Moneyweb Seminar

Hyatt Regency Oubaai, George

5 October 2011

Erwin Rode

www.rode.co.za

World prospects

1. Financial crisis has resumed

2. And: USA and European growth

prospects must be poor for many

years — think 10 years

ANYTHING THAT CAN’T GO ON FOREVER WILL END

- Herb Stein

Medium-term prospects for SA economy

1. Lower growth in the wake of low world

growth and infrastructure constraint in SA

2. But, China factor

3. Taxes and tariffs set to rise to catch up

with backlogs

4. Thus, disposable income under some pressure

60

80

100

120

140

160

180

65 70 75 80 85 90 95 00 05 10 15

House prices

Office renta ls

Fo

re

ca

st

Real property cycle

Johannesburg office rents vs national house prices

Deflated by BER BCI

Index (

19

90

=1

00

)

(lo

g s

cale

)

Source: Absa; BER; Rode forecasts

0

20

40

60

80

100

120

140

160

180

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

Index (2000=

100)

Source of data: Irrational Exuberance, Robert Shiller

Real U.S. home values

Compound growth rate of trendline: 0,6% p.a

0

50

100

150

200

250

300

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Index (2000=

100)

Source of data: Absa; Stats S.A

Real S.A. home values

Compound growth rate of trendline: 0,4% p.a

-5

0

5

10

15

20

07:01 07:07 08:01 08:07 09:01 09:07 10:01 10:07 11:01 11:07

Growth in S.A. house prices

Gro

wth

(%

,y-o

-y)

Source of data: Absa

+5%

90

100

110

120

130

140

150

160

2005 2006 2007 2008 2009 2010 2011

George

Cape Town tota l

Flat rentalsGeorge vs Cape Town total

Smoothed

Index (

20

05

q1

=1

00

)

Log s

cale

Source of data: Rode's database

+4%

+4%

80

100

120

140

160

180

200

220

240

75 80 85 90 95 00 05 10 15

Real house prices

Real flat rentals

Real house prices vs real flat rentals

(Deflated by Haylett)In

dex (

1990=

100)

(log s

acle

)

Source of data: Rode; Absa; Stats SA

40

50

60

70

80

90

70 75 80 85 90 95 00 05 10

Perc

enta

ge (

%)

Ratio of household debt

to disposable income

78%

Source of data: SARB

-10

-5

0

5

10

15

04 05 06 07 08 09 10 11

Growth in

real retail sales

Source of data: Stats SA

Gro

wth

(%

; y

-o-y)

Smoothed

2%

0

2

4

6

8

10

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

RegionalNeighbourhood

9%

3%

Shopping-centre

vacancy rates

Vacancy rate

(%

)

Source of data: I.P.D. Annual Digest

0

4

8

12

16

20

00 01 02 03 04 05 06 07 08 09 10 11

Cape Town dec.

Cape Town CBD

Office vacancies

Cape Town CBD vs Cape Town decentralized

(Grade A and B combined)V

acancy r

ate

(%

)

Source: SAPOA

10%

7%

20

40

60

80

100

94 96 98 00 02 04 06 08 10

Cape Town CBD (+5%)

Cape Town dec. (+3%)

Nominal grade-A office rentals

Cape Town CBD vs Cape Town decentralizedR

/m² (

log s

cale

)

Source of data: Rode's Time Series

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

00 01 02 03 04 05 06 07 08 09 10 11

Central WitwatersrandCape Peninsula

Industrial vacancies

Central Witwatersrand vs Cape Peninsula

2.1 (4%)

3.2 (7%)

Vacan

cy s

cale

( 0

- 9

)

Source of data: Rode's Time Series

Smoothed

10

20

30

40

90 92 94 96 98 00 02 04 06 08 10

Cape Peninsula (+8%)Central Witwatersrand (+2%)

Nominal prime industrial rentals (500m² units)

Cape Peninsula vs Central WitsR/m

² (l

og s

cale

)

Source of data: Rode's Time Series

Smoothed

7

8

9

10

11

12

13

14

90 92 94 96 98 00 02 04 06 08 10

Regional shopping centres

Industrial leasebacks

Decentralized offices

National capitalization rates

by property type

Source of data: Rode's Time Series

%

Smoothed

4

6

8

10

12

14

16

18

20

00 01 02 03 04 05 06 07 08 09 10 11

BondsPLSs

Long-bond yields

vs

PLS yieldsYie

lds

(%

)

Source of data: Rode's Time Series; Bond Exchange of SA

r² = 0,68

1. The American locomotive has run out of steam

2. Expect below-average economic growth in SA for many years to come

3. Residential property is still overpriced

4. Shopping-centre cash flows will remain under pressure, especially the smaller ones

5. Nationally, quality non-residential properties are moderately oversupplied but not overpriced

6. Taking a 3-year view, listed funds’ distributions will decelerate to … say, 4% p.a. and a negative rerating may take place in tandem with long bonds

Rode’s products

1. Valuations

2. Rode’s Growth Points (annually)

3. Rode’s Sales (monthly)

4. Rode’s Report (quarterly)

5. Rode’s SA Property Trends (semi-annually)

6. Rode’s Retail Report (quarterly)

7. Ad hoc consultancy