per m2 R24 025		Anchor tenants Checkers, Edgars, Game, Woolworths, Dis-Chem

		Eikestad precinct, Stellenbosch
		Total PGLA 37 872m2 Our share of the valuation R939.0 million Valuation R1.2 billion Value per m2 R24 794		Anchor tenants Checkers, Game, Food Lover’s Market Woolworths

		Newtown junction precinct, Johannesburg
		Total PGLA 79 526m2 Our 50.0% share of the valuation R739.9 million Valuation R1.5 billion Value per m2 R18 608		Anchor tenants City Lodge, Nedbank, Pick n Pay, Shoprite

		Brooklyn Mall and Brooklyn Bridge Office Park, Pretoria
		Total PGLA 98 617m2 Our 25.0% share of the Brooklyn Mall valuation and 100.0% of the Brooklyn Bridge Office Park valuation R739.9 million Valuation R3.3 billion Value per m2 R33 775		Anchor tenants Checkers, Dis-Chem, Game, Woolworths, SARS, Counsel’s Forum

Retail			2018		2017
Number of properties			10		10
Total investment property (R000)			10 140 174		9 896 383
Value as % of total South African portfolio			52.4		60.5
Total rental income (R000)			1 135 254		1 072 011
PGLA (m2)			337 627		337 510
PGLA as % of total South African portfolio			42.1		48.0
Value per PGLA (R/m2)			29 322		29 322
Net operating income as % of total portfolio*			51.7		51.4
Weighted average monthly gross rentals per m2 (R/m2) – including rates			214		202
Historical average annualised property yield (%)			6.1		5.7
Weighted average rental escalation^ (%)			7.2		7.4
Weighted average escalation on new/renewed leases^ (%)			7.2		7.8
Weighted average lease period^ (years)			4.5		4.9
Vacancy^ (%)			2.8		2.4
Retention success rate (%)			91.6		95.1
Net arrears (R000)			6 321		11 695
Average cap rate (%)			6.9		6.9

* Sector net operating income, excluding straight-line lease income adjustment as % of total net operating income, excluding straight-line lease income adjustment.

^ Based on PGLA.

			2018
Retail sector			% of area	% of total turnover	Trading density growth
Apparel			25.7	21.2	7.8
Department stores			23.3	19.6	3.3
Food			13.7	15.6	2.2
Health and beauty			5.3	11.7	8.0
Food services			8.1	8.7	(3.8)
Sportswear and outdoor			4.5	4.9	20.8
Homeware furniture and interior			6.9	4.3	5.1
Speciality			3.2	4.3	5.0
Electronics			2.3	4.3	11.7
Accessories, jewellery and watches			1.0	2.2	(1.3)
Books, cards, stationery			1.5	1.4	3.5
Eyewear and optometrists			0.5	0.8	0.4
Entertainment			3.6	0.6	2.6
Luggage			0.3	0.4	7.8
Services			0.2	0.2	5.1
Grand total			100.0	100.0	5.3

Our retail precinct focus in well-established desirable nodes ensures we attract and retain tenants and shoppers. Activities in the period to strengthen and expand retail and mixed-use precincts included:

• Acquiring one hectare of land adjacent to Garden Route Mall. We are consolidating the two properties and acquiring additional rights for retail and parking
• Lynnwood Bridge retail is being upgraded and refurbished, enhancing the shopper and tenant environment.

In 2018, the retail environment was affected by corporate failures and rescues, including the Edcon Group, Stuttafords, Deeghuys and Melissas. As part of the Edcon restructure the teams evaluated the trading density, rent to sale ratio in relation to the tenant mix with each mall and Edcon tenant. We have negotiated a structured reduction in our exposure to the Edcon Group that will be implemented between June 2018 and April 2019. As a result, we managed to introduce new tenants in prime locations into our portfolio, provide additional diversity in the tenant mix and reduction of our financial exposure to the Edcon Group.

Major new leases concluded:

• H&M taking up space in the 1 800m² Edgars store in Eikestad
• Edgars reconfiguration at Mall of Africa for new anchor store and Coricraft expansion, reducing the store size from 12 600m² to 8 800m²
• Top Shop of 770m² at Mall of Africa will be subdivided into three new stores, providing more diversity in the tenants mix and improving the mall net operating income.

We are monitoring growth in the online retail market. This has been slow to develop in South Africa, but could accelerate at any time. According to Macquarie research on online retail in South Africa, the market is still in its infancy with high entry barriers. Nevertheless, we need to embrace and understand technology to assist our tenants in ensuring we create the ultimate consumer experience at our malls.

South African Edcon group exposure			Effective  PGLA m2		Effective rental income R000
As at May 2018 – before restructure			28 848		46 364
Implementation: June 2018 to April 2019 – after restructure			21 510		31 007
Reduction in exposure			25.4%		33.1%

The focus in our retail portfolio in the past year remained on trading densities. By looking at footcount and reconfiguring floor space, we ensure our retailers operate and trade at their optimal size. Examples of reconfiguration include Mr Price Group at MooiRivier Mall, supporting better trading densities and creating an opportunity for Woolworths to expand. In total, 16 reconfigurations and replacements at Mall of Africa led to an increase of 236.0% in turnover on the same footprint for December 2017 versus December 2016.

In the retail environment, tenant retention is becoming more challenging. The tenant-mix trend is also shifting to food and beverage, and experiential tenants versus traditional fashion retail. By optimising and reconfiguring our tenant mix (rightsizing tenants), we address shopper needs and current trends, while incorporating the leisure and community ‘pull’ factor.

It is important that our shoppers experience our malls as clean and safe, with helpful staff. We insist on retail floor representative training to ensure excellent service which will translate into excellent shopping experiences.

Technology is an enabler to maximise the customer and tenant experience. During the year, we introduced ticketless parking at Mall of Africa via number plate recognition technology. Mall of Africa also mimicked the ‘one day only’ concept originated by online retail and generated 74 000 interactions with its two-week ‘11-hour sale’ campaign, which has become a bi-annual event. We gained a better understanding of shopper movement in our malls, dwelling times and shopfront efficiency as well as shopper retention rates inside tenanted areas by using anonymised location monitoring WiFi.

Trading densities (R/m²)

Weighted average trading density: R2 805/m² (June 2017: R2 663/m²)

Average growth: +5.3%

Rent to turnover (%)

Weighted average rent to turnover: 7.7% (June 2017: 7.6%)

Office and mixed-use

Our top Waterfall office and mixed-use buildings by value

		PwC Tower Total PGLA 48 615m2 Our 75.0% share of the valuation R1.4 billion     Valuation R1.8 billion Value per m2 R36 005
		Cell C Campus Total PGLA 43 890m2 Our share of the valuation R1.0 billion     Valuation R1.0 billion Value per m2 R23 406
		Transnet Total PGLA 24 354m2 Our share of the valuation R631.9 million     Valuation R631.9 million Value per m2 R25 945

Office and mixed-use			2018		2017
Number of properties			22		19
Total investment property (R000)			7 501 801		5 188 527
Value as % of our total South African portfolio			38.8		31.7
Total rental income (R000)			739 306		663 638
PGLA (m2)			299 018		254 008
PGLA as % of total South African portfolio			37.3		36.1
Value per PGLA (R/m2)			25 088		20 427
Net operating income as % of total portfolio (%)*			39.8		41.8
Weighted average monthly gross rentals per m2 (R/m2) – including rates			188		180
Historical average annualised property yield (%)			6.5		7.6
Weighted average rental escalation^ (%)			7.8		7.8
Weighted average escalation on new/renewed leases^ (%)			7.8		7.8
Weighted average lease period^ (years)			7.6		6.8
Vacancy^ (%)			15.3		5.0
Retention success rate (%)			62.4		99.6
Net arrears (R000)			416		290
Average cap rate (%)			7.7		7.8

* Sector net operating income, excluding straight-line lease income adjustment as % of total net operating income, excluding straight-line lease income adjustment.

^ Based on PGLA.

Given the oversupply of office space in key nodes such as Sandton and, to a certain extent, Rosebank, tenants are spoilt for choice and well informed about current vacancies and rental price trends. Office space is widely available and landlords are offering incentives, such as reduced rentals, to fill premises. Negotiations with new tenants have become protracted and more challenging. We compete by demonstrating the value of relocating to Waterfall and, most importantly, focus on cost of occupancy for our tenants. To retain existing tenants, our focus is on building long-term relationships and constantly staying abreast of their changing property and business needs.

Our focus is on the tenant experience, stronger sales teams and fostering our tenant relationships (see social and relationship resource) as our unique value propositions.

Current office and mixed-use trends include growing demand for flexibility in the workspace. Tenants are increasingly looking at precincts that are close to amenities and transport.

Leasing activities during the year include:

• Letting the Group Five building to Transnet (24 354m²)
• Group Five relocating to 2 Eglin Road, Sunninghill (4 793m²)
• Renewing the SARS lease at Brooklyn Bridge Office Park (38.0% of PGLA)
• Allandale building now fully let (15 359m²)
• Gateway West now partially let to Sage (6 903m²) and Spaces (2 446m²)
• The ground and first floors of The Majestic (Newtown precinct) are currently not used by Nedbank.
• Alternate architectural plans have been prepared for a possible new tenant.

The quality of our office buildings is evident in the diagram below:

Office grading

Allandale building, Waterfall City

Industrial

Our top Waterfall industrial buildings by value

		Amrod Total PGLA 37 937m2 Our 75.0% share of the valuation R400.7 million     Valuation R400.7 million Value per m2 R10 562
		Massbuild Distribution Centre Total PGLA 50 033m2 Our share of the valuation R400.7 million     Valuation R400.7 million Value per m2 R8 010
		BMW Group SA Regional Distribution Centre Total PGLA 31 987m2 Our share of the valuation R289.4 million     Valuation R289.4 million Value per m2 R9 047

Industrial			2018		2017
Number of properties			6		4
Total value of sector (R000)			1 286 827		870 137
Value as % of our total South African portfolio			6.6		5.3
Total rental income (R000)			107 598		67 569
PGLA (m2)			146 093		102 128
PGLA as % of total South African portfolio			18.2		14.5
Value per PGLA (R/m2)			8 808		8 520
Net operating income as % of total portfolio (%)*			5.9		4.1
Weighted average monthly gross rentals per m2 (R/m2) – including rates			70		67
Historical average annualised property yield (%)			5.4		6.4
Weighted average rental escalation^ (%)			4.9		7.0
Weighted average escalation on new/renewed leases^ (%)			0.8		7.3
Weighted average lease period^ (years)			11.4		10.8
Vacancy^ (%)			5.3		–
Retention success rate (%)			100		100.0
Net arrears (R000)			–		–
Average cap rate (%)			7.7		7.8

* Sector net operating income, excluding straight-line lease income adjustment as % of total net operating income, excluding straight-line lease income adjustment.

^ Based on PGLA.

Our industrial node at Waterfall Logistics Hub is ideally positioned in Gauteng for modern and purpose-built warehousing and distribution centres. Two industrial buildings and one extension were completed during the year, contributing to a balanced South African portfolio.

Stagnating rentals and rising development costs have slowed demand for industrial occupiers to take up newly developed space, focusing instead on renewing their current leases.

We have concentrated on simplifying and improving design efficiency on our new warehouse developments, as well as constructing smaller-specification buildings where we believe there is greater demand and less competition. This, coupled with our advantage in the market on office and warehouse consolidations, has enabled us to attract some blue-chip tenants during the year. For example, the design of the Dimension Data warehouse reflects the trend of combining warehouse with sizeable office space.

Dis-Chem signed a lease for the K101 warehouse, a 8 518m² building developed on a speculative basis, and took occupation in August 2018. The Massbuild expansion, completed in December 2017, increased our primary lettable area by 9 839m².

During the year, we noted an increased focus on utility costs and a requirement for more modern infrastructure, coupled with the growing popularity of a tenant-owner model.

We are focused on completing our Waterfall development pipeline, leasing the remaining speculative midi-warehouse and maintaining world-class facilities.

Hotel

Our hotel portfolio

		City Lodge – Lynnwood, Pretoria Total PGLA 7 946m2 Our 75.0% share of the valuation R212.5m     Valuation R212.5 Value per m2 R26 747
		City Lodge – Newtown, Johannesburg Total PGLA 5 828m2 Our share of the valuation R59.0m     Valuation R118.0m Value per m2 R20 247
		City Lodge – Waterfall City, Waterfall Total PGLA 5 744m2 Our share of the valuation R115.3m     Valuation R115.3m Value per m2 R20 072

We have three hotels in our portfolio, all leased to City Lodge. The City Lodge in Waterfall City provides an essential service to both our local and international corporate clients and remains in high demand. As Waterfall City grows and densifies we will increase our hotel offering.

Hotel			2018		2017
Number of properties			3		3
Total value of sector (R000)			427 663		407 240
Value as % of our total South African portfolio			2.2		2.5
Total rental income (R000)			46 663		45 085
PGLA (m2)			19 518		19 518
PGLA as a % of total South African portfolio			2.4		2.8
Value per PGLA (R/m2)			21 911		20 865
Net operating income as % of total portfolio (%)*			2.6		2.7
Weighted average monthly gross rentals per m2 (R/m2) – including rates			187		175
Historical average annualised property yield (%)			7.5		7.6
Weighted average rental escalation^ (%)			7.0		7.0
Weighted average escalation on new/renewed leases^ (%)			–		–
Weighted average lease period^ (years)			5.0		6.0
Vacancy^ (%)			–		–
Retention success rate (%)			100.0		100.0
Net arrears (R000)			–		–
Average cap rate (%)			8.1		8.1

* Sector net operating income, excluding straight-line lease income adjustment as % of total net operating income, excluding straight-line lease income adjustment.

^ Based on PGLA.

Waterfall masterplan

Second key value driver: Waterfall development

Waterfall development

Overview

The value of the Waterfall development portfolio, comprising 7.8% (2017: 14.1%) of total gross assets, decreased to R2.3 billion (2017: R3.8 billion) as a result of the completion of five buildings, new developments only recently commencing and disposals to development partners.

Waterfall development (including assets held for sale)			2018 R000		2017 R000
Development rights			901 428		1 081 968
Infrastructure and services			685 875		737 187
Developments under construction			527 592		1 880 605
Attacq Sanlam joint venture			143 803		140 999
Total			2 258 698		3 840 759

Giles Pendleton was appointed in March 2018 as the head of developments.

Despite a tough economic environment, we continued to receive corporate enquiries for the Waterfall precinct. Enquiries that converted into signed leases with prominent tenants include Accenture, Dis-Chem, Isuzu and Sage. This highlights Waterfall’s emerging prominence as a suitable location for companies wanting to avoid traffic congestion and poor public transport services, as well as companies that want to consolidate offices in Pretoria and Johannesburg into a location equidistant for employees.

Apart from our corporate development outlook, we have seen sustained interest in the Waterfall Logistics Hub. Land parcel 9 south is almost fully developed, land parcel 9 north is anchored by the construction of its first large manufacturing and logistics facility and the large land parcel 24 is being activated to bring onto the market in the near future.

We will shortly launch Waterfall City’s first high-rise residential project as a complementary offering to the residential area and the City as well as new hospitality facilities. We believe that the residential component, as the missing element within the City, will further densify the City and contribute to our Waterfall precinct vision – where living works.

Waterfall’s six core values

Six reasons why Waterfall, where living works, is becoming Gauteng’s business destination of choice:

Waterfall: Where living works

Waterfall spans 2 200ha adjacent to Modderfontein in the east and Kyalami and Sunninghill to the west, creating a large commercial growth node with superb access from Pretoria via the N1, R21 and R55, and from Sandton and Johannesburg via the M1, N1, N3 and R55.

We have two focus areas in the precinct: Waterfall City and Waterfall Logistics Hub.

Waterfall City: An integrated city that works

The heart of the precinct is Waterfall City, with current development bulk of 778 023m² zoned for retail, office, industrial, hotels and residential developments. Waterfall City is built around the super-regional Mall of Africa and its adjoining 1.3ha Waterfall Park.

The concept behind Waterfall City is to create a mixed-use development where people can work, live and play. The precinct was planned as a greenfield development: allowing for the best urban design principles to determine sufficient and efficient infrastructure, services and open public spaces. Due to all developments being new, the focus is on green design and smart technology.

Waterfall Logistics Hub: Gauteng’s logistics hub of choice

The Waterfall area east of the N1 highway is well positioned for light industrial tenants wanting to capitalise on its central location and accessibility. The Waterfall Logistics Hub (178 985m² of remaining development bulk) hosts only light industrial tenants, making it an attractive option to consolidate warehousing with sizeable office space, which is the current trend.

Our development rights

We secured the majority of retail, commercial and industrial development rights and will also develop residential units. Development rights are contractual rights held to develop certain Waterfall land parcels, and form a material element of the overall land valuation. In addition to the 957 008m² (2017: 1.0 million m²) of developable bulk, we share in development rights for two joint ventures with Sanlam. At 30 June 2018, the value of our interest in these joint ventures was R143.8 million (2017: R141.0 million).

Development team
Standing: Enzo Oosthuizen, David Oosthuizen, Martin du Plessis and Nico Barnard
Sitting: Werner Mulder, Miran Naidoo, Giles Pendleton and Linda Meyburgh

Progress in developing Waterfall’s available bulk is shown below:

Our 1.9 million m² (2017: 1.9 million m²) of total approved bulk is spread across 12 individual land parcels. At 30 June 2018, 23.4% (2017: 18.1%) of available bulk was completed and held, with a further 4.3% (2017: 6.5%) under construction. During the year, we sold undeveloped bulk into joint ventures with the following joint venture partners: Atterbury group, Barrow Properties, Sanlam and Zenprop. The balance is available for future development. In addition, we plan to increase allowable bulk on the land parcels as the spatial development framework of the City of Johannesburg evolves.

Waterfall bulk (%)

 

The Waterfall bulk is spread over 12 land parcels (LP):

LP number			LP description	Main development rights in place	Total approved bulk m2	Completed – sold m2	Completed – sold m2	Under construction m2	Remaining bulk m2	Remaining bulk m2
			Waterfall City
LP 10			Waterfall City	Office	882 760	195 912	56 715	39 300	31 070	559 764
LP 10A			Corporate City	Office	150 000	–	–	–	–	150 000
LP 10B			Corporate Campus	Office	30 062	3 304	–	15 000	5 150	6 609
LP 12			Capital City	Office	48 330	–	–	–	–	48 330
LP 15			Lifestyle Estate Woodmead	Retail	64 944	40 826	–	–	24 118	–
LP 20			North Office Park	Office	4 194	–	4 194	–	–	–
LP 21			Landmark Park	Office	56 999	43 678	–	–	–	13 321
Subtotal					1 237 289	283 720	60 909	54 300	60 338	778 023
LP 3^			Convenience Corner Waterfall	Industrial	15 000	–	–	15 000	–	–
LP 8			Distribution campus	Industrial	184 546	115 396	20 921	2 433	12 858	32 938
LP 9			Logistics precinct	Industrial	196 455	–	52 701	7 695	7 695	128 365
LP 22			Commercial district	Office	83 544	37 685	28 177	–	–	17 682
LP 24^			Factory depot	Industrial	154 250	–	–	154 250	–
Subtotal					633 795	153 081	101 799	179 378	20 553	178 985
Total					1 871 084	436 801	162 708	233 678	80 891	957 008

* Bulk disposed in joint ventures with Sanlam.

Our infrastructure and services

The completion of the K60 will open an east/west dual carriageway across the southern part of the Waterfall development. We are working with all stakeholders, including the Gauteng Department of Transport, to ensure timely delivery of this project. This will provide better access to our developments, as well as additional alternative transport options into the City.

Activities in the reporting period

During the year five buildings and one extension were completed in Waterfall bringing the total South African portfolio PGLA to 802 256m². Attacq’s attributable share of the total newly completed 118 628m² PGLA is 103 541m²:

LP number			Practical completion date	PGLA m2	Occupancy	External valuation R000
Waterfall City
PwC Tower~			October 2017	48 613	100.0	1 750 351
Gateway West			October 2017	13 803	>79.0	370 809
Waterfall Corporate Campus – phase I+			December 2017	5 868	100.0	169 700
Waterfall Logistics Hub
BMW Group South Africa Regional Distribution Centre			December 2017	31 987	100.0	289 401
Dis-Chem warehouse			October 2017	8 518	100.0	83 329
Massbuild extension			December 2017	9 839	100.0	78 806
Total				118 628	>97.0	2 742 396

~ Attacq has a 75.0% co-ownership.

+ Attacq has a 50.0% co-ownership.

Construction of the new Deloitte head office, with the Mall of Africa in the background, Waterfall City

Developments under construction

The following developments were under construction as at 30 June 2018:

Property			LP	Anticipated completion date	Effective PGLA# (m2)	Pre-let PGLA %	Estimated capital cost R000	Estimated     value on     completion     R000	Book value at 30 June 2018 R000
Waterfall City
Deloitte head office*			10	Q3 FY20	21 250	100.0	852 344	–**	141 743
Waterfall Corporate Campus – building 2*			10B	Q3 FY19	3 215	–	75 827	78 766	21 392
Waterfall Corporate Campus – Accenture*			10B	Q2 FY19	1 932	100.0	53 630	66 494	36 778
Waterfall Point^ – pre-sold building			15	Q3 FY19	2 339	Pre-sold	56 426	63 185	–
Waterfall Point^ – two buildings held for sale			15	Q3 FY19	4 678	Inventory	112 853	141 796	42 484
Waterfall Point – investment property building			15	Q3 FY19	2 339	–	56 426	63 391	23 616
The Ingress – phase 1			10	Q2 FY20	8 731	50.1	241 753	–**	31 075
Waterfall Logistics Hub
Cummins South Africa’s regional office*			9	Q2 FY19	8 116	100.0	108 952	111 701	65 649
Pirtek^^			8	Q3 FY19	2 926	Pre-sold	29 354	34 200	–
Superga/Kappa			8	Q4 FY19	4 657	100.0	42 810	–**	11 968
Midi warehouse			8	Q4 FY19	5 296	–	48 685	–**	14 221
Total					65 479	>75.0	1 679 060	n/a	388 926

* Values provided above reflect Attacq’s undivided share in the building: 50.0%.

^# Estimated PGLA for Attacq’s attributable share of development. Subject to change upon final remeasurement post-completion.

^ The estimated value on completion of pre-sold and inventory is indicative of sales proceeds and not of an external valuation.

^^ Classified as inventory, the estimated value on completion equals the sales value, not externally valued.

** Not externally valued due to early stage of construction as at 30 June 2018.

Outlook

With seven developments under construction and over 37 000m² of developments due to be completed in the 2019 financial year and a further 48 000m² in 2020, Waterfall is a hive of construction activity. Along with site developments, significant infrastructural investment is entrenching Waterfall as a prominent business location in Gauteng. Our sustainability strategy continues to drive the development of green-certified buildings in Waterfall.

Development pipeline

Waterfall City

The Atria – land parcel 10

We have established a 50/50 joint venture with Barrow Properties to develop the Atria, a mixed-use precinct adjacent to the Mall of Africa which comprises four office buildings and a hotel. The initial precinct’s design has been revised, resulting in the removal of the residential component and increasing the hospitality and office components. The total PGLA is estimated at 32 000m² at an estimated total development cost of R840.0 million. The construction of the super-basement has commenced. Construction of the top structure will be in a phased approach subject to leasing.

Waterfall Corporate Campus Office Park – land parcel 10B

Waterfall Corporate Campus is a 50/50 joint venture with Zenprop, with an approximate total development cost of R870.0 million. The development on completion, will comprise six multi-tenanted office buildings with an estimated total PGLA of 30 000m². Phase I, building 1 (5 868m² of PGLA) was completed in December 2017 and is fully tenanted. The construction of phase II, which consists of two buildings and the communal area, will be completed during the second and third quarter of the 2019 financial year. One of the two buildings will be fully tenanted by Accenture SA Proprietary Limited.

The Ingress – land parcel 10

We commenced with phase I of a five building office development known as The Ingress. The development is located adjacent to the Novartis building and across the road from Gateway West on land parcel 10. Phase I comprises two buildings, with building one to be fully tenanted by a financial services company. The total PGLA of phase I will be approximately 8 700m² and the remainder will be approximately 11 700m² (20 400m² in total). Total development cost is estimated at R570.0 million.

The Ellipse – land parcel 10

We intend to roll out residential developments to create a “live, work, play” urban environment in Waterfall City. The proposed inaugural residential development will comprise four towers of approximately 550 residential units on land parcel 10, west of the Mall of Africa. The development will be undertaken on a 50/50 joint venture basis in a phased approach. Phase I will consist of two towers of approximately 250 units. The estimated development cost of R450.0 million for phase I includes infrastructure that will benefit phase II. The commencement of the development is subject to achieving a certain level of pre-sales.

BMW X Lifestyle Park – land parcel 10

We are developing a BMW X Lifestyle Park in Waterfall City for BMW Group South Africa. The park is located on the southern side of the Mall of Africa and comprises a multi-functional event space to be used for promotional events and an off-road track designed to showcase the abilities of BMW’s X models. The initiative will create an additional attraction in the City.

Waterfall Logistics Hub

Zimmer Biomet – land parcel 8

We, in a 50/50 joint venture with Sanlam, commenced post-year end with the development of a warehouse with adjoining offices, measuring 4 000m² of PGLA, for Zimmer Biomet. The total capital cost for the project is R55.3 million with an estimated date of completion of June 2019. We classified 50.0% of the value of the development rights as well as infrastructure and service costs relating to Zimmer Biomet as held for sale as transfer is pending to Sanlam.

The Ellipse, Waterfall City

Investment in MAS

Overview

Over the financial year, our shareholding in MAS reduced to 22.8% (2017: 30.6%) after we elected not to participate in its two large capital raisings. The market value of our investment, using the 30 June 2018 MAS share price of R21.00 (2017: R23.50) equates to R3.1 billion (2017: R3.5 billion). During the year, we received cash dividends of R151.0 million (2017: R105.3 million), representing a 4.9% income return based on the year-end market value.

Our equity accounted investment at 30 June 2018 is R3.1 billion (2017: R2.7 billion). The net increase is due to MAS’ NAVPS increasing by 7.6% from 124.5 euro cents per share to 134.0 euro cents per share plus a 7.1% weakening of the rand against the euro. This was offset by dividends totalling 6.77 euro cents per share paid by MAS in the financial year.

Investment in MAS

MAS is a commercial property investor, developer and operator listed on the main board of the JSE. It is also listed and admitted on the Euro-MTF market of the Luxembourg Stock Exchange.

MAS’ strategy is to generate sustainable and growing distributable earnings per share by acquiring, developing and operating retail, office, industrial, logistics and hotel assets in Western Europe and Central and Eastern Europe. Where exceptional opportunities arise, MAS will embark on mixed-use or residential developments to generate recurring income or capital gains.

Asset prices in Western Europe have increased in recent years and acquisition opportunities that offer an attractive return on equity are more difficult to find. MAS’ focus in Western Europe is now on opportunities that can deliver substantial value through active asset management, development and redevelopment. Although property prices in CEE have increased, attractive opportunities are still available, backed by a combination of relatively high initial acquisition yields, substantial growth prospects and attractive debt terms. Even more appealing is the development market which is supported by rapidly growing purchasing power and, in some cases, suboptimally designed or undersized assets suited to redevelopment or displacement. Accordingly, MAS is expanding into the growing economies of CEE. To facilitate this, MAS has partnered with Prime Kapital Limited, a management team with exceptional development, investment and financing experience in these markets.

¹ MAS' share of the income-generating portfolio’s passing rent

Third key value driver: Investment in MAS

MAS’ 2018 performance highlights

• 7.1% year-on-year increase in European Public Real Estate Association NAVPS to 134.9 euro cents (2017: 125.9 euro cents)
• 32.0% year-on-year increase in income-generating property (includes investment property held for sale and acquisitions post 30 June 2018)
• 34.5% increase in net rental income
• 89.6% increase in net operating income
• Distribution per share of 7.61 euro cents
• Prime Kapital development pipeline: 21 000m² completed, over 634 000m² under development.

Outlook on MAS

MAS has revised its prior distribution growth guidance for the 2019 financial year of 30.0% to 15.0%. The prior distribution target was premised on being able to actively deploy capital raising proceeds into income-accretive acquisitions and developments. The markets MAS operates in have become progressively more competitive resulting in a slower than anticipated drawdown of available funds.

MAS has a well-funded balance sheet, a strong development and acquisition pipeline and access to an experienced development partner with an exemplary track record in CEE.

MAS as our third key value driver

MAS provides us with a growing stream of euro-denominated distributions, underpinned by a growing portfolio of income-generating properties and a strong acquisition and development pipeline. Melt Hamman will be joining the MAS board of directors in 2019.

Militari Shopping Centre, Bucharest, Romania (acquisition completed July 2018)

Rest of Africa retail investments

Overview

At 30 June 2018, our rest of Africa retail investments are held via our:

• 25.0% shareholding in Gruppo Investment Nigeria Limited, the owner of Ikeja City Mall in Lagos, Nigeria
• 31.8% shareholding in AttAfrica, which is invested in four retail properties in Ghana and one in Zambia.

At year end, our value in the Rest of Africa retail investments was R1.1 billion, comprising 3.8% (2017: 4.6%) of our total gross assets. In June 2017, the value totalled R1.2 billion and included our investment in The Grove Mall of Namibia, which was sold in May 2018. The proceeds of R191.9 million were used to reduce interest-bearing debt.

At 30 June 2018, our equity accounted investment in Gruppo totalled R305.2 million (2017: R286.5 million). The net increase in investment value reflects the 5.1% weakening of the rand against the US dollar, offset by an impairment of R25.2 million.

Our investment in AttAfrica, through its shareholder loan, was R787.3 million (2017: R776.2 million), being its gross loan of R953.9 million (2017: R908.5 million), net of an aggregate impairment of R166.6 million (2017: R132.3 million). AttAfrica repaid R99.3 million in capital and interest during the year, using funds from the external refinancing of Accra Mall. An impairment of R25.9 million was recognised against the loan in the current year (2017: R82.8 million) due to the increase in the negative net asset value position of AttAfrica. This is annually determined by an external valuation of the underlying properties.

The main drivers of the change in our Rest of Africa retail investments over the review period are shown below:

AttAfrica capital structure

Currently we are not receiving regular cash distributions from AttAfrica, due to unfavourable trading conditions and the capital structure of our investment in AttAfrica. This capital structure, inter alia, gives us a 31.8% shareholding in AttAfrica which is higher than our obligation to contribute 25.0% of the funding requirements and therefore have a share of any capital growth in the underlying portfolio above our capital contributions. Hyprop Investments Limited has first right to operational income flows generated by the portfolio, resulting in irregular cash distributions to Attacq. AttAfrica shareholders are investigating options to create liquidity in the portfolio ahead of the June 2020 shareholder liquidity event. Failing to do so, the existing capital structure will be restructured.

Fourth key value driver: Rest of Africa retail investments

Malls and performance

At 30 June 2018, the retail properties in which we have an interest, and vacancy rates were as follows:

					Annual footcount millions				Vacancy %
Asset			PGLA m2	Attacq %	2018		2017	2016	2018		2017	2016
Ghana
Accra Mall, Accra			21 311	15.0	7.2		7.3	6.5	6.8		–	–
West Hills Mall, Accra			28 272	14.3	5.4		5.4	5.6	10.4		5.3	5.0
Achimota Retail Centre^, Accra			15 534	23.9	5.9		5.0	5.2	1.9		6.1	21.7
Kumasi City Mall^, Accra			18 604	23.9	6.2		5.9	n/a	13.0		26.5	n/a
Nigeria
Ikeja City Mall, Lagos			22 223	25.0	7.8		7.8	8.2	3.1		–	3.4
Zambia
Manda Hill Mall, Lusaka			42 002	15.9	10.7		10.8	11.1	4.1		5.4	4.7

^ Footcount annualised in first-year of trade.

    Data provided at 100% level.

Accra Mall continued to trade well, with vacancies at year end largely due to the departure of Truworths and Identity. Vacancies reduced after year end. Substituting Game as the second anchor at West Hills Mall and Achimota Retail Centre is expected to impact both malls positively once opened in November 2018. This will also result in Shoprite being present in all malls and Game in every mall except Ikeja City Mall. Achimota has settled well since opening in 2016 as evident in lower vacancies and rising footcount. Operating income from Manda Hill Mall in Zambia was impacted by filling vacancies at lower rental levels during the year. While still challenging, trading conditions in Nigeria are improving off the back of moderating inflation, improved oil production and an increase in the availability of foreign exchange.

Management’s focus remains on filling vacancies and tenant retention to optimise net income and asset value.

West Hills Mall, Ghana, Accra