Burstone Group Limited · JSE:BTN
Burstone — Investec Property Fund — H1 FY22 Earnings Presentation
68 slides from Burstone's earnings presentation, November 2021
Slide 1: Investec Property Fund Results Presentation
Investec Property Fund RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2021 1
Slide 2: H1 FY22 review
01 H1 FY22 review
Slide 3: H1 FY22 highlights
H1 FY22 highlights Strong results achieved, primarily driven by stabilisation of SA portfolio PEL platform remains solid delivering consistent performance Strong balance sheet with LTV trending lower Reduced vacancy over both geographies Capital recycling – R1bn SA properties identified for sale and
Slide 4: Key group highlights
Key group highlights H1 FY22 snapshot • SA base NPI up 12.8% 11.8% 37.9% 95% - SA vacancy reduced to 9.4% (Mar 21: 11.4%) H1 increase in loan-to-value dividend payout ratio - Stabilisation of portfolio values with net writedown distributable income maintained since FY21 per share (“DIPS”) through th
Slide 5: Business snapshot
Business snapshot As at 30 September 2021 IFRS balance sheet construct South African direct property Pan-European logistics No. of properties 88 48 28% Ownership interest 100% 65% Asset value (local currency) R15.2bn €1.08bn Value of investment (Rbn) R15.2bn R5.8bn 72% South Africa 2 GLA (m ) 1,077,
Slide 6: FY22 operational priorities – on track to deliver
FY22 operational priorities – on track to deliver Progress to date South Africa Europe Group • Active asset management • Introduction of third-party capital • Further reduce gearing Strategic • Execute on redevelopment assets • Unlock development pipeline • Active capital recycling • Execute on disp
Slide 7: Looking forward
Looking forward Longer term investment strategy South Africa Europe • Stabilised, remain opportunistic • Growth business – competitive advantage • Uncertainty requires very measured • Simplify structure approach • Explore all options to maximize value, • Acquisition activity on back of ability inclu
Slide 8: Financial review
02 Financial review
Slide 9: Summarised income statement
Summarised income statement Stabilised performance in SA and continued strong performance from PEL 30 September 30 September 1. Reduction primarily due to good letting activity and Rm Notes 2021 2020 +/- % change lease regears that were concluded at improved Net property income (excl. straight linin
Slide 10: Distributable earnings reconciliation
Distributable earnings reconciliation 11.8% increase in DIPS – within expected range of 10%-12% 30 September 30 September 1. FFO per share per SA REIT BPR Rm 2021 2020 +/- % change calculation is 52.84cps Profit after tax 443 (398) 841 211% Less: straight-line rental revenue adjustment 10 41 (31) (7
Slide 11: Distributable earnings bridge
Distributable earnings bridge Significant savings in finance costs post sale of offshore minority interests Rm 63 8 64 422 377 (16) (7) (67) Distributable SA base NPI SA disposals Earnings from Offshore Savings Other Distributable earnings increase NPI PEL platform divestments¹ in finance costs² ear
Slide 12: Summarised balance sheet
Summarised balance sheet 0.4% increase in NAV per share 30 September 31 March 1. Includes SA direct property (R15.2bn) and investment Rm Notes 2021 2021 % change in Izandla (R0.2bn). Decline attributable to disposal of two assets and R110m net downward revaluation of SA Property related investments
Slide 13: Performance – South Africa
03 Performance – South Africa
Slide 14: SA portfolio snapshot
SA portfolio snapshot 30 September 2021 Office • Sector remains stable SA portfolio Office • Demand for space affected by uncertainty around longer term WFH Number of properties 88 Number of properties 30 • Many businesses are actively encouraging return to office Asset value R15.2bn Asset value R5.
Slide 15: SA portfolio performance
SA portfolio performance Marked improvement in NPI driven by reduction in COVID relief 6 months 6 months • SA portfolio delivered stabilised operational ended ended performance with satisfactory NPI growth 30 September 30 September % (Sep 20: -24.4%), driven by: Rm Notes 2021 2020 change - Lower ren
Slide 16: Letting activity
Letting activity 82.6% of H1 FY22 letting concluded (Sep 20: 67%) Weighted Weighted average average Expiries & Renewals gross gross Rental Average cancellations & new lets expiry rental new rental reversion escalation WALE Incentive Retention H1 YTD GLA (m2) GLA (m2) R/m2 R/m2 % % Years % lease valu
Slide 17: Distilling the office strategy
Distilling the office strategy 76% of the office portfolio comprises quality assets with strong fundamentals Strong Quality assets with strong fundamentals • Low-risk • Underpinned by quality tenants, long- R1.4bn R2.9bn dated leases and strong cashflows • Current focus on tenant retention • Strong
Slide 18: SA long-term outlook
SA long-term outlook • Retail continues to deliver strong and sustainable growth underpinned by low vacancies and a quality tenant base comprised primarily (c.85%) of national retailers • Low positive rental growth expected from industrial sector - Likely to become less significant contributor to SA
Slide 19: Performance – Pan-European Logistics (PEL) portfolio
04 Performance – Pan-European Logistics (PEL) portfolio
Slide 20: European logistics sector fundamentals
European logistics sector fundamentals Unprecedented demand and e-commerce tailwinds continue to drive outperformance European take up set for another record year Investor appetite for logistics stock is unabated Supply cannot keep up with demand Investment volumes Available supply at Q2 2021 vs. 12
Slide 21: PEL portfolio performance
PEL portfolio performance H1 FY22 snapshot • 3.5% growth in DIPS driven by positive rental growth 8.3% 5.6% 3.5% • Base NPI growth driven by base NPI growth base net cost-to-income DIPS growth (in EUR) - positive rental reversion and additional letting in ratio Germany, Italy and Netherlands - lower
Slide 22: Pan-European logistics portfolio
Pan-European logistics portfolio Summarised income statement 6 months 6 months ended ended 1. Base NPI grew 8% due to positive rental reversion, good letting 30 September 30 September % activity, reduction in vacancy, savings in non-recoverable costs €’000 2021 2020 change and reduced provision for
Slide 23: Balance sheet and treasury
05 Balance sheet and treasury
Slide 24: Balance sheet strength
Balance sheet strength Rigorous focus on risk management • Limited re-finance risk with majority of FY22 37.9% AA- / A1+ R2.0bn refinances (R2.3bn, including EUR bridge) LTV (covenant of 50%) Long / short term GCR Unutilised facilities completed debt ratings with stable outlook - affirmed Oct 21 - R
Slide 25: Risk adjusted LTV
Risk adjusted LTV Strategically managed look-through gearing of 52% with appropriate risk mitigants in place Matching in-country debt and assets Strategic rationale Risk mitigants (local currency) (Rbn) Diversified balance • Investments are financed based • Assets located in developed markets across
Slide 26: Capital recycling
06 Capital recycling
Slide 27: Capital recycling
Capital recycling • R1.0bn of assets approved for sale • To be redeployed into: • Limited potential to extract outperformance and maximum value - Growth of PEL South Africa likely to be realised from an exit - Development assets • Diverts focus and resources from core portfolio - Quality SA assets •
Slide 28: Update on projects
07 Update on projects
Slide 29: Update on SA projects
Update on SA projects R240m aggregate capex spend at 8.3% yield Design Quarter • IPF will redevelop DQ in order to reposition its offering and re-gain market share Design Quarter rendering (“DQ”) • This entails: › Introduction of niche home and décor tenants › Addition of a convenience element throu
Slide 30: European development pipeline
European development pipeline IPF is embarking on the development of the below plots of land in Europe Development Background Progress to date Indicative yield Timing Cost Size Sochaczew DC3 • Proposed new Grade-A logistics building • Construction expected to begin in 6.9% (incl. land) 14 months €17
Slide 31: Environmental, sustainability, governance (ESG)
08 Environmental, sustainability, governance (ESG)
Slide 32: Environmental targets
Environmental targets H1 FY22 snapshot Target Status 4 On track Additional Green Star ratings Project plans in place: • 4 new 5* ratings, • 1 new 4* rating (Mar 21: 13 buildings) • 2 renewals Target Under construction 2.39 MWp additional solar PV 3.59 MWp (Mar 21: 7.95 MWp) (Excess of 10 MWp) Energy
Slide 33: Looking forward to H2 FY22
09 Looking forward to H2 FY22
Slide 34: Looking ahead to H2 FY22
Looking ahead to H2 FY22 • Assuming status quo is maintained, we anticipate similar performance in H2 - Expect to deliver FY22 DIPS between 10%-12% • SA portfolio stable but macro environment remains uncertain - Continued economic recovery and improvement in manufacturing and trading sectors will su
Slide 35: ANNEXURES
@ Investec Property Fund r) e 3 ro) ANNEXURES
Slide 36: SA REIT BPR ratios
Out of the Ordinary® > & a oS Investec Property Fund Limited SA REIT BPR ratios
Slide 37: SA REIT BPR ratios
SA REIT BPR ratios Notes SA REIT BPR IPF methodology FFO per share (cps) 1 52.84 52.39 NAV per share (cps) 2 1,622 1,672 LTV 3 41.9% 37.9% Cost of debt 4 5.1% 5.1% SA cost-to-income ratio 5 34.5% 23.8% SA vacancy 6 9.4% 9.4% Notes: 1. Capitalised interest on loans to Izandla not adjusted for in SA R
Slide 38: South African property portfolio
South African property portfolio
Slide 39: SA portfolio composition
SA portfolio composition Sectoral spread by revenue Sectoral spread by GLA Sectoral spread by asset value 24% 22% 32% 40% 40% 45% Retail Retail Retail Office Office Office 36% 23% 38% Industrial Industrial Industrial Retail Office Industrial 3% 4% 3% 10% 10% 37% 18% High tech industrial 47% Shopping
Slide 40: Office
Office Oversupply and lack of market demand remain a challenge Key portfolio metrics R’000 30 Sep 2021 30 Sep 2020 % change Sep 2021 Mar 2021 Gross income¹ 293,207 278,976 5.1% No. of properties 30 30 Net expense² (76,907) (76,724) (0.4%) GLA (m²) 245,803 245,685 Base net property income 216,304 202
Slide 41: Industrial
Industrial Vacancy reduced and performing well under pressure Key portfolio metrics R’000 30 Sep 2021 30 Sep 2020 % change Sep 2021 Mar 2021 Gross income1 167,417 159,281 5.1% No. of properties 32 34 2 Net expense (39,271) (34,374) (14.2%) GLA (m²) 485,404 485,771 Base net property income 128,146 12
Slide 42: Retail
Retail Strong recovery due to reduction in concessions and improved trading Key portfolio metrics R’000 30 Sep 2021 30 Sep 2020 % change Sep 2021 Mar 2021 Gross income1 276,719 255,524 8.3% No. of properties 26 26 2 5 Net expense (68,854) (93,297) 26.2% GLA (m²) 345,794 349,658 Base net property inc
Slide 43: Retail – Trading performance
Retail Trading performance Like-for-like turnover (excl. Design Quarter and Balfour Mall) • Turnover growth has recovered significantly through 127.4% 15.4% H1, with 12-month average growth of 8.7% at Sep 21 10.0% (Mar 21: -2.5%) vs. the comparable 12-month period in Annual average (Sep-21) = 8.7% 9
Slide 44: SA lease expiry (by revenue)
SA lease expiry (by revenue) 43% of leases expire in FY25 and beyond 23.2% 19.6% 18.2% 16.1% 16.6% 9.5% 9.1% 8.7% 7.6% 7.9% 8.3% 7.5% 7.0% 5.8% 6.3% 5.4% 5.2% 4.5% 4.6% 3.0% 2.3% 1.6% 1.0% 1.0% FY22 FY23 FY24 FY25 FY26 FY27 onwards Retail Office Industrial Total 44
Slide 45: SA redevelopment projects
Out of the Ordinary® oS Investec Property Fund Limited > & a z a @ 3 = = ro) bE 5 6 SA redevelopment projects
Slide 46: Design Quarter
@ Investec Property Fund r) e 3 ro) Design Quarter
Slide 47: Proposed refurbishment renderings
Proposed refurbishment renderings • Piazza looking to restaurants • Piazza looking to Checkers 47
Slide 48: Proposed refurbishment renderings
Proposed refurbishment renderings • Trek - external • Trek - internal 48
Slide 49: Proposed refurbishment renderings
Proposed refurbishment renderings • Internal looking to Lupa Mall internal 49
Slide 50: Balfour Mall / Highlands North
Balfour Mall / Highlands North 50
Slide 51: Proposed redevelopment renderings
Proposed redevelopment renderings Highlands centre – new layout post demolition and construction of drive-throughs 51
Slide 52: Proposed redevelopment renderings
Proposed redevelopment renderings Envisaged Balfour Mall precinct 52
Slide 53: Proposed redevelopment renderings
Proposed redevelopment renderings • Undercover pedestrian walkway to Balfour Mall from Louis • Recreation area next to drive-through Botha and rea vaya bus station • Kiosks for informal traders to be installed 53
Slide 54: PEL property portfolio
Out of the Ordinary® oS Investec Property Fund Limited > & a z a @ 3 = = ro) bE 5 6 PEL property portfolio
Slide 55: European logistics sector: structural drivers
European logistics sector: structural drivers Unprecedented demand and e-commerce tailwinds continue to drive outperformance … mainly driven by e-commerce penetration, Occupier demand continues to reach record levels… where pre-COVID 2024 projections were achieved in 24 months 31.9% 26.1% Million m²
Slide 56: Impact of demand / supply imbalance: Rental growth and vacancy
Impact of demand / supply imbalance: Rental growth and vacancy Rental growth continues to trend higher… Vacancy • Record low vacancy rates across Europe St. Petersburg shows fundamental under-supply 1.7 • Remains low with estimated European aggregate rate at 4.4% (mid-2021) Moscow 1.6 Glasgow 7.0 Po
Slide 57: Impact of demand / supply imbalance: Sustained yield compression
Impact of demand / supply imbalance: Sustained yield compression All key European markets continue to see strong yield movements 7.5% • Very strong yield compression over last 12 months 6.5% • Prime yields in key Western markets are converging to record low levels 5.5% Prime yields • Initial yields
Slide 58: Pan-European logistics portfolio: Letting activity
Pan-European logistics portfolio Letting activity • 59.9% of space expiring in H1 FY22 renewed or let at 3.4% reversion • 57% of space subject to break options during H1 FY22 re-let • 44% of opening vacancy let Expiries & Renewals & Gross expiry Gross new Rental cancellations new lets rental rental
Slide 59: PEL lease expiry to break (by revenue)
PEL lease expiry to break (by revenue) 53% 20% 15% 12% FY22 FY23 FY24 April 25 onwards Notes: 1. Includes expiries in respect of break options 59
Slide 60: Balance sheet and treasury
Out of the Ordinary® & Investec Property Fund Limited > & < z a @ 3 = = ro) bE 5 6 Balance sheet and treasury
Slide 61: Balance sheet metrics
Balance sheet metrics As at 30 September 2021 SA Europe Debt maturity (years)¹ 2.8 3.8 Swap maturity 3.4 3.8 Hedge percentage 85% 100% Gearing % 37.9% 53.0% Average all-in cost of funding 8.5% 2.2% Average debt margin (local currency) 1.7% 2.2% Average swap rate 7.2% 1.2% interest rate cap Encumbran
Slide 62: Balance sheet strategy - group
Balance sheet strategy - group Access to multiple sources of funding across various lenders SA debt Europe in-country debt Sources of funding split by bank split by bank (by facility) 7% 9% 4% 22% 27% 10% 29% 36% 7% 20% 7% 81% 24% 18% Investec Citibank / Aareal bank - senior SA bank Nedbank Deutsche
Slide 63: Debt maturity – next 12 months
Debt maturity – next 12 months Limited liquidity risk with alternatives for potential liquidity Type Facility type Amount drawn Expiry date Status SOUTH AFRICAN BALANCE SHEET DMTN Commercial paper R345m Nov 21 R370m refinanced at 3-month JIBAR + 52.5bps Bank Term R250m Dec 21 Will settle with existi
Slide 64: Balance sheet strategy
Balance sheet strategy Debt and swap position SA debt¹ and ZAR swap expiry (%) 36% 29% 26% 24% 18% 18% 15% 10%² 12% 9% 3% 0% FY22 FY23 FY24 FY25 FY26 FY27+ ZAR interest rate swaps SA debt Europe in-country debt and cap expiry (%) 91% 90% 10% 9% FY22 FY23 FY24 FY25 FY26 FY27+ Europe in-country debt I
Slide 65: Glossary
Out of the Ordinary® > & a oS Investec Property Fund Limited Glossary
Slide 66: Glossary
Glossary BPR Best Practice Recommendations CCS Cross currency swaps CGT Capital gains tax DPS Dividend per share DIPS Distributable earnings per share FEC Foreign exchange contracts Funds flow from operations calculated according to SA REIT BPR, being IFRS profit or loss + accounting or specific adj
Slide 67: 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
Slide 68: Slide 68
Investec Property Fund — H1 FY22 Earnings Presentation on 6ix