1. Nature of business

Pivotal is an internally managed property investment and development company with an A-grade portfolio of completed income producing properties and developments (comprising the current developments and the future developments, as defined).  Pivotal focuses on creating sustainable value for investors by achieving above average growth in the capital value of its portfolio.

The portfolio of income producing properties is currently valued at approximately R7.8 billion.  The income generated from the income producing properties is re-invested into value-enhancing property upgrades, acquisitions and developments.

The developments currently comprise approximately R715 million worth of properties that are either in, or held for, development.  It is estimated that, when complete, the value of the developments will be approximately R5.7 billion.  Of this, approximately R470 million with an estimated value on completion of R2.4 billion is currently in development and R243 million, with an estimated value on completion of R3.3 billion represents future developments.

In addition, Pivotal has a “secured pipeline” of developments.  The secured pipeline comprises properties (or undivided shares in properties) acquired by Pivotal for development with a component of deferred consideration that is calculated with reference to the value of the developed property after the development is complete.  This mechanism allows the development partners to share in development risk and reward in relation to a particular development.

2. Prospects

Pivotal has achieved growth in net asset value per share, excluding deferred tax, of 45% for the year ended 28 February 2014 with average annual growth in net asset value per share, excluding deferred tax, since 2009 of 24%.  The table below sets out the net asset value per share and the growth in net asset value per share for the years ending 28 February 2010 to 28 February 2014.

Year 2010 2011 2012 2013 2014
Net asset value per share (R) 6.28 7.44 8.56 10.14 14.69
Growth in net asset value per share (%) 25.60 18.50 15.10 24.80 45.00

Pivotal has an A-grade portfolio with low levels of arrears, low vacancy levels and high tenant retention that is considered by the board to be highly robust.  Although the property sector remains in a slow growth phase, the developments represent significant potential for value growth.

The company’s strategic partnerships and joint ventures with Abland and other developers should ensure a continued pipeline of high quality, value adding development opportunities that meet the company’s investment criteria.  The improved access to capital resulting from the listing should enhance Pivotal’s ability to pursue these opportunities when they arise and continue to generate growth for investors.

As part of its investment strategy, Pivotal intends to incorporate a significant African component into its portfolio over the next 5 years, through the establishment of a dedicated African fund in partnership with Abland, Standard Bank and Mara Africa.  The partners are already working on a pipeline of assets in various countries, including a proposed shareholding in a Mauritian Real Estate investment vehicle (“Newco”) to be managed by the Standard Bank Group.  It is proposed that Newco will hold a significant stake in the Wings Office Complex development in Lagos, Nigeria, in respect of which a conditional MOU has been concluded, and is subject to the necessary approvals required to facilitate the acquisition of this asset.  Pivotal’s current policy is to limit its African exposure to 15% of total net assets and any investment will be subject to the necessary Exchange Control approvals.

In the circumstances the board is of the view that Pivotal is well positioned to continue to achieve strong, above-average growth going forward.

The day-to-day property management and administration has been outsourced to Abreal Proprietary Limited.