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Invest

Make strategic investments which improve the overall quality and diversification of the portfolio and ensures long-term sustainability and capital appreciation

Objectives

  • Seek suitable acquisition opportunities, both locally and internationally, which fit our business strategy
  • Maintain a limited trading and development programme tailored to market risks and opportunities
Capitals impacted

FINANCIALMANUFACTURED

South Africa

Opportunities

  • Non-core properties identified for sale
  • Potential merger and acquisition opportunities
  • Low asset prices
  • Development capabilities and experience to deliver occupancy that is relevant to tenant needs on a turnkey basis
  • "Capital light" investments and expansion of funds management business
  • Continued demand for office space at the V&A
  • Grow healthcare funds management business
  • Purpose-built student accommodation funds management

Risks

  • Macro-economic fundamentals
  • Low economic growth
  • Economic recession
  • Poor business confidence
  • Sovereign credit rating downgrade and political risks
  • Weak property fundamentals
  • Over supply of properties
  • Cost of occupancy impacting rentals across all sectors as a result of increased administered costs
  • Reduced valuations due to lower revenue and increased risk-free rates
  • Weak demand for retail and residential space at the V&A
  • Prolonged effects of Covid-19

KPIs

  • RSA property assets as a % of total portfolio
  • Sector diversification

Geographic diversification

Target

50%

    Retail 40%

        Office 35%

    Industrial 25%

Gauteng – 50%
Cape Town – 35%
KwaZulu-Natal – 15%

Timing

MEDIUM TERM

LONG TERM

Performance

60.1%

    Retail 36%

        Office 40%

    Industrial 18%

Healthcare – 4%

Trading and development – 2%

Gauteng – 60%
Cape Town – 29%
KwaZulu-Natal – 11%

International

Opportunities

Australia

  • Low interest rates and inflation
  • Positive yield spreads
  • Stable property fundamentals
  • Experience in and understanding of the market
  • "Capital light" investments and expansion of the funds management business

Risks

  • Global recession
  • Availability of excess capital driving yields lower
  • Inflated asset prices
  • Competitive market with limited opportunities

United Kingdom

  • Asset values declining to record lows
  • Yields and discount rates at highs
  • Positive yield spreads
  • Global recession as well as uncertainty of implications of Brexit
  • Prolonged effects of Covid-19
  • Retail rentals declining
  • Breaching of loan covenants

Central and Eastern Europe

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

Africa

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

KPIs

International

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

Target

50%

Timing

MEDIUM TERM

Performance

39.9%

Trading and development

Opportunities

  • External trading and development
  • Internal development and redevelopment
  • Custom designed assets to retain and attract quality clients
  • Property developments for the funds management business
  • Repurpose assets for Growthpoint

Risks

  • Projects not meeting financial feasibility
  • Break-even letting of developments not attained
  • Financial loss on external trading and development
  • Speculative developments and overexposure thereto

KPIs

  • Return >than comparable completed let building yield

Target

  • Internal <5% of RSA property portfolio
  • External <3% of RSA property portfolio
  • <R500m per project
  • >90% pre-let unless turnkey project

Timing

SHORT TERM

Performance

  • 0.9% (R622m) (Approved, not committed)
  • 0.5% (R311m) (Approved and committed)
  • 0.0% (Nil) (Third party)
  • 0.0% (Nil) (Speculative)

Finance

Optimise sources of funding in order to minimise the cost of capital while maintaining gearing levels

Objectives

  • Sustain a strong balance sheet through conservative gearing and credit metrics that are well within covenants
  • Optimise the cost of capital by having access to all available forms of funding
  • Limit exposure to interest rate fluctuations by fixing rates over periods matching loan expiry profiles
Capital impacted

FINANCIAL

Opportunities

  • Disposing of assets in pursuance of fund management "capital light" model

Risks

  • Lower property valuations resulting in higher loan-to-value ratios
  • Breaching of loan covenants
  • Local and international debt capital markets including green bonds
  • Equity raising including the distribution reinvestment plan
  • Cross-currency interest rate swaps
  • Optimising the cost of capital
  • Unsecured long-term funding
  • Match funding of developments and capital expenditure with asset disposals
  • Size of loan book reaching bank limits
  • Considerable constraints in debt capital market
  • Illiquid bond markets
  • Equity investments trading at discounts to net asset value
  • Capital not deployed optimally
  • Refinancing of Euro bonds in May 2023
  • Liquidity risk
  • Global and local interest rates at record lows
  • Limiting the extent of interest rate increases on the cost of finance
  • Keeping finance costs predictable with high level of certainty
  • Reducing earnings volatility
  • Interest rates rising
  • Global yield curve rising and impact on property valuations

KPIs

RSA

  • Loan-to-value ratio
  • Moody's rating
  • Debt expiry profile
  • Secured debt as a % of total debt

Interest rate hedging

Target

  • <40% loan-to-value
  • Investment grade rating
  • >3 years
  • <70%
  • A minimum rolling 12-month fixed to floating ratio on debt of 75%
  • >2.0x interest cover

Timing

MEDIUM TERM

MEDIUM TERM

MEDIUM TERM

Performance

  • 35.1%
  • Ba2
  • 3.1 years
  • 43.0%
  • 85.1%
  • 3.2x

Own

Own well-located investments comprising a quality portfolio of retail office and industrial properties

Objectives

  • Maintain a sectorally and geographically diversified portfolio of quality properties to take advantage of opportunities, market conditions and user demand
Capital impacted

FINANCIAL

Opportunities

  • Custom designed assets to retain and attract quality clients
  • Refurbishment and redevelopment of assets
  • The design of new and refurbished buildings to achieve a minimum Green Building Council of South Africa "4-Star Green Star" rating

Risks

  • Uncertainty regarding land ownership rights
  • Deteriorating infrastructure and service delivery
  • Increasing administered costs

KPIs

  • RSA property assets as a % of total portfolio
  • Sector diversification

Target

50%

    Retail 40%

        Office 35%

    Industrial 25%

Timing

MEDIUM TERM

LONG TERM

Performance

60.1%

    36%

        40%

    18%

Healthcare – 4%
Trading and development – 2%

Earn rental

Earn sustainable rentals by providing quality accommodation to a large and diverse base of financially sound tenants secured by long leases

Objectives

  • Optimise the letting of available space to financially sound tenants with long leases
Capitals impacted

FINANCIALSOCIAL

Opportunities

  • Innovative and sustainable property solutions (e.g. SmartMove, UNdeposit, Green Lease Addendum and SmartFlex)
  • Providing more flexible rental solutions
  • Generate additional revenue through value-added services or products
  • Facilitate an online business-to-business network for clients
  • Online retail a growing alternative necessitating more warehousing and logistics
  • Social distancing to increase the need for space
  • Repurpose space in shopping centres

Risks

  • Continued Covid-19 impact
  • Major tenant failure
  • Increase in vacancies
  • Increase in arrears
  • Downward pressure on rentals and negative rental reversions
  • Increase in administered costs
  • Constrained consumers will be more needs focused
  • Retail centres focused largely on discretionary spend
  • Downsizing of national retailers’ footprints
  • Increased work-from-home dynamic and work flexibility
  • Tenants in business rescue

KPIs

RSA

  • Relief discounts
  • Relief deferments
  • Gross revenue growth
  • Overall vacancies
  • Total monthly arrears (as a % of collectables)
  • Renewal success rates
  • Renewal reversions

Target

  • Reducing month on month
  • Reducing month on month
  • >5%
  • <9%
  • <10%
  • >70%
  • Positive reversions

Timing

SHORT TERM

Performance

  • R197.6m (FY20: R277m)
  • R32.8m (FY20: R159m)
  • (1.3%)
  • 11.6%
  • 22.9%
  • 65.4%
  • (14.9%)

Distributable income

Grow income and distribute this as dividends to shareholders

Objectives

  • Balance the need to provide investors with growing distributions annually with the objective of delivering sustainable earnings in the long term, we will continue to invest in our properties, in our employees and the communities in which we operate
Capitals impacted

FINANCIALSOCIAL

Opportunities

  • Diversify geographical contribution to distributable income
  • Seek balance between growing dividends and retaining capital by reducing pay-out ratio
  • Identifying strategic thrusts and enablers to create sustainable value
  • Funds management – Africa and healthcare funds
  • Create sustainable profits from trading and development income

Risks

  • Failure to implement strategy
  • Lack of sustained economic growth
  • Weak RSA property fundamentals
  • Defensive nature of portfolio limits the extent of out-performance
  • Technology innovation by market disruptor
  • Sustainability of REIT business model
  • Taxation on portion of distributable income given to shareholders

KPIs

  • Dividend growth in absolute terms
  • SA property EBIT as a % of total portfolio
  • Off-shore property EBIT as a % of total portfolio

Target

  • CPI + 1%
  • 50%
  • 50%

Timing

LONG TERM

MEDIUM TERM

MEDIUM TERM

Performance

  • (18.8%)
  • 70.9%
  • 29.1%

Manage

Manage assets and invest the capital necessary to ensure properties are well maintained and operate at optimum efficiency

Objectives

  • Preserve and enhance the value of properties through ongoing maintenance, upgrading, refurbishment and enhancement
  • Use and grow our skills and understanding of our operating environment by attracting and retaining the best people through creating a working environment that is conducive to productivity and performance
  • Provide the highest level of services to stakeholders
  • Increasingly manage third-party assets
Capital impacted

FINANCIAL MANUFACTURED HUMAN INTELLECTUAL

Opportunities

  • Preservation of property asset values
  • Improve sustainability performance

Risks

  • Margin pressure on net property income
  • Over capitalisation of properties
  • Administered costs escalating at rates in excess of inflation
  • Increased costs to secure additional energy supply and storage
  • Increased energy tariffs due to increased temperatures and the passing on of a carbon tax
  • Social pressures to decarbonise resulting in increased costs of building materials
  • Increased water tariffs due to scarcity
  • Creating and driving a culture of performance
  • Foster entrepreneurial spirit
  • Transformation through diversity and inclusion
  • The loss of skills and corporate memory, particularly at a senior management level
  • B-BBEE and Property Sector Charter uncertainty and targets
  • Improved customer retention
  • Efficiencies in property management processes
  • Vertical integration of key suppliers of business services
  • Inefficient property management processes
  • Resistance to change
  • Sell down assets and raise equity
  • Earn asset and property management fees
  • Identification of asset classes that attract institutional investors
  • Maintaining REIT status
  • Difficulty in attracting investors
  • Difficulty in exiting investments
  • Sustainability of managing third-party assets

KPIs

RSA

  • Property expense-to-income ratio
  • Operating expense-to-income ratio
  • Development of people, culture and values
  • Overall management review
  • Compliance
  • Industry participation
  • Property expense-to-income ratio
  • Operating expense-to-income ratio
  • Assets under management
  • Fees earned

Target

  • <30%
  • <5%
  • B-BBEE level = or >4
  • <30%
  • <5%
  • R15bn by 2025
  • Increase in fees earned

Timing

SHORT TERM

LONG TERM

SHORT TERM

LONG TERM

Performance

  • 26.9%
  • 4.3%
  • Level 1
  • 26.9%
  • 4.3%
  • R11.7bn
  • 1.2%