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Pre-close Trading 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”)
PRE-CLOSE TRADING UPDATE
SAFARI STRATEGY
Safari continues to effectively manage its portfolio to ensure maximum returns to our investors
despite a challenging South African property market. Safari aims to create value through
growing a selective property portfolio. The core South African portfolio currently comprises
eight quality, defensive and high-income generating properties in peri-urban areas which are
mainly focused on retail investment properties in the lower income market. Safari extracts the
full potential of its assets through its strong understanding of the market, commitment to the
local communities and intensive hands-on management to ensure growth in sustainable
income streams. The Platz am Meer mixed-property development in Namibia is still struggling
in the sluggish Namibian economy with the opening of the share title scheme imminent which
will allow Safari to transfer the apartments already sold.
PORTFOLIO UPDATE
The challenging South African economy has put strain on all key property indicators across
the sector, reflected in increased vacancy factors, negative reversion rates, decrease in
trading densities together with disproportionate increases in operational expenses such as
rates and taxes and electricity tariffs. Although the short-term conditions in South Africa and
more specifically the retail environment remains challenging, Safari remains optimistic over its
long-term prospects with good quality defensive assets dominating the areas in which they
operate. Safari’s ability to achieve satisfactory results is prevalent as demonstrated below.
New developments and redevelopments
Following the opening of the Nkomo Village Shopping Centre, the ancillary Engen filling
station is now under construction and set to open for trade on the 25th of October 2019. This
addition is yield enhancing and should attract additional feet to the centre.
Redevelopment plans for The Victorian is underway, and Safari‘s intention is to
re-affirm and strengthen the centre as the preferred convenience centre in Heidelberg. The
leasing team has been working closely with Retail Network Services with positive feedback
in attracting family restaurants and fast food brands. The project is subject to board approval
which will be based on a yield accretive investment, and as previously communicated, all
development/re-development projects will be executed by non-related parties based on the
outcome of a formal tender process.
Vacancies
The total rentable area of the Safari retail portfolio is 173 344 square meters consisting of
mainly small regional and neighbourhood centres. Whilst the vacancy rate for the overall
portfolio increased from 2,6% at year end to 3.5%, the South African portfolio reports a low
1.7% vacancy factor compared to SAPOA’s latest vacancy rate recorded at 4.3% in June
2019 (MSCI Retail Trading Density Index). As mentioned above, Platz am Meer remains a
challenge but the leasing team is actively sourcing new tenants and engaging on some
positive prospects. The possible revamp of The Victorian Shopping Centre in Heidelberg had
a negative impact on the South African portfolio vacancy rate where existing vacancies will
only be filled once the redevelopment is completed.
Trading Densities
The trading density for the overall portfolio is R31 404 per square meters. The South African
portfolio trades at R32 684 per square meters. (Nkomo Village and Thornhill were taken into
account although not trading for a full year).
Reversion rates
Safari has continued to achieve a positive reversion rate of 2,9% on its portfolio (*calculated
on expired base rental vs renewed base rental for the period). The low reversion rate is mainly
as a result of Platz Am Meer rentals being under pressure. Looking only at the South African
portfolio, the reversion rate is 5.7% calculated on aforementioned basis. A retention rate of
81% was achieved on all lease agreements coming up for renewal during this period. Given
the tough economic climate, a positive reversion rate is a result of the quality and
defensiveness of the portfolio as well as effective asset management and the dedication of
the Safari team to grow the portfolio to ensure sustainable future income growth.
The weighted average lease expiry (“WALE”) of the portfolio is 5,8 years.
Edcon
Safari agreed to the Edcon rental reduction request subject to receiving an option of early
termination on all Edgars and Jet stores in the portfolio. Edgars Atlyn was given notice to
vacate and the space is in the process of being reconfigured into four value fashion tenants
including Power Fashion, Studio88, Jam Clothing and Outlook. The trading date on all four
brands is scheduled for 1 December 2019. Jet at Denlyn was downsized to incorporate
Woolworths, which opened for trade on 1 July 2019. Woolworths has indicated that they are
pleased with the performance of the store to date. The remaining exposure of Safari’s total
portfolio to Edcon is 4.6% of total rentable area and 1.4% of total monthly rental income.
Management is Investigating the viability of replacing and reconfiguring Edgars at Denlyn
with other tenant categories to further improve the product offering of the centre. and reduce
Safari’s exposure to Edcon even further.
SOLAR
The solar installation at Thornhill will be complete by December 2019. The system size is 652
kilo watt peak. Further installations include The Victorian which is scheduled to be completed
during the first half of 2020. Thabong and Atteridgeville are to follow soon. Safari’s total
generating capacity is 2.35 MVA or 5 million kWh/annum and the average yield on capital
spend is 14.6%. The yield is expected to improve since Nkomo has not been operational for
the full period and included more winter months than summer months.
SAFARI DEBT FACILITIES
Safari’s LTV is approximately 32.4% and its effective weighted average cost of debt 9.01%.
Currently approximately 62% of Safari’s interest-bearing debt is hedged by way of interest
rate swap agreements.
SOUTHERN PALACE RESTRUCTURING
As per disclosure in the 2019 annual report, Southern Palace defaulted on the R50 million
equity loan from Sanlam during the current period which resulted in a cross-default on the
R455 million senior loan. Safari subsequently received confirmation that Sanlam called on a
portion of the guarantee amount during June 2019 and Safari paid over an amount of R252
million to Sanlam. Safari, Sanlam and Southern Palace entered into new agreements at the
time to restructure the transaction. The following agreements and terms, amongst others,
have been entered into:
Guarantee signed by Southern Palace Group of Companies (Holdco of Southern
Palace Capital) in favour of Safari for all outstanding amounts owed to Safari by
Southern Palace.
Acknowledgement of debt was signed by Southern Palace for the current amounts
owed to Safari as a result of the guarantees provided to Sanlam by Safari.
Voting Pool Agreement was signed by Southern Palace, Safari and Sanlam to
regulate the voting rights and distribution rights with regards to the
53 million deal shares until all outstanding amounts have been settled by Southern
Palace.
Restatement of Claim and Reversionary Pledge and Cession agreement as security
for Southern Palace’s obligations to Safari for the due and punctual payment and
performance in terms of the transaction.
Should Southern Palace not be able to settle Sanlam’s facility on maturity in August 2020,
Safari expects to settle the remainder of the Sanlam facility in terms of the guarantees
provided and to exercise its rights to repayment from Southern Palace in terms of the
aforementioned agreements. Upon the repayment of the Sanlam loan by Safari, the 53 million
shares will revert back to Safari.
COMPANY’STRUCTURE AND INTERNALISATION
Safari’s directly owns all buildings in the portfolio and is the direct employer of all employees
and executive directors after the successful internalisation of the leasing and property
management functions. All related party transactions such as property management and
external development agreements were cancelled or are in the process of being unwound.
The internalisation allows the management team at Safari to closely manage, develop and
add value to the property portfolio. The Namibian employees are directly employed by the
Namibian subsidiary. The Safari structure is thus simply the following: Safari Investments
RSA Listed REIT (Executive management and employees) holding 100% in Safari
Investments (Namibia) (Pty) Limited
(Namibian employees)
Safari has successfully implemented the MDA Property System, a property management
solution system with more than 30 years of application across South Africa. This ensures
improved reporting, integration and flexibility.
MARKETING AND SOCIAL CONTRIBUTIONS
Strong relations with our communities are entrenched in how Safari operates. Through
intentional partnerships, we create opportunities for aspiring township entrepreneurs to
develop businesses. Shape Café runs various training programmes for township businesses
and now operates rent-free from our Thabong centre, two local-based community radio
stations PHELI FM and CAPITAL FM broadcast directly from our Atlynn and Denlyn centres,
and Ingenious Minds is a local marketing agency operating rent-free from Nkomo Village.
Our partnership with Harambee Youth Employment Accelerator will tackle youth
unemployment in our communities. Safari recently hosted a vibrant entrepreneurial
networking session at Denlyn for a number of entrepreneurs with a mentoring programme as
a follow-up. Other organisations where Safari is volunteering or giving support include Mpho’s
Dream Centre for children in Mamelodi, Food Forward SA, the Soccer Legend programme in
Atteridgeville, the 80th celebration of Hofmeyr High School in Atteridgeville, Jacaranda Care
centre, the Lions Club in Swakopmund and the recent upgrade of Tsephang Care Centre in
co-operation with Built-it and Reno Race (SABC 1).
CONCLUSION
Safari is committed to creating value for shareholders despite the economic difficulties in the
South African market. We continue to look for new opportunities for growth and will remain
focused on retail assets in the lower LSM and peri-urban areas in South Africa.
DISCLAIMER
Safari enters into a closed period from 1 October 2019 until publication of its interim results.
The information contained in this document has not been reviewed or reported by the auditors
of Safari. Estimates, assumptions and forward-looking estimates may differ from the interim
results to be published in November 2019.
Please contact: Talana Smith (Investor Relations)
Tel: +27 (83 292 3845) or
talana@safari-investments.com
Pretoria
30 September 2019
Sponsor
PSG Capital
Date: 30/09/2019 05:05:00
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