STANLIB Fahari I-REIT

Investor Presentation

2018 FY Presenters:

- SFIR Ag. CEO, Nozipho Makhoba

- SFIR Asset Manager, Ruth Okal

29th March 2019

2

How we are structured…

Retail Office/light industrial Office/light industrial

100% 100% 100%

Office Building

100%

Real Estate

Investments

Cash & Cash

Equivalents

>75% of TAV <25% of TAV

Greenspan Mall Limited

100%

Bay Holdings

Limited 100%

Signature

International Limited 100%

Starling Park

Properties LLP* 100%

Trustee

Co-op Bank SERVICE PROVIDERS

• Property Managers

• Valuers

• Structural Engineers

• Legal Advisors

• Tax Advisor

• Auditor Institutional & Retail Investors

STANLIB Fahari I-REIT

Listed on NSE

KRA CMA

At least 80% of net income

Reporting line

100% Ownership

Appointments

Outsourced activities

Providers of operational services to the REIT for fees

Manages REIT Investments for management fee

Reporting line

NSE

Appointment Reporting line

REIT Manager

STANLIB Kenya

*Greenspan Mall Limited holds 1% of the partnership interests in Starling Park Properties in trust on behalf of STANLIB Fahari I-REIT. No economic benefit flows to Greenspan Mall

Limited as a result of this arrangement

Our Journey

The REIT journey to date

4

2015 • 30th September REIT

CMA license and

business registration

• Income Tax Act

amended to include

REITs exemption

2013

SKL begins conceptualization

of the REIT product

2016

16th August First intereim

reporting

2017 • Maiden 13 months

dividend of Kshs 0.50 per unit and NAV of Kshs 19.81

• Un-audited half year distributable earnings of Kshs 0.43 per unit

2018

2nd Dividend payment April 2018

Kshs 0.75 per unit and NAV of Kshs

20.26

CMA REITs

Regulations

enacted

27th November IPO Listing

• Un-audited

distributable

earnings of Kshs

0.13 per unit

March Inaugural annual report

April - 1st Dividend payment

• Acquisition of new property Kshs 850M

• Commenced construction of Cinema

Strategic Priorities

Growing the

portfolio

Optimising the

existing

portfolio

Resolving the

tax exemption

status

Strengthening

investor

relations

6

Our strategic priorities

4 3 1 2

Socio-economic Environment

Gross Domestic Product

Economic growth slowed to 4.9% in 2017. The subdued growth was as a result of a slowdown in some key sectors of

the economy . Political challenges, slowdown in credit growth and poor weather made it even more challenging.

In 2018, the Kenyan economy is estimated to have grown by between 5.5% - 6%. Favourable weather, reduced

political tensions and stable macro economic environment were supportive.

3.3%

8.4%

6.1%

4.6%

5.7% 5.3% 5.6% 5.9% 4.9%

5.5%

0%

2%

4%

6%

8%

10%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F

Credit Growth….constrained

• Has mainly affected the SMEs, who account for approximately 28.4 percent of GDP.

• Interest cap law enacted in Late 2016 made credit growth worse.

Debt Maturity

Debt maturity profile (KES’ 000 000)

• External debt maturities worth c.KES.230 Billion & KES. 300 Bln expected in 2019 & 2024.

• Debt Maturity (2019) to Reserves ratio is 28%. Ratio likely to increase to c.40% by 2024

(holding all constant).

• Dollar denominated debt will pile pressure on the shilling.

Real Estate Sector Update

Operating Environment

• Continued stagnation attributed to

saturation in certain locations, slow

recovery from the 2017 political

turmoil, uncertain regulatory

environment (interest rate capping

and demolitions) and weak economic

performance.

• These continue to exert downward

pressure on rentals and escalations

Property

• In July the Income Tax Act was

amended enabling home buyers a

15% relief on gross salaries if they

purchase properties under the

affordable housing scheme

• The Housing Levy Fund part of the

Finance Bill 2018 that was passed into

law will have every employee

contribute 1.5% of their monthly gross

salary. However, this was suspended

in December 2018 by the Employer

and Labor Relations Court

Regulatory

Retail

• Knight Frank and JLL, reported that prime retail

rents have stagnated between Kshs 340 – 510

per sq.ft per month attributed to oversupply in

certain locations making it a tenant’s market

• Occupancy levels for established malls stood at

90% whereas new retail centers average 40% -

75%. Broll reported an overall vacancy of 20%

across board

• Notable developments completed within the

year: The Waterfront, Karen & Signature Mall,

Mlolongo

Operating Environment – Property Space

Office

• Prime asking rents were flat at Kshs 116 – 152

per sq.ft per month but nodes such as Upperhill

averaged Kshs 80 – 100 due to oversupply

• Despite the oversupply, developers` confidence

remains high with over 2.4 million sq.ft anticipated

to be completed by 2022 according to JLL

• Notable developments completed within the year:

• One Africa Place, Westlands

• Kings Prism, Valley Road

13

Residential

• In 2018 rents increased by 8.6% compared to -

3.9% in 2017 revealing a marked and general

recovery in the residential property sector

according to Hass Consult.

• Apartments were the key driver registering a

15.9% growth after lack-luster performance

over the prior 10 years driven by intensive

building in Nairobi and its environs.

• The slower pace in apartment building

construction and development generally has

allowed demand to catch up with available

space, lifting occupancy and therefore rents.

Industrial

• Demand for decentralised high quality industrial

space remained strong in 2018 with more investors

taking interest in this niche market.

Africa Logistics Properties signed on a tenant on a 10-

year lease for 14,000 m² – the single largest letting

ever seen in industrial sector

Improvon Group and Actis announced the launch of a

53,820 square feet warehousing development at a

cost of Kshs 11 billion. Termed Nairobi Gate Industrial

Park located on the Eastern Bypass will sit on 103

acres with phase 1 stated for completion by the first

half of 2019.

Operating Environment – continued

14

Current Portfolio

Location Map

16

Property Photos – Greenspan Mall

17

Property Photos – 67 Gitanga Place, BHL & SIL

18

Portfolio at a Glance

19

Property Greenspan Mall 67 Gitanga Bay Holdings Signature International

Sector Retail Office Office/Light Industrial Office/Light Industrial

Market Value 2 276 000 000 857 000 000 232 700 000 40 000 000

Gross Lettable Area Sq.Ft 155 477 41 312 33 265 7 638

Value per Sq.Ft 14 638 20 740 6 995 5 236

GLA as % of Total Portfolio 65% 18% 14% 3%

Average In-Force Escalations 5.17% 7.50% 6.25% N/A

Weighted Average Remaining

Lease Period 4 4.17 5.75 N/A

Sectoral Split

20

Sectoral Split by Market Value

67%

30%

3%

Retail Office Industrial

66%

28%

6%

Retail Office Industrial

Sector Split by GLA

Tenancy Mix

21

0.17%

12.35%

2.93% 3.78%

11.84%

5.63%

31.29%

1.68% 2.70%

5.21%

22.42%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

Lease Expiry Profile

22

Vacant 2019 2020 2021 2022 2023 2024 2025+

Sq.Ft 20,515 9,907 12,739 1,726 5,770 86,637 11,531 6,652

% 12% 4% 5% 1% 2% 54% 19% 3%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

0%

10%

20%

30%

40%

50%

60%

Axis

Tit

le

Well diversified expiry profile with spike in 2023 relating to Greenspan anchor tenant

and 67 Gitanga Place tenancies.

Vacancies

23

Property GLA Vacancy

% ( 2018)

Vacancy %

(2017)

Target Limit

%

Greenspan Mall 155,477 12.9 9.1 5

Bay Holdings 33 265 - - -

Signature

International

7 638 100 - -

67 Gitanga 41 312 - N/A -

Total/ weighted

average

237 6992 11.7 6.7 5

Existing Portfolio Optimization

24

Portfolio Optimization Initiatives

25

Managed Vacancies at 11.7% is within market average of circa 22% across all retail

sectors ( Broll Report : Sept 2018). Increase in vacancies (mainly attributable to

GML at 9.1% as at end 2017 and 12.7% as at end of 2018) was as a result of

strategic clean up of delinquent tenants and repositioning of the tenant mix

Strong Average Renewal Rates – Approximately 32,000 Sq Ft (21% of GLA) at

Greenspan was renewed in late 2017 through to 2018 including Aga Khan, Bata,

Multichoice, Simbisa (Formerly Innscor Limited)

Enhanced Tenant Mix – Crimson Media Letting introducing entertainment to the

portfolio to augment the main anchor

Focus – Tenant retention and letting of vacant space

• In 2018, developed a 300 pax 3-D; three screen multi-functional cinema. Expected launch

is May 2019. This initiative is expected to:

• Defend the portfolio from increasing competition from new developments.

• Complement other tenancies by drawings footfall, extending dwelling time in the mall,

cross-selling and improving customer loyalty

• Enhance entertainment offering in the mall

• Enhance overall mall yield and hence portfolio return

• Extensions and redevelopments are only undertaken if substantially pre-let and meet

acceptable yields to cushion unitholder value

• Space rationalization – Conversions, expansions and reductions and re-allocation of units

• Physical maintenance and capital preservation initiatives

Portfolio Optimization Initiatives Cont..

26

Video

Cinema Video

27

Financial Performance

28

Distribution flat at KShs 0.75 per unit

13% growth in earnings

Fund management cost

reduction

Property expense ratio

at

35%

NAV

20.58 per unit

Highlights

Key highlights

30

Distribution flat at KShs 0.75

per unit

13%

Net profit

43%

Interest income

Property expenses

9%

14%

Distributable earnings

Fund Mngt

expenses

4%

11%

Rental and related income

2018 2017 %

Details KShs KShs Change

Net profit for the year 193,491,759 171,126,409 13%

Rental and related income 309,763,210 279,433,136 11%

Interest income 56,433,877 99,852,345 -43%

Fund operating expenses 130,221,511 135,632,948 -4%

Property expenses 108,850,390 99,852,345 9%

Distributable earnings 127,885,294 149,113,640 -14%

Market value of property portfolio 3,405,700,000 2,460,000,000 38%

Net asset value per unit 20.58 20.26 2%

Distribution per unit 0.75 0.75 0%

Property expense analysis

31

Property expenses analysis 2018 2017 %

KShs KShs Change

Utilities (electricity and water) recovered from tenants 21,744,448 23,401,436 -7%

Marketing expenses recovered from tenants 3,548,660 2,291,613 55%

Other operating expenses recovered from tenants 48,420,141 44,676,721 8%

Total recoveries 73,713,249 70,369,770 5%

Landlord operating expenses 35,137,141 25,922,845 36%

Total property expenses 108,850,390 96,292,615 13%

Property expense ratio 35% 34%

Landlord property expense ratio 15% 12%

Property income return

\ 32

6.8% 7.5%

2.0% 0.9%

2018 2017

Re

turn

%

Income return Capital return

8.8%

Total return

8.6% 8.5%

11.1% 10.3%

2018 2017

Retu

rn %

Fixed and call deposit interest return Treasury bills income return

Interest income

\ 33

8.8% 8.5%

2018 2017

Retu

rn %

Total portfolio return

\ 34

0.83 0.81 0.89

11.39

4

17.67

0.8 0.80

Current 30 days 60 days 90 days 120 days + Total

KS

hs

(m

illi

on

s)

GML BHL SIL SPP

Debtors age analysis

\ 35

BHL arrears were only 0.047 million whereas SPP had no

outstanding rent arrears as at 31 December 2018

Net asset value prior and post distribution of 2018 earnings

36

As at 31 December (KShs) 2018 2017

Net asset value prior to distribution 3 723 943 826 3 666 181 292

Net asset value post distribution 3 588 214 601 3 530 452,067

Net asset value per unit prior to distribution 20.58 20.26

Net asset value per unit post distribution 19.83 19.51

Yield based on the value of the unit as at 31 December 2018 6.85% 7.00%

Net Asset Value Prior and Post Distribution of 2018 earnings

Portfolio asset mix

37

Portfolio asset mix KShs (m) 2018 2017 Average

Cash and investment securities 387 1 217 802

Investment properties 3 406 2 460 2 933

Total 3 793 3 677 3 735

Thank you

Appendices

Consolidated statement of comprehensive income

2018

KShs

2017

KShs

Revenue 332,249,472 270 689 177

Rental and related income 309,763,210 279 433 136

Straight-lining of lease income 22,486,262 (8 743 959)

Other income 57,193,985 101 606 066

Interest income 56,433,877 99 852 345

Sundry income 760,108 1 753 722

Operating expenses (239,071,901) (231 925 562)

Property expenses (108,850,390) (96 292 614)

Fund operating expenses (130,221,511) (135 632 948)

Fair value of investment property 43,120,203 30 756 728

Fair value adjustment to investment property 65,606,465 22 012 769

Straight-lining of lease income (22,486,262) 8 743 959

Net profit for the year 193,491,759 171 126 409

Other comprehensive income - -

Total comprehensive income attributable to unitholders for the year 193,491,759 171 126 409

40

Consolidated statement of financial position

41

2018 2017

ASSETS KShs KShs

Non-current assets

Investment properties 3,365,700,000 2,460,000,000

Fair value of investment property for accounting purposes 3,262,953,647 2,379,739,909

Straight-line lease adjustment 102,746,353 80,260,091

Property and equipment 5,140,466 4,138,729

3,370,840,466 2,464,138,729

Current assets

Investment securities 83,809,515 529,000,000

Trade and other receivables 55,148,773 80,298,715

Cash and cash equivalents 302,822,720 688,190,218

441,781,008 1,297,488,934

Asset held for sale 40,000,000 -

481,781,008 1,297,488,934

Total assets 3,812,621,474 3,761,627,663

EQUITY & LIABILITIES

Capital and reserves

Trust capital 3,479,540,745 3,479,540,745

Revaluation reserve 95,619,234 30,012,769

Retained earnings 148,783,847 156,627,778

3,723,943,826 3,666,181,292

Current liabilities

Trade and other payables 128,677,648 95,446,371

Total equity & liabilities 3,852,621,474 3,761,627,663

Consolidated statement of cashflow

42

2018 2017

KShs KShs

Cash flows from operating activities

Cash generated from operations 129,843,795 142,476,116

Subsidiary taxation paid - (5,034,901)

Distribution paid (135,729,225) (90,486,150)

Net cash (outflow)/inflow from operating activities (5,885,430) 46,955,065

Cash flows from investing activities

Acquisition of Limited Liability Partnership net of cash acquired (792,989,940) -

Additions to investment property (30,093,535) (2,987,231)

Additions to property and equipment (1,589,078) -

Decrease in investment securities 445,190,485 204,035,734

Net cash (outflow)/inflow from investing activities (379,482,068) 201,048,503

Net movement in cash and cash equivalents (385,367,498) 248,003,568

Cash and cash equivalents at beginning of year 688,190,218 440,186,650

Cash and cash equivalents at end of year 302,822,720 688,190,218