SACSC BREAKFAST 20 November 2014 REIT INDUSTRY OVERVIEW 2 A short - PowerPoint PPT Presentation

SACSC BREAKFAST 20 November 2014

REIT INDUSTRY OVERVIEW 2 A short history: • 2006 Sector approaches National Treasury and SARS 2006 REIT Reality Conference • 2007 National Treasury Discussion paper • 2009 Whitepaper • • 2011 SEC 8G – TLAB • 2013 SEC 25BB – REIT Rules “The Regulation” SEC 13 of JSE Listing Requirements

REIT INDUSTRY OVERVIEW 3 Historic performance vs interest 800 SAPY vs Global REIT Indices 700 600 500 400 300 200 100 0 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Source: Bloomberg Australia EPRA US South Africa Growthpoint UK

DEBT In % 4.5 5.5 6.5 7.5 8.5 4 5 6 7 8 9 2-Jan-12 2-Feb-12 2-Mar-12 2-Apr-12 2-May-12 2-Jun-12 10-year swap rate 2-Jul-12 2-Aug-12 2-Sep-12 2-Oct-12 2-Nov-12 2-Dec-12 5-year swap rate 2-Jan-13 2-Feb-13 2-Mar-13 2-Apr-13 2-May-13 1-year swap rate 2-Jun-13 2-Jul-13 2-Aug-13 2-Sep-13 2-Oct-13 2-Nov-13 2-Dec-13 2-Jan-14 2-Feb-14 4

Strong Long Term Performance 10.0% LISTED & REITs 9.0% 15-year annualised total 8.0% DIRECT return in local currency 7.0% 4.5% 6.0% 5.0% 4.9% 4.0% 1.3% 3.0% 3.9% 4.5% 2.0% 3.4% 2.6% 1.0% 0.5% 0.0% Global Bonds Global Equities Global Real Estate Global Listed Real Estate Capital Growth Yield Author: Sources: Eurostat, JP Morgan, FTSE, IPD, MSCI, Bloomberg, EPRA, NAREIT Data as of: September 30, 2014 Note : Based on assumptions made by EPRA 5

REIT INDUSTRY OVERVIEW 6 Asset Type 2% 1% 1% Retail 15% Office Industrial Hotels 28% Residential 53% Other Source: STANLIB Research

Global Property Sectors Industrial / Self Storage Lodging & 3% Offices Resorts 2% 4% Industrial 6% Diversified Health Care 30% 7% 4% Residential 10% Offices 13% Retail 25% Author: EPRA Sources: FTSE, EPRA, NAREIT 2012 Data as of: August 30, 2014

REIT INDUSTRY OVERVIEW 8 Foreign exposure Foreign earnings as a % of total earnings 1 Australian Dollar British Pound Euro 0.5 US Dollar 0 Redfine… Capital &… Investec… Redfine… NEPI Rockcastle Intu Fortress Resilient Growthpoint Capital Property Emira Sycom Acucap Hyprop Source: Avior Research

SOUTH AFRICAN LISTED REAL ESTATE 9 • The South African listed property sector has experienced significant growth over the past 10 years • South Africa’s listed largest property company, Growthpoint, now has a market capitalisation of R60 billion compared to R30 million in 2002 350 South African Listed Sector 294 300 Market Cap -R Billions 250 226 198 200 129 144 150 103 100 95 100 71 53 36 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Mcgregor

Source: Mcgregor SA LISTED REAL ESTATE Market Cap -R billions 10 20 30 40 50 60 70 0 GRT (Post ACP & SYC) Growthpoint Redefine Resilient Hyprop Capital South African Listed Property Companies Fortress Acucap Vukile Fountainhead SA Corp Emira Arrowhead Sycom Investec Octodec Rebosis Dipula Hospitality Synergy 10

SOUTH AFRICAN LISTED REAL ESTATE ( cont’d ) 11 • Attractiveness of the sector keeps improving:  Attracting new listings to the sector  Equity raising well supported by local institutions  Increase in interest from offshore investors  Increase in liquidity and tradability Sector Liquidity 80% 70% Hyprop 60% Growthpoint Liquidity % (year) 50% Acucap SAC Redefine FPT 40% Emira Capital 30% Sycom Vukile 20% Resilient Investec 10% 0% 0 10 20 30 40 50 60 Source: Mcgregor Market Cap -R (billion)

REIT INDUSTRY OVERVIEW 13 Capital Raised Year Amount Raised 2011 R16bn 2012 R11bn 2013 R18bn 2014 (up to November) R35bn R80bn Source: STANLIB Research

SOUTH AFRICA ENTERED A NEW REIT ERA 14 • 75 % of South Africa’s listed property companies were not REITs These companies now synthetically created rental flow through the • Property Loan Stock structure – share stapled to debentures South Africa’s weighting in the global REIT indices could potentially • quadruple • South Africa is the 8th largest REIT market globally South Africa’s largest listed property company, Growthpoint Properties • Limited (“GRT”) is the 40th largest REIT globally by market capitalisation Excluding the US REITs, GRT is the 15th largest REIT globally by market • capitalisation - the largest in emerging markets

Regional Breakdowns 150 constituents Mkt Cap EUR 119 Bn. Emerging Developed 18% 16% Asia Pacific EMEA 56% Americas North America 26% Asia 52.6% EMEA 32% Sth Africa Gross Index Wgt % Yield Global Dev & EM 1.3% 3.7% 306 constituents EMEA Dev 9.0% 3.6% Mkt Cap EUR 927 Bn. EMEA EM 45.0% 3.8% Sources: FTSE, EPRA, NAREIT Global EM 11.8% 3.9% Data as of: September 1, 2014

WHO COULD BECOME THE LARGEST REIT MARKET GLOBALLY? 16 • US REITs still dominate globally • South Africa could become significant REIT market Turkey Belgium 2% 2% Hong South Kong Africa 5% Australia 6% Singapore 24% Non-US 9% global REITs 39.0% UK France US REITs 11% 15% 61.0% Canada Japan 13% 13%

FTSE EPRA/NAREIT Global Index Weight = 1.3% Global Emerging Developed Global Global Emerging Emerging Emerging Developed Developed North Asia Americas EMEA Asia EMEA America Emerging Emerging Developed Developed Europe MEA Europe MEA 5 8 5 9 2 16 1 6 Countries Countries Countries Countries Countries Countries Country Countries REIT or Non- 9 Sectors Rental or Each index has Author: REIT Non-Rental multiple sub-indices: 17

FTSE EPRA/NAREIT Global Index Gross Mkt Cap South Global Europe Yield (FF) EUR Africa % Emerging % Equal 86 co Rank South Africa Co’s Growthpoint 6.7% 3,624 26.8% 3.2% INTU 6 Redefine 7.6% 2,243 16.6% 2.0% Icade 20 Hyprop 5.4% 1,529 11.3% 1.3% Cofinimmo 24 Resilient 4.2% 1,369 10.1% 1.2% Wereldhave 26 Capital Property 6.6% 1,275 9.4% 1.1% Merlin 27 Attacq 0.0% 641 4.7% 0.6% Vastned 51 Vukile 7.4% 628 4.6% 0.5% Alstria 52 SA Corporate 8.0% 606 4.5% 0.5% Norway Prop 55 Emira 8.0% 486 3.6% 0.4% NSI 61 Acucap 7.1% 425 3.1% 0.4% PHP 64 Fountainhead 6.8% 251 1.9% 0.2% Dios 77 Arrowhead (B) 7.8% 218 1.6% 0.2% DIC 79 Arrowhead (A) 7.9% 218 1.6% 0.2% DIC 79 South Africa Total 6.3% 13,514 100% 11.82% Author: 18

FTSE EPRA / NAREIT GLOBAL INDEX 19 South Africa weights in the index Gross Index Wgt % Yield Global Dev & EM 1.3% 3.7% EMEA Dev 9.0% 3.6% EMEA EM 45.0% 3.8% Global EM 11.8% 3.9% South African companies gross yield +6%

FTSE EPRA/NAREIT Global Index 20 Index Use: • Specialist Managers • Pension Funds • Global ETFs market • US$ 10.5bn AUM You need to be on • Futures contracts – Europe investors • OTC products radar!

BENEFITS OF REITs 21 • The smallest investor can obtain exposure to large commercial property e.g. V & A Waterfront, Hyde Park Shopping Centre etc. Property is a separate asset class that has different correlations to cash, bonds and equity • • Investment is liquid and tradable with low transaction costs • Benefit of scale and diversification reducing risk Pre-tax yield that is predictable • Due to professional management and lower costs of debt it outperforms physical property • Ease of funds introduced and remitted is extremely comforting for foreign investors • • Make use of the competitive labour costs: in professional services, wages are around 50% of levels in Europe, and for manufacturing jobs, labour costs are around 1/3 cost of Europe Been great performer over the past 14 years vs other asset classes: •

22 SA REIT REGIME

WHY DID WE NEED REITS 23 • Disparate and inconsistent tax regime for property investment entities Internationally recognised tax dispensation optimal for the growing • industry Current listed property entities have inherent tax problems • Usurious/excessive interest on debentures • • Debenture interest deductibility problems Capital Gains Tax (CGT) on property sales – double tax • • Empowerment

STRUCTURE OF REGIME 24 Listed on JSE REIT Board Taxation Company REIT JSE “Regulator” PLSs 20 Legislation Amendment Bill (2013) (TLAB) PUTs 6 Tax Trust REIT Dispensation” Section 25BB Listings Requirements Section 13

REGULATION 25 • Objective: - Provide investor protection Ensure prudent management without unnecessarily removing • flexibility • Transparency and good governance • Regulator: Johannesburg Stock Exchange (JSE) Initial On-going Regulatory Rules: Listings Requirement Section 13 • R300 million – Property Assets √ √ Pay 75% of Distributable Income Annually √ √ Maintain LTV Below 60% √ √ Committee to ensure risk management and annual risk disclosure √ Only enter into derivatives in ordinary course of business √ 75% of revenue “Rental” √ Tax test Responsibility: • Board of Directors   Annual confirmation to be submitted in Certificate in Compliance  No prescribed management model: internal or external No prescribed property sector investment requirement  Empowerment •