Slide 1: Interim Results 2019
NTERIM RESULTS 019 ARROWHEAD PROPERTIES Focused on sustainable value
Slide 2: 6 Months Highlights
6 MON T H S H IGH L IGH T S • Solid property performance in tough environment • Core direct property portfolio growth of 2.75% before gearing (all properties) • Escalations on expiry were overall 2.5% positive • Announced the intention to merge Arrowhead and Gemgrow
Slide 3: Results
R E S U LT S Interim dividend Revised guidance to No contribution Lower guidance as a declined 56 cents (from 58 cents) from Rebosis result of Indluplace to 27.8 cents for the year ending trading statement and 30 September 2019 impact of Edcon
Slide 4: Strategy
S T R AT E GY South African focused Pure property Across the country Specialists in in all sectors sustainable properties
Slide 5: Arrowhead Group Staff Increase
A R R OWH E A D GR OU P S TA F F IN C R E A S E New deals Increased from 12 to 26 + leasing team over the last 18 months + Focused debtors Supplement JHI + resource services not replacing, additional staff to add to + the bottom line Dedicated utilities + position filled
Slide 6: Arrowhead Snapshot
A R R OW H E A D S N A P S H OT As at 31 March 2019 Diverse portfolio (industrial, office and retail) valued at R5.7 billion 59.6% interest in Indluplace: R1.8 billion 53.3% in Gemgrow: R1.9 billion 8.6% interest in Dipula: R354 million 16.4% interest in Rebosis: R224 million Gearing R3.5 billion. G
Slide 7: South African Environment
S OU T H A F R IC A N E N V IR ON ME N T • Tough operating environment continues • Positive election outcome for SA economy • Market cautious • Greenshoots of optimism • AWA well positioned for South African bounce
Slide 8: Total Dividend
TOTA L D IV ID E N D R’000 2019 2018 Revenue (excluding straight line rental income) 1 182 597 1 112 580 Listed securities income 62 402 109 980 Property expenses (471 511) (408 359) Administration and corporate costs (35 525) (28 319) Finance charges (316 941) (273 936) Finance income 40 158 47 336
Slide 9: Arrowhead as at March
A R R OWH E A D A S AT 31 MA R C H 20 19 UNAUDITED FOR THE UNAUDITED FOR THE R’000 SIX MONTHS ENDED SIX MONTHS ENDED 31 MARCH 2019 31 MARCH 2018 Assets Non-current assets 16 577 829 17 698 905 Investment property 15 207 306 15 036 213 Fair value of property portfolio for accounting purposes 15 072 4
Slide 10: Debt
D E B T • Arrowhead loans of R3.5 billion and Group of R7 billion • Arrowhead LTV of 35%, Group of 41% • Loans fixed, Arrowhead 73% and Group 76.5% • Arrowhead weighted average interest rate of 9.69% and Group weighted average interest rate of 9.78% Debt expiry 2019 R381 million 2020 R1 116 million
Slide 11: Share per Bridge: NAV
NAV in R’s Se pt N AV 0 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 em be r2 01 In ve 8 N st m 7.54 on en -c tp ur ro re p n ta er ss ty e 0.78 ts he Tr ld ad fo e rs an al sh d e ar L ot 0.05 e oa he pu n rr s B R ID GE rc t ec ha o ei se pa va an rtic bl d pa i es op nt -0.02 tio s o n fg sc ro h
Slide 12: As at March 2019
A S AT 31 MA R C H 2019 49 commercial (industrial, office and retail) properties Retail 61%, office 31% and industrial 8% (sectoral by value) Overall vacancy 8.6% (office 13.2%, retail 6.6%, industrial 5%) Average gross rent per sector (retail R141/m2, office R113/m2, industrial R47/m2)
Slide 13: Escalations, reversions and lease profile
• Escalation per sector (retail 7.2%, office 7.7%, industrial 7.9%) overall 7.6% • Average lease profile 3.85 years • Reversions per sector (retail 0.3%, office 4.2%, industrial -15.3% (only 352m2)) overall 2.5% positive • 28 493m2 came up for renewal, 19 849m2 retained (70%) and 2 681m2 of 8 644m2
Slide 14: Core Portfolio
C OR E P OR T F OL IO 36 assets Indluplace Gemgrow
Slide 15: Operational Successes
OP E R AT ION A L S U C C E S S E S Property portfolio performed as expected 1 Sturdee 100% occupied 25 Owl Street (minor revamp), let 13 810m2 of 14 984m2 Business Centre vacant – revamped then sold for R24.5 million Vacancy increased marginally to 8.6% (as expected in forecast) Debtors under contr
Slide 16: Owl Street
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Slide 17: Challenges
C H A L L E N GE S S I M U N Y E lost anchor and 3 397m2 vacant of 6 538m2 LY N D H U R S T 1 441m2 vacant of 6 352m2 T H E AT R I U M lost large single tenant to business rescue, 2 340m2 of 5 034m2 vacant R O S E T T E N V I L L E 3 923m2 vacant of 14 198m2
Slide 18: Simunye
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Slide 19: Way Forward on Challenges: Simunye
WAY F ORWA R D ON C H A L L E N GE S S I M U N Y E R36 million, 6 538m2 • Sourcing anchor tenant and general refurb • Potentially converting to private school • Reconsider proposal from national tenant (concept store – large investment required) • Disposal
Slide 20: Lyndhurst
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Slide 21: Way Forward on Challenges: Lyndhurst
WAY F ORWA R D ON C H A L L E N GE S LY N D H U R S T R54.2 million, 6 351m2 • Placed in ‘ICU’ • Additional letting resources allocated to turnaround project • Canvassing convenience centre type tenants – ie gym, pharmacy, party shop, national pizza franchise
Slide 22: The Atrium
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Slide 23: Way Forward on Challenges: The Atrium
WAY F ORWA R D ON C H A L L E N GE S T H E AT R I U M R29 million, 5 036m2 • Internal minor refurb complete • Potential for ground floor retail • Market research indicates demand for smaller offices • Conversion into school – node has large educational presence • Disposal
Slide 24: Rosettenville
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Slide 25: Way Forward on Challenges: Rosettenville
WAY F ORWA R D ON C H A L L E N GE S R O S E T T E N V I L L E R81.6 million, 14 198m2 • Identified challenges • Underwent feasibility and identified opportunities • Well located, high barriers to entry, low competition • Revamp (R3 million) • Hired retail consultants • Uptick in foot count approxim
Slide 26: Market Observations
MA R K E T OB S E RVAT ION S • Renewals under pressure across sectors • Competitive environment, declining pool of tenants • Increasing cost of placing new tenants • Do everything to keep existing tenants • Some convenience centres under pressure – monitoring situation (Mkuze, Eersterust & Lyndhurst
Slide 27: Arrowhead Observations
A R R OWH E A D OB S E RVAT ION S • Tenants looking for value offering • Impact of utilities – letting and occupation • Retail renewals – closer attention to trading metrics • Chasing of market share has declined • Uptick in demand on larger retail assets • Pressure on convenience centres • Ease of
Slide 28: Top Six Properties: Access Park
TOP S IX P R OP E R T IE S ACCESS PARK Western Cape R895 593 402 20 456m2 Retail
Slide 29: Access Park performance
98% let (vacancy is churn) Continues to perform Tenants upgrading their own space (Adidas, Footgear, Guess, Nike, Fruit & Veg) New brands (Tommy Hilfiger, Asics) March on March growth at 7%
Slide 30: Top Six Properties: Cleary Park
TOP S IX P R OP E R T IE S CLEARY PARK Eastern Cape R563 562 995 36 294m2 Retail Minor revamp complete Retail 100% let Only 806m2 of office available
Slide 31: Top Six Properties: Westgate Mall
TOP S IX P R OP E R T IE S WESTGATE MALL Western Cape R367 519 123 28 951m2 Retail 100% let Minor revamp complete
Slide 32: Top Six Properties: Jan Smuts
TOP S IX P R OP E R T IE S 158 JAN SMUTS Gauteng R255 901 751 19 510m2 Office 88% let
Slide 33: Top Six Properties: Midtown Mall
TOP S IX P R OP E R T IE S MIDTOWN MALL North West R239 168 524 17 456m2 Retail 95% let
Slide 34: Top Six Properties: Sturdee
TOP S IX P R OP E R T IE S 1 STURDEE Gauteng R208 050 337 13 350m2 Office 100% let
Slide 35: Edcon Exposure
E D C ON E X P OS U R E • Our exposure o GLA (m2) 2.65% o Revenue – 2.1% to reduce to approximately 1.2% • Our Edcon exposure is broken down as follows: o Edgars 55% (2 tenants) o Jet 45% (6 tenants)
Slide 36: Trading Densities
T R A D IN G D E N S IT IE S T R A D I N G D E N S I T I E S R E N T T O S A L E S R A T I O March 2018 vs March 2019 March 2018 vs March 2019 4500 10% 10.00% 10% 4000 9.00% 8% 1% 3500 8.00% 3000 7.00% 12% 1% 6.00% 2500 0%... 2% 1% 5.00% 5% 2000 7% 4.00% 1500 13% 3.00% 1000 2.00% 500 1.00% 0 0.00% A
Slide 37: Combined Lease Expiry Profile
C OMB IN E D L E A S E E X P IRY P R OF IL E B Y R E V E N U E B Y G L A 9 000 000 90 000 8 000 000 23% 80 000 19% 7 000 000 23% 70 000 23% 28% 6 000 000 60 000 19% 15% 19% 5 000 000 50 000 4 000 000 40 000 3 000 000 10% 30 000 9% 7% 2 000 000 20 000 2% 3% 1 000 000 10 000 0 0 Monthly 2019 2020 2021
Slide 38: Core Portfolio
C OR E P OR T F OL IO 1 October 2018 to 1 October 2017 to Year ended Growth 31 March 2019 31 March 2018 R’000 R’000 % Revenue 431 737 409 319 5.48 Property expenses (171 321) (155 873) 9.91 Net Operating Income 260 416 253 446 2.75
Slide 39: Indluplace Insights
Tenants remain under pressure Expecting improved second half of the year Maintain strong balance sheet, LTV of 33% IN D L U P L A C E Handful of buildings underperforming IN S IGH T S Continue rental specials and deposit free incentives Highveld letting monthly (outside chance of head lease) Additio
Slide 40: Gemgrow Insights
Ahead of guidance Portfolio performed marginally better than expectations Sales of R425 million before year end GE MGR OW IN S IGH T S Current LTV of 32% Further reducing to 28% In discussion for an additional R500 million sales
Slide 41: Non-Core Portfolio
N ON -C OR E P OR T F OL IO 13 assets Rebosis Dipula
Slide 42: Sales
None of the sales below transferred during the six months S A L E S Sold North End in Port Elizabeth for R21 million (4.4% yield and book value of R25 million) Sold Business Centre for R24.5 million (vacant and book value of R26 million) Sold SARS for the fifth time for R230 million (12.4% yield and
Slide 43: Dipula
Currently not selling, held as security D IP U L A Holding DIB over the medium term Minimal impact on AWA dividend, every 1 cent reduction in Dipula’s earnings, reduces Arrowhead’s dividend by 0.04 cents
Slide 44: Rebosis
Currently not selling Work towards unlocking of NAV R E B OS IS Rebosis shares unencumbered Already been excluded from forecast
Slide 45: Arrowhead and Gemgrow Merger
A R R OWH E A D A N D GE MGR OW ME R GE R • Increased scale • Simplified structure • Lower dependence on listed property investments • Rebosis already excluded and reliance on Dipula & Indluplace further reduces • Retain A & B share structure (unlikely to issue further A shares in this environment)
Slide 46: Months to September
6 MON T H S TO S E P T E MB E R 2 0 1 9 • Focus on sales • Reduce gearing • Target group LTV to below 35% • Manage large lease expiries in 2020 • Tenant retention • Continue aggressive letting of vacant space
Slide 47: Months to September
6 MON T H S TO S E P T E MB E R 2 0 1 9 • On track to reduce LTV to below 40%, working towards 38% in the short term • Conservative balance sheet management • Focus on implementing the merger • South African hedge in an investor portfolio • Simple to understand and clean sustainable earnings
Slide 48: Questions
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Slide 49: Thank You
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