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STANLIB LISTED PROPERTY

Quorum Presentation by

Keillen Ndlovu

October 2012

Ndabezinhle Mkhize

Property Analyst

BSc (Actuarial Science)

CAIA

CFA

Riaan Gerber

Property Analyst

B Compt (Hons)

Property Development

Programme

CA(SA)

8 years

asset management

experience

(6 years listed property)

5 years

asset management

experience


The STANLIB Listed Property Team

Keillen Ndlovu

Head: Listed Property Funds

Portfolio Manager BCom (Hons) Finance

Property Development Programme

CAIB(SA)

8 years

asset management

experience


Craig Smith

Property Analyst

BCom (Hons) Finance

BSc (Hons) Property Studies

Passed CAIA Level 1 Exams

CFA

4 years

physical property

experience

(1 year listed property)

COPYRIGHT STANLIB 2012 2

TOP DOWN ANALYSIS

Listed Property Income (Distribution)

Growth has never been Negative

COPYRIGHT STANLIB 2012

Source: IPD, SAPOA, MacQuarie, Econometrix, STANLIB

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F

Distribution growth (%) Property vacancies (%) GDP growth (%)

4

SA Listed Property Sector –

Stable & Growing Income Since 1994

0

50

100

150

200

250

300

350

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012F

Cumulative sector DPSSource: Company data, Macquarie Research, July 2012


Listed Property has a High Correlation

to Bonds

0.359 0.331 0.319

0.462

0.259

0.586 0.631

0.739 0.749

0.663

0.00

0.25

0.50

0.75

1.00

15 yrs 10 yrs 5 yrs 3 yrs 1 yr

Corr

ela

tion

.

Correlations between Listed Property and Equity and Bonds over various time frames

Equities vs Local Property Bonds vs Local PropertySource: Cadiz 30 September 2012


Strong Negative Relationship with

Bond Yields


SA L

IST

ED

PR

OPERT

Y IN

DEX

10-Y

EA

R B

ON

D Y

IELD

S

i.e. When bond yields move up (weaken), listed property prices generally come down.

7

Asset Class Risk-Returns over the

Last Year


Source: Cadiz September 2012

Local Equities

Local Bonds

Local Property

Local Inflation Linked Bonds

Local Cash

Foreign Equities

Foreign Bonds

Foreign Cash

-10

-5

0

5

10

15

20

25

30

35

40

0 2 4 6 8 10 12 14 16 18 20

Annualise

d R

etu

rn (

% )

Annualised Standard Deviation (%)

HIGH RETURN/LOW RISK

LOW RETURN/HIGH RISK

average

return

average risk

8

2011 Listings Resulting Improved Size,

Choice and Liquidity

Property Stock Listing

Listing

Market

cap (+/-)

Timing

Vividend Income Fund R0.5bn Nov 2010

Investec Property Fund R1.8bn April 2011

Rebosis Property Fund R2.1bn May 2011

Vunani Property Fund R0,9bn Aug 2011

Dipula Income Fund R1.4bn Aug 2011

Attfund (reverse listing into

Hyprop Investments)

R5.0bn Sept 2011

Synergy Income Fund R0.5bn Dec 2011

Arrowhead Properties

(Redefine unbundling) – R0.8bn

- Dec 2011

R12.3bn

• Premium Properties -

R400m rights offer (Feb

2011)

• Fountainhead Property

Trust - R1bn rights offer

(April 2011)

• Growthpoint Properties –

total of R2.3bn:

• R331m distribution re-

investment option

(March 2011)

• R1.8bn book build (July

2011)

• R167m distribution re-

investment option

(September 2011)

R3.7bn

Source: STANLIB Research & Company Data


Equity Raisings so Far in 2012

Company/Fund Size

Arrowhead Property Fund R400m

Rebosis Property Fund R295m

Sycom Property Fund R746m

Synergy Income Fund R305m

Hospitality Property Fund R530m

Vukile Property Fund R867m

Growthpoint Properties R793m

Vividend Income Fund R459m

Redefine Properties R650m

Acucap Properties R348m

Synergy Income Fund R370m

R5.76bn

Source: STANLIB Research & Company Data

• Ascension and Annuity listed during

the first half of 2012 (R1.2bn)

• Expecting more equity raisings from

Ascension, Investec Property and

Dipula

• Delta Property Fund is listing in early

Nov – market cap +/- R1.2bn

10 COPYRIGHT STANLIB 2012

SA LISTED PROPERTY OVERVIEW

2012 Year-to-Date:

Asset Class Total Returns

Listed property was also the best asset class in 2010 and 2011 Source: I-Net Bridge


Has Listed Property Run too Hard?

Returns Since the previous Nov 2007 Peak

Total returns are primarily driven by income

returns Source: I-Net Bridge


Recent Results – A Diverging Income

Growth Trend

Income Growth Income Growth Outlook*

Resilient 10.40% 10%

Fortress 10.20% 10%

Octodec 9.50% 9.5%

Hyprop 9.40% 5% to 7%

Sycom 7.70% 5%

Capital 6.12% 4% to 7%

Growthpoint 6.10% 6.1%

Acucap 6.00% 4% to 6%

SA Corporate 5.70% Deliver positive growth

Vukile 5.00% 6.5% to 7.5%

Premium 3.10% On par with sector

Redefine 1.60% 68 cents for full year

Fountainhead 1.00% Marginal increase

Emira -2.50% Increase in distributions

* Management guidance & STANLIB Forecasts (excludes the current reporting season) Source: Company Data and STANLIB Research


Recent Results – The Vacancy Picture

not Looking Bad

Fund/Company Vacancies Reason?

Resilient Down from 1.9% to 1.8% Improved letting

Acucap Down from 3.3% to 2.8% Completion of refurbishments

Growthpoint Down from 5% to 4% Improved letting in industrial and offices

Sycom Down from 4.5% to 3.7% Reduction in office vacancy

SA Corporate Up from 5.6% to 7.4% Increase in retail and industrial vacancy

Capital Down from 6.3% to 6.1% Reduction in industrial and office vacancy

Redefine Down from 6.9% to 6.6% Improved letting in industrial and office

Emira Down from 11.3% to 10.2% Reduction in retail and industrial vacancy

Octodec Down from 15.9% to 14.5% Improved letting in office and industrial

Vukile Down from 6.9% to 6.8% Reduction in retail vacancy

Fountainhead Down from 7% to 6% Reduction in retail vacancy

Nepi Down from 7.7% to 5.3% Improved letting across the board

Fortress Down from 5.6% to 5.1% Improved letting

Hyprop Down from 3.9% to 3.8% Reduction in retail vacancy

Premium Up from 18.8% to 20.8% Increase in office vacancy

Source: Company Data and STANLIB Research COPYRIGHT STANLIB 2012 15

SECTOR ANALYSIS

RETAIL, OFFICE & INDUSTRIAL

SA Listed Property Sector – Retail is the

Biggest Exposure

53%

28%

15%

2% 1% 1%

Retail

Offices

Industrial

Hotels

Residential

Other


Source: STANLIB Research and Company data

17

6

9 3

12

BOOM MARKET

Saturated

Market

Increasing

Construction

Funding

Available

Increasing Rents

Stabilizing Rents

Increasing Absorption

Overbuilding

Rent Concession Excess Funding

Tightened Funding

Less

Construction

Reduced

Funding

RECESSION

RECOVERY

Retail

Office Minimal Construction

Source: STANLIB’s view of the sectors but clock courtesy of Francois Viruly

Real Estate Clock – Industrial Sector

Looking Good


Industrial

Retail

18

Township Retail has Provided Better

Risk-adjusted Returns


Source: IPD Research

SPAR, Zonke Shopping Centre (Vunani

Properties), Motherwell Township, Port Elizabeth

Source: STANLIB Research

Growth in Retail Developments

Since 1993


Source: IPD Research Jabulani Mall (Resilient), Soweto


20

Shopping Centre Trends in South Africa


Decline largely due to explosion of new shopping

centres (cannibalisation) Source: SAPOA Q1 2012

21

How do Shopping Centres Count

the Number of Shoppers?


Foot counting machine at Nelson Mandela Square, Sandton


Shopping Centre Trends – the Bigger,

the Better


0 5 10

Super RegionalSC

Regional SC

Small RegionalSC

Community SC

NeighbourhoodSC

Spend per head per visit (Rand) Vacancies by shopping centre type (%)

Source: IPD/SAPOA

23

Hyprop Property Portfolio Example

Source: Hyprop Results 30 June 2012


National Industrial Vacancies Continue

to Improve (go down)


Source: SAPOA/IPD H2 2011

25

Offices Vacancies Stabilizing but Rents

are not Growing


National vacancies National vacancies by grade

Source: IPD/SAPOA Q3 2012

26

Operating costs – Rates & Taxes,

Electricity and Management are the Biggest

Source: IPD/SAPOA H1 2012


Total Operating Costs as a % of Gross

Income – Prime Property is Better

Source: IPD/SAPOA H1 2012


VALUATIONS

29

Income Growth Outlook

BULL BASE BEAR

Year 1 6.5% 5.5% 4.25%

Year 2 7.0% 6.1% 4.8%



Total Return Outlook

One Year Forward Yield = 7.0%

BULL BASE BEAR

ONE YEAR

Bond yields at end of year 1 6.5% 7.0% 7.5%

SA Listed Property Total Return 14.6% 7.0% 0.5%

TWO YEARS

Bond yields at end of year 2 6.5% 7.0% 7.5%

SA Listed Property Total Return

(annualised)

13.7% 10.0% 6.6%

Assumed no change in property rating (yield gap) relative to the bond market



Risk to the Listed Property Sector

Outlook

UPSIDE RISK

• Letting of vacancies in office space, particularly in A-grade space

• Continued recovery of the retail sector leading to take up of vacancies in

smaller shopping centres

• Strong demand for retail space in bigger shopping centres

• Corporate action – in our view, the sector is ripe for mergers and acquisitions

DOWNSIDE RISK

• Rising bond yields

• Slow economic growth

• Deterioration in the vacancy profile of the B-grade office space

• Global markets volatility

• Increasing operating costs for tenants

• Rates and taxes

• Electricity

• Toll roads

Prediction is

very difficult,

especially

about the

future - Niels Bohr


IMAGINATION IS A POOR SUBSTITUTE FOR EXPERIENCE –

HAVELOCK ELLIS

PHYSICAL SITE INSPECTIONS AN IMPORTANT PART OF THE INVESTMENT PROCESS

Kathu Village Mall, Kathu (Resilient) –

Turnover up 26%, Foot count up 7.3%


• Anchor tenants are SuperSpar, Edgars and there is a full range of fashion,

footwear, sportswear, restaurants, furniture and health care

• Game needs space


Where is Kathu?

It’s here


Diamond Pavilion Mall, Kimberley

(Resilient)


• Turnover growth 20% year-on-year

• Foot count was up 12% to 4.9m shoppers

• Vacancy rate is 3% of GLA

• Anchor tenants: Checkers, Woolworths,

Edgars and Fruit & Veg. House & Home

will take up space vacated by cinemas

• The economy of Kimberley is driven by

mining and tourism


Mafikeng Mall, Mafikeng (Resilient) –

Foot Count up 23% and Turnover up 18%


• The centre is anchored by Game, SuperSpar and Edgars

• Plans to bring in Fruit &Veg and Woolworths

• Checkers is looking to buy out Spar and be the new food anchor


Mall of Rosebank (Hyprop) to be

increased from 37,000m² to 62,000m²


The Mall of Rosebank project will cost R920m

• Standard Bank Rosebank

• 60,000m² and cost R1.6bn

• To accommodate 5,600 employees

Source: STANLIB Research 38

New Shopping Centres Coming up –

Increased Competition


Brilliant community shopping centre. With an

excellent tenant mix. Opened in April 2012.

Untouched and unloved for 15 to 20 years


Nicolway Bryanston Shopping Centre (Unlisted) Bryanston Shopping Centre (Listed)

39

Bryanston Shopping Centre

(Fountainhead) – A Refurbishment at

Last!



To be completed sometime in November

40

Highveld Mall, Witbank – Trading Very

Well and being Extended (Resilient)

COPYRIGHT STANLIB 2012 Source: STANLIB Research 41

Malls Opening over the Next Few Years

in South Africa

COPYRIGHT STANLIB 2012 Source: Various Artist Impressions

We have visited all the above sites and other upcoming malls in Durban and Midrand

Pretoria West Port Elizabeth Burgersfort

Cape Town Secunda Krugersdorp

42

Midrand’s new +115,000m² Mall by

Waterfall City – Mall of Africa (Atterbury)

• Location: Allandale Road (West of N1)

• Some of the tenants – H&M, Zara, Food Lovers Market, Checkers, Woolworths, Cotton-On, Top Shop, Foschini, Chanel,

Dolce & Gabana, Stuttafords, Gap, Guess, Pick n Pay

• Construction starts: September 2012

• Scheduled completion: Early 2014 Source: Atterbury


Cradlestone Mall, Krugersdorp – Retail

Africa & Sasol


• Clearwater Mall (Hyprop) and Key West Mall (Acucap) will be negatively affected

• Management of both centres are coming up with defensive mechanisms

Key West Mall (Acucap) Cradlestone Mall (Sasol & Retail Africa) Clearwater Mall (Hyprop)


Secunda to get a Regional Shopping

Centre (Resilient & Sasol)

COPYRIGHT STANLIB 2012 Source: STANLIB Research 45

Still Lots of “To Let” Signs,

Especially in the B-grade Office Space



46

New Developments Coming up in

Sandton

Source: Redefine & STANLIB Research Current Alexander Forbes offices to be demolished – Redefine Properties

BEFORE AFTER


Changing Sandton CBD Skyline –

Gautrain One of the Key Drivers

COPYRIGHT STANLIB 2012 Source: STANLIB Research

join.gautrain.co.za

48

http://join.gautrain.co.za/Default.aspx

There is Increased Government

Exposure in the Listed Property Sector

COPYRIGHT STANLIB 2012 Source: STANLIB Research – Delta Property Fund (Listing in November 2012) Site Visits 49

THANK YOU

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