SAREIT

Rosebank, South Africa, 06 October 2020: JSE listed diversified real estate investment trust Redefine Properties is pleased to announce that it has reached a mutually beneficial and alternative arrangement relating to the conclusion of the sale of the Mall of the South (MOTS). As part of the agreement, the 73 111sqm regional shopping centre in Aspen Hills, south of Johannesburg will be acquired by a limited liability special purpose vehicle (SPV) for R1.76 billion in cash. RMB Investments and Advisory Proprietary Limited will hold an 80% equity interest in the SPV and Redefine 20%.

The deal will be funded through a loan agreement with RMB.

The transaction is expected to close before 1 November 2020 once all conditions are met, including approval by the Competition Commission and other usual approvals.

Construction of MOTS began during 2013, and at that time the property was considered to be an attractive asset to complement Redefine’s retail property portfolio. In order to secure participation in the development, Redefine entered into a structured financing transaction with Zenprop and RMB, which would allow or require Redefine to purchase MOTS upon the occurrence of certain events.

“Given that circumstances had changed dramatically, clearly unforeseen at the time of entering the put agreements, all the parties agreed to engage constructively to restructure the put arrangements,” says Andrew Konig, CEO, Redefine Properties.

“The restructure allows additional time for MOTS to recalibrate to the post COVID-19 retail real estate environment and provides Redefine with the opportunity to either acquire or dispose MOTS over a three-year period. We do not anticipate the restructured arrangement to have a significant adverse impact on our loan-to-value ratio.”

Konig reiterated his views expressed at the pre-close briefing for the year ending 31 August 2020 that “property fundamentals are going to be challenged for the rest of 2020 and beyond” due to unprecedented and evolving market conditions.

The coronavirus pandemic has dealt a blow to retail tenants and landlords already struggling with declining disposable incomes and a sluggish economy. The public health crisis temporarily closed malls nationwide at the end of March, when the Government enforced a strict lockdown, the hardest the world has seen.

The transaction constitutes a category 2 transaction in terms of the JSE Listings Requirements and is not subject to approval by Redefine shareholders.

Fairvest’s Property Portfolio Proves Its Resilience

Features for the year to 30 June 2020

• Final distribution of 9.883 cents per share, taking the full distribution for the year to 21.038 cents per share, down 3.4%

• Like-for-like annualised net property income growth of 0.8%

• Tenant retention remaining high at 73.28%

• Average lease term up from 35 to 39 months

• Vacancies contained at 4.5% of total lettable area

• Arrears at 4.4% of revenue

• Interest cover high at 2.9 times

• Like-for-like property portfolio value increased by 1.0% to R3.49 billion

• Net asset value per share of 221.18 cents, down 3.6%

• 2021 guidance the distribution per share for the 2021 financial year to be at least in line with the current year’s distribution per share

Cape Town, 23 September 2020. Fairvest Property Holdings Limited (“Fairvest”) today announced results for the year to 30 June 2020, with total distribution for the year of 21.038 cents per share, down 3.4% decrease on the prior year. Chief Executive Officer, Darren Wilder said: “We are pleased with the resilience that our portfolio has shown, in what can only be described as an exceptionally tough environment. Fairvest’s continued satisfactory financial performance is attributable to its focus on a differentiated sector of the market. There is a perceptible shift in consumer preference towards convenience and neighbourhood shopping and this is borne out by trading density growth in the local market, which has favoured smaller retail formats. In challenging times like these, experienced management who has managed property portfolios through multiple economic cycles, also plays a central role in sustaining performance. This is reflected in our moderate vacancies and arrears, high tenant retention and solid growth in net property income.“

The company said that Fairvest was well-positioned with strong cash flows and a prudent balance sheet with an LTV of below 36.6% and a well-diversified funding profile. The defensive nature of Fairvest’s assets, together with the strategic focus on investing in grocery anchored shopping centres and the conservative historic assumptions used for the valuation of the property portfolio, resulted in asset values remaining stable compared to the prior period. On a like-for-like basis the property portfolio increased by 1.0%, despite the company’s conservative stance on exit capitalisation rates and discount rates, both of which were increased in the period.

Fairvest maintains a distinctive focus on retail assets in underserviced, high growth sub sectors . The portfolio is weighted toward non-metropolitan and rural shopping centres, as well as convenience and community shopping centres servicing the lower income market, in high-growth nodes, close to commuter networks. The Fairvest property portfolio consists of 44 properties, with 262 702m2 of lettable area and valued at R3.49 billion. The high national tenant component of 74.9% of the portfolio provides shareholders with a low-risk investment profile with national food retailers occupying 32.7% of the portfolio in terms of GLA.

In an industry that has been severely impacted by the COVID-19 pandemic, Fairvest continues to be one of the best performing property stocks in the South African market. In the latest report by the SAREIT Association, Fairvest features as a the top three-performer over 1, 3 and 5 years, underscoring its consistent performance over time.

Impact Of COVID-19

Wilder said that during the nationwide lockdown, Fairvest’s strategy was to focus on supporting its tenants, as well as on cash flow planning and liquidity management. Fairvest actively engaged with all tenants on the impact of COVID-19 on their businesses in order to find sustainable solutions. Concessions in the form of gross rental deferrals and rental credits were provided to tenants, dependant on their specific circumstances. Gross rental deferrals of April, May and June 2020 billings were provided to certain Small, Medium and Micro Enterprises (“SMME”) tenants, with repayment terms ranging from 3 to 36 months, commencing from 1 July 2020. Of the gross billings in April to June 2020, credits of 10.5% of total gross billings were conceded for 364 tenants and deferrals were provided on 10.8% of total gross billings for 216 tenants. After taking into account the concessions provided, approximately 95.8% of collectable billings were collected for these periods. Fairvest remained cash flow positive throughout the lockdown period and continues to generate positive cash flows.

Arrears increased to 4.4% at year-end. Arrears decreased in June, compared to May and continued to decrease further in July and August 2020. Total credits provided, resulted in a 6.0% reduction in distributable earnings, while the increase in the provision for expected credit losses, resulted in a further 3.4% reduction in distributable earnings.

Review Of Results

Total property revenue increased by 8.7% to R532.1 million, as a result of income growth in the historic portfolio, as well as acquisitions during the period. Net profit from property operations increased by 4.6% to R330.1 million, while efforts to contain corporate administration expenses culminated in expenses decreasing by 0.7% to R30.0 million. Distributable earnings decreased by 5.6% to R208.0 million. Gross cost to income ratio increased from 36.7% to 38.9%, mainly due to rental concessions provided to tenants, as well as a significant increase in the provision for expected credit losses on rental billed during the COVID-19 lockdown period.

The weighted average contractual escalation for the portfolio remained within target of 7.1%. Gross rentals across the portfolio trended upwards, with an 5.7% increase in the weighted average rental to

R128.61/m2 at 30 June 2020 (2019: R121.64/m2). This was due to contractual escalations, increases in rental achieved on new leases, and a 3.0% weighted average rental increase achieved on renewals.

The net asset value decreased by 7.2% to R2.17 billion, mainly due to the treasury shares acquired during the period. On a per share basis, this equates to a net asset value per share of 221.18 cents per share, down 3.6% on the prior year.

Property Portfolio

The Fairvest property portfolio consists of 44 properties, with 262 702m2 of lettable area. The historic portfolio increased by 1.0% on a like-for-like basis. During the year, Fairvest acquired Nonkqubela Mall and Qumbu Plaza to the value of R162.8 million and R54.0 million, respectively. Capital expenditure was incurred of R17.7 million and R45.3 million was spent on solar installations and this resulted in a 10.5% increase in the value of the property portfolio to R3.49 billion. Asset quality continues to improve, with the average value per property increasing by 5.4% to R79.3 million, and the average value per square metre increased by 2.2% to R13 288/m2.

As part of Fairvest’s sustainability initiatives we commenced the installation of photovoltaic rooftop solar systems on 17 of our properties. Ten sites have been completed and are generating within expectation, with the installations at all other sites expected to be completed by the second quarter of the 2021. The estimated annual energy generation will be 10 964 117 kWh.

Fairvest utilises independent external valuers to value at least one third of the portfolio each year with the remainder being valued by the directors. Of the 44 properties in the portfolio, 15 properties equating to 37.8% by value, were valued by independent valuers, DDP Valuers, De Leeuw Valuers and Broll Valuers during the year. Fairvest manages its portfolio valuations particularly conservatively and, given the uncertainty in the current market, an even more prudent approach was taken by increasing the weighted average exit capitalisation rate used from 10.1% to 10.3%, and the weighted average discount rate from 14.6% in the prior year to 14.8%. During the year, Fairvest concluded the disposal of Tokai Junction for R180 million. The disposal price represents a 10.5% premium to the 30 June 2019 valuation of the property, again underscoring Fairvest’s conservative portfolio valuation.

Portfolio Composition, Letting And Vacancies

The portfolio remains well diversified across South Africa, with the four largest provinces, KwaZulu-Natal, Western Cape, Free State and Gauteng contributing 76.6% of revenue.

Vacancies increased modestly from 4.0% to 4.5% or 11 836m2 during the period, with positive letting of vacancies after year-end resulting in vacancies decreasing to 3.2%. Fairvest expects an increase in vacancies in the short-term, with some tenant groupings under pressure due to their inability to trade at full capacity under lockdown restrictions and have provided for a 4% vacancy factor (R16 million), up from 1% in the previous year.

Capital And Borrowings

Fairvest’s positive cash flows and conservative balance sheet supported the conclusion of one new debt facility and the refinancing of two existing debt facilities during the lockdown period. After year-end, another debt facility was refinanced early and the group now has no expiring debt facilities in the next 12 months. The weighted average all-in cost of funding decreased to 7.57% (2019: 9.29%), due to the cumulative 3.00% interest rate decreases in recent months. The weighted average maturity of debt decreased marginally from 24 months to 23 months.

The loan to value (LTV) ratio increased to 36.2% (2019: 27.9%), due to the acquisitions and the treasury shares acquired during the period. After the settlement of the Tokai Junction disposal, the LTV is expected to decrease to 31.0%. Of the debt, 63.1% was fixed through interest rate swaps as at 30 June 2020, with a weighted average expiry for the fixed debt of 40 months.

Prospects

Fairvest will continue to monitor the long-term impact of the pandemic on the economy and the operations of the group. Economic recovery is however expected to be protracted.

Fairvest is well positioned, with its niched assets proving more resilient during the COVID-19 pandemic The focus for the next 12 months will be on maintaining viable tenancies and letting of vacancies, as well as a strong focus on the collection of arrears. The balance sheet remains conservative, with R132.8 million of undrawn debt facilities available to consider opportunistic yield accretive acquisitions.

The lasting impact of the COVID-19 pandemic on the economy remain uncertain, making distribution forecasts exceedingly challenging. Given the uncertainty, the board expects the distribution per share for the 2021 financial year to be at least in line with the current year’s distribution per share. Whilst it is broadly anticipated that industry pay-out ratios may be revised downwards over time, the Fairvest board has resolved to maintain the current dividend pay-out ratio of 100% of distributable earnings as a dividend.

Fairvest 2020 year end results booklet 

Contacts

Darren Wilder, Chief Executive Officer – Fairvest Property Holdings Limited, Office 021 276 0800

For more details or to set up a media interview, please contact:

Lydia du Plessis, Investorsense, Cell: 082 491 7583, e-mail lydia@investorsense.co.za

Growthpoint Properties Limited (JSE: GRT) delivered 5.4% growth in revenue and R5.5bn in distributable income for its full-year to 30 June 2020.

Taking additional new shares issued during the period into account, this translates to distributable income per share of 183.1 cents per share, which is 16.0% lower than the prior financial year. Growthpoint declared a 106 cents per share dividend for its half-year and has yet to announce its second-half dividend.

Norbert Sasse, Growthpoint Properties Group CEO, comments, “We at all times seek to strike a balance between a conservatively managed and sustainable business and the interest of our investors in optimising distributions. While no final dividend has been declared for FY20, subject to there being no material regulatory changes or market disruptions which may have a substantially negative impact on our overall financial position between the date of publication of our results, and the date of declaration of the final dividend for FY20, the Growthpoint Board is considering declaring a final dividend based on a pay-out ratio of not less than 75% of distributable income for FY20 which will ensure compliance with current REIT legislation.”

This is the first time in 16 years that Growthpoint has been unable to deliver a growing dividend to its shareholders, in a period where results were negatively impacted by the COVID-19 lockdown restrictions under the national state of emergency in response to the global pandemic. The lockdown severely impacted the SA economy, which was already in recession due to low growth.

Sasse adds, “Never before has Growthpoint experienced such a challenging operating environment. Following a detailed strategic review of short and long-term strategies, the Growthpoint Board of Directors is prioritising liquidity and balance sheet strength in the short term, considering the weak property fundamentals in SA in particular, and the current cycle of falling asset values and rising gearing levels. This will enable us to continue to pursue our strategic initiatives of internationalisation, optimising and streamlining our SA portfolio and introducing new revenue streams through third-party trading and development as well as funds management, which all remain relevant for our business.”

Growthpoint creates value through innovative and sustainable property solutions that provide space to thrive. It is the most liquid and tradable way to own commercial property in SA. Growthpoint is a FTSE/JSE Top 40 Index company and a constituent of the FTSE EPRA/NAREIT Emerging Index. It has also been included in the FTSE4Good Emerging Index for the third successive year and in the FTSE/JSE Responsible Investment Index for its tenth year.

Growthpoint owns and manages a diversified portfolio of 440 property assets across SA valued at R73.4bn and a 50% interest in the V&A Waterfront, Cape Town, valued at R9.4bn. Growthpoint owns 58 properties in Australia valued at R51.8bn through a 62.2% holding in ASX-listed Growthpoint Properties Australia (GOZ). This year Growthpoint acquired a 52.1% investment in LSE-listed UK REIT Capital & Regional, which has a secondary listing on the JSE and owns a portfolio of seven community shopping centres valued at R14.8bn. Through its 29.4% investment in LSE AIM-listed, Globalworth Real Estate Investments (GWI) it owns an interest in 62 properties in Romania and Poland, of which Growthpoint’s share is valued at R17.2bn.

Growthpoint’s consolidated SA REIT loan-to-value (LTV) increased during the year to 43.9%. The higher figure is partly due to Growthpoint’s early adoption of the second edition of the SA REIT Best Practice Reporting guidelines, which includes a new standard calculation for SA REIT LTV that increases this number for Growthpoint by 1.7%. Using the previous calculation basis, Growthpoint’s LTV is 42.2%. Debt owing in SA increased by R8.1bn, including R1.8bn relating to the translation of Rand balances of EUR, GBP and USD loans, given the weaker domestic currency. The balance was due to Growthpoint’s further investment of R600m in Growthpoint Investec African Properties (GIAP), R1.3bn in Globalworth, its new R2.9bn investment in Capital

& Regional, and development and maintenance capital expenditure of R2.0bn in its SA portfolio, all of which were mainly funded by debt.

LTV was also impacted by the 8.8% (R7.1bn) devaluation of Growthpoint’s SA portfolio. Its retail portfolio value decreased by 11.3%, offices 8.9% and industrial 5.8%. Growthpoint’s SA business’ SA REIT LTV increased to 39.8% from 31.8%.

Growthpoint’s net property income (NPI) from its SA business dropped by 8.7% (R559m) of which 93.0% was directly due to the impact of COVID-19 in the final quarter of its financial year, including R277m of discounts granted to those tenants most severely impacted by the lockdown between April and June. Arrears increased in all sectors to an unprecedented high of R511m. Expenses surged with a R236m provision for bad debts, including a 25% provision on the R141m of rental deferments Growthpoint offered to tenants and R7.0m of extra COVID-19-specific costs.

In SA, Growthpoint let more than one million square meters of space during the year. All SA portfolio fundamentals weakened, with vacancies rising from 6.8% to 9.5%, renewal success rates decreasing to 66.4% from 70.1%, and average rental reversions moving deeper into negative territory from -5.3% to -6.7%.

Growthpoint completed developments and capital expenditure projects worth R2.0bn. While it has scaled back on all non-essential capital projects, Growthpoint remains committed to a further R634.4m. It earned third-party development fees of R11m and R30m of development rental income in the year. Growthpoint successfully disposed of R581.8m of non-core assets and made R274.6m of strategic acquisitions to optimise and streamline its SA portfolio.

Sasse notes, “Growthpoint’s trading and development expertise continued to give us a competitive advantage, but in line with market conditions it is likely that the scale of activity will decrease and we have suspended speculative development for now.”

SA retail property portfolio vacancies edged up slightly but remained a low 3.7% excluding offices and space under development. Growthpoint concluded a transaction with the various acquirers of the Edcon brands which will see 90% of the related 88,680sqm of space in Growthpoint’s portfolio remain let at new market rentals. A further leasing triumph saw the previously mothballed vacancy at Lakeside Mall, Benoni, leased to two new anchor tenants, Pick n Pay and Dis-Chem as part of a spectacular upgrade to the mall.

Growthpoint’s SA office portfolio enjoyed numerous successes during the year, including fully letting its new development at 144 Oxford Road in Rosebank, Johannesburg, to blue-chip clients including anchor tenant Anglo American. However, with business failures increasing, letting slowed. Office portfolio vacancies rose 5% to 15.4% during the financial year, which has improved with

a further 20,000sqm of letting since year-end. The ex-Deloitte space of 39,800sqm at Woodmead Office Park in Sandton was successfully re-let on long-lease terms to Altron and DRA Global well in advance of becoming available, but the lockdown delayed occupation which is now expected before 2021.

Growthpoint’s industrial portfolio held up relatively well. New and in-force escalations in the industrial portfolio are around the 8% mark. Growthpoint targeted and successfully increased its portfolio presence in the Cape Town and Durban metros. The final phase of the 38,000sqm Mill Road Industrial Park, Cape Town, was completed as was the 20,000sqm Trade Park industrial park development in Mount Edgecombe, KwaZulu-Natal. The weak economy and COVID-19, however, slowed leasing take-up at these developments.

“SA has a difficult recovery ahead with a more than 10% contraction in GDP expected this year amid a global recession. A sharp deterioration in already stressed property fundamentals will exert profound pressure on the sector. An increase in business failures will be a major factor. It is too early to understand the full extent of the structural changes taking place in the office and retail sectors. Still, we know that this environment definitely won’t be easy,” remarks Sasse.

The V&A Waterfront, which was severely impacted by the COVID-19 national lockdown due to its heavy reliance on local and international tourism and its higher exposure to hospitality, leisure and high-end fashion retail delivered R606m, which amounts to 10.6% less in investment income to Growthpoint than last year. Visitor numbers are increasing substantially, but remain at about 40% of levels this time last year. Its new office development for Deloitte remains on track and is due to welcome the tenant in November.

“We are cautiously optimistic about the V&A Waterfront in 2021. It is a strong asset with solid property fundamentals, but much will rely on the return of international and local tourism,” explains Sasse.

Growthpoint’s funds management strategy allows it to access alternative investment opportunities and leverage its management strength in the unlisted and co-invested environment. Growthpoint now has around R10bn of assets under management and is focused on building its first two funds. Income from the funds management business grew by 6.3% (R2m) to R34m.

Sasse explains, “The co-investment and co-management model is proving effective and is particularly attractive in the current environment. Growthpoint will continue to pursue innovative partnerships and ways of investing.”

The healthcare fund, Growthpoint Healthcare Property Holdings (GHPH), grew its distribution per share by 5.8% to 77.45 per share. The fund has a R2.6bn portfolio of four hospitals and a medical chamber, and it completed the 52-bed extension of its Busamed Hillcrest hospital asset during the year. The opening of the Cintocare Head and Neck Private Hospital developed by Growthpoint in Pretoria is now scheduled for January 2021. The acquisition of 51% of the 100-bed Busamed Paardevlei Hospital in Somerset West was also delayed by COVID-19. The R288m disposal of 11% of GHPH to Kagiso was finalised during the year. With R973m of capital raised from third parties, Growthpoint’s shareholding in the healthcare fund was diluted to 61.8%. An USD80m equity and convertible debt package from the International Finance Corporation is also in the final stages of negotiation.

The Africa fund, GIAP, is emerging as a leader in the African real estate market. It has built a quality portfolio of income-producing assets to attain meaningful scale and relevance. The fund has grown its net asset value to USD301m and now manages USD638m of income-producing commercial property assets in Ghana, Nigeria and Zambia. It has attracted more than 20 local and international investors and is in advanced discussions to raise more capital.

Growthpoint invested a further R4.2bn offshore during the year, and its international investments are now 40.8% of property assets by book value and 28.2% of earnings before interest and tax. It intends to refine its approach to international investments in the year ahead.

GOZ, with its defensive portfolio of quality office and industrial assets with strong tenancies, outperformed its pre-COVID-19 guidance. With 97% of its tenant base being big corporates and government, and having no retail assets, COVID-19 had little impact on GOZ’s performance and its earnings were not materially impacted. During the year, its asset values increased, while its cost of debt reduced and gearing levels decreased to a low 32.2% with good liquidity. Its portfolio occupancy was 97%, excluding its new Botanicca 3 development which was completed in late 2019 and is in the process of being let.

GOZ continued to make a positive contribution to Growthpoint with NPI increasing by 8.6% to R2.5bn while its operating expenses increased by 8.5% to R153m. GOZ adopted a conservative approach to its dividends to preserve cash in the business amid ongoing uncertainty. Growthpoint’s dividend income from GOZ in FY20 was R1.010bn compared to R1.071bn in FY19, due to an overall dividend decrease of 5.2% from AUD23.0 cents per share to AUD21.8 cents per share, and increased Australian withholding tax, partially offset by an exchange rate that favoured Growthpoint shareholders.

“GOZ is a core investment for Growthpoint. It enjoys strong property fundamentals, a great liquidity position and has the means to pursue growth,” reports Sasse. GOZ has guided a distribution of AUD20.0 cents per share for its 2021 financial year.

Growthpoint’s new investment in the UK, Capital & Regional, was included in its results for the first time. Capital & Regional found itself in a challenging space with its pure retail portfolio exposed to the existing negative impacts of Brexit and the country’s shift to online retail, which were exacerbated by COVID-19. Three months of disruption to shopping centres led to a deterioration in rent payments as many shops couldn’t trade, and a decline in property values across the industry was accelerated. Now 96% of Capital & Regional’s tenants are open and trading, it has a robust 95% occupancy rate and its cash reserves of some GBP80.0m stand it in good stead to protect its liquidity position. Capital

& Regional’s community centre strategy, with a high proportion of non-discretionary retail, positions it to emerge ahead of the curve in its market.

Capital & Regional contributed R380m to NPI. The maiden dividend from C&R totalled GBP11.0 pence per share which converted into R107m and, to preserve cash in the business, was paid to Growthpoint in shares via a scrip dividend.

“It is too early to quantify the full impacts of COVID-19 and the accelerating structural shifts in the retail industry on Capital & Regional’s operations, but there is no doubt that it is going to be a long road to recovery,” says Sasse.

Growthpoint’s Central and Eastern European investment platform Globalworth mainly comprises office and industrial assets, with limited exposure to retail property, which stood it in good stead to withstand the impacts of the strict COVID-19 measures imposed in Poland and Romania. The Globalworth portfolio held and increased its value with six acquisitions and one major new development completed, while its gearing remained conservative. Its portfolio occupancy was a solid 94.2% including options at year-end.