Burstone Group Limited · JSE:BTN
Burstone — Investec Property Fund — FY2023 Earnings Presentation
77 slides from Burstone's earnings presentation, May 18, 2023
Slide 1: Investec Property Fund Results for the Year Ended 31 March 2023
Investec Property Fund RESULTS FOR THE YEAR ENDED 31 MARCH 2023 May 2023 1
Slide 2: IPF at a glance
IPF at a glance Purpose and mission How do we What is our What is our Where do we create mission? purpose? operate? value? • To be distinctive in our • To unlock the potential of • Speed, agility, passion for • In markets where we have chosen markets and sectors space clients people on-the-ground wi
Slide 3: Year in review
01 Year in review
Slide 4: Strategic repositioning supported by strong underlying operational performance
Strategic repositioning of the business supported by strong underlying operational performance ► Completion of significant strategic transactions – long-term, value accretive and sets a clear path for growth ► Shareholder approval received for management company internalisation ► Strong operational
Slide 5: An international real estate owner and manager
An international real estate owner and manager Total investments: • R37bn GAV under management – 10% third- party capital €1.1bn GAV • A$450m funds under management – 94% third- party capital R23bn 56% EUROPE (83.15% IPF ownership) A$450m equity R15bnGAV under management 43% SOUTH AFRICA 1% AUSTRALI
Slide 6: Financial review
2 0 F l review InanCcla
Slide 7: Distributable earnings bridge
Distributable earnings bridge Earnings compression as a result of higher interest costs in PEL and absence of rental guarantee Rm Strong operational performance in both regions +7.4% (2.8%) R866m YoY (30.3%) R842m Lower fund +5.3% YoY expenses YoY Disciplined cost management 4.3% PEL income R97m dow
Slide 8: Net asset value bridge
Net asset value bridge NAV decline reflects write down in PEL portfolio Rm (4.7%) 13,652 13,014 Acquisitions Disposals Revaluations 1. Debt raised to fund acquisitions 2. Net impact of ZAR depreciation on PEL investment and EUR debt 8
Slide 9: Balance sheet and treasury review
03 Balance sheet and treasury review
Slide 10: Balance sheet remains sound supported by pro-active capital and interest rate management
Balance sheet remains sound supported by pro-active capital and interest rate management ► Implementation of strategic initiatives resulted in increased LTV (Mar-23: 42.0%*) ‒ Defined plan to reduce to <40% in short-term ► Acquisition activity has been supported by disciplined capital recycling to m
Slide 11: Capital allocation
Capital allocation Acquisition activity supported by disciplined capital recycling to manage gearing FY23 Pipeline Net position Acquisitions completed Acquisitions Acquisitions • R0.4bn ITAP investment R2.1bn • R1.7bn acquisition of 19% interest in PEL R0.9bn • R0.85bn manco internalisation1 R3.0bn
Slide 12: Indicative plan to maintaining a healthy LTV
Indicative plan to maintaining a healthy LTV Completed Still to come 42% 39.9% 38.3% Additional levers 1. Introduce a strategic partner into PEL 2. EU asset sales 3. Introduce FM strategy into SA and EU, utilising existing portfolio to seed opportunities Target LTV of 35% in the medium term Notes 1.
Slide 13: Adequate liquidity to manage refinancing risk
Adequate liquidity to manage refinancing risk R0.9bn R6.5bn debt raised or refinanced in FY23 DMTN R1.6bn EUR bonds • Diversified sources of funding – banks and DCM bank debt (14%) (25%) - Proven access to liquidity in FY23 • Supportive lenders – liquidity through new and existing relationships R1.2
Slide 14: Group debt and swap profile
Group debt and swap profile Extended maturity profile with low near-term financing risk • Sufficient liquidity to address FY24 expiries Debt metrics • Staggered swap maturity profile • Active treasury management to manage ZAR: R4.7bn ZAR: 9.0% 3.3 swap roll off and extend hedge profile EUR: R5.8bn 4
Slide 15: PEL debt and swap profile
PEL debt and swap profile Exploring early refinancing opportunities with 2.5 years remaining • Active strategy to diversify expiry of funding Debt metrics • Strong relationships with existing lenders • Continue to improve debt yield covenant headroom 53.4% 3.7% 2.5 years Debt maturity LTV Cost of de
Slide 16: Strategic review
04 Strategic review
Slide 17: Strategic actions that position IPF for growth
Strategic actions that position IPF for growth Backing best-in-class management teams in attractive regions and sectors 1 Internalisation of management companies ✓ Alignment of management with shareholders ✓ Increased operating leverage ✓ Earnings ✓ Financially compelling, immediately earnings ✓ Div
Slide 18: An international real estate investor, asset and funds manager
An international real estate investor, asset and funds manager Fully internalised, more diversified portfolio with a footprint for greater expansion and scale1 South Africa Europe Australia ▪ Primarily direct investments ▪ Direct investments ▪ Funds management business ▪ Managed and development asse
Slide 19: Strategic and operational review – South Africa
05 Strategic and operational review – South Africa
Slide 20: SA snapshot
79 properties 1,001,700m2 SA snapshot Management expertise drives stable operational performance in a challenging environment • Stable portfolio with strong LFL NPI growth Financial performance Letting performance • +5.3% LFL NPI (Mar-22: 9.6%) • 90% of space expiring let - • Improved vacancy and so
Slide 21: Industrial portfolio
475,500m2 R3.3bn Industrial portfolio Strong rebound in demand evidenced by letting activity and reduction in average vacancy Financial and operational metrics Sector trends Gross income growth Arrears (% of • Positive supply-demand dynamics (Mar-22: +10.5%) 4.6% collectibles) 0.9% (Mar-22: 1.4%) •
Slide 22: Retail portfolio
282,700m2 R5.9bn Retail portfolio Continued improvement in trading metrics and growth momentum maintained Financial and operational metrics Trading stats* Sector trends Gross income Arrears (% of Average turnover +8.5% • Trading activity has growth 7.5% collectibles) 3.8% (Mar-22: +10.6%) (Mar-22: +
Slide 23: Office portfolio
243,500m2 R5.4bn Office portfolio One of the lowest office vacancy in listed sector Financial and operational metrics Sector trends Arrears (% of • Loadshedding driving return to office Gross income growth 2.9% 3.5% (Mar-22: +1.3%) collectibles) • Oversupply still resulting in negative reversions (M
Slide 24: Impact of loadshedding
Impact of loadshedding Cost of energy • 10% increase in cost of electricity • Nersa increase of 18.65% • Clients benefited from IPF level ESG rollouts i.e. LED lighting, tariff optimisation etc. • Total diesel spend of R37m, of which 90% is recovered from clients, has resulted in +25% increase in en
Slide 25: SA property valuations – net increase due to capex spend
SA property valuations – net increase due to capex spend 0.9% decline in LFL valuation Rm R130m (0.9%) write down driven by office R14.6bn R14.4bn +2.2% +0.36% +0.35% (1.6%) enhancement from capex spend Stable valuation reflecting: • Improved trading conditions and healthy portfolio metrics • Averag
Slide 26: SA projects: The Firs case study
SA projects: The Firs case study Background and observations Project spend: R31m • Rosebank was undergoing transformation Results: • Consumer dynamics and pedestrian routes were shifting • Restaurants trading well – c.50% yoy increase in turnover • Retail and restaurant offering no longer relevant t
Slide 27: SA projects: Design Quarter case study
SA projects: Design Quarter case study Background and observations Project spend: R144m • Niche décor mall with limited convenience Results: and restaurant offering and notable office component • Improved vacancy at DQ and precinct • Limited response to increased competition • Office fully let and s
Slide 28: SA strategic priorities
SA strategic priorities • Over the last 5 years – IPF has recycled capital to support offshore expansion • Opportunities do exist locally, but given macroeconomic factors, return requirements have increased Current focus is on: • Extracting incremental value from existing assets • Continued asset di
Slide 29: SA outlook
SA outlook Stable and mature portfolio with low growth expectations • Portfolio is stable and defensive • Growth constrained by: ‒ Global volatility and muted macroeconomic backdrop ‒ Domestic energy crisis and industry challenges • Continue to perform with low NPI growth expectations • Retail: ‒ St
Slide 30: Strategic and operational review – Pan-European Logistics (PEL) portfolio
06 Strategic and operational review– Pan-European Logistics (PEL) portfolio
Slide 31: European exposure
European exposure 77% in core markets of France, Germany and Benelux Investment fundamentals 1 FRANCE 23% contracted rent Best-in-class with strong c.77% contracted rent underlying asset fundamentals, logistics and warehousing platform 2 BELGUIM 8% contracted rent 3 High-quality, modern properties,
Slide 32: PEL snapshot
47 properties 1,124,649m2 PEL snapshot Strong growth in contracted rent offset by adverse interest rate environment • Portfolio delivered strong rental growth driven by ability to capture positive ERV growth Financial performance Letting performance • Further reduction in vacancy • 7.4% LFL NPI grow
Slide 33: PEL income statement
PEL income statement Quality of earnings enhanced through strong contracted rent growth and cost rationalisation 12 months 12 months ended ended €m 31-Mar-23 31-Mar-22 % Change Strong LFL NPI Gross income 54.0 50.4 7.1% growth +7.4% Net expense (4.5) (4.4) (3.3%) ERV unlock, indexation and Net pro
Slide 34: PEL property valuations – 5% decline to €1.1bn
PEL property valuations – 5% decline to €1.1bn (5.1% gross yield) Cushioned by 8.5% increase in contracted rent and NOI1 European prime logistics yield vs. PEL portfolio €1,158m €1,099m 5.5% 5.0% 4.5% 4.0% Net impact: -€59m (5%) write down 3.5% 3.0% 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22
Slide 35: Interest rate impact to be mitigated by revenue growth and cost initiatives
Interest rate impact to be mitigated by revenue growth and cost initiatives Impact €m 1 Net property income ▪ Anticipate ERV unlock of +10% over time Contracted rent 2 Interest expense ▪ Interest rate impact largely mitigated on PEL debt (€588m) for next 24-30 months Corporate costs 3 Corporate cost
Slide 36: Underlying real estate fundamentals remain strong
Underlying real estate fundamentals remain strong • Inflationary pressures, labour shortages and interest rate increases PEL portfolio continues to capture ERV growth are weighing on general business sentiment • Slowdown in activity, but expect easing in inflation YoY growth: +6.6% +6.9% +8.5% CAGR
Slide 37: PEL strategic priorities
PEL strategic priorities Current focus is on: • Capital recycling / asset disposal pipeline • Investment opportunities – capitalize on pricing dislocation • Funds management – new strategies • Efficient refinancing and capex funding • Near-term development pipeline – 63,000m2 • Introduction of strat
Slide 38: PEL outlook
PEL outlook Growth driven by capturing ERV and enhancing quality of earnings • Asset and income base in solid position with strong operating metrics • Strong NPI generation supported by structural fundamentals • Quality of earnings enhanced through cost savings initiatives • Interest rates are an ex
Slide 39: Irongate funds management acquisition
07 Irongate funds management acquisition
Slide 40: Investment rationale recap
Investment rationale recap Sound macro Management Attractive Unlocks De-risked investment broader FM and property team with entry point opportunity strategy fundamentals track record • Low entry price with • AU market benefiting • Aligned with co- • Profitable FM • Further roll out of ability to cre
Slide 41: ESG
08 ESG
Slide 42: Integrating ESG – South Africa
Integrating ESG – South Africa Driving down cost of occupation FY23 target Achievement • 2.0MWp additional solar PV • 3.3MWp additional solar ✓ Solar • Capacity of 14.8MWp by year end Energy Performance Certificates • 27 buildings • 27 buildings ✓ Climate and Carbon Disclosure Project • B-rating • M
Slide 43: Delivering ESG – Europe
Delivering ESG – Europe Continue to assess initiatives to further embed ESG into business practices Strategy Description Solar • PV installations currently operational on 4 properties – Logistics Court Schiphol, Hoppegarten, Opglabeek, Marseille • Assessing strategy to roll-out in phases: ‒ Phase 1
Slide 44: Funds management
09 Funds management
Slide 45: Funds management operating model
Funds management operating model Unlocks significant growth prospects for IPF Benefits of funds management strategy: IPF is operating partner / fund 1. Enables reduction in LTV manager 2. Access to capital 3. Diversification of investment base IPF existing Use existing asset base to seed new portfol
Slide 46: Looking ahead
10 Looking ahead
Slide 47: Looking ahead
Looking ahead Underlying portfolios continue to perform but growth impacted by higher interest rate environment Uncertainty in external environment • Higher interest rate and inflation to persist • Low SA growth exacerbated by energy crisis Solid foundation in SA with low growth expectations • Stabl
Slide 48: We are a dynamic and attractive international property company
We are a dynamic and attractive international property company… Fully Aligned Internal Management Function Strong and established track record with ability to deliver growth and value enhancing opportunities Geographically and Sectorally Diversified Portfolio 56:44 Europe, South Africa split across
Slide 49: With a clear strategic focus
…With a clear strategic focus Management company Optimise current Growth Maintain a robust internalisation portfolios balance sheet • Finalise process • Maintain stability • EU development • Clear path to • Full alignment of • Client retention pipeline reducing LTV management team • Enhance quality
Slide 50: Annexures
oS Investec Property Fund ro) s 3 ro) ANNEXURES
Slide 51: Business snapshot
Business snapshot As at 31 March 2023 IFRS balance sheet construct Pan-European South African direct logistics property (indirect) Australia 1% No. of properties 79 47 - 35% 50 / 50 JV and 18.67% in Ownership interest 100% 83.15% ITAP A$450m equity under Asset value (local currency) R14.6bn €1.1bn 6
Slide 52: Financial review
OUT OF THE ORDINARY Financial review Out of the Ordinary® & Investec Property Fund Limited
Slide 53: Distributable earnings statement
Distributable earnings statement 2.8% decrease in DIPS driven by volatility in interest rates in Europe 12 months 12 months ended ended Strong operational Rm 31-Mar-23 31-Mar-22 % change performances in both SA total NPI 1,159 1,146 1.1% regions Investment income PEL 208 305 (31.5%) Lower fund PELI
Slide 54: Summarised balance sheet
Summarised balance sheet As at As at Rm 31-Mar-23 31-Mar-22 % change Property related investments SA valuations Stable business and South Africa Europe - PEL 14,885 8,200 15,167 5,923 (2%) 38% improved metrics (0.9%) Europe - PEL bridge and shareholder loan 31 1,082 (97%) Australia 336 - 100% Total
Slide 55: SA REIT BPR ratios
OUT OF THE ORDINARY SA REIT BPR ratios Out of the Ordinary® & Investec Property Fund Limited
Slide 56: SA REIT BPR ratios
SA REIT BPR ratios IPF Notes Rm Note SA REIT BPR methodology 1. Capitalised interest on loans to Izandla not adjusted for in SA FFO per share (cps) 1 43.26 43.26 REIT BPR ratio – IPF does not distribute interest that is not serviced by Izandla NAV per share (cps) 2 1,568 1,617 2. SA REIT NAV per sha
Slide 57: South African property portfolio
South African property portfolio
Slide 58: SA snapshot
SA snapshot Sustained growth and strong letting in a subdued macroeconomic climate driven by skilled management team 12 months 12 months ended ended 1. Strong income growth driven by a lower Rm Notes 31-Mar-23 31-Mar-22 % Change average year-on-year vacancy Gross income 1 1 344 1 283 4.8% 2. Expense
Slide 59: Office
Office Stable portfolio delivered positive growth in a subdued environment 12 Months 12 Months Key portfolio metrics ended ended Mar 2023 Mar 2022 31-Mar-23 31-Mar-22 % Change No. of properties 30 30 1 Gross income 570 554 2.9% GLA (m²) 243,500 245,563 2 Net expense (154) (150) (2.9%) Vacancy3 7.4%
Slide 60: Industrial
Industrial Vacancy reduced and good growth momentum maintained Key portfolio metrics 12 Months 12 Months Mar 2023 Mar 2022 ended ended 31-Mar-23 31-Mar-22 % Change No. of properties 30 31 1 Gross income 343 328 4.6% GLA (m²) 475,500 476,770 2 Net expense (69) (77) 10.3% Vacancy3 1.9% 1.6% Base net p
Slide 61: Retail
Retail Strong recovery supported by stable vacancy and improved trading 12 Months 12 Months Key portfolio metrics Mar 2023 Mar 2022 ended ended 31-Mar-23 31-Mar-22 % Change No. of properties3 19 25 1 Gross income 431 401 7.5% GLA (m²) 282,700 343,160 Net expense2 (87) (74) (16.8%) Vacancy 4.5% 4.6%
Slide 62: Retail trading performance
Retail Trading performance 8.5% Average like-for-like turnover 7.1% 5.3% 5.8% 3.7% • Strong growth in client turnover has persisted 2.5% through the year delivering an average year-on- 1.2% 0.5% year growth of 8.5% in Mar-23 • Average year-on-year footcount up by 4.7% (0.8%) (3.1%) (3.3%) (2.6%) • C
Slide 63: Letting activity
Letting activity Strong letting performance across all sectors resulted in 90% of FY23 expired space re-let Weighted Weighted Expiries & average average cancellation Renewals gross gross Rental Average Incentive s & new lets expiry rental new rental reversion escalation WALE (% lease Retention GLA (
Slide 64: SA portfolio composition
SA portfolio composition Sectorial spread by NPI Sectorial spread by GLA Sectorial spread by asset value 25% 24% 23% 29% 36% 40% 39% 37% 47% Retail Office Industrial Retail Industrial Office Retail Office Industrial Industrial Office Retail 2% 5%2% 9% 9% High tech industrial 37% Shopping centres 19%
Slide 65: SA lease expiry profile (by revenue)
SA lease expiry profile (by revenue) 28.9% 23.7% 23.5% 13.2% 12.2% 11.8% 10.5% 9.1% 8.6% 8.3% 6.9% 6.6% 6.7% PvJ please insert 6.2% 6.7% 5.5% 4.4% 4.3% 2.2% 0.5% FY24 FY25 FY26 FY27 FY28+ Retail Industrial Office Total 65
Slide 66: SA top 10 clients
SA top 10 clients Based on gross revenue and as % of total portfolio Retail % Office % Industrial % Shoprite Checkers 3.8% Investec Bank 3.8% T3 Plastic Packaging 1.9% Foschini Retail Group 2.5% Woolworths 2.8% RTT Group 1.7% Mr Price Group 2.0% Clidet No 887 2.3% Sumitomo Rubber South Africa 1.4% B
Slide 67: PEL property portfolio
OUT OF THE ORDINARY PEL property portfolio Out of the Ordinary® & Investec Property Fund Limited
Slide 68: PEL summarised balance sheet
PEL summarised balance sheet €m 31-Mar-23 31-Mar-22 % Change Investment property 1,099 1,158 (5%) Asset valuations Derivative financial instruments 28 10 182% Cap rate expansion offset by NPI Trade and other receivables 16 25 (36%) growth (5%) Cash 15 15 (1%) Total assets 1,158 1,208 (4%) Interest
Slide 69: Pan-European logistics portfolio
Pan-European logistics portfolio Strong letting activity with nearly all space expiring re-let at 8.6% positive reversion Expiries & Renewals & Gross expiry Gross new Rental cancellations new lets rental rental reversion WALE Incentive Retention Full year GLA GLA €/m2 €/m2 % Years % lease value % Ge
Slide 70: PEL lease expiry to break (by revenue)
PEL lease expiry to break (by revenue) Extended lease expiry profile with 75% of leases expiring beyond 5 years 75% 11% 8% 6% FY24 FY25 FY26 FY27+ 70
Slide 71: PEL top 10 clients
PEL top 10 clients Based on gross revenue and as % of total portfolio Client name % Rhenus 8.5 CHI Deutschland 4.3 Geodis Logistics 3.8 Empik 3.6 Tiesse S.p.a 3.4 H. Essers Logistics 2.9 AF Logistik 2.8 Procter & Gamble 2.6 Neele-Vat Maasvlakte 2.6 ET Global 2.3 71
Slide 72: Balance sheet and treasury
OUT OF THE ORDINARY Balance sheet and treasury Out of the Ordinary® & Investec Property Fund Limited
Slide 73: Balance sheet metrics
Balance sheet metrics As at 31 March 2023 Group PEL ZAR debt EUR debt Total Group Europe Quantum R4.7bn R5.8bn R10.5bn €588m Debt maturity (years) 3.3 3.2 3.3 2.5 Swap maturity 2.3 1.3 2.0 2.5 Hedge percentage 78% 90% 85% 90% Gearing % - 42% 53% Average all-in cost of funding 9.0% 2.9% 5.3% 3.7% Ave
Slide 74: Balance sheet strategy
Balance sheet strategy Access to multiple sources of funding across various lenders SA debt split by bank Europe in-country debt split by Sources of funding (by facility) bank 13% 11% 10% 13% 21% 9% 6% 25% 26% 45% 34% 6% 81% Investec Bank Nedbank Aareal bank / Citibank senior Bank Commercial paper R
Slide 75: Glossary
OUT OF THE ORDINARY Glossary Out of the Ordinary” & Investec Property Fund Limited
Slide 76: Glossary
Glossary BPR Best Practice Recommendations CCS Cross currency swaps CGT Capital gains tax DIPS Distributable earnings per share DPS Dividend per share ERV Estimated Rental Value ESG Environmental, Social, Governance FEC Foreign exchange contracts Funds flow from operations calculated according to SA
Slide 77: Disclaimer
Disclaimer The information contained herein is for information purposes only and readers should not rely on such information as advice in relation to a specific issue without taking financial, banking, investment or professional advice. Although information has been obtained from sources believed to
Investec Property Fund — FY2023 Earnings Presentation on 6ix