Southern Sun Limited · JSE:SSU

Southern Sun — Tsogo Sun Holdings — Investor Presentation (May 2017)

60 slides from Southern Sun's investor presentation, May 2017

  1. Slide 1: Managers Presentation

    f__ MANAGERS PRESENTATION

  2. Slide 2: Disclaimer

    Certain statements in this document may constitute ’forward looking statements’. Such forward looking statements reflect the company’s beliefs and expectations and involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achieveme

  3. Slide 3: Group structure

    Public 47.6% 52.4% 100% 100% 100% 100% 50+% 25+% CASINOS HOTEL OPERATIONS HOSPITALITY EUROPE PROPERTY FUND 3

  4. Slide 4: TSH Board of Directors

     TSH Board of Directors ● Executive Directors  Marcel von Aulock – Group CEO  Rob Huddy – Group CFO ● Non-Executive Directors  Johnny Copelyn – Chairman  Marcel Golding  Mac Gani – Audit & Risk and Social & Ethics Chairman  Busi Mabuza – Lead Independent  Elias Mphande  Jabu Ngcobo  Yunis

  5. Slide 5: Group Executive Committee

     Group Executive Committee ● Corporate ● Gaming  Marcel von Aulock – Group CEO  Jacques Booysen – MD Gaming  Rob Huddy – Group CFO  Greg Lunga – FD Gaming  Noeleen Bruton – Marketing Director ● Hotels  Vusi Dlamini – Group HR Director  Ravi Nadasen – COO  Laurelle McDonald – Corporate Finan

  6. Slide 6: Financial Overview

  7. Slide 7: Income and Ebitdar by casino and division

    Income Ebitdar(1) Ebitdar Margin % % % F’17 F’16 Change F’17 F’16 Change F’17 F’16 Montecasino 2 694 2 674 1 1 196 1 194 - 44.4 44.7 Suncoast 1 732 1 701 2 810 791 2 46.8 46.5 Gold Reef City 1 450 1 380 5 549 525 5 37.9 38.1 Silverstar 735 735 - 248 254 (2) 33.7 34.6 Golden Horse 392 369 6 176 163 8

  8. Slide 8: Income statement F'17 vs F'16

    F’17 F’16(1) % Change Income 13 222 12 283 8 Net gaming win 7 483 7 361 2 Revenue Rooms 3 078 2 784 11 F&B 1 434 1 353 6 Rental income 445 133 * Other 782 652 20 Ebitdar 5 049 4 543 11 LTI expense (49) (46) (7) Property rentals (242) (219) (11) Amortisation & depreciation (846) (812) (4) Exceptional

  9. Slide 9: F'17 results excluding HPF

    7 Months F’17 ex F’17 HPF HPF F’16 % Change Income 13 222 299 12 923 12 283 5 Net gaming win 7 483 7 483 7 361 2 Revenue Rooms 3 078 3 078 2 784 11 F&B 1 434 1 434 1 353 6 Rental income 445 299 146 133 10 Other 782 782 652 20 Ebitdar 5 049 277 4 772 4 543 5 LTI expense (49) - (49) (46) (7) Property

  10. Slide 10: Group income by nature and hotel Ebitdar

    Total Hotel Ebitdar (Rm) Group Income by Nature % F’17 F’16 F’17 F’16 Hotels SA 1 359 920 43 46 Core business 1 022 915 Slots Majormatic 60 5 Tables 14 14 HPF 277 (1) - Rooms 23 23 Hotels Gaming 190 191 (2) Hotels Offshore 146 192 F&B 11 11 Ebitdar 1 695 1 303 Rental income 3 1 % of Group Ebitdar 34

  11. Slide 11: Attributable to adjusted headline earnings

    F’17 F’16 % (1) (1) Gross Net Gross Net change Attributable earnings 2 507 1 802 39 PP&E disposal losses 12 9 5 4 Impairment of PP&E and intangibles 78 46 17 15 Fair value of HPF shares on acquisition (46) (46) - - Gain on bargain purchase price (82) (82) - - Profit on sale of investment property (3

  12. Slide 12: Cash flow and net interest-bearing debt

    F’17 F’16 Ebitdar (post LTI) per income statement 5 000 4 497 Property rentals (242) (219) Ebitda 4 758 4 278 Working capital adjusted for non-cash and exceptional items 102 111 Dividend income from associates 50 35 Cash generated from operations 4 910 4 424 Interest paid (net) (1 076) (801) Taxatio

  13. Slide 13: Investment activities

    F’17 F’16 F’15 Investment activities 2 590 962 2 045 SunWest and Worcester 1 272 - - Gold Reef City redevelopment 34 256 142 Silverstar redevelopment 3 28 321 Suncoast expansion 112 47 141 Emnotweni expansion - 2 18 Monte Circle and Monte Place 16 27 6 Acquisition of Mykonos minorities 190 - - Acqui

  14. Slide 14: Net interest-bearing debt and dividends

    F’17 F’16 External debt (US$ based) 986 1 100 External debt (Rand based) 10 160 8 664 External debt HPF (Rand based) 1 725 - Bank overdrafts 1 699 2 013 Prepaid borrowing costs (33) (37) Gross IBD 14 537 11 740 Cash on hand (2 424) (2 492) Net IBD 12 113 9 248 Cost of net debt ― pre tax 9.4% 9.1% ―

  15. Slide 15: Casinos

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  16. Slide 16: Casino ownership percentages

    100% 100% 100% 100% 65% 100% 100% 100% 100% 100% 25% 100% 100% 100% 16

  17. Slide 17: Gaming win by type and province

    F’17 F’16 % Change Gaming win 7 483 7 361 2 Tables 1 891 1 750 8 Slots 5 592 5 611 - Drop/hold % – tables 21.8 21.5 0.3pp Handle/win % – slots 5.0 5.0 - F’17 F’16 % Change Gauteng 3 985 3 903 2 KwaZulu-Natal 2 068 2 014 3 Mpumalanga 573 591 (3) Western Cape 504 481 5 Other 353 372 (5) 7 483 7 361 2

  18. Slide 18: Growth in gaming win: Gauteng

    Growth in Gaming Win (%) Gauteng Montecasino Gold Reef City Silverstar Calendar years 2000 25.0 (4.9) 2001 5.8 20.9 2002 13.9 16.5 2003 11.0 9.6 2004 18.9 15.5 2005 11.1 13.2 2006 14.9 14.5 2007 13.1 12.6 2008 7.8 (6.8) (1.0) * 2009 (0.9) 0.5 (1.3) 7.4 2010 1.1 2.0 (3.6) 0.6 2011 4.1 7.8 8.8 0.5 201

  19. Slide 19: Relative growth: Gauteng industry vs Tsogo Sun

    140 Relative Growth (2008 = 100) Gauteng Total Industry / Tsogo Sun vs Non Tsogo Sun 135 130 125 120 Total Industry 115 110 Tsogo Sun 105 Non-Tsogo 100 95 90 C'2009 C'2010 C'2011 C'2012 C'2013 C'2014 C'2015 C'2016 Relative Growth (2008 = 100) Gauteng Total Industry / Montecasino vs Non Tsogo 150 Sun

  20. Slide 20: Relative growth: Gold Reef City and Silverstar

    Relative Growth (2008 = 100) Gauteng Total Industry / Goldreef vs Non Tsogo Sun 140 135 130 125 120 Total Industry 115 Non-Tsogo 110 105 Goldreef City 100 95 90 C'2009 C'2010 C'2011 C'2012 C'2013 C'2014 C'2015 C'2016 Relative Growth (2008 = 100) Gauteng Total Industry / Silverstar vs Non Tsogo Sun 1

  21. Slide 21: Growth in gaming win: KwaZulu-Natal

    Growth in Gaming Win (%) KwaZulu-Natal Suncoast Golden Horse Blackrock Calendar years 2004 24.5 37.3 2005 24.7 22.5 2006 16.2 15.1 2007 19.6 15.6 2008 6.9 8.3 2009 4.6 5.0 1.4 5.5 2010 4.4 4.6 4.1 10.1 2011 7.3 5.3 9.2 10.8 2012 10.0 10.8 8.9 11.6 2013 5.3 6.9 (1.6) 7.3 2014 2.8 3.2 (1.6) 2.7 2015 7

  22. Slide 22: Relative growth: KZN industry vs Tsogo Sun

    170 Relative Growth (2008 = 100) KZN Total Industry / Tsogo Sun vs Non Tsogo Sun 160 150 140 Total Industry 130 Tsogo Sun 120 Non-Tsogo 110 100 C'2009 C'2010 C'2011 C'2012 C'2013 C'2014 C'2015 C'2016 Relative Growth (2008 = 100) KZN Total Industry / Suncoast vs Non Tsogo Sun 170 160 150 140 Total In

  23. Slide 23: Relative growth: Golden Horse and Blackrock

    Relative Growth (2008 = 100) KZN Total Industry / Golden Horse vs Non Tsogo Sun 170 160 150 140 Total Industry 130 Non-Tsogo 120 Golden Horse 110 100 C'2009 C'2010 C'2011 C'2012 C'2013 C'2014 C'2015 C'2016 Relative Growth (2008 = 100) KZN Total Industry / Blackrock vs Non Tsogo Sun 190 180 170 160 1

  24. Slide 24: Growth in gaming win: other provinces

    Growth in Gaming Win (%) Province Unit Unit Unit Mpumalanga Ridge Emnotweni 6 months to September 2016 2.6 (1.6) 4.0 6 months to March 2017 (5.3) (4.1) (9.0) 12 months to March 2017 (1.5) (2.8) (2.8) Western Cape Caledon Mykonos Garden Route 6 months to September 2016 0.8 3.3 5.9 6.0 6 months to Mar

  25. Slide 25: Regulatory issues

     B-BBEE condition of licence  National gambling policy  Regulation regarding the maximum number of casino licences nationally  Gauteng gaming taxes 25

  26. Slide 26: SunWest and Worcester Casinos

     SunWest and Worcester Casinos ● Conditional approval of the acquisition of the 20% interest by the WCGRB received in November 2016 ● Balance owing to Sun International at 30 September 2016 of R413m settled at a discounted amount of R393m during October 2016 ● Balance owing to GPI at 30 November 20

  27. Slide 27: Mykonos Casino and Blackrock minorities

     Mykonos Casino ● Acquired West Coast Leisure minority interests (29.6%) for R190m in the form of a share buy-back ● Exercised option to acquire the land adjacent to the casino for R30m  Blackrock Minorities ● Acquired the Tsogo Sun Newcastle Employee Share Trust (1.92%) shares for R5m 27

  28. Slide 28: Casino refurbishments

     Casino refurbishments during the past 5 years  Hemingways R400m  Emnotweni R210m  Silverstar R560m  Gold Reef City R483m  Golden Horse R44m  Mykonos R16m  Montecasino R84m  Gaming equipment continually refreshed with slot machine average age of 5 years  All Casino Management Systems are u

  29. Slide 29: Suncoast expansion

     Suncoast expansion ● Additional casino space including new Privé ● Work commenced during November 2016 but ceased due to external labour disruption ● Expansion has been redesigned on a smaller scale at a cost estimated at R1.6bn (R300m spent to date including R100m CSI) ● Construction scheduled to

  30. Slide 30: Vukani and Galaxy acquisitions

     Vukani and Galaxy acquisitions ● TSH to propose to acquire HCI’s stake in GameCo for shares ● Total purchase price 160 million shares for 100% of GameCo with 10 million shares subject to clawback ● Extend same offer to GameCo minorities with a cash alternative at R9.74 per share, with a cash limit

  31. Slide 31: Western Cape Metropole

     Western Cape Metropole ● Sun International launched court action to set aside the decision of the Western Cape Government to allow relocation of an outlying casino to the metropole ● The group launched court action to Curtesy Google compel the Western Cape Government to allow the relocation ● Sett

  32. Slide 32: Gaming positions licensed but not displayed

     Gaming positions licenced but not currently displayed Slots Tables  Montecasino 400 6  Gold Reef City 170 4  Suncoast 750 13  Silverstar 75 -  The Ridge 64 2  Golden Horse - 1  Hemingways 43 -  Emnotweni 75 2  Mykonos - 3  Caledon 52 - 1 629 31 32

  33. Slide 33: Monte Circle and Monte Place

     Monte Circle and Monte Place ● Building A completed in November 2015 (Tsogo Sun commitment R27m) ● Building B completed March 2017 (Tsogo Sun commitment R21m) ● Construction of Building C commenced in February 2017 (Tsogo Sun commitment of R44m) ● Additional phases will be rolled out as tenanting

  34. Slide 34: Hotels

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  35. Slide 35: Hotel Operations

    HOTEL OPERATIONS HOSPITALITY EUROPE PROPERTY FUND 35

  36. Slide 36: Property ownership strategy

    Land Buildings Operations Management Brand PropCo OpCo  Ideally own all components ● Strategic advantage in scale in South Africa ● More capital intensive but allows substantially higher return on effort ● Retains control of the assets providing extended tenure and resilience ● Splitting business i

  37. Slide 37: Hotel Operations

    HOTEL OPERATIONS HOSPITALITY EUROPE PROPERTY FUND 37

  38. Slide 38: Group operated hotel portfolio

    GROUP OPERATED HOTEL PORTFOLIO Luxury MALIA Full Service Budget Select Service oon © southernSun BEVERLY HILLS A ; 4 ©) Southern Sun PALAZZO SQUARE © r 4 r 4 S SANDTON SUN ‘sunt | Garden, CROWNE PLAZA —— | ©) stayeasy fa Holiday Inn’ WHCORST 4 4 ~— 4 Q INTERCONTINENTAL. (ee © TSOGO SUN 38

  39. Slide 39: Hotel portfolio and owned statistics

    Hotels Rooms Owned Managed Luxury 6 1 105 410 695  Portfolio as at 31 March 2017 Full Service 24 5 184 5 184 -  Owned includes leased hotels Select Service 26 4 777 4 134 643 and associates Budget 22 1 741 1 741 -  Excludes hotels managed by 3rd Timeshare & Resorts 6 992 138 854 parties: South Af

  40. Slide 40: Occupancy and rooms sold history

    76.0% 3 250 000 74.0% 3 050 000 72.0% 2 850 000 70.0% 2 650 000 68.0% 2 450 000 66.0% 2 250 000 64.0% 2 050 000 62.0% 1 850 000 60.0% 1 650 000 58.0% 56.0% 1 450 000 54.0% 1 250 000 F'94 F'95 F'96 F'97 F'98 F'99 F'00 F'01 F'02 F'03 F'04 F'05 F'06 F'07 F'08 F'09 F'10 F'11 F'12 F'13 F'14 F'15 F'16 F'1

  41. Slide 41: Occupancy and room rate growth

     Occupancy increased 0.8pp to 64.3% on the prior year  Average room rate growth of 5% on the prior year  The majority of the portfolio has been refurbished and is in very good condition 41

  42. Slide 42: Liberty Phase 2 and Cullinan

     Liberty Phase 2 ● Acquisition of the Garden Court Umhlanga and StayEasy Pietermaritzburg for R310m effective from 1 October 2016  Cullinan ● Acquired Liberty’s 40% shareholding in Cullinan and debt of R571m owing to Liberty for R1.03bn effective from 1 December 2016 42

  43. Slide 43: Offshore hotels

     Offshore hotels trading remains under pressure with occupancies down 1.5pp on the prior year to 52.4% ● Remains impacted by security concerns and weaker market attributable to the negative impact of commodity prices  Forex loss for F’17 R38m (F’16 R23m) on cash and monetary items 43

  44. Slide 44: StayEasy Maputo and African expansion

     StayEasy Maputo ● Capital cost of 125 key hotel US$16.2m ● 50 year land lease on a shopping development at zero cost ● Construction commenced in April 2017 and expected opening in Q2 2018  Expansion in the territories the group already operates in ● Management agreement for a 193 key hotel in Tet

  45. Slide 45: Hospitality Property Fund

    HOTEL OPERATIONS HOSPITALITY EUROPE PROPERTY FUND 45

  46. Slide 46: HPF group structure

    HPF — GROUP STRUCTURE Y TSOGO SUN Public HOTELS 50.6% | | 49.4% Tle joie Li Leases —________ TENANT/ HOTEL PROPERTY OWNER HOTEL OPERATOR 46

  47. Slide 47: HPF hotel portfolio

    HPF — HOTEL PORTFOLIO Luxury © Southern Sun 4 WESTIN HOTELS & RESORTS, J ith ARABELLA HOTEL & SPA) i At ; su FE Hoidayinn Midscale SPR loliday Inn AFRICAN PRIDE \ | “ \ s de © > | Garden CROWNE PLAZA Court | | J | : ~B © stayeas Radisson BIRCHWOOD | had J f ~_) @ ‘ “. | KOPANONG HOTEL & CHAMPAGNE ca

  48. Slide 48: HPF portfolio statistics

    Hotels Rooms Luxury 3 749  Based on the year end portfolio Upscale 10 1 894 for the 12 month period ended 31 March 2017 Midscale 11 2 589 Total 24 5 232 Statistics Year to Year to March’17 March’16 % Change Occupancy (%) 65.5 64.0 1.5pp Average room rate (R) 1 218 1 144 6 RevPar (R) 797 732 9 48

  49. Slide 49: HPF statutory vs Tsogo Sun group

    HPF Tsogo Sun Statutory Group Rooms revenue - 575 Food & beverage revenue - 153 Other revenue - 31 Rental income 653 421 3rd party 415 415 Tsogo Sun 238 6 Overheads (47) (529) Hotel trading related - (482) HPF central (47) (47) Ebitdar 606 651 Depreciation on owner occupied properties - (25) Finance

  50. Slide 50: Capital restructure and first Tsogo Sun transaction

     Capital restructure ● Dual share structure collapsed into single-class capital structure ● One ordinary A-share for every 3.5 B-shares owned ● Alignment of shareholder objectives  1st Tsogo Sun Transaction ● Effective 1 September 2016 ● Ungeared acquisition of 10 established hotels ● Improved spr

  51. Slide 51: Second Tsogo Sun transaction and rights offer

     2nd Tsogo Sun transaction ● Acquisition of 29 established hotel properties ● Aggregate purchase consideration of R3.6bn : R1.0bn in cash and R2.6bn in shares ● Subject to shareholders’ approval  Rights offer ● Fully underwritten rights offer to raise R1.8bn ● Funds to be applied to reduce interes

  52. Slide 52: Sandton Eye

     Sandton Eye ● Agreement to acquire various additional sections and exclusive use over Sectional Title Scheme (Radisson Blu Gautrain) in Sandton Eye, including real right of expansion by ± 10 000 bulk square metres or additional 7 floors ● Aggregate purchase consideration of R302m : R272m in cash a

  53. Slide 53: Hospitality Europe

    HOTEL OPERATIONS HOSPITALITY EUROPE PROPERTY FUND 53

  54. Slide 54: Private UK hotel management company

     Private company  TSH owns 25% plus board and committee representation  Manages 42 hotels in the UK  Manages under multi brands Best Western Beamish House including Crowne Plaza, Holiday Inn, Holiday Inn Express, Best Western, Westin, Hilton, Marriott, Aloft Holiday Inn Camden Lock 54

  55. Slide 55: Listed UK hotel property company

     TSH owns 25.9% plus board and committee representation  Listed on JSE AltX and Luxembourg  Currently has GBP106m (R1.8bn) in hotel assets ● 4 Travel Lodges – leased to Travel Lodge ● 4 Holiday Inn Express hotels (Dunstable, Hampton by Hilton Gatwick Southampton, Redditch, Edinburgh) ● Hampton by

  56. Slide 56: Future Prospects

  57. Slide 57: Group outlook

     Group ● Strong cash generation ● Growth opportunities still being pursued but debt levels higher ● Upside potential from any economic recovery is significant ● Focus on costs remains to protect margins ● REIT structure aims to enhance shareholder value 57

  58. Slide 58: Gaming outlook

     Gaming ● Gaming win growth – medium term outlook uncertain  Need consumers to get wealthier and, more importantly, feel wealthier  Regulatory issues remain a threat ● Western Cape metropole ● Mpumalanga fourth casino licence ● Complete development activity  Suncoast is a key project 58

  59. Slide 59: Hotels outlook

     Hotels ● Occupancy and rate still under pressure until transient Corporate demand recovers ● Focus on customer satisfaction, brand awareness, distribution through channels and Web and enhancement of Best Available Rate yielding ● Opportunistic in SA – land bank, acquire leases, new builds and acqu

  60. Slide 60: Tsogo Sun

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Tsogo Sun Holdings — Investor Presentation (May 2017) on 6ix