ORGANISATIONAL OVERVIEW 4 BOARD OF DIRECTORS 6 CHAIRMAN S REPORT 8 CHIEF EXECUTIVE S REPORT 9 SOCIAL AND ETHICS COMMITTEE REPORT 14 SUSTAINABILITY 16

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1 INTEGRATED REPORT // 2015

2 CONTENTS ORGANISATIONAL OVERVIEW 4 BOARD OF DIRECTORS 6 CHAIRMAN S REPORT 8 CHIEF EXECUTIVE S REPORT 9 SOCIAL AND ETHICS COMMITTEE REPORT 14 SUSTAINABILITY 16 CORPORATE GOVERNANCE REPORT 20 RISK MANAGEMENT 22 REMUNERATION REPORT 24 ANNUAL FINANCIAL STATEMENTS 26 NOTICE OF ANNUAL GENERAL MEETING 68 FORM OF PROXY 75

3 FUND PROFILE EQUITES PROPERTY FUND LIMITED is a South African property fund manager and developer focused predominantly on quality industrial assets at the top end of the industrial sector and to a lesser degree office property. The 20 prominent industrial and office properties currently in its portfolio are all in the Western Cape. Major tenants include Simba, Foschini, Execujet, Digistics, Imperial, Puma, UTI (Adidas), Avery Dennison, Courier-IT, Kuehne & Nagel AG, NGK Ceramics, Dole USA and Barloworld. Equites is structured as a Real Estate Investment Trust (REIT) and is internally managed. INTEGRATED REPORT 2015 // 1

4 THIS REPORT REFLECTS A SOLID BEGINNING FOR A GROUP THAT HAS SET ITS SIGHTS ON MAKING ITS MARK IN THE SOUTH AFRICAN LISTED PROPERTY SPACE. LEON CAMPHER CHAIRMAN MONTREAL, AIRPORT INDUSTRIA, CAPE TOWN (TENANT: COURIER-IT) 2 // INTEGRATED REPORT 2015

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6 ORGANISATIONAL OVERVIEW Through the merger of the portfolios of three independent Western Cape-based industrial property developers, Equites Property Fund Limited ( Equites ) successfully listed on the JSE on 18 June Equites owns 17 industrial and 3 office buildings totalling 137,663m 2 of gross lettable area Total portfolio value of R1.4 billion with weighted average escalations of 8.1% R650 million capital raised through a substantially oversubscribed private placement Total distributions to shareholders since listing of R69.9 million, exceeding the pre-listing forecast by R3.4 million (5.1%) The dividend per share of 61,3 cents equals a distribution yield of 8.2% for the 9 months to 28 February 2015, marginally exceeding the pre-listing forecast A share price growth of 28.5% since listing on 18 June 2014 to the end of the reporting year A total return to shareholders of more than 36.6% (48.8% on annualised) since listing Delivery on all forecasted transactions in the pre-listing statement Post-listing acquisitions totalling R118.8 million were concluded and implemented R150 million development lease for new The Foschini Group distribution centre in Midrand SHARE PRICE (CENTS) 18 June February // INTEGRATED REPORT 2015

7 68.9% of gross lettable area let to blue chip tenants. Expiring 2020 and later 37% Monthly 2% LEASE EXPIRY PROFILE BY REVENUE Expiring % Expiring % Expiring % Other local tenants and sole proprietors, 13,4% Smaller international and national tenants, 16,9% Large nationals, large listed and government, 68,9% Vacant, 0.8% TENANT PROFILE BY GROSS LETTABLE AREA Expiring % 61% of lease revenue expires in 2019 and later. EQUITES EXECUTIVE TEAM FROM LEFT TO RIGHT: BRAM GOOSSENS (CFO), ANDREA TAVERNA-TURISAN (CEO), RIAAN GOUS (COO) Our business is all about consistently delivering on our undertakings and exceeding expectations and we are pleased to confirm that we have achieved all our objectives since listing Andrea Taverna-Turisan (CEO), 12 May 2015 INTEGRATED REPORT 2015 // 5

8 BOARD OF DIRECTORS BOARD OF DIRECTORS STANDING: JOHNNY CULLUM, RIAAN GOUS, ANDREA TAVERNA-TURISAN, BRAM GOOSSENS, GIANCARLO LANFRANCHI AND KEVIN DREYER SEATED: NAZEEM KHAN, LEON CAMPHER AND RUTH BENJAMIN-SWALES Independent non-executive directors Leon Campher (67) CHAIRMAN BEcon (Stellenbosch) Leon is the CEO of Association for Savings and Investment South Africa ( ASISA ) and was appointed into this role on 1 October ASISA represents all the life offices, fund managers, mutual funds, fund platforms, and multi managers in South Africa. Starting in 1973, Leon spent 13 years with Old Mutual as an investment analyst and portfolio manager. In 1985 he left Old Mutual to form Syfrets Managed Assets where he was portfolio manager and CEO. In 1993 Leon left Syfrets and was one of the founding members of Coronation where he was CEO of Coronation Fund Managers and Executive Director of Coronation Holdings Limited which was listed on the JSE. Leon serves on the boards of Sun International Limited and Brimstone Investment Corporation Limited. Nazeem Khan (59) BSc (QS) (University of Natal), MAQS, PrQS, A.AArb Nazeem Khan attended the University of Natal (Durban) where he obtained a BSc (QS) degree. He has been in the profession for the past 35 years and has varied experience in all aspects of property development. He is currently a director of the national firm Bham Tayob Khan Matunda (BTKM) Quantity Surveyors with offices throughout South Africa. Nazeem is a non-executive director at Brimstone Investment Corporation Limited and also serves as the chairman of Brimstone Investment Corporation Limited Audit committee. Ruth Benjamin-Swales (52) CA (SA) (University of Cape Town) Ruth is currently a senior policy advisor at ASISA, where she is responsible as the CEO for the ASISA Foundation and the ASISA Enterprise Development Fund, and serves on the ASISA Transformation Board Committee and the Financial Sector Charter Council. Ruth is a University of Cape Town graduate who qualified as a CA(SA) in She was an audit partner with Ernst & Young from 2002 to 2012, where she was responsible for a portfolio of clients primarily in the education and public sectors. Since qualifying, Ruth has served her profession on a number of councils and boards including SAICA and as president of the Independent Board for Auditors (IRBA). She has also served on a number of audit and risk committees in the public sector. 6 // INTEGRATED REPORT 2015

9 Non-independent non-executive directors Giancarlo Lanfranchi (46) DEPUTY CHAIR DipArch (CPUT) Giancarlo is the CEO and founder of the Swish Property Group, a prominent Western Cape based property development and investment group which has successfully implemented brownfield and greenfield developments in excess of R2.5 billion over the past 15 years. Giancarlo has a passion for uplifting undesirable locations and the Swish Property Group has won numerous NHBRC awards, Swish was also accredited for the best Brownfield s re-development and development initiatives in South Africa in 2007, 2008 and 2009 as well as the CNBC award in 2006 for Best High Rise Development in Africa. Giancarlo has also built up a prestigious portfolio of industrial, retail and commercial properties by developing, Executive directors co-developing and acquiring numerous properties. Most recently, in a joint venture with Redefine Properties Limited, the Swish Property Group successfully completed a R600 million mixed use development (sporting the first Doubletree by Hilton Hotel in Africa), in a previously marginalized area of Cape Town, contributing to the revitalization of the now popular Woodstock. Johnny Cullum (53) BEng (Civil) (Stellenbosch), Pr Eng Johnny is a qualified Civil Engineer and a partner in CSV Construction, one of the Western Cape s biggest diversified civil contracting companies. He has extensive industrial property knowledge and his property owning companies are the primary landlord in and around the Cape Town International Airport. Johnny is also extensively involved in renewable energy generation in South Africa and his company, Mulilo Renewable Energy Proprietary Limited, has been one of the most successful players in the renewable energy sector. Kevin Dreyer (53) Kevin runs the development arm of the Cape Town International Airport based consortium and is also a major shareholder in the property portfolio of the Cape Town International Airport based consortium. He has substantial knowledge of the Western Cape industrial property sector and has negotiated and implemented several significant transactions in the airport node. Kevin also owns Automotion Airport Parking Proprietary Limited, which renders valet parking services at the Cape Town International Airport. Andrea Taverna-Turisan (46) (CEO) BSc (Honours) (Mathematics and Management) (Kings College, London) Andrea graduated with a BSc Hons degree in Mathematics and Management from King s College, London. He emigrated to South Africa in 1995 and initially worked as a Commercial Property Broker at McCreedy Friedlander in Bellville. He was one of the founding members of Rialto Foods, a food import business, in April 1998 and was instrumental in growing this business into the Italian food importer of choice of Woolworths. In 2006, Andrea sold his shares in Rialto and started specialising in the development of distribution warehouses for his own account. He formed Chiluan Holdings Proprietary Limited through which he developed 6 A-grade distribution facilities all of which now form part of the Equites portfolio. Riaan Gous (49) (COO) BA (Law) LLB (Stellenbosch) Riaan graduated with BA (Law) and LLB degrees from the University of Stellenbosch after which he joined one of SA s leading law firms, Hofmeyr, Herbstein Gihwala Inc (now known as DLA Cliffe Dekker Hofmeyr Inc). As a director of the firm Riaan practised in the commercial department with a strong focus on mergers and acquisitions and property transactions. In 2001 Riaan joined the Arabella Group as an executive director where he was intimately involved in the development and operational phases of the Arabella property portfolio. During 2011, Riaan joined Andrea and Giancarlo in their property businesses in anticipation of the Equites listing. During this period he also partnered with them in several property developments and acquisitions. Bram Goossens (37) (CFO) BCom (Hons), PGDA (University of Cape Town), CA (SA) Bram completed his tertiary education at the University of Cape Town and completed his articles with PwC in Cape Town where he was later admitted as a partner. During more than 12 years with PwC he gained wide ranging experience with retail, property and industrial clients, both in South Africa and internationally. He was responsible for some of PwC s key clients in the Western Cape including Shoprite Holdings Limited. He was also the audit partner for Tradehold Limited a property company listed on the JSE with a portfolio of commercial properties in the UK. INTEGRATED REPORT 2015 // 7

10 CHAIRMAN S REPORT This report reflects a solid beginning for a group that has set its sights on making its mark in the South African listed property space. Leon Campher CHAIRMAN This inaugural integrated annual report reflects a solid beginning for a group that has set its sights on making its mark in the South African listed property space. Although there have been many successes during the reporting year, I d like to highlight two of them. Successful listing There is always nervous expectation whenever a new legal entity with no track record announces its intention to list on the JSE. In the case of Equites, months of hard work culminated in a successful listing with demand for the R650 million capital raised significantly exceeding supply. The real work, however, began after the listing and entailed the employment of a full staff complement and taking ownership of the 17 individual properties that make up the core of the initial business. In this, the Board and Management placed great emphasis on establishing and implementing structures, systems and processes that will give the business the best possible chance of success. Financial performance Based on the Equites share price at the time of writing this report and the financial results contained herein, Equites is set to deliver total returns from listing to the date of this report of approximately 37% to its initial investors. Equally important, we have delivered on all undertakings in the pre-listing statement ( PLS ). Although South Africa could face economic headwinds and the possibility of high interest rates, the Board is confident that, in the absence of unforeseen external events, Equites will continue to deliver solid financial results. In this regard, the Board is pursuing a strategy of creating long-term, sustainable financial success. To achieve this, it is essential that we invest in vacant land to be able to compete for new developments. Although these investments will take time to translate into yield accretive developments, they will ultimately ensure the long-term financial viability of the Group. As a relatively small listed property company, growth is essential if Equites is to achieve economies of scale and improved liquidity, which is an important consideration for many investors. As a result, Management will place a lot of emphasis on identifying growth opportunities, provided that they will contribute in our quest to create long term shareholder value. In closing, I wish to thank our Board of Directors and Management for their invaluable contribution throuhgout the year. Without your hard work and dedication we would not have achieved so much in such a short time. Equites has had a good first year and all of us are committed to growing the company to its full potential and to deliver long-term shareholder value. Leon Campher CHAIRMAN Cape Town 12 May // INTEGRATED REPORT 2014

11 CHIEF EXECUTIVE S REPORT We have a very clear vision for Equites: we want to become South Africa s most successful specialist industrial property fund. Andrea Taverna-Turisan CHIEF EXECUTIVE OFFICER Introduction The merger of the property portfolios of three independent industrial property developers in the Western Cape enabled Equites to list on the JSE on 18 June The Equites value proposition, which included a high-end industrial property focus, was well received by the market and the R650 million capital raised attracted such a degree of investor attention that it was oversubscribed several times. Because the amalgamation of the three portfolios resulted in the creation of a new, separate and independent legal entity, Management s initial focus was almost entirely on the following: the appointment of a talented and experienced management team capable of handling all aspects of asset and property management relating to the portfolio internally; bedding down the listing process by taking ownership of the property portfolio and implementing the requisite systems and processes to ensure that the portfolio is managed in a sustainable and profitable manner; delivering on the undertakings and financial forecasts contained in the PLS. Our business is all about consistently delivering on our undertakings and exceeding expectations, and we are pleased to confirm that we have achieved all the above objectives. Performance Exceeding the projection contained in the PLS despite the many challenges that a merger and listing of this nature bring, Equites total shareholder distribution of R69.9 million for the nine months since listing exceeded the R66.5 million forecast for the same period by R3.4 million (5.1%). Distribution per share totalled 61,3 cents, which also exceeded the projected 60,9 cents. The net asset value growth to cents per share is indicative of our good average escalations of 8.1% and yield accretive acquisitions. We also concluded and implemented property acquisitions to the value of R118.8 million during the period under review, all of which were yield accretive. We have retained our strong industrial focus and only three of our current 20 properties are offices. We will be looking to dispose of them when the right opportunity arises. Our property fundamentals are very sound and 74% of our industrial leases expire after February There furthermore are no vacancies in our industrial portfolio. Funding Despite the listed property sector s almost single-minded focus on distribution growth, we have not been tempted to employ aggressive, short-term funding strategies to boost profits. As a result, we ended the period under review with 79% of our debt being fixed for a five-year period at an all-in current weighted average rate of 8.85%. INTEGRATED REPORT 2015 // 9

12 CHIEF EXECUTIVE S REPORT (CONTINUED) Given the likelihood of further interest rate increases, Equites is well positioned to capitalise on opportunities with a loanto-value ratio of 8.9%, which is a very conservative level of gearing relative to the market. At year end, we had drawn just R127 million of our R600 million loan facility with Nedbank Limited. This loan accrues favourable funding at prime less 1.6%. Active cash flow management ensures that surplus cash is transferred daily to this loan facility. Sweeping facilities also ensure that cash retained for operational requirements in current accounts earns interest at current call rates. We announced two significant transactions during the latter part of the period under review. As anticipated in the PLS, we concluded a transaction with Dormell Properties 575 Pty (Ltd) in terms of which Equites will acquire 14 hectares of prime industrial land next to Cape Town International Airport. Despite a yet to be concluded legal process that may delay its development, if resolved we should be able to unlock developments of approximately R650 million on this land over the next three years. We were also pleased to announce our first foray into Gauteng with the conclusion of a transaction in terms of which we will develop a m 2 distribution warehouse for The Foschini Group in the prestigious Lords View Industrial Park. The landlord will be a joint venture between Equites and the owners of the park. The capital value of the project is approximately R150 million and Equites will own approximately 75% of the joint venture. We are excited about this collaboration with the Lord family and look forward to undertaking many more projects with them. In addition, we are also close to concluding several transactions with tenants for the development of new facilities. The capital value of these projects is approximately R320 million. Strengths Sound property fundamentals Equites key differentiator is the sound property fundamentals of its property portfolio which provide a solid base for growing in an accretive manner. There is no need to sanitise the portfolio and we have significant opportunities to develop new products for our quality tenant base. Our low loan-to-value ratio also puts us in the invidious position of being able to capitalise on opportunities without struggling to raise the necessary funding. Human capital The fact that we re a new business has allowed us to handpick a competent and experienced staff complement. We implemented and inculcated a high-performance culture from the outset that allows us to empower our staff and encourage them to take ownership to truly make a difference. It has been proven that employees are highly motivated when they feel engaged and can see that their efforts are valued. We therefore actively seek to foster sound teamwork, transparency and accountability in our small team. Vision and strategy We have a very clear vision for Equites: we want to become South Africa s most successful specialist industrial property fund. Our experience since listing has shown that it is difficult to acquire individual quality industrial properties on the open market because the expectations of prospective sellers are invariably so high that they would be detrimental to our fund. During the listing process we communicated to the market that the bulk of our growth would be organic. We remain convinced that our in-house development expertise will enable us to unlock brown- and greenfields opportunities at attractive yields. We have also noted increased levels of interest from private owners of substantial industrial portfolios who understand our vision and are interested in selling their portfolios into Equites in exchange for shares, much like the founding vendors had done. 10 // INTEGRATED REPORT 2015

13 It has also become clear that long-term financial success will depend on the acquisition of strategic parcels of land that will allow us to compete for top tenants who increasingly are looking for newly built, modern, state-of-the-art distribution warehouse space. This may not always pay off immediately but will reap ample rewards in the medium to long term. Over the past year we have seen that much of the capital raised by local property counters has been employed offshore and we are currently investigating the possibility of exposing Equites to rand hedge opportunities in the UK and Europe. It is important to note that Management has extensive experience in the UK industrial property market. No decision has yet been taken and we will conduct significant research before deciding whether to venture abroad. Outlook Equites has successfully bedded down the listing process and delivered a credible first set of annual results. We have low levels of gearing with a high level of interest-rate hedging. Our current portfolio forms a sound basis for our property fundamentals. Although South Africa is experiencing several economic challenges and further interest-rate hikes are predicted, the listed-property sector is expected to achieve distribution growth of between 7% and 8% over the next year. We are confident that Equites distribution growth will be closer to the 8% than the 7% mark, provided there are no unexpectedly higher interest-rate increases or other unforeseen external events. Acknowledgements I want to take this opportunity to express my gratitude to the Board for its support during this period, especially our chair, Leon Campher, for his guidance and advice. The original vendors decision to merge their portfolios and entrust the leadership role to me, was a brave one. To the founders of Equites Giancarlo, Johnny, Kevin and Alex thank you for putting your trust in me to take Equites to the next level. On a very sad note, I also want to acknowledge the important role the late Michel Lanfranchi played in this process. I wish he could have been part of the team still and we miss him dearly. I also want to thank my fellow executives, including Chrystal Grauso for the important contribution she had made before Bram joined us as CFO, and our entire team for all their hard work and dedication. I know that you are as determined as I am to grow Equites to its full potential. Finally, a big thank you to all our tenants for their support. Without you, we would not have a business. Andrea Taverna-Turisan CHIEF EXECUTIVE OFFICER Cape Town 12 May 2015 INTEGRATED REPORT 2015 // 11

14 WE HAVE A VERY CLEAR VISION FOR EQUITES: WE WANT TO BECOME SOUTH AFRICA S MOST SUCCESSFUL SPECIALIST INDUSTRIAL PROPERTY FUND. ANDREA TAVERNA-TURISAN CHIEF EXECUTIVE OFFICER VANGUARD DRIVE, PHILLIPI (TENANT: UTI) 12 // INTEGRATED REPORT 2015

15 CHAPTER TITLE INTEGRATED REPORT 2015 // 13

16 SOCIAL AND ETHICS COMMITTEE REPORT As the Group grows its asset base and employee component, the monitoring of its levels of compliance with the relevant social, ethical and legal requirements and best practice codes will play an ever greater part in its long-term viability. EQUITES TEAM STANDING: SHARON DAKA, OLIVIA VELEM, GARY MASOMBUKA, MELANIE BROWN, BELINDA ORTMAN-LEBONA SEATED: RIAAN GOUS, ANDREA TAVERNA-TURISAN, BRAM GOOSSENS, HILDA GROVÉ 14 // INTEGRATED REPORT 2015

17 Since listing on the JSE, the Group has sought to align its business with the principles outlined in the King Report on Corporate Governance in South Africa (2009), the criteria of the JSE s Socially Responsibility Investing Index as well as the requirements relating to social and ethics committees as set out in the Companies Act, 2008 (Act No.71 of 2008). A Social and Ethics Committee ( the Committee ) was duly established as a committee of the Board consisting of Giancarlo Lanfranchi (Chairman), Kevin Dreyer and Riaan Gous. Both Messrs Lanfranchi and Dreyer are non-executive directors of the Company. Terms of reference The duties and responsibilities of the Committee are set out in a formal terms of reference document which has been approved by the Committee and the Board of Directors. The main duties of the Committee are to: review and approve the policy, strategy and structure to manage social and ethics issues in the company; oversee the monitoring, assessment and measurement of the Company s standing in terms of: The 10 principles set out in the United Nations Global Compact The Organisation for Economic Co-operation and Development (OECD) recommendations regarding corruption detailed on The Employment Equity Act, 1998 (Act No. 55 of 1998) The Broad-based Black Economic Empowerment Act, 2003 (Act No. 53 of 2003) oversee the monitoring, assessment and measurement of the Company s activities relating to good corporate citizenship, including the Company s promotion of equality, prevention of unfair discrimination, addressing of corruption, contribution to development of the communities in which its activities are predominantly marketed, and record-keeping of sponsorships, donations and charitable giving; oversee the monitoring, assessment and measurement of the Company s activities relating to the environment and health and public safety; oversee the monitoring, assessment and measurement of the Company s consumer relationships, including the Company s advertising, public relations and compliance with consumer protection laws to ensure that the Company adheres to its values; oversee the monitoring of the Company s labour and employment practices; review the adequacy and effectiveness of the Company s engagement and interaction with its stakeholders; consider substantive national and international regulatory developments as well as practice in the fields of social and ethics management; review and approve the policy and strategy pertaining to the Company s programme of corporate social investment; and determine clearly articulated ethical standards (the Code of Ethics) and ensure that the company takes measures to adhere to them in all aspects of the business, thus achieving a sustainable corporate culture in the Group. Meetings The terms of reference of the Committee provide for biannual meetings. In addition to the requirements as set out under Terms of reference, the Committee s focus has been to establish a significant enterprise development project with a Cape Town-based black entrepreneur, Mr Munier Damon. Over the past six months, the Executive has helped Mr Damon to set up his own construction company, Damon@Sons Construction, which currently supplies construction services to Equites at several of its buildings. Damon@Sons employs 10 previously disadvantaged South Africans. Conclusion No substantive non-compliance with legislation and regulations or non-adherence with the codes of best practice relating to the areas within the mandate of the Committee has been brought to its attention during the period under review. The Committee recognises that, as the Group grows its asset base and employee component, the monitoring of its levels of compliance with the relevant social, ethical and legal requirements and best practice codes will play an ever greater part in its long-term viability. Giancarlo Lanfranchi CHAIR: SOCIAL AND ETHICS COMMITTEE Cape Town 12 May 2015 INTEGRATED REPORT 2015 // 15

18 SUSTAINABILITY One of the advantages of being a new business is that it comes with the opportunity to hand-pick a competent and experienced team. The World Council for Economic Development (WCED) defines sustainable development as development that meets the need of the present without compromising the ability of future generations to meet their own needs. In commerce, it is often defined with reference to the triple bottom line, a measure that takes financial, social and environmental factors into consideration. Equites first integrated annual report contains substantial information on the financial performance of the Group, among which the following considerations that support the Board s view that the business of Equites is in sound financial health and therefore is sustainable: REIT legislation prohibits gearing levels that exceed a 60% loan-to-value ratio. At the end of the period under review, Equites had a loan-to-value ratio of 8.9%; Equites has sound property fundamentals with quality, financially successful tenants, minimal vacancies and long-dated leases; and The Company has a R600 million loan facility with Nedbank Limited, of which it has drawn just R127 million. In view of the above, this review will focus mainly on the other two factors that are equally important in measuring sustainability, that is the Company s impact on people and the environment. Human capital One of the advantages of being a new business is that it comes with the opportunity to hand-pick a competent and experienced team. There is no doubt that a large part of any company s success is linked to the quality of its people. In order to achieve the Group s vision, a highly skilled and diverse team is essential. We are confident that we have employed a team with the talent and ability to take the Company to the next level. It is the responsibility of the Board to ensure that our employees feel engaged, motivated and appreciated. To this end, the Company has implemented the following: Our Group was founded by entrepreneurs, all of whom are still very much involved with it. This entrepreneurial spirit remains one of our key building blocks. To nurture the same spirit in our people, we implemented a highperformance culture where we seek to empower our staff and encourage them to take ownership and make a difference; Each member of the team has been assigned very specific key performance areas that are continuously managed and reviewed; It has been proven that employees are highly motivated when they feel engaged and realise that their efforts are valued. Therefore we actively seek to foster sound teamwork, transparency and accountability; We currently employ nine people, five of whom are from previously disadvantaged backgrounds. We subscribe to the principle that diversity is essential for creating a strong, vibrant and successful enterprise. Our recruitment philosophy is to employ the best person for the job with preference being given to previously disadvantaged candidates; and Five of our team members are women and we will continue to be mindful of the importance of gender representation as we grow our staff. 16 // INTEGRATED REPORT 2015

19 In order to attract and retain the right people, we have implemented a remuneration system made up of a fixed salary, short-term incentive and long-term share-based incentive for all employees. Ultimately, the Company is seeking to align its interests with those of its staff so that all staff will benefit accordingly as the Group creates value for its shareholders. We are also currently investigating the important matter of how best to help our staff develop to their full potential. In this regard, we are also working to optimise staff retention in the Group as good candidates with the right skills are in short supply and recruiting new employees is time-consuming, costly and often detrimental to the business. Environmental impact and health and safety Equites is committed to creating a safe and healthy workplace and reducing the environmental footprint of our business. The founders of the Group all strived to develop in an environmentally sustainable manner and we will embrace this philosophy as we develop new products. In this regard, we will include the principles of environmental best practice in our briefs to our development team and ensure that they are incorporated into the final design. The first greenfield development to be undertaken by Equites will be situated in the Lords View Industrial Park in Midrand, Johannesburg and has been planned as an environmentally friendly, eco-sensitive industrial logistics facility. It will make use of the latest developments in green township development and will have landscaped central stormwater attenuation ponds, relieving tenants from having to do this themselves. These functional ponds will form the green lung of the development with running tracks, benches and other facilities for staff to enjoy. Moreover, negotiations for the development of an on-site municipal solid waste plant are at an advanced stage. Once built, it will make available 20MVA of electricity, which could be made available to tenants. The carbon emissions from this plant would be equivalent to that of six cars. In the course of the coming financial year, we will work to reduce energy consumption at our buildings and are in the process of exploring photovoltaic technology and other energy-efficient methods to curtail electricity consumption and costs. INTEGRATED REPORT 2015 // 17

20 CHAPTER TITLE AS THE GROUP GROWS ITS ASSET BASE AND EMPLOYEE COMPONENT, THE MONITORING OF ITS LEVELS OF COMPLIANCE WITH THE RELEVANT SOCIAL, ETHICAL AND LEGAL REQUIREMENTS AND BEST PRACTICE CODES WILL PLAY AN EVER GREATER PART IN ITS LONG-TERM VIABILITY. GIANCARLO LANFRANCHI CHAIR: SOCIAL AND ETHICS COMMITTEE TOWER ROAD, AIRPORT INDUSTRIA, CAPE TOWN (TENANT: KUEHNE & NAGEL) 18 // INTEGRATED REPORT 2015

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22 CORPORATE GOVERNANCE REPORT The members of the Board have diverse qualifications and experience, which enable them to contribute meaningfully to the management of the Group. The Board is committed to upholding sound ethical standards and applying the principles of good corporate governance. The Company has therefore applied the King Code on Corporate Governance for South Africa ( King III ) in full and, as required by the JSE, a full register of King III compliance (including, in instances of non-compliance an explanation therefor) is available at the Company s website, Board of Directors The Board consists of nine directors, six non-executive and three executive directors. Of the non-executive directors, three are independent and three are representatives of the founding vendor shareholders. All the executive directors have service contracts with six-month notice periods. The members of the Board have diverse qualifications and experience, which enable them to contribute meaningfully to the Management of the Group. Chairman and chief executive officer The roles of the chairman of the Board and the chief executive officer are separated and clearly defined. The chief executive officer Andrea Taverna-Turisan, is responsible for the day-to-day management of the Group and implementation of the strategy and objectives adopted by the Board. He is assisted by the other two executive directors and senior staff members. The chairman of the Board, Leon Campher, is an independent non-executive director and responsible for managing the relationship between the Board, the chief executive officer and the various Board committees. He sets the agendas for the Board meetings and ensures that adequate time is devoted to developing the Group s strategy. A third of the non-executive directors must resign and stand for re-election at each annual general meeting ( AGM ). All Board appointments are motivated by the Nomination Committee in terms of its formal terms of reference and are subject to Board and shareholders approval. The Board meets at least four times a year but will meet more often if circumstances demand it. The table below sets out the Board meetings held during the reporting period and the attendance at each. 28/04/ /05/ /09/ /10/ /11/2014 Director Leon Campher Nazeem Khan Ruth Benjamin-Swales Giancarlo Lanfranchi Kevin Dreyer Johnny Cullum Andrea Taverna-Turisan Riaan Gous Chrystal Grauso x x x Bram Goossens x x 20 // INTEGRATED REPORT 2015 Attended Absent with apologies x Not a director at the time

23 Board committees The Board acknowledges that overall responsibility for managing the Group rests with the Board as a whole. To assist it with fulfilling its responsibilities, the Board has appointed the following sub-committees: Audit and Risk Committee The primary responsibility of the Audit and Risk Committee is to assist the Board in overseeing integrated reporting and ensuring the financial integrity of the Annual Financial Statements and other financial reports. The Committee is chaired by Ruth Benjamin-Swales, an independent nonexecutive director, whose previous experience, especially as audit partner at Ernst & Young, makes her ideally suited for this responsibility. Composition of committees The membership of the Board committees are as follows: Remuneration Committee The Remuneration Committee is chaired by Nazeem Khan, an independent non-executive director, and works to ensure that the Group adopts a remuneration policy that is fair and transparent, and attracts and retains executive talent that will contribute to the achievement of the Group s objectives. Nomination Committee The Chairman of the Board, Leon Campher, also chairs the Nomination Committee, which assists with the appointment of directors. Social and Ethics Committee The Social and Ethics Committee is a statutory committee that monitors compliance with labour legislation and the Group s corporate social responsibilities. The Committee is chaired by Giancarlo Lanfranchi, a non-executive director. Audit and Risk Committee Remuneration Committee Nomination Committee Social and Ethics Committee Ruth Benjamin-Swales (Chair) Leon Campher Nazeem Khan Nazeem Khan (Chair) Leon Campher Ruth Benjamin-Swales Leon Campher (Chair) Nazeem Khan Ruth Benjamin-Swales Giancarlo Lanfranchi (Chair) Kevin Dreyer Riaan Gous Attendance of Board committee meetings Committee Audit and risk Nomination Remuneration 01/10/ /11/ /05/ /11/ /05/ /11/2014 Director Leon Campher Nazeem Khan Ruth Benjamin-Swales Attended Conflicts of interest and directors personal interests Directors are required to declare their personal financial interests and those of related persons in contracts with the Group. A register in this regard is maintained and reviewed at each Board meeting. Directors are asked to recuse themselves from any discussions and decisions where they have a material financial interest. Company secretary Riaan Gous was appointed company secretary on 1 December The Board is satisfied with his experience and qualifications to act in this capacity. He is an executive director of the Company and several subsidiaries in the Group too. The Board is satisfied that despite this, he has the expertise to carry out the role of company secretary and ensure that the Board maintains good corporate governance at all times. INTEGRATED REPORT 2015 // 21

24 RISK MANAGEMENT Risk management is an integral part of the Group s strategic management and is essential for attaining substantial and satisfactory growth. With the assistance of the Audit and Risk Committee, the Board has adopted a risk management policy to mitigate identified risks to the Group to acceptable levels. The policy, which is in line with industry practice, specifically prohibits the Group from entering into any derivative transactions that fall outside the ordinary course of the Group s business as required by the JSE. Risk management is an integral part of the Group s strategic management and is essential for attaining substantial and satisfactory growth of the net asset value of the Group, which will in turn translate into sustainable distribution growth. The Group employs a risk management framework which is overseen by the Audit and Risk Committee and has an ongoing responsibility to monitor its risk management processes by: Identifying risk factors that may have a material impact on its operations Formulating a mitigating response for each area of impact Monitoring progress against set targets Reviewing identified risks on an ongoing basis and revise responses accordingly. The table below summarises the key risk factors that were identified and how they have been mitigated Risk factor Areas of impact Response Status Macro-economic Access to capital environment Conservative loan-to-value ( LTV ) target of 40% and maintenance of adequate banking facilities Current LTV is 8.9% and there are substantial undrawn facilities Interest-rate risk Hedging target of 80% R100 million of debt of R127 million is fixed for five years Tenant defaults Focus on blue-chip tenants and generic buildings 69% of gross lettable area ( GLA ) is leased by large listed national or international tenants Deterioration in property values or specific areas Fair value of investment property Ability to attract new tenants Focus on A-grade industrial property in prime nodes Focus on blue-chip tenants and long leases 87.2% of GLA is industrial and mostly A-grade properties 77% of leases runs for more than three years 22 // INTEGRATED REPORT 2015

25 Risk factor Areas of impact Response Status Rapid increase in utility costs, especially property taxes and electricity Pressure on tenants for recovered utilities Investigating use of renewable energy sources and energy-saving technology Feasibility studies for photovoltaic installations in progress New development in Lord s View Industrial Park in Midrand has a planned waste-to-energy facility Pressure on profitability for non-recovered costs Focus on industrial tenants with fully recovered leases 87.2% of lettable space comprises industrial tenants with fully recovered leases Tenant default Sustainability of revenue and distribution Vacancies Implementing a credit vetting process and giving preference to bluechip tenants Active client engagement and regular review of arrears No bad debts after listing Total vacancies only 0.8% of GLA (0% of industrial and 6.6% of office space) Retention of key staff Loss of key staff will impact the Group s ability to achieve its objectives Implementing long-term as well as short-term incentive schemes First share awards in terms of the long-term incentive scheme made during the current year A short-term bonus scheme has been implemented Gradual or sudden destruction of property Buildings destroyed by acts of God Ensuring that adequate insurance cover is maintained Comprehensive commercial insurance is in place and a full insurance replacement valuation is currently underway to ensure adequate cover Properties not properly maintained and deteriorate over time Ensuring that properties are maintained continuously An operational property team has been employed and a detailed maintenance schedule drafted Compliance with laws and regulations Penalties, operational risk from non-compliance with legislation Employing suitably skilled and experienced staff and executives Executives and staff are considered more than adequately qualified and experienced Sanctions and risks associated with noncompliance with JSE regulations Engaging outside specialists with appropriate skills Adequate internal and external training Corporate advisors and auditors are very experienced in listedproperty companies Employees regularly attend conferences and relevant training INTEGRATED REPORT 2015 // 23

26 REMUNERATION REPORT Having highly skilled and motivated executives are considered key to achieving its long-term objectives and maximising stakeholder value. This report sets out the Group s remuneration policy, including short-term and long-term incentives, and how it has been implemented in the current year. Remuneration Committee In line with best practice set out in King III, the Group s Remuneration Committee is appointed by the Board of Directors and has the delegated authority, in accordance with its terms of reference, to review and make decisions regarding the Group s remuneration policies and the implementation thereof. The terms of reference were formally adopted by the Board during the current reporting period and the three committee members that were appointed are: Nazeem Khan (Chairman) Leon Campher Ruth Benjamin-Swales All three members of the Committee are independent non-executive directors and they met twice in the current reporting period. Other members of the Board and external consultants may attend the meetings by invitation. The Committee appointed an external reward consultant, PricewaterhouseCoopers Inc., to assist with the formulation and implementation of the Group s remuneration policy. The Committee fulfilled the following main duties in the reporting period: The review and formulation of the Group s remuneration policy, which encompasses the recruitment, retention and termination of senior executives services Approval of the overall pay mix for executive directors, including long-term incentives ( LTI ) and short-term incentives ( STI ) Approval of the Group s LTI as a conditional share plan ( CSP ) and the related performance and service vesting conditions Approval of a short-term bonus scheme and the related performance metrics Approval of non-executive directors emoluments and increases for the next reporting period Approval of executive directors guaranteed pay and increases Remuneration policy The Group s guiding philosophy is to attract and retain highcalibre, appropriately skilled and experienced executives. Having highly skilled and motivated executives are considered key to achieving its long-term objectives and maximising stakeholder value. Ensuring management and shareholder alignment through meaningful equity participation is considered integral to this. Executive remuneration should also be fair and reasonable while being in line with the Company s and individual s performance as well as market trends. Benchmarking and pay mix To ensure that the Group s total remuneration packages and pay mix are appropriate for the market in which it operates, external benchmarking was undertaken during the reporting year. Executives remuneration was balanced between total guaranteed pay ( TGP ), STI and LTI. To encourage retention and align executives interests with those of other shareholders, the LTI was set at more than 30% of the remuneration mix and set out in the table below: Equites pay mix 100% 80% 60% 40% 20% 0% 35% 24% 41% 35% 22% 43% 32% 20% 49% CEO CFO Executive directors TGP STI LTI Total guaranteed pay TGP consists of the guaranteed cash salary and benefits, and is determined by the scope of the role, performance and experience. These amounts were benchmarked during the reporting year and will be reviewed on an annual basis by the Remuneration Committee. The TGP paid to the executive directors in the reporting period is detailed in note 19.4 to the Annual Financial Statements (page 59 of the integrated report). 24 // INTEGRATED REPORT 2015

27 After careful consideration, the Remuneration Committee has approved a 6% aggregate increase in TGP for the next financial year. Short-term incentives The Group has adopted a multiplier-based STI plan incorporating business and individual modifiers. Multiplier STIs, which are calculated as a percentage of TGP, are in line with best practice trends, as a multiplicative approach allows for both Company financial objectives and individual (as well as strategic objectives) to be considered in the determination of bonuses. As a start-up it is important that certain strategic growth objectives are met. Incentivising executives to achieve strategic objectives is therefore supported by the individual modifier in the bonus formula. STIs are payable annually after being approved by the Remuneration Committee and the release of the audited financial results on which the financial modifiers are based. The STI due to the executive directors for this reporting period is detailed in note 19.4 to the Annual Financial Statements (page 59 of the integrated report). Long-term incentives The CSP is designed to attract, retain and reward executives through the annual and ad-hoc awarding of conditional shares. It will allow executive directors to share in the success of the Company and be incentivised to deliver the business strategy of Equites over the long-term as well as create alignment between key employees and shareholders. To balance retention and reward objectives, 40% of CSP awards are subject to a three-year service condition and 60% to a three-year service condition as well as business and personal performance conditions. Details of awards made during the year are as follows: Name Grant date Issue price Number of shares Andrea Taverna-Turisan 29 October 2014 R Riaan Gous 29 October 2014 R Bram Goossens 29 October 2014 R Management other than directors 29 October 2014 R Total conditional shares awarded and balance at year end Non-executive directors emoluments Non-executive directors do not have employment contracts and do not receive any benefits associated with permanent employment. Their fees as directors are determined as a base fee and the attendance fee is based on their Board and committee obligations. The fees paid to executive directors in the reporting period are detailed in note 19.3 to the Annual Financial Statements (page 59 of the integrated report). The proposed fees for the next financial year is as follows: Role Base fee Attendance fee Chairperson of the Board R R Board member R R Chairperson of sub-committee R Member of sub-committee R Based on the current planned meeting schedule, the above fees total R1.198 million for the coming reporting period. The proposed fees will be tabled for approval by shareholders as required by the Companies Act, 2008 (Act No. 71 of 2008), as amended) at the Group s annual general meeting to be held on 21 July Nazeem Khan CHAIR: REMUNERATION COMMITTEE Cape Town 12 May 2015 INTEGRATED REPORT 2015 // 25

28 ANNUAL FINANCIAL STATEMENTS EXECUJET COMPLEX, CAPE TOWN INTERNATIONAL AIRPORT. 26 // INTEGRATED REPORT 2015

29 CONTENTS DIRECTOR S RESPONSIBILITY FOR THE ANNUAL FINANCIAL STATEMENTS 28 DECLARATION BY THE COMPANY SECRETARY 28 AUDIT AND RISK COMMITTEE REPORT 29 DIRECTORS REPORT 31 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF EQUITES PROPERTY FUND LIMITED 33 STATEMENT OF FINANCIAL POSITION 34 STATEMENT OF COMPREHENSIVE INCOME 35 STATEMENT OF CASH FLOWS 36 STATEMENT OF CHANGES IN EQUITY 37 ACCOUNTING POLICIES 38 NOTES TO THE ANNUAL FINANCIAL STATEMENTS 44 The annual financial statements for the year ended February 2015 have been audited by Moore Stephens Cape Town Inc., in compliance with the applicable requirements of the Companies Act, The audited annual financial statements were prepared by Mr B Goossens, CA(SA). INTEGRATED REPORT 2015 // 27