PROPERTY JOURNAL 1ST EDITION MAY 2017

Transcription

1 PROPERTY JOURNAL 1ST EDITION MAY 2017

2 Contents Introduction by Guest Editor Nick Wilson... Message from the Chairman of SA REIT Association, Laurence Rapp... What next for SA REITS?... The preference for retail REITS prevails... Risk and reward of investing outside SA... Meet the CEO: Amelia Beattie... Meet the CEO: Izak Petersen... The ESG value play

3 Introduction by Guest Editor Nick Wilson, Business Editor of Business Day It has been more than eight years since I covered property regularly and during this time there have been some dramatic changes in the sector. Not only have the confusing property unit trust and property loan stock structures finally been replaced by the internationally recognised real estate investment trust (REIT) system, but the listed sector has become one of the most active on the JSE in terms of new listings and mergers & acquisitions. When I first joined Business Day as a property reporter in May 2003, the listed property sector then was unrecognisable from the one it is today. At the time the listed property was not on the radar screens of fund managers because the market capitalisations were too small and the lack of liquidity was another issue. The goal of most CEOs I interviewed as I came to grips with understanding the listed property sector was to grow their funds market capitalisations to R2bn. It is hard to believe but at the time that was the level considered essential if a property fund was to be taken seriously by institutional investors. Bridge Fund Managers chief investment officer Ian Anderson recently confirmed that the largest company by market cap in May 2003 was Fountainhead at just over R2.5bn. Growthpoint Properties and Redefine Properties had market capitalisations of R1.8bn and R1bn respectively. Anderson says the total market capitalisation of the companies on the JSE that today would be classified as SA REITs was just over R18bn in May 2003, says Anderson. Fast-forward almost 14 years and it is a completely different picture. While there are still a similar number of companies SA REITs in 2017 compared to the 26 in existence in 2003 the increase in size and liquidity has been nothing short of extraordinary. Anderson says the sector s total market capitalisation today is R380bn, some 20 times larger. Fountainhead, of course, is no more having been swallowed by Redefine, which now has a market cap of about R60.6bn. Growthpoint, the largest of the South African-based REITs, has a market cap of about R75.1bn. What we see today is a sophisticated sector, which in terms of total returns, has consistently outperformed other general equities over a 15 year period. Be that as it may, investors in listed property will have to be more circumspect when it comes to stock picking in the future because the easy money has already been made. During the property boom of the mid-2000s an investor could have taken a shotgun approach to investing and made money from most property counters. But now the market has matured and 3

4 the difference in performance between the various listed property counters can be quite substantial. What is apparent (one of the interesting articles in this first SA REIT Journal indicates the same) is that funds with a retail bias continue to be favoured by investors. Generally, property funds that have outperformed the sector s average distribution growth tend to own high quality retail properties which dominate their catchment areas. South Africans love to shop and I cannot see this changing any time soon. Another interesting development in recent years has been the influx of foreign inward listings which are going to increasingly compete with South African-based property funds, which also have their own offshore exposure, for the hearts and minds of investors. More of these types of listings are expected. While some years ago there were only a handful of property funds that offered offshore exposure, now every South African counter does. Keillen Ndlovu, head of listed property funds at STANLIB, says the management teams of prospective new listings have been making visits to SA arguing they have better knowledge of their own markets than the South African players do. South African property funds, which have undoubtedly been world leaders when it comes to deal making, are going to be kept on their toes in the coming years as they defend their turf. This means sweating existing assets and coming up with new and innovative ways of getting the best possible returns from existing assets. Considering the extraordinary achievements of South African REITs over the past 14 years, it would be a brave soul who bets against them meeting this challenge head on and coming up with the necessary goods. 4

5 Message from the Chairman of SA REIT Association, Laurence Rapp WELCOME TO THE 1 ST EDITION OF THE SA REIT PROPERTY JOURNAL This publication represents the next step in developing a comprehensive suite of meaningful information platforms for our industry. One of the major tasks of the SA REIT Association is regular communication with our stakeholders, including our REIT members, their management teams, the sector s investor base, its funders and anyone interested in knowing more about REITs. I would like to thank our marketing team for launching this new journal and our first edition sponsors, Nedbank, for helping to make it happen. The South African listed property sector is now one of the largest sectors on the JSE by market capitalisation and continues to grow in liquidity. There are now four REITs among the top 40 companies on the JSE. The international REIT market is seeing global giants coming out of South Africa. Positively, our vibrant, active sector has become increasingly accepted as an indispensable part of the investment landscape by the broader investment community. The significant collective efforts of our members to promote the sector s image all contribute to this. We have established greater awareness and understanding of REITs as a result of our regular communication and media engagement, which has also attracted new investors to the sector. We will continue to build on this foundation of valuable communication to demystify the sector. The SA REIT Journal goes a long way in achieving this. The listed property sector has become an engine for significant wealth creation in the SA investment community. It demands attention from investors, having been the best performing asset class over 14 years and second best over one year. The latest results from the sector show it has far outperformed the prevailing macroeconomic factors. The strong entrepreneurial streak within REIT management teams and their excellent deal-making skills allow the sector to perform above its inherent growth potential given the stagnant economy. Many of the CEOs and CFOs from these management teams volunteer their time to chair the committees of SA REIT. Taking the industry forward, SA REIT has adopted a more structured approach to its operations that ensures participation is as broad as possible. 5

6 Its executive committee, committee chairs and committee members represent the sector s interests commendably in their specific areas. The SA REIT sector continues to be a hotbed of creativity and entrepreneurship, and the sector s capacity for creative deal-making will continue to drive good earnings ahead of inflation. While there may be signs of the industry maturing locally, we expect to see continued expansion offshore that targets more than a simple currency hedge but also allows our skilled and credible local teams to apply their know-how in international markets. We still hold strong in our view that SA equity investors remain underweight in their property allocations, given various studies published by asset consultants. We acknowledge that to get weighted the sector would have to find another trillion Rand worth of property. Notwithstanding the sector s drive grow our asset base, there has been a significant slowdown in local acquisition activity, because of the weak domestic economy and this is exacerbated by mispricing in the physical property sector given the yields available in the listed sector. While SA REITs have started to invest in new subsectors locally, such as storage, residential and healthcare property, these assets are still far from being sufficient to support the sector s growth. This is spurring the sector s offshore investment, which is being driven by the ability to raise capital in South Africa. Also, investors like it and are looking for greater exposure. With an economy that is stagnant and an increasingly difficult operating environment, there are fewer opportunities for new development locally, and most development will be centred around existing assets. For more domestic developments and acquisition activity, we will need to see growth coming back into the South African economy, greater political stability that removes the spectre of a ratings downgrade and much more efficiency and responsiveness in local planning issues. As the organisation representing the premium property assets in the country, SA REIT is ideally positioned to engage with government and be proactive in finding and supporting solutions in these areas. We acknowledge our role in the greater economy and support its transformation. We remain firmly of the view that SA REITs are an exceptional investment vehicle through which property ownership can be achieved by the entire population, but specifically those previously excluded from the economy. With REITs, people gain access to property investment at a lower quantity than would usually be expected for investment, and at a small fraction of the cost relative to direct investment. As an innovative, entrepreneurial sector that is growing both its investor base and assets, locally and internationally, SA REITs are set to continue their sterling track record of outperformance. We look forward to sharing our successes, challenges and milestones with you in the pages of the SA REIT Property Journal. 6

7 What next for SA REITS? PEERING THROUGH MURKY WATERS Trumponomics and interest rate increases in the US, the start of Brexit in the UK, volatile elections in prominent European countries, and increasing factionalism and political noise in SA. All of these, among other things, promise to make the next 12 months an interesting time for the SA listed property sector (SAPY) and estimates of the return it will offer in this period differ very widely. As it is, the sector only achieved a total return of 10,2% in following a disappointing 8% in 2015 and while it did outstrip equities (2,6%), it was beaten by bonds (14%) for the first time in 13 years. Some of the factors which influenced this performance were carry-overs from 2015, including the effects of the first Federal Reserve interest rate increase since 2006, concerns about slower growth in China, and of course the collapse of the rand following Nenegate in December Others were the unexpected outcomes of the Brexit referendum and the US presidential election, and the very real prospect of a ratings downgrade for SA. And trepidation around these issues continues. Although the rand has strengthened considerably, the Fed has forecast three interest rates this year, Chinese economic growth doesn t seem to have bottomed out yet, and a ratings downgrade continues to loom unless SA can start to deliver better growth and employment numbers. Conditions on the ground are tricky too. Mohamed Kalla, analyst at Sesfikile Capital, expects weaker trading densities in retail centres to continue to translate into weaker negotiating power for property owners, even though some local retailers are still looking to grow their footprint and foreign retailers such as CottonOn, H&M, Zara and Forever21 are expanding their space requirements across the country. Vacancies are still relatively low at 5% with the bigger assets proving more resilient as regional and super-regional centres settle at 2% and 3% respectively. But we foresee more store closures in 2017 as Edcon, for example, pushes forward with its strategy of closing underperforming stores and this is definitely going to increase vacancies and put downward pressure on rental growth in second tier centres. As for offices, he says, demand remains weak due to low business confidence and corporates are currently much more likely to consolidate existing space than take up more or move to new premises. Supply dynamics aren t overly concerning as the existing pipeline amounts to 4,5% of existing space with two thirds pre-let, but we think vacancies could test the 10% to 12% ceiling this year and that rental growth will continue to be muted as landlords defend occupancies. And on the industrial front, vacancies are currently at their highest levels for some years, and rental growth has been muted for some time because low replacement costs mean that there is a constant threat of new supply. 7

8 Indeed, so uncertain is the current scenario that predictions for growth in the SAPY range from as low as 3% in a bear market to more than 15% in a bull market - although most commentators believe it will settle somewhere between 8% and 10% by year-end. There is of course one major factor in favour of the sector, which is the relatively certain forward yield of more than 7%. This is a great comfort to many investors in a world where yields are hovering around all-time lows and capital values are vulnerable. Looking back 10 years, notes Kalla, just under half of the SAPY s 16,4% average annual total return was made up of distribution/income, and this annuity stream continues to drive the investment case for property. What is more, there have been some very strong outperformers, especially among the SA REITs, which distributed some R24,7bn to their investors in

9 There are, though, some big questions now as to how these funds should proceed, given that they have already bought up most of the investment-grade commercial properties in SA. Should they redevelop and improve the value of their own assets, or perhaps develop new ones? Should the bigger REITs be looking to expand their portfolios through the acquisition of smaller ones? Or should they be investing offshore? Opinions are mixed, as is clear from the various corporate actions taken over the past year (See sidebars), but discernment is essential whatever deal is being considered, says Old Mutual Investments analyst Evan Robins. For example, there is a rush to acquire assets abroad at the moment, especially in Europe where the funding costs are low, but we are of the opinion that the SA REITs would often actually do better to focus on their existing assets and redevelop or improve these to optimise value and potential returns. They may not have the necessary expertise to operate in foreign markets and the whole dynamic of these investments can change when the rand strengthens as it has done recently. Similarly, companies need to ensure that any merger or portfolio acquisition transaction they consider will really add value and not just size. Meanwhile, local is definitely lekker at the moment from an investor point of view, as the SA-focused property stocks listed on the JSE continue to perform much better than foreign REITs such as Capital & Counties Properties, NEPI, Stenhold, Intu Properties and Tradehold. FEWER LISTINGS In 2015 there were seven new property listings on the JSE, including Indluplace Properties, New Frontier Properties, Lodestone Properties, International Hotel, Capital & Regional, Balwin Properties and Schroder Real Estate. In 2016, there were just four, including Liberty Two Degrees, Greenbay Properties, Echo Polska Property and Hammerson, and there are currently more on the radar for MORE M&AS The listed property sector appears to be in a consolidation phase, with several mergers and acquisitions having taken place in the past year and more on the cards. The recent corporate actions include the Redefine acquisition of Pivotal, the Fortress Income Fund acquisition of Lodestone REIT, the Rebosis acquisition of Billion Group and the formation of GemGrow Properties as a result of a tri-partite agreement between Vukile Property Fund, Synergy and Arrowhead Properties. Next on the list is the merger of New Europe Property Investments (Nepi) and Rockcastle Global Real Estate, to create a single REIT worth some R84bn. Meanwhile, Hospitality Property Fund is currently in talks with hotel group Tsogo Sun to buy more of its hotel assets for about R3,3bn. MORE OFFSHORE INVESTMENTS Several of South Africa's REITs already have exposure to markets in the UK, Australia and both Western and Eastern Europe, and they continue to seek new offshore opportunities. In 2016 Redefine Properties partnered with Echo Investment in Poland and Growthpoint Properties partnered with Globalworth Real Estate Investment in Romania, while Resilient and Fortress added Greenbay to a whole array of offshore interests. Hyprop has also entered Eastern Europe recently by buying three shopping centres in Serbia, Montenegro and Macedonia, while Tower Property Fund has assets in Croatia, and Accelerate Property Fund has investments in Slovakia as well as Austria. Meanwhile, both Equites and Texton recently acquired more properties in the UK. 9

10 The preference for retail REITS prevails Retail-focussed REITs have provided significantly higher returns than diversified REITs or those specialising in office or industrial properties. They have produced higher distribution growth a function of higher rental growth and revenue-enhancing asset management activities. As long as South Africa achieves inflation-beating growth in retail sales, retail-focussed REITs will continue to generate above-average distribution growth. However, having already tightened their belts, many consumers are squeezed to the max. Also, competition between shopping centres is fiercer than ever before. Last year s relative performance would suggest that retail-focussed REITs are no longer the darlings of the sector, points out Ian Anderson, CIO (Chief Investment Officer) of Bridge Fund Managers Both Hyprop s and Resilient s share prices fell appreciably in the second half of the year, significantly underperforming the SA Listed Property (SAPY) index in the last six months of Nonetheless, these REITs continue to trade at substantial premiums to net asset value and on forward yields well below the sector average and South African government long bond yields. The market is still willing to assign a significant premium for REITs with portfolios dominated by large regional and super-regional shopping centres, explains Anderson. Liberty Two Degrees listed in December last year and, although not officially a retail REIT, Anderson says it has enough dominant retail exposure to put it into a similar category as Hyprop and Resilient. The pricing of Liberty Two Degrees s listing suggests investors in SA still have a healthy appetite for retail-focussed REITs. Research Analyst for Deutsche Securities, Equities Research, Ryan Eichstadt, confirms that Overall, we have a relative preference for the SA retail sector. At the same time, he notes certain retail sub-sectors will continue to outperform, confirming the view that dominant super-regional and regional centres will outclass other, smaller centres. Of course, large metropolitan malls are not the only type of retail property asset to offer a compelling investment case. Eichstadt still sees a fair measure of opportunities for rural retail in SA. As all consumers demand a higher standard of shopping experience, international brands, more choices, and better access, this could trigger new supply as well as selective redevelopment opportunities. Trends such as urbanisation and densification are also driving specific retail developments to cater for the growing needs of consumers in emerging catchment areas. However, the development of new retail space is likely to be throttled in the medium term as a result of macroeconomic factors such as household income, employment, GDP and service growth and the amount of space being taken up by SA s key national retailers. 10

11 We see scope for more extensions and redevelopments on existing retail centres, rather than greenfield developments, reports Eichstadt, cautioning that those retail centres which fail to refurbish, redevelop, and grow will lose market share to competition. Without a new product with the correct tenant mix, outdated retail centres will struggle, he warns. An advantage of retail property assets is that shopping centres can undergo regular upgrades and revamps to keep them fresh this is part of the life-cycle of a retail asset. It is one of the reasons that shopping centres typically have a far longer shelf-life than other property types. On the plus side, Anderson believes there will always be a place for convenience retail. He also stresses the resilience of local retailers. Many smaller retail tenants are struggling as economic activity in SA has slowed, but they will survive. Risks for retail property in SA include being highly dependent on key national retailers, both for space growth/take-up as well as real rental income growth. Around 40% of retail rental income in the country is generated from the same concentrated pool of little more than 15 retailers. This dependency dictates negotiating power between landlord and tenant. Failure or slowdown of these retailers would have a material effect on retail-specific REITs and their ability to demand inflation-beating escalations and maintain low vacancies. While small now, the shift to online shopping, whether with home delivery or click-and-collect, could increasingly keep people in upper income groups away from brick-and-mortar shopping. Responding to this, mall space is increasingly being converted into food and leisure offerings. Even so, entertainment at malls is also under threat from the rapid improvements in home entertainment systems. JSE-LISTED RETAIL REITS: Accelerate Property Fund Fairvest Property Holdings Hyprop Investments Oasis Crescent Property Fund Octodec Investments Resilient Property Income Fund Safari Investments Vukile Property Fund DRIVING SA S SHOPPING CENTRE DEVELOPMENT BOOM Shopping centres are a clear favourite with the SA consumer as a result of legacy issues, mainly transport and security, which has partly driven the retail space rollout over the past 8 to 10 years. Another significant driving force behind retail space growth lies with the key national retailers. A handful of tenants, 10 to 15 all-in-all, are responsible for around 40% of the total retail gross lettable area in SA. From 2006 to 2015, these retailers grew space aggressively to both protect and grow market share. During the same period, growth in total retail space (8.5%) and retail space density (6.5%) outpaced real retail sales growth (3%), population (1.5%), household consumption expenditure (3%) and real GDP growth (2.4%). In the same period, retail vacancies increased from 3.9% to 6.6% and average annual trading densities decreased to R17,595/m², an implied compound annual growth rate of -1%. AS SOLID BASE WITH AN ANNUAL INFLATION UNDERPIN SA has a relatively unique rental structure, with base rentals escalating at a fixed rate, usually between 6% and 9% a year, thus providing the investor with an underpin to income growth, one that has generally matched or beaten inflation. Over and above this, base rentals make up over 95% of total retail rental income. Turnover-linked rentals are fairly insignificant. 11

12 There are also traditional mall tenants that may require significantly less space in the future, including banks as shoppers move to cashless and cardless payments systems. While retail property may be losing a little of its shine in an excessively tough market, all signs point to it remaining the real estate sector of choice. We rank retail-specific funds above diversified and other specialised funds, says Eichstadt. Although diversified funds give the investor more choice and, to some extent, diversification, retail funds have a focused mandate in a sector that has and should continue to provide investors with real returns. He asserts the majority of SA REITs are extremely well managed and repositioned when required. However, fundamentally, retail assets are better positioned to generate higher real returns in the medium term, Eichstadt says. GROWING RENTAL STREAMS For the retail REITs, rental growth is typically consistent around 6% to 8% per year, given the longer leases of anchor tenants and inflation-beating retail sales growth in SA. However, it is becoming more difficult for retail landlords to demand 8%-plus annual escalations in an environment where the retail landscape is becoming more competitive. SA HAS MORE SHOPPING CENTRES PER PERSON THAN OTHER EMERGING MARKETS In 2015, South Africa had over 1,940 retail centres larger than 2,000m2. They spanned more than 23 million square metres of gross lease area and recorded an average retail space density of 427m²/1,000 people the highest retail space density among its emerging market peers, with the emerging market average being 167m²/1,000 people. Yet local shopping centres achieved an average annual trading densities of R30,611/m², or around US$2, the lowest of its comparable peers. Looking at developed markets, specialised funds tend to attract investors who want exposure to a particular sector for specific reasons. Although fairly nascent, over the past eight years the SA REIT sector has seen double-digit compound growth in size, investor interest and confidence, reports Eichstadt. I believe some diversified funds may position their portfolios to be retail-weighted due to the structural tailwinds where possible, and similarly others may choose to be more sector focused in office, industrial or residential. Says Anderson: I wouldn t be surprised to see further listings of retail REITs in the next two to three years. 12

13 Risk and reward of investing outside South Africa By Len van Niekerk, Senior Property Analyst, Nedbank CIB SOUTH AFRICA S LISTED PROPERTY SECTOR IS AN INTERNATIONAL INVESTMENT DESTINATION The internationalisation of the listed property sector has been nothing short of spectacular. There are currently 12 pure play international listed companies, which account for about 40% of the entire market capitalisation of the listed sector. When taking into account the international exposure of domestically orientated funds, effective exposure of investors to international assets accounts for more than 50% of market capitalisation. Excluding factors such as market capitalisation, gearing, free float factor, and index inclusion and only looking at the rand value of the physical assets that South Africans have access to through the JSE, that figure increases to 60-65% across more than 25 different countries. The large 32% component of UK is attributed to the likes of Intu, Capital & Counties, Hammerson and Capital & Regional which all have listings on the JSE. Location of the physical assets of JSE listed property counters Source: Company data, Nedbank CIB Furthermore, externalisation of investment has also taken the form of inward listings. In reality, they are South African companies listed on an international stock exchange, often a tax friendly one, that then lists on the JSE and raises virtually all of its equity from South African investors. Examples of these include Nepi, Rockcastle, Greenbay, Delta Mara, MAS Real Estate and a few others. 13

14 WHY JUMP THE FENCE? A combination of push and pull factors are behind the externalisation of investment capital. Pull factors: Positive yield spreads Companies are able to acquire properties at yields of 5.5-8% which is higher than the cost of debt (1.75-3%) depending on the region. Compare this to South Africa where unhedged funding costs are c.9% and above 10% after hedging interest rate risk, and quality assets trade at 8-8.5%, and even lower. Investors are in a positive cash flow position on day one in European countries as opposed to only after a few years in South Africa. There is a massive incentive to do initially yield accretive deals in international markets that add to short-term growth, but achieving medium to longer-term growth is a challenge in low inflation environments. Higher GDP growth areas The Central and Eastern European region offers higher economic growth, lower (and falling) unemployment levels, rising per capita income, a well educated population, cheaper debt and historic under-investment in real estate (although the last factor is changing). Investment opportunities The quality of listed South African companies portfolios has improved over the years and the challenge is where to acquire quality assets. Globalisation and diversification are natural phenomena when economic growth is low and most local property markets are mature as is the case in South Africa. Going international has given investors access to a wider range of return types and assets with different risk and return profiles as well as hard currency earnings. Historic and forecast GDP growth rates Source: Bloomberg, Nedbank CIB 14

15 Rand weakness externalising capital has been right long term decision (Index January 2000=100) Source: Bloomberg, Nedbank CIB Push factors: Tough trading conditions in South Africa with a worrisome outlook South Africa s GDP growth rate has been is forecast to be lower than most of the regions in which South African listed property companies have invested (See chart: Historic and forecast GDP growth rates). Furthermore, investors are keenly aware of the local risks posed by political uncertainty, policy volatility and credit downgrades. The weaker Rand The weaker Rand as a consequence of the above factors has no doubt played a part in this externalisation. The Rand has a long-term track record of weakening despite bouts of strength and foreign exchange gains are a powerful incentive to opt for hard currency investments. However, investing in foreign assets that do not offer growth in their local currency amounts to little more than currency speculation. GREEN GRASS CAN BE SLIPPERY There are a number of risks that can trip up investors in foreign countries. Political volatility in South Africa (events perceived as positive and negative) and the consequent Rand volatility is the largest and least-predictable risk that investors presently face in international property counters. Although political risk during the course of 2016 starting with Nenegate at the end of 2015 tended to be negative, some positive developments have seen the Rand find support. Investors into the UK saw the Rand scale R24.00 to the UK Pound before sliding to under R16.00 after the Brexit referendum which had a negative impact on their earnings. 15

16 Although some foreign regions have higher GDP growth than South Africa, often there is little to no rental growth. Unlike in South Africa, contractual annual rental escalations are uncommon or are indexed to low inflation rates of c.1%. Rentals can remain unchanged for five years before reverting up by 8% to market essentially one escalation every five years as opposed to one every year in South Africa. It is only through active asset management that investors will be able to make a meaningful difference to earnings growth. Passive long-term triple net leases leave little else to offer other than currency movements (up or down) to provide a change in earnings. Distance and local management - finding the right in-country partners and building local knowledge provides many opportunities to gain experience. A lack of knowledge about the tenant market and local market dynamics can lead companies to acquire properties in the belief that they offer secure income only to be disappointed. Some smaller locations offer higher yields but lack investor market depth and could prove challenging to sell. 16

17 Meet the CEO AMELIA BEATTIE, LIBERTY TWO DEGREES My business instincts come from my father who was an example of working hard, putting a lot of emphasis on quality relationships with people. He believed in innovation and trying new things. What is the most important lesson life has taught you? The most important lesson life has taught me is to never, never, never give up if you want something, don t stop until you achieve it. It has served me well for many years. Sometimes, you have to do the hard things, the things that scare you. These are the things that define you and that make the difference between mediocrity and success. What are a few of your favourite things? My husband and three daughters, and the joy they bring to my life. The quality of my life is in the quality of my relationships, so relationships with people are one of my favourite things. Sunsets on the beach. Good coffee and good wine! What s on your screensaver? A picture that I took of the sunset while on holiday in Kommetjie this year it reminds me of such a happy time, and makes me look forward to our next holiday. What is your greatest fear? How old were you when you had your first job in the property industry and what was it? My first job in the property industry was in 1999 (when I was nearly 30), and I was the Financial Controller at Riverside Mall in Nelspruit. I remember those early days in my career with much fondness it was a small team in an outlying area; although we all had our jobs, we jumped in whenever and wherever help was needed, learnt a lot and most importantly, had a lot of fun. Where do your business instincts come from? Turbulence on planes I don t like it, and get very scared flying through it! Those sitting next to me on the plane will know about this! 17

18 What do you owe your mother? My mother taught me compassion and the spirit of helping because there is so much joy in doing it she is probably the best example there is of that in this world. What is the worst thing anybody ever said to you? You will never get that done! What advice would you offer anyone starting out in REITs today? The REIT industry and the property industry at large have so many opportunities and have shown such immense growth over the last number of years. Our chief duty is to deliver on what we promise our investors they entrust us with their money (and many times money that they look after on behalf of other people), and we need to do with that what we promise to. And, we have to be accountable for our actions even when things go wrong. What do you love about our industry? I love the property industry, not only for its bricks and mortar and the investment returns that it generates but for the difference that it makes to people s lives and the communities it serves. It is an amazing industry with such great people that have become friends over the years. What change would you most like to see in the industry? When I was the SAPOA President a few years back, we used the theme don t forget the REAL in REAL estate. I want to make sure that, together, we make a real contribution to the industry, its people and the various communities in which we operate. That is my hope and dream for the property industry still today. What makes Liberty Two Degrees different from the rest? Liberty Two Degrees holds some of South Africa s most iconic assets. It has a proud heritage of many years being the darling of South African retail properties. What you see if what you get in Liberty Two Degrees it is the purest form of rental income that flows through to our investors. We have an extraordinary team of people that makes Liberty Two Degrees an incredible place to work a team that truly believes we are here to INVEST TO INSPIRE. 18

19 Meet the CEO IZAK PETERSEN, DIPULA INCOME FUND What are a few of your favourite things? Fishing, sports, reading and learning. Are you a technophobe or a technophile? I am in-between. I have no fear and no obsession for the stuff. Tell us about your guiltiest pleasure. A good braai, red meat. What s on your screensaver? Nature photographs. What is your greatest fear? To give anything less than my best. What do you owe your parents? Believing in me, even when they had no clue what I was busy with. What is the worst thing anybody ever said to you? Quit maths, you will never make it. How old were you when you had your first paying job and what was it? I was 14 or 15 and worked in a shoe and clothing shop. Where do your business instincts come from? My family were artisans, mainly working for themselves, maybe I got it from there. What is the most important lesson life has taught you? The misses and near misses bear the best lessons and, if correctly used, there is nothing better than coming back and doing it even better next time around. 19

20 What advice would you offer anyone starting out in REITs today? Property is not easy, but it is fun. It requires a little bit of around-the-corner vision and 120% commitment. Many people outside the sector believe it is a walk in the park. It s not. What do you love about our industry? The complexity, diversity, and the chance to innovate and create. How do you think REITs can make the biggest contribution to South Africa? By promoting and offering a relatively rewarding investment platform for retirement funds and individuals in a regulated and well-managed environment. What change would you most like to see in the industry? It is still a complete black box for many; it needs to be accessible. What makes Dipula different from the rest? We live by our motto: sustainable property returns. 20

21 The ESG value play ESG three little letters that increasingly have the power to open a chequebook. Positive environmental, social and governance impacts are no longer nice-to-haves for REITs. More investors are seriously considering this trio of sustainability factors when deciding where to place their capital, and with good reason. There is now a substantial body of evidence that demonstrates that property owners who invest in improving the sustainability performance of their properties also improve their financial performance. GRESB is an investor-driven organisation that assesses the ESG performance of real assets globally. From our perspective, it is clear why investors (should) increasingly focus on ESG: to optimise the risk/return profile of their investments. A REIT that fully integrates sustainability in its operations will manage risks better and create competitive advantages beyond utility cost savings, explains Rik Recourt, GRESB analyst. The largest South African primary listed REIT, Growthpoint Properties, is the only member of GRESB from South Africa and one of the few participants in the region. This might be because most South African REITs are not yet big enough on a global scale to attract international investors. However, this does not make ESG any less important, underscores Recourt. SA REITs recognise this or, at least, many of them do. Large and small, they have set out on their sustainability journeys. Hyprop Investments, Redefine Properties and Growthpoint are on the FTSE/JSE Responsible Investment Index, as are Capital and Counties Properties PLC and Intu Property PLC. For now, there are more REITs outside the sustainability indexes, but many are still measuring and reporting their sustainability gains. LINK ESTABLISHED BETWEEN SUSTAINABILITY INDICATORS AND REIT STOCK MARKET PERFORMANCE The University of Cambridge s study, The Financial Rewards of Sustainability: A Global Performance Study of Real Estate Investment Trusts, establishes that investing in sustainability pays off for investors in REITs, enhancing operational performance and lowering risk exposure and volatility. It found that a higher sustainability ranking in the annual GRESB REIT survey correlates to superior financial performance. Both the returns on assets and returns on equity of REITs with high ESG scores outperform their peers. Adjusted for risk, there is a significant link between portfolio sustainability indicators and REIT stock market performance. 21