13 June 2017 Waterfall City

Attacq takes next positive step in its business journey

WATERFALL GAUTENG (SOUTH AFRICA) – Premium Johannesburg Stock Exchange (“JSE”) listed property company Attacq is pleased to announce it is taking the next evolutionary step on its positive business journey towards becoming a unique REIT (“Real Estate Investment Trust”). Attacq’s quality assets and active development portfolio, sets Attacq apart from most other listed property companies. Attacq is entering a transitional phase in which it will shift its focus from capital growth to total return, with the goal of becoming a REIT focused on distributions and distribution growth.

Attacq has focused on long-term sustainable capital growth through active investment, management and development of real estate since being listed on the JSE as a property company in October 2013. This strategy has differentiated Attacq from other JSE-listed property companies that have elected to receive REIT status from the JSE, reflective of their focus on the generation and regular distribution of income derived from rental income. Since listing, Attacq has completed 32 developments, including the Mall of Africa and 25 other developments in Waterfall, adding 434 154 m2 of gross lettable area to the portfolio.

“Attacq’s Waterfall development portfolio continues to be a strong differentiating factor as it enables Attacq to develop, deliver and grow income generating assets in support of its aim of delivering exceptional and sustainable capital and earnings growth to its shareholders,” says Morné Wilken, CEO of Attacq.

“It is now appropriate for Attacq to re-position itself and adopt a strategy which includes income distribution with the objective, subject to the approval of the JSE, of receiving REIT status for the financial year commencing 1 July 2018,” explains Wilken.

“The repositioning to achieve REIT status is underway and includes the reduction of existing debt facilities with the proceeds from the disposal of Attacq’s Central and Eastern European investments, the continued optimisation of its balance sheet and the sale of certain non-core assets, where the deployment of the proceeds will serve to enhance sustainable and growing distributable earnings,” says Melt Hamman, CFO of Attacq.

Attacq’s value proposition
Attacq’s value proposition has four key drivers, namely its existing quality operational portfolio, its Waterfall development portfolio, its strategic investment in MAS Real Estate Inc. (“MAS”) and retail investments in the rest of Africa.

Existing quality operational portfolio
Attacq has a high quality operational portfolio of retail, commercial and industrial properties with a weighted average lease expiry of 6.5 years. One of Attacq’s most valuable assets is its 80% interest in the Mall of Africa, the super-regional mall located at the centre of the growing Waterfall City.

The Mall of Africa opened in April 2016 and has performed well in its first year of trading. The annual rent to turnover ratio for the mall of 9.6% is more favourable than the average of other super-regional malls per the IPD benchmarking report of 10.4% for the year ended 31 March 2017. Average monthly trading densities of R2 637/m2 were achieved in the first year’s trading, which reflects the growth potential of the asset and footfall averaged more than 1.2 million visitors per month over the first year. Attacq’s other notable retail properties include the Lynnwood Bridge Precinct, Garden Route Mall, MooiRivier Mall, Eikestad Precinct and 25.0% in Brooklyn Mall.

As at 31 December 2016, Attacq’s existing quality operational portfolio had a gross value of R18.6 billion.

Waterfall development portfolio
Attacq has approximately 1.2 million m2 of remaining developable bulk in the Waterfall area, of which 608 000 m2 is already serviced and ready for the roll-out of commercial, residential and industrial developments. Waterfall’s location and ease of access provide an attractive value proposition for the creation of a new city in the centre of Gauteng.

The secured Waterfall development portfolio, in various stages of progress, totals 175 545 m2, which includes new regional headquarters for PwC and Deloitte and a new BMW Group South Africa regional distribution centre. Earthworks has commenced for the development of a new mixed-use development in Waterfall City, The Atria, which includes a four-star hotel, residential apartments and two commercial buildings.

Wilken explains that the development of the residential component of Waterfall City, currently 70 000 m2 of bulk and which can be increased to 240 000 bulk m2, will meet expected demand created by the growing number of office occupants in Waterfall City. This includes more than 8 000 PwC and Deloitte staff that will be introduced to Waterfall City following completion of the PWC and Deloitte Offices.

In addition to the 1.2 million m2 of developable bulk referred to above, Attacq holds a 20% interest in, a joint venture with Sanlam Properties (a division of Sanlam Life Insurance Limited). “This Sanlam Properties Joint Venture holds the light industrial development rights to 635 425 m2 bulk land in Waterfall and Attacq has the option of increasing its interest in this Joint Venture to 50%,” states Wilken.

As at 31 December 2016, Attacq’s development portfolio, comprising developments under construction, vacant land and its investment in Sanlam Properties Joint Venture, totalled R3.3 billion.

Strategic investment in MAS
Attacq currently holds a strategic investment of 30.8% in MAS, which invests in Western Europe and the Central and Eastern Europe via its partnership with Prime Kapital Limited. MAS has recently acquired properties in Poland and Bulgaria and has announced its target of increasing distributions by more than 30% per annum through to 2019. Demand and trade in MAS shares reflect their increasing liquidity.

Attacq’s investment in MAS provides Attacq with growing earnings, diversification and a Rand hedge. As at 31 December 2016 the MAS investment was accounted for as R2.4 billion. The current market value of Attacq’s MAS investment is R3.4 billion based on a closing share price of R23 per share as at 12 June 2017.

“We are excited about MAS’ Joint Venture with Prime Kapital, as the principals, Martin Slabbert and Victor Semionov, are actively driving investment expansion into the wider markets of Central and Eastern Europe,” states Wilken.

Retail investments in the rest of Africa
Attacq holds a 25.0% interest in Ikeja City Mall in Nigeria and a 31.8% shareholding in AttAfrica Limited (“AttAfrica”). AttAfrica’s premier retail weighted portfolio in terms of quality and size includes Accra Mall, Achimota Retail Centre, West Hills Mall and Kumasi City Mall in Ghana and Manda Hill Mall in Zambia.

Currently Attacq is not receiving distributions from AttAfrica, considering unfavourable trading and macroeconomic conditions impacting on the malls and the structure of Attacq’s investment in AttAfrica. However, economic conditions in the countries of investment are improving and management continue to actively manage the investment to optimise net income and value.

As at 31 December 2016, Attacq’s retail investments in the rest of Africa totalled R1.1 billion.

Future distributions
Hamman explains that in the financial year ending 30 June 2018, prior to becoming a REIT, Attacq will adopt a dividend policy pursuant to which it will distribute its available funds. This distribution in respect of the year ending 30 June 2018 will not be a qualifying distribution under the tax regime applicable to REITs.

Attacq’s total return comprises of its income and capital return from its income producing assets and the capital growth achieved in respect of its other assets.

“Attacq is targeting a maiden dividend payment from its income-producing assets, namely its existing quality portfolio and MAS investment, of 73 cents per share for the year ended 30 June 2018 with a 20% growth per annum in its distribution for the next three years thereafter,” says Hamman.

“This future view is based on assumptions which include the expected roll-out of Attacq’s current and budgeted development portfolio, MAS achieving its distribution targets, the required re-positioning to become a REIT and that no unforeseen circumstances, such as major corporate tenant failures or macro-economic instability, occurs,” states Hamman. The future view has not been reviewed or reported on by Attacq’s auditors.