EXPERIENCE THE DIFFERENCE - Fairvest

Fairvest Property Holdings Limited Integrated A

nnual Report 2019

Integrated Annual Report 2019

EXPERIENCE THE DIFFERENCE

Our Integrated Report is published annually and presents an overview of the present and future direction and prospects of Fairvest Property Holdings Limited (“Fairvest”) that are most important to value creation.

To view our historic integrated annual reports please visit our website at www.fairvest.co.za.

INTEGRATED THINKING AND MATERIALITY The information contained in this report has been selected based on our assessment of what is most important to our stakeholders and what could have a substantial effect on our ability to create stakeholder value in the future. Our assessment was based on a combination of regular engagements with our stakeholders, internally identified risks and opportunities within our operating context and the information gathered from our continued measurement and monitoring of operational performance.

SCOPE AND BOUNDARY The Fairvest integrated annual report aims to provide a concise account of the integrated performance of the operations of Fairvest Property Holdings Limited and its subsidiaries for the financial year 1 July 2018 to 30 June 2019 and the factors that could materially affect our ability to create value in the short, medium and long term.

FRAMEWORK This report is based on the guiding principles of IIRC’s International <ir> Framework and King IVTM Report on Corporate Governance for South Africa 2016. The financial report included on page 78 onwards of this report is aligned to the statutory

and reporting requirements of the International Financial Reporting Standards (“IFRS”), the South African Companies Act, 71 of 2008 and the Johannesburg Stock Exchange (“JSE”) Listings Requirements.

ASSURANCE AND BOARD RESPONSIBILITY STATEMENT The Fairvest Board and its Committees have reviewed and applied their mind collectively to the preparation and presentation of the information contained in this report. The Board acknowledges its responsibility to ensure the integrity of the Integrated Report and have satisfied themselves that the information contained in this report is accurate, addresses all material matters and is a balanced and fair representation of the integrated performance and strategy of Fairvest. It is the Board’s opinion that this report is presented in accordance with the framework above. Certain statements in this report may constitute forward-looking statements which represents the Board’s judgements and future expectations that involve risk and uncertainty. The Directors therefore advise readers to use caution regarding interpreting any forward-looking statements in this report. No external assurance was sought for aspects of our reporting other than from our independent auditors, BDO South Africa Incorporated, for the financial statements. This report was approved by the Board of Directors of Fairvest on 16 October 2019.

Jacques du Toit Darren Wilder Chairman CEO

NAVIGATING OUR REPORT

The following icons are applied throughout this report to improve usability and show the connectivity and interdependencies between the various elements that enable us to create value over time.

Page reference

Web references

Financial capital

Human capital

Intellectual capital

Social and relationship capital

Manufactured capital

Natural capital

OUR CAPITALS

ABOUT OUR REPORT

Fairvest Property Holdings Limited Integrated Annual Report 2019

1 Vision and mission

2 2019 Performance Highlights

1 FAIRVEST IN A SNAPSHOT

5 Who we are

6 Our portfolio overview

8 Our timeline

10 Our business model

12 Our strategy

13 Strategy scorecard

2 PEOPLE

23 Our people

24 Our communities

3 OUR PERFORMANCE

29 Business review for the period

33 Property portfolio

36 Chair’s letter to stakeholders

38 Letter from the CEO

43 Sustainability

4 OUR GOVERNANCE

46 Corporate Governance Report

55 Risk Report

60 Remuneration Report

5 CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

OUR VISIONWhere are we going – We strive to be a dynamic REIT investing in quality retail assets with sustainable income streams. We strive to be the landlord of choice, treating our tenants with respect and understanding. We aim to create an autonomous work environment that is conducive to self-management, innovative thinking, efficiency and growth, whilst being cognisant of encouraging fun, laughter and instilling a love for what we do.

OUR MISSIONWhy we exist – We are an experienced and driven team that is relationship focused, who bring fresh thinking to our deal making, geared to maximise profits and enhancing our built environment and, in doing so, generate superior sustainable value for our stakeholders.

CONTENTS


1

2019 PERFORMANCE HIGHLIGHTS

Retained R57.3 million of equity

Net asset value increased by 0.7% to 229.38 cents per share

Like-for-like net property income increased by 8.7%

Vacancies remained low at 4.0% of total lettable area

R76.7 million in interest paid on our interest-bearing borrowings

Tenant retention remain high at 79.8%

R213.8 million in dividends paid out to shareholders

Average food anchor trading density growth of 3.4% year-on-year as at June 2019

FOR OUR PROVIDERS OF FINANCIAL CAPITAL

FOR OUR TENANTS

FOR OUR EMPLOYEES

Distribution for the year increased by 8.05% to 21.773 cents per share

Total property portfolio increased by 5.8% to R3.16 billion

346 man-hours spent on training and development

Total skills and development spend:

R311 873

Staff growth of 22%

Provided corporate coaching and training to department managers


2

FOR OUR PROPERTY PARTNERS

R268.3 million of funding provided.

R22.4 million invested in renewable energy through solar installations at 10 of our properties. Solar systems generating 5 190kW were initiated providing a first-year yield of 7 793 661kWh, which will result in a reduced emission of carbon dioxide by 7 577tCO2e.

Manage the relationship with our stakeholders on page 24 of this report.

FOR THE BROADER SOCIETY

FOR THE ENVIRONMENT

R32.5 million paid in value added tax (“VAT”)

R2.6 million invested in the Inyosi Supplier Development Fund

Performed against our strategic objectives on page 13 of this report.

Read more about how we

A further R35.5 million is committed for investment.

Alternative water resources used in the Western Cape portfolio.


3

BARA PRECINCT

1 FAIRVEST IN A SNAPSHOT

Cnr Khambule Street, Chris Hani Road & Mohlala Street, Soweto

Gauteng

Retail

GLA (m2) 23 132Value (R’000) 334 900

WHO WE ARE

Fairvest Property Holdings Limited (“Fairvest”) is a South African Real Estate Investment Trust (“REIT”) listed on the Johannesburg Stock Exchange (“JSE”); with a unique focus on retail assets weighted toward non-metropolitan and rural shopping centres, as well as convenience and community shopping centres servicing the lower living standard measure (“LSM”) market, in high-growth nodes, close to commuter networks. Our portfolio comprises 42 properties across South Africa, with a total gross lettable area of 243 030m² and valued at R3.16 billion.

42 propertiesACROSS SOUTH AFRICA

243 030m² TOTAL GROSS LETTABLE AREA

R3.16 billionVALUE

LIMPOPO

Revenue R23.4 million

Value R142.4 million

GLA 11 475m2

MPUMALANGA


Value R66.6 million

GLA 4 692m2

KWAZULU-NATAL



GLA 56 786m2

GAUTENG



GLA 60 719m2

EASTERN CAPE



GLA 20 643m2

WESTERN CAPE



GLA 42 659m2

NORTHERN CAPE



GLA 17 435m2

FREE STATE



GLA 28 621m2

2

112

4

4

7

2

10


5

24%

24%19%

11%

9%

6%5% 2%

25%

25%18%

12%

7%

6%5% 2%

25%

23%18%

12%

9%

6%5% 2%

11.6%

8.7%

8.2%

5.9%

4.6%

4.2%

1.8%

1.4%

1.3%

1.1%

Gauteng KwaZulu-Natal

Western Cape Free State

Northern Cape Eastern Cape

Limpopo Mpumalanga

OUR PORTFOLIO OVERVIEW

The portfolio remains well diversified across South Africa, with the four largest provinces, KwaZulu-Natal, Western Cape, Free State and Gauteng contributing 77.7% of revenue. The high national tenant component of 74.8% of the portfolio provides shareholders with a low risk investment profile, with national food retailers occupying 34.1% of the portfolio.

A WELL DIVERSIFIED PORTFOLIO

Revenue per region Valuation per region Gross lettable area per region

Top 10 tenants by GLA

A tenants75%

B tenants7%

C tenants18%

Top 10 tenants 49%

Retail95%

Office5%


6FAIRVEST IN A SNAPSHOT

Vacancies are at 4.0% or 9 670m² at year-end, mainly as a result of redevelopment vacancies at Middestad Mall, Jet vacating at Richmond Shopping Centre and vacancies at Bara Precinct and The Palms. The weighted average contractual escalation for the portfolio remained unchanged at 7.4%. Gross rentals across the portfolio trended upwards, with an 8.1% increase in the weighted average rental to R121.76/m² at 30 June 2019 compared to R112.50/m² at 30 June 2018. During the period under review, 119 new leases were concluded with a total GLA of 14 475m². Fairvest successfully renewed 32 948m² of leases (157 leases), with a positive reversion of 0.5% being achieved on these renewals. Tenant retention for the period was 79.8%. The weighted average lease term increased from 32 to 38 months.

LETTING ACTIVITY

June

2019 June

2018 June

2017 June

2016

Weighted average contractual escalation % 7.4 7.4 7.4 7.5 New leases concluded during the period m2 14 475 11 513 16 774 8 695 Renewals concluded during the period m2 32 948 26 497 27 336 19 424 Weighted average positive escalation on renewals % 0.5 6.9 7.5 11.6 Tenant retention % 79.8 86.9 72.8 85.2 Vacancy remaining (net of future let) % 3.7 n/a n/a n/a

PORTFOLIO OVERVIEW

June2019

June 2018

June2017

June2016

Number of properties 42 44 41 39 Valuation R’million 3 160.00 2 987.00 2 204.42 1 925.10 Average value per property R’million 75.24 67.89 53.77 49.40 Average value per GLA R/m² 13 002 12 552 11 345 10 355 Gross lettable area (“GLA”) m² 243 030 237 965 194 311 185 937

Retail % 95.5 95.4 94.7 92.4 Office % 4.5 4.6 5.3 7.6 Vacancy m² 9 670 8 255 9 094 7 060 Vacancy as percentage of GLA % 4.0 3.5 4.7 3.8 Arrears (% of revenue) % 1.3 2.0 2.4 1.9 Weighted average rental escalation % 7.4 7.4 7.4 7.5

Retail % 7.3 7.4 7.4 7.4 Office % 8.2 7.8 7.7 7.8 Weighted average rental R/m² 121.64 112.50 103.99 99.40

Retail R/m² 119.75 110.91 101.81 97.95 Office R/m² 165.77 154.46 137.77 117.19 Weighted average lease term months 38 32 38 36


7

OUR TIMELINE

2012

2013

2014

2015

2016

R103.5 million*

* Portfolio value

R774.8 million*

R1.11 billion*

R1.36 billion*

R1.93 billion*

Acquired Vukile portfolio

Raised R235.0 million in equity

Acquired Richmond Shopping Centre, Cosmos Centre and Jan Niemand Spar


Acquired Middestad Mall, Sibilo Centre, Mega Park, Parow Valley Spar and Boxer Elliotdale


Introduced the Fairvest Standard Procedures

Internalised leasing department

Invested in Cadiz Enterprise Development Fund

Acquired Isolenu and SA Corporate portfolios, Sebokeng Plaza and Nyanga Junction




2017

2018R2.20 billion*

R2.99 billion*

Acquired Boxer Mqanduli, Boxer Tabankulu, Macassar Shoprite and completed the redevelopment of Parow Valley Spar

Raised R224.5 million in equity and introduced our dividend reinvestment programme

Successfully implemented MDA as our integrated property management and information system

Introduced our employee training and development programme

Solar energy initiatives implemented at The Ridge, Sibilo Centre and Kim Park

Acquired Shoprite Empangeni, Bara Precinct, completed the redevelopment of Macassar Shoprite and partnered with Abland Property Developers to develop Southview Shopping Centre


Introduced the Fairvest KPI model

Internalised retail leasing consultant, broker liaison and marketing, communication and brand manager

Invested in Inyosi Supplier Development Fund

Invested in energy management assessments and software

Acquired 55% share in Bokleni Plaza, and completed Stage 2 of the redevelopment of Middestad Mall

Retained R57.3 million in equity

Expanded on management training and certifications

Increased investment in solar initiatives as well as explore waste management initiatives

R3.16 billion*

2019


9

PROPERTY DEVELOPMENT

PRO

PERT

Y AC

QUI

SITIO

N

PORTFOLIO

MANAGEMENT

OUR BUSINESS MODEL

INPUTS BUSINESS ACTIVITIES

Specialised retail focused fund

Acquisition of assets servicing the lower LSM market

Purchase of assets in high growth nodes

Favourable debt and equity funding mix

Effective capital management

Diversified debt providers Solid relationships with

stakeholders Strong debt maturity profile

Optimisation through use of natural resources

Use of renewable energy

Waste management initiative implementation

Active asset management Robust corporate culture

Skilled team Secure operating systems

Established skill sets Collaborative approach Wealth of experience Competent executive

management

Experienced and skilled Board

BEE initiatives Staff training and

development programmes

Strategic partnerships with experienced property developers

Strong community relationships

Accessible group of brokers

Developing communities

Planned property upgrades High-quality portfolio

management team

Strategic property acquisitions and portfolio growth

Strategic nodes

FINANCIAL CAPITAL

NATURAL CAPITAL

INTELLECTUAL CAPITAL

HUMAN CAPITAL

SOCIAL AND RELATIONSHIP CAPITAL

MANUFACTURED CAPITAL

We differentiate ourselves through performance and not size. We invest in quality retail assets with sustainable income streams to maximise value for our key stakeholders. Our portfolio focus provides unique access to the underdeveloped and high growth, lower living standard measure (“LSM”) consumer market. We oversee the management of our portfolio through our internal reporting processes, key performance indicators (“KPIs”) and strategies.

Brown and green field projects Development of strategic partnerships

with experienced property developers and landlords where we assume a structured funding role



TREASURY MANAGEMENT

ASSET M

AN

AGEM

ENT

PROPERTY MANAGEMENT

OUTPUTS

Outsource asset management to New Star Asset Management

Strategic objectives applied per property

Collaboration with the property managers for the operational management of the properties

OUTCOMESRead more about the outcome in terms of the effect on our strategic objectives on pages 13 to 21 of this report.

Favourable gearing ratio Sustainable income growth Favourable funding rates Managed LTV ratio

FINANCIAL CAPITAL

Installation of solar panels Roof upgrades for preparation of solar panel

installations Responsible waste management championed Smart meter reading devices

NATURAL CAPITAL

Effectively managed portfolio Effective controls and processes supporting

transparency Integrated IT systems and infrastructure

INTELLECTUAL CAPITAL

Compliance with Companies Act, King IVTM and JSE regulations

Continued development through training and education

Increase in staff members to organisation

HUMAN CAPITAL

Increase in brand recognition during the year Well regarded in industry

SOCIAL AND RELATIONSHIP CAPITAL

Strong returns for investors Ownership of assets with long-term investment

returns Portfolio value increased by 5.8% to R3.16 billion

MANUFACTURED CAPITAL

Disciplined and conservative approach to financial management and capital allocation

Maintain key performance metrics such as loan-to-value (“LTV”) ratio, staggered debt maturity, percentage of fixed debt and cost of funding to

ensure the long-term sustainability of our financial capital

Experienced outsourced property management

Robust procedures set through Fairvest Standard Procedures document

Use of various property managers


11

OUR VALUES

How we will get there

Enhance property performance Increase our marketing communication and brand footprint Invest in our people Conclude yield-accretive acquisitions Engage in strategic partnerships Gain access to capital Invest in yield enhancing energy and water efficiencies

OUR STRATEGIC OBJECTIVES

OUR STRATEGY

THE DIFFERENCE THAT MAKES THE DIFFERENCE

Social contribution

Knowledge

Relationships

Innovation

Profitability

Team driven

Read about our strategic objectives, how we have performed against our strategy during the period, and our outlook on pages 13 to 21 of this report.

“Know your game” is our mantra – researching and understanding our market and clients enables us to deliver a quality service

We strive to maximise profits by being operationally efficient, responsible, accountable and financially disciplined

We have a creative, proactive, solutions-oriented approach in all our dealings

We build relationships by being honest in our dealings, respectful in our engagements and collaborative in our approach

Our well-qualified team is passionate, committed to service excellence with a strong focus on honesty, accountability and responsibility

Wherever we are, we enhance our built environment and provide tangible benefits to the communities in which we operate

What is important to us – “SKRIPT”



0

3

6

‘19‘18‘17

Average tenant trading density growth* (%)

0

6

12

‘19‘18‘17‘16‘15

Weighted average escalation on expiry (%)

0

4

8

‘19‘18‘17‘16‘15

Weighted average contractual escalation (%)

0

45

90

‘19‘18‘17‘16‘15

Tenant retention (%)

0

2

4

‘19‘18‘17‘16‘15

Arrears as a percentage of revenue (%)

0

4

8

‘19‘18‘17‘16‘15

Vacancies (%)

0

6

12

‘19‘18‘17‘16‘15

Growth in distribution per share (%)

0

6

12

‘19‘18‘17‘16‘15

Growth in like-for-like net property income (%)

STRATEGY SCORECARDPERFORMANCE AGAINST OUR STRATEGIC OBJECTIVES

* Limited to food anchor tenants that submit monthly turnover and where a full set of comparative turnover information is available

How we measure up

ENHANCE PROPERTY PERFORMANCE

Resource allocation and managing capital trade-offs

Being innovative in our lease negotiations will enable us to do the best possible deals in the current economic environment. Balancing tenant retention, rent to sales ratio and market-related rental may mean accepting a negative rental reversion on renewal but pushing contractual escalations or entering into shorter leases with the view to negotiate a higher rental in the future.

Identifying and compiling relationship-building campaigns with our brokers and retailers and nurturing existing strategic relationships is key. We also need to ensure that our properties remain relevant which means considering the need for capital upgrades.

Building up knowledge of tenant trading information is critical where tenants are driving negative rental reversions in response to economic downturn.

Pressure on our income forces us to apply the same pressure on our suppliers while being cognisant of the quality of service, by negotiating lower expense escalations or changing service providers.

Strategic objective

We strive to be a dynamic REIT, investing in quality retail assets with sustainable income streams and thereby maximising stakeholder

value. We continuously revise and refine how we measure and monitor the “health” of our properties through KPIs which takes cognisance of the various aspects of our business. At an operational and property

level, we focus on the integration and alignment of the asset management

strategies to ensure that the objectives we set at a property level are achieved.


13

Increase Decrease Transformed

Challenges and uncertainties we are likely to encounter: Continued pressure from

national retailers on rental escalation on expiry.

Tenants that are trading below the desired rent-to-sales ratios are reluctant to provide turnover information.

We expect to see weaker trading performance from our tenants to continue.

Increase in regulated expenditure such as municipal utilities, which are outside of our control.

Competition from other centres surrounding our properties.

Oversupply of office space – although only 4.5% of our lettable area is office space, our office vacancies account for 1.0% of our total vacancies.

Financial capitalR270.9 million in cash generated from operations

Human capitalIncreased capability across teams by integrating and aligning department strategies

Social and relationship capital8.1% growth in distribution per share for the year

Social and relationship capitalProperties our tenants want to remain in with a high tenant retention of 79.8%

Social and relationship capital3.6% annual return to shareholder

Manufactured capital5.8% increase in the valuation of our historic portfolio

Social and relationship capital42 property identities that are aligned to the values of the communities in which our properties operate (transformed intellectual capital into social and relationship capital)

Outcome in terms of the effect on our capitals

Intellectual capitalTacit knowledge gained through property identities and micro strategies

Intellectual capitalSkills and learnings obtained from managing our KPIs

STRATEGY SCORECARD CONTINUED

ENHANCE PROPERTY PERFORMANCE CONTINUED

Financial capitalR1.83 million of bad debt written off during the financial year




Through the strategies created by asset managers, we identified which property requires more marketing resources and the type of marketing that will have the biggest impact. This is managed through corporate identities (“CIs”) and marketing plans for each of our properties to complement our strategies per property.

We expect to see a further increase in marketing expenditure, without seeing an immediate tangible increase in brand awareness or tenant trade. Benefits are expected over the medium-term as we establish our brand.

We will focus on increased marketing, communication and brand management to ensure that the Fairvest brand is easily recognisable and perceived by our stakeholders as being knowledgeable, innovative, profitable and team driven.

Strategic objective

We are committed to enhancing our built environment and strive to be the landlord of choice.

As a growing fund, it is of utmost importance to have a positive reputation and communicate this to our stakeholders through increased brand awareness and communication.

INCREASE OUR MARKETING AND COMMUNICATION AND BRAND FOOTPRINT

How we measure up

Implemented corporate social media platforms to increase brand awareness.

Implemented marketing campaigns at five properties, with the aim of increasing tenants and trading.

No established measurements for the initiatives.

Limited capital resources. Market’s response to this initiative will only become evident over time.

Challenges and uncertainties we are likely to encounter


Intellectual capitalIncrease in followers on six of our property

Facebook pages

Social and relationship capitalIncreased communication with our stakeholders through social

media platforms

Social and relationship capitalIncreased communication with brokers through introduction of

quarterly broker functions


15



The energy efficiency and solar initiatives identified in the energy management assessments will initially result in a significant increase in capital expenditure. Over the medium term, the savings achieved will alleviate the cost and generate a meaningful and measurable return on investment in the long term.

Strategic objective

Managing our environmental impact has become increasingly important. We have sourced energy efficiencies and water saving initiatives that are yield enhancing, reduces the cost of occupancy to our

tenants and reduces the impact we have on the natural environment.

INVEST IN YIELD ENHANCING ENERGY AND WATER EFFICIENCIES

How we measure up

R17.9 million invested in energy initiatives in the form of solar technology at 10 properties, expected to be yield accretive in year one. A further R35.5 million has been committed to be invested in the following period.

R3.1 million invested in energy metering software at 10 properties.


Intellectual capital35 energy smart meters

installed at 14 properties.189 energy smart meters installations in progress

at eight properties.

Intellectual capitalAccess to the online COPPER

Dashboard, an energy monitoring and management software solution,

with monthly reporting on cost, energy wastage, consumption and

material anomalies

Natural capitalReduced our future emission of carbon dioxide by 7 577tCO2e through our investment in energy efficiencies and solar initiatives

Challenges and uncertainties we are likely to encounter Securing the roof area at

some of our properties to prevent theft or damage to the solar panels.

Uncertainty remains around additional expenses not included in the solar proposals, such as cleaning and maintenance.

Not all energy efficiencies are yield enhancing. They do however reduce the cost of occupancy for our tenants. This will need to be considered as defensive capital expenditure enhancing the sustainability of our income.




By enhancing our employees’ skills, capabilities and competencies we create a skilled and energised workforce with the ability to improve our property performance. Investing in the right team training and development material and monitoring its effectiveness in the workplace is therefore important.

Strategic objective

We aim to create a work environment that is conducive to innovative thinking, efficiency and growth.

Our staff training and development programme introduces new skills and competencies to all our employees and enables each person to operate in a more resourceful manner.

INVEST IN OUR PEOPLE

How we measure up

A dynamic working environment for our 22 employees.

412 man hours spent on training and development.

Skills learned are not implemented in the workplace.

Employees’ training requirements are different and need to be individualised.

Employee retention and advancement opportunities in a small team presents unique challenges.



Human capital Corporate coaching and

certifications for department managers

Human capitalIncreased team competencies in

communication and personal development which enhanced their ability to manage and collaborate


17

Average value per property (R’m)

0

20

40

60

80

‘19‘18‘17‘16‘15

Average annualised property yield (%)

0

5

10

‘19‘18‘17‘16‘15



Finding properties at the right price are scarce in the current market conditions and competition is strong to secure these transactions. We therefore look to position Fairvest as a “deal-maker” who moves with speed, efficiency and effectiveness in securing and implementing transactions.

Strong relationships with our providers of financial capital and our property brokers are essential to ensure both the success and the optimal timing of when Fairvest initiates capital raise and finalisation of acquisitions.

Strategic objective

We remain convinced that our strategic investment focus offers investors attractive returns and distinctive diversification opportunities.

CONCLUDE YIELD ACCRETIVE ACQUISITIONS

How we measure upOutcome in terms of the effect on our capitals

Manufactured capitalExpanded our asset base with the acquisition of Bokleni Plaza at a first-year

yield of 11.0% (transformed financial capital into manufactured capital)

Social and relationship capitalBuilding strategic relationships with other REITs and private landlords with the view to acquire properties from them should they decide to dispose of

any non-core retail assets in the future

Financial capital New debt funding to the value of R48.0 million obtained during the year

Challenges and uncertainties we are likely to encounter Finding properties at the right price in a tough market. Equity market conditions and response to a capital raise

are never guaranteed.




Engaging in strategic partnerships gives us the ability to get access to new properties by providing structured funding to our strategic partners. Maintaining our broker network ensures that we obtain introductions for properties and developments that meet our procurement mandate.

Strategic objective

We seek mutually beneficial, strategic partnerships to gain critical mass and reduce operating costs by sharing excellent resources and the latest technology.

We remain focused on developing relationships with experienced developers and private landlords to bring new assets to the listed sector through both brown and green field projects.

ENGAGE IN STRATEGIC PARTNERSHIPS

How we measure up

Acquired a 55% share in Bokleni Plaza

Finding reputable and experienced partners. The values of our property partners may not be aligned to

those of Fairvest and may damage our reputation.

Engaging in developments in a depressed market. Sustainability of income received by providing equity

funding.



Social and relationship capital Engaged in strategic partnership

with AJ Property Holdings, a leading property developer

Manufactured capital The acquisition of Bokleni Plaza

resulted in an increase in the property portfolio

Financial capital Floating rate loans extended to our

property partners increased our effective hedge position to 100%


19

0

10

20

30

40

‘19‘18‘17‘16‘15

Weighted average debt maturity (months)

0

5

10

‘19‘18‘17‘16‘15

Weighted average cost of funding (%)

Increase in interest-bearing borrowings (R’m)

-100

0

100

200

300

400

‘19‘18‘17‘16‘15

Loan to value ratio (%)

0

15

30

‘19‘18‘17‘16‘15

New equity raised (R’m)

0

150

300

450

‘19‘18‘17‘16‘15



Maintaining relationships with debt funding providers to understand their requirements when considering funding opportunities is important. These match the requirements per our procurement mandate.

Monitoring our LTV levels and when to undertake capital raises to reduce our LTV enables us to retain the ability to consider yield accretive acquisitions, while maintaining the effective allocation of our capital.

Financial capital is a limited resource and needs to be allocated effectively and efficiently, which we approach by evaluating the prospective returns of each option to inform our decision making.

Explore alternative source of funding while diversifying our funding providers, staggering debt maturity and fixing at least 70% of interest-bearing debt.

Strategic objective

Our strategic focus is to gain access to capital to refinance expiring debt facilities, have funding available for acquisitions and developments while maintaining our LTV ratio and fixing debt within our targeted levels. We look to broaden our shareholder base through investor relation initiatives, marketing and brand awareness and will look to alternative

funding structures such as commercial paper in due course.

GAIN ACCESS TO CAPITAL

How we measure up




Social and relationship capital R76.7 million in interest paid out to our banks on our interest-bearing

borrowings

Social and relationship capital High investor confidence with

R57.3 million of equity retained through the dividend reinvestment

alternative

Social and relationship capital Increased our shareholder base

by 285 shareholders to 2 415 shareholders

Investors’ appetite for capital raises. Market conditions not conducive to capital raises at

acceptable levels. Swap rates being excessive. Increased cost of debt funding.

South African corporate banks more risk averse with new funding and less flexible on terms.

Liquidity of our shares. Given our size, institutional investors have limits on the

size of their investments based on their internal investment parameters.


Manufactured capitalR54.5 million invested on capital

expenditure on our property portfolio

Financial capital Refinanced debt facilities to the

value of R685.1 million

Financial capital R49.0 million invested on the

Bokleni Plaza acquisition


21

Cnr Wes Burger Street and Charles Street, Bloemfontein

Free State

Retail

GLA (m2) 18 465Value (R’000) 273 000

MIDDESTAD MALL

PEOPLE2

Race

White50% (2018: 65%)

Coloured36% (2018: 22%)

Black14% (2018: 13%)

Gender

Male41%(2018: 57%)

Female59%(2018: 43%)

OUR PEOPLE

Our corporate culture, learnings and knowledge ensures a hands-on strategic approach to managing our distinctive portfolio. Our corporate culture embraces a creative, proactive, solution orientated approach in all our dealings. “Know your game” is our mantra – researching and understanding our market and clients enables us to deliver a quality service.

The competencies and capabilities of our employees* drive the performance of our property portfolio. We employ a small, experienced team of property and finance professionals. Our well qualified team is passionate, committed to service excellence and maintains a strong focus on honesty, accountability and responsibility.

We aim to create an autonomous work environment that is conducive to self-management, innovative thinking, efficiency and growth. With the introduction of a training and development programme, which created a platform from where we can introduce new learnings to the team and enhance their ability to operate more effectively within their environment. The ongoing addition of new skills and competencies will enable each person to operate with a greater level of autonomy.

* Including New Star Asset Management employees.

2019 EMPLOYEE DEMOGRAPHIC PROFILE

AVERAGE AGE 37 YEARS (2018: 36 years) AVERAGE TENURE 2.9 YEARS (2018: 2.6 years)


23

OUR COMMUNITIES

Our communities are key to our ongoing growth and success, providing the platform to inform our decision-making in order to move closer to our strategic objectives. As a corporate citizen we are faced with constantly changing conditions that arise out of the South African economy, society and the natural environment in which we operate. We respond to these changes by being attuned to the needs, interests and expectations of our key stakeholders. We are committed to nurturing strong stakeholder relationships based upon mutual benefits and shared values. We build relationships by being honest in our dealing, respectful in our engagements and collaborative in our approach.

We are proactive in our approach to managing responsible corporate citizenship within the framework of our corporate brand and values. We have identified our key stakeholders as those groups that are most likely to have a material impact on our ability to create value in the short, medium and long term. Our stakeholder engagements enable us to gauge the quality of our relationships and identify their concerns.

ShareholdersInstitutional and private investors, fund managers and analysts

Needs, interests and expectations Expectations: Return on their investment Interests: Good Corporate Governance Needs: Transparency or additional information, clear and

consistent communication

Engagement One-on-one meetings Annual General Meeting Investor roadshows Results presentations Press releases Website

Response 8.1% distribution growth for the 2019 period, in line with

the communicated growth 5.8% growth in property valuation 13.4% growth in shareholder base 8.7% growth in like-for-like net property income

Concerns Growth of properties in the current macroeconomic

environment Industry concern with growing property valuations in a

time of slow economic growth Liquidity of shares Industry concern with inflated growth, based on once-off

earnings and not core property income Independence of our appointed auditor and valuers based

on the tenure of the service providers Health of our properties and the need for trading

information

QualityStrong, we support each other’s success


24PEOPLE

Needs, interests and expectations Expectations: Strong debt covenants Interests: Good Corporate Governance Needs: Regular interaction and additional information

Response 27.9% loan to value ratio 3.6 times interest cover 68% of borrowings hedged 100% of borrowings effectively hedged by including

floating rate loans provided.

Concerns Low level of hedging of interest rates Maintaining interest cover ratios and LTV Risk of debt repayment

FundersSouth African corporate and investment banks – Investec | Nedbank | RMB | Standard Bank | Absa

QualityGood

What are we doing to monitor the quality of our relationship One-on-one meetings Result presentations

Needs, interests and expectations Expectations: Prosperity Interests: Cost of occupancy, marketing initiatives and

centre upgrades to attract customers and improve trade Needs: Clean and secure space to trade from

Response 36.4% gross cost to income ratio 79.8% tenant retention 3.4% growth in like-for-like trading density Increased security presence in high risk areas

Concerns Increased cost of occupancy following municipal increases Impact on tenant trade of competing centres Unrest at properties and in the communities affecting

trading conditions Security at properties

TenantsNational retailers, franchises, small businesses and professionals

QualityStrong relationship with national retailers, good relationship with most tenants, always room for improvement

What are we doing to monitor the quality of our relationship Regular property site visits One-on-one meetings Understanding our tenants’ concerns


25

OUR COMMUNITIES CONTINUED

Needs, interests and expectations Expectations: Prefer sole mandate Interests: Fairvest commission policy Needs: Support

Response Internalised broker liaison resource Increased face to face time with brokers through broker

functions Open lines of communication with brokers

Concerns Delays in paying commission to brokers due to strict

payment controls

What are we doing to monitor the quality of our relationship Fairvest Broker Liaison

Property brokers Principal and retail specialist broker network


Needs, interests and expectations Expectations: Local employment opportunities from our

shopping centres Interests: Community involvement and inclusion Needs: A safe shopping environment that meets their basic

shopping needs, is affordable and has access to public transport

Response Increased promotional activities and marketing initiatives

aimed at creating a pleasant shopping experience Increased security presence in high risk areas Implementation of WiFi at shopping centres across our

portfolio Implementation of Corporate Social Investment Initiatives at

centres across our portfolio

Concerns Security at shopping centres Community involvement at centres

What are we doing to monitor the quality of our relationship Social media, feedback from our building managers and

tenants

Local communitiesThe communities surrounding our shopping centres

QualityRequires improvement


26PEOPLE

Concerns Broken lines of communication between suppliers, the

Property Manager and Fairvest

Response Reviewing and refining the Fairvest Standard Procedures in

collaboration with the Property Manager to ensure sound procurement policies

Needs, interests and expectations Expectations: Compensation to match quality of service Interests: Fairvest supplier procurement and payment policy Needs: Clear communication

What are we doing to monitor the quality of our relationship Management meetings Day-to-day communication

SuppliersManaging agents, meter reading companies, contractors, professionals, municipalities and service providers

QualityGood

Concerns Processes on procedures onerous compared to private

landlords

Response Identify and develop relationships with key developers

active in the retail environment with the objective of entering into future developments

Provide administrative support and training on the MDA system as well as Fairvest Standard Procedures

Needs, interests and expectations Expectations: Mutually beneficial relationship Interests: Fairvest Standard Procedures Needs: Administrative support

What are we doing to monitor the quality of our relationship Project meetings Management meetings

Property partnersExperienced property investors and developers



27

NYANGA JUNCTION

3 OUR PERFORMANCE

Duinefontein Road,Manenberg

Western Cape

Retail

GLA (m2) 10 678Value (R’000) 151 500

BUSINESS REVIEW FOR THE PERIOD

OVERVIEWFairvest declared a final dividend distribution of 11.157 cents per share for the six months ended 30 June 2019, a 7.9% increase from the corresponding period, which brings the total combined dividend for the year to 21.773 cents per share, resulting in an 8.1% increase from the previous year and maintaining distribution growth within the issued guidance of 8% to 10%. Dividends will be paid out to shareholders on 7 October 2019.

Total property revenue increased by 21.1% to R489.7 million, as a result of income growth in the historic portfolio, as well as acquisitions during the period. Net profit from property operations increased by 19.3% to R315.7 million, while corporate administration expenses increased by 20.5% to R30.2 million. Distributable earnings increased by 17.9% to R220.4 million.

Cost containment and efficient recoveries of municipal charges remain strong focus areas. Gross cost to income ratio increased slightly from 36.4% to 36.7%.

The weighted average contractual escalation for the portfolio remained unchanged at 7.4%. Gross rentals across the portfolio trended upwards, with an 8.1% increase in the weighted average rental to R121.64/m2 at 30 June 2019 compared to R112.50/m2 at 30 June 2018. This was as a result of contractual escalations, increases in rental achieved on new leases, and a 0.5% weighted average rental increase achieved on renewals. The weighted average retail rental increased to R119.75/m2.

The net asset value increased by 3.5% to R2.34 billion compared to R2.26 billion at 30 June 2018. On a per share basis, this equates to a net asset value per share of 229.38 cents per share, or an increase of 0.7%.

June2019

June2018

June 2017

June2016

Distributable earnings R’million 220.38 186.95 143.92 109.67Interim distribution per linked unit cents 10.616 9.806 8.953 8.171Final distribution per linked unit cents 11.157 10.344 9.380 8.489

Total distribution per unit cents 21.773 20.150 18.333 16.660

Gearing (LTV) % 27.9 25.1 22.4 29.7% of fixed rate interest-bearing debt % 67.6 45.9 87.1 57.7Interest cover times 3.6 3.3 3.1 3.5Weighted average cost of funding % 9.3 9.2 9.5 9.4Weighted average maturity of debt months 24 17 15 27Weighted average maturity of fixes/swaps months 24 24 18 27Market capitalisation R’million 2 015.89 2 081.14 1 540.16 1 020.31Net asset value per share cents 229.38 227.78 218.18 201.60Share price cents 198 210 195 155Number of shareholders 2 415 2 130 1 771 1 614

Shares in issue Opening balance 991 020 553 789 824 245 658 261 805 599 438 276Shares issued 27 104 888 201 196 308 131 562 440 58 823 529

Closing balance 1 018 125 441 991 020 553 789 824 245 658 261 805Treasury shares – – 12 067 –


29

28%

34%

13%

15%

10%

RMB Nedbank Standard Bank Absa Investec

52%

48%

Interest-bearing borrowings Stated capital

Diversified funding structure

BUSINESS REVIEW FOR THE PERIOD CONTINUED

BORROWINGS

June2019

June2018

June 2017

June2016

Loan to value ratio % 27.9 25.1 22.4 29.7% of interest-bearing debt fixed % 67.6 45.9 87.1 57.7Weighted average cost of funding % 9.3 9.2 9.5 9.4Interest cover times 3.6 3.3 3.1 3.5Weighted average maturity of debt months 24 17 15 27Weighted average maturity of fixes/swaps months 24 24 18 27Total debt R’million 885.38 749.65 493.64 571.23Total facilities R’million 1 243.60 1 089.82 830.67 722.69Undrawn facilities R’million 358.22 349.17 331.03 151.47

The LTV ratio increased to 27.9% (2018: 25.1%) due to additional capital raised, partially offset by the acquisition of Bokleni Plaza during the period and an increase in the property valuations. LTV is calculated as total interest-bearing debt divided by total property assets. Of the debt 67.6% was fixed through swaps as at 30 June 2019, with a weighted average expiry of the fixed debt of 24 months.

The weighted average all-in cost of funding increased to 9.3% (2018: 9.2%) due to the 0.25% interest rate increase in November 2018. During the period a number of large facilities were refinanced resulting in increased facilities and reduced rates. The weighted average maturity of debt increased from 17 months to 24 months.

CAPITAL RAISING ACTIVITIESThe Company issued 14 919 845 and 12 185 043 new ordinary shares through the dividend reinvestment alternative. The shares were issued at R2.13686 and R2.08868 per share respectively resulting in the retention of R57.3 million of equity.


30OUR PERFORMANCE

Maturity profile hedgesMaturity profile of floating rate debt

0 20 40 60 80 100 120 140 160 180Aug 19Sep 19Jul 20

Dec 20Dec 20Sep 21Oct 21

May 22May 22May 22May 22May 22May 22

Jun 22

(R’million)

40.5

85.830.0

56.3

122.0

9.5

48.0

21.6

38.0

123.8

29.0

62.1

86.0

64.9

126.0

8.9%8.9%

8.9%

9.1%

8.9%

8.9%

9.3%

9.0%

160.0 9.0%

9.5%8.8%

8.9%

8.9%

9.2%

41.3

99.0

Drawn Available

0 20 40 60 80 100 120 140 160 180

Jul 19

Jun 21

Aug 21

Aug 21

Oct 21

Feb 22

May 22

(R’million)

100.0

7.5%

7.8%

8.1%

7.7%

10.0%

9.4%

6.9%

100.0

100.0

9.5

38.0

149.0

100.0

Prime linked swap JIBAR linked swap

Trading density: Year-on-year comparison

0

20 000

40 000

60 000

80 000

100 000

120 000

271162821326221092511528612741413181715192420

(Ran

ds)

Building

3.9%

(4.7

)%

5.7%

4.0%

2.3%

0.3%

8.5%

2.1%

(0.6

)%

4.9%

0.8%

17.2

%

(2.4

)%

6.3%

(2.7

)%

4.7%

10.6

%

5.1%

18.0

%

8.8%

3.7%

(0.6

)%

2.5%

(6.9

)%

STAGGERED MATURITY OF DEBT AND HEDGING AGAINST INTEREST RATE MOVEMENTS

TENANT TRADING INFORMATION Maintaining a database of tenant turnover information not only provides important information during lease negotiations but also equips us with knowledge and understanding of trading performance at our properties and the effectiveness of our marketing initiatives.

Trading densities are used to indicate the profitability of tenants and trade in the trading space, using tenant turnover achieved per square meter of the store, with the rent-to-sales ratio indicating the cost of occupancy for tenants in order to trade. Higher trading densities reflect increased profitability of tenants, while lower rent-to-sales ratios indicate cost containment of tenants. Food anchors are reflected below:


31

Rent to sales ratio of anchor tenants

0

1

2

3

4

5

6

7

8

271212222632595102876811141213161517181942420

Building

(%)

9.8%

0.6%

4.6%

(1.4

)%

5.1%

4.4%

(2.1

)%

8.1%

8.0%

(7.6

)%

(10.

1)%

6.2%

48.0

%

12.3

%

20.3

%

20.7

%

0.7%

3.0%

2.4%

9.0%

6.1%

4.2%

3.9%

17.1

%

BUSINESS REVIEW FOR THE PERIOD CONTINUED

RatiosJune

2019 June

2018 June

2017

Weighted average trading density R/m2 38 143 41 629 41 019 Like-for-like trading density % 3.4

Trading density is calculated on anchor tenants using the monthly turnover of the 12 months to 30 June 2019.

RatiosJune

2019June

2018 June 2017

Weighted average rent to sales ratio % 2.9 2.4 2.2

Rent to sales ratio is calculated on anchor tenants using the monthly turnover of the 12 months to 30 June 2019.

PERFORMANCE MEASURESIn compliance with sections 3.4(b)(vi) and 3.4(b)(vii) of the JSE Listings Requirements, and due to the nature of a REIT, the Board continues to apply distribution per share and net asset value per share as a measure for future trading statement purposes, as this is considered to be a more appropriate measure of performance than headline earnings per share and earnings per share.


32OUR PERFORMANCE

01020304050607080

Jun-19Jun-18Jun-17Jun-16Jun-15

44

(R’m

illio

n)

5358

73

31

36

4138

75

42

Average value Number of properties

Property portfolio

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000


(GLA

m2 )

R13 002/m2

5 786 m2

Average size Average value per m2

Improved asset quality

0

500

1 000

1 500

2 000

2 500

3 000

3 500


(R’m

illio

n)

1 36

2 1 92

5

2 98

7

2 20

4

5.8%

3 16

0

Portfolio valuation

Property portfolio Acquisitions

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000


(Ran

d/m

2 )

9 78

0

10 3

54 12 5

52

11 3

45

3.6%

13 0

02Portfolio valuation per GLA

PROPERTY PORTFOLIO

OVERVIEWThe Fairvest portfolio consists of 42 properties with 243 030m2 of gross lettable area (“GLA”). The total property portfolio increased by 5.8% from R2.99 billion at 30 June 2018 to R3.16 billion at 30 June 2019. The growth is attributable to the acquisitions to the value of R49.0 million and capital expenditure incurred of R86.5 million. The historic portfolio increased by 3.8% compared to 30 June 2018. Asset quality continues to improve, with the average value per property increasing by 3.3% to R75.2 million, and the average value per square metre increased by 3.6% to R13 002/m².

In line with the accounting policy of the Group, at least a third of the portfolio was valued by independent external valuers. Of the 42 properties in the portfolio, 16 properties equating to 39.6% by value, was valued by independent valuers, DDP Valuers, De Leeuw Valuers and Jones Lang LaSalle, with the remainder valued by the directors. All properties are valued by independent external valuers at least every three years. The properties are valued using a combination of a five-year discounted cash flow and the income capitalisation method. Assumptions are made on the discount rates used to determine the present value of the cash flows and on the capitalisation rate on an assumed sale. The weighted average discount rate used was 14.6% and the weighted average capitalisation rate 10.1%, which continues to show conservative but fair valuations.


33

PROPERTY PORTFOLIO CONTINUED

OUR ACQUISITIONS Shareholders are referred to Fairvest’s various SENS announcements, regarding acquisitions by the Company.

The acquisition of Bokleni Plaza to the value of R49.0 million was concluded as final and transferred on 3 October 2018. The property was acquired in a newly incorporated subsidiary, Libode Shopping Centre Proprietary Limited, of which Fairvest owns 55% of the shares.

The transfer of Nonkqubela Mall to the value of R162.9 million registered on 23 August 2019 and is therefore not reflected in our annual financial statements for the current financial period. The property was acquired in Fairvest Property Holdings Limited.

Property Location GLA (m2)

Value R’000 Anchor tenant Date of transfer

Property transferring during the year Bokleni Plaza Eastern Cape 4 991 49 000 Boxer Superstores 3 October 2018 Property transferred after 30 June 2019 Nonkqubela Mall Western Cape 10 811 162 876 Shoprite and Pick n Pay 23 August 2019

Bokleni Plaza

Anchor tenant

National tenant

composition

WA gross rental (R/m2)

WA contractual escalation

WA lease term

Vacancy %

Total GLA

Valuation June 2019

Boxer Superstores 79.0% 116.9 6.6% 68.5 2.4% 4 991 58 600 000

Bokleni Plaza, situated in Libode, Eastern Cape was acquired in a newly incorporated subsidiary Libode Shopping Centre (previously FPP Property Ventures 116 Proprietary Limited) of which Fairvest owns 55% of the shares. The property was acquired at a first-year yield of 11.0%. Bokleni Plaza is a community centre of 4 991m2, with a high national tenant component of 79.0%. The centre is anchored by Boxer Superstores, and other tenants include Pep, Ackermans, Russells, Rage and Jet.

Libode is a small non-metropolitan town in Eastern Cape, approximately 515km north-east of Port Elizabeth. The town hosts 5 000 inhabitants and is considered to be a small infrastructural hub for the surrounding rural area. There are no competing stores in the immediate vicinity of Libode, only a separate free standing Spar.

The acquisition is consistent with the Company’s growth strategy whereby the Company partners with private landlords, bringing new retail assets to the market, while continuing to predominantly focus on assets in rural, underdeveloped areas in the lower LSM sectors.


34OUR PERFORMANCE

VALUE CREATION WITHIN OUR EXISTING PORTFOLIOMiddestad Mall redevelopment

Anchor tenant

National tenant

composition

WA gross rental (R/m2)

WA contractual escalation

WA lease term

Vacancy %

Total GLA Valuation

Shoprite 84.7% 132.56 6.6% 61.96 5.9% 18 465 273 000 000

The Bloemfontein central business district (“CBD”) is the dominant commercial and retail hub for a very large proportion of shoppers from Bloemfontein, Mangaung and Botshabelo and is accessible by taxi, bus and train. The Bloemfontein CBD is therefore the primary shopping destination for the township market in Bloemfontein. The Bloemfontein retail hub consists of our shopping centre Middestad Mall and competing centre Bloem Plaza (36 152m2). The third largest contributor per sector to the economy of the Free State province is wholesale and retail trade. The Free State province consists of five District Municipalities, of which Mangaung District is the largest contributor to the gross domestic product of the province. The Mangaung population is expected to increase by 1.5% per annum which represents an increase of 150 000 people by the year 2030.

At Middestad Mall phase 1 of the redevelopment was completed in the prior financial period, which included upgrading the lighting, ceilings and walkways on the ground-floor retail section. The complete redevelopment of the first floor was completed during the period and the opening of the redevelopment took place on Black Friday in November 2018. Total capital expenditure incurred in the current financial period amounted to R31.2 million. The complete redevelopment includes fashion retailers and a food court on the first floor, of which leases has been secured for majority of the redeveloped space from Total Sports, Sports Scene, Mr Tekkie and Rage in fashion, as well as Makies Kitchen and Lit Shawarma in the food court. Tenants on the ground floor also include Shoprite, Shoprite Liquor, Pep, Studio 88, Sneakers Inc., Truworths, Markham, Identity, Spitz, The Hub and more, while on the first floor it includes Clicks, Medscheme, Pathcare and various doctors in the new Medical Suites.

The Ridge Shopping Centre, Roodepoort, Gauteng


35

CHAIR’S LETTER TO STAKEHOLDERS

The past year can best be described as extremely tough and at times frustrating, mostly in view of the fact that the hard work put in by the staff, Executives and Board has not necessarily translated into outstanding growth from a shareholder perspective. The results we achieved I am extremely proud of, and our growth in distribution of 8.1% was achieved in very challenging conditions. Business confidence is at a low point and we can see in the pushback we receive from our tenants that this type of distribution growth is not sustainable. Prevailing market conditions have caused us to scale down our budgets to particularly conservative levels, which has translated into expected distribution growth in the year ahead in the 4% to 6% range. This target, albeit lower than historic levels, remains industry beating and we will continue to strive to deliver on our forecasts as we have done in the past eight years since we started our journey.

Fairvest remains singularly focused on providing shareholders distinctive access to the underdeveloped and high growth, emerging consumer market. We continue to focus as a lower LSM, retail fund and, as such, we have more than 95% of our assets in this segment. Going forward we will look actively to dispose of some of our non-core assets. We are diversified across South Africa, with Gauteng, KwaZulu-Natal and the Western Cape making up the bulk of our revenue and valuation. We managed to increase the value of the property portfolio by 5.8% to R3.16 billion as at 30 June 2019.

During the year there were no capital raises with the only new capital coming in the form of shares issued through the dividend investment alternative. This resulted in the retention of R57.3 million of equity. During the last set of results and dividend announcement we have waived the option to provide the dividend reinvestment alternative to shareholders, due to the significant discount the shares are trading to its net asset value, which makes this option very expensive. We will continue to monitor the market in future to again provide the option to shareholders.

Our finance team must be commended for the way they have managed our financial position. Our Loan to Value ratio remains conservative at 27.9% and with the use of interest rate swaps, 67.6% of the debt was fixed during the year. The weighted average maturity for the debt increased to 24 months.

It was another tough year on the JSE, with equities underperforming the bond index and the listed property index underperforming equities with a total return of 3.2% for one year. The property index has now generated a negative performance for three consecutive years, leading to considerable outflows from the sector. Fairvest has outperformed its peers and the market over this period. Since our year end the equity and property market and indices have continued to decline, underperforming both cash and inflation.

The results we achieved I am extremely proud of,

and our growth in distribution of 8.1% was achieved in very

challenging conditions.

Jacques du ToitNon-Executive Chairman


36OUR PERFORMANCE

On the macro and global front, the past year have marked heightened tensions between the US and China regarding tariffs and intellectual property. Brexit is ongoing with United Kingdom listed property trading at significant discounts to net asset value. In Europe yields on most government issued bond are now negative, which raises the question whether zero percent interest rates are the new normal. In the US there are talks of a looming recession, given that the yield curve has inverted on several occasions.

On the local front we continue to see weakened business confidence from the private sector amidst a difficult political environment. On the positive side, the second quarter GDP surprised with growth of 3.1% quarter-on-quarter. This momentum is however not expected to continue. South Africa currently maintains a twin deficit which remain a concern for domestic and international investors and has on occasion raised the likelihood of an IMF bailout. The rand has also been under pressure because of this and the risk-off trade.

The environment as described above, mostly falls outside the sphere of what Fairvest can control. While taking cognisance of the risks and opportunities these conditions may present, our focus will be on what we can control. We will therefore continue to run a simple business where we collect rentals as efficiently as possible, sign new leases at the best possible sustainable levels

for both ourselves and our tenants, allocate and recycle cash to the best of our abilities and continue to create long-term benefits for our shareholders and build a Group that our directors and staff can be very proud of.

I would like to once again thank our staff and Board members for their contribution to the Group, our executives for their leadership in steering the day to day challenges of our business and industry. I also want to take the opportunity to welcome Ms Khegu Nkuna to our Board of Directors. We look forward to working with her and receiving her input at various committees and meetings. And finally, I would like to thank you as shareholders for your continued support of our Group during the year. We look forward to continue to generate value for you in the future.

JF du ToitNon-Executive Chairman

Southview Shopping Centre, Soshanguve, Gauteng


37

Cumulative total return (compared to the South African Listed Property Index (SAPY))

-200

20406080

100120140

Five-yearThree-yearOne-year

0.8%

3.6%

4.9%

31.3

%

28.6

%

126.

2%

69.3

%

(5.6

)%

(6.6

)%

(%)

SAPY FVT Average REIT

LETTER FROM THE CEO

We are satisfied with our 8.1% distribution growth

in the past year, which reflect sound management of

controllable factors in difficult trading conditions.

CURRENT YEAR PERFORMANCE AND OPERATING ENVIRONMENT We are satisfied with our 8.1% distribution growth in the past year, which reflect sound management of controllable factors in difficult trading conditions. The current financial year has been characterised by exceptionally challenging trading conditions in South Africa, with continued low economic growth and constrained consumer expenditure. In the property industry these conditions translate into rising vacancies, higher arrears and pressure on rentals. Navigating through this tough environment requires strong execution of operational fundamentals.

Fairvest’s continued financial outperformance is, amongst others, attributable to being one of a handful of South African teams that have been managing property portfolios through many different economic cycles. Our persistent drive to excel at property fundamentals continues to be reflected in low vacancies and record-low arrears, high tenant retention and solid growth in net property income. We are gratified that this has led to an outperformance of the market for seven consecutive years – a fact that has been recognised by the market as evidenced in the graph below.

Darren WilderCEO


38OUR PERFORMANCE

PROPERTY TRENDS The lower end retail sector is under-serviced, under-developed and less volatile than the upmarket segment. Shoppers in our segment tend to purchase daily necessities on their commute to and from their workplace and mainly target staple foods. These shopping patterns have remained demonstrably more robust through economic cycles in contrast to retailing at the large malls, although we are seeing pressure emerging with daily baskets becoming smaller.

Our traders are finding conditions tough across their portfolios which is having a pervasive impact on all leasing negotiations regardless of property specific performance. It has become more difficult and is taking longer to lease vacant space and we are expecting pressure on renewals. Leasing and renewals are two key focus areas for the management team and we are increasing our leasing and renewals team to support what we believe would be a challenge in the next 24 months.

PORTFOLIO ENHANCEMENTS The value of the property portfolio increased by 5.8% to R3.16 billion, with 3.8% attributable to the historic portfolio. Asset quality continues to improve, with the average value per property increasing by 3.2% to R75.2 million, and the average value per square metre increasing by 3.6% to R13 002/m2.

Two new properties were acquired during the period. Bokleni Plaza, which was acquired for R49.5 million and was transferred in October 2018, is situated in Libode, Eastern Cape, and is anchored by Boxer Superstores. Nonkqubela Mall, situated in Khayelitsha, Western Cape, anchored by Shoprite and Pick n Pay, was transferred in August 2019. We also completed a R43.5 million redevelopment of Middestad Mall’s first and ground floor retail. The new retail space opened on Black Friday with key first floor tenants, Total Sport and Sports Scene’s turnover exceeding expectations.

SAFARI TRANSACTION Acquisitive growth is part of our strategy and we remain opportunistic, but selective, in our approach. An attractive initial yield as well as opportunities to implement strategic redevelopments to extract maximum value, are key criteria in our evaluation of prospective acquisitions.

Investors will be aware that we were in negotiations with Safari Investments to potentially merge the two portfolios, thereby creating a larger specialised, lower LSM retail-only focused fund. The bid was scuppered by a cash offer that key Safari shareholders expressed a preference to.

We undertook a thorough due diligence of the Safari operations and are convinced that a merger would have ultimately driven

Southview Shopping Centre, Soshanguve, Gauteng


39

LETTER FROM THE CEO CONTINUED

long-term value. We are known in the marketplace to be disciplined buyers with a well-defined valuation framework that sets key financial hurdles for transactions. Our deal-making team is experienced and resilient and deals with potential transactions on a continuous basis. We will continue to maintain our disciplined approach to only pursue transactions that ensure value creation for our shareholders over the long term.

POSITIONING OUR BUSINESS OPTIMALLY IN THE CURRENT MARKET Our business philosophy has remained consistent for a number of years and continues to be validated by returns over a sustained period. Our philosophy is based on the following key principles:

Maintain our investment strategy: We have been steadfast in our investment strategy, not drifting from our strategic

STRATEGIC PERFORMANCE

Key objectivesFinal 2019

Interim 2019

Final 2018

Interim 2018

Final 2017

Interim 2017

Increase distribution per share in line with guidance ü ü ü ü ü ü Differentiate FVT by performance not size ü ü ü ü ü ü Continue to conclude yield accretive acquisitions ü ü ü ü ü ü Loan To Value to remain below 40% ü ü ü ü ü ü Continue to target a fixed debt component above 70% or LTV below 30% ü ü ü û ü ü Maintain gross cost to income ratio at below 38% ü ü ü ü ü ü Average growth on lease renewal of CPI plus 3 û û ü ü ü ü Maintain tenant retention at or above 80% ü ü ü ü û û Maintain collectable arrears below 2% of gross income ü ü û û û ü Target weighted average contractual escalations to be above 7% ü ü ü ü ü ü Maintain national tenant component at above 75% ü ü û û ü ü Vacancies as gross lettable area maintained at/or below 3% û û û û û û

proposition of investing in quality rural community centres and focusing on performance, not size.

Keep the business simple: We believe in managing a simple business with a specific focus to let our space and collect rentals. We have a straight-forward balance sheet and no fees or one-off earnings as part of our distributions, nor do we have exposure to offshore markets. Because we keep our business uncomplicated, it allows our hands-on team to focus on operational excellence.

Remain accountable: As a team, we continually benchmark ourselves against a set of key metrics, which we focus on delivering. It is our belief that if we substantially deliver on these metrics, it will translate into long-term value for our shareholders. As evident in the table below, we have been able to attain the vast majority of our challenging benchmarks.


40OUR PERFORMANCE

Keep vacancies low: Our focus on this specialised sector requires in-depth knowledge of the shopping trends of our target market and the type of retailers that would fulfil their needs. In our experience, a resilient anchor tenant is key and we have built up strong and mutually beneficial relationships with our anchor tenants over many years. Understanding our tenants concerns and finding ways to address these, ensures that we remain responsive to emerging risks and opportunities. We are cognisant that current market conditions require a more accommodating approach to keep tenant retention high and to support the small and independent retailers in challenging times. We are focusing internally on developing a strong leasing and renewals team as well as extending our lease expiry profile. In the current year, we increased our average tenure from 32 months to 38 months, which further serves to stabilise our income stream.

Keep arrears low: Vacancies and arrears are two of our most important metrics to manage and it is pleasing that we have reduced our arrears further from the record low of 1.3% at year-end, to under 1% post year-end. We will continue to closely focus on collecting our revenue.

Keep a keen eye on costs: We believe our strategic approach to life-cycle capital expenditure and maintenance programmes are key to effectively manage our operating costs into the future. Over the past five years, we have spent close to R100 million in defensive capital on our assets across the portfolio. This, together with an unrelenting focus on maintaining a lean business structure, has allowed us to constantly improve our cost ratios.

Putting a hold on further greenfield or brownfield projects: Linking up with experienced developers has allowed us access to quality brownfield developments with attractive yields. As an equity and funding partner, we can play a synergistic role in bringing these properties to the market. However, we believe that current market conditions are not conducive to developments and therefore, in the absence of really an exceptional transaction, we made the decision not to pursue opportunities with developers for the foreseeable future.

Maintain a prudent funding strategy: Our debt strategy is predicated on a conservative approach – to maintain a

prudent loan to value ratio and to remain sufficiently hedged to manage our exposure to interest rate risk. We are comfortable with our relatively low loan to value percentage of 27.9%, a relatively low interest rate exposure and a significant improvement in the maturity profile of our debt from 17 months to 24 months. We have R358 million of available debt facilities, providing significant headroom to pursue further yield accretive acquisitions as opportunities arise.

Continue to pursue corporate transactions: Fairvest will continue to pursue acquisitions at the right price and will not drift from its communicated investment strategy. In a market where equity is scarce and expensive and conditions are more conducive to consolidation, we will be looking at innovative opportunities to unlock long-term value for our shareholders. Any potential transaction will be carefully considered and the same robust disciplined due diligence process followed when investing in direct property.

DIVIDENDS AND DIVIDEND REINVESTMENT PROGRAMMES Fairvest’s distribution reinvestment programme serves to preserve capital under the right market conditions. In the past year, we retained R57.3 million of equity through two dividend reinvestment plans. These were however dilutive to our NAV per share and we have decided to not offer further reinvestment alternatives until market pricing improves.

In a market where equity is scarce and expensive and conditions are more conducive to consolidation, we will be looking at innovate opportunities to unlock long term value for our shareholders.


41

LETTER FROM THE CEO CONTINUED

BUILDING A BUSINESS FOR THE LONG TERM We continue to review and implement the right practices to ensure the health and sustainability of our business for the long term. For example, it is critical that the valuations that are attributed to the portfolio are market-related and are independently tested against reality on a consistent basis. This year, 40% of the value of the portfolio was valued by three separate independent external valuers and the remainder of the portfolio was valued by the directors, ensuring robust examination of the market-related value of the portfolio.

We have made good progress with improving our energy, water and waste efficiencies over the past year. It is an important area of investment for us, from a prosperity as well as a cost reduction point of view. During the year, we commenced the solar rooftop installation of 10 of our properties, with a total value of R57.9 million. Total cash return on these projects are in excess of 15% and anticipated annual energy generation will be 7.8 million kWh.

PROSPECTS We expect market conditions to remain exceptionally challenging in the coming year, with less visibility than we would prefer.

Fairvest has four large long-term leases, with above market rentals, that expire during the 2020 financial year. The expectation is that the rentals on these four leases will be reduced on renewal or re-letting to ensure sustainable rentals over the new lease periods. As discussed in the Chairman’s report, our forward guidance for 2020 distribution growth of 4% to 6% is lower than what Fairvest has historically achieved, but

we believe we are operating in a different market. This view assumes that current market conditions prevail, with no further deterioration in the macroeconomic environment relative to current levels, no major corporate failures, and that tenants will be able to absorb increases in municipal and utility costs.

We remain convinced that our distinctive portfolio offers investors attractive returns and diversification opportunities and we will continue to distinguish ourselves through the performance of this carefully selected portfolio, as well as a continued focus on operational excellence. We are operationally strong, our balance sheet is conservative and we remain an investable counter delivering growth in distributions that will approximate or exceed inflation.

APPRECIATION In a year as tough as the last one, our continued growth and profitability could not have come about without the dedication and commitment of our employees, and the continuing support and input of our tenants and suppliers. We would like to extend our appreciation to them all.

We would also like to acknowledge and thank our directors for their valued guidance and shareholders for their continuing belief in and support of Fairvest.

DM Wilder CEO


42OUR PERFORMANCE

SUSTAINABILITY

Managing our environmental impact has become increasingly important. We have sourced energy efficiencies and water saving initiatives that are yield enhancing, reducing the cost of occupancy to our tenants and reducing the impact we have on our natural environment.

Read more about our key areas of focus and challenges on page 16 of this report.

ENERGY INITIATIVESSolar energy is a renewable, free and sustainable source of energy that is non-polluting as it does not emit any greenhouse gases when producing electricity. Over time, it also measurably reduces occupation cost for tenants and add to the attractiveness and value of our properties. To date we have implemented solar energy at four of our shopping centres, with an additional ten properties to be completed during the 2020 financial period.

We invested in Energy Management Assessments from Terra

Firma Solutions (“TFS”), a specialist engineering company. The

Energy Management Assessments enabled us to identify areas of

inefficiency relating to electricity usage at our properties and

measures we need to implement to better manage and reduce

consumption. The first of these energy efficiency initiatives was

implemented at Middestad Mall and includes wastage reduction

(target 20% reduction), changing common area lighting to LED

and installing variable speed devices to reduce and manage

aircon electricity consumption.

The total greenhouse gas emissions saved through our solar and

energy efficiency initiatives above equates to 6 534tCO2e for

the year. For illustration purposes, the savings through initiatives

equates to the total greenhouse gas emitted per each activity

reflected below, individually:

Greenhouse gas emissions from CO2 emissions from Carbon

sequestered by

91 130 tree seedlings grown for 10 years

18.1 hectares of U.S forest preserved from conversion to cropland in one year

2 625 hectares of U.S forests in one year

1 170 Passenger vehicles driven for one year

2 732 935 kilograms of coal burned

2 347 531 litres of gasoline consumed

73 tanker trucks’ worth of gasoline

1 922 Tons of waste recycled instead of landfilled

209 340 incandescent lamps switched to LEDs

30 railcars’ worth of coal burned

12 760 barrels of oil consumed

275 Garbage trucks of waste recycled instead of landfilled

225 300 propane cylinders used for home barbecues

0.001 coal-fired power plants in one year

21 685 989 Kilometers driven by an average passenger vehicle

1.2 wind turbines running for a year

660 homes’ energy use for one year

961 homes’ electricity use for one year

* As per the United States Environmental Protection Agency Greenhouse Gas Equivalencies Calculator.


43

SUSTAINABILITY CONTINUED

WATER SAVING INITIATIVES IN THE WESTERN CAPEIn response to water shortage in the Western Cape, the following water saving initiatives are implemented at our properties: A well point and rain water tanks is installed at Tokai Junction, which is used to flush toilets and clean waste areas, along with

effecting a reduction in the water pressure. A borehole has been drilled at Nyanga Junction, along with the implementation of a reduction in the water pressure. At Parow Valley aerators has been installed on all taps, resulting in a reduction in the water pressure. A borehole and rain water tanks is installed at Macassar Shopping Centre, which is used to flush toilets and clean waste areas,

along with effecting a reduction in the water pressure.

WASTE MANAGEMENT INITIATIVESWe are continuously endeavouring to roll out more waste management initiatives and a waste management committee heads the initiative. There are various properties identified for future implementation of initiatives, which will reduce the volume of general waste to landfall and our emission of harmful chemicals and greenhouse gases.

Nyanga Junction, Manenberg, Western Cape


44OUR PERFORMANCE

Retail

GLA (m2) 7 620Value (R’000) 106 200

Erf 21188, Ext 7, Soshanguve Southview

Gauteng

SOUTHVIEW SHOPPING CENTRE

OUR GOVERNANCE 4

CORPORATE GOVERNANCE REPORT

The Board is collectively responsible to our stakeholders for the overall strategic direction and leadership of Fairvest towards the achievement of an ethical culture, good performance, effective control and legitimacy. The Board fully subscribes to the principles of good corporate governance, the principles set out in the King IVTM Report on Corporate Governance , for South Africa, 2016 (“King IVTM”) and regards these as fundamentally important to business success and sustainability of Fairvest.

Non-Executive Chairperson Lead Independent Non-Executive Director

JF (JACQUES) DU TOIT (48)Date appointed: 10 October 2007

LW (LOUIS) ANDRAG (46)Date appointed: 1 December 2010

Jacques is a chartered financial analyst and has been involved in the financial services industry since joining HSBC Simpson McKie as a stockbroker in 1998. He joined the portfolio management side at HSBC in 2003 and headed up the investment process until 2005 when he joined Investec Securities Limited as senior portfolio manager. In August 2008 he jointly set up a financial services company, Cohesive Capital. He serves as a director on the boards of a number of private companies.

Louis graduated from the University of Stellenbosch in 1996 with a B.Engineering (Industrial Mechanical) degree and worked in Germany and the USA as an engineer before returning to South Africa, and joined Stellenbosch Farmers’ Winery as site engineer. He joined an agricultural business as logistics manager and obtained his Honours and Masters degree in Business Administration through part-time studies from the University of Stellenbosch. He was later appointed as general manager of the Agricultural Machinery Division and Director. In 2009 Louis started his privately owned property investment and residential development company Leggato Investments with investments in South Africa and Germany. He serves as chairman and director on the boards of a number of private companies.

SECRNC

ICRNC

At the date of this report the Board of Directors of Fairvest consists of nine members.

Executive Directors

DM (DARREN) WILDER (51)CEODate appointed: 22 September 2011

BJ (JACQUES) KRIEL (40) CFODate appointed: 19 January 2010

Darren worked for Seeff Properties in various positions from 1991 until 1997. During 1997 he was appointed to the board of the then JSE-listed company, Capital Alliance Properties, and was a participant in its management buy-out. Darren co-founded Spearhead Property group and was part of the team that listed the company on the JSE. He was appointed COO in 1999. Darren’s work experience also includes national leasing director for Madison Properties, business development director of the V&A Waterfront and also a consultant to the chief executive officer of the V&A Waterfront.

Jacques was the CEO and financial director of Fairvest from January 2010 until October 2012. Jacques is qualified as a chartered accountant. After completing his training he relocated to the United Kingdom where he joined Ernst & Young, London. Jacques joined the Bank of England in 2008 and was, until he joined Fairvest, responsible for the financial reporting of the United Kingdom’s Foreign Currency Reserves.

IC

RNC*ARC*

IC

RNC*ARC*


46GOVERNANCE

Audit and Risk Committee

ARC

Social and Ethics Committee

SEC

Remuneration and Nomination Committee

RNC

Investment Committee

IC

By invitation

*

Independent Non-Executive Directors

N (NDABE) MKHIZE (41) Date appointed: 2 June 2014

ADVOCATE JD (JACOB) WIESE (38) Date appointed: 2 June 2014

T (TREVOR) COHEN (77)Date appointed: 1 July 2017

Jacob holds a BA (Value & Policy studies) degree from the University of Stellenbosch, a Master’s degree in International Economics and Management from Universita Commerciale Luigi Bocconi in Italy and an LLB degree from the University of Cape Town. In 2009 Jacob completed his pupilage at the Cape Bar and was admitted as an Advocate of the High Court. Jacob is a non-executive director of Pepkor Holdings Limited and Invicta Holdings. He is also involved with the management of Lourensford Wine Estate, one of South Africa’s largest and most prestigious wine farms.

Ndabe is the Chief Investment Officer of the Eskom Pension and Provident Fund with overall investment oversight over R135 billion in assets. His previous experience includes co-portfolio management positions at STANLIB Asset Management and Coronation Fund Managers as well as an equity analyst role at Prudential Portfolio Managers. Ndabe holds a BSc (Actuarial Science) degree from the University of Cape Town (UCT) and the designations of Chartered Financial Analyst and Chartered Alternative Investment Analyst. In addition, he has gone through the Property Development Programme at the UCT Graduate School of Business.

Trevor holds a BComm and an LLB from University of Witwatersrand. Trevor has over 35 years of experience in the retail real estate sector. His experience includes being a senior member of the real estate division at Ellerines Group of Companies, joint head of the Real Estate Division at OK Bazaars, head of the Gauteng branch of the New Business Development Division of Shoprite and until his retirement in April 2017, he was a Senior Consultant at Shoprite.

ARCIC

ARCIC

SECIC

Alternate Director

AJ (ADAM) MARCUS (47) COO – alternate Director to DM WilderDate appointed: 22 September 2011

KR (KHEGU) NKUNA (32)Independent Non-Executive Director Date appointed: 20 March 2019

Khegu is a qualified Chartered Accountant and currently the Group Financial Director of the Masingita Group of Companies. Khegu has experience in both private and public companies spanning across diverse industries. She has diverse professional experience in auditing, finance management, strategic financial management, strategy development, financial risk analysis and corporate governance.

Adam graduated in 1995 from the University of Cape Town with a BSc (CM). After graduating, Adam joined a commercial property brokerage where he headed up the Investment Sales Division, structuring investment and development transactions. In 1999, he founded Gateway Property Developments, which has a 12-year track record of delivering commercial & residential property developments. Having successfully managed a property development business, Adam’s skill set encompasses a full spectrum of property skills from deal structuring, structured finance, green fields and brown field developments, redevelopments, value engineering, property management and leasing.

ARC SECIC


47

SUMMARISED GOVERNANCE REVIEW This report is a summary of our corporate governance matters and should be read in conjunction with the detailed Annual Corporate Governance Report which deals with the Company’s adherence to the principles of King IVTM which will be available on our website at www.fairvest.co.za/company/corporate-governance.

Fairvest is committed to the promotion of good corporate governance and to following the principles of fairness, accountability, responsibility and transparency as advocated in the King IVTM. The Board recognises the need to conduct the business of the Group with integrity and in accordance with generally accepted corporate governance practices. The Board endorses, has addressed, and, where possible and relevant to the Company, applied the principles of King IVTM.

The Company Secretary assists with strengthening of the Board’s effectiveness as well as continually enhancing the corporate governance processes and structures.

LEADERSHIP The Board strives to ensure effective and ethical leadership and has set the tone as the collective conscious mind of Fairvest

through a set of values known throughout the Company as “SKRIPT” (refer to page 12 of this report). These values guide the behaviour of Fairvest and is an integral part of the approved company strategy which ensures that Fairvest’s business relationships reflect its integrity, respect for human dignity and the rights of others, honesty and a commitment to do what is right, fair, reasonable, lawful and just.

The Board has adopted a charter that sets out the practices and processes it follows to discharge its responsibilities. The charter specifically details a description of roles, functions, responsibilities and powers of the Board. Each of the Board Committees have duly adopted terms of reference which clearly sets outs the membership requirements, key responsibilities, practices and processes of each Committee. The Board charter and the Board Committees’ terms of reference have been reviewed and aligned to the principles of King IVTM.

The Board exercises control through a governance framework that includes the review and implementation of detailed reporting presented to the Board and its sub-Committees, a system of internal controls and a delegation of authority through an approval framework.

CORPORATE GOVERNANCE REPORT CONTINUED

Audit and Risk CommitteeRemuneration and

Nomination CommitteeSocial and Ethics

CommitteeInvestment Committee

EXTERNAL AUDITORS

Executive Directors

Asset ManagerNew Star Asset Management

Property managersJHI Properties / Broll Property Group / Mainstream Group / Axis Property Fund / Bara Prop Investments

Abreal Property Management / AJ Property Holdings

BOARD OF DIRECTORS

SHAREHOLDERS REGULATORS


48GOVERNANCE

ROLES AND RESPONSIBILITIES OF THE BOARDThe Board is led by a Non-Executive Chairman and a Lead Independent Non-Executive Director. The Board charter requires a clear division of responsibilities between the Chairman, Lead Independent Director and the Chief Executive Officer (“CEO”) to ensure a balance of power and authority, so that no one individual has unfettered powers of decision making.

The Company’s Executive Directors are involved in the day-to-day operations of the business and assess strategy, performance, risks and opportunities and key performance areas and report to the Board at least quarterly.

The Company’s Independent Non-Executive Directors are appointed to provide an independent perspective with the relevant industry experience and to complement the skills and experience of the Executive Directors, assessing strategy, performance, risk, key performance areas and conduct. The Independent Non-Executive Directors are fully independent of management and are free to make their own decisions. They are free from any business or other relationship which could be seen to materially interfere with the individual’s capacity to act in an independent manner. The independence of Directors are assessed at least annually through the Remuneration and Nomination Committee and deliberated on at Board level.

Directors’ trading in the Company’s securitiesAll Directors are required to obtain clearance prior to trading in the Company’s securities. Such clearance must be obtained from the Chairman or, in his absence, from the Lead Independent Non-Executive Director. Directors are required to inform their portfolio/investment managers not to trade in the securities of the Company unless they have specific written instructions from that Director to do so. Directors also may not trade in their shares during closed periods.

Directors are further prohibited from dealing in their shares at any time when they are in possession of unpublished price-sensitive information in relation to those securities, or otherwise where clearance to deal is not given.

The Company has a policy regulating trading in the Company’s securities.

Conflicts of interestAs legally required, members of the Board must make full and timely disclosures of their other business interests, and particularly those that conflict or might conflict with those of the Group.

Potential conflicts of interest are appropriately managed in that Directors confirm these disclosures annually to the Company Secretary and the Board and, in addition, individual declarations are made at every meeting. Directors adhere to the conflict of interest policy as adopted by the Board and are required to annually confirm that they have read and understood the contents of the policy.

STRUCTUREThe Board charter requires there to be a sufficient number of Directors with the appropriate mix and balance of skills, qualifications and experience to ensure that the Board is able to carry out its duties and responsibilities.

Appointments to the Board are formal and transparent and are a matter for the Board as a whole, through recommendations from the Remuneration and Nomination Committee. Input from material stakeholders and external references, combined with experience levels, qualifications and skill-sets are considered given the Board’s requirements at the time before a candidate is submitted for nomination and appointment. The Board, through the Remuneration and Nomination Committee, has identified a suitable replacement to fill the vacancy on the Board and to strengthen the Audit and Risk Committee. Ms KR Nkuna was appointed as an Independent Non-Executive Director on 20 March 2019.

All new appointees to the Board are required to undergo the induction programme approved by the Board and managed by the Company Secretary. Directors are provided with all the necessary information and documentation to familiarise themselves with the Company and issues typically facing the Board. Ongoing training and development include sponsor updates on the JSE Listings Requirements, site visits, and attendance at investor presentations, workshops, formal training and reading material circulated by the Company Secretary.

The Board assesses its performance and that of its individual Directors, as well as their independence, on an ongoing basis. The outcomes of evaluations are considered by the Board as a whole and actions are identified to enhance the effectiveness of the Board and its Committees, including Directors’ development needs. The Directors are entitled to seek independent professional advice at the Group’s expense concerning Group affairs and have access to any information they may require in discharging their duties as Directors. They also have unrestricted access to the services of the Company Secretary.


49

Length of tenure Areas of expertise

Gender and racial diversity

Industry Leadership Finance Compliance and governance

Risk management Technology and information

management Environmental sustainability

Independence

1 Black female

1 Black male

7 White males

1 Non-executive 2 Executive1 Lead independent non-executive

4 Independent non-executive 1 Alternate director

Years

0-3 2

4-6 2

7-9 4

10+ 1

8

8

8

3

8

2 1

Appointments to the Board are formal and transparent and are a matter for the Board as a whole, through recommendations from the Remuneration and Nomination Committee. The Gender and Race Diversity Policy is reviewed annually by the Remuneration and Nomination Committee. The Board promotes transformation at a Board level and will consider both gender and race diversity for any new Board appointments to create a more diverse Board. The appointment made during the year improved our female and black representation.

As part of the Board’s ongoing assessment of performance and development needs of its individual Directors, the Board has identified technology and information management as areas that require training and development in 2020.

The Board comprises a balance of Executive and Non-Executive Directors, with a majority of Non-Executive Directors. A majority of the Non-Executive Directors are independent. The independence of all Independent Non-Executive Directors is assessed on an annual basis with specific focus on the independence of Non-Executive Directors who have served for more than 9 (nine) years, the outcome of which is included in the Integrated Report (refer to length of tenure below).

The Chairman of the Board is not independent and as such the Board has appointed a Lead Independent Non-Executive Director.



50GOVERNANCE

Rotation of directors

1 Executive2 Non-executive

In line with the current provisions of the Memorandum of Incorporation, one- third of all Directors are required to retire annually at the Company’s Annual General Meeting (“AGM”) and if eligible, may be re-elected.

JF du Toit, N Mkhize and DM Wilder will retire by rotation and be eligible to offer themselves for re-election at the AGM.

BOARD ACTIVITIESKey areas of focus during the reporting period The Board considered the Company’s financial performance

throughout the 2019 financial year. The Board approved certain acquisitions on recommendation

from the Investment Committee. The Board approved the re-appointment of BDO as the

external auditor. The Board approved the installation of photovoltaic rooftop

solar systems across the Fairvest property portfolio where financially and technically feasible.

The Board investigated mitigating actions to be taken in response to the water crisis in the Western Cape.

The Board approved the budgets for the 2020/2021 financial years and the projected growth in distribution of between 4% and 6% for the 2020 financial year.

The Board considered governance and risk management. An independent evaluation on the performance of the Board

and Committees was conducted.

Key areas of future focus The Board will continue to consider the Company’s financial

performance throughout the 2020 financial year. The Board will give due consideration to outsourcing the

internal audit function. The Board will assess the appointment of the external auditors

and give due consideration to firm rotation. The Board will continue to review and assess the sustainability

of our natural resources and how Fairvest deploys the financial capital over the short, medium and long term.

The Board will review and consider for approval the budget for the 2021/2022 financial years.

The Board will monitor and review organic growth and performance against budget and KPIs.

The Board will consider inorganic growth and financial structures of mergers, acquisitions and joint venture proposals.

The Board will monitor gearing and review the fixed portion of debt.

The Board will continue to give due consideration to the requirements of King IVTM which includes the review of our policies and procedure.

The Board will attend to the prioritised recommendations emanating from the board evaluation including enhancing the annual planner with board briefing sessions and reviewing membership of the Board committees.

BOARD COMMITTEESThe Board is assisted in the performance of its duties by four committees, an Audit and Risk Committee, a Remuneration and Nomination Committee, an Investment Committee and a Social and Ethics Committee. The Board is conscious of the fact that such delegation of duties is not an abdication of the Board members’ responsibilities.

The various committees’ terms of reference are reviewed annually and have been aligned to the key principles of King IVTM. Each of the Board Committees’ terms of reference clearly regulates membership and key responsibilities of the respective committees.


51

SUMMARISED BOARD AND COMMITTEE MEETING ATTENDANCE

Director BoardAudit and Risk

Committee

Remuneration and Nomination

CommitteeInvestment Committee

Social and Ethics

Committee

JF du Toit 4/4 3/3 4/4LW Andrag 4/4 3/3 2/2DM Wilder 4/4 4/4BJ Kriel 4/4 4/4KR Moloko 1/4# 1/3# 1/3#

N Mkhize 3/4 3/3 3/4JD Wiese 4/4 3/3 # 4/4TJ Cohen 4/4 1/3# 4/4 2/2AJ Marcus 4/4 4/4 2/2KR Nkuna 1/4# 1/3#

% attendance 97% 100% 100% 96% 100%

# Not a member of the Committee at the time of the meeting.

Audit and Risk CommitteeMr N Mkhize was appointed as Chairman of the Audit and Risk Committee on 3 September 2018, after Ms KR Moloko resigned as a director, Mr JD Wiese and Mr TJ Cohen were members of the Committee. Subsequent to Ms KR Nkuna’s appointment as an Independent Non-Executive Director on 20 March 2019, Mr TJ Cohen was replaced by Ms KR Nkuna as member of the Committee. Mr N Mkhize, Mr JD Wiese and Ms KR Nkuna are all Independent Non-Executive Directors.

The Audit and Risk Committee assisted the Board by providing an objective and independent view on the organisation’s finance, accounting and control mechanisms.

The Committee satisfied itself that the CFO has the requisite qualifications, expertise and experience to carry out his duties as required by the Companies Act and the JSE Listings Requirements.

Subject to the confirmation of appointment of Mr N Mkhize as a Director of the Company at the next AGM, all members of the Committee offer themselves for re-election as members of the Committee at the AGM on 14 November 2019.

Risk management is regarded as a key driver for the Company to achieve its strategic objectives and is managed accordingly. Overview of the risk management process has been delegated to the Committee and the Committee reviews risk at least quarterly. Refer to page 55 for further details on risk management and page 65 for the report of the Audit and Risk Committee.

The Committee is satisfied that it executed its mandate effectively and efficiently during the reporting period.

Technology and information governanceThe majority of the IT function of the Group is outsourced to external service providers. The risks regarding the security, back-up, conversion and update of the information technology systems are continually assessed and addressed by the Audit and Risk Committee. Disaster recovery plans are regularly reviewed to limit the impact that disruptions will have to critical management information and continuing operations.



52GOVERNANCE

Remuneration and Nomination Committee Mr LW Andrag, the Lead Independent Non-Executive Director, is the Chairman of the Committee. Mr JF du Toit, the Chairman of the Board, and Mr JD Wiese, are members of the Committee. Mr JD Wiese was appointed as a member of the Committee on 26 February 2019.

The remuneration approach of the Company is to remunerate fairly, responsibly and transparently to promote the achievement of strategic objectives and positive outcomes in the short, medium, and long term. The Company has conducted an independent benchmark exercise, by Deloitte Consulting, to ensure that the Company remunerates fairly and responsibly. Remuneration is steered with the remuneration policy and the responsibility of monitoring remuneration has been delegated to the Committee. The current remuneration structure in the Company is regarded as fit for purpose and the Company remains committed to remunerate so as to encourage growth and sustainability of the business.

The Remuneration and Nomination Committee adopted and approved a Gender and Race Diversification Policy. In identifying suitable candidates for appointment to the Board, the Committee will consider candidates on merit against objective criteria and with due regard for the potential benefits of gender and race diversity at Board level. The Committee will continue to discuss and annually agree all measurable targets for achieving gender diversity on the Board.

The evaluation of the performance of the Board, Committees, Chairperson of the Board and the Board’s individual members is managed through the Committee. There were no areas of material concerns identified during the evaluation process. The Board is committed to continuous improvement with a focus on performance and effectiveness, and have identified areas of enhancement to further strengthen the Board.

For further details of Directors’ remuneration, refer to the remuneration report on page 60.


Investment Committee The Committee meets when decisions are required to acquire, dispose of or significantly redevelop property assets. Given the role played by the Committee, it is acknowledged that the

Committee does not have a majority of Independent Non-Executive Directors. The Committee is considering the current membership in order to improve its independence. A full due diligence is undertaken before any property is considered for acquisition, and is circulated to all members of the Committee and Board of Directors in advance of meetings.

Decisions of the Committee and Board of Directors require consensus.

The Investment Committee has met prior to the conclusion of each acquisition or disposal.


Social and Ethics Committee Mr LW Andrag, the Lead Independent Non-Executive Director, is the Chairman of the Committee. Mr AJ Marcus (alternate to Mr DM Wilder) and Mr TJ Cohen are members of the Committee. The Committee consists of a mix of executive and non-executive members with the majority being Non-Executive Directors.

The statutory duties of the Committee are discharged in terms of sections 72(4) and (5) of the Companies Act, read with regulation 43 of the Companies Regulations 2011, which states that all listed companies must establish a Social and Ethics Committee. The Committee has adopted a formal terms of reference which has been approved by the Board and is reviewed on an annual basis. Oversight of ethics, responsible corporate citizenship, sustainable development and stakeholder relationships have been delegated to the Committee.

The Committee acts on behalf of the Board and is responsible for evaluating social and ethical responsibilities and making recommendations to the Board. Fairvest is committed to incorporating social and environmental considerations in its decision making at both Company level and at property level.

Sustainability Fairvest is committed to being a good corporate citizen and to operate a sustainable business for all stakeholders, with financial, social and environmental aspects being the focus areas.

We continue with various initiatives to reduce energy consumption at our properties. Solar installations are implemented at 14 of our buildings, with a total of R22.4 million invested in the 2019


53

period, and a further R35.5 million committed for further investment. Energy smart meters have also been installed to monitor energy usage. Alternative water resources have also been implemented at various properties, and water usage is metered to ensure accurate reporting on each property’s performance. Waste management initiatives are also being assessed for implementation at properties, and headed by a waste management committee.

The Committee continuously evaluates initiatives to ensure that contributions are made to the development of the communities in the areas in which Fairvest owns its retail centres. These include: Engaging with service providers to hire staff from the area in

which the property is situated. The provision of vacant space to community organisations for

training and skills development. Contributing towards charitable organisations that operate in

the communities where our properties are located.

During the 2019 financial year Fairvest dropped its rating under the Property Charter’s B-BBEE Code at a level 8 contributor to B-BBEE. This process has again identified focus areas that can contribute to an improved rating. Fairvest recognises that integrating transformation into business practice is crucial for the sustainability of the Company.

Ethical culture An ethical culture is regarded as a critical cornerstone in the Company. The monitoring of organisational ethics has been delegated to the Committee and there were no instances of ethical transgression identified during the reporting period. Ethics is managed through a Code of Conduct, an Ethics policy and a Whistleblower policy. The future focus of the Committee will be to further strengthen the ethical culture at the Company.

Corporate citizen The Company is committed to good corporate citizenship and takes it in consideration in its decision making. The Committee

monitors corporate citizenship and a future focus will be to monitor corporate citizenship in more detail. For further details on corporate citizenship refer to page 24 of this report.

Stakeholder relationships The Board is committed to developing, implementing and maintaining strategies to minimise risk and to ensure growth of the Company for the benefit of all its stakeholders and oversight of the stakeholder relationships are monitored by the Committee. For further detail on stakeholder engagement refer to page 24 of this report.


THE COMPANY SECRETARY The Board is of the opinion that the Company Secretary is suitably qualified and experienced to carry out their duties as stipulated under section 84 of the Companies Act. The Company Secretary provides Board members with guidance in respect of their statutory duties and ensures that they are up to date on all relevant statutory requirements. All Directors have unfettered access to management and management information, to the advice and services of the Company Secretary and in appropriate circumstances they may seek independent professional advice about the affairs of the Group at the Company’s expense.

The Board has reviewed, through discussion and assessment, the qualifications, experience and competence of the individuals employed by the Company Secretary and has noted that the Company Secretary performed all formalities and substantive duties timeously and in an appropriate manner. The Board is satisfied that an arm’s length relationship exists.

The Company Secretary of the Company is FluidRock Co Sec Proprietary Limited, situated at Monument Office Park, Block 5 Suite 201, 79 Steenbok Avenue, Monument Park, Pretoria, 0181.



54GOVERNANCE

1 Macro-economic outlook 5 Increased competition and tenant retention

2Over reliance on strong performance of external service providers

6 Sub-optimal investments/acquisitions

7 Increased cost of funding3Rising cost of occupancy for tenants from increased rates, taxes and utilities

8Non-compliance with statutory laws and regulations

4 Volatility in interest rate risk

Seve

rity

Major

Critical

Serious

Moderate

Minor

Rare Unlikely Possible Likely Almost certain

Likelihood

12

34

5

6

78

RISK REPORT

Fairvest is committed to proactive risk management, with the Board, assisted by the Audit and Risk Committee, being responsible for the risk management of the Company. Management is responsible for establishing, monitoring and communicating the appropriate risk and control policies. Risk management is regarded as a key business process which ensures that we are protected against uncertain events which could prevent us from achieving our objectives. We are committed to developing, implementing and maintaining strategies to minimise our risk and to ensure the growth of the Company for the best benefit of our stakeholders.

Fairvest employs a risk management framework to: Identify risks Assess the likelihood and impact on the Group of the risk Formulate a mitigating response to the risk Review and revise identified risks on an ongoing basis

RISK HEATMAP


55

RISK ASSESSMENT MATRIXThe major risks as identified by the Audit and Risk Committee are as follows:

Key risks we face as an organisation Risk rating Impact on performance

Key areas of focus during the reporting period

Actions taken to monitor the effectiveness of risk management and how the outcomes were addressed Planned areas of future focus Related capitals and strategic objectives

1. Macro-economic outlook

Slow consumer spending affecting lease negotiations and tenant retentions negatively, resulting in increased arrears and vacancies.

Engage financially sound national tenants with strong balance sheets and proven business models.

Solid collections and arrears process.

Strong and effective lease department, limiting losses through vacancies and rental rates.

Monthly performance reporting. Monthly leasing meetings with the

executive team. Monthly arrears meetings with the

executive team. Executive consideration and direction

on high risk tenants.

Continued focus on tenant retentions, arrears motivations and asset management reporting.

SO: Enhance property performance, increase our marketing communication and brand footprint.

2. Over-reliance on strong performance of external service providers

Inaccurate information and risk of misstatements in relation to financial reporting.

Reputational risk associated with tenant dissatisfaction.

Volatility of earnings.

Reviewing and refining the Fairvest Standard Procedures.

Implementation of checks to monitor and ensure information from service providers are complete and accurate.

Annual external audit by BDO. Formal report on the outcome of

external audit to the Audit and Risk Committee.

Monthly performance reporting.

Continuously review and refine the Fairvest Standard Procedures.

Annual internal audit.

SO: Enhance property performance, invest in our people.

3. Rising cost of occupancy for tenants from increased rates, taxes and utilities

Inability of tenants to absorb the costs.

Increase in our net cost to income. Increase in rental.

Energy saving initiatives through solar projects.

Monitoring of utilities per building including common areas.

Municipal valuation objections to rates adjustments.

Energy Management Assessments. Internalised annual review of

increases in rates and taxes and the need for municipal valuation objections.

Identifying further solar initiatives. Monitoring of utilities and recovery

thereof from tenants. Continue to review increases in rates

and taxes and the need for municipal valuation objections.

SO: Invest in yield enhancing energy and water initiatives.

4. Volatility in interest rate risk

Increase or volatility of funding cost reducing distributable earnings and limiting the ability to fund acquisitions growth.

Interest rate fixes and swaps Funding in strategic partnerships

linked to interest rate as an effective hedge.

Reporting on treasury management to the Board.

Continue to target a fixed debt component above 70%.

SO: Gain access to capital, engage in strategic partnerships.

RISK REPORT CONTINUED


56GOVERNANCE




1. Macro-economic outlook

Slow consumer spending affecting lease negotiations and tenant retentions negatively, resulting in increased arrears and vacancies.

Engage financially sound national tenants with strong balance sheets and proven business models.

Solid collections and arrears process.

Strong and effective lease department, limiting losses through vacancies and rental rates.

Monthly performance reporting. Monthly leasing meetings with the

executive team. Monthly arrears meetings with the

executive team. Executive consideration and direction

on high risk tenants.

Continued focus on tenant retentions, arrears motivations and asset management reporting.


2. Over-reliance on strong performance of external service providers

Inaccurate information and risk of misstatements in relation to financial reporting.

Reputational risk associated with tenant dissatisfaction.

Volatility of earnings.

Reviewing and refining the Fairvest Standard Procedures.

Implementation of checks to monitor and ensure information from service providers are complete and accurate.

Annual external audit by BDO. Formal report on the outcome of

external audit to the Audit and Risk Committee.


Continuously review and refine the Fairvest Standard Procedures.

Annual internal audit.

SO: Enhance property performance, invest in our people.

3. Rising cost of occupancy for tenants from increased rates, taxes and utilities

Inability of tenants to absorb the costs.

Increase in our net cost to income. Increase in rental.

Energy saving initiatives through solar projects.

Monitoring of utilities per building including common areas.

Municipal valuation objections to rates adjustments.

Energy Management Assessments. Internalised annual review of

increases in rates and taxes and the need for municipal valuation objections.

Identifying further solar initiatives. Monitoring of utilities and recovery

thereof from tenants. Continue to review increases in rates

and taxes and the need for municipal valuation objections.

SO: Invest in yield enhancing energy and water initiatives.

4. Volatility in interest rate risk

Increase or volatility of funding cost reducing distributable earnings and limiting the ability to fund acquisitions growth.

Interest rate fixes and swaps Funding in strategic partnerships

linked to interest rate as an effective hedge.


Continue to target a fixed debt component above 70%.

SO: Gain access to capital, engage in strategic partnerships.


57

RISK REPORT CONTINUED




5. Increased competition and tenant retention

Discounted rental to retain tenants. Increased vacancies. Loss of revenue and distributable

earnings.

Strong broker relationships and a dedicated internal broker liaison.

Full leasing and renewal function performed in-house.

Monthly leasing meetings with the executive team.


Building strong relationships with national retailers to understand their tenancy requirements.


6. Sub-optimal investments/acquisitions

Increase potential of diminished returns with sub-optimal investments/acquisitions.

Acquisitions assessed against mandated parameters and extensive due diligence procedures.

Acquisitions approved by the Investment Committee and presented to the Board for approval.

Continue to assess mandated acquisitions parameters and perform extensive due diligence procedures.

SO: Invest in yield enhancing acquisitions, engage in strategic partnerships.

7. Increased cost of funding

Higher cost of funding and a decrease in distributable earnings.

Disruption in operations and reputational damage.

Diversified funder base and staggered maturity of debt to manage refinancing concentration risk.

Regular interaction with debt providers.


Continue to stagger maturity of debt to manage refinancing concentration risk.

Continue regular interaction with debt providers.

Explore alternative sources of funding.

SO: Gain access to capital.

8. Non-compliance with statutory laws and regulations

Reputational risk and possible penalties.

Appointment of new company secretary.

King IVTM reporting requirements.

Regular interaction with independent JSE sponsor PSG Capital and oversight from Audit and Risk Committee and Company Secretary.

Checklist to monitor adherence to King IVTM principles.

Review and monitor the performance of our appointed Company Secretary.

Consider appointment of independent internal auditor.


58GOVERNANCE




5. Increased competition and tenant retention

Discounted rental to retain tenants. Increased vacancies. Loss of revenue and distributable

earnings.

Strong broker relationships and a dedicated internal broker liaison.

Full leasing and renewal function performed in-house.

Monthly leasing meetings with the executive team.


Building strong relationships with national retailers to understand their tenancy requirements.


6. Sub-optimal investments/acquisitions

Increase potential of diminished returns with sub-optimal investments/acquisitions.

Acquisitions assessed against mandated parameters and extensive due diligence procedures.

Acquisitions approved by the Investment Committee and presented to the Board for approval.

Continue to assess mandated acquisitions parameters and perform extensive due diligence procedures.

SO: Invest in yield enhancing acquisitions, engage in strategic partnerships.

7. Increased cost of funding

Higher cost of funding and a decrease in distributable earnings.

Disruption in operations and reputational damage.

Diversified funder base and staggered maturity of debt to manage refinancing concentration risk.

Regular interaction with debt providers.


Continue to stagger maturity of debt to manage refinancing concentration risk.

Continue regular interaction with debt providers.

Explore alternative sources of funding.

SO: Gain access to capital.

8. Non-compliance with statutory laws and regulations

Reputational risk and possible penalties.

Appointment of new company secretary.

King IVTM reporting requirements.

Regular interaction with independent JSE sponsor PSG Capital and oversight from Audit and Risk Committee and Company Secretary.

Checklist to monitor adherence to King IVTM principles.

Review and monitor the performance of our appointed Company Secretary.

Consider appointment of independent internal auditor.


59

BACKGROUND STATEMENT The Board of Fairvest and the Remuneration and Nomination Committee have the pleasure in submitting the Remuneration and Nomination Committee report for the year ended 30 June 2019.

To align with King IVTM, this report consists of three sections: a background statement, overview of the remuneration policy for the year ahead and the remuneration implementation report indicating the actual remuneration paid based on the previous year’s remuneration policy.

Fairvest’s Remuneration and Nomination Committee is appointed by the Board of Directors and has 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 Committee fulfilled its main duties during the year, which included the following: Benchmark survey undertaken by Deloitte Consulting, as an

independent expert, of Non-Executive and Executive Directors’ remuneration against comparable REIT’s and comparable listed companies;

Recommendation to the Board of Non-Executive Directors’ emoluments and increases the for following year for approval by shareholders;

Approval of the Chief Financial Officer’s (“CFO”) guaranteed pay and increases; and

Approval of short-term annual incentive award for the CFO.

Fairvest is an externally managed REIT which means that the management function of Fairvest is outsourced to an external asset manager, New Star Asset Management Proprietary Limited (“New Star”). The CFO and certain financial staff are employed by Fairvest, with the remainder of the asset management staff employed by New Star. The Remuneration and Nomination Committee review and assesses the CFO and the Non-Executive Directors’ remuneration annually and makes a formal recommendation to the Board for implementation, subject to shareholder approval at the annual general meeting (“AGM”).

The committee is in the process of a comprehensive review of the current remuneration policy with the intention of presenting a more comprehensive and transparent policy to shareholders.

VOTING AT 2018 AGM Of the shareholders votes exercisable at the 2018 AGM, 87.6% endorsed both Fairvest’s remuneration policy and implementation report, respectively. No further engagement with shareholders was therefore necessitated in this regard.

VOTING AT UPCOMING AGM Both Fairvest’s remuneration policy and its implementation report will be presented to shareholders for separate non-binding advisory votes thereon at Fairvest’s upcoming AGM to be held on 14 November 2019. In the event that 25% or more of shareholders vote against either the remuneration policy or the implementation report, or both, at the AGM, Fairvest will engage with shareholders through dialogue, requesting written submissions or otherwise, in order to address shareholder concerns, always with due regard to meeting Fairvest’s stated business objectives while being fair and responsible toward both the employees and shareholders.

REMUNERATION POLICY Fairvest’s philosophy emphasises the fundamental value of its people and their role in achieving Fairvest’s strategic objectives. The remuneration philosophy aligns business and strategic objectives with the overall goal of creating shareholder value. Fairvest strives to find a balance between employee and shareholder interests to ensure fair and responsible remuneration practices. Fairvest is committed to the best practices in the areas of remuneration and the attraction and retention of talent.

There were no changes to the remuneration policy during the current financial year.

The CFO receives a fixed annual salary and an increase, benchmarked against industry norms. Annual increases are awarded subject to adequate overall performance and profitability of the Company. As a result of the benchmarking process performed by Deloitte Consulting an 8% increase to the fixed annual salary was awarded for the 2020 financial year, to align the guaranteed remuneration closer to 50th percentile of comparable REIT’s. The payment of a short-term annual incentive to the CFO is linked to performance for the previous financial year, which is measured against achieved growth in distributions,

REMUNERATION REPORT


60GOVERNANCE

Proposed for year to

30 June 2020

ChairmanAnnual retainer R251 900 Meeting attendance fee (per Board and committee meeting attended) R17 175

Proposed for year to

30 June 2020

Non-Executive DirectorAnnual retainer R171 600 Meeting attendance fee (per Board and committee meeting attended) R11 700

IMPLEMENTATION REPORTFairvest complied with its remuneration policy in all respects for the year ended 30 June 2019. All components of remuneration paid to Fairvest’s Executive and Non-Executive Directors are in accordance with Fairvest’s remuneration policy and are comprehensively disclosed below.

The remuneration policy for the 2019 financial year was approved by way of a non-binding advisory vote passed at the 2018 AGM of shareholders, with 87.6% of shareholders voting in favour of the resolution.

compared to guidance issued and operational performance, at the discretion of the Remuneration and Nomination committee. There are no long-term incentive schemes in place at the Company.

Non-Executive Directors receive a fixed monthly fee and a meeting attendance fee for attending Board and sub-committee meetings. These fees are for services. Any additional time spent on Company business, specifically mandated by the Board, is paid at a fixed agreed rate. None such fees are anticipated for the 2020 financial year.

The benchmarking process performed by Deloitte Consulting, identified that Non-Executive Directors’ remuneration were significantly below industry norms for companies of comparable size, industry, business complexity and the level of responsibility. Given the competitive nature of Non-Executive Directors and in order to retain experienced Board members, the proposed remuneration for Non-Executive Directors were increased to the average of comparable listed companies and at the 50th percentile of comparable REIT’s. As in the previous years’, 55% of the anticipated fee is a fixed annual retainer, with 45% as a fee per meeting (based on 12 meetings per year).

The proposed non-executive directors’ fees for the 2020 financial year are:


61

REMUNERATION REPORT CONTINUED

Total remuneration paid to Non-Executive Directors, as approved by shareholders:

Directors’ fees

R’000

Meetingattendance

feesR’000

Consulting fees

R’000

Total remuneration

year to June 2019

R’000

Total remuneration

year to June 2018

R’000

JF du Toit 177 142 – 319 242LW Andrag 123 98 – 221 168JD Wiese 123 98 – 221 168N Mkhize 123 81 – 204 184TJ Cohen 123 98 60 281 516KR Nkuna 31 16 – 47 –KR Moloko 20 25 – 45 176

720 558 60 1 338 1 454

Remuneration paid to Executive Directors by the Company was to the CFO, BJ Kriel, only as DM Wilder and AJ Marcus are remunerated by New Star. Short-term annual incentive was linked to performance for the previous financial year and accounted for on a cash-paid basis in the following financial year. Targeted growth in distribution and operational performance targets were achieved.

SalaryR’000

Fees for other services

R’000

Short-term bonusR’000

Total remuneration

R’000

2019 BJ Kriel 1 717 – 1 182 2 899 DM Wilder 2 058 – 635 2 693 AJ Marcus 2 058 – 635 2 693

2018 BJ Kriel 1 600 – 713 2 313 DM Wilder 1 711 500 660 2 871 AJ Marcus 1 711 500 660 2 871

Louis Andrag Chairman: Remuneration and Nomination Committee


62GOVERNANCE

Retail

GLA (m2) 4 666Value (R’000) 65 000

Cnr Paul Kruger and Mozart Ave, Honeydew Ridge, Roodepoort

Gauteng

5

THE RIDGE

CONSOLIDATED ANNUAL FINANCIAL

STATEMENTS

INDEX

The reports and statements set out below comprise the annual consolidated and separate annual financial statements presented to the shareholders:

Page

Report of the Audit and Risk Committee 65

Certification by Company Secretary 67

Directors’ Responsibility and Approval 68

Directors’ Report 69

Independent Auditors’ Report 74

Statements of Financial Position 78

Statements of Profit or Loss and Other Comprehensive Income 79

Statements of Changes in Equity 80

Statements of Cash Flows 81

Accounting Policies 82

Notes to the Group Annual Financial Statements 94

Details of property portfolio 135

Property portfolio statistics 137

Analysis of shareholders 138

The following supplementary information does not form part of the annual consolidated and separate annual financial statements and is unaudited

Distributable earnings reconciliation 139

Stock exchange performance 140

JSE statistics 140

Shareholders’ calendar 140

Corporate information 141


64CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

The Audit and Risk Committee (“the Committee”) takes pleasure in presenting its report for the period ended 30 June 2019.

The Committee is an independent statutory committee and, in addition to having specific statutory responsibilities to the shareholders in terms of the Companies Act of South Africa, also assists the Board through advising and making recommendations on financial reporting, risk management and internal financial controls, the external and internal audit functions as well as the statutory and regulatory compliance of the Group.

Responsibilities of the Committee include: Reviewed the effectiveness of the Group’s system of internal financial controls. Review and recommend the Integrated Report and annual financial statements and any other financial information presented to

shareholders and ensuring compliance with International Financial Reporting Standards, the JSE Listings Requirements and the requirements of the Companies Act of South Africa.

Monitoring the risk management framework adopted by the Group Reviewing management’s assessment of the Group’s and the Group’s ability to continue as a going concern.

The Committee has adopted formal terms of reference, delegated to it by the Board of its scope and responsibilities. The Committee follows an annual work plan to ensure all its duties and responsibilities as set out in its terms of reference are dealt with. The Committee confirms that it has discharged its functions and complied with its terms of reference for the period ended 30 June 2019.

The Committee comprises three Independent Non-Executive Directors and is chaired by Mr N Mkhize. The appointment of members of the Committee requires the approval of the shareholders at the AGM each year. The Company Secretary acts as secretary to the Committee. The Executive Directors and the external auditors attended Audit Committee meetings by invitation.

Ms KR Moloko resigned as a Director of the Company with effect from 3 September 2018. Mr N Mkhize was appointed as Chairman of the Committee with Mr TJ Cohen being appointed as a member of the Committee on 3 September 2018. On 20 March 2019, Ms KR Nkuna was appointed as a Director and a member of the Committee and Mr TJ Cohen stepped down as a member of the Committee. The Committee currently comprises Mr N Mkhize (Chairman), Ms KR Nkuna and Mr JD Wiese.

The terms of reference require an annual evaluation of the performance of the Committee and its members, as well as confirmation of the members’ independence in terms of King IVTM and the Companies Act. The outcome of this evaluation and confirmation was satisfactory.

EXTERNAL AUDIT The external auditors were re-appointed by the shareholders at the 2018 AGM until the conclusion of the 2019 AGM to be held on 14 November 2019. BDO have been the auditors of the Group since 2007. The current audit partner, Mr H Bhaga-Muljee, has been the engagement partner for four consecutive years, including the 2019 financial period.

The Committee has assessed the independence, expertise and objectivity of BDO as the external auditor, as well as approving the fees paid to BDO. The Committee has received confirmation from the external auditor that the partners and staff responsible for the audit comply with all legal and professional requirements with regard to independence.

The Committee has reviewed the information detailed in paragraph 22.15(h) of the JSE Listings Requirements and concluded that the external auditor and the engagement audit partner are suitable and have the requisite competence, expertise and experience to discharge their responsibilities.

The Committee recommends BDO for re-appointment as Group auditors. The Committee has taken note of the introduction of mandatory audit firm rotation rule effective from 1 April 2023 in terms of which an auditor may only serve a maximum of 10 years, with a five-year cooling off period.

REPORT OF THE AUDIT AND RISK COMMITTEE


65

NON-AUDIT SERVICES The Group has a policy on non-audit services which can be provided by the appointed auditing firm. BDO may only be appointed for non-audit services with the approval of the Committee. During the period under review R60 000 relating to non-audit services was paid to BDO, which did not have an impact on their independence.

INTERNAL AUDIT The Committee continues to assess the requirement for an independent internal audit function as the Group grows. At this point in time, the Committee is satisfied that the size and complexity of the Group does not warrant an independent internal audit function.

INTERNAL CONTROL The Committee is satisfied that an adequate system of internal control is in place to reduce significant financial risks faced by the Group to an acceptable level and that these controls have been effective throughout the period under review.

EVALUATION OF THE CFO The Committee considered and satisfied itself as to the appropriateness of the expertise and experience of the Group’s CFO, Mr BJ Kriel as required by paragraph 3.84(g)(i) of the JSE Listing Requirements. This is based on the qualifications, levels of experience, continuing professional development education and the Board’s assessment of the financial knowledge of the CFO.

The Committee is satisfied that the Board has performed a solvency and liquidity test on the Company and has concluded that the Company will satisfy the test after payment of the final distribution. The Committee can also confirm that the test was performed for the interim distribution.

The Committee is satisfied that the Company has established appropriate financial reporting procedures and that those procedures are operating.

The Committee will evaluate the integrity of the Integrated Annual Report for 2019 and ensure that it is prepared using the appropriate reporting standards, which meet the requirements of King IVTM and the JSE Listings Requirements in order to recommend it to the Board for approval.

The Committee has evaluated the annual consolidated and separate financial statements of Fairvest Property Holdings Limited for the period ended 30 June 2019 and, based on the information provided to the Committee, considers that the Group has appropriate financial reporting procedures and that those procedures are operating and comply, in all material respects, with the requirements of the Companies Act of South Africa, and International Financial Reporting Standards.

N Mkhize Chairman of the Audit and Risk Committee

4 September 2019

REPORT OF THE AUDIT AND RISK COMMITTEE CONTINUED



CERTIFICATION BY COMPANY SECRETARY

The Company Secretary hereby certifies in compliance with section 88(2)(e) of the Companies Act of South Africa, that all returns required have been lodged with the Registrar of Companies and that all such returns are true, correct and up to date.

FluidRock Co Sec Proprietary LimitedCompany Secretary

4 September 2019


67

The Directors are required in terms of the Companies Act of South Africa, to maintain adequate accounting records and are responsible for the content and integrity of the annual consolidated and separate financial statements and related financial information included in this report. It is their responsibility to ensure that the annual consolidated and separate financial statements fairly present the state of affairs of the Group and the Company as at the end of the reporting period and the results of its operations and cash flows for the period then ended, in conformity with International Financial Reporting Standards. The external auditors are engaged to express an independent opinion on the annual consolidated and separate financial statements.

The annual consolidated and separate financial statements are prepared in accordance with the requirements of the JSE Listings Requirements, the requirements of the Companies Act of South Africa, the framework, measurement and recognition requirements of International Financial Reporting Standards (“IFRS”) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

The Directors acknowledge that they are ultimately responsible for the system of internal financial control established by the Group and place considerable importance on maintaining a strong control environment. To enable the Directors to meet these responsibilities, the Board of Directors sets standards for internal control aimed at reducing the risk of error or loss in a cost-effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the Group and all employees are required to maintain the highest ethical standards in ensuring the Group’s business is conducted in a manner that, in all reasonable circumstances, is above reproach. The focus of risk management in the Group is on identifying, assessing, managing and monitoring all known forms of risk across the Group. While operating risk cannot be fully eliminated, the Group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.

The Directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the annual consolidated and separate financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The Directors have reviewed the Group’s cash flow forecast for the period to 30 June 2020 and, in light of this review and the current financial position, they are satisfied that the Group has or has access to adequate resources to continue in operational existence for the foreseeable future.

The Board of Directors is responsible for the financial affairs of the Group.

The external auditors are responsible for independently auditing and reporting on the Group’s financial statements. The annual consolidated and separate financial statements have been examined by the Group’s external auditors and their report is presented on pages 74 to 77.

The annual consolidated and separate financial statements set out on pages 78 to 141, which have been prepared on the going concern basis, were approved by the Board of Directors on 4 September 2019 and were signed on its behalf by:

JF du Toit DM Wilder Chairman CEO

DIRECTORS’ RESPONSIBILITY AND APPROVAL



DIRECTORS’ REPORT

The Directors have pleasure in submitting their report for the period ended 30 June 2019.

The annual consolidated and separate financial statements are prepared in compliance with IFRS and interpretations of those standards, as adopted by the International Accounting Standards Board, the Companies Act of South Africa, the JSE Listings Requirements, the SAICA Financial Reporting Guides as issued by the Accounting Practice Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council.

NATURE OF BUSINESSFairvest Property Holdings Limited is listed in the “Retail REIT” sector of the JSE Limited.

Fairvest’s objective is to build a retail-focused property fund weighted toward non-metropolitan shopping centres and including convenience, community and regional shopping centres servicing the lower LSM market in high-growth nodes close to commuter networks. There have been no changes to the nature of the business.

DIVIDEND DECLARATIONFairvests’ Board of Directors is pleased to declare a dividend of 11.157 cents per share for the six months ended 30 June 2019, further to the dividend of 10.616 cents per share declared for the six months ended 31 December 2018. The total dividend for the period of 21.773 cents per share which is an 8.1% increase from the previous period and within the guidance previously issued to the market. The dividend is payable to shareholders registered at the close of business on Friday, 4 October 2019. In accordance with Fairvest’s status as a REIT, the distribution meets the requirements of a “qualifying distribution” for the purposes of section 25BB of the Income Tax Act, 58 of 1962 (“Income Tax Act”).

REVIEW OF RESULTSThe operating results and state of affairs of the Group and Company are fully set out in the attached annual consolidated and separate financial statements.

CAPITAL STRUCTUREThe authorised ordinary share capital of the Company remains unchanged at 3 000 000 000 ordinary shares of no par value.

During the period under review the following shares were issued: 14 919 845 shares were issued on 8 October 2018 at 213.686 cents per share through the dividend reinvestment alternative,

retaining R31.88 million of equity. 12 185 043 shares were issued on 8 April 2019 at 208.868 cents per share through the dividend reinvestment alternative,

retaining R25.45 million of equity.


69

DIRECTORS’ REPORT CONTINUED

BOARD OF DIRECTORSThe following Directors were Directors of the Company during the period and up to the date of this report:JF du Toit (Chairman)*LW Andrag**DM WilderBJ KrielJD Wiese***N Mkhize***TJ Cohen***KR Nkuna*** (appointed on 20 March 2019)AJ Marcus****KR Moloko*** (resigned on 31 July 2018, effective 3 September 2018)* Non-Executive.** Lead Independent Non-Executive.*** Independent Non-Executive.**** Alternate Director to DM Wilder.

DIRECTORS’ REMUNERATION

Directors’ fees

2019R’000

Meeting attendance

fees2019R’000

Consulting fees

2019R’000

Total remuneration

2019R’000

Total remuneration

2018R’000

JF du Toit 177 142 – 319 242LW Andrag 123 98 – 221 168JD Wiese 123 98 – 221 168N Mkhize 123 81 – 204 184TJ Cohen 123 98 60 281 516KR Nkuna 31 16 – 47 –KR Moloko 20 25 – 45 176

720 558 60 1 338 1 454



EXECUTIVE DIRECTORS’ REMUNERATION

SalaryR’000

Fees for other services

R’000

Short-term bonusR’000

Total remuneration

R’000

2019BJ Kriel 1 717 – 1 182 2 899DM Wilder* 2 058 – 635 2 693AJ Marcus* 2 058 – 635 2 693

5 833 – 2 452 8 285

2018BJ Kriel 1 600 – 713 2 313DM Wilder* 1 711 500 660 2 871AJ Marcus* 1 711 500 660 2 871

5 022 1 000 2 033 8 055

* DM Wilder and AJ Marcus are remunerated by the asset manager, New Star Asset Management Proprietary Limited. Fees for other services and commission are paid to entities in which the Directors have a beneficial interest.

DIRECTORS’ SERVICE CONTRACTSThere are no fixed-term service contracts for Executive or Non-Executive Directors.

SHARES HELD BY DIRECTORSThe following table reflects the number of shares held by Directors at the date of approval of the annual financial statements:

Beneficial holdings Non-beneficial holdings

Name Direct Indirect Direct Indirect %

2019BJ Kriel – 23 717 745 – – 2.33DM Wilder – 9 368 190 – – 0.92AJ Marcus – 4 927 326 – – 0.48TJ Cohen 109 770 – – – 0.01

Total 109 770 38 013 261 – – 3.74

2018BJ Kriel – 23 717 745 – – 2.39DM Wilder – 9 368 190 – – 0.95AJ Marcus – 4 472 500 – – 0.45TJ Cohen 104 702 – – – 0.01

Total 104 702 37 558 435 – – 3.80

There have been no changes to the Directors’ interest in shares subsequent to reporting date.


71

DIRECTORS’ REPORT CONTINUED

INTEREST OF DIRECTORS IN CONTRACTSRefer to Notes 33 and 36 of the annual financial statements for disclosure of related-party transactions. There have been no material changes between 30 June 2019 and the date of this report.

GOING CONCERN The annual consolidated and separate financial statements have been prepared on the going concern basis. In concluding that this basis is appropriate, the Directors have considered the Group’s positive cash flows and the present net asset value of the Group. The Directors, after due deliberation, have every reason to believe that the Group has adequate resources to continue in operation in the foreseeable future.

PROSPECTSDespite difficult economic conditions, the Company remains confident that the nature of its portfolio, its low-risk tenant base and the Company’s letting expertise will prove to be defensive in the face of economic headwinds, with growth in distributions approximating or exceeding current inflation. Fairvest remains well positioned for long-term value creation, with a clearly focused strategy of servicing non-metropolitan and lower LSM markets and maintaining strong operational metrics including conservative gearing levels, high tenant retention and low arrears.

Fairvest has four large long-term leases, with above market rentals, that expire during the 2020 financial year. The expectation is that the rentals on these four leases will be reduced on renewal or reletting to ensure sustainable rentals over the new lease periods. As a result we expect lower than historic distribution growth of between 4% and 6% for the 2020 financial year.

This forecast assumed no material deterioration in the macro-economic environment relative to current levels, that no major corporate and tenant failures will occur and that tenants will be able to absorb increases in municipal and utility costs. Forecast rental income is based on contractual lease terms and anticipated market-related renewals. This forecast is the responsibility of the Board of Directors of Fairvest and has not been reviewed or reported on by the auditors.

SPECIAL RESOLUTIONSThe following special resolutions were passed during the reporting period: Resolution authorising the Company and its subsidiaries to purchase shares issued by the Company. Resolution authorising the payment and amounts in respect of Non-Executive Directors’ remuneration. Resolution authorising inter-Company loans. Resolution authorising financial assistance for acquisition of securities in the Company or in related and inter-related companies.

No material special resolutions were passed by subsidiaries during the reporting period.

CORPORATE GOVERNANCEFairvest is committed to the promotion of good corporate governance and to following the principles of fairness, accountability, and responsibility. Fairvest’s corporate governance policies have been applied accordingly during the period.

FluidRock was appointed as the Company Secretary on 15 August 2018. During the period we commenced a process of enhancing the corporate governance process and structures. A comprehensive Board and committee evaluation were performed during July/August 2019 and the outcomes will be reviewed and improvements implemented during the 2020 financial period.



COMPANY SECRETARYThe Board is of the opinion that the Company Secretary is suitably qualified and experienced to carry out their duties as stipulated under section 84 of the Companies Act. The Company Secretary provides Board members with guidance in respect of their statutory duties and ensures that they are up to date on all relevant statutory requirements. All Directors have unfettered access to management and management information, to the advice and services of the Company Secretary and in appropriate circumstances they may seek independent professional advice about the affairs of the Group at the Company’s expense.

The Board has reviewed, through discussion and assessment, the qualifications, experience and competence of the individuals employed by the Company Secretary and has noted that the Company Secretary performed all formalities and substantive duties timeously and in an appropriate manner. The Board is satisfied that an arm’s length relationship exists.

The secretary of the Company is FluidRock Co Sec Proprietary Limited, Monument Office Park, Block 5 Suite 201, 79 Steenbok Avenue, Monument Park, Pretoria, 0181.


73

INDEPENDENT AUDITORS’ REPORT

To the shareholders of Fairvest Property Holdings Limited and its subsidiaries

REPORT ON THE AUDIT OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS Opinion We have audited the consolidated and separate financial statements of Fairvest Property Holdings Limited and its subsidiaries (“the Group” and “Company”) set out on pages 78 to 138, which comprise the consolidated and separate statements of financial position as at 30 June 2019, and the consolidated and separate statements of profit or loss and other comprehensive income, consolidated and separate statements of changes in equity and the consolidated and separate statements of cash flows for the year then ended, and notes to the consolidated and separate financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of Fairvest Property Holdings Limited and its subsidiaries as at 30 June 2019, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.

Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report. We are independent of the Group and Company in accordance with the sections 290 and 291 of the Independent Regulatory Board for Auditors’ Code of Professional Conduct for Registered Auditors (Revised January 2018), parts 1 and 3 of the Independent Regulatory Board for Auditors’ Code of Professional Conduct for Registered Auditors (Revised November 2018) (together the IRBA Codes) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities, as applicable, in accordance with the IRBA Codes and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Codes are consistent with the corresponding sections of the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants and the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) respectively. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.



Key audit matter How our audit addressed the key audit matter

Consolidated financial statements

Valuation of investment property – note 1.7 and note 2 of Consolidated and Separate Financial Statements

The Group’s investment property represents a major portion of the total assets and is accounted for using the fair value model. The fair value model is based on the discounted cash flow method as well as the direct income capitalisation method and not on quoted prices in active markets.

Independent valuations are obtained on a rotational basis, ensuring that every property is valued at least once every three years by an external independent valuer.

The level of judgement and estimation involved in the valuation method creates uncertainty and hence the significant focus during our audit and as a result a key audit matter.

Our audit procedures performed, included amongst others: Obtained the valuation reports (internal and external) and

assessed for reasonability by comparing to supporting documentation which included the SAPOA Report and rent rolls.

Ensured that the measurement basis for the valuation was in accordance with International Financial Reporting Standards.

We satisfied ourselves that the techniques discounted cash flow method and direct income capitalisation method) used by the valuer, both management and external, are appropriate in the circumstances and have been applied consistently.

Reviewed the assumptions used by the valuer for reasonableness including assessing the accuracy of the data provided to the valuer by agreeing it to the source documents obtained from the client. Where possible, the key assumptions were supported by external evidence.

Confirmed the independence of management’s expert (the external valuer) including their experience and qualifications.

Evaluated whether disclosures in the financial statements related to the valuation of properties is in accordance with International Financial Reporting Standards.

Other Information The directors are responsible for the other information. The other information comprises the information included in the document titled “Fairvest Property Holdings Limited Annual Financial Statements” for the year ended 30 June 2019, which includes the Directors’ Report, the Audit Committee’s Report and the Company Secretary’s Certificate as required by the Companies Act of South Africa, which we obtained prior to the date of this report, and the Integrated Report, which is expected to be available to us after this date. The other information does not include the consolidated and separate financial statements and our auditor’s report thereon.

Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.


75

INDEPENDENT AUDITORS’ REPORT CONTINUED

Responsibilities of the Directors for the Consolidated and Separate Financial Statements The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and/or the Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud

or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and/or the Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.



We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that BDO South Africa Incorporated has been the auditor of Fairvest Property Holdings Limited and its subsidiaries for 12 years.

BDO South Africa Incorporated Registered Auditors

HB Muljee Director Registered Auditor

4 September 2019

6th Floor119 – 123 Hertzog BoulevardForeshoreCape Town8001

PO Box 2275 Cape Town8000


77

as at 30 June 2019

STATEMENTS OF FINANCIAL POSITION

Group Company

Notes2019R’000

2018R’000

2019R’000

2018R’000

ASSETSNon-current assets 3 452 025 3 242 160 2 796 886 2 713 344

Investment property 2 3 092 382 2 928 514 2 129 335 2 047 418Loans receivable 4 297 933 258 008 297 933 258 008Investments 5 4 816 4 772 4 816 4 772Office equipment 6 258 311 258 311Investment in subsidiaries 7 – – 82 538 82 538Amounts owing by group companies 8 – – 239 105 278 926Operating lease asset 9 56 636 50 555 42 901 41 371

Current assets 98 042 82 812 78 462 61 904

Loan receivable 4 10 699 4 900 10 699 4 900Amounts owing by group companies 8 – – 8 541 –Amounts owing by non-controlling interests 10 10 594 5 980 – –Operating lease and other receivables 11 61 393 61 989 49 799 48 616Cash and cash equivalents 12 15 356 9 943 9 423 8 388

Total assets 3 550 067 3 324 972 2 875 348 2 775 248

EQUITY AND LIABILITIESEquity attributable to owners of the Company 2 335 351 2 257 385 2 266 080 2 209 653

Share capital 13 804 177 747 349 804 177 747 349Retained earnings 1 531 174 1 510 036 1 461 903 1 462 304

Non-controlling interest 14 127 816 106 469 – –

Total equity 2 463 167 2 363 854 2 266 080 2 209 653

Non-current liabilities 937 910 469 212 472 637 108 147

Interest-bearing borrowings 15 810 829 342 845 454 729 96 745Amounts owing to non-controlling interests 16 106 001 112 788 – –Derivative financial instrument 17 7 963 2 073 7 963 2 073Deposits received 18 11 712 10 836 8 540 8 659Deferred tax liability 19 1 405 670 1 405 670

Current liabilities 148 990 491 906 136 631 457 448

Interest-bearing borrowings 15 74 549 411 931 72 842 396 297Amounts owing to non-controlling interests 16 8 206 – – –Amounts owing to group companies 20 – – 9 650 6 212Trade and other payables 21 66 235 79 975 54 139 54 939

Total equity and liabilities 3 550 067 3 324 972 2 875 348 2 775 248



for the year ended 30 June 2019

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Group Company

Notes2019R’000

2018R’000

2019R’000

2018R’000

Property revenue 22 489 653 404 257 339 044 311 468Sundry income 1 946 3 780 1 550 3 761Property expenses (175 872) (143 293) (119 163) (112 159)

Net property income 315 727 264 744 221 431 203 070Corporate administrative expenses (30 174) (25 046) (30 168) (25 240)

Operating profit 23 285 553 239 698 191 263 177 830Fair value adjustments 24 21 993 110 565 (3 769) 75 127Finance costs 26 (89 486) (77 876) (51 617) (50 553)Finance and other investment income 27 40 823 27 175 74 961 44 272

Profit before capital expenses 258 883 299 562 210 838 246 676Capital expenses (1 205) (5 605) (1 202) (3 816)

Profit before tax 257 678 293 957 209 636 242 860Income tax expense 28 (735) (198) (735) (198)

Profit for the period 256 943 293 759 208 901 242 662Other comprehensive income – – – –

Total comprehensive income for the period 256 943 293 759 208 901 242 662

Profit and total comprehensive income for the period:– Owners of the parent 230 440 273 289– Non-controlling interest 26 503 20 470

256 943 293 759

Basic and diluted earnings per share 30 22.94 31.69


79


STATEMENTS OF CHANGES IN EQUITY

Notes

Share capitalR’000

Retained earnings

R’000

Equity attributable

to owners of the

CompanyR’000

Non-controlling

interestR’000

TotalR’000

GroupBalance at 1 July 2017 327 951 1 395 267 1 723 218 4 454 1 727 672Shares issued 422 379 – 422 379 – 422 379Share issue expenses (3 004) – (3 004) – (3 004)Treasury shares acquired (2) – (2) – (2)Treasury shares disposed 25 5 30 – 30Acquisition of subsidiary with non-controlling interests – – – 81 989 81 989Dividends paid – (158 525) (158 525) (444) (158 969)Total comprehensive income for the period – 273 289 273 289 20 470 293 759

Balance at 30 June 2018 13 747 349 1 510 036 2 257 385 106 469 2 363 854

Shares issued 57 333 – 57 333 – 57 333Share issue expenses (505) – (505) – (505)Dividends paid – (209 302) (209 302) (5 156) (214 458)Total comprehensive income for the period – 230 440 230 440 26 503 256 943

Balance at 30 June 2019 13 804 177 1 531 174 2 335 351 127 816 2 463 167

NotesShare

capitalRetained earnings Total

CompanyBalance at 1 July 2017 327 974 1 378 168 1 706 142Shares issued 422 379 – 422 379Share issue expenses (3 004) – (3 004)Dividends paid – (158 526) (158 526)Total comprehensive income for the period – 242 662 242 662

Balance at 30 June 2018 13 747 349 1 462 304 2 209 653

Shares issued 57 333 – 57 333Share issue expenses (505) – (505)Dividends paid – (209 302) (209 302)Total comprehensive income for the period – 208 901 208 901

Balance at 30 June 2019 13 804 177 1 461 903 2 266 080




STATEMENTS OF CASH FLOWS

Group Company

Notes2019R’000

2018R’000

2019R’000

2018R’000

Cash outflows from operating activities (20 348) (12 379) (64 370) (40 193)

Cash generated from operations 31 270 903 213 511 177 818 160 912Finance costs 26 (79 983) (69 873) (53 473) (49 797)Finance and other investment income 27 2 570 2 500 19 967 6 766Dividends paid 32 (213 838) (158 517) (208 682) (158 074)

Cash outflow from investing activities (152 234) (411 979) (82 530) (128 738)

Acquisitions of and improvements to investment property 2 (138 772) (249 662) (82 428) (43 507)Development of investment property 3 (13 360) (78 037) – –Acquisition of office equipment 6 (102) (69) (102) (69)Acquisition of investment 5 – (2 625) – (2 625)Acquisition of subsidiary 7 – (81 586) – (82 537)

Cash inflow from financing activities 177 995 421 667 147 935 165 302

Proceeds from interest-bearing borrowings 15 798 072 1 350 733 703 316 934 209Repayment of interest-bearing borrowings 15 (666 886) (1 252 964) (666 886) (906 950)Amounts owing to non-controlling interests raised 16 39 569 97 400 – –Repayment of amounts owing to non-controlling interests 16 (52 851) (21 486) – –Advances paid to loans receivable 4 (59 707) (197 721) (59 707) (197 721)Proceeds from repayments of loans receivable 4 62 970 26 302 62 970 26 302Proceeds from issue of share capital 13 56 828 419 375 56 828 419 375Repurchase of treasury shares – (2) – –Proceeds from disposal of treasury shares – 30 – –Advances paid to subsidiaries 8 – – 51 414 (109 913)

Net increase/(decrease) in cash and cash equivalents 5 413 (2 691) 1 035 (3 629)Cash and cash equivalents at the beginning of the period 9 943 12 634 8 388 12 017

Cash and cash equivalents at the end of the period 12 15 356 9 943 9 423 8 388


81

ACCOUNTING POLICIES

1. ACCOUNTING POLICIES Fairvest Property Holdings Limited (“the Company”) is a Company domiciled in South Africa. The consolidated financial

statements of the Company for the period ended 30 June 2019 comprise the Company and its subsidiaries (together referred to as “the Group”).

1.1 Statement of compliance The consolidated and separate financial statements (“the financial statements”) have been prepared in accordance with

International Financial Reporting Standards (“IFRS”) and International Financial Reporting Interpretations Committee (“Interpretations”) issued by the International Accounting Standards Board (“IASB”), the JSE Listings Requirements, the Companies Act of South Africa, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council.

1.2 Basis of preparation The financial statements have been prepared on a going concern basis using the historical cost basis, except for the

measurement of investment property and certain financial assets and liabilities which are measured at fair value. The financial statements are presented in Rand rounded to the nearest thousand.

The accounting policies are consistent with those followed in the preparation of the financial statements for the period ended 30 June 2018 and are consistently applied by the Group except where otherwise stated.

New and amended standards and interpretations adopted during the current period: Amendment to IAS 40: Investment Property IFRS 9: Financial Instruments IFRS 15: Revenue for Contracts with Customers

The Group has changed its accounting policies with the adoption of IFRS 9 and IFRS 15. The amendment to IAS 40 did not have any impact on the financial statements.

1.3 Change in accounting policies IFRS 9: Financial Instruments IFRS 9 supersedes the provisions in IAS 39 relating to the recognition, classification and measurement of financial assets

and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. In accordance with the transitional provisions in IFRS 9, comparative figures have not been restated. The adoption of IFRS 9 has not had a significant impact on the Group’s accounting policies pertaining to financial assets, financial liabilities and derivative financial instruments.

The Group has applied IFRS 9’s classification and measurement requirements based on the facts and circumstances of the various types of instruments at the date of adoption of IFRS 9. The change in classification of financial assets and liabilities with the adoption of IFRS 9 are shown below.



Original classification under IAS 39

New classification under IFRS 9

Original carryingamount

under IAS 39 R’000

New amount

under IFRS 9 R’000

GroupFinancial assetsLoans receivable Loans and receivables Amortised cost 262 908 262 908Investments Fair value through profit

or lossFair value through profit or loss 4 772 4 772

Amounts owing by non-controlling interests

Loans and receivables Amortised cost5 980 5 980

Operating lease and other receivables


Cash and cash equivalents Loans and receivables Amortised cost 9 943 9 943

Financial liabilitiesInterest-bearing borrowings

Fair value through profit or loss

Fair value through profit or loss 754 776 754 776

Amounts owing to non-controlling interests

Amortised cost Amortised cost112 788 112 788

Derivative financial instruments



Trade and other payables Amortised cost Amortised cost 19 720 19 720

CompanyFinancial assetsLoans receivable Loans and receivables Amortised cost 262 908 262 908Investments Fair value through profit

or lossFair value through profit or loss 4 772 4 772

Amounts owing by group companies


Operating lease and other receivables


Cash and cash equivalents Loans and receivables Amortised cost 8 388 8 388

Financial liabilities Interest-bearing borrowings



Amounts owing to group companies

Amortised cost Amortised cost6 212 6 212

Derivative financial instruments



Trade and other payables Amortised cost Amortised cost 16 280 16 280


83

ACCOUNTING POLICIES CONTINUED

1. ACCOUNTING POLICIES (continued) 1.3 Change in accounting policies (continued)

IFRS 9: Financial Instruments (continued)

IFRS 9 introduces a new impairment model based on expected credit losses (“ECL”), replacing the incurred loss model per IAS 39. The new impairment model applies to financial assets measured at amortised cost; thereby including loans receivable, cash and cash equivalents, as well as operating lease and other receivables. Under IFRS 9, credit losses are assessed and recognised from initial recognition of the financial asset, whereas IAS 39 delayed recognition of credit losses until objective evidence of impairment was established.

Impairment losses of operating lease receivables and other financial assets is presented under “property expenses”, consistent with the presentation under IAS 39, and is not presented separately in the statement of profit or loss and OCI.

The application of the impairment model under IFRS 9 has no impact on the impairment losses recognised in the Group’s results at 30 June 2018.

Refer to 1.4.1 and 1.4.2 for the change in impairment assessment policies of financial assets.

IFRS 15: Revenue for Contracts with Customers The Group performed an assessment of IFRS 15 and implemented changes using a modified retrospective approach.

The Group concluded that IFRS 15 does not have a significant impact on the Group’s consolidated financial statements and accounting policies at the implementation date, as rental income earned and municipal recoveries are based on contractual lease terms and is accounted for in terms of IAS 17, therefore outside of the scope of IFRS 15.

1.4 Critical accounting estimates and judgements The Group has identified a number of critical accounting policies under which significant judgements, estimates and

assumptions are made. These are:

1.4.1 Impairment of financial assets – for the period ended 30 June 2019 For financial assets recognised at amortised cost, the Group recognises a loss allowance for expected credit

losses (“ECL”).

ECL are a probability-weighted estimate of credit losses. A credit loss is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive, discounted at the original effective interest rate. Because ECL consider the amount and timing of payments, a credit loss arises even if the entity expects to be paid in full but later than when contractually due.

The Group has adopted the general approach for financial assets recognised at amortised cost: a three-stage approach based on the deterioration in the credit risk of a financial asset. Financial assets are assessed individually taking into account historic, current and forward-looking information. Collateral is also considered in the ECL assessment, as this represents proceeds to be received.

The ECL model separates the assessment for impairment requirements into three stages: (1) On origination of the financial instrument, or should credit risk not increase significantly, 12-month ECLs

are recognised. (2) If the credit risk increases significantly and resulting credit quality is not considered low risk, full lifetime

ECLs are recognised. (3) If the credit risk increases and the asset is considered impaired, full lifetime ECLs are recognised, as in

Stage 2.



A significant increase in credit risk for lease receivables occurs when tenants are quantitatively two times more than monthly rental payments in arrears, or a tenant has vacated the premises with arrears balances. Loan receivables relate to loans to group companies, and a significant increase in credit risk is seen when loans extended exceed the equity value held in the Company to whom the loan is extended, or should adverse economic or business events occur, affecting the property connected to the Company to whom the loan is extended to such a state that income-generating abilities are restricted.

Impairment losses are recognised in profit or loss under “property expenses”, consistent with IAS 39 recognition, and reflected in an allowance account against receivables. When a subsequent event causes the amount of the impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Operating lease receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a tenant to engage in a repayment plan, vacated tenants not honouring payment plans, and being unable to locate tenants and the recovery cost and effort are not justified relative to the amount receivable. Write-offs, similar to impairment losses, are recognised under “property expenses” in profit or loss.

1.4.2 Impairment of financial assets – for the period ended 30 June 2018 The impairment for operating lease and other receivables and loans receivable has been assessed for

impairment on an individual debtor basis, based on historical data and future factors. This may or may not be adjusted by national or industry-specific economic conditions and other indicators present at the reporting date.

The carrying amount of operating lease receivables is reduced directly when the facts about the trade debtor indicate that liquidation has occurred or has been applied for, thereby indicating debt is uncollectible, and the debt has not been previously impaired. In all other cases impairment is recognised using an allowance account. Amounts recognised in the allowance account are written off against the operating lease receivables balance when the Group becomes aware that a debt previously impaired, is no longer recoverable and would remain uncollectible.

The following objective evidence is considered in determining when an impairment loss has been incurred: Significant financial difficulty of the debtor; The Group has, for economic or legal reasons relating to the borrower’s financial difficulty, granted to the

borrower a concession that the Group would not otherwise consider; A breach of contract, such as a default or delinquency in interest or principal repayments; and It is becoming probable that the debtor will enter bankruptcy or other financial reorganisation.

1.4.3 Investment property The revaluation of investment property requires judgement in the determination of future cash flows from leases

and an appropriate reversionary capitalisation rate. Note 1.7 and Note 2 set out further details of the fair measurement of investment property.


85


1. ACCOUNTING POLICIES (continued) 1.4 Critical accounting estimates and judgements (continued) 1.4.4 Business combination versus asset acquisition Management has assessed the properties acquired and has concluded that in its view, except for the Bara

Precinct transaction which occurred in the prior period, these acquisitions are property acquisitions in terms of IAS 40: Investment Property and are therefore accounted for in terms of that standard. In the opinion of management, these properties did not constitute a business as defined in terms of IFRS 3: Business Combinations, as there were inadequate processes identified within these properties to warrant classification as businesses.

1.5 Basis of consolidation Subsidiaries Subsidiaries are entities controlled by the Company. An investor controls an investee when it is exposed to, or has rights

to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of the subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

Non-controlling interests Non-controlling interests are measured initially at their proportionate share of the acquiree’s identifiable net assets at the

date of acquisition.

Business combinations The acquisition method is used to account for business combinations. The consideration transferred is measured at the

fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at the date of acquisition.

Identifiable assets acquired as well as liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Transaction costs are expensed as incurred. The excess of the consideration transferred over the fair value of the Group’s share of the identifiable net assets of the subsidiary acquired is recognised as goodwill. If the consideration transferred is less than the Group’s share of the fair value of the net assets of the subsidiary acquired, the difference is recognised as a gain directly in profit or loss.

1.6 Operating segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues

and incur expenses. The operating results are reviewed regularly by executive management to make decisions about and to assess the performance of the segment. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-makers identified as Executive Directors.

On a primary basis the operations are arranged into eight geographic segments: KwaZulu-Natal, Western Cape, Gauteng, Limpopo, Northern Cape, Eastern Cape, Free State and Mpumalanga. No operating segment has been aggregated.

1.7 Investment property Investment property comprise both freehold and leasehold land and buildings and are properties held for the purpose

of earning rental income and/or capital appreciation or both. Leasehold properties consist of buildings acquired and/or developed on leased land for which rental payments are made to the lessor. Leasehold properties that are leased to tenants under operating leases are accounted for as investment properties.

Investment property is initially measured at cost and subsequently measured at fair value with any change therein recognised in profit or loss.



Fair market value is the open market value, which, in the opinion of the Directors, is the fair market price at which an asset would have been sold for or transferred unconditionally in an orderly transaction between market participants at reporting date. Independent valuations are obtained on a rotational basis, ensuring that every property is valued at least once every three years by an external independent valuer. The Directors value the remaining properties annually on an open-market basis. The method used for valuations is either the discounted cash flow method or the capitalisation of net income method or a combination of these methods.

Immediately prior to disposal of an investment property, the investment property is revalued to the fair value less cost of disposal and such revaluation is recognised in profit or loss during the period in which it occurs. Any gain or loss on disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss.

Investment property under development Investment property under development is measured at fair value. Where the fair value is not reliably measurable, the

investment property under development is measured at cost until the earlier of the date of construction is completed or the date at which the fair value becomes reliably measurable.

1.8 Office equipment Office equipment is measured at cost less accumulated depreciation and any impairment losses. Depreciation is

calculated on all office equipment to write down the cost to its estimated residual value. Office equipment is depreciated over its useful life of between three and six years. Depreciation methods, useful lives and residual values are reviewed annually at reporting date and adjusted if appropriate.

Any gain or loss on disposal of office equipment is recognised in profit or loss.

1.9 Financial instruments – for the period ended 30 June 2019 The Group determines the classification of its financial instruments on initial recognition when it becomes party to the

contractual provisions of the instrument. Financial instruments are classified at fair value through profit or loss or at amortised cost depending on the Group’s business model for managing the assets or liabilities, and the contractual terms of the cash flows. Subsequently financial assets and liabilities are not reclassified unless the Group amends its business model for managing these financial assets and liabilities.

On initial recognition financial instruments are measured at fair value plus, for financial instruments not measured at fair value through profit or loss, transaction costs that are directly attributable to the financial instrument. Subsequently the Group measures financial instruments either at amortised cost or fair value through profit or loss.

1.9.1 Loans receivable Loans receivable are classified as financial assets subsequently measured at amortised cost since the contractual

terms of these loans give rise, on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding, and our business model is to collect the contractual cash flows on these loans.

The Group adopts the general approach to measuring expected credit losses. Further details about the Group’s impairment policies are set out in Note 1.4.1.


87


1. ACCOUNTING POLICIES (continued) 1.9 Financial instruments – for the period ended 30 June 2019 (continued) 1.9.2 Investments Investments comprise an investment in the Inyosi Enterprise and Supplier Development Investment, which upon

initial recognition was designated at fair value through profit or loss. Investments are subsequently measured at fair value. The gain or loss on remeasurement to fair value is recognised in profit or loss.

1.9.3 Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits and other short-term financial assets readily

realisable in cash, which have been classified as financial assets at amortised cost. These non-derivative financial instruments are initially measured at fair value plus any directly attributable transaction cost. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.

1.9.4 Operating lease and other receivables Operating lease and other receivables are subsequently measured at amortised cost using the effective interest

method, less expected credit loss allowance, as the Group holds operating lease and other receivables to collect the contractual cash flows. Tenant debtors are amounts due from customers for the leasing of space and are recognised initially at the amount of consideration that is unconditional. Tenant debtors do not have a significant financing component and tenants settle their debts within 30 days and are therefore classified as current assets.


1.9.5 Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure to interest rate risk arising from its

financing activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. As the hedge relationship is not designated as a hedge for accounting purposes, the derivatives are accounted for as trading instruments.

Derivative financial instruments are subsequently measured at fair value. The gain or loss on remeasurement to fair value is recognised in profit or loss.

The Group holds interest rate swap derivative instruments. The fair value of an interest rate swap is the estimated amount that the Group would receive or pay to terminate or transfer the swap at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparty.

1.9.6 Operating lease and other payables Operating lease and other payables are subsequently measured at amortised cost, using the effective interest

method.

1.9.7 Amounts owing by/(to) group companies These loans include loans by and to holding companies and subsidiaries.

Loans to and by group companies are subsequently measured at amortised cost using the effective interest method, adjusted for any loss allowance in the case of loans to group companies.




1.9.8 Interest-bearing borrowings The Group has elected to recognise interest-bearing borrowings, at fair value through profit or loss, with gains

or losses being recognised in profit or loss. The fair value is estimated by discounting the future cash payments using the market rate applicable at the reporting date. The measurement inconsistency this election creates is eliminated with the investment property also being recognised at fair value.

1.9.9 Amounts owing by/(to) non-controlling interests Amounts owing by and to non-controlling interests are subsequently measured at amortised cost using the

effective interest method, adjusted for any loss allowance in the case of loans to non-controlling interests.


1.10 Financial instruments – for the period ended 30 June 2018 Financial instruments are initially measured at fair value, plus any directly attributable transaction costs, except in the

case of financial instruments at fair value through profit or loss, where transaction costs are recognised in profit or loss. Financial instruments include loans receivable, investments, amounts owing by/to group companies, operating lease receivables, cash and cash equivalents, interest-bearing borrowings, amounts owing by/to non-controlling interests, derivative financial instruments and operating lease and other payables.

The Group classifies financial assets and financial liabilities into the following categories: Financial assets at fair value through profit or loss; Financial assets measured at amortised cost; Financial liabilities at fair value through profit or loss; and Financial liabilities measured at amortised cost.

A gain or loss arising from change in a financial asset or liability is recognised as follows: a gain or loss on a financial asset or financial liability classified as at fair value through profit or loss is recognised

in profit or loss; a gain or loss on financial assets and financial liabilities, measured at amortised cost, is recognised in profit or loss

when the financial asset or financial liability is derecognised or impaired, and through amortisation using the effective interest method.

1.10.1 Loans receivable After initial recognition, these are measured at amortised cost using the effective interest method, less allowance

for credit losses. Discounting is omitted where the effect of discounting is immaterial.

1.10.2 Operating lease and other receivables Operating lease receivables are subsequently measured at amortised cost using the effective interest method.

Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.


89


1. ACCOUNTING POLICIES (continued) 1.10 Financial instruments – for the period ended 30 June 2018 (continued) 1.10.2 Operating lease and other receivables (continued) The carrying amount of operating lease receivables is reduced directly when the facts about the trade debtor

indicate that liquidation has occurred or has been applied for thereby indicating uncollectibility, and the debt has not been previously impaired. In all other cases impairment is recognised using an allowance account.

Amounts recognised in the allowance account are written off against the operating lease receivables balance when the Group becomes aware that a debt previously impaired, is no longer recoverable and would remain uncollectible.

1.10.3 Amounts owing by/(to) group companies These loans include loans by and to holding companies and subsidiaries.

Loans to and by group companies are measured at amortised cost using the effective interest method, less any credit loss recognised to reflect irrecoverable amounts.

An impairment loss is recognised in profit or loss when there is clear objective evidence that it is impaired. The impairment is measured as the difference between the loan’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised.

1.10.4 Amounts owing by/(to) to non-controlling interests Amounts owing by and to non-controlling interests are subsequently measured at amortised cost using the

effective interest method, less any credit loss recognised to reflect irrecoverable amounts.

1.11 Investment in subsidiaries Investments in subsidiaries are measured at cost less any accumulated impairment in the separate financial statements

of the Company.

1.12 Joint operations A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to

their assets and obligations for the liabilities relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement which exists when decisions about the relevant activities require unanimous consent of the parties sharing control.

When a Group entity transacts with its joint operation, profits or losses resulting from the transactions with the joint operation are recognised in the Group’s consolidated financial statements only to the extent of interests in the joint operation entity that are not related to the Group.

1.13 Share capital Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity.



1.14 Revenue recognition Rental income and recoveries Revenue from the letting of investment property comprises rentals and recoveries of municipal charges, excluding VAT,

and is recognised on a straight-line basis in accordance with the relevant lease agreements at the fair value of the consideration. Recovery of expenses is recognised in profit or loss when the right to the recovery of the expense arises, which is generally when the contractually stipulated expense has been incurred.

Rental income received in advance is recognised as a current liability as part of operating lease and other payables in the statement of financial position.

1.15 Finance and other investment income Finance income earned is recognised on an accrual basis using the effective interest method.

Dividend income is recognised when the right to receive payment is established.

1.16 Letting commissions When considered material, letting commissions are written off over the period of the lease. Letting commissions paid in

respect of new developments are capitalised to the cost of the property.

1.17 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets

that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets.

Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. Other borrowing costs are expensed in profit or loss as finance costs in the period in which they are incurred.

1.18 Income tax The income tax expense for the period comprises current and deferred income tax and is recognised in profit or loss.

The Company is a REIT and all subsidiaries in the Group are “controlled companies” (as defined in the Income Tax Act). After deducting “qualifying distributions” from taxable income, no income tax is payable in the current and prior reporting periods.

1.18.1 Current tax Current tax for the current and prior periods is, to the extent unpaid, recognised as a liability. If the amount

already paid in respect of the current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date.

Current tax assets and liabilities are offset only if certain criteria are met.


91


1. ACCOUNTING POLICIES (continued) 1.18 Income tax (continued) 1.18.2 Deferred tax Deferred tax is provided for all temporary differences arising between the carrying amounts of assets and

liabilities for financial reporting purposes and the amounts used for tax purposes. However, no deferred tax is recognised on temporary differences when they arise, other than as part of a business combination, on the initial recognition of assets and liabilities, and the initial recognition affects neither accounting profit nor taxable profit (tax loss).

Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the asset can be utilised.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date.

The effect on deferred tax of any changes in tax rates is recognised in the profit or loss for the period, except to the extent that it relates to items previously recognised directly to other comprehensive income or equity.

Where permissible, deferred tax assets are offset against deferred tax liabilities.

The Group having achieved REIT status is not liable for capital gains tax on the disposal of investment properties, therefore no deferred tax has been provided on movements in the fair value of investment properties. Deferred tax has been provided for capital allowances claimed prior to obtaining REIT status which allowances will be recouped on the disposal of such assets.

1.19 Employee benefits Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount

expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

1.20 Dividend distributions Dividend distributions to the shareholders are recognised directly in equity on the date of declaration.

The Group having achieved REIT status will distribute at least 75% of its total distributable profits as a distribution to its shareholders, subject to the relevant solvency and liquidity test as required by the Companies Act. Distributable profit in respect of a reporting period is defined as gross income (as defined in terms of the Income Tax Act) less deductions and allowances that are permitted to be deducted by a REIT in terms of the Income Tax Act.

1.21 Earnings per share Basic earnings per share is calculated by dividing the profit or loss attributable to shareholders of the Group by the

weighted average number of shares outstanding during the period.



1.22 Headline earnings per share Headline earnings per share are calculated using the weighted average number of shares in issue during the period

and are based on the earnings attributable to shareholders, after excluding those items as required by Circular 4/2018 issued by the South African Institute of Chartered Accountants (“SAICA”).

1.23 Statements and interpretations that are not yet effective The following standards, interpretations and amendments to standards and amendments to interpretations have been

issued, but are not mandatory for reporting period ended 30 June 2019. They have not been adopted in preparing the financial statements for the reporting period ended 30 June 2019 and are expected to affect the entity in the period of initial application. In all cases the entity intends to apply these standards from application date as indicated below:

IFRS 16: Leases The new standard brings most leases on-balance sheet under a single model, eliminating the distinction between

operating and finance leases. Under IFRS 16, a lessee is required to recognise a right-of-use asset and a lease liability.

Lessor accounting has not been amended by the standard. As a lessor, the Group does not expect a material impact in its financial statements.

Certain properties of the Group are held on long-term land leases and are currently recognised as investment property at fair value. In terms of IFRS 16.34, the right of use asset for land leases will be measured at fair value in accordance with IAS 40. The Group will continue to value the right of use asset for land leases at fair value in accordance with IAS 40. With the adoption of IFRS 16, the Group will recognise a lease liability in the statement of financial position of R14.3 million on 1 July 2019 as the present value of the unpaid lease payments at that date. Subsequently the lease liability will unwind over the term of the lease giving rise to finance costs recognised in profit or loss.

The Group is also a lessee in respect of its corporate head office premises in Cape Town. With the adoption of IFRS 16 the impact of this lease is likely to have an immaterial impact on the results of the Group.

The Group plans to apply the new standard using the modified retrospective approach which will not result in the restatement of comparative figures.

Effective for the reporting period ending 30 June 2020.

The following amended standards and interpretations are not expected to have a significant impact on the Group’s consolidated financial statements.

IFRIC 23: Uncertainty over Tax Treatments. Prepayment Features with Negative Compensation (Amendments to IFRS 9). Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28). Plan Amendment, Curtailment or Settlement (Amendments to IAS 19). Annual Improvements to IFRS Standards 2015–2017 Cycle – various standards. Amendments to References to Conceptual Framework in IFRS Standards. IFRS 17: Insurance Contracts.


93


NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS

Group Company

2019R’000

2018R’000

2019R’000

2018R’000

2. INVESTMENT PROPERTYInvestment property 3 092 382 2 928 514 2 129 335 2 047 418Operating lease asset (refer to Note 9) 67 618 58 486 51 965 48 682

Market value of investment property portfolio 3 160 000 2 987 000 2 181 300 2 096 100

Reconciliation of investment propertyCarrying amount at the beginning of the period 2 928 514 2 157 747 2 047 418 1 933 526Additions and cost capitalised 136 029 247 177 79 840 41 089Acquisition of subsidiary – 322 435 – –Transfer from investment property under construction (refer to Note 3) – 92 914 – –Fair value adjustment (refer to Note 24) 27 839 108 241 2 077 72 803

Carrying amount at the end of the period 3 092 382 2 928 514 2 129 335 2 047 418Operating lease asset (refer to Note 9) 67 618 58 486 51 965 48 682

Market value of investment property portfolio 3 160 000 2 987 000 2 181 300 2 096 100

Included in property-related expenses in profit or loss are:Direct operating expenses – generating rental income 124 203 95 483 85 378 77 193Direct operating expenses – not generating rental income 51 669 47 810 33 785 34 967

Refer to Note 22 for rental income received from investment property.

2.1 Details of assets Details of the investment properties are reflected on pages 135 to 136 in the summary of the valuation report.

2.2 Fair value measurement The fair value gains on investment property are included in profit or loss. Refer to Note 24.

The fair value measurement for the investment property of R3.16 billion (2018: R2.99 billion) has been categorised as a level 3 fair value hierarchy using inputs that are not based on observable market data (unobservable inputs).

2.3 Property valuations 39.6% (2018: 37.3%) of the value of the investment property portfolio were valued by independent valuers DDP Valuers,

De Leeuw Valuers and Jones Lang LaSalle (registered professional valuers) as at 30 June 2019, and all have experience in the valuation of similar investment properties. The remainder of the income-producing investment properties were valued by management. The valuations were based on open market values for existing use for each individual investment property. At 30 June 2019, the valuation of the properties was performed using a combination of the discounted cash flow method and the income capitalisation method.



In determining the fair value of an investment property, the fair value is estimated on the basis of highest and best use, using an income approach which capitalises the estimated rental income, net of projected operating costs, using a discount rate derived from market yields. The estimated rental income takes into account current occupancy levels, estimates of future vacancy levels, the terms of in-place leases and expectations of rentals from future leases over the remaining economic life of the buildings.

The most significant inputs, all of which are unobservable, are the: discount rate; and reversionary capitalisation rate.

Other unobservable inputs used were: estimated rental income; and assumptions regarding vacancy levels.

The estimated fair value increases if the estimated rental increases, vacancy levels decline or if the discount rate (market yields) and reversionary capitalisation rate decline. The overall valuations are sensitive to all four assumptions. The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the previous reporting period.

The most significant inputs used in the valuations were: The range of the reversionary capitalisation rates applied to the portfolio are between 9.25% and 11.00% (2018:

between 9.25% and 10.75%) with the weighted average being 10.08% (2018: 10.15%). The discount rates (annual effective rates) applied range between 14.00% and 16.00% (2018: between 14.00% and

15.25%) with the weighted average being 14.60% (2018: 14.70%). Changes in discount and capitalisation rates attributable to changes in market conditions can have a significant

impact on property valuations. – A 25 basis points increase in the discount rate will decrease the value of the investment property by R30.4 million

or 0.96% (2018: R23.6 million or 0.79%). – A 25 basis points decrease in the capitalisation rate will increase the value of investment property by R66.2 million

or 2.09% (2018: R50.9 million or 1.70%).

2.4 Encumbered investment property Investment property has been encumbered as security for interest-bearing borrowings (refer to Note 15) as follows: Investment property with a market value of R947.0 million (2018: R905.4 million) is mortgaged to Rand Merchant

Bank (a division of First Rand Bank Limited) to secure borrowing facilities amounting to R420.0 million (2018: R284.0 million).

Investment property with a market value of R929.0 million (2018: R920.9 million) is mortgaged to Nedbank Limited to secure borrowing facilities amounting to R424.1 million (2018: R339.6 million).

Investment property with a market value of R410.2 million (2018: R361.1 million) is mortgaged to The Standard Bank of South Africa Limited to secure borrowing facilities amounting to R165.0 million (2018: R149.2 million).

Investment property with a market value of R277.8 million (2018: R280.9 million) is mortgaged to Investec Bank Limited to secure borrowing facilities amounting to R128.0 million (2018: R128.0 million).

Investment property with a market value of R429.3 million (2018: R311.2 million) is mortgaged to ABSA Bank Limited to secure borrowing facilities amounting to R181.5 million (2018: R133.5 million).

Investment property to the value of R166.7 million (2018: R207.5 million) is unencumbered.


95

NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS CONTINUEDfor the year ended 30 June 2019

2. INVESTMENT PROPERTY (continued) 2.5 Contractual obligations Refer to Notes 34 and 41 for further detail on capital commitments relating to investment property.

Group Company

2019R’000

2018R’000

2019R’000

2018R’000

3. INVESTMENT PROPERTY UNDER DEVELOPMENTReconciliation of movementsCarrying amount at the beginning of the period – – – –Development cost capitalised – 91 397 – –Finance costs capitalised – 1 517 – –Transfer of property under development to investment property (refer to Note 2) – (92 914) – –

Carrying amount at the end of the period – – – –

The investment property under development was a newly built shopping centre that was constructed and completed in the previous reporting period by a subsidiary, Southview Shopping Centre Proprietary Limited. The property was transferred to investment property (refer to Note 2) in the prior period.

4. LOANS RECEIVABLEUrban Growth Developments Proprietary Limited 21 100 18 695 21 100 18 695East London Property One Proprietary Limited 96 523 79 272 96 523 79 272GGP Investments Proprietary Limited 14 114 34 491 14 114 34 491Propsky 31 Properties Proprietary Limited 45 420 43 049 45 420 43 049Buffshelfco 17 Proprietary Limited 89 292 82 501 89 292 82 501Lonisign Proprietary Limited 28 236 – 28 236 –Fattis Mansions Body Corporate 13 947 – 13 947 –Genesis Trust – 4 900 – 4 900

308 632 262 908 308 632 262 908

Reconciliation of movementsCarrying amount at the beginning of the period 262 908 67 079 262 908 67 079Advanced during the period 59 707 197 721 59 707 197 721Repaid during the period (62 970) (26 302) (62 970) (26 302)Reclassified from other receivables 11 129 – 11 129 –Finance income accrued (refer to Note 27) 37 858 24 410 37 858 24 410

Carrying amount at the end of the period 308 632 262 908 308 632 262 908



Group Company

2019 R’000

2018 R’000

2019 R’000

2018 R’000

Reconciliation to the statements of financial position Non-current 297 933 258 008 297 933 258 008 Current 10 699 4 900 10 699 4 900

308 632 262 908 308 632 262 908

The Urban Growth Developments Proprietary Limited loan (“UGD”) relates to the acquisition of the Parow Valley Spar and Macassar Shoprite properties. UGD is the non-controlling shareholder in Parow Valley Centre Proprietary Limited (previously Parow Valley Spar Proprietary Limited) and Macassar Retail Centre Proprietary Limited. The loan bears interest at prime + 2.00% (currently 12.25% (2018: 12.00%)). The loan extended for Parow Valley and Macassar is repayable three years after the completion date of development. For Parow Valley the repayment date is 1 January 2020, and for Macassar 1 July 2021. Security over the loan includes a cession and pledge of UGD’s shares in Parow Valley Centre Proprietary Limited and Macassar Retail Centre Proprietary Limited, and personal suretyships by the shareholders of UGD.

The East London Property One Proprietary Limited (“ELP”) loan relates to the disposal of the SASSA House property and bears interest at variable rates of interest linked to prime (currently 12.25% (2018: 12.55%)). The loan is repayable by 31 May 2024. Security over the loan includes a first covering mortgage bond over the property and a cession and pledge of the shares held in ELP.

The GGP Investments Proprietary Limited (“GGP”) loan relates to the development of the Southview Shopping Centre. GGP is the non-controlling shareholder in Southview Shopping Centre Proprietary Limited. The loan bears interest at prime + 1.50% (currently 11.75% (2018: 11.50%)). The loan is repayable on 18 June 2023. Security over the loan includes a cession and pledge of GGP’s shares in Southview Shopping Centre Proprietary Limited.

The Propsky 31 Properties Proprietary Limited (“Propsky”) loan relates to the acquisition of the Shoprite Empangeni asset. Propsky is the non-controlling shareholder in FPP 102 Property Venture Proprietary Limited. The loan bears interest at prime + 4.50% (currently 14.75% (2018: 14.50%)). The loan is repayable by 19 July 2022. Security over the loan includes a cession and pledge of Propsky’s shares in FPP 102 Property Venture Proprietary Limited and suretyships by the shareholders of Propsky.

The Buffshelfco 17 Proprietary Limited (“Buffshelfco 17”) loan relates to the subscription of shares in Bara Precinct Proprietary Limited. Buffshelfco 17 is the non-controlling shareholder in Bara Precinct Proprietary Limited. The loan bears interest at prime + 4.50% (currently 14.75% (2018: 14.50%)). The loan is repayable by 19 December 2022. Security over the loan includes a cession and pledge of Buffshelfco 17’s shares in Bara Precinct Proprietary Limited and suretyships by the shareholders of Buffshelfco 17.

Lonisign Proprietary Limited (“Lonisign”) acquisition of the Libode Shopping Centre. Lonisign is the non-controlling shareholder in Libode Shopping Centre Proprietary Limited. The loan bears interest at prime + 2.00% (currently 12.00% (2018: NIL)). The loan is repayable by 31 August 2023. Security over the loan includes a cession and pledge of Lonisign’s shares in Libode Shopping Centre Proprietary Limited and suretyships by the shareholders of Lonisign.


97


4. LOANS RECEIVABLE (continued)

The Fattis Mansion Body Corporate (“Fattis”) loan relates to a loan provided to the body corporate where the Group owns sections in an unlettable vacant property. The loan bears interest at variable rates of interest (currently 0% (2018: NIL)). The loan is repayable by 21 August 2021, or such later date as agreed by the parties. Security over the loan includes a cession of Fattis’ current and future debtors book and a first general covering mortgage bond to the value of R25.0 million. The prior period balance (R11.1 million) was included in operating lease and other receivables. The reclassification of the amount is due to a change in the nature of the receivable, with a loan agreement concluded during the period.

The loan to Genesis Trust was repaid in full in current financial period.

Loans receivable were analysed in terms of IFRS 9 by assessing the credit risk and expected default rate, taking into account mitigating factors including collateral held per loan. Credit risk and the expected default rate is assessed based on a three-stage risk approach. Inputs and assumptions in determination of the ECL include taking into account repayment dates of the loans, the growth prospects of the properties linked to the lenders, and sureties provided on the loans. In determining whether the credit risk has increased significantly the net equity position of a loan is assessed, along with the income-generating abilities of the properties from day-to-day trading conditions and the surrounding areas. Budgets for each property are also taken into account to assess the forward-looking position of properties and trading prospects.

The inputs and assumptions taken into account in assessing and determining the ECL provides low default factors for the loans, with recoveries on loans provided through sureties on the properties, resulting in loans deemed to be in Stage 1 of the three-stage risk approach, with no objective evidence of impairment as at 30 June 2019. Based on the qualitative and quantitative consideration, nil expected credit loss provision was required. Details of the IFRS 9 loss allowance approach is set out in accounting policy 1.4.1.

Group Company

2019R’000

2018R’000

2019R’000

2018R’000

5. INVESTMENTSFair value through profit or lossCadiz Life Limited – endowment policy 4 816 4 772 4 816 4 772

Reconciliation of movementsCarrying amount at the beginning of the period 4 772 2 154 4 772 2 154Investments during the period – 2 625 – 2 625Unrealised fair value gains/(losses) 44 (7) 44 (7)


R4.6 million was invested in 2015 and 2018 in Cadiz Life Limited’s Inyosi Enterprise and Supplier Development Investment, which contributes to Fairvest’s Enterprise and Supplier Development spend for B-BBEE purposes.

The investment, via an endowment policy, was valued at fair value at 30 June 2019 by Cadiz Life which is based on the aggregate of the market value of the investments in the underlying fund and the method is unchanged from the prior reporting period. The fair value is based on a level 2 fair value measurement hierarchy.



Group Company

2019R’000

2018R’000

2019R’000

2018R’000

6. OFFICE EQUIPMENTCost 964 862 964 862Accumulated depreciation (706) (551) (706) (551)

Carrying amount 258 311 258 311

Reconciliation of movementsCarrying amount at the beginning of the period 311 343 311 343Additions 102 69 102 69Depreciation (155) (101) (155) (101)

Carrying amount at the end of the period 258 311 258 311

7. INVESTMENT IN SUBSIDIARIESCost – – 82 538 82 538

Reconciliation of movementsCarrying amount at the beginning of the period – – 82 538 1Acquisition of subsidiary – – – 82 537

Carrying amount at the end of the period – – 82 538 82 538

During the reporting period the Company acquired 55% of the shares in Libode Shopping Centre Proprietary Limited which constituted a subsidiary in terms of IFRS 10: Consolidated Financial Statements. On acquisition the Company had no assets or liabilities. The Bokleni Plaza asset was acquired in the newly incorporated subsidiary, funded wholly through shareholder loans.

Details of investments in subsidiaries are set out in Note 33.

8. AMOUNTS OWING BY GROUP COMPANIESLoan amount – – 247 751 279 031Less: Loss allowance – – (105) (105)

Carrying amount at the end of the period – – 247 646 278 926

Reconciliation to the statements of financial positionNon-current – – 239 105 279 031Current – – 8 541 –

247 646 –


99


8. AMOUNTS OWING BY GROUP COMPANIES (continued)

The loans to group companies are unsecured, at varying rates of interest linked to prime interest rate (2018: varying rates of interest linked to prime interest rate) and with no fixed terms of repayment. These loans will not be called for nor is repayment expected within the next 12 months. Details of these loans are set out in Note 33.

Amounts owing by group companies were analysed in terms of IFRS 9 by assessing the credit risk and expected default rate, based on the three-stage risk approach.

Inputs and assumptions in determination of the ECL include the growth prospects of the properties linked to group companies, and collateral provided. In determining whether the credit risk has increased significantly the net equity position of amounts owing is assessed, along with the income-generating abilities of the properties from day-to-day trading conditions and the surrounding areas. Budgets for each property are also taken into account to assess the forward-looking position of properties and trading prospects.

The inputs and assumptions taken into account in assessing and determining the ECL provides low default factors for the loans, with recoveries on amounts provided through sureties on the properties, resulting in outstanding amounts deemed to be in Stage 1 or Stage 2 of the three-stage risk approach, with no objective evidence of impairment as at 30 June 2019. Based on the qualitative and quantitative considerations, no additional expected credit loss provision was required. Details of the IFRS 9 loss allowance approach is set out in accounting policy 1.4.1.

Group Company

2019R’000

2018R’000

2019R’000

2018R’000

9. OPERATING LEASE ASSETNon-current portion 56 636 50 555 42 901 41 371Current – included under operating lease and other receivables (refer to Note 11) 10 982 7 931 9 064 7 311


Reconciliation of movementsCarrying amount at the beginning of the period 58 486 46 653 48 682 43 374Increase during the period 9 132 11 833 3 283 5 308


The operating lease asset arises as a result of the straight-lining of lease rental income.



Group Company

2019R’000

2018R’000

2019R’000

2018R’000

10. AMOUNTS OWING BY NON- CONTROLLING INTERESTSBuffshelfco 17 Proprietary Limited 10 594 5 980 – –

Reconciliation of movementsCarrying amount at the beginning of the period 5 980 – – –Advanced during the period 9 294 5 980 – –Repaid during the year (4 680) – – –Less: Loss allowance – – – –

Carrying amount at the end of the period 10 594 5 980 – –

The Buffshelfco 17 Proprietary Limited loan relates to a shareholder loan in Bara Precinct Proprietary Limited and is interest free (2018: NIL). The loan is unsecured and has no fixed terms for repayment.

Inputs and assumptions in determination of the ECL include the growth prospects of the properties linked Group companies, and collateral provided. In determining whether the credit risk has increased significantly the net equity position of amounts owing is assessed, along with the income-generating abilities of the properties from day-to-day trading conditions and the surrounding areas. Budgets for each property are also taken into account to assess the forward-looking position of properties and trading prospects.

The inputs and assumptions taken into account in assessing and determining the ECL provides low default factors for the loans, with recoveries on amounts provided through sureties on the properties, resulting in outstanding amounts deemed to be in Stage 1 or Stage 2 of the three-stage risk approach, with no objective evidence of impairment as at 30 June 2019. Based on the qualitative and quantitative considerations, no additional expected credit loss provision was required. Details of the IFRS 9 loss allowance approach is set out in accounting policy 1.4.1.


101


Group Company

2019R’000

2018R’000

2019R’000

2018R’000

11. OPERATING LEASE AND OTHER RECEIVABLESFinancial instrumentsOperating lease receivables 9 408 12 036 7 651 10 039Loss allowance (2 972) (4 034) (2 439) (3 570)

6 436 8 002 5 212 6 469Amounts receivable from managing agents 13 073 10 402 11 666 9 125Other short-term loans* 4 010 16 823 4 010 14 978

Non-financial instrumentsDeposits paid 1 679 1 706 1 480 1 509Accrued income 17 237 4 448 11 466 2 658Guaranteed income – 1 400 – 1 400Operating lease asset – current portion (refer to Note 9) 10 982 7 931 9 064 7 311Other receivables* 7 976 11 277 6 901 5 166

61 393 61 989 49 799 48 616

Movement in loss allowanceCarrying amount at the beginning of the period per IAS 39 4 034 2 432 3 570 2 381Movement from IAS 39 to IFRS 9 – – – –(Decrease)/increase in loss allowance (1 062) 1 602 (1 131) 1 189

Carrying value at the end of the period per IFRS 9 2 972 4 034 2 439 3 570

Ageing of operating lease receivables past due but not impaired30 days 4 219 4 714 3 038 3 66460 days 510 948 484 78090 days 419 362 409 256120 days and greater 1 288 1 978 1 281 1 769

6 436 8 002 5 212 6 469

* Prior period comparatives were updated to disclose significant balances previously included in other receivables.

The credit quality of operating lease and other receivables that are neither past due nor impaired can be assessed as good due to the majority of the debtors being well established companies.

Operating lease and other receivables held at amortised cost were analysed in terms of IFRS 9, through assessing the credit risk and expected default rate, taking into account mitigating factors. Credit risk and the expected default rate is assessed based on a three-stage risk approach, applying historic, current and forward-looking information to the receivables, along with company specific risks, such as tenant classification, trading performance and payment history.



11. OPERATING LEASE AND OTHER RECEIVABLES (continued)

Operating lease receivable credit risk is weighted against a low/medium/high assessment based on tenant category, after which further assessment is done on an individual tenant basis to categorise credit risk. After qualitative and quantitative considerations, including collateral held per tenant, the assessments per IAS 39 to IFRS 9 did not result in changes in measurement of the loss allowance.

Other short-term loans at amortised cost is categorised as Stage 1, implying the credit risk of the receivables has not increased significantly from initial recognition. The risk of default and the mitigating factors taken into account resulted in nil ECL provision being required for other short-term loans.

Group Company

2019R’000

2018R’000

2019R’000

2018R’000

12. CASH AND CASH EQUIVALENTSComprises bank balances Current accounts 3 994 993 871 762Notice accounts 10 787 8 663 8 552 7 626Call account 575 287 – –

15 356 9 943 9 423 8 388

Impairment on cash and cash equivalents has been measured on a 12-month expected loss basis. The Group considers that its cash and cash equivalents have a low credit risk based on external credit ratings of the counterparties and historical information regarding counterparty default rates. A similar approach for the assessment of ECLs is used for cash and cash equivalents to the approach used for other financial instruments. On initial application of IFRS 9, the Group did not recognise an impairment allowance.

Cash held in notice accounts to the value of R9.75 million (2018: R8.29 million) is held as collateral for its municipal guarantees issued.

13. SHARE CAPITALAuthorised3 000 000 000 ordinary shares with no par value 30 000 30 000 30 000 30 000

Issued1 018 125 441 (2018: 991 020 553) ordinary shares with no par value 804 177 747 349 804 177 747 349

Change in issued share capital The following shares were issued during the reporting period: 14 919 845 shares were issued on 8 October 2018 at 213.686 cents per share through the dividend reinvestment

alternative, retaining R31.88 million of equity. 12 185 043 shares were issued on 8 April 2019 at 208.868 cents per share through the dividend reinvestment alternative,

retaining R25.45 million of equity.


103


14. SUMMARISED FINANCIAL INFORMATION FOR SUBSIDIARIES WITH MATERIAL NON-CONTROLLING INTERESTS

Group

FPP 103R’000

PVSR’000

MACR’000

FPP 102R’000

BARAR’000

SVSCR’000

LIBR’000

TotalR’000

2019Extract from statement of profit or loss and other comprehensive incomeRevenue, excluding straight-line accrual 24 169 10 087 11 057 30 339 46 234 16 486 6 388 144 760 Profit and total comprehensive income for the period 11 884 2 255 (5 717) 13 151 17 814 8 802 9 871 58 060

Attributable to owners of the parent 9 507 1 150 (4 574) 6 707 8 937 4 401 5 429 31 557 Attributable to non-controlling interest 2 377 1 105 (1 143) 6 444 8 877 4 401 4 442 26 503

Dividends paid to non-controlling interest during the reporting period 1 316 – 251 742 2 847 – – 5 156

Extract from statement of financial positionNon-current assets 163 575 37 510 78 045 198 729 341 205 106 199 58 588 983 851 Current assets 2 537 5 337 1 118 2 954 25 243 1 782 1 240 40 211 Non-current liabilities (127 927) (38 506) (80 437) (170 640) (161 094) (92 897) (49 056) (720 557)Current liabilities (1 200) (329) (778) (3 092) (7 369) (3 914) (901) (17 583)

Net assets 36 985 4 012 (2 052) 27 951 197 985 11 170 9 871 285 922

Net assets attributable to non-controlling interest 6 824 1 966 (410) 14 269 95 140 5 585 4 442 127 816 Extract from statement of cash flowsCash flows from operating activities 10 204 (3 743) 4 377 13 342 17 799 13 741 4 277 59 997Cash flows from investing activities (402) (268) (4 267) (1 284) (338) (13 617) (49 526) (69 702)Cash flows from financing activities (9 740) 4 015 (6) (10 940) (15 122) (115) 45 711 13 803

Net increase in cash and cash equivalents 62 4 104 1 118 2 339 9 462 4 098



Group

FPP 103R’000

PVSR’000

MACR’000

FPP 102R’000

BARAR’000

SVSCR’000

TotalR’000

2018Extract from statement of profit or loss and other comprehensive incomeRevenue, excluding straight-line accrual 21 256 6 092 9 907 26 802 22 536 – 86 593Profit and total comprehensive income for the period 17 641 735 (1 451) 17 484 14 299 2 368 51 076

Attributable to owners of the parent 14 113 375 (1 161) 8 917 8 075 1 184 31 503Attributable to non-controlling interest 3 528 360 (290) 8 567 6 224 1 184 19 573

Dividends paid to non-controlling interest during the reporting period 316 – 128 – – – 444

Extract from statement of financial positionNon-current assets 156 913 34 995 79 345 188 964 333 263 96 800 890 280Current assets 1 566 594 2 454 976 14 661 7 002 27 253Non-current liabilities (128 343) (18 080) (76 123) (170 821) (161 375) (85 405) (640 147)Current liabilities (1 324) (15 752) (757) (1 634) (5 924) (16 029) (41 420)

Net assets 28 812 1 757 4 919 17 485 180 625 2 368 235 966

Net assets attributable to non-controlling interest 5 763 861 984 8 567 89 110 1 184 106 469Extract from statement of cash flows Cash flows from operating activities 8 580 1 469 1 767 11 465 (907) (4 326) 18 048Cash flows from investing activities (806) (3 265) (28 005) (174 057) – (78 036) (284 169)Cash flows from financing activities (6 737) 1 779 26 226 162 607 – 82 371 266 246

Net increase/(decrease) in cash and cash equivalents 1 037 (17) (12) 15 (907) 9 125


105


14. SUMMARISED FINANCIAL INFORMATION FOR SUBSIDIARIES WITH MATERIAL NON-CONTROLLING INTERESTS (continued)

The non-controlling interest of R127 816 000 (2018: R106 469 000) represents the following: 20.0% (2018: 20.0%) of the net asset value of FPP Property Venture 103 Proprietary Limited (“FPP 103”); 49.0% (2018: 49%) of the net asset value of Parow Valley Centre Proprietary Limited (“PVS”); 20% (2018: 20%) of the net asset value of Macassar Retail Centre Proprietary Limited (“MAC“); 49% (2018: 100%) of the net asset value of FPP Property Venture 102 Proprietary Limited (“FPP 102”); 50% (2018: 50%) of the net asset value of Southview Shopping Centre Proprietary Limited (“SVSC”); 49.83% (2018: 49.83%) of the net asset value of Bara Precinct Proprietary Limited (“BARA”); and 55% (2018: NIL) of the net asset value of Libode Shopping Centre Proprietary Limited (“LIB”).

The principal place of business for all the subsidiaries is 8th Floor, The Terraces, 34 Bree Street, Cape Town, 8001.

The information is presented before intercompany eliminations with other companies in the Group.

15. INTEREST-BEARING BORROWINGS Measured at fair value through profit or loss

Group Company

Funder Type Nominal interest rate Repayment date

Total facility R’000

Carrying amount

2019 R’000

Carrying amount

2019R’000

Nedbank Term loan Prime – 1.00% August 2019 127 000 62 095 62 095 ABSA Term loan Prime – 1.25% September 2019 9 500 9 500 9 500 ABSA Term loan 1m JIBAR + 1.85% July 2020 86 000 86 000 – Investec Term loan Prime – 0.75% December 2020 128 000 28 979 28 979 Nedbank Term loan Prime – 1.25% December 2020 160 000 160 000 – Standard Bank Term loan Prime – 1.40% September 2021 165 000 123 750 123 750 ABSA Term loan Prime – 1.40% October 2021 38 000 38 000 38 000 Nedbank Term loan 1m JIBAR + 1.95% May 2022 21 600 21 600 – RMB Revolving facility 1m JIBAR + 2.00% May 2022 30 000 – – RMB Term loan 1m JIBAR + 2.00% May 2022 390 000 264 000 264 000 ABSA Term loan Prime – 1.40% May 2022 48 000 48 000 – Nedbank Term loan Prime – 1.10% June 2022 40 500 40 500 –

1 243 600 882 424 526 324 Accrued finance costs 2 954 1 247

885 378 527 571



Group Company

Carrying amount

2019 R’000

Carrying amount

2019R’000

Reconciliation to the statements of financial positionNon-current 810 829 454 729Current 74 549 72 842

885 378 527 571

Reconciliation of movementsCarrying amount at the beginning of the period 754 776 493 042Advanced during the period 798 072 703 316Repaid during the period (666 886) (666 886)Transaction cost capitalised 1 943 1 368Finance costs accrued (2 527) (3 269)


Funder Type Nominal interest rate Repayment date

Total facility R’000

Carrying amount

2018R’000

Carryingamount

2018R’000

Standard Bank Term loan Prime – 1.50% August 2018 120 224 90 028 90 028 ABSA Term loan Prime – 1.40% October 2018 38 000 38 000 38 000 RMB Revolving facility 3m JIBAR + 2.25% May 2019 20 000 – –RMB Term loan 3m JIBAR + 2.25% May 2019 122 000 122 000 122 000 RMB Term loan 3m JIBAR + 2.45% May 2019 142 000 142 000 142 000 Nedbank Term loan Prime – 1.00% June 2019 17 000 14 777 – Nedbank Term loan Prime – 1.00% August 2019 127 000 79 220 79 220 ABSA Term loan Prime – 1.25% September 2019 9 500 9 500 9 500 Nedbank Term loan Prime – 1.10% September 2019 35 600 35 600 –ABSA Term loan 1m JIBAR + 1.85% July 2020 86 000 50 500 –Investec Term loan Prime – 0.75% December 2020 128 000 8 025 8 025 Nedbank Term loan Prime – 1.00% December 2020 160 000 160 000 –

1 005 324 749 650 488 773Accrued finance costs 5 126 4 269

754 776 493 042


107


15. INTEREST-BEARING BORROWINGS (continued)

Group Company

Carrying amount

2018R’000

Carrying amount

2018R’000

Reconciliation to the statements of financial positionNon-current 342 845 96 745Current 411 931 396 297

754 776 493 042

Reconciliation of movementsCarrying amount at the beginning of the period 496 991 465 073Advanced during the period 1 350 733 934 209Repaid during the period (1 252 964) (906 951)Transaction cost capitalised 1 795 831Finance costs accrued 588 (120)Subsidiary acquired 157 633 –


Loan-to-value (“LTV”) and interest rate cover (“ICR”) covenants

Funder

Transaction covenant

LTV (TC LTV)

TC LTV Actual

Corporate covenant

LTV (CC LTV)

CC LTV Actual

Transaction covenant

ICR (TC ICR)

TC ICR Actual

Corporate covenant

ICR (CC ICR)

CC ICR Actual

2019Investec 50% 10% – – – – – –RMB 50% 28% 45% 28% 2.2:1 3.7:1 1.75:1 3.6:1Nedbank – – 50% 28% – – 2.4:1 3.6:1Standard Bank 55% 30% 55% 28% 2.0:1 3.2:1 2.0:1 3.6:1ABSA 55% 42% 50% 28% 1.5:1 2.4:1 2.0:1 3.6:1

2018Investec 50% 3% – – – – – –RMB 40% 29% 50% 25% 2.4:1 3.4:1 1.75:1 3.3:1Nedbank – – 50% 25% – – 2.4:1 3.3:1Standard Bank 55% 25% 50% 25% 2.0:1 3.0:1 2.4:1 3.3:1ABSA 55% 31% 50% 25% 1.5:1 2.9:1 2.0:1 3.3:1

LTV – Loan to open market value of investment property.ICR – Interest rate cover ratio.



Fair value measurement Variable interest rates are market related and therefore the fair value of loans bearing interest at variable rates is equal to the

nominal value.

The fair value of interest-bearing borrowings is based on a level 3 fair value hierarchy using inputs that are not based on observable market data (unobservable inputs).

The Group has complied with all bank covenants during the reporting period.

Refer to Note 2.4 for security provided for interest-bearing borrowings.

Borrowing powers The borrowing capacity of the Group is unlimited in terms of their Memorandum of Incorporation but is subject to loan covenants

as detailed in this Note.

16. AMOUNTS OWING TO NON-CONTROLLING INTERESTS

Group Company

2019R’000

2018R’000

2019R’000

2018R’000

Born Free Investments 385 Proprietary Limited 12 658 12 725 – –Urban Growth Developments Proprietary Limited 16 137 16 874 – –GGP Investments Proprietary Limited 22 085 42 703 – –Propsky 31 Properties Proprietary Limited 41 252 40 486 – –Lonisign Proprietary Limited 22 075 – – –

114 207 112 788 – –

Reconciliation of movement Carrying amount at the beginning of the period 112 788 23 756 – –Advanced during the period 34 889 103 380 – –Repaid during the period (43 557) (21 486) – –Finance costs capitalised – 1 518 – –Finance costs accrued (refer to Note 26) 10 087 5 620 – –

Carrying amount at the end of the period 114 207 112 788 – –

Reconciliation to the statements of financial position Non-current 106 001 112 788 – –Current 8 206 – – –

114 207 112 788 – –


109


16. AMOUNTS OWING TO NON-CONTROLLING INTERESTS (continued)

The Born Free Investments 385 Proprietary Limited loan relates to a shareholder loan in FPP Property Venture 103 Proprietary Limited and bears interest at prime less 1.00% (2018: prime less 1.00%). The loan is unsecured and has no fixed terms for repayment. There is a right to defer settlement until such time that the property is disposed of.

The Urban Growth Developments Proprietary Limited loan relates to a shareholder loan in Parow Valley Centre Proprietary Limited and Macassar Retail Centre Proprietary Limited and bears interest at varying rates of interest linked to prime rate of interest (2018: varying rates of interest linked to prime rate of interest). The loan is unsecured and has no fixed terms for repayment. There is a right to defer settlement until such time that the property is disposed of.

The GGP Investments Proprietary Limited loan relates to a shareholder loan in Southview Shopping Centre Proprietary Limited and bears interest at varying rates of interest linked to prime rate of interest (2018: 1.00%). The loan is unsecured and has no fixed terms for repayment. There is a right to defer settlement until such time that the property is disposed of.

The Propsky 31 Properties Proprietary Limited loan relates to a shareholder loan in FPP Property Venture 102 Proprietary Limited and bears interest at prime less 1.50% (2018: 1.50%). The loan is unsecured and has no fixed terms for repayment. There is a right to defer settlement until such time that the property is disposed of.

The Lonisign Proprietary Limited loan relates to a shareholder loan in Libode Shopping Centre Proprietary Limited and bears interest at prime less 1.00% (2018: NIL). The loan is unsecured and has no fixed terms for repayment. There is a right to defer settlement until such time that the property is disposed of.

Group Company

2019R’000

2018R’000

2019R’000

2018R’000

17. DERIVATIVE INSTRUMENTSMeasured at fair value through profit or lossNedbank 1 708 35 1 708 35RMB 480 1 106 480 1 106ABSA 841 212 841 212Standard Bank 4 934 720 4 934 720

7 963 2 073 7 963 2 073

Reconciliation of movementOpening balance 2 073 4 404 2 073 4 404Fair value adjustment (refer to Note 24) 5 890 (2 331) 5 890 (2 331)

At fair value 7 963 2 073 7 963 2 073

Derivative instruments comprise interest rate swaps.



Group Company

2019R’000

2018R’000

2019R’000

2018R’000

ABSA 1Nominal value (R) 38 000 38 000 38 000 38 000Maturity date Aug 21 Aug 21 Aug 21 Aug 21Rate (prime linked) 9.35% 9.35% 9.35% 9.35%

ABSA 2Nominal value (R) 9 500 9 500 9 500 9 500Maturity date Aug 21 Aug 21 Aug 21 Aug 21Rate (prime linked) 9.99% 9.99% 9.99% 9.99%

Standard Bank 1Nominal value (R) 149 000 149 000 149 000 149 000Maturity date Jun 21 Jun 21 Jun 21 Jun 21Rate (3M JIBAR) 7.68% 7.68% 7.68% 7.68%

Standard Bank 2Nominal value (R) 100 000 – 100 000 –Maturity date Oct 21 – Oct 21 –Rate (3M JIBAR) 7.75% – 7.75% –

RMB 1Nominal value (R) 100 000 100 000 100 000 100 000Maturity date Jul 19 Jul 19 Jul 19 Jul 19Rate (3M JIBAR) 8.07% 7.57% 8.07% 7.57%

RMB 2Nominal value (R) 100 000 – – –Maturity date May 22 – – –Rate (3M JIBAR) 6.88% – – –

Nedbank 1Nominal value (R) 100 000 – – –Maturity date Feb 22 – – –Rate (3M JIBAR) 7.45% – – –

Nedbank 2 – 47 500 – 47 500Nominal value (R) – Jul 18 – Jul 18Maturity date – 9.87% – 9.87%

The derivative instruments were valued by Nedbank, ABSA, Standard Bank and RMB by discounting the future cash flows using the JIBAR swap curve.


111


Group Company

2019R’000

2018R’000

2019R’000

2018R’000

18. DEPOSITS RECEIVEDDeposits received 17 940 16 198 13 386 13 033

Reconciliation to the statements of financial positionNon-current 11 712 10 836 8 540 8 659Current (refer to Note 21) 6 228 5 362 4 846 4 374

17 940 16 198 13 386 13 033

19. DEFERRED TAX LIABILITYThe net deferred tax liability arises from the following temporary differences:Wear and tear on developments 654 654 654 654 Income received in advance (90) (165) (90) (165)Prepayments 2 086 1 426 2 086 1 426Tax losses available for set off against future taxable income (1 245) (1 245) (1 245) (1 245)

1 405 670 1 405 670

Movement summaryOpening balance 670 472 670 472Recognised in profit or loss 735 198 735 198

Temporary differences on income received in advance 75 31 75 31Temporary differences on prepayments 660 167 660 167

Closing balance 1 405 670 1 405 670

Management is of the opinion that future taxable income will be available against which the unused tax loss can be utilised. As such, a deferred tax asset has been recognised in respect of the tax loss.

20. AMOUNT OWING TO GROUP COMPANIESAt fair value – – 9 650 6 212

The loan from the Group Company is unsecured, at varying rates of interest linked to prime rate of interest (2018: varying rates of interest linked to prime rate of interest) and with no fixed terms of repayment. Details of the loan are set out in Note 33.



Group Company

2019R’000

2018R’000

2019R’000

2018R’000

21. TRADE AND PAYABLESFinancial instrumentsTrade payables 6 149 5 433 5 399 5 080Dividends payable (refer to Note 32) 3 323 3 098 3 323 3 098Operating lease receivables with credit balances 9 908 11 189 7 928 8 102Non-financial instrumentsDeposits received (refer to Note 18) 6 228 5 362 4 846 4 374Accrued expenses 13 321 41 221 9 939 21 036Other payables 27 306 13 672 22 704 13 249

66 235 79 975 54 139 54 939

22. PROPERTY REVENUERental income – contractual 344 934 287 411 237 880 221 723– tenant recoveries 135 587 105 013 97 881 84 437– straight-line adjustment 9 132 11 833 3 283 5 308

489 653 404 257 339 044 311 468

23. OPERATING PROFITOperating profit includes the following:– Assessment rates, municipal charges and utilities 124 206 98 003 85 381 77 192– Service contract fees 21 404 17 093 13 743 13 254– Property management fees 12 511 9 605 9 159 7 738– Asset management fees (refer to Note 36) 14 786 12 829 14 786 12 829– Bad debts written off 1 831 1 837 1 501 1 536– Expected credit losses (IFRS 9) (923) – (983) –– Allowance for credit losses (IAS 39) – 959 – 822

24. FAIR VALUE ADJUSTMENTSInvestment property (refer to Note 2) 27 839 108 241 2 077 72 803Derivative financial instruments (refer to Note 17) (5 890) 2 331 (5 890) 2 331Financial assets at fair value through profit or loss (Investments (refer to Note 5)) 44 (7) 44 (7)

21 993 110 565 (3 769) 75 127


113


Salary R’000

Fees for other

servicesR’000

Bonuses R’000

Total R’000

25. DIRECTORS’ EMOLUMENTSExecutive Directors2019BJ Kriel 1 717 – 1 182 2 899DM Wilder* 2 058 – 635 2 693AJ Marcus* 2 058 – 635 2 693

5 833 – 2 452 8 285

2018BJ Kriel 1 600 – 713 2 313DM Wilder* 1 711 500 660 2 871AJ Marcus* 1 711 500 660 2 871

5 022 1 000 2 033 8 055

Group Company

2019R’000

2018R’000

2019R’000

2018R’000

Non-Executive DirectorsDirectors’ feesJF du Toit 319 242 319 242LW Andrag 221 168 221 168JD Wiese 221 168 221 168N Mkhize 204 184 204 184TJ Cohen 281 516 812 516KR Nkuna 47 – 47 –KR Moloko 45 176 45 176

1 338 1 454 1 338 1 454

* DM Wilder and AJ Marcus are remunerated by the asset manager, New Star Asset Management Proprietary Limited. Fees for other services and commission are paid to entities in which the Directors have beneficial interests.



Group Company

2019R’000

2018R’000

2019R’000

2018R’000

26. FINANCE COSTSDebt-raising fees 1 943 1 795 1 368 831Interest-bearing borrowings 76 725 70 042 50 022 49 595Interest paid to group companies – – 45 45Amounts owing to non-controlling interests (refer to Note 16) 10 087 5 620 – –Other financial liabilities 731 419 182 82

89 486 77 876 51 617 50 553

27. FINANCE AND OTHER INVESTMENT INCOMEInterest received from loans and receivables (refer to Note 4) 37 858 24 410 37 858 24 410Interest received from group companies – – 25 088 15 899Dividends received from subsidiaries – – 10 018 1 774Bank and others 2 965 2 765 1 997 2 189

40 823 27 175 74 961 44 272

28. INCOME TAX EXPENSEMajor components of income tax:Deferred tax (735) (198) (735) (198)

– Temporary difference on income received in advance (75) (31) (75) (31)– Temporary differences on prepayments (660) (167) (660) (167)

Income tax expense in profit or loss (735) (198) (735) (198)

Reconciliation between accounting profit and current tax:Accounting profit before tax 257 678 293 957 209 636 242 860

Income tax at applicable rate of 28% (72 150) (82 308) (58 698) (68 001)Tax effect of adjustments on taxable income– Non-deductible expenditure (2 556) (2 073) (2 392) (1 303)– Non-taxable income** 10 364 34 273 1 513 22 524– Deferred tax on temporary differences (735) (198) (735) (198)– Qualifying distribution 64 342* 50 109* 59 577* 46 780*

Income tax expense in profit or loss (735) (198) (735) (198)

* In terms of section 25BB of the Income Tax Act, 58 of 1962, the deduction allowed for qualifying distributions made by a REIT may not exceed the taxable income for the period of assessment.

** Non-taxable income relates to the fair value adjustments on investment property and rental straight-line adjustment.


115


29. DIVIDENDS Dividends to the value of R209.3 million were paid during the current reporting period (2018: R158.5 million).

A dividend of 11.157 cents per share was declared on 4 September 2019 to be paid to shareholders on 7 October 2019.

The dividend is declared in respect of the period ending 30 June 2019 and meets the requirements of a qualifying distribution in terms of section 25BB of the Income Tax Act, 58 of 1962.

Group

2019R’000

2018R’000

Dividend per share (cent)Interim dividend declaration 10.616 9.806Final dividend declaration 11.157 10.344

Total dividend (cents per share) 21.773 20.150

30. EARNINGS AND HEADLINE EARNINGS Basic earnings comprise profit attributable to shareholders 230 440 273 289Headline earnings adjustments comprise: – Fair value adjustment to investment property (refer to Note 24) (27 839) (108 241)– Fair value adjustment to investment property – non-controlling interest 12 284 14 767

Headline earnings 214 885 179 815

Basic and diluted basic earnings per share (cents) 22.94 31.69Headline and diluted headline earnings per share (cents) 21.39 20.85Net asset value and net tangible asset value per share (cents)* 229.38 227.78Shares in issue 1 018 125 441 991 020 553Weighted average number of shares 1 004 697 875 862 248 577

* Net asset value per share defined as: (Total assets – Total liabilities)/(Effective shares in issue at the end of the reporting period).



Group Company

2019R’000

2018R’000

2019R’000

2018R’000

31. CASH GENERATED FROM OPERATIONSReconciliation of profit before tax to cash generated from operationsProfit before tax 257 678 293 957 209 636 242 860Finance costs (refer to Note 26) 89 486 77 876 51 617 50 553Finance and investment income (refer to Note 27) (40 823) (27 175) (74 961) (44 272)Adjustments for:– Depreciation (refer to Note 6) 155 101 155 101– Letting commission amortised 2 743 2 485 2 588 2 418– Fair value adjustment to investment property

(refer to Note 24) (27 839) (108 241) (2 077) (72 803)– Fair value adjustment to derivatives (refer to Note 24) 5 890 (2 331) 5 890 (2 331)– Fair value adjustment to investments (refer to Note 24) (44) 7 (44) 7– Straight-line rental income adjustment (refer to Note 22) (9 132) (11 833) (3 283) (5 308)

Operating cash flow 278 114 224 846 189 521 171 225Changes in working capital (7 211) (11 335) (11 703) (10 313)

– Operating lease and other receivables (7 482) 157 745 (10 559) (11 051)– Trade and other payables 271 (169 080) (1 144) 738

Cash generated from operations 270 903 213 511 177 818 160 912

32. DIVIDENDS PAIDAmount payable at the beginning of the period 3 098 2 911 3 098 2 911Expired during the period (395) (265) (395) (265)Dividend declared during the period (refer to Note 29) 214 458 158 969 209 302 158 526Amount payable at the end of the period (refer to Note 21) (3 323) (3 098) (3 323) (3 098)

Dividends paid 213 838 158 517 208 682 158 074

Refer to Note 29 for dividends declared.


117


33. SUBSIDIARIES

Investment Net profit after tax Indebtedness

2019R’000

2018R’000

2019R’000

2018R’000

2019R’000

2018R’000

Directly heldFairvest Property Management Proprietary Limited – – – – 672 402Fairvest Properties Two Proprietary Limited 1 1 – – (795) (724)Macassar Retail Centre Proprietary Limited – – (5 717) (1 451) 31 725 32 361FPP Property Venture 103 Proprietary Limited – – 11 884 17 641 114 812 115 381Parow Valley Centre Proprietary Limited – – 2 255 735 8 541 9 143FPP Property Venture 102 Proprietary Limited – – 13 151 17 484 42 935 79 041Southview Shopping Centre Proprietary Limited – – 8 802 2 368 22 085 42 703Bara Precinct Proprietary Limited 82 537 82 537 18 917 14 299 (8 855) (5 488)Diepkloof Leaseholder Proprietary Limited – – (1 103) 1 800 – –Libode Shopping Centre Proprietary Limited – – 9 871 – 26 981 –

82 538 82 538 58 060 52 876 238 101 272 819

Loss allowanceFairvest Property Management Proprietary Limited (105) (105)

237 996 272 714

Reconciliation to statements of financial positionAmounts owing by group companies (refer to Note 8) 247 646 278 926Amounts owing to group companies (refer to Note 20) (9 650) (6 212)

237 996 272 714



Subsidiaries’ principal activities are the investment in properties and the management thereof. The Company’s percentage holdings in its subsidiaries are as follows:

Subsidiary % holdings

Fairvest Property Management Proprietary Limited 100%Fairvest Properties Two Proprietary Limited 100%FPP Property Venture 103 Proprietary Limited 80%Macassar Retail Centre Proprietary limited 80%Libode Shopping Centre Proprietary Limited 55%Parow Valley Centre Proprietary Limited 51%FPP Property Venture 102 Proprietary Limited 51%Southview Shopping Centre Proprietary Limited 50%Bara Precinct Proprietary Limited 50.17%Diepkloof Leaseholder Proprietary Limited* 50.17%

* Bara Precinct Proprietary Limited owns 100% of the issued share capital in Diepkloof Leaseholder Proprietary Limited.

The loan to Fairvest Property Management Proprietary Limited has been subordinated in favour of the remaining creditors to the extent of R105 000 (2018: R105 000), respectively, until such time as the assets of the Company fairly valued exceed its liabilities and a loss allowance amounting to R105 000 (2018: R105 000) has been recognised in respect of the loan.

34. CAPITAL COMMITMENTS Capital commitments in respect of improvements to investment property to the value of R56.7 million (2018: R43.0 million)

have been authorised, but not committed to by the Board.

At reporting date there were no contractual obligations to purchase or construct investment property or for repairs, maintenance or enhancements other than the Nonkqubela acquisition (refer to Note 41).

35. FINANCIAL INSTRUMENT RISK EXPOSURE AND MANAGEMENT 35.1 Risk management Risk management is fundamental to the Group’s business and plays a crucial role in enabling management to operate

more effectively in a changing environment. Over time it has evolved into one of the Group’s core capabilities and is integral to the evaluation of strategic alternatives and the setting of objectives, all within a risk management framework that ensures alignment with the Group’s risk appetite and overall strategy.

The approach followed by the Group to manage risk is to ensure that all significant risks are identified and managed. The Group remains committed to the objective of increasing shareholder value by developing and growing business that is consistent with the chosen risk appetite, and through building more effective risk management capabilities.

The Group’s trading and financing activities expose it to various financial risks that, if left unmanaged, could adversely impact current or future earnings. Although not necessarily mutually exclusive, these financial risks include credit risk, liquidity risk and market risk, which comprises interest rate and price risk. These risks arise predominantly from the principal financial instruments documented below.


119


35. FINANCIAL INSTRUMENT RISK EXPOSURE AND MANAGEMENT (continued) 35.1 Risk management (continued)

This note describes the Group’s overall risk management programme, focusing on the unpredictability of the financial markets and seeking to minimise the potential adverse effects on the financial performance of the Group. Further quantitative information in respect of these risks is presented throughout these Group annual financial statements.

There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods, unless otherwise stated in this note. Information has been disaggregated relative to the characteristics of the various financial instruments used by the Group. Operating lease receivables and trade payables have not been further disaggregated as these financial instruments in their own right share the same economic characteristic and market conditions.

The Directors have an overall responsibility for the determination of the Group’s risk management objectives and policies, and whilst retaining ultimate responsibility for them, they ensure that excess cash as generated from their operations is invested with recognised financial institutions. Finance is provided by counterparties that are well-recognised financial institutions. The Directors, on a monthly basis, monitor their collections from customers and movements in the prime lending rates.

The overall objective of the Board of Directors is to set policies that seek to reduce risk that they are directly exposed to as far as possible without unduly affecting the Group’s general business operations.

35.2 Categories of financial instruments The table below sets out the Group and the Company’s classification of each class of financial asset and liability and

its value at 30 June 2019.

At amortised cost

At amortised cost/loans and

receivablesFair value through

profit or loss

2019R’000

2018R’000

2019R’000

2018R’000

GroupFinancial assetsLoans receivable 308 632 262 908 – – Investments – – 4 816 4 772Amounts owing by non-controlling interests 10 594 5 980 – –Operating lease and other receivables* 23 519 35 227 – – Cash and cash equivalents 15 356 9 943 – –

Total 358 101 314 058 4 816 4 772

Financial liabilitiesInterest-bearing borrowings – – 885 378 754 776Amounts owing to non-controlling interests 114 207 112 788 – –Derivative financial instruments – – 7 963 2 073Trade and other payables 19 380 19 720 – –

Total 133 587 132 508 893 341 756 849



At amortised cost

At amortised cost/loans and

receivablesFair value through

profit or loss

2019R’000

2018R’000

2019R’000

2018R’000

CompanyFinancial assetsLoans receivable 308 632 262 908 – –Investments – – 4 816 4 772Amounts owing by group companies 247 646 278 926 – –Operating lease and other receivables* 20 888 30 572 – –Cash and cash equivalents 9 423 8 388 – –

Total 586 589 580 794 4 816 4 772

Financial liabilitiesInterest-bearing borrowings – – 527 571 493 042Derivative financial instruments – – 7 963 2 073Amounts owing to group companies 9 650 6 212 – –Trade and other payables 16 650 16 280 – –

Total 26 300 22 492 535 534 495 115

* Operating lease and other receivables in the prior period were updated to also include other loans receivable.

35.3 Fair value hierarchy Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into

three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows:

Level 1: quoted prices (unadjusted) in active markets for identical financial assets. Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either

directly (as prices) or indirectly (derived from prices). Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).


121


35. FINANCIAL INSTRUMENT RISK EXPOSURE AND MANAGEMENT (continued) 35.3 Fair value hierarchy (continued)

Level 2 Level 3 Fair value

2019R’000

2018R’000

2019R’000

2018R’000

2019R’000

2018R’000

GroupFinancial assetsInvestments 4 816 4 772 – – 4 816 4 772

Total 4 816 4 772 – – 4 816 4 772

Financial liabilitiesInterest-bearing borrowings – – 885 378 754 776 885 378 754 776Derivative financial instruments 7 963 2 073 – – 7 963 2 073

Total 7 963 2 073 885 378 754 776 893 341 756 849

CompanyFinancial assetsInvestments 4 816 4 772 – – 4 816 4 772

Total 4 816 4 772 – – 4 816 4 772

Financial liabilitiesInterest-bearing borrowings – – 527 571 493 042 527 571 493 042Derivative financial instruments 7 963 2 073 – – 7 963 2 073

Total 7 963 2 073 527 571 493 042 535 534 495 115

There were no transfers in or out of Level 3 during the reporting period.

Refer to Note 2.2 for the fair value hierarchy of investment property.

The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the previous reporting period.

35.4 Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet

its contractual obligations. There is no significant concentration of credit risk as exposure is spread over a large number of counterparties.



Exposure to credit risk:

Group Company

Notes2019R’000

2018R’000

2019R’000

2018R’000

Loans receivable 4 308 632 262 908 308 632 262 908Amounts owing by group companies 8 – – 247 646 278 926Amounts owing by non-controlling interests 10 10 594 5 980 – –Operating lease and other receivables 11 23 519 35 227 20 888 30 572Cash and cash equivalents 12 15 356 9 943 9 423 8.388

Loans receivable At initial recognition the credit risk of loans receivable is evaluated with reference to available historical and forward-

looking financial information of each transaction on its own merit.

Management reviewed the credit risk at period end and determined the credit risk has not significantly increased from initial recognition with a low risk of default.

Credit risk on the loans receivable are mitigated by the security provided, which include first covering mortgage bonds, a cession and pledge of shares, and suretyship provided by the underlying shareholders. The expected fair value of the properties at the time of repayment of the loan are considered and are expected to exceed the loan amount receivable. The expected credit losses are therefore considered to be immaterial.

Amounts owing by non-controlling interest/group companies The Group manages credit risk arising from loans to subsidiaries by monitoring the fair value of the underlying

investment properties in the subsidiaries and ensuring that the Company maintains a diversified investment portfolio.

Amounts owing by group companies have been individually impaired by R105 000 (2018: R105 000) where the loan amount exceeds the net asset value of the subsidiary to which the loan was granted. Refer to Note 33. There are no other financial assets that have been individually impaired.

Operating lease and other receivables Operating lease and other receivables are assessed for estimated credit losses using the general approach. A three-stage

approach, based on the deterioration in the credit risk of a financial asset are applied.

Receivables are categorised by tenant type to determine the risk factor of a receivable, and therefore the probability of default. In each category, a tenant will be further assessed on an individual basis taking into account historic, current and forward-looking information. Tenant collateral have also been taken into account in the ECL assessment, with the expected proceeds to be received reducing the arrears balance.


123


35. FINANCIAL INSTRUMENT RISK EXPOSURE AND MANAGEMENT (continued) 35.4 Credit risk (continued)

Operating lease and other receivables (continued)

Operating lease receivables that are neither past due nor impaired are considered to be of a higher credit quality, with a historic default rate of 0.38% (2018: 0.35%) of revenue. The Group does request collateral from existing or potential operating lease receivables in the form of deposits and bank guarantees. At 30 June 2019 the Group held deposits from tenants to the value of R17 940 000 (2018: R16 198 000) and bank guarantees to the value of R2 838 000 (2018: R1 641 000).

During the period under review operating lease receivables to the value of R1 831 000 (2018: R1 390 000) have been written off. The expected credit loss at 30 June 2019 was R2 972 000 (2018: R4 034 000). Bad debts recognised in the profit and loss were in respect of amounts due that were irrecoverable during the period and were written off before year-end.

No other operating lease and other receivables are considered to be impaired as at 30 June 2019.

Cash and cash equivalents Any credit risk arising from cash and cash equivalents is deemed to be insignificant on the basis that all relevant

counterparties are reputable financial institutions. Ratings were obtained from Moody’s and all financial institutions were rates Baa3, with a stable outlook.

Management does not expect any credit losses from non-performance by these counterparties.

35.5 Liquidity risk Liquidity risk arises from the Group’s management of working capital, the finance costs and the principal repayments on

the debt instruments. It is the risk that the Group will experience financial difficulty in meeting its obligations as they fall due. Prudent liquidity risk management implies maintaining sufficient cash, and the availability of funding through an adequate amount of committed facilities. The Group remains confident that the available cash resources, borrowing facilities and operating cash flows generated will be sufficient to meet its funding requirements. There have been no defaults or breaches on trade payables during the course of the financial period. Furthermore, no security has been provided on the trade payables. Long-term liabilities have been secured with the related investment property.

The net current liability position will be serviced through the generation of operating cash flows and the restructuring of debt instruments upon maturity.

The following table presents the Group’s outstanding contractual maturity profile for its non-derivative financial liabilities. The selected time bands were considered by management to be most reflective of the Group’s operations. The analysis presented is based on the undiscounted contractual maturities of the Group’s financial liabilities.



Contractual maturity analysis:

Gross undiscounted cash flow

Financial liabilities

Due on demand/less

than one year R’000

Due betweenyear two

to year fiveR’000

Total R’000

Group2019Interest-bearing borrowings 74 549 810 829 885 378Amounts owing to non-controlling interests 8 206 106 001 114 207Derivative financial instruments – 7 963 7 963Trade and other payables 19 380 – 19 380

Total 102 135 924 793 1 026 928

2018 Interest-bearing borrowings 411 931 342 845 754 776Amounts owing to non-controlling interests – 112 788 112 788Derivative financial instruments – 2 073 2 073Trade and other payables 19 720 – 19 720

Total 431 651 457 706 889 357

Company2019Interest-bearing borrowings 72 842 454 729 527 571Derivative financial instruments – 7 963 7 963Amounts owing to group companies 9 650 – 9 650Trade and other payables 16 650 – 16 650

Total 99 142 462 692 561 834

2018Interest-bearing borrowings 396 297 96 745 493 042Derivative financial instruments – 2 073 2 073Amounts owing to group companies 6 212 – 6 212Trade and other payables 16 280 – 16 280

Total 418 789 98 818 517 607


125


35. FINANCIAL INSTRUMENT RISK EXPOSURE AND MANAGEMENT (continued) 35.6 Market risk Market risk arises as a result of the Group’s use of variable interest rate long-term liabilities measured at fair value

through profit or loss, cash and cash equivalents and investments. It is the risk that the future cash flow and fair value of a financial instrument will fluctuate because of changes in interest rates. Future changes to the prime or JIBAR lending rates will have a direct impact on the future cash payments towards the settlement of the financial obligation. The Group manages its exposure to changes in interest rates by fixing interest rates in respect of long-term liabilities through swaps and fixed rate loans. At 30 June 2019, 67.6% (2018: 45.9%) of long-term liabilities were fixed through interest rate swaps.

Cash flow interest rate risk arises from the use of variable rate long-term liabilities and cash and cash equivalents.

Cash flow interest rate risk Exposure to cash flow interest rate risk on financial assets and liabilities is monitored on a continuous basis. The benefits

of fixing or swapping interest rates on the Group’s various financing activities is considered on a case-by-case basis, taking the specific and overall risk profile into consideration. Excess funds are deposited with reputable financial institutions on a rate quotation basis. This ensures that the Group earns the most advantageous rates of interest available.

The Group is sensitive to the movements in the interest rates which are the primary interest rates to which the Group is exposed. The Group has used a sensitivity analysis technique that measures the estimated change in profit or loss of an instantaneous increase or decrease of 1% (100 basis points) in market interest rates on financial liabilities from the applicable rate as at 30 June, for each class of financial instrument with all other variables remaining constant. The calculations were determined with reference to the outstanding financial liability balances for the period.

This analysis is for illustrative purposes only and represents management’s best estimate of reasonably possible changes in interest rates.

After tax effect on profit or loss

After tax effect on profit or loss

1% increase 2019R’000

1% decrease2019

R’000

1% increase2018

R’000

1% decrease 2018R’000

GroupLoans receivable 3 086 (3 086) 2 629 (2 629)Cash and cash equivalents 154 (154) 99 (99)Interest-bearing borrowings (2 869) 2 869 (4 084) 4 084Amounts owing to non-controlling interests (1 142) 1 142 (1 128) 1 128

CompanyLoans receivable 3 086 (3 086) 2 629 (2 629)Loans to subsidiaries 2 476 (2 476) 2 789 (2 789)Cash and cash equivalents 94 (94) 84 (84)Interest-bearing borrowings 702 (702) (1 460) 1 460



36. RELATED-PARTY TRANSACTIONS Identity of related-parties The Group has related-party relationships with its subsidiaries, related investment companies and key management personnel.

The details of the Directors are provided in the Directors’ report on page 70. Key management personnel have been identified as the Executive and Non-Executive Directors of the Company. The definition of key management includes the close members of family of key management personnel and any other entity over which key management exercise control, significant influence or joint control. Close family members are those family members who may be expected to influence or be influenced by that individual in their dealings with the Group.

Subsidiary companies Related-party transactions occur between Group entities. All purchasing and selling transactions are concluded at arm’s length,

unless otherwise indicated. Where borrowing transactions are entered into with related parties these transactions are done on an arm’s length basis taking due cognisance of market-related circumstances. However, there are no fixed repayment terms on certain borrowings. Refer to Note 33.

Transactions with key management personnel Directors’ remuneration Disclosure of Directors’ emoluments are included in Note 25.

Interest in contracts No Directors have a material interest in any transaction with the Company or its subsidiaries.

Other transactions with key management personnel Transactions with key management personnel are conducted on terms no more favourable than those entered into with third

parties on an arm’s length basis. No abnormal or non-commercial credit terms are allowed and no impairments were recognised in relation to any transactions with key personnel during the period, nor have they resulted in any non-performing debts at period end. Similar policies are applied to key management personnel at subsidiary level who are not defined as key management personnel at Group level. Other than Directors’ emoluments and entities related by virtue of management personnel, there were no other transactions with key management personnel.

Shareholders An analysis of shareholders is provided on page 138.

Details of the loan balances with related parties have been disclosed in Note 33 of the financial statements.


127


36. RELATED PARTY TRANSACTIONS (continued)

Shareholders (continued)

Group Company

2019R’000

2018R’000

2019R’000

2018R’000

Interest received from related parties (refer to Note 27)Fairvest Property Management Proprietary Limited 25 24FPP Property Venture 103 Proprietary Limited 10 314 5 547Parow Valley Centre Proprietary Limited 833 1 048Macassar Retail Centre Proprietary Limited 2 324 2 968FPP Property Venture 102 Proprietary Limited 4 568 4 795Southview Shopping Centre Proprietary Limited 5 184 1 517Libode Shopping Centre Proprietary Limited 1 840 –

25 088 15 899

Interest paid to group company (refer to Note 26)Fairvest Properties Two Proprietary Limited (45) (45)

Administration, accounting and management fees received/(paid) to related partiesRelated by virtue of subsidiaryFairvest Properties Two Proprietary Limited (420) (328)Fairvest Property Management Proprietary Limited (63) (85)Parow Valley Centre Proprietary Limited 60 120Macassar Retail Centre Proprietary Limited 60 120FPP Property Venture 102 Proprietary Limited 60 60FPP Property Venture 103 Proprietary Limited 60 –Bara Precinct Proprietary Limited 60 30Libode Shopping Centre Proprietary Limited 23 –

(160) (83)

Related by virtue of management personnelNew Star Asset Management Proprietary Limited* (14 786) (12 829) (14 786) (12 829)

Commission paid to related partiesRelated by virtue of management personnelNew Star Asset Management Proprietary Limited* (3 132) (2 113) (2 946) (1 949)

Development fees and cost capitalisedRelated by virtue of management personnelNew Star Asset Management Proprietary Limited* (2 151) (453) (2 149) (453)

Acquisition fees capitalisedRelated by virtue of management personnelNew Star Asset Management Proprietary Limited* (470) (3 816) – (3 816)

* Mr JF du Toit, Mr AJ Marcus and Mr DM Wilder have a non-controlling interest in the Company.



37. CAPITAL MANAGEMENT The capital structure of the Group consists of interest-bearing borrowings, cash and cash equivalents, equity attributable to

equity holders of the Group which comprises issued share capital. The Group’s capital management objective is to achieve an effective weighted average cost of capital while continuing to safeguard the Group’s ability to meet its liquidity requirements, repay borrowings as they fall due and continue as a going concern, whilst concurrently ensuring that at all times its creditworthiness is considered to be at least investment grade. This policy is consistent with that of the comparative period.

The Company’s borrowings are limited to 50% of the valuation of the investment property portfolio in terms of the existing debt covenants and unlimited in terms of the memorandum of incorporation of the Company.

Refer to Note 15 for details on loan covenants.

As at 30 June 2019, the unutilised borrowing capacity was as follows:

Group Company

2019R’000

2018R’000

2019R’000

2018R’000

Investment property at valuation 3 160 000 2 987 000 2 181 300 2 096 10050% thereof 1 580 000 1 493 500 1 090 650 1 045 050Total borrowings (882 424) (749 650) (526 324) (488 773)Unutilised borrowing capacity 697 576 743 850 564 326 559 277Gearing 27.9% 25.1% 24.1% 23.3%

Management is committed to gearing levels to a maximum of 40%.


129


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133


39. FUTURE OPERATING LEASE COMMITMENTS Future minimum lease payments receivable from lessees under non-cancellable operating leases are as follows:

No later than one year

R’000

Later than one year and no later than

five yearsR’000

Later than five years

R’000

2019 296 074 579 370 181 311

2018 259 340 521 355 117 314

All the above payments are in respect of investment property leases. Refer to pages 135 and 136 for details of investment properties. The terms and conditions vary over the tenant base. The lease period is normally within five years and includes market-related escalation percentages.

40. JOINT OPERATION In the 2013 reporting period a 50% undivided share was acquired in Sebokeng Plaza with Axis Property Fund Proprietary

Limited. The asset is jointly controlled by the parties and is classified as a joint operation. Axis also performs the property management function for the asset. The principal place of business for the joint operation is Cape Town, Western Cape.

41. SUBSEQUENT EVENTS The acquisition of the Nonkqubela Mall to the value of R162.9 million was concluded on 14 May 2019. The transfer of the

property was registered in the name of Fairvest Property Holdings Limited on 23 August 2019.

Refer to Note 29 for details of the dividend declared on 4 September 2019 which relates to the six months ended 30 June 2019.

The Directors of Fairvest are not aware of any further material matters or circumstances arising between 30 June 2019 and this report which may materially affect the financial position of the Group or the results of its operation.

42. CONTINGENT LIABILITY At 30 June 2019 there were no contingent liabilities.

43. GOING CONCERN The Group financial statements have been prepared on the basis of accounting policies applicable to a going concern. The

basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.



Value of portfolio as at 30 June 2019

DETAILS OF PROPERTY PORTFOLIO

Property name Location Sector

Rentable area

(m2)

Valuation as at

30 June 2019 (R’000)

Weighted average

rental per m2

Date ofacquisition

Cost of acquisition

(R’000)

KwaZulu-NatalShoprite Empangeni Empangeni Retail 13 660 199 300 134.05 18 Jul 17 172 500 Westville Junction Westville Retail/Office 6 333 110 600 156.05 19 Jan 01 16 500 CHEP Building Westville Office 3 337 94 300 113.01# 01 Dec 12 51 076 425 West Street Durban Retail 9 559 78 000 113.01# 18 Jan 13 54 500 Richmond Shopping Centre Durban Retail 8 842 76 100 97.63 21 May 15 61 538 Qualbert Centre Durban Retail 4 742 71 400 172.89 30 Jan 14 68 778 Coronation Walk Queensburgh Retail/Office 3 047 43 300 142.43 19 Nov 01 9 000 212 Church Street Pietermaritzburg Retail 1 980 38 500 113.01# 14 Dec 12 30 000 210 Church Street Pietermaritzburg Retail 1 897 36 500 113.01# 18 Dec 12 19 556 Mkuze Corner Mkuze Retail 3 388 31 200 90.59 13 Dec 12 15 000

56 785 779 200

Western CapeTokai Junction Tokai Retail 7 698 162 900 168.18 14 Dec 12 84 900 Nyanga Junction Nyanga Retail 10 678 151 500 158.15 16 May 13 58 000 Paddagat George Retail 10 913 99 600 88.94 13 Dec 12 44 000 Macassar Shopping Centre Macassar Retail 5 516 78 100 128.07 12 Sep 16 41 500 Parow Valley Spar Parow Retail 3 985 37 600 93.87 10 May 16 20 255 Omniplace Bellville Office 2 627 31 100 130.96 13 Dec 12 20 000 Nyanga Shopping Centre Nyanga Retail 1 242 3 900 113.01# 24 May 13 8 427

42 659 564 700

Free StateMiddestad Centre Bloemfontein Retail 18 465 273 000 132.56 26 Aug 15 190 987 Megapark Bloemfontein Retail 5 967 70 600 115.18 26 Aug 15 52 015 Zamdela Shopping Centre Zamdela Retail 2 247 26 800 96.97 20 Feb 13 13 867 Bradlows Building Bloemfontein Retail 1 942 11 500 55.07 19 Nov 01 4 100

28 621 381 900


135

Value of portfolio as at 30 June 2019

DETAILS OF PROPERTY PORTFOLIO CONTINUED

Property name Location Sector

Rentable area

(m2)

Valuation as at

30 June 2019 (R’000)

Weighted average

rental per m2

Date ofacquisition

Cost of acquisition

(R’000)

GautengBara Precinct Soweto Retail 23 132 334 900 133.53 18 Dec 17 322 435 Southview Shopping Soshanguve Retail 7 620 106 200 112.42 18 Jun 18 92 914 Sebokeng Plaza* Sebokeng Retail 5 711 71 900 111.58 26 Apr 13 35 298 Clubview Corner Centurion Retail 6 074 72 200 110.10 17 Jan 13 27 000 The Ridge Shopping Centre Roodepoort Retail 4 666 65 000 141.28 12 Mar 13 30 000 Jan Niemand Spar Pretoria Retail 2 139 32 000 113.01# 19 Feb 15 20 000 Pick n Pay Vereeniging Vereeniging Retail 3 538 25 200 64.53 10 Apr 13 12 934 Orange Farm Orange Farm Retail 2 685 25 100 77.91 15 Jan 13 15 781 The Palms Midrand Office 2 501 18 100 83.01 02 Mar 07 10 558 Score Stretford Stretford Retail 1 508 14 700 113.01# 19 Feb 13 9 509 Score Sharpeville Sharpeville Retail 1 145 12 900 113.01# 19 Feb 13 6 914

60 719 778 200

LimpopoMala Plaza Malamulele Retail 6 206 81 100 131.87 27 Jan 14 64 766 Masingita Shopping Centre Giyani Retail 5 269 61 300 116.93 27 Jan 14 48 466

11 475 142 400

Northern CapeSibilo Shopping Centre Postmasburg Retail 8 476 123 800 131.45 24 Aug 15 96 323 Kim Park Kimberley Retail 8 959 100 600 106.48 08 Jan 14 53 014

17 435 224 400

Eastern CapeBoxer Elliotdale Elliotdale Retail 7 366 76 600 102.66 09 May 16 59 830 Bokleni Plaza Libode Retail 4 991 58 600 116.90 03 Oct 18 49 000Boxer Mqanduli Mqanduli Retail 4 689 46 800 101.39 15 Jul 16 37 600 Boxer Tabankulu Tabankulu Retail 3 598 40 600 112.08 07 Jul 16 32 000

20 644 222 600

MpumalangaCosmos Centre Bethal Retail 4 692 66 600 121.69 05 Mar 15 58 000

* 50% undivided share 243 030 3 160 000

Vacant unlettable propertyFattis Mansions Johannesburg Retail 1 921 – – 19 Nov 01 6 520

# Means single tenanted properties. The weighted average rent per m2 for all single tenanted properties is R113.01 at 30 June 2019.



as at 30 June 2019

PROPERTY PORTFOLIO STATISTICS

The Fairvest property portfolio consists of 42* properties, with 243 030m2 of lettable area and valued at R3.16 billion. At 30 June 2019, 9 670m2 or 4.0% of the gross lettable area was vacant. Average annualised property yield was 9.7%.

* Number of properties in the prior period was reduced from 44 to 41 as certain properties have been consolidated for reporting purposes, one new acquisition during the current period.

Geographical profileBy rentable

areaBy

revenue

Gauteng 25.0% 23.8%KwaZulu-Natal 23.4% 23.6%Western Cape 17.5% 18.7%Free State 11.8% 11.5%Eastern Cape 8.5% 9.0%Northern Cape 7.2% 6.4%Limpopo 4.7% 4.9%Mpumalanga 1.9% 2.1%

Weighted average rental escalationRetail 7.3%Office 8.2%Portfolio 7.4%

Tenant profileA-grade tenants 74.8%B-grade tenants 6.8%C-grade tenants 18.4%

A – Anchor and national tenantsB – Franchise, professional and large tenantsC – Other (158 out of 859 tenants)

Lease expiry profile Portfolio Office Retail

By rentable areaVacant 4.0% 22.5% 3.1%Monthly 4.3% 13.7% 3.9%June 2020 21.3% 15.4% 21.5%June 2021 20.3% 10.7% 20.8%June 2022 16.2% 4.9% 16.8%June 2023 14.3% 29.3% 13.6%June 2024 and beyond 19.6% 3.5% 20.3%

By gross rentalVacant – – –Monthly 5.0% 16.6% 4.4%June 2020 23.6% 15.0% 24.0%June 2021 20.8% 8.3% 21.5%June 2022 16.6% 4.8% 17.2%June 2023 15.9% 52.1% 14.0%June 2024 and beyond 18.1% 3.2% 18.9%

Sectoral profileBy rentable

areaBy

revenueVacancy by GLA

Weighted average

rental (R/m²)

Retail 95.5% 94.4% 3.0% 119.75Office 4.5% 5.6% 1.0% 165.77


137

as at 30 June 2019

ANALYSIS OF SHAREHOLDERS

Number of shareholders

Percentage of shareholders

Number of shares

Percentage of shares

Shareholders’ spread 1 – 1 000 shares 976 40.41 104 240 0.01 1 001 – 10 000 shares 314 13.00 1 656 891 0.16 10 001 – 100 000 shares 827 34.24 29 942 667 2.94 100 001 – 1 000 000 shares 213 8.82 67 599 444 6.64 1 000 001 shares and over 85 3.52 918 822 199 90.25

Total 2 415 100.00 1 018 125 441 100.00

Distribution of shareholders Banks/brokers 32 1.33 19 593 681 1.92 Close corporations 23 0.95 1 706 724 0.17 Endowment funds 9 0.37 2 963 878 0.29 Individuals 1 924 79.67 44 432 094 4.36 Insurance companies 10 0.41 1 388 317 0.14 Investment companies 2 0.08 8 571 176 0.84 Medical schemes 4 0.17 5 364 405 0.53 Mutual funds 82 3.40 456 515 942 44.84 Other corporations 11 0.46 223 792 0.02 Private companies 51 2.11 156 312 354 15.35 Public companies 5 0.21 140 389 458 13.79 Retirement funds 102 4.22 159 338 687 15.65 Trusts 160 6.63 21 324 933 2.09

Total 2 415 100.00 1 018 125 441 100.00

Public/non-public shareholders Non-public members 9 0.37 308 517 843 30.30

Directors and associates of the Company holdings 7 0.29 38 123 031 3.74 Strategic shareholders (more than 10%) 2 0.08 270 394 812 26.56

Public shareholders 2 406 99.63 709 607 598 69.70

2 415 100.00 1 018 125 441 100.00

Number of shares %

Beneficial shareholders holding 5% or more Vukile Property Fund Limited 270 394 812 26.56 Nedbank Group 114 377 939 11.23 STANLIB 113 907 282 11.19 Bridge Fund Managers 49 000 000 4.81

547 680 033 53.79




DISTRIBUTABLE EARNINGS RECONCILIATION

Group

2019R’000

2018R’000

Calculation of distributable earningsNet profit from property operations 315 727 264 744– Straight-line rental income adjustment (refer to Note 22) (9 132) (11 833)– Corporate administrative expenses (30 174) (25 046)– Finance costs (refer to Note 26) (87 543) (76 081)– Finance and investment income (refer to Note 27) 40 823 27 175– Antecedent dividends* 1 709 13 146– Non-controlling interest share of distribution (11 033) (5 159)

Distributable earnings 220 377 186 946

Dividend declared for the six months ending 31 December 106 788 84 439Dividend declared for the six months ending 30 June 113 589 102 507

* In the determination of distributable earnings, an adjustment is made where equity is raised during the period to avoid diluting the returns of existing shareholders prior to the issue of the shares. All shares issued during the period were through the dividend reinvestment alternative.

DISTRIBUTABLE EARNINGS POLICYDistributable earnings are a measure of sustainable income. Distributable earnings are determined after adjusting for certain non-cash and accounting items in line with REIT best practice recommendations. These include unrealised fair value adjustments on investment property, interest rate swaps (derivatives) and investments, straight-line rental adjustment, certain capital transactions costs and antecedent dividends. This is a voluntary and non-IFRS disclosure and has been included to align the disclosure of the Company with the REIT sector standards.


139

as at 30 June 2019

STOCK EXCHANGE PERFORMANCE

SHAREHOLDERS’ CALENDAR

Activity Date

Financial year-end 30 June Release of abridged results on SENS 5 September 2019 Dispatch of 2019 AGM notice 17 October 2019 2019 Integrated Annual Report available on www.fairvest.co.za 17 October 2019 2019 AGM Thursday, 14 November 2019 Release of interim results for the six months ending 31 December 2019 on or about 27 February 2020

Month High Low Volume Value Number of deals

July 2018 220 200 33 262 115 69 771 377 432August 2018 225 208 7 911 288 16 801 999 453September 2018 241 210 24 054 647 55 107 981 217October 2018 244 195 14 003 572 28 863 642 501November 2018 219 195 5 636 261 11 622 025 438December 2018 225 200 6 743 532 14 282 007 282January 2019 220 202 26 240 368 55 968 774 496February 2019 230 208 21 920 088 47 284 335 827March 2019 240 210 4 537 360 9 852 055 222April 2019 230 177 6 942 997 14 434 010 555May 2019 210 193 16 245 363 32 505 532 257June 2019 205 185 2 292 103 4 493 189 201

JSE STATISTICS

Period to 30 June 2019

Traded price (cents per share) Close 198 High 244 Low 177Market capitalisation 2 015 888 373Value of shares traded (R) 360 986 926Value of shares as % of market capitalisation 17.91%Volume of shares traded 169 789 694Volume traded as % of number in issue 16.68%Net asset value per share 229.38Dividend per share 21.773Shares in issue 1 018 125 441Average number of shares in issue 1 004 697 875Number of shareholders 2 415



Country of incorporation Republic of South Africa

Registration number 1998/005011/06

Share code FVT

ISIN ZAE000203808

Nature of business Real Estate Investment Trust

Directors JF du Toit (Chairman)* LW Andrag** DM Wilder BJ Kriel KR Nkuna*** JD Wiese*** N Mkhize*** TJ Cohen*** AJ Marcus**** * Non-Executive. ** Lead Independent Non-Executive. *** Independent Non-Executive. **** Alternate Director to DM Wilder.

Registered office and business address 8th Floor, The Terraces, 34 Bree Street Cape Town, 8001 PostNet Suite 30, Private Bag X3, Roggebaai, 8012 Telephone: 021 276 0800

Company Secretary FluidRock Co Sec Services Proprietary Limited Monument Office Park, Block 5 Suite 20179 Steenbok Avenue, Monument Park Pretoria, 0181

Transfer secretaries Computershare Investor Services Proprietary Limited Rosebank Towers, 15 Biermann Avenue Rosebank, Johannesburg, 2169 PO Box 61051, Marshalltown, 2107

Auditors BDO South Africa Incorporated 6th Floor, 119 – 123 Hertzog Boulevard, Foreshore Cape Town, 8001 PO Box 3883, Cape Town, 8000

Sponsor PSG Capital Proprietary Limited 1st Floor, Ou Kollege Building35 Kerk Street Stellenbosch, 7600 PO Box 7403, Stellenbosch, 7599

Property valuers DDP Valuers Menlyn Square Office Park, North West Suite1st Floor, East Block 134 Aramist Avenue Pretoria, 0181

De Leeuw Valuers Jan de Waalhuis, 93 Bree Street Cape Town, 8001

Jones Lang LaSalle Office 303, 3rd Floor, The Firs Cnr Biermann and Cradock AveRosebank, 2196

CORPORATE INFORMATION

Fairvest Property Holdings Limited Integrated A

nnual Report 2019

www.fairvest.co.za

Documents

EXPERIENCE THE DIFFERENCE - Fairvest