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Business Update
SAFARI INVESTMENTS RSA LIMITED
Approved as a REIT by the JSE Limited
(Incorporated in the Republic of South Africa)
(Registration number 2000/015002/06)
Share code: SAR ISIN: ZAE000188280
(“Safari” or “the Company”)
BUSINESS UPDATE
Highlights
- Net operating expenses maintained at an acceptable level
- Healthy occupancy rate maintained
- 80% of the expiring GLA during the last 12 months were renewed at a positive rental reversion rate
- Average reversion ratio is 6% across the portfolio
- Footfall across the total retail portfolio were up from the previous year
- New brands introduced into portfolio include: Boxer, Food Lovers Market, McDonalds, The Gym
Company, Virgin Active among others
- Introduction of interest rate hedging policy; 40% of debt hedged with intention to increase hedging
profile
- R500 million in new debt facilities secured
- Thornhill Shopping Centre, Polokwane acquired
- Nkomo Village Shopping Centre in Atteridgeville opened
- Commitment to South African peri-urban retail market
- Property management and leasing function internalised
Listed property companies across the sector continue to face increased pressure on key performance
measures. Safari’s vacancy levels, turnover of its national retailers, total arrears as a percentage of collectables
and rental reversions underscore the intent and focus with which the Safari team is mananging its portfolio.
Safari updates the valuation of its property portfolio in March every year. Fair value is determined by external,
independent and JSE-accredited professional valuers with appropriate and recognised qualifications and
recent experience in the locations and class of properties being valued. For the year under review, Mills Fitchet
will perform the valuations on the properties.
Global Credit Ratings (GCR) affirmed Safari’s national scale issuer ratings of BBB(ZA), and A2(ZA) in the long-
term and short-term respectively; with the outlook accorded as Positive.
The Company’s exposure to Edcon is limited to 5.39% of GLA and 3.17% of gross rental income. Safari has
reached an agreement with Edcon on rental levels, renewals and early termination options of all Edgars and
Jetmart stores in our portfolio. Safari did not agree to taking the equity stake in Edcon, this is due to the belief
that it will result in a conflict of interest. Management continues to work hard to minimise the impact on the
property portfolio.
Dirk Engelbrect, CEO commented:
“Safari has committed itself to the South African peri-urban retail market with a strong focus on our current
portfolio to ensure that we achieve the best possible performance despite difficult financial and economic
conditions in both in South Africa and Namibia”.
During the year under review, Safari has undergone positive internal changes and re-aligned itself with its
investors’ mandate. Management continues to work intentionally and intensively on unlocking shareholder
value through prudent asset management and development opportunities, cost control and yield enhancing
acquisitions.”
2019 year at a glance
The FY19 was a busy year with many operational and management changes. We have listed the major events
and a short synopsis of some of these events:
June 2018 First BEE certificate issued – level 7
October 2018 Effective date of the acquisition of Thornhill Shopping Centre in Polokwane
31 October 2018 Safari announces that after detailed investigation the Company would stay
focused on SA regional assets and will not diversify with an off-shore strategy
7 November 2018 Francois Marais retires as CEO and was appointed Chairman of the Board. Dirk
Engelbrecht was appointed as CEO
13 November 2018 General meeting ratifying and approving share buy-backs
15 November 2018 Trading statement announces the re-base of the interim distribution per share
from 35 cents per share to 26 cents per share
22 November 2018 Interim Financial Results presentation hosted at the JSE
22 November 2018 Grand opening of Nkomo Village Shopping Centre in Atteridgeville, Pretoria
27 November 2018 Site visit with investors, financiers and analysts
February 2019 Successful implementation of SPV Finance Structure, securing additional facilities
and implementing a hedging policy
1 March 2019 Internalisation of the management and leasing function
Internalisation of property management and leasing function
Safari has bought the rights and obligations of the Management Agreement from Cosmos Management CC for
R10.3 million for the remainder of the contract term. The rationale for the transaction is to follow the
generally-accepted practice of internalising the management function of a property investment fund,
eliminate related party components in our business and achieve significant cost savings over the long term.
Future growth of the portfolio leads to higher management fees being paid. Where such a function is
internalised, the effective use of personnel will limit such increases. The effective date of the internalisation
was 1 March 2019.
Following the internalisation of the property management and leasing functions, Safari will relocate to
independent corporate offices during April 2019, which is expected to support the further corporatisation of
the Company.
Acquisitions during 2019
The effective date of the Thornhill Shopping Centre acquisition was 1 October 2018. The rationale for this
acquisition is that Thornhill fits Safari’s focused retail approach of community centres, it also presented a
strong value proposition with sustainable and secure income growth. The purchase consideration of R174
million was based on a 10% yield on net income from the property. The centre‘s gross lettable area (“GLA”) is
12 467 sqm and anchored by Spar. Other national tenants are Clicks, Food Lovers Market, Virgin Active gym
and Crazy Store. The management team has already made strong headway in managing the centre and
securing new tenants such as Universal Paint as well as the expansion of Food Lovers Market.
New Developments during 2019
Nkomo Village Shopping Centre opened its doors on 22 November 2018. It is the third centre owned by Safari
in the Atteridgeville area. The 18 900 sqm community centre has 80% national tenancy and is anchored by
Pick and Pay and Boxer Superstore. With the opening of the centre, Atteridgeville will for the first time ever
be exposed to brands such as McDonalds, Builders Warehouse, Food Lovers Market, Boxer Superstore, The
Gym Company and Goldwagen.
The total cost of the development was R345 million which includes a portion of the Phase 2 costs. This will be
developed as soon as the critical level of tenancy has been secured. Phase 1 is 95% let and is trading well as a
new centre. Its impact on the neighbouring Safari centres has been limited due to the differing focus of
tenants’ product and service offerings. The other Safari Shopping Centres in close proximity are Atlyn Shopping
Centre and Mnandi Shopping Centre.
Trading results of the Safari Portfolio
South African portfolio
Safari has eight operational properties in South Africa, of which seven are retail centres and one is a day
hospital in Soweto. Six of the seven retail centres are Gauteng based while Thornhill Shopping Centre is
located in Polokwane. The close proximity of these assets ensures that the management teams are able to
provide hands-on attention across the portfolio, while staying aware of the fact that one non-performing asset
in such a relatively small pool of assets may have a significant impact on the overall performance of the
Company. Risk mitigants include tenant mix, location and convenience offerings with all centres trading in line
with expectation.
The following key figures (based on the 11 months to 28 February 2019, without taking into account any
material events until 31 March 2019 which might impact the figures) will assist in evaluating the performance
of the South African portfolio:
The SA portfolio has a total gross lettable area (“GLA”) of 152 093 sqm, comprising seven shopping centres
and a day hospital. The vacancy level of the portfolio remained at an acceptable level. Our weighted average
operating expenses are still well within acceptable market norms and achieved good rental escalations and
reversions in this highly competitive market.
Another key figure monitored and actively managed is arrears as a percentage of collectables being 2.2% at
current figures.
Non-South African portfolio
Platz-Am-Meer
The non-South African portfolio includes only one property which consists of a mixed-use development
comprising a retail shopping centre, 36 luxury residential apartments and offices. The development is known
as the Platz Am Meer Waterfront. The retail shopping centre with a GLA of 21 155 sqm, is disclosed as
investment property and the residential portion as inventory. There are 36 luxury residential apartments with
signed purchase offers for 10 of the units. The transfer of the sold apartments are, however, being delayed
until the finalisation of the sectional title register.
In general, the Namibian economy is under pressure and this has an impact on the performance of the centre.
Platz-Am-Meer is a new development and management are ensuring that the required attention is being spent
on the progress and development of the property.
Treasury update
During FY19, Safari successfully implemented a Security SPV whereby bonds have been registered over most
of Safari’s investment properties in the security SPV structure to provide pooled security to lenders. The
structure is regulated by a Common Terms Agreement (“CTA”), cession of security, counter indemnity
agreements as well as debt guarantees. ABSA is currently Safari’s sole financier. More details on the existing
facilities will be disclosed in our FY19 financial results.
In line with an internal hedging policy adopted by the board as well as requirements of the ABSA facility
agreements, a portion of the debt has been fixed by way of interest rate swaps. To date, Safari has hedged its
exposure to interest rates for approximately 40% of its interest bearing debt. The portion of debt hedged will
be increased in the coming months.
Southern Palace – major BEE shareholder of Safari
Southern Palace became a shareholder during the August 2017 capital raise. Southern Palace subscribed for
66 million Safari shares at R7.60 per share. The subscription was funded by a Sanlam facility of R455 million
and Southern Palace’s own capital contribution of approximately R50 million (raised from a short-term facility
supplied by Sanlam). Safari provided financial assistance for this transaction in the form of an interest and
capital guarantee to Sanlam on the R455 million facility.
During the current financial year, Southern Palace defaulted on the R50 million equity loan from Sanlam which
has resulted in a cross-default on the R455 million senior loan as disclosed in previous financial results of Safari.
During October 2018 Sanlam sold 13 million Safari shares to settle the equity loan.
The remainder of the debt with Sanlam is secured with the 53 million shares remaining in the structure. There
is also a reversionary pledge and cession in place where the shares will be pledged to Safari if the guarantees
are called by Sanlam.
Guidance
In line with Safari’s focus on quality of earnings and distribution, the Board decided in the prior financial year
to not distribute from capital reserves. This resulted in a 26% reduction in distribution on a year-on-year
comparitive basis.
The forecasted interim distribution growth was between 8% - 10% and management is committed to achieve
the guideline. The general macro economic factors of the country, Edcon, interest rate pressures, rental
reversion prospects where retailers are struggling in the current economic environment and further challenges
such as the Eskom crisis and the over supply of retail space in certain areas may however impact the
distribution growth forecasts.
Conclusion
Safari will stay focused on its core strategy. The Company remains committed to delivering sustainable and
quality growth in earnings and distributions.
Safari will publish its results for the year ended 31 March 2019 on or about 24 June 2019.
Disclaimer
Safari will enter into a closed period from 1 April 2019 until the publication of its results by the end of June
2019. The information contained in this document has not been reviewed or reported on by the auditors of
Safari. Estimates, assumptions and forward-looking statements may therefore differ from the final results
published at the end of June 2019.
Investor Relations: Articulate Capital Partners Noah Greenhill +2782 881 0089 noah@articulatepartners.com
Morne Reinders +2782 480 4541 morne@articulatepartners.com
Pretoria
27 March 2019
Sponsor: PSG Capital
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