Strategic objective   Key risk   Probable effects   Severity of risk   Stakeholder   Strategic response   Key performance indicator   2014 achievements   Read more
Focus on sustainable income growth
   Slowdown in consumer spend affecting retailers’ trading densities and rent ratios (gross rent to turnover ratio)  
Grey bullet Slower retail sales growth affects retailers’ financial positions and ability to pay rent
Grey bullet Leases not renewed
Grey bullet Discounted rentals to retain tenants
Grey bullet Lower distributable income
  High   Providers of capital (debt and equity investors, financial institutions)

Tenants		  
Grey bullet Facilitate strong trading environments by developing shopping destinations of choice through exciting brands, flagship stores and an attractive tenant mix in a safe, clean and friendly environment
Grey bullet Increase time spent in centre through initiatives such as wi-fi and active social media strategies
Grey bullet Strong lease agreements with financially sound tenants (most tenants are reputable national companies with strong balance sheets and proven business models)
Grey bullet Provide economic and geographic diversification through Atterbury Africa
  Arrears, trading densities, rent affordability   Trading density growth: +7,0% (2013: +6,8%)

Rent ratio: +6,9% (2013: +6,9%)

Total arrears (excluding Rosebank Mall) R14,3 million (2013:
R17,1 million)		   Page 5, 8, 22
  Increased supply of retail space  
Grey bullet Unable to retain tenants
Grey bullet Tenants become more demanding on leasing terms
Grey bullet Increased pressure on renewal rates
Grey bullet Increased vacancies
Grey bullet Lower rental growth
Grey bullet Lower or no distribution growth
  High   Providers of capital (debt and equity investors and financial institutions)

Tenants		  
Grey bullet Most shopping centres are well established, in dominant locations and thus attract flagship stores
Grey bullet Demand for space in Hyprop centres continues to outstrip supply, resulting in a strong pipeline of prospective tenants
Grey bullet Meet tenant demand through extensions and tenant relocations
Grey bullet Executive committee meets monthly to discuss operational performance and any other matters
  Leasing activity, rental growth, contractual escalations, workload (percentage of total leases expiring in one financial year)   Total lease activity: 134 957m2 (retail: 113 206m2; offices: 21 751m2) 16,9% of total portfolio

Rental growth: 8,3% (retail: 8,2%; offices: 8,6%)

Contractual escalations: 8,2% (retail: 8,2%; offices: 8,4%)		   Page 8, 22
  Negative impact of extensions to existing operations/income during construction  
Grey bullet Lower footcount and longer recovery period after a major extension, resulting in tenant failure
Grey bullet Lower income as rentals are reduced during construction
Grey bullet Increased short-term vacancies
Grey bullet Lower distributable income
Grey bullet Loss of shopper support
  High   Providers of capital (debt and equity investors and financial institutions)

Tenants

Shoppers		  
Grey bullet Detailed analysis and research prior to approving extensions
Grey bullet Professional teams have strong oversight from dedicated development executive
Grey bullet Large redevelopments usually phased to limit disruption to sections of the mall at a time
Grey bullet Use reputable consultants, contractors and professionals with experience
Grey bullet Stringent pre-letting requirements
Grey bullet Project pipeline and progress discussed monthly at executive committee meeting
  Delivery of key project milestones   Rosebank Mall delivered on time and within budget

Fully let		   Page 8, 33
Focus on sustainable income growth
   Lease renewals and tenant retention

Significant volume of leases expiring in any one period		  
Grey bullet Inability to renew leases or retain tenants means increased vacancies and prolonged periods of vacant space in shopping centres
Grey bullet Negative rent reversion
Grey bullet Negative impact on budgets
  High   Providers of capital (debt and equity investors and financial institutions)

Tenants		  
Grey bullet Proactively managing lease expiries
Grey bullet Strong pipeline of prospective tenants
Grey bullet Monthly lease expiry and related workload reports to Exco
Grey bullet Close engagement with tenants throughout their tenure
Grey bullet Staggering major leases
  Workload   Number of leases renewed: 278

Number of new leases: 133

Occupancy: 97,6%

FY15: 25% of total GLA expiring		   Page 8, 30
  High reliance on retailer expansion plans  
Grey bullet Retailers curb expansion plans
Grey bullet Budgets impacted
Grey bullet International brands are unsuccessful
  Medium   Providers of capital (debt and equity investors and financial institutions)  
Grey bullet Optimal tenant mix
Grey bullet Optimal space
Grey bullet Secure strong pipeline of prospective tenants
Grey bullet Adequate security from tenants
Grey bullet Regular tenant reviews
  Workload   Number of leases renewed: 278

Number of new leases: 133

Occupancy: 97,6%		   Page 8, 22, 30
To own quality shopping centres in Africa
   Currency risk  
Grey bullet Unable to repatriate funds due to illiquid currency markets or capital restrictions
Grey bullet Reduced distributable income
Grey bullet Excessive volatility in exchange rates
  Medium   Providers of capital (equity and debt investors, financial institutions)  
Grey bullet Matching debt with income (USD)
Grey bullet Consider hedging exposure in terms of material dividends received
Grey bullet Restructured African Land
  Size of dividend
(current % of income)		   Received
R4,8 million in dividends from Atterbury Africa and
R30,3 million from African Land		   Page 12
  Political risk  
Grey bullet Governments adopt policies that are to the detriment of foreign investors, particularly movement of capital, taxation and land ownership
  Medium   Providers of capital (equity and debt investors, financial institutions)  
Grey bullet Vigorous due diligence of target countries
Grey bullet Target countries have stable political regimes and proven democracies
Grey bullet Experienced local operating teams
  Ability to operate   Ghana and Zambia have proved relatively stable and investor friendly   Page 12
  Operating environment  
Grey bullet Operating cost increases significantly, specifically municipal costs, rates and taxes
Grey bullet Cost of development increases exponentially, increasing the need for funding and impacting returns
  Medium   Providers of capital (equity and debt investors, financial institutions)  
Grey bullet Employ local teams
Grey bullet Partner with an experienced operator
Grey bullet Implement optimal holding structures
  Ability to deliver development projects on time and within budget

Ability to conduct day-to-day operational activity		   West Hills on track for completion in October 2014

Accra Mall and Manda Hill operating well		   Page 8, 22, 30
  Security  
Grey bullet Increased violence
Grey bullet Terrorist target
  Medium   Providers of capital (equity and debt investors, financial institutions)  
Grey bullet Ongoing surveillance of security environment
  Proximity of recent attacks and likelihood of attacks   Zero attacks on current investments   Page 8
  Investment risk  
Grey bullet Returns below expectations
Grey bullet Default on shareholder funding
  Low   Providers of capital (equity and debt investors, financial institutions)  
Grey bullet Joint control of operating company, Atterbury Africa
Grey bullet Minimum initial return of 8%, escalating at 4% annually
Grey bullet Investment currently relatively small
  USD-denominated yields of 9% to 9,5%   Acquired Manda Hill

Strong pipeline of
development projects		   Page 12
Focus on continuous portfolio improvements through developments and redevelopments, acquisitions and disposals
   Low-yielding investment strategy  
Grey bullet Lower growth in distributions
Grey bullet Inefficient capital allocation
  Medium   Providers of capital (debt and equity investors and financial institutions)  
Grey bullet Regular review of strategy against macro-economic environment, operating landscape, returns and risk tolerance
Grey bullet Detailed analysis and research prior to approval
Grey bullet Meet pre-letting requirements
Grey bullet Disposal of non-core assets
  Approved investments   Disposal of non-core assets
R205 million

Acquired Somerset Mall (Western Cape) for
R2,3 billion and Manda Hill Shopping Centre (Lusaka, Zambia) for R768 million

Refurbishments and expansions of R58,8 million (2013:
R27,8 million)

Equipment replacement:
R28 million (2013: R16,6 million)

Allocated
R3 billion to sub-Saharan Africa (2013: R750 million)

Strong pipeline of approved projects in sub-Saharan Africa		   Page 8, 12
Providing the highest level of service to our tenant stakeholders
   Increased cost of occupancy from rates, taxes and utilities  
Grey bullet Unable to recover tenants portion of consumption means lower distributable income
Grey bullet Lower rentals to retain certain tenants
  High   Tenants

Providers of capital (equity and debt investors and financial institutions)		  
Grey bullet Planning and implementing methods to measure and reduce consumption of utilities
Grey bullet Successfully objected to incorrect valuations
  Cost of occupancy   Saving of
4,9 million kWh and
R5,9 million		   Page 8, 44
  Deterioration of municipal administration and service delivery  
Grey bullet Incorrect utility billings
Grey bullet Unable to optimise bulk and pursue large-scale extensions to meet tenant demand
Grey bullet Delays in transfer of acquisitions and disposals
  High   Tenants

Providers of capital (equity and debt investors and financial institutions)

Shoppers		  
Grey bullet Working closely with professional consultants to optimise local authority approval processes
  Town council approvals received, utilities recovered   Timely transfer of Somerset Mall   Page 8
  Cost and supply of electricity and water  
Grey bullet Prolonged periods of power outages resulting in sub-optimal trading conditions (or even mall closure)
Grey bullet Unable to extend shopping centres to meet tenant demand
Grey bullet Excessive increase in cost of occupancy impacting recoveries and renewals
  High   Tenants

Providers of capital (equity and debt investors and financial institutions)		  
Grey bullet Numerous projects under way to reduce consumption
Grey bullet Tenants guided by tenant criteria document, with guidelines on reducing electricity consumption
Grey bullet Introducing smart metering
Grey bullet R8 million solar photovoltaic plant at Clearwater Mall
  Water and electricity consumption   Saving of
4,9 million kWh and
R5,9 million

Total electricity consumption down 5,34% year-on-year		   Page 44
Maintaining a conservative debt profile
   Lack of available funding  
Grey bullet Inability to pursue investment opportunities
  Low   Providers of capital (debt and equity investors and financial institutions)  
Grey bullet Maintain conservative gearing levels
Grey bullet Ensure available funding to cover capital requirements
Grey bullet Diversified sources of funding
  Undrawn facilities and capacity under debt capital market programme, covenants   Issued six-year bond

R1,7 billion in undrawn facilities

R2,3 billion capacity under R5 billion debt capital markets programme

Interest cover ratio: 3,4 (covenant: not less than 2)

Gearing: 28,4% (covenant: not greater than 50%)

NAV as defined for purposes of the covenant: R19,2 billion (covenant: not less than
R7,5 billion)		   Page 12
Managing exposure to interest rate fluctuations
   Rising interest rates  
Grey bullet Increased borrowing costs result in reduced distributable income
  Low   Providers of capital (debt and equity investors and financial institutions)  
Grey bullet Fixed rate target of 80% and five-year average cover
Grey bullet Proactive risk management of debt profile
Grey bullet Staggering fixed interest rate expiries
  Maturity profile, cost of funding   Average maturity: 3,03 years (2013: 3,5 years)

Average fixed rate contracts and swaps: 4,24% (2013: 4,3%)

Average interest rate on total debt of 7,5% (2013: 8,1%)		   Page 12
Attracting and retaining the best people
   Shortage of skills may result in an inability to recruit required executive staff and have increased costs of retaining key executives and staff  
Grey bullet Strategy execution at risk
  Medium   Providers of capital (debt and equity investors and financial institutions)  
Grey bullet Retention strategy includes performance incentives, remuneration benchmarking, personal development plans
Grey bullet Share scheme implemented
  Strategy implementation   Distribution growth of 11,3%   Page 12, 39
  Succession planning  
Grey bullet Departure of executive directors and key executives
Grey bullet Strategy execution at risk
  Medium   Providers of capital (debt and equity investors and financial institutions)

Employees

Suppliers

Tenants		  
Grey bullet Succession plans reviewed biannually by nomination and remuneration committee
Grey bullet Current structure allows for continuity of day-to-day operations
  Staff turnover   Low staff turnover: 3,9% (2013: 4,0%)

Implementation of long-term incentive scheme to address retention		   Page 39
  BEE

 

  
Grey bullet Current BEE level of 8
  Low   Providers of capital (debt and equity investors and financial institutions)

Employees

Suppliers

Tenants		  
Grey bullet Identified as a strategic imperative
Grey bullet Plan in place to achieve incremental and sustainable improvements
  Independent BEE rating   Received first independent rating   Page 39