SA Corporate Real Estate Ltd. · JSE:SAC

SA Corporate Real Estate — H1 2020 Earnings Presentation

74 slides from SA Corporate Real Estate's earnings presentation, Sep 16, 2020

1. Slide 1: SA Corporate June 2020 Interim Results Presentation

   SA Corporate June 2020 Interim Results Presentation September 2020

2. Slide 2: Agenda

   AGENDA Overview 01 Rory Mackey Portfolio Performance 02 Rory Mackey Financial Performance 03 Antoinette Basson Strategy Update 04 Rory Mackey 05 Outlook Rory Mackey

3. Slide 3: Overview

   OVERVIEW RORY MACKEY | SA CORPORATE AFHCO f REAL ESTATE Bo cole sing

4. Slide 4: Overview

   Overview Interim distribution Portfolio Interim results performance Interim distributable income of Total net property income of R311.1 million for H1 2020 R542.4 million (June 2019: R515.8 million) (Jun 2019: R700.6 million) In the interests of capital preservation, Total like-for-like net property

5. Slide 5: Overview

   Overview Property activity Capital Capital structure Contracted acquisitions of Loan to value ratio of 38.3%* R389.3 million (2019: 36.6%) (Contracted & unconditional: R238.9 million and contracted and conditional: R150.4 million both in Weighted average cost of funding return for loans to developer

6. Slide 6: Portfolio Performance

   PORTFOLIO PERFORMANCE RORY MACKEY

7. Slide 7: SA Portfolio: Retail

   Value of total portfolio 44.5% SA Portfolio: Retail (2019 H1: 41.9%; 2019 FY: 42.8%) Like-for-like NPI growth Trading density growth -14.3% -7.8% (2019 H1: 1.3%; (2019 H1: 3.5%; 2019 FY: 1.4%) 2019 FY: 5.8%) Vacancy1 WALE 5.1% 3.6 Years (2019 H1: 4.4%; (2019 H1: 3.8 Years; 2019 FY: 4.4%) 2019 FY: 3.

8. Slide 8: SA Portfolio: Commercial

   Value of total portfolio SA Portfolio: Commercial 3.0%(2019 H1: 4.6%; 2019 FY: 3.2%) Like-for-like NPI decline Buildings Sold -35.5% 2020: 3 properties contracted & still to (2019 H1: 3.0%; transfer during the year 2019 FY: -16.4%) 2019: 6 Buildings sold Vacancy Tenant retention success rate 16.5% 7

9. Slide 9: SA Portfolio: Industrial

   Value of total portfolio 25.0% SA Portfolio: Industrial (2019 H1: 26.5%; 2019 FY: 26.3%) Like-for-like NPI decline Logistics -19.5% 68.9% (2019 H1: -2.3%; (2019 H1: 65.6%; 2019 FY: -4.0%) 2019 FY: 67.8%) Vacancy WALE 3.9% 3.1 Years (2019 H1: 0.2%; (2019 H1: 2.8 Years; 2019 FY: 3.2%) 2019 FY: 2.5 Yea

10. Slide 10: SA Portfolio: Afhco

    Value of total portfolio 27.5% SA Portfolio: Afhco (2019 H1: 27.0%; 2019 FY: 27.7%) RESIDENTIAL RETAIL (82.3% of portfolio) Like-for-like NPI growth (17.7% of portfolio) -25.6% (2019 H1: 4.1%; Vacancy – Residential 1 Vacancy - Retail 2019 FY: 1.8%) 12.7% 4.9% (2019 H1: 4.0%; (2019 H1: 5.1%; 2019 FY:

11. Slide 11: Zambian Portfolio: Zambian JV

    50% Property value: Zambian Portfolio: USD63.7m Zambian JV (2019 H1: USD69.6m; 2019 FY: USD67.9m) 50% NPI Growth -21.6% (USD) -8.2%(ZAR) 2019 H1: 2.2% (USD) 17.5% (ZAR) 2019 FY: -3.3% (USD) 5.5% (ZAR) East Park Mall Vacancy Rental escalation (USD) Retention rate Rental reversion (USD) 18.3% 2.7% 100

12. Slide 12: Financial Performance

    FINANCIAL PERFORMANCE ANTOINETTE BASSON

13. Slide 13: H1 2020 Distribution analysis

    H1 2020 Distribution analysis Like-for-Like  Industrial negative reversions -R17.3m -R113.7m  Rental relief and deferment -R49.6m  Vacancies & expenses -R16.7m LFL NPI  ECL -R30.1m -20.2% Developments, Disposals & Acquisitions  Rental relief -R15.3m -R44.5m  ECL -R7.5m  Dev WIP interest not c

14. Slide 14: Like-for-like NPI

    Like-for-like NPI Sector June 2020 (Rm) June 2019 (Rm) Variance % Retail 152.1 177.4 -14.3% (Including Storage) Industrial 165.6 205.8 -19.5% Commercial 13.8 21.4 -35.5% Afhco 117.8 158.4 -25.6% 14

15. Slide 15: Net Asset Value (cps)

    Net Asset Value (cps) 500,0 475,0 450,0 17 (3) (31) (1) 425,0 (14) (1) (1) (6) 400,0 477 375,0 424 437 350,0 325,0 300,0 Opening Reval of inv MTM swap Foreign adj. Employee Net Closing NAV MTM Intangible Deferred tax SA REIT NAV NAV 1 properties derivatives i.r.o. share reduction in 30 June interest

16. Slide 16: Investment properties growth analysis

    Investment properties growth analysis Portfolio growth underpinned by acquisitions, development expenditure and downward revaluation 18 000 146 17 500 (98) 17 000 ( 786 )* 16 500 17 373 16 635 16 000 15 500 Investment Properties Improvements / Disposals Fair value adjustment Investment Properties De

17. Slide 17: Debt & interest rate swap facilities

    Debt & interest rate swap facilities Debt facilities Term debt Unutilised RCF facilities Average tenor WAR excluding swaps R7.5bn R400.0m 2.5 years 5.65% (2019 FY: R7.4bn) (2019 FY: R386.0m) (2019 FY: 2.9 years) (2019 FY: 8.15%) Swap profile Hedged % Swap margin Average tenor WAR including swaps 70.

18. Slide 18: Loan to values & covenants

    Loan to values & covenants FV CCR’s Net debt Loan to value LTV excl. 38.3% R120.7m (Less: 38.4% FV Int. Rate Swaps 40.7% swap R95.4m R423.7m derivatives notional value) Actual H1 Relaxed Lender covenant covenant 2020 Key lender Corporate LTV covenants < 45.0% 44.8% < 50.0% (incl. guarantees) Transac

19. Slide 19: Strategy Update

    STRATEGY UPDATE RORY MACKEY | SA CORPORATE AFHCO f REAL ESTATE spas noning

20. Slide 20: Overview – COVID-19 our new normal

    Overview – COVID-19 our new normal “Our research indicates that new habits formed now will endure beyond this crisis, permanently changing what we value; how and where we shop; and how we live and work” – Accenture 2020 COVID-19 Pulse Survey Research Report 20

21. Slide 21: Overview – Convenience retail offering the way to go

    Overview – Convenience retail offering the way to go “South Africans want convenient physical store locations, websites that enable them to find and purchase products, and easy-to-use mobile sites or apps - and retailers need to adapt in order to compete.” – PwC South Africa report - ‘Achieving Tota

22. Slide 22: Overview – eCommerce to drive logistics

    Overview – eCommerce to drive logistics “Since the start of the lockdown period, we’ve seen a 40% increase in page views per user and a 15% increase in basket sizes” – SA Online retailer OnedayOnly “Alibaba’s online supermarket, Hema, reported that orders were up 220% year-over-year during Chinese N

23. Slide 23: Overview – Opportunity to realign residential portfolio

    Overview – Opportunity to realign residential portfolio Reserve Bank has slashed interest rates by 300bps this year-to- date to an almost 50-year low of 7%. Ooba notes a surge in first-time and 100% bond applications in recent months – “July volumes were over 60% above year-earlier levels. In June,

24. Slide 24: Overview – WFH to further depress office demand

    Overview – “WFH” to further depress office demand Zoom’s maximum daily meeting Top benefits of WFH participants increased from 10 million in December 2019 to 200 million by March 31, it was the #1 business app in iPhone daily downloads in 141 markets, compared to one market at the end of 2019. Direc

25. Slide 25: Strategy update

    Strategy update Enablers: Portfolio focus: Human Capital Convenience Development Retail SUSTAINABLE DISTRIBUTION Operational Quality Industrial Optimisation Property Portfolio Financial Divesting from Sustainability Commercial Execution Quality Residential Discipline Rental Portfolio 25

26. Slide 26: Enabler – Human capital development

    Enabler – Human capital development 01 Chief Operating Officer appointed 02 Head of Corporate Finance appointed 03 Two Retail Asset Managers appointed 04 Strengthening of Finance Team 05 05 Increasing of strategic retail leasing capacity 26

27. Slide 27: Enabler – Operational optimisation – collections

    Enabler – Operational optimisation – collections Student Contribution Retail 1 Industrial Commercial Storage Afhco Retail Residential SA Total Zambian JV accommodation Normal NPI contribution 37.4% 28.7% 1.3% 0.4% 2.5% 23.5% 0.7% 94.5% 5.5% 1 Student Retail Industrial Commercial Storage Afhco Retail

28. Slide 28: Enabler – Financial sustainability

    Enabler – Financial sustainability 01 Distribution deferral 02 Balance sheet strengthening through disposals 03 Lender engagement 04 Management of capex program 05 05 Reduce development exposure 28

29. Slide 29: Enabler – Execution discipline

    Enabler – Execution discipline RETAIL Increased exposure to grocer & convenience offering Measure 2020 H1 Planned 2020 H1 Actual 2020 YE Planned 02 Leasing (m2) 2 831 1 611 5 400 Leasing responsive to changing market & catchment demand 03 Measure Vacancy (%) 2020 H1 Planned 4.3% 2020 H1 Actual 5.1%

30. Slide 30: Enabler – Execution discipline (cont.)

    Enabler – Execution discipline (cont.) COMMERCIAL Divest methodically at best possible pricing Measure 2020 H1 Planned 2020 H1 Actual 2020 YE Planned 02 Divestment - - R43.8m AFHCO Leverage quality, security & amenity offering concentrated in mixed use precincts in close 04 vicinity to transport nod

31. Slide 31: Enabler – Execution discipline (cont.)

    Enabler – Execution discipline (cont.) GREEN STRATEGY Continued roll-out of rooftop PV solar installations Measure 2020 H1 Planned1 2020 H1 Actual 2020 YE Planned2 02 Roll-out (MW) 1.914 - 1.914 1 - Pre COVID-19 forecast 2 - Post COVID-19 forecast CAPITAL STRUCTURE Managed to be supportive of sustai

32. Slide 32: Portfolio focus – Convenience retail

    Portfolio focus – Convenience retail “Visits to smaller malls are plateauing at relatively higher levels in comparison to larger malls”. – Navigare Labs “National Lockdown Impact July 2020” report National Lockdown Source: Navigare Labs 32

33. Slide 33: Portfolio focus – Convenience retail (cont.)

    Portfolio focus – Convenience retail (cont.)  “Smaller malls have experienced a lesser decline in visits”  “Zooming into mall owners with similar average GLA to SA Corporate Real Estate; SA Corporate Real Estate saw a lower average decline in visits during national lockdown compared to these mall

34. Slide 34: Portfolio focus – Convenience retail (cont.)

    Portfolio focus – Convenience retail (cont.) Clur Benchmark Trends Sept 2017 to May 2020 – Annualised Trading Density y/y% & CPI Source: Clur Benchmark Trends 34

35. Slide 35: Portfolio focus – Convenience retail (cont.)

    Portfolio focus – Convenience retail (cont.) Top Trading Categories July 2019 – June 2020 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 - SAC Portfolio Monthly Densities IPD Small Regional & Community Centres Monthly Densities Q1 2020 35

36. Slide 36: Portfolio focus – Defensive categories

    Portfolio focus – Defensive categories Almost half of offer is defensive By GLA 48,70% 51,30% GLA 34,10% 5,20% 5,90% 4% 51,30% Grocery & Food Services Pharmacy, Health & Beauty Speciality Athleisure Other By Rental 47,30% 52,70% 7,60% Rental 30,20% 5,80% 3,70% 52,70% Grocery & Food Services Pharmacy

37. Slide 37: Improved grocer offering

    Improved grocer offering Leases Concluded Musgrave Centre FLM 1 189 m2 02 50 Griffiths Meat & Chicken 896 m2 03 Under Discussion Morning Glen 1 200 m2 Northpark Mall 2 300 m2 04 Montana 800 – 1 000 m2 Coachmans Crossing 800 – 1 000 m2 06 37

38. Slide 38: Increased pharmaceutical presence

    Increased pharmaceutical presence Leases Concluded Musgrave Centre Dischem 1 030 m2 02 Bluff Clicks 850 m2 Davenport Clicks 715 m2 03 Under Discussion 51 Pritchard 600 m2 04 Springfield Value Centre 600 m2 06 38

39. Slide 39: Other defensive tenant mix

    Other defensive tenant mix Introduction of medical services  Umlazi Mega City – FRESH clinic introduced  Cambridge Crossing – two doctors suites  Bluff & Hayfields – exploring medical suites Leveraging demand for household consumables  Strong demand for plastics, cleaning consumables, kitchen eq

40. Slide 40: Portfolio focus – Quality Industrial

    Portfolio focus – Quality Industrial 01 Securing tenant covenant Refining portfolio to quality logistics 02 by divestment 40

41. Slide 41: Securing tenant covenant

    Securing tenant covenant WALE (years) Tenant Grading 70,0% 65,1% 62,8% 60,0% 56,1% 2020 H1 3,3 50,0% 40,0% 28,1% 30,7% 2019 H2 2,5 30,0% 23,0% 20,0% 13,2% 11,9% 9,1% 10,0% 2019 H1 2,8 0,0% 2019 H1 2019 H2 2020 H1 0,0 1,0 2,0 3,0 4,0 A B C 41 Excludes held for sale properties

42. Slide 42: Refining portfolio to quality logistics by divestment

    Refining portfolio to quality logistics by divestment Disposals in last 18 months transferred and contracted Transfer Gross selling Property Sale rationale date price (Rm) 14/24 Mahoganyfield Way, Springfield Park 19-Jan-19 36.0 Retenanting risk with significant capex required 40 Electron Avenue, Is

43. Slide 43: Portfolio focus – Divesting from Commercial

    Portfolio focus – Divesting from Commercial 01 Total 9 properties 02 3 contracted for sale 03 5 of 6 remaining vacancy = 4% 04 Greenpark vacancy reduced from 31% to 20.8% in 2020 43

44. Slide 44: Portfolio focus – Quality Residential

    Portfolio focus – Quality Residential Reinstating stable tenant base 01 post COVID-19 02 Portfolio optimisation Completion of Johannesburg 03 inner-city lifestyle developments 04 Divestment of poorer quality, low growth properties 05 Pipeline curtailed to promote focus 44

45. Slide 45: Reinstating stable tenant base post COVID-19

    Reinstating stable tenant base post COVID-19 % vulnerable COVID-19 vulnerability April 10% | May 15% | June 11% | July 10% | Aug 10% 5% expected to be rehabilitated with relief Relief to eligible tenants Exit non-paying tenants  Cancellation – arrears  Termination – poor payment 5% tenant base ant

46. Slide 46: Portfolio optimisation

    Portfolio optimisation 1. Marketing of trusted brand 2. Loyalty programme 3. Market competitive rental analysis and yield management 4. Planned unit & common area refurbishment program 5. Wi-Fi roll-out 6. Operational excellence in customer services, facility management and cleaning 7. Holistic secu

47. Slide 47: Marketing a trusted brand

    Marketing a trusted brand 815 learners and 33 teachers Interventions  Brand awareness through media partners (Sowetan, Jozi FM, Inner-city Gazette, etc.)  Annual Bursary Opportunity  Support to CityKidz  Albert Street and End Street parks  City improvement district support 47

48. Slide 48: Marketing a trusted brand

    Marketing a trusted brand  COVID-19 Safety and Relief Programme implemented  A COVID-19 infected tenant action plan implemented to address infection occurring in the residential portfolio  The action plan detailed protocols to deal infection, including: – confirmation of infection; isolation and

49. Slide 49: Loyalty programme

    Loyalty programme q AFHCO Africa Housing Company 49 i ~% fo) Af sA.conrorare AFHCO { REAL ESTATE orca momng

50. Slide 50: Market competitive rental analysis and yield management

    Market competitive rental analysis and yield management  Affordability seen as most critical lever to reduce vacancies in the short term  Ilanga test case: – Vacancy as at June 2020 circa 35% (106 units) – Reduced rental by up to 20% on vacant units in July – Take up of 121 units (gross) in July a

51. Slide 51: Planned unit & common area refurbishment program

    Planned unit & common area refurbishment program Planned unit & common area refurbishment have been delayed by COVID-19 and are to be funded from unit sales Refurbishment Properties Backup power for key All inner-city residential buildings services Golf Park, Greatermans, Ilanga, Indlovu, Jeppe Stre

52. Slide 52: Wi-Fi roll-out

    Wi-Fi roll-out  Wi-Fi seen as a must today given reliance thereon for entertainment, personal and business communication – intensified by COVID-19.  Rolled out to 21 inner-city buildings.  Suburban roll-out planned to commence in last quarter.  Significant increase in usage seen during lockdown.

53. Slide 53: Operational excellence

    Operational excellence  Operational excellence in customer services, facility management and cleaning  Enhancements to customer service being explored and to include: – Digitised leasing process – WhatsApp support – Integrated CRM tool  Facilities Management to incorporate an end-to-end real esta

54. Slide 54: Holistic security solution

    Holistic security solution Holistic security solution encompassing CCTV & on-site presence interfacing with control room engaging tactical response.  Class leading AI based Video Surveillance Software solution creates the ability to effectively and efficiently monitor areas with high motion  ANPR

55. Slide 55: Completion of Johannesburg inner-city lifestyle developments

    Completion of Johannesburg inner-city lifestyle developments Jeppe Street Post Office Complete  486 residential units (remaining 242 units completed 31 July 2020)  8 852 m2 retail (anchored by Boxer) (410 m2 food court to be introduced in last quarter of 2020)  Lifestyle amenities including Wi-Fi

56. Slide 56: Divestment of poorer quality, low growth properties

    Divestment of poorer quality, low growth properties  Review of residential rental portfolio to establish poorer quality, low growth properties not meeting investment criteria  Sale of sections to owner occupiers  Marketing and sales team to target FLISP buyers  Subsidy range available to first t

57. Slide 57: Divestment of poorer quality, low growth properties

    Divestment of poorer quality, low growth properties  Divestment to be enhanced through: – Aesthetic upgrades to unit interiors i.e. kitchens / bathrooms – New amenities to enhance lifestyle i.e. braai areas / play areas 57

58. Slide 58: Pipeline curtailed to promote focus

    Pipeline curtailed to promote focus Calgro M3 indebtedness substituted with higher quality properties:  La Vie Nouvelle assisted living & frail care centre, Broadacres (incl. 7- year rental gtee)  80% interest in The Falls Lifestyle Estate, Wilgeheuwel (incl. initial tenanting rental and ops cost

59. Slide 59: Outlook

    OUTLOOK RORY MACKEY

60. Slide 60: Focus portfolio & strengthen financial position defensive income

    Focus portfolio & strengthen financial position defensive income Retail  Defensive tenant mix – Groceries, food services, pharmaceutical, health & beauty and household equipment & consumables  Convenience orientated shopping centres Industrial  Logistics dominated  Strong tenant covenant Afhco 

61. Slide 61: Distribution

    Distribution Strengthening balance sheet – foundation for future sustainable performance  No dividend for 2020 H1 Comfortably meet solvency & liquidity  2nd tranche of 2019 H2 (9.53939 cps) to be paid Monday, 12 Oct 2020 Guidance  Good progress mitigating COVID-19 effects  Continued uncertainty

62. Slide 62: Acknowledgements

    ACKNOWLEDGEMENTS { SA CORPORATE t AFHCO f REAL ESTATE a"

63. Slide 63: Questions

    QUESTIONS | SA CORPORATE fo wee | REAL ESTATE Apes nig

64. Slide 64: Appendices

    APPENDICES | SA CORPORATE AFHCO f REAL ESTATE =~

65. Slide 65: Distributable income at a glance for the period ended June 2020

    Distributable income at a glance for the period ended 30 June 2020 Jun 2020 Jun 2019 % Rm Rm Variance Net Property Income - Like for Like 449.302 562.964 (20.2) Net Property Income - Developments 87.344 110.396 (20.9) Net Property Income - Acquisitions 8.123 7.151 13.6 Net Property Income - Building

66. Slide 66: Group debt structure – at June 2020 (excl. fixes)

    Group debt structure – at 30 June 2020 (excl. fixes) 468 Term Loan (US$), 2,36% Feb 2021 - 500 Term Loan (Syndication), 5,76% Mar 2021 - 500 Term Loan (Syndication), 5,89% Dec 2021 - 550 Term Loan (Syndication), 5,79% Dec 2021 - 300 Term Loan (Syndication), 6,13% May 2022 - May 2022 - 300 Revolving

67. Slide 67: Group debt structure – at June 2020 (incl. fixes)

    Group debt structure – at 30 June 2020 (incl. fixes) Feb 2021 468 Term Loan (US$), 3,21% - 500 Mar 2021 -Term Loan (Syndication), 7,62% 500 Term Loan (Syndication), 7,75% Dec 2021 - 550 Dec 2021 -Term Loan (Syndication), 7,65% May 2022 300 Term Loan (Syndication), 7,99% - May 2022 - Revolving credit

68. Slide 68: Debt repayment profile – at June 2020

    Debt repayment profile – at 30 June 2020 3 000 8,0% 6,9% 7,0% 2 500 5,7% 6,4% 6,3% 6,0% 5,0% 2 000 5,7% 5,0% 1 500 4,0% 3,0% 1 000 2,0% 500 1,0% 8 2 036 2 488 1 220 1 158 608 - 0,0% 2020 2021 2022 2023 2024 2025 R'm Rate 68

69. Slide 69: Interest rate swap expiry – Jun 2020

    Interest rate swap expiry – 30 Jun 2020 744 1 155 2 058 740 1 69 1 Includes $27m swap at a rate of 1.41%

70. Slide 70: Retail portfolio overview

    Retail portfolio overview Portfolio1,2 Portfolio value R7.4bn 42 Properties Top 10 tenants National exposure GLA 38.2% 52.2% GLA 388 131m2 27.2% Grocer GLA Rental 29.0% 45.9% of total Tenant retention success rate 80.6% Cost to revenue (Like-for-like) 46.4% (H1 2019: 40.4%) Vacancy Monthly 2020 2021

71. Slide 71: Commercial portfolio overview

    Commercial portfolio overview Portfolio1 Portfolio value R0.5bn 8 Properties GLA 38 858m2 3% GLA of total portfolio Cost to revenue (Like-for-like) 59.3% (H1 2019: 47.8%) Vacancy Monthly 2020 2021 2022 2023 2024+ % of GLA 16,5% 11,6% 11,5% 36,3% 14,0% 4,0% 6,1% Cumulative 16,5% 28,1% 39,6% 75,9% 89,

72. Slide 72: Industrial portfolio overview

    Industrial portfolio overview Portfolio Portfolio value R4.1bn 73 Properties GLA 637 371m2 42% GLA of total portfolio Cost to revenue (Like-for-like) 33.4% (H1 2019: 26.2%) Vacancy Monthly 2020 2021 2022 2023 2024+ % of GLA 3,9% 6,4% 9,5% 20,7% 14,1% 16,7% 28,7% Cumulative 3,9% 10,3% 19,8% 40,5% 54,

73. Slide 73: Afhco portfolio overview

    Afhco portfolio overview Portfolio1 Portfolio value R4.6bn 63 Properties GLA Apartments 363 060m2 Retail 77 876m2 Cost to revenue (Like-for-like) 48.0% (H1 2019: 36.0%) By GLA 17,7% 82,3% Residential Retail / Commercial 73 1 Excludes bulk of 53 958m2 being developed, valued at R66.5m.

74. Slide 74: Zambian JV overview

    Zambian JV overview Portfolio1 Zambian JV value USD$ 63.7m ZAR R1 103.1m Cost to revenue (USD) 28.8% (H1 2019: 28.5%) JV Income USD$ 1.8m (H1 2019: USD$ 2.3m) Decline of 20.4% JV Income ZAR R32.5m (H1 2019: ZAR R36.1m) Decline of 10.2% Property Sector GLA % of total GLA Acacia Business Commercial 12

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