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Attacq’s strategy to become a REIT
ATTACQ LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1997/000543/06)
JSE share code: ATT ISIN: ZAE000177218
(“Attacq”)
ATTACQ’S STRATEGY TO BECOME A REIT
Introduction
Attacq has focused on long-term sustainable capital growth through active investment,
management and development of real estate since being listed on the JSE as a property
company in October 2013. This strategy has differentiated Attacq from other JSE-listed property
companies that have elected to receive REIT status from the JSE, reflective of their focus on the
generation and regular distribution of income derived from rental income.
Since listing, Attacq has completed 32 developments, including the Mall of Africa and 25 other
developments in Waterfall, adding 434 154 m2 of gross lettable area to the portfolio. Due to
progress made in actively recycling capital and converting developable bulk into a quality
portfolio, Attacq is entering a transitional phase in which its capital growth focus shifts to a focus
on total return comprising distributions and capital growth, with the ultimate goal of becoming a
REIT focused on distributions and distribution growth.
Attacq’s Waterfall development portfolio continues to be a strong differentiating factor as it
enables Attacq to develop and deliver accretive income generating assets in support of its aim of
delivering exceptional and sustainable capital and earnings growth to its shareholders.
The board of directors of Attacq has resolved that it is now appropriate for Attacq to re-position
itself and adopt a strategy which includes income distribution with the objective, subject to the
approval of the JSE, of receiving REIT status for the financial year commencing 1 July 2018. The re-
positioning to achieve REIT status is underway and includes the reduction of existing debt facilities
with the proceeds from the disposal of Attacq’s Central and Eastern European investments, the
continued optimisation of its balance sheet and the sale of certain non-core assets, where the
deployment of the proceeds will serve to enhance sustainable and growing distributable
earnings.
Attacq’s value proposition
At present, Attacq’s value proposition has four key drivers, namely its:
1. Existing quality operational portfolio;
2. Waterfall development portfolio;
3. Strategic investment in MAS Real Estate Inc. (“MAS”); and
4. Rest of Africa retail investment.
1. Existing quality operational portfolio
Attacq has a high-quality operational portfolio of retail, commercial and industrial properties with
a weighted average lease expiry of 6.5 years. One of Attacq’s most valuable assets is its 80%
interest in the Mall of Africa, the super-regional mall located at the centre of the growing Waterfall
City.
The mall opened in April 2016 and has performed well in its first year. The annual rent to turnover
ratio for the mall of 9.6% is more favourable than the average of other super-regional malls per the
IPD benchmarking report of 10.4% for the year ended 31 March 2017. Average monthly trading
densities of R2 637/m2 were achieved in the first year’s trading which reflect the growth potential
of the asset and footfall averaged in excess of 1.2 million visitors per month over the first year.
Attacq’s other notable properties include the Lynnwood Bridge Precinct, Garden Route Mall,
MooiRivier Mall, Eikestad Precinct and 25.0% in Brooklyn Mall.
As at 31 December 2016, Attacq’s existing quality operational portfolio had a gross value of
R18.6 billion.
2. Waterfall development portfolio
Attacq has approximately 1.2 million m2 of remaining developable bulk in the Waterfall area. This
bulk is ungeared and 608 000 bulk m2 is already serviced and ready for the value accretive roll-out
of commercial, residential and industrial developments. Waterfall’s location and ease of access
create an attractive value proposition for the creation of a new city in the centre of Gauteng.
The secured Waterfall development pipeline, in various stages of progress, totals 175 545 m2, which
includes new regional headquarters for PwC and Deloitte and a new BMW Group South Africa
regional distribution centre. Earthworks has commenced for the development of a new mixed-use
development in Waterfall City, The Atria, which includes a four star hotel, residential apartments
and two commercial buildings.
The development of the residential component of Waterfall City, currently 70 000 m2 of bulk which
can be increased to 240 000 bulk m2, will meet expected demand created by the growing
number of office occupants in Waterfall City. This will include in excess of 8 000 PwC and Deloitte
staff that will be introduced to Waterfall City following completion of the PwC and Deloitte offices.
In addition to the 1.2 million m2 of developable bulk referred to above, Attacq holds a 20%
shareholding in Waterfall JVCo 115 Proprietary Limited (“JVCo 115”), a joint venture with Sanlam
Properties (a division of Sanlam Life Insurance Limited). JVCo 115 holds the light industrial
development rights to 634 425 bulk m2 in Waterfall and Attacq has the option of increasing its
shareholding in JVCo 115 to 50%.
As at 31 December 2016, Attacq’s development portfolio, comprising developments under
construction, vacant land and its investment in JVCo 115, totalled R3.3 billion.
3. Strategic investment in MAS
Attacq currently holds a strategic investment of 30.8% in MAS, which invests in Western, Central
and Eastern Europe via its partnership with Prime Kapital Limited. MAS has recently acquired
properties in Poland and Bulgaria and has announced its target of increasing distributions by more
than 30% per annum through to 2019. Demand and trade in MAS shares reflect their increasing
liquidity. Attacq’s investment in MAS provides Attacq with growing earnings, diversification and a
Rand hedge.
Attacq equity accounts for MAS on its balance sheet and as at 31 December 2016 the investment
was accounted for at a value of R2.4 billion. The current market value of Attacq’s MAS investment
is R3.4 billion based on a closing share price of R23 per share as at 12 June 2017.
4. Rest of Africa retail investment
Attacq holds a 25.0% interest in Ikeja City Mall in Nigeria and a 31.8% shareholding in AttAfrica
Limited (“AttAfrica”). AttAfrica’s premier retail weighted portfolio in terms of quality and size
includes Accra Mall, Achimota Retail Centre, West Hills Mall and Kumasi City Mall in Ghana and
Manda Hill Mall in Zambia.
Currently Attacq is not receiving distributions from AttAfrica, in light of unfavourable trading and
macro-economic conditions impacting on the malls and the structure of Attacq’s investment in
AttAfrica. However, economic conditions in the countries of investment are improving and
management continue to actively manage the investment in order to optimise net income and
value. It is noted that a liquidity event in early 2020 is provided for in the AttAfrica shareholders’
agreement giving Attacq an opportunity to realise its investment and redeploy the proceeds.
As at 31 December 2016, Attacq’s Rest of Africa investments totalled R1.1 billion.
Guidance
In the financial year ending 30 June 2018, prior to becoming a REIT, Attacq will adopt a dividend
policy pursuant to which it will distribute its available funds. The distribution in respect of the year
ending 30 June 2018 will not be a qualifying distribution under the tax regime applicable to REITs.
Attacq’s total return comprises its income and capital return from its income producing assets and
the capital growth achieved in respect of its other assets. Attacq is targeting a maiden dividend
payment from its income-producing assets, namely its existing quality operational portfolio and
MAS investment, of 73 cents per share for the year ended 30 June 2018 with a 20% growth per
annum in its distribution for the next three years thereafter. The target distributions are, inter alia,
driven by Attacq’s accretive development portfolio and ongoing balance sheet optimisation with
a targeted gearing level, calculated as net interest-bearing debt to total assets, in the range of
35% to 40%.
This guidance is based on assumptions which include the expected roll-out of Attacq’s current
and budgeted development portfolio, MAS achieving its distribution targets, the required re-
positioning to become a REIT and that no unforeseen circumstances such as major corporate
tenant failures or macro-economic instability. The guidance has not been reviewed or reported
on by Attacq’s auditors.
13 June 2017
Sponsor
Java Capital
Date: 13/06/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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