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Chief financial officer's review

(including financial resources)

Our full-year dividend per share of 81.5 cents (2018: 74.0 cents) increased by 10.1%, exceeding guidance.

Raj Nana, chief financial officer

The 2019 financial year was our first full year operating as a REIT, post receiving regulatory approval in May 2018 for the REIT conversion. In a challenging operating environment, we are pleased to have exceeded our DPS guidance, being one of our key financial performance metrics.

While our DPS outperformed our guidance, the prevailing market conditions and outlook did weigh on our property valuations, in particular, the valuation of our Waterfall development rights as well as our Rest of Africa retail investments. Just prior to year end, a disposal of one of the underlying properties in Ghana materialised with a further disposal in Zambia closing post-year end. We, and our co-shareholders, will be exiting the balance of this investment in an orderly manner.

Our net asset value per share (NAVPS) declined as a result of, inter alia, negative fair value adjustments on our investment property as well as impairments on our Rest of Africa retail investments combined with the maiden full-year dividend paid in October 2018 for the previous financial year. The lower asset values contributed to a higher gearing ratio of 37.7%, above our target of 35.0%. Our ICR, however, improved to 1.85 times which has reduced the gap to our medium-term target of a minimum of 2.0 times.

We have previously communicated that becoming a mature REIT is a journey that began with the formal conversion but will require changes to our financial position over time, which was previously structured to drive NAV growth. The current market conditions have made recycling capital by disposing of non-core assets to reduce debt challenging, however, during the year, R450.0 million of cash was generated from exiting investments, including our remaining 20.0% interest in the Attacq Equites joint venture and AttAfrica’s interest in Achimota Retail Centre in Ghana. Recycling of capital will remain a key focus for management during the next financial year.

We have restated the group’s prior-year annual financial statements. The restatement refers to the deconsolidation of the two legal entities that own the Newtown precinct. These two entities are now equity accounted and the correction has been applied retrospectively. We have also restated prior-year financial statements in respect of the reclassification of intra-group loan assets from current assets to non-current assets as well as discounting interest-free intra-group loans to their present value using the effective interest rate method. Please refer to our AFS for more information.

Key board and committee decisions

  • Capitalisation rates used by external valuers have remained largely unchanged, however, other key valuation assumptions are more conservative
  • Cash buffer
  • Low ICR
  • Our gearing levels have increased, while our financial performance (income statement) has improved
  • One-year forecast
  • Property fundamentals, including tenant defaults
  • Identifying assets for recycling
  • Rotation of Deloitte as auditors after ten-year tenure at the end of FY20
  • The impact of the macro and microeconomic outlook
  • Property and land valuations
  • Potential impact of formal versus informal trading
  • Debt covenants, no ICR covenant at group level
  • Interim and final dividend per share
  • Interim results for the six months ended 31 December 2018
  • FY20 guidance
  • FY21 target to improve ICR to exceed two times
  • Annual financial statements for the year ended 30 June 2019
  • 2019 integrated report
  • Restated FY18 results
  • Additional impairments to Rest of Africa retail investments
  • Attacq is solvent and liquid after taking the declaration of dividends into account
  • Develop less speculative buildings
  • Distributable earnings are adjusted for
    non-recurring events eg the sale proceeds of assets in AttAfrica are excluded from adjusted distributable earnings and DPS

Distributable earnings per share (DEPS)

Our distributable earnings increased by 17.1% to R664.1 million (2018: R567.2 million), resulting in DEPS of 94.4 cents (restated 2018: 80.7 cents). Included in distributable earnings is interest income of R89.5 million (2018: R46.7 million) received in cash from AttAfrica shareholder loans. The interest income was serviced from the proceeds of the disposal of Achimota Retail Centre and thus we have adjusted our distributable earnings for this non-recurring income, resulting in growth of 10.3% (on an adjusted DEPS basis).

In line with the adjusted DEPS of 81.7 cents (restated 2018: 74.1 cents), the board declared a final dividend for the year ended 30 June 2019 of 41.0 cents per share (2018: 74.0 cents), taking the full-year dividend to 81.5 cents (2018: 74.0 cents) or year-on-year growth of 10.1%. This exceeded the growth guidance provided to the market in September 2018 of between 7.5% and 9.5%.

Our four key drivers have contributed to our distributable earnings and DEPS as follows:


South African portfolio  415 429  380 041  9.3    
Developments at Waterfall*  (26 589) (10 149) nmf    
Investment in MAS  189 057  137 462  37.5    
Rest of Africa retail investments  86 209  59 823  44.1    
Distributable earnings  664 106  567 177  17.1    
Cents per share  2019  2018 
South African portfolio  59.0  54.1  9.1    
Developments at Waterfall*  (3.8) (1.4) nmf    
Investment in MAS  26.9  19.5  37.9    
Rest of Africa retail investments  12.3  8.5  44.7    
Distributable earnings  94.4  80.7  17.0    
Less: Interest received in cash from AttAfrica  (12.7) (6.6) nmf    
Adjusted distributable earnings  81.7  74.1  10.3    
Distribution per share  81.5  74.0  10.1    
Interim  40.5  –  nmf    
Final  41.0  74.0  nmf    
* Includes developments under construction, development rights and infrastructure and services.
# Comparative figures have been restated, please refer to AFS.

The distributable earnings generated by our South African portfolio includes net operating income from our properties less finance costs paid on our rand-denominated debt. The growth was assisted by newly completed properties contributing to rental income for the first time in FY19 as well as properties completed in FY18 which are now contributing for a full year. This key driver contributed 72.2% (restated 2018: 73.0%) of the adjusted DEPS.

Reducing our DEPS are costs associated with the Developments at Waterfall which include holding costs that are not capitalised on development rights and developments under construction such as rates and taxes and property owners' association levies. There is no interest-bearing debt against the development rights and thus no related finance costs.

The distributable earnings generated by our investment in MAS includes euro-underpinned dividends received in cash during the year net of euro interest paid, as well as the impact of foreign currency hedging net of tax. The total increase in distributable earnings from the prior year was 37.5% from this key driver and it contributed 32.9% (restated 2018: 26.3%) of the adjusted DEPS.

Rest of Africa retail investments reflects the net cash interest received on shareholder loans into AttAfrica and Gruppo Ikeja, two associate investment companies. This segment contributed (0.5%) (restated 2018: 2.6%) of the adjusted DEPS.

Financial performance

Our statement of comprehensive income is summarised below:

Gross revenue  2 283 244  1 982 374     
Rental income  2 057 548  1 864 042     
Straight-line lease income adjustment  197 124  88 467     
Sale of inventory  28 572  29 865     
Total property expenses  (780 690) (678 766)    
Property expenses  (749 143) (653 848)    
Cost of sales  (31 547) (24 918)    
Net profit from property operations  1 502 554  1 303 608     
Other income  89 532  44 970     
Operating expenses  (155 485) (170 254)    
Impairment losses  (505 148) (25 872)    
Other expenses  (170 138) (126 790)    
Operating profit  761 315  1 025 662     
Amortisation of intangible  assets  (19 964) (24 037)    
Fair value adjustments  (801 735) 420 886     
Investment properties  (655 110) 380 198     
Other financial assets and  liabilities  (135 761) 40 688     
Other investments  (864) –     
Gain on available-for-sale financial assets    35 750     
Net income from associates and joint ventures  124 770  78 092     
Investment income  230 549  233 323     
Finance costs  (855 465) (813 868)    
(Loss) profit before taxation  (560 530) 955 808     
Income tax (expense) credit  (42 058) 1 747 472     
(Loss) profit for the year  (602 588) 2 703 280     
Other comprehensive income  net of taxation  (33 710) (4 648)    
Total comprehensive (loss) income for the year  (636 298) 2 698 632     

* Comparative figures have been restated, please refer to AFS.

Rental income

Rental income increased by 10.4% to R2.1 billion (restated 2018: R1.9 billion) due to the additional rental income from the 12 buildings and one expansion completed over the last two years as well as rental escalations on the in-force portfolio. Like-for-like rental growth of 5.0% was driven by growth in the retail portfolio of 5.3%.

Net profit from property operations

Net profit from property operations, excluding IFRS adjustment for straight-line leasing, increased by 15.3% to R1.5 billion (2018: R1.3 billion). On a like-for-like basis, net operating income increased by 4.3%.

The group participated in the Edcon recapitalisation programme which was effective from 1 April 2019. Over 24 months, we will subscribe for equity and convertible notes in Edcon at a total subscription price of R30.1  million. For the period ended 30 June 2019, this totalled R4.1 million. This amount is included in rental income, but distributable earnings and the investment value have been reduced by this amount.

Property expenses

Property expenses increased by 9.3% on a like-for-like basis. The increase of 14.6% in total property expenses to R749.1 million (restated 2018: R653.8 million) was largely due to newly completed buildings coming on stream and an increase in municipal rates, impacted by upward valuation adjustments to the Johannesburg general valuation roll. Overall municipal charges increased by 16.8% to R467.1 million (restated 2018: R399.9 million), not all of which are recoverable from tenants. This reduced in the municipal charge recovery ratio from 92.9% to 91.2%.

Property cost-to-income ratio

The property cost-to-income ratio calculated below is based on best-practice recommendations issued by the SA REIT Association. The Waterfall portfolio’s ratios include the land lease rental obligation.

Waterfall portfolio    
Net cost-to-income ratio 20.9 21.9  
Gross cost-to-income ratio 35.8 35.9  
Non-Waterfall portfolio    
Net cost-to-income ratio 18.3 15.7  
Gross cost-to-income ratio 37.1 34.2  
Total South African portfolio    
Net cost-to-income ratio 19.8 18.9  
Gross cost-to-income ratio 36.4 35.1  

* Restated due to the deconsolidation of Nieuwtown and Majestic.

Operating expenses

The reduction in operating expenses by 8.7% to R155.5 million is largely due to non-recurring expenses incurred in FY18 to convert to a REIT including professional and legal fees.

Impairment losses

During the year, the shareholder loans provided to AttAfrica and Ikeja were impaired by R467.5 million (2018: R51.1 million) as a result of lower valuations of properties in-country. Assumptions were adjusted in line with current macroeconomic conditions to value the development rights owned by Attacq Sanlam JV (Waterfall Junction), which resulted in an impairment of our shareholder loans provided to the joint venture of R30.0 million (2018: Rnil).

The group recognised an intangible asset in 2016 on the acquisition of wi-fi rights for Waterfall City. Prior to us purchasing the wi-fi rights, a commercial agreement to monetise the wi-fi rights was entered into with a third party. In respect of Newtown precinct, the shareholder loans provided to the two companies that own the  precinct were impaired by R54.7 million (2018: R56.9  million) due to lower property valuations.

Other income

Included in other income are foreign exchange gains of R54.4 million (2018: R5.2 million); the profit on disposal of the 20.0% share held in the Equites joint venture of R14.6 million (2018: Rnil); and profits on sales of investment properties of R11.1 million (restated 2018: R16.7 million).

Net income from associates and joint ventures

The increase in net income from associates and joint ventures largely relates to the equity-accounted investment in MAS. In the prior year, MAS recognised a negative fair-value adjustment on its listed REIT portfolio, reducing our equity-accounted income from this associate. This combined with the increase in net income in FY19 contributed to total income from associates increasing to R124.8 million (2018: R78.1 million).

Investment income

The investment income of R230.5 million (2018: R233.3  million) includes interest accrued on loans to associates of R148.0 million (2018: R161.0 million); interest accrued on cash balances of R41.0 million (2018: R34.5  million) and interest accrued on a loan to PwC Waterfall Property Partners, our 25.0% co-owner of the PwC Tower building of R36.3 million (2018: R20.8 million).

Finance costs

Finance cost increased by 5.1% from the prior year, largely due to increased funding on developments that were completed as well as finance costs relating to interest-rate swap agreements. Interest expense on long-term funding from banks and institutions amounted to R781.3  million (restated 2018: R756.5 million); while finance costs on interest-rate swaps were R74.0 million (restated 2018: R56.7 million). Finance costs are net of capitalised borrowing costs of R43.1 million (restated 2018: R44.7 million).

Fair value adjustments

All inputs into investment property valuations are assessed on a six-monthly basis and certain inputs were revised negatively in light of prevailing macroeconomic conditions. This resulted in a negative fair value adjustment of R176.1 million (restated 2018: positive R457.0  million), before straight-line leasing, on the completed property portfolio. The properties which mainly contributed to the negative fair value adjustment are 2  Eglin, Brooklyn Bridge Office Park, Eikestad Mall, Mall of Africa and Torre Industries. The fair value adjustments for the retail properties were negatively impacted by the capital expenditure on reconfigurations and refurbishments.

Similarly, the valuation of development rights was also fair valued downward, taking into account the current low business confidence levels and outlook. In particular, the development roll-out period, which is a primary driver of the valuation, was extended. The fair value impact on development rights was R384.1 million (2018: R48.9 million).

A contributor to the increased value of developments under construction is a positive fair value adjustment of R92.2 million (2018: R60.6 million).

Financial position

Balance sheet per key driver


South African portfolio 20 455 643  20 950 535   (2.4)  
Developments at Waterfall* 2 329 199  2 258 698   3.1   
Investment in MAS 3 192 978  3 145 828   1.5   
Rest of Africa retail investments 820 068  1 160 715   (29.4)  
Head office - South Africa 252 441  334 276   (24.5)  
Head office - Global 72  3 002   (97.6)  
Total assets 27 050 401  27 853 054   (2.9)  
Total liabilities (11 462 669) (10 810 924)  6.0   
Total equity 15 587 732  17 042 130   (8.5)  
* Includes developments under construction, development rights and infrastructure and services.
# Comparative figures have been restated, please refer to AFS.

Gross assets decreased by 2.9% to R27.1 billion (restated 2018: R27.9 billion).

Investment properties movement
* DUC: Developments under construction.
** DR: Development rights.
*** PPE: Property, plant and equipment.
Investment properties movement, including assets held for sale (R million)

Investment properties

Completed buildings  19 066 255  18 755 548  
Developments under construction  791 276  346 441  
Development rights  495 972  879 324  
Infrastructure and services  762 187  646 855  
Land  5 000  5 000  
Per valuation  21 120 690  20 633 168  
Straight-line lease debtor  (1 039 147) (842 023) 
Subtotal investment properties  20 081 543  19 791 145  
Investment properties held for sale  96 018  115 149  
Total investment properties  20 177 561  19 906 294  

# Comparative figures have been restated. Please refer to AFS.

The carrying amount of the Developments at Waterfall is reconciled from investment property as detailed below:

Developments under construction 791 276 346 441
Development rights 495 972 879 324
Infrastructure and services 762 187 646 855
  2 049 435 1 872 620
Investment properties held for sale 19 018 115 149
Inventory 51 137 42 484
Other assets 97 989 84 642
Waterfall Junction 111 620 143 803
Developments at Waterfall 2 329 199 2 258 698

# Comparative figures have been restated. Please refer to AFS.


* Loan advanced to 25.0% co-owners of the PwC Tower.


While capitalisation rates (cap rates) for the June 2019 completed building valuations were largely unchanged, other valuation inputs including long-term vacancy rates, rental reversions and market rental growth rates were revised in response to current market conditions. Please refer to manufacturing resources for more information.

Developments at Waterfall

Developments under construction increased by capital expenditure during the year as well the positive fair value adjustments, less transfers of completed developments to the completed portfolio.

Similarly, infrastructure and services increased by additional capital expenditure during the year, less transfers to developments under construction.


Investments in and loans to associates and joint ventures and other financial assets, as disclosed below, decreased by 12.2% to R4.6 billion (restated 2018: R5.2 billion).

Our shareholding in MAS remained at 22.8% of the shares issued. The rand/euro spot rate at year end was weaker than at 30 June 2018. Our equity-accounted value of R3.2 billion was in line with market value of R3.2 billion as at 30 June 2019.

The PwC Tower investment of R331.8 million (2018:  R332.2  million) is a loan provided to the 25.0% co-owner of that asset. The loan carries similar terms and conditions to the debt raised and the interest is serviced monthly from the property’s rental income.

The group owns 50.0% of the shares in Nieuwtown Property Development Proprietary Limited and Majestic Offices Proprietary Limited, the two companies that collectively own the Newtown precinct. It was concluded that the group jointly controls these companies and, as a result, these were deconsolidated and instead equity accounted, with the prior-year financials being restated accordingly.

As part of our capital recycling activities, our 20.0% shareholding in the Attacq Equites joint venture was disposed of and we reduced exposure in our Rest of Africa retail investments via the disposal of the underlying Achimota Retail Centre held via AttAfrica just prior to year end with a further disposal concluded on Manda Hill post-year end. The disposal proceeds of the joint venture partner interest in the Cummins Southern Africa Regional Office and Zimmer Biomet developments were settled during the year and the remaining proceeds from the Stenham European Shopping Centre Fund Limited disposal were received. In total, R450.0  million (2018: R524.0 million) of capital was recycled.

Assets held for sale

Transactions with joint venture partners    
Nexus Waterfall 46 668
Cummins Southern Africa Regional Office 63 372
Zimmer Biomet 5 109
The Ellipse 19 018
Investment property    
Torre Industries 77 000
Stenham European    
Shopping Centre Fund Limited 2 947
Rainprop Proprietary Limited 763 775
Total 96 781 118 871

Nexus Waterfall was being developed in a 50/50 joint venture and, in June 2019, we took over the development on a sole basis. The sale agreement for Torre Industries is unconditional and will be settled at transfer. The R19.0 million, for the Ellipse development rights will be settled by our joint venture partner, Portstone, on transfer of the property.


Total interest-bearing borrowings increased by 4.5% to R10.5 billion (restated 2018: R10.1 billion). The increase is due to borrowing facilities for Waterfall Corporate Campus, The Ingress and Deloitte head office developments. Committed, but undrawn, facilities of R1.4 billion (restated 2018: R676.4 million) are available as at 30 June 2019. These available facilities exceed the cost-to-complete on existing developments under construction of R582.4 million (restated 2018: R158.9 million).

The euro-denominated borrowings of R1.4 billion (2018: R1.4 billion) are secured by the combination of a cession of MAS shares and mortgage bonds over investment properties. The group has no borrowings against the Rest of Africa retail investments and any proceeds received by us from a disposal of these investments will be used at the group’s discretion.

The interest cover ratio improved to 1.85 times (restated  2018: 1.78 times). Gearing, calculated as total interest-bearing debt less unrestricted cash on hand as a percentage of total assets less total cash on hand, increased to 37.7% (restated 2018: 33.5%). The increase in gearing is due to lower investment property values and impairments on our Rest of Africa retail investment.

Borrowings  2019 
Total drawn facilities  10 516 731  10 065 586  
Total weighted average loan term (years) 3.6  4.2  
Rand-denominated interest-bearing borrowings       
Committed facilities available  10 415 826  9 312 162  
Drawn facilities  9 061 281  8 634 578  
Weighted average loan term (years) 3.9  4.7  
Euro-denominated interest-bearing borrowings       
Committed facilities available  1 498 072  1 431 123  
Drawn facilities  1 455 450  1 431 008  
Weighted average loan term (years) 1.7  1.4  
Interest cover ratio (times) 1.85  1.78  
Gearing (%) 37.7  33.5  

* Restated due to the deconsolidation of Nieuwtown and Majestic.

To mitigate rand-denominated interest-rate risk, 90.5% (restated 2018: 99.9%) of total committed facilities of R10.4 billion (restated 2018: R9.3 billion), which excludes committed liquidity facilities, were hedged via fixed interest-rate loans or interest-rate swaps. On a group level, 78.7% (restated 2018: 94.2%) is hedged which is more conservative than the minimum hedging policy of 70.0%.

Interest rate hedges 2019
Total hedged as a percentage of total committed facilities (%) 78.7 94.2  
Total weighted average hedged term (years) 3.4 3.7  
Rand-denominated hedges    
Total hedged as a percentage of total committed facilities (%) 90.5 99.9  
Weighted average hedged term (years) 3.4 4.0  
Euro-denominated hedges    
Total hedged as a percentage of total committed facilities (%) 56.8  
Weighted average hedged term (years) 0.8  

* Restated due to the deconsolidation of Nieuwtown and Majestic.

The weighted average cost of funding improved by 16.0  basis points over the last year to 8.8% (restated 2018: 8.9%). The improvement is largely due to refinancing interest-bearing debt and interest-rate swaps at lower interest rates.

Cost of debt  2019 
Total weighted average cost of debt  8.8  8.9  
Rand-denominated weighted average cost of debt  9.9  10.0  
Weighted average floating interest rate  9.0  8.8  
Premium for hedging  0.9  1.2  
Euro-denominated weighted average cost of debt  1.9  2.4  
Weighted average floating interest rate  1.9  2.3  
Premium for hedging    0.1  

* Restated due to the deconsolidation of Nieuwtown and Majestic.

A total of R259.6 million (restated 2018: R538.1 million) of the group’s interest-bearing debt is due for repayment in the next 12 months. Interest-bearing debt of R54.0 million (2018: Rnil) is secured by investment property currently classified as non-current assets held for sale and will be settled on transfer of the Torre Industries property to the purchaser.

In the past year, we successfully refinanced R2.2 billion of the group’s interest-bearing debt which includes euro-denominated funding of R1.5 billion.

Due to lower forward interest rates, an increase in other financial liabilities of R135.8 million (2018: decrease in other financial liabilities of R40.7 million) was recorded on the mark-to-market valuation of interest-rate swaps.

The following group financial covenants have been agreed with the funders, and substantial headroom between the covenanted level and actual measurement is evident.

Key group covenants Covenant Actual
Gearing ratio* (%) 60.0 41.2
Minimum net asset value (R’bn) 7.0 15.6

* Calculated as interest bearing debt/(total assets – (goodwill + intangible assets + deferred initial lease expenditure + straight–line lease adjustment + receivables + deferred tax assets))

Equity movement

The NAVPS as at 30 June 2019 declined by 8.6% to R22.16 (2018: R24.24) as a result of movements in assets and liabilities discussed above. Year on year, the total number of issued shares increased by 340 000 after issuing new shares for our share incentive scheme. The NAVPS movement is reflected below.

Equity movement

Cash flow

Cash flow statement 2019 
Cash flow from operating activities 653 327  384 589  
Cash flow from investing activities (819 409) (116 030) 
Cash flow from financing activities (381 558) 535 006  
Total cash movement for the year (547 640) 803 565  
Cash at the beginning of the year 1 221 126  417 561  
Cash and cash equivalents at the end of the year 673 486  1 221 126  

* Comparative figures have been restated, please refer to AFS.

Our cash flow generated from operating activities was R653.3 million (restated 2018: R384.6 million). When reversing working capital movements, net cash generated from operating activities of R670.8 million is in line with distributable earnings of R664.1 million. The difference is explained by, inter alia, non-cash items including share-based payments, bad debts written off and the portion of rental received from Edcon but eliminated for the purposes of distributable earnings.

At year end, the group had cash balances of R673.5 million (2018: R1.2 billion) with additional committed but undrawn facilities of R1.4 billion (2018: R676.4 million).


In reflecting on the 2019 financial year, there have been many celebrations and challenges, but the resilience of the Attacq team has stood out. Thank you to everyone who contributed to the year and for the year ahead, Nyamezela, the Xhosa word that means persevere.

I would also like to thank Helena Austen, our previous head of legal, who has left for New Zealand. Helena was instrumental in the early years of Attacq, helping to create the foundation that has enabled us to take the group forward.

Raj Nana

Chief financial officer

23 October 2019

Raj and his direct reports

Back: Raj Nana, Henry Kuhn, Karin Booysen, Brenda Botha
Front: Christy Hobsen and Prelene Nair