Attacq reports solid growth for half-year; Waterfall mega development key to future growth

Morné Wilken, CEO of Attacq Limited.

Attacq Limited today posted a 5.1% growth in net asset value per share (“NAVPS”) for the six-months to 31 December 2014 and 20.8% growth in NAVPS for the full year compared to December 2013.

A leading JSE-listed property capital growth fund, Attacq is unique as its performance is measured by growth in NAVPS over the long-term.

Its latest results show Attacq’s total assets soaring beyond the R20 billion mark during the half-year, with its net rental income increasing by 78.0% year on year.

Morné Wilken, Attacq’s CEO, says the six-month performance showed moderate growth, but also saw several strategic goals achieved to support higher growth over the long-term as a capital growth fund.

“We delivered NAVPS growth of 20.8% year on year, which is pleasing for Attacq. Attacq is primed for real capital appreciation and higher growth over the long-term, as our income producing investment asset base increases with our extensive pipeline of developments. Currently, we are investing significant funds in infrastructure, particularly at our flagship and game-changing Waterfall mega development in Gauteng. Here, major projects, such as the Mall of Africa super-regional shopping centre, are set to be complete in 2016, and Attacq can look forward to significant future capital growth.”

He adds: “Investing in infrastructure is expensive and has a dilutionary impact on short term returns, but necessary to open up opportunities for development. Attacq’s infrastructure investment in Waterfall not only supports future opportunities, but ultimately the realisation of capital growth.”

Wilken says Attacq’s half-year performance was negatively impacted by the decline in the value of the Euro against the Rand, reducing the growth from Attacq’s investment in the European focused MAS Real Estate Inc (“MAS”). Another factor in the half-year performance was the fact that independent valuations for certain properties were negatively impacted by a conservative outlook on the filling of vacancies, reduced forecast on net property income and a 25 basis point increase in the market capitalisation rates applied to five properties.

Attacq’s business has two focus areas: investments and developments. Its investments comprise completed buildings held directly and indirectly. Its developments comprise land, greenfields development of land or brownfields development by refurbishment of existing buildings. Attacq’s investments provide stable income and balance sheet strength to responsibly secure and fund high-growth opportunities within developments.

The fund’s assets comprise landmark commercial and retail property assets and developments. Its portfolio of properties is geographically diverse across South Africa and includes a growing representation of international investments in sub-Saharan Africa and exposure to property investment in Germany, Switzerland and the United Kingdom via a strategic 45.4% stake in MAS.

In 2014, Attacq delivered 14 completed prime commercial developments, substantially boosting its investment properties and rental income streams.

Wilken comments: “We look forward to delivering significant value appreciation to our shareholders in future, with the successful completion of more developments in our quality pipeline of prime property projects.”

During the half-year, Attacq raised R640 million in cash from shareholders by way of a vendor placement to fund the acquisition of the Attacq Waterfall Investment Company Pty Ltd (“AWIC”) minority shareholding. Attacq became the sole shareholder of AWIC and, in doing so, also secured a pre-emptive right in respect of all material developments to be undertaken by Atterbury Property Holdings Pty Ltd (“Atterbury”), thus ensuring Attacq’s continued access to Atterbury’s development pipeline.

In return for this right, Attacq reduced its shareholding in Atterbury from 25% to 10% for a consideration of R83 million. With its remaining 10% shareholding, Attacq has retained a seat on Atterbury’s board. As part of this transaction, Atterbury effectively increased its stake in the Mall of Africa from 18.775% to 20%.

Wilken explains: “This significant transaction has successfully furthered our strategy to manage the entire pipeline within the Waterfall commercial mega development precinct, our key development pipeline. It also means Attacq takes full control of the strategic planning of Waterfall, including the roll out of its infrastructure.”

He adds: “It enables Attacq to accelerate the value we create from the Waterfall development rights by working on an unrestricted basis with Atterbury and other developers. This strategy was formulated jointly with Atterbury, which is increasing its deployment of development capacity in other markets including Central and Eastern Europe – a direction which supports Attacq’s diversification strategy.”

Locally, Attacq also acquired the 25% non-controlling interest in the Aurecon building at Lynnwood Bridge, Pretoria, for R50 million. Attacq is now the sole owner of all the properties located in the Lynnwood Bridge Precinct. “This furthers Attacq’s strategy of owning properties located in strong nodes,” says Wilken.

Attacq’s positive performance is set to continue for its investors for the full year. In South Africa, its delivery of the Waterfall pipeline of developments is the key driver of its growth.

There is already major development momentum at Waterfall, which will have its own CBD known as Waterfall City. Several commercial, industrial and retail properties are complete and producing income streams for Attacq, and there’s more on the way. This includes the iconic 25-storey, 40,000sqm office tower that will be the new South African head-office of multinational PwC.

The 131,000sqm Mall of Africa – South Africa’s biggest single-phase mall development – is the largest project and anchor development within Waterfall City. Mall of Africa, with a total development cost of R3.2 billion, is set to be a major catalyst for further growth at Waterfall when it opens in April next year.

“Immediately on opening, besides being a super-regional shopping centre, Mall of Africa will benefit from the burgeoning business component of Waterfall, as well as its sizeable privately developed upmarket residential estate, done by Century developments, in addition to support from the greater Waterfall node,” says Wilken.

Waterfall’s secure pipeline of projects planned or underway totalled over 237,000sqm at the half-year. Illustrating the magnitude of the long-term development potential and pipeline at Waterfall, of the more than 1.78 million sqm of developable bulk, a massive 78.3% of total available bulk or 1,399,440sqm, is still to be developed.

While Wilken shares business concerns about the slower growth in the South African economy, and the negative effect of a potential ratings downgrade for South Africa on general investor sentiment, as well as the impact of load shedding, Attacq has a defensive diversification strategy which helps mitigate its risk.

Its diversified investments outside South Africa, through AttAfrica and MAS, are also set to continue to contribute to its performance.

Attacq holds a strategic 31.25% stake in AttAfrica, with Hyprop Investments Limited as AttAfrica’s investment partner.

“AttAfrica, with its three operational malls and another two under development, provides Attacq with increasing exposure to the African growth story,” reports Wilken.

During the period, Atterbury Africa Limited was rebranded as AttAfrica, and Attacq’s investment in AttAfrica increased to R461.8 million, to fund its share of AttAfrica’s underlying development pipeline as well as the acquisition of 44,000sqm Manda Hill Mall in Lusaka, Zambia.

AttAfrica holds a 47% stake in the 19,000sqm fully-let income producing Accra Mall and 45% in the fully-let 27,500sqm West Hills Mall, which opened in October 2014. Both are in Accra, Ghana. It now also holds a 50% share in the income producing Manda Hill Mall, with a future expansion planned. In Ghana it is developing the 13,400sqm Achimota Mall in Accra, and the 29,00sqm Kumasi City mall in Kumasi.

“Through Attacq’s investment in MAS, we’ve gained growing access to the developed property markets of the UK, Germany and Switzerland,” notes Wilken. MAS has been acquisitive in Germany and the UK in deploying the proceeds of its 2014 capital raise and is now taking advantage of the attractive low interest rate environment in the Eurozone to raise debt.

All the while, Attacq remains conservatively geared at 33.9%, down from 36.6% at the prior half-year. Mitigating interest rate risk, it increased its hedged debt from 60% of utilised debt to 82.5% during the period. Its weighted average cost of funding as at 31 December 2014 was 9.7%.

Wilken says: “Attacq will remain focused on achieving sustainable capital growth for our shareholders through the ongoing roll out of Waterfall, the successful completion of our existing development pipeline and furthering our diversification strategy into Emerging and Developed markets.”