Integrated
Report

2019

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Operating context and response

 

SOUTH AFRICA

(KEY DRIVERS: SOUTH AFRICAN PORTFOLIO AND DEVELOPMENTS AT WATERFALL)

 

STRATEGIC MATTERS:

OPERATING ENVIRONMENT PROPERTY TRENDS   RISK AND OPPORTUNITIES

–  Weak domestic economy

–  Constrained consumer spend

–  Increased online shopping

±  Increased focus on transformation

–  Land expropriation

–  Increased competition for capital

–  Fourth industrial revolution

–  Cost and availability of water and electricity

–  Illegal land invasions

–  Increased community activism

–  Low business confidence

–  Uncertainty

–  Oversupply of space in certain nodes

–  Retailers increasingly under pressure, including corporate failures

–  Consumer under pressure

–  Potential tenants delay decisions

–  Scarcity of experienced and skilled property professionals

–  Construction industry under pressure

±  Shopper and tenant behavioural changes

+  Investments in renewable energy

+  Increased focus on green buildings

–  Increased focus on cost of occupancy

–  Through-the-cycle property valuations

 

Meeting shareholder expectations

Transformation targets

Protection of property rights

Availability of capital

Impact of technology and/or disruptors

Liquidity

Emerging markets

Cost and availability of water supply

Delivery of developments at Waterfall

Legal and regulatory compliance

Cost and availability of electricity

Cyber security

Land invasion

Stakeholder activism

+ Positive       - Negative    

Our response

  • We develop sustainable green buildings
  • Our relationships with tenants and meeting their needs are increasingly important to ensure their retention
  • We are proactively assisting our retail tenants, eg with marketing, understanding their business model, taking back or resizing lettable areas and ensuring optimal tenant mix
  • We have a strong in-house brokerage team, supporting tenants in their decisions
  • Our focus in corporate social investment is training, specifically for previously disadvantaged individuals
  • We are developing corporate consolidations as a cost-effective solution for our tenants
  • Defensive and dominant retail and mixed-use properties
  • Well established Waterfall precinct, with development momentum
  • We improved our tenant vetting and renewal process
 
 

REST OF AFRICA

(KEY DRIVER: REST OF AFRICA RETAIL INVESTMENTS)

 

STRATEGIC MATTERS:

OPERATING ENVIRONMENT PROPERTY TRENDS   RISK AND OPPORTUNITIES

–  Dollar strength against local currencies

+  Higher commodity prices

+  Declining interest rates and inflation

–  Challenging operating environment

–  Limited tenant options available

–  Competition from informal trading

–  Increase in vacancies

–  Increase in arrears

 

Meeting shareholder expectations

Liquidity

Emerging markets

Legal and regulatory compliance

+ Positive       - Negative    

Our response

  • The decision has been made to exit our remaining investments in the Rest of Africa in an orderly manner.
 
 

EUROPE

(KEY DRIVER: INVESTMENT IN MAS)

 

STRATEGIC MATTERS:

OPERATING ENVIRONMENT PROPERTY TRENDS   RISK AND OPPORTUNITIES

+  Euro strength against rand

–  Lower economic growth in Western Europe

+  Higher growth expectations in CEE

–  Potential increase in euro interest rate

High asset prices in Western Europe make yield-accretive acquisitions challenging

+

CEE region still offers development opportunities for experienced operators

 

Meeting shareholder expectations

Emerging markets

Legal and regulatory compliance

+ Positive       - Negative    

Our response

  • We have secured euro funding using our MAS investment as security to create a natural foreign currency hedge
  • Attractive growth prospects in MAS dividend are expected to provide a rising and diversified income stream
  • MAS has a growing income-producing portfolio, gearing capacity and the ability to recycle capital from mature assets to fund its large development pipeline