AUGUST 2020 RESULTS PRESENTATION - The Vault
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AUGUST 2020 RESULTS PRESENTATION
Contents
Overview and strategy slide 3
Our sector and operating context slide 6
Impact of COVID-19 slide 12
Our developments slide 14
Property fundamentals slide 20
Shoprite transaction update slide 27
Financial review slide 31
Financial performance
Financial position
Net debt
Financial risk management
Focus on ESG slide 46
UK strategic venture slide 49
Prospects slide 58
OVERVIEW AND STRATEGY
74.44cꜛ 0.4% ꜛ 29.5% 10.0 R16.2 99.1%
DPS NAVPS LTV years billion collection
rate
DPS remained largely NAVPS increase of Conservative
Weighted average Portfolio value Average collection rate
flat compared with 0.4% to R17.44 at financial profile
lease expiry across increased to was 99.1% over the
74.43c at Aug-19 Aug-20 from R17.37 against uncertain
the portfolio R16.2bn at Aug-20 six-month period
at Aug-19 macroeconomic
background
THE PERIOD IN REVIEW
Equites’ strategy is focused on becoming a globally relevant
specialist REIT, focusing on the top end of the logistics sector
We have a single-minded focus on building our portfolio in line with
our strict investment criteria
Unlock key tracts of land
through the relationship with Develop “best in class”
Newlands logistics parks on key
strategic land holdings
Develop new assets on a
pre-let basis through the
JV and unlock value United South Sale and leaseback
through turnkey Kingdom Africa transactions
developments
Acquisition of assets or
Acquisition of portfolio portfolios should they become
enhancing assets available
OUR SECTOR AND OPERATING CONTEXT
OPERATING
CONTEXT
Economic climate in the UK
Major economies’ 2Q20 GDP YoY - volume terms
0%
The UK tumbled into its largest recession (2Q20)
01 on record (-22.1%) and fared worse compared to
numerous other major economies -5%
UK GDP is expected to contract by -10%
02 approximately 10% over the full year with
almost 750,000 jobs being shed since the start
-15%
of the coronavirus
-20%
Fiscal and monetary stimulus that has been
03
enacted should provide some support - forecasts
shows that the recovery could be rapid, -25%
India UK France Italy EU Germany Japan US
forecasting growth of more than 6% in 2021
Source: Refinitiv Source: OECD
Results Presentation | August 2020 7
OPERATING
CONTEXT
Economic climate in SA
SA – Labour force participation rate
The South African Reserve Bank (SARB)
01
60%
expects SA’s economy to contract by 8.2% in
2020, with some recovery in 2021 (+3.9%) 50%
40%
The SARB has cut the repo rate by 300 basis
02
30%
points this year, resulting in a record-low repo
rate of 3.5%. Headline CPI is still however, 20%
expected to be 3.3% for 2020 – at the lower end
of the SARB’s target range of 3% to 6% 10%
0%
The South African economy shed more than 2
03
3Q17 1Q18 3Q18 1Q19 3Q19 1Q20
million jobs in the second quarter of 2020 Labour force participation fell to 47.3% in 2Q20 – compared to an average over the
last three years of 59%
Source: StatsSA
Source: RMB Global Markets
Results Presentation | August 2020 8
OUR APPROACH
OPERATING
TO ESGCONTEXT
Strong tailwinds in the UK with robust growth Online sales – United Kingdom
35%
in e-commerce 30%
25%
• Online sales as a percentage of total sales averaged 26% 20%
(Jan-Aug 2020), far higher than 19% in 2019 15%
10%
• Savills estimates online sales in the UK to be 26% in 5%
2020, dropping to 24% in 2021 due to some normalisation 0%
in consumer shopping patterns Aug-10 Aug-12 Aug-14 Aug-16 Aug-18 Aug-20
Monthly internet sales 2020 YTD Average for 2017-2019
• Two additional trends support the logistics sector in a post- Source: ONS
COVID-19 world: Online sales – European forecast
1. Onshoring of manufacturing –more emphasis 26%
24%
being placed on in-country production security to 19% 20%19%
mitigate supply side risks 14%14%
16%
13%13% 12%
16%15%
11% 10% 9% 10%
5%
2. Rising inventory levels – supply chains to include
inventory buffers to cater for disruptions such as
UK France Germany Spain Netherlands Average
COVID-19
2019 2020 2021f
Source: Savills
Results Presentation | August 2020 9
OUR APPROACH
OPERATING
TO ESGCONTEXT
Record take-up of space YTD in the UK logistics market, driven by online retailers
YTD take-up is 38.6m sq ft (3.59m sq m) (first three The trend of online retailers contributing to a higher
quarters of 2020), breaking the previous annual record percentage of the total take-up is expected to continue,
of 37.8m sq ft (3.51m sq m) set in 2016; Amazon primarily due to the growth in e-commerce
contributed to c.29% of take-up in 2020
UK logistics market – take up per quarter UK annual take up of dedicated internet retail
35%
30%
25%
20%
15%
10%
5%
0%
4Q07 4Q10 4Q13 4Q16 4Q19 3Q20
Rolling annual take-up - dedicated internet retail as a % of all
take-up
% retail sales online
Sources: Savills Sources: ONS, Gerald Eve
Results Presentation | August 2020 10OUR APPROACH
OPERATING
TO ESGCONTEXT
SA e-commerce infrastructure yet to bloom; COVID-19 is accelerating this trend
For the 24 weeks ending Aug 2020: TFG Africa targets their online sales to be 10%
Online sales growth of 344% of total sales by 2025
10%
8%
Group online sales post lockdown were up
75% - sales were above Black Friday in 2019
6%
Fashion, Beauty and Home (FBH) - Online 4%
sales grew by 41% in 2H20
2%
As at June 2020 - Game grew online sales by 0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 T:2025
100%, Builders by 160% and Makro by 84%
Results Presentation | August 2020 11IMPACT OF COVID-19
KEY OBJECTIVES
AND IMPACT
Capital preservation
Increased risk premiums to reflect
heightened uncertainty and reassessed
capital allocation decisions
Maintaining sufficient liquidity
Maintained higher cash holdings,
Job preservation for curtailed discretionary expenditure and
employees and contractors proactive management of hedging
positions
Prioritised continued operation of
development sites, provided support for
contractors and equipped staff with Tenant support
resources to work from home
Understanding tenant needs and
granting concessions on a case-by-
case basis
Despite our best efforts to minimize the impact of COVID, at least four types of once-off costs were
incurred which were incremental when compared with the prior period; this amounted to R29million.
Results Presentation | August 2020 13OUR DEVELOPMENTS
BASELINE
SPECIFICATION
MODERN DISTRIBUTION CENTRE Free solar
PV systems
Mechanically
ventilated
warehouse
Energy Efficient
15.5m clear LED lighting in 7m canopies
springing / warehouse over dock
Perimeter walls
eave height levelling doors
constructed
using tilt-up
panels FM2 floor with a
load bearing
capacity of
90Kn/m2 18m canopies
over on-grade 45m minimum
doors yard depth
Kelly dock-
Sectional levellers
doors with
viewing
panels
Results Presentation | August 2020 15SELECTED ONGOING DEVELOPMENTS
Location Equites Park – Meadowview, Gauteng Location Equites Park – Meadowview, Gauteng
Tenant Altron Tenant Digistics
Expected completion date October 2020 Expected completion date December 2020
Expected GLA 25 001m² Expected GLA 21 026m²
Capital value on completion R239 million Capital value on completion R217 million
16
Results Presentation | August 2020SELECTED ONGOING DEVELOPMENTS
Location Equites Park – Riverfields, Gauteng Location Equites Park – Riverfields, Gauteng
Tenant Sandvik Tenant Imperial
Expected completion date April 2021 Expected completion date December 2020
Expected GLA 22 599m² Expected GLA 17 628m²
Capital value on completion R287 million Capital value on completion R175 million
17
Results Presentation | August 2020SELECTED ONGOING DEVELOPMENTS
Location Philippi, Western Cape Location Leeds, UK
Tenant TBC Tenant DHL
Expected completion date March 2021 Expected completion date October 2020
Expected GLA 8 089m² Expected GLA 4 961m² (57 383 sq. ft.)
Capital value on completion R70 million Capital value on completion R272 million (£12 million)
18
Results Presentation | August 2020SELECTED COMPLETED DEVELOPMENTS
Location Equites Park – Meadowview, Gauteng Location Airport Industria, Western Cape
Tenant DSV (extension) Tenant Röhlig-Grindrod (refurbishment)
Completion date August 2020 Completion date August 2020
GLA 5 260 m² GLA 5 661 m²
Capital value R60 million Capital value R25 million
19
Results Presentation | August 2020PROPERTY FUNDAMENTALS
10.0 7.8% R16.2 94.6% 63
years escalation billion A-grade properties
Weighted average Weighted average Fair value of our Percentage of total Income-producing
lease expiry across escalation across the portfolio at Aug-20 revenue from A-Grade properties across the
the portfolio South African portfolio tenants portfolio
OPERATIONAL HIGHLIGHTSRENTAL
COLLECTIONS
Rental collections
• We have collected on average 99% of total rental due in 100 100 100 100 100 100 100
SA for the months of March to August 2020 100
100 99.4 99.4
• For the same period, we collected 100% of the contractual 99.0
rental due in terms of lease agreements in the UK 99 98.9
% collected
• While rental collections remain robust, we recognize that 99
98.1
our ability to collect rentals in future is contingent upon our 98
tenants’ ability to remain operational
98
• We have therefore engaged with tenants to understand
how we may assist to ensure their sustainability 97
Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20
South Africa United Kingdom
• In this regard, we have granted short-term cash flow relief
and longer-term cash flow relief to tenants in the form of Cash flow relief has been provided to tenants by agreeing to defer a percentage of rental
rent deferrals during lockdown, and for this to be repaid over an agreed upon period
(usually within 12 months)
Results Presentation | August 2020 22TENANT
CONCENTRATION
Impact on tenants
• Our portfolio comprises 94.6% blue-chip tenants as
at 31 August 2020
• 68% of our tenants operate in transport and
logistics, FMCG retailing and food producers which
have proven to be highly resilient throughout the
pandemic
• Approximately 85% and 100% of tenants remained
operational during lockdown in SA and the UK,
respectively
• 100% of tenants are now fully operational
Results Presentation | August 2020 23PORTFOLIO VALUE Results Presentation | August 2020 24
PROPERTY
FUNDAMENTALS
Lease expiry profile
Lease expiry profile (by revenue) Weighted average lease expiry
16.0
80 14.1
13.7
70 14.0 12.9
70
60 60 12.0
60
10.0
50 7.9
years
8.0 7.0 7.4
40
%
6.0 5.4
4.9
4.5
30 4.0
2.0
20 15 2.0
13 14 12
10 11 8 9 - -
10 4 5 -
3 1 2 3 1 Aug-20 Feb-20 Aug-19
-
Aug-20 Feb-20 Aug-19 South African logistics South African industrial
South African commercial United Kingdom logistics
Within 1 year Within 2 years Within 3 years
• 60% of our leases expire beyond five years • WALE increased from 9.5 years at August 2019 to
10.0 years at August 2020
• Three leases, with a combined GLA of 23,961m² are due
to expire within the next 12 months – we are engaging • Developments completed in the six months ended
with these tenants to extend/renew their agreements 31 August 2020 resulted in long dated leases
Results Presentation | August 2020
expiring between 7 and 10 years 25PROPERTY
FUNDAMENTALS
Geographical location and tenant profile
Geographical location Tenant grade
Aug-20 Aug-20 95 3 2
39 14 2 45
Feb-20 94 4 2
Feb-20 40 16 2 42
Aug-19 94 3 3
Aug-19 43 17 2 38
50 60 70 80 90 100
% %
Gauteng Western Cape Kwa-Zulu Natal United Kingdom A B C
• The majority of our assets are situated in key logistics • As we build our portfolio for the future, we favor long-
nodes dated leases with low risk tenants
• 55% and 45% of our portfolio (by value) is situated in SA • Through targeted acquisitions, we have effectively
and the UK, respectively reduced the exposure to C-grade tenants.
Results Presentation | August 2020 26SHOPRITE TRANSACTION UPDATE
OUR APPROACH
SHOPRITE
TO ESG
TRANSACTION
Shoprite transaction: acquisition of three distribution centres
Centurion campus Cilmor DC
Brackenfell DC
Results Presentation | August 2020 28OUR APPROACH
SHOPRITE
TO ESG
TRANSACTION
Shoprite transaction overview
Equites Property Shoprite
• The JV creates a long-term relationship between 50.1% 49.9% Holdings Limited
Fund Limited
Shoprite and Equites
• Further developments and extensions can be executed
within this structure
• There is the potential for further Shoprite tenanted Retail Logistics
JVCo
properties to move into Retail Logistics Fund Fund (“RLF”)
3.2bn 7.5% 20yr 5%
portfolio lease escalation
initial yield
value period* rate
Holds three SHP Ability to
DC’s: Cilmor, develop
Brackenfell and additional bulk
Centurion with and acquire
*20-Yr lease period with three 10-year lease renewal options thereafter combined GLA further SHP
of 400,000m² DC’s in the
Results Presentation | August 2020 future 29OUR APPROACH
SHOPRITE
TO ESG
TRANSACTION
Shoprite transaction overview Expected LTV impact
LTV ratio Target: lower limit Target: upper limit
• The acquisition is in line with Equites’ robust
investment criteria
35%
• The transaction serves to further diversify the tenant 30.7%
29.5%
base and increase exposure to the food sector &
largest food retailer in Africa
25%
• Increased predictability of cash flows with 20-year
leases let to strong covenant
• Assist superior NAV growth
• Increase group WALE from 10.0 to 13.7 years
• Expected return on equity: 14% - 15% (yield and LTV ratio - 31 August 2020 LTV ratio - post Shoprite transaction
geared capital growth) Further debt capacity of R1.3bn before we reach a
35% LTV ratio (including the Shoprite transaction)
Results Presentation | August 2020 30FINANCIAL REVIEW
74.44c ꜛ 0.4% ꜛ 29.5% 3.5 R1.1
DPS NAVPS LTV years billion
Conservative Weighted average Available cash and
DPS remained largely flat NAVPS increase of
financial profile and debt maturity remains facilities to execute
compared with 74.43c at 0.4% to R17.44 at
strong liquidity in line with prior year contracted pipeline
Aug-19 Aug-20
FINANCIAL HIGHLIGHTSDISTRIBUTION STATEMENT ANALYSIS
FINANCIAL PERFORMANCE
Distribution statement
Net property-related income
Six months Six months
Year ended
ended ended 11.0% increase largely due to LFL net rental growth across the SA of 6.2%
31 Aug 2020 31 Aug 2019 29 Feb 2020 Variance Variance and the impact of acquisitions and developments in SA (Federal-Mogul,
Distribution statement R'000 R’000 R'000 R'000 % Digistics etc.) and the UK (Coloplast, Puma, DPD, Roche)
Gross property-related income 569 617 513 095 1 065 019 56 522 11.0%
Property-related expenses ( 69 358) ( 62 295) ( 115 892) ( 7 063)
Other administrative expenses
Net property-related income 500 259 450 800 949 127 49 459 11.0%
Other administrative expenses ( 23 052) ( 22 762) ( 37 769) ( 290) Marginal increase across administrative expenses which reflects cost
Distributable earnings before
477 206 428 037 911 358 49 169 11.5%
containment measures considering COVID-19 and the decrease in
financing activities
discretionary expenditure
Net finance costs ( 26 498) ( 48 594) ( 105 413) 22 096
Current tax expense - ( 533) ( 2 476) 533
Net finance costs
Antecedent dividend 6 864 26 665 35 899 ( 19 802)
Distributable earnings 457 572 405 577 839 368 51 995 12.8% A lower all-in cost of debt, the impact of raising equity in March 2020
No. of shares outstanding 614 718 544 890 554 441 69 828 12.8% and the capitalisation of interest, offset partially by incremental funding
Distribution per share (cents) 74.44 74.43 151.39 .01 0.0% on new acquisitions and developments
Results Presentation | August 2020 33RENTAL
DEFERRALS
Treatment of rental deferrals
30
• Rental deferrals granted during the period amounted to
R29m in SA and R7m in the UK
25
• We anticipate to receive majority of these rentals over the
next 12 months, with R3.8m already received as at 31 20
August 2020
26
R’m
15
• Approximately R7m of these deferrals were lease
modifications per IFRS 16, the impact of which was
immaterial 10
• Performed a detailed assessment of the expected credit 5
6.2
loss as a result of rental deferrals
3
0.8
0
SA UK
• Expected credit losses on the outstanding lease
receivables were estimated to be R3.7m across the group Collected Uncollected
Results Presentation | August 2020 34DISTRIBUTABLE EARNINGS - RECONCILIATION FROM CASH FLOW
FINANCIAL PERFORMANCE
Reconciliation from CGFO to distributable earnings
Cash generated from operations (“CGFO”)
R’000 31 Aug 2020 Cash generated from operations continues to remain
Cash generated from operations (‘CGFO’) 346 337 robust despite the impact of COVID-19 on the
Net finance costs paid (15 127)
operations
Current tax paid (728)
330 482
Nature of adjustments
Working capital movements 127 891
The primary adjustment to cash generated from
Interest expense incurred not yet paid (10 418) operations pertains to working capital movements.
Income tax paid relating to the prior period 728 These include the impact of rent deferrals, derivative
Timing and foreign exchange differences (9 690)
instruments and the movement in accruals
Antecedent dividend 6 864
Adjustments to distributable earnings not in IFRS 6 864 Antecedent dividend
Other adjustments 2 025
Had DPS been calculated using a weighted average
number of shares, the result would have substantially
Distributable earnings 457 572 been the same
Results Presentation | August 2020 35FINANCIAL POSITION
Condensed consolidated statement of financial position
Fair value of investment property
As at
R2.7bn increase is primarily attributable to acquisitions
and developments in SA (R0.7bn) and the UK (R0.9bn),
Unaudited Unaudited Audited
Variance Variance
31 Aug 2020 31 Aug 2019 29 Feb 2020
R’000 %
fair value adjustments (-R0.1bn) and FX (R1.2bn)
R’000 R’000 R’000
Deferred tax asset
Assets
Fair value of investment property 16 157 457 13 499 365 14 834 168 2 658 092 19.7%
Increase pertains to UK capital allowances and tax losses
which are expected to be realised in the next few years
Investment property held-for-sale 68 231 - 40 455 68 231 n/r
Property, plant and equipment 16 528 16 211 15 399 318 2.0% Trade and other receivables
Deferred tax asset 181 973 104 938 159 870 77 035 73.4%
Increase mainly due to rent deferrals granted over the
Other financial assets 226 495 85 565 23 017 140 930 164.7%
past six months
Trade and other receivables 107 194 54 257 76 191 52 937 97.6%
Cash and cash equivalents 134 597 35 730 53 724 98 867 276.7%
Other financial assets
TOTAL ASSETS 16 892 475 13 796 067 15 202 825 3 096 408 22.4% R0.2bn was held in short-term deposits at 31 Aug 2020
Results Presentation | August 2020 36FINANCIAL POSITION
Condensed consolidated statement of financial position
Equity attributable to the parent
As at
Increase due mainly to capital raise, the impact of FX
Unaudited Unaudited Audited
31 Aug 2020 31 Aug 2019 29 Feb 2020
Variance Variance movements and fair value adjustments
R’000 %
R’000 R’000 R’000
Equity and reserves Loans and borrowings
Equity attributable to the parent 10 723 750 9 464 105 9 729 590 1 259 645 13.3%
Non-controlling interest 38 062 35 390 40 434 2 672 7.5%
Increase mainly due to UK funding (Aviva and HSBC),
TOTAL EQUITY 10 761 812 9 499 495 9 770 024 1 262 317 13.3% SA DMTN issuance (EQT004), additional SA bank
funding and FX movements
Liabilities
Loans and borrowings 5 220 600 3 821 168 4 796 043 1 399 432 36.6%
Other financial liabilities 630 022 147 630 241 470 482 392 326.8% Other financial liabilities
Other liabilities 4 479 4 481 4 462 (2) 0.0%
Current tax liability 600 1 006 1 328 (406) n/r Increase is due to the LIBOR and JIBAR swap yield
Trade and other payables 274 962 322 286 389 496 (47 323) (14.7)% curves flattening as a result of falling global interest rates
TOTAL LIABILITIES 6 130 663 4 296 570 5 432 799 1 834 093 42.7% and the impact of the ZAR depreciation
TOTAL EQUITY AND LIABILITIES 16 892 475 13 796 065 15 202 823 3 096 410 22.4%
Results Presentation | August 2020 37NAVPS PROGRESSION
Net asset value per share progression
1.67
Growth in operating
Increase in the
income generated
spot GBP/ZAR
during the year (net of Negative fair Equity capital
exchange rate led
the dividend paid) led value raised at a
to 3.5% increase
to 0.6% increase adjustments on premium to net
in the NAV per
portfolio and share asset value
interest rate resulted in a
derivatives 0.3% increase
resulting in 3.9% on a per share
decrease basis
Results Presentation | August 2020 38VALUATIONS
Valuation policy
Externally and internally valued properties
We continue to maintain a robust external valuation policy.
90.0
Our policy is buttressed by the following three foundational
78.1
elements: 80.0
68.3
70.0
60.0
Expertise Independence Frequency 50.0
%
40.0
31.7
30.0
21.9
• We prefer • We carefully • We target
specialists in evaluate threats externally valuing 20.0
logistics assets to independence each property in
who have local prior to our our portfolio at 10.0
knowledge appointment least once every
process 18 months
-
• We consider a
broad range of • We rotate • Over 75% of the Feb 19 to Aug 19 Feb 20 to Aug 20
external valuers external valuers portfolio was
as part of the on a regular basis valued between Internally valued Externally valued
selection criteria to preserve Feb-20 and Aug-
independence 20
Results Presentation | August 2020 39VALUATIONS
Valuation of investment property We test the robustness of the valuations by:
Creating value through the quality of our buildings
Testing to comparable external valuations
Assessing the reasonability of the implied cap
% of income- Average
Region Type of property producing value
Discount Exit rates and comparing to current build costs
rate cap rate
portfolio (R/m²)
The average value of our modern distribution
Modern distribution centre 46% R11 109 13.64% 7.90% centres in SA is R11 109/m² and this increases as
the specification changes
Logistics campus 36% R16 762 13.50% 7.96%
SA
Cross-docking / Ultra-low High-quality logistics real estate continues to
11% R13 925 13.69% 7.95%
coverage demonstrate resilience
Other 7% R14 852 13.69% 8.47%
SA total 100% R13 797 13.60% 7.98% Both discount rates and exit capitalisation rates
have remained relatively flat for prime logistics
Modern distribution centre 49% R32 839 5.52% 4.90%
assets
UK
Cross-docking / Ultra-low
coverage
51% R54 828 5.61% 4.88% In SA, we have also noted flat to slight decreases in
UK total 100% R43 961 5.57% 4.89% market rental assumptions and the forecasts for
rental growth
Results Presentation | August 2020 40NET DEBT DASHBOARD
Loan-to-value Expiration of debt facilities
35.00
29.5 LTV has Weighed average
30.00 27.3 17.5%
debt maturity is 3.5 5.0% FY21
26.1 remained
25.00 below the mid- years at Aug-20, 39.9% FY22
point of the largely in line with FY23
20.00
target range of Aug-19 at 3.6 FY24
16.2% 21.4%
15.00 25% - 35% years FY25 and after
Aug-19 Feb-20 Aug-20
%
Debt maturity profile
2,000
1,500
R'm
Undrawn facilities
1,000
Outstanding debt
500
-
Aug-20 Aug-21 Aug-22 Aug-23 Aug-24 Aug-25 Aug-26 Aug-27
Debt maturities extend until FY27 with less than 25% of debt facilities expiring in the next two years
Results Presentation | August 2020 41NET DEBT DASHBOARD
All-in cost of debt R1.1bn of Available liquidity
10.00 available (cash and undrawn facilities)
8.7 liquidity (cash 2.0
All-in ZAR and 9.00 8.6 1.6
GBP cost of 8.00 7.6 and undrawn
0.5
debt continues facilities) at Aug-
R'bn
7.00 1.0
to fall with 5.9 20, increasing to 1.4 1.4
5.8 1.1
6.00 5.4 R1.6bn in
falling global
0.0
interest rates 5.00 Sep-20
Aug-19 Feb-20 Aug-20
but also due to 4.00
notable 2.7 2.7 2.7
3.00
decreases in
credit margins
2.00 Unencumbered properties
due to 1.00 R3.2bn of 25.0
19.3 20.3
improved credit portfolio 20.0 18.5
-
metrics both in Aug-20 Aug-19 Feb-20 unencumbered 15.0
SA and in the % at Aug-20, up
%
10.0
UK from R2.9bn at
All-in ZAR effective fixed cost of debt 5.0
Feb-20
All-in GBP effective fixed cost of debt
0.0
All-in effective average fixed cost of debt Feb-19 Feb-20 Aug-20
Results Presentation | August 2020 42FINANCIAL RISK MANAGEMENT
Foreign exchange rate risk CCIRS utilisation
Hedging net investment in foreign operation 50.0 24.00
45.0 23.00
The group has continued to reduce its hedge cover over its net
22.00
investment into the UK in anticipation of ZAR weakness 40.0
GBPZAR exchange rate
36.3
CCIRS utilisation (%)
21.00
The sharp depreciation in the ZAR over the past six months 35.0
provided NAV upside which the group has benefited from 30.0 29.0
20.00
27.6
19.00
Heightened levels of ZAR weakness can present an opportunity 25.0
to protect the group from NAV erosion in future 18.00
20.0
17.00
Internal policy limit of 45% CCIRS utilisation as percentage of
15.0
foreign denominated assets over time 16.00
10.0 15.00
CCIRS utilisation is 27.6% at Aug-20, down from 29.0% at Feb-19 Feb-20 Aug-20
Feb-20 CCIRS hedged of foreign denominated assets
Spot GBPZAR exchange rate
Results Presentation | August 2020 43FINANCIAL RISK MANAGEMENT
Foreign exchange rate risk Hedging GBP distributable earnings
Hedging distributable earnings and cash flow risk R25.00 100.00
R24.00
R24.00 90.00
85.00
The group employs a FX hedging strategy for GBP distributable earnings
80.00
R23.00 80.00
The FX hedging strategy ensures that shareholders obtain medium- and
GBPZAR exchange rate
R22.07
long-term hard currency exposure over time
Hedging level (%)
R22.00 R22.04 70.00
R21.25
R20.95
The group continues to utilise natural hedges to minimise its exposure 60.00
R21.00 R20.95 60.00
The group has therefore instituted a hedging policy for GBP distributable R20.38
R20.00 47.50 50.00
earnings to be earned as follows:
Six-month period Effective hedging Blended participation Blended participation R19.00 40.00
ended level floor cap
28 February 2021 85.0% R20.38/£ R20.95/£ R18.00 30.00
31 August 2021 80.0% R20.95/£ R21.25/£
28 February 2022 60.0% R22.04/£ R22.07/£ R17.00 20.00
28-Feb-21 31-Aug-21 28-Feb-22 31-Aug-22
31 August 2022 47.5% R24.00/£ R24.00/£
Effective hedging level Blended participation floor Blended participation cap
Results Presentation | August 2020 44FINANCIAL RISK MANAGEMENT
Interest rate risk
Interest rate hedging
Hedging interest rate exposure
105.6%
The group has continued to use a combination of natural hedges 31-Aug-19
77.8%
and derivative financial instruments to hedge its exposure to
interest rate risk
93.3%
Hedged 95.6% and 86.9% of the interest rate risk associated with 29-Feb-20
96.6%
existing term loan balances and total contracted net future capital
floating debt respectively
Above minimum target hedging levels of 80% and 70% 95.6%
respectively 31-Aug-20
86.9%
Hedging levels remain well above minimum target levels to lock-in
interest rates in South Africa and the UK at all-time lows 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0%
Hedge cover of term loan balances Total effective interest rate risk exposure hedged
Results Presentation | August 2020 45FOCUS ON ESG
ESG RISK RATING
ESG risk rating
• We embarked on a comprehensive process to assess
our business across the ESG spectrum to focus our Score Negl Low Med High Severe
0-2 2-4 4-6 6-8 8+
sustainability efforts in various areas across the group
Corporate Governance 3.5
• We obtained a risk rating from a leading global firm,
Sustainalytics, who assessed our ESG performance in ESG Integration - Financials 5.3
five areas according to their verification:
Product Governance 3.7
• Corporate Governance
• Integration in Financials Human Capital 2.9
• Product Governance
• Human Capital Business Ethics 2.0
• Business Ethics
Sustainalytics ESG risk rating – Equites 2020
• We managed to achieve a risk rating of “low risk”
overall, relative to peers in the top third global REIT
industry
Results Presentation | August 2020 47ESG FOCUS AREAS
Sustainability-linked funding
Ethics
Environmental
• We secured our first sustainability-linked facility during the consciousness
period ended 31 August 2020 of R1.6bn, pioneering this
type of funding in the REIT sector in South Africa Community
upliftment
• Our all-in cost of debt on this facility will be reduced if we
achieve certain predefined improvements to our Equites ESG
Sustainalytics ESG risk rating focus areas
Customer
• The focus areas for the improvements are aligned to the 6 centricity
existing sustainability focus areas within the company and
further supports our initiatives towards creating a Educational
meaningful impact in multiple aspects of the ESG initiatives
spectrum Human
capital
Results Presentation | August 2020 48UK STRATEGY
OUR APPROACH
UK STRATEGY
TO ESG
UK strategy
Our UK platform consists of two different, yet complementary businesses
Direct property portfolio Newlands strategic partnership
• Portfolio of completed assets in the UK, Direct portfolio • Joint venture established between
curated through acquisitions between 2016 Equites and Newlands with Equites
and 2020 holding 60% and Newlands holding 40%
• Direct property portfolio comprises 11 • Newland’s strength lies in their ability to
assets with portfolio value of R6.3 billion unlock strategic land for development
• Combination of “Last-mile” and big-box • Target pipeline of £400m in the next 19
Newlands JV
logistics facilities months with further value to be unlocked
over the 7-year agreement
• Total GLA of portfolio is 178,000m2
• Focus on developments of big-box
• Portfolio initial yield of 5% logistics and last-mile facilities in the UK
Results Presentation | August 2020 50OUR APPROACH
NEWLANDS
TO ESGVENTURE
Newlands: Structure of relationship
Newlands
Equites Property 40% Developments
• The venture represents a strategic relationship between 60% Fund Limited LLP
Equites and Newlands Developments
• Equites will provide funding for land acquisitions (or
options) and developments in the initial stages
• Newlands will reinvest 50% of any development profits Equites
ENGL Newlands Group
into the joint venture to ensure alignment of interests Limited
• ENGL will sell completed developments into an Equites
SPV where Equites’ share of the development profit will
be retained thereby ensuring a discount to open market
value
Sell
• ENGL will also undertake developments which may not be developments
Sell completed
retained (should it not meet Equites’ investment criteria), developments in open market
thereby enabling Equites to recycle capital efficiently to Equites SPV and recycle
capital
Results Presentation | August 2020 51OUR APPROACH
NEWLANDS
TO ESGVENTURE
Equites will benefit from 60% of the development profit/fair value uplift
Gross yield Net yield
Gross capital uplift Net capital uplift
7.0% 50%
6.5%
40%
6.0%
Valuation uplift
30%
Yields
5.5%
20%
5.0%
4.5% 10%
4.0% 0%
5.50% 5.75% 6.00% 6.25% 6.50% 5.50% 5.75% 6.00% 6.25% 6.50%
Development yield on cost (rent / cost) Development yield on cost (rent / cost)
I.e., if ENGL develop at a 6.0% yield on cost, Equites will I.e., post ENGL’s 40% share in the development margin
effectively take control of the asset at a 5.3% yield and (net basis), if the development is executed at a 6.0%
can then either sell the asset or retain control of it. This yield on cost, Equites will get a 20% uplift in capital
assumes that the asset will re-rate to a 4.5% cap rate value upon completion assuming the asset will re-rate to
a 4.5% cap rate
Results Presentation | August 2020 52NEWLANDS DEVELOPMENTS
OUR APPROACH
NEWLANDS
TO ESG
DELIVERING
Peterborough Gateway - last mile fulfilment centre
• E-commerce retailer last mile fulfilment centre with GLA of
12 855m² (138 371 sq. ft.)
• Includes 800 van multi-storey parking for HGV’s with
focus on sustainability to future proof the facility
• User is in the process of rolling out a programme of these
facilities across the United Kingdom
• Capital value of c.£ 45million
• Terms have been agreed with counterparties, awaiting
final signature
Results Presentation | August 2020 54OUR APPROACH
NEWLANDS
TO ESG
DELIVERING
Hoyland, South Yorkshire
• Hermes – Transaction agreed in principle; legal
agreements being finalised
• Super hub for Hermes with a second plot for pre-let
opportunity
• Total GLA of facility at 31 570m² (339 821 sq. ft.)
• Agreement with Hermes for 20-year lease
• Capital value of c.£ 80 million on completion
• Terms have been agreed with counterparties, awaiting
final signature
Results Presentation | August 2020 55OUR APPROACH
NEWLANDS
TO ESG
DELIVERING
Basingstoke Gateway
• Basingstoke is ideally located to house “last-mile”
fulfilment centers
• In negotiations with an e-commerce retailer to develop a
£200 million freehold facility (largest plot on the plan)
• Terms have been agreed with counterparty for the largest
plot, awaiting final signature
• Initial discussion regarding logistics last-mile delivery
facility taking 50% of the remaining land
Results Presentation | August 2020 56OUR APPROACH
OPERATING
TO ESGCONTEXT
Key trends driving UK logistics market
COVID 19 Customer Green
effect Experience Agenda
• Acceleration of e- • DPD is a market leader • September 2020 was the
commerce and logistics first time more electric cars
“swing” from retail • Amazon’s latest strategy (incl. PHEV) sold than
with last-mile fulfilment diesel
• JLL report that by end of facilities
Q320, market take up had • Planning focus
met 2019 levels • Parcel return hubs
• Occupier focus e.g. electric
• Rental growth and yield • Newlands being van facilities
compression is evident approached to work with
occupiers on accelerating
• 20-year lease to Amazon is pipeline
trading at sub 4%
Results Presentation | August 2020 57PROSPECTS
Prospects
While the effects of COVID are still unfolding, we are
confident that we have effectively managed the first-
round impacts of the pandemic
We have amassed a portfolio which will continue to
be resilient in the face of adversity
Collections remain robust, and the properties
are testament to the defensiveness
provided by the logistics asset class
For this reason, the board expects the company to
achieve full year distribution per share growth of
2% - 4%*
*This guidance is based on the assumptions that a stable macro-economic environment will prevail, no major corporate
failures will occur, the GBP/ZAR exchange rate remains materially unchanged and tenants will be able to absorb the
recovery of rising utility costs and municipal rates. This forecast has not been audited or reviewed by Equites’ auditors.QUESTIONS
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