Vukile Property Fund Limited · JSE:VKE
Vukile Property Fund — H1 FY2014 Earnings Presentation
67 slides from Vukile Property Fund's earnings presentation, November 2013
Slide 1: Unaudited Group Results for the six months ended 30 September 2013
UNAUDITED GROUP RESULTS for the six months ended 30 September 2013
Slide 2: Agenda
Agenda • Hi hli h Highlights L Laurence R Rapp • Financial performance Mike Potts • Property portfolio performance and overview Ina Lopion • Overview of Empowerment Transaction Laurence Rapp • Transformation Strategy Laurence Rapp • Review of Sovereign g Tenant Portfolio Sedise Moseneke • Prospects
Slide 3: Highlights
Highlights LAURENCE RAPP cr VUKILE PROPERTY FUND AWAKEN THE POTENTIAL WITHIN 3
Slide 4: Highlights
Highlights • G Growth th in i normalised li d di distribution t ib ti off 5% to t 54.81 54 81 cpu off ff a base b off 52.20 52 20 cpu • Successful completion of one of the most significant empowerment transactions in the listed property sector • Successful re-launch of the revamped Randburg Square S
Slide 5: Financial performance
Financial performance MIKE POTTS 5
Slide 6: Distribution history
Distribution history Cents per linked unit 160 131.6 140 124.8 120.4 11.2 117.7 111.43 13.4 120 109.0 8.7 107.9 100 9 97.9 1 1 1 88.3 80 68.6 76.8 54.8 13.8 68.5 68.2 60 63.8 62.8 61.5 60.9 3.8 2.2 53 0 48.0 6 47.6 52 40 0 47.0 5 46.2 44.1 41.0 40.3 36.0 35.8 32.5 31.5 30.0 20 0 2005 2006 2007 2008
Slide 7: Growth in distribution
Growth in distribution March March % September September % 2012 2013 growth 2012 2013 growth Normalised distribution per linked unit (cents) 111.43 120.44 8.1% 52.20 54.81 5.0% Special/non-recurring distribution per linked unit (cents) 13.38 11.15 -16.7% 4.83 13.83 186.3% Total distribution per link
Slide 8: Simplified income statement
Simplified income statement Sept 2013 Sept 2012 % Variance Rm Rm Group net rental income 406 9 406.9 346 0 346.0 17 6 17.6 Sales commission – asset management business 67.0 43.8 53.0 Asset management fees 11.5 15.9 (27.7) Asset management expenditure (19.6) (14.4) 36.1 Net finance costs (98.4) (92.3
Slide 9: Simplified income statement (cont.)
Simplified income statement (cont.) (cont ) % increase in group net rental income 17.6% Made up p as follows: • Like-for-like (stable) portfolio 8.1% • New property acquisitions contributed 16.7% • Less: Sales of non non-core core properties (7 2%)(1) (7.2%) 17.6% (1) The sale of non-core properties
Slide 10: Group income and expenditure (R000)
Group income and expenditure (R000) Distributable Income R343 R343.8 8 million 10
Slide 11: Group balance sheet at 30 September 2013
Group balance sheet at 30 September 2013 12000 10000 9612 8000 7390 6000 6306 5755 4000 2000 1352 1064 753 513 1761 323 0 Investment properties Investment properties Current assets Non-current liabilities Current liabilities For sale Sep-13 Mar-13 11
Slide 12: Bad debt and arrears analysis
Bad debt and arrears analysis • T Tenant t arrears increased i dbby R4 R4.9 9 million illi ffrom March M h 2013 tto R31 R31.6 6 million illi att S September t b 2013 2013: – R4.0 million increase contributed by acquisition of East Rand Mall post 31 March 2013 – Total tenant arrears equates to 4.8% o
Slide 13: Group debt structure
Group debt structure L Loan tto value l ratio ti : 32 8% 32.8% % interest bearing debt hedged : 92.8% Total cost of finance : 8 1% 8.1% Extended 39% of swaps maturing by September 2015 to October 2018, at an additional swap cost of 35 bps or R1.4 million per annum Change of strategy regarding hedgin
Slide 14: Group debt structure
Group debt structure Maturity and interest rate profile of fixed interest bearing debt at 30 September 2013 Fixed rate debt (Rm) Fixed interest rate (%) September 2018 24.6 9.13 March 2018 100.0 7.36 May 2017 240.0 8.83 April 2017 163.4 9.07 September 2016 160.0 8.31 May 2016 200.0 8.51 April 2016 3
Slide 15: Group debt structure
Group debt structure Maturity and interest rate profile of variable interest bearing debt at 30 September 2013 Variable rate debt (Rm) Variable interest rate (%) September 2018 40.0 7.15 September 2016 40.0 6.95 November 2014 60.1 6.76 September 2014 75.0 5.74 April 2014 150.0 6.41 March 2014 175.0
Slide 16: Group net cash flow
R000 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 Bala ance 1 April 201 13 1,267,304 Cash from operating activitie es 467,376 Borrowing gs 446,916 Vendo or loans re Ench ha transaction 382 052 382,052 Proceeds on ssale of investmeent propertiess/fixed assets 287,311 Isssue o
Slide 17: NAV bridge
NAV bridge Cents per linked unit 2,000 23 94 (184) 486 1,800 (26) (153) 1,600 (74) 1,400 1,535 1,200 1,369 1 000 1,000 800 600 400 200 - Opening NAV Adjusted for Investment Increase in non- Increase in Decrease in current Increase in Increase in current Closing NAV Balance additional linked properti
Slide 18: Linked unit price and trading volumes
Linked unit price and trading volumes Volumes Price (cents) (000) 2100 4500 2000 4000 1900 3500 1800 3000 1700 2500 1600 2000 1500 1500 1400 1000 1300 500 1200 0 Volume Share Price 18
Slide 19: Property portfolio performance and overview
Property portfolio performance and overview INA LOPION 19
Slide 20: Overview
Overview • N b off properties Number i 81 • GLA 1 150 729m² • V l ti Valuation – Total portfolio R10.342 billion 56% of Vukile/MICC portfolio valued externally, values in line with internal values – A Average l per property value t R127 7 million R127.7 illi – Average discount rate 14.1% – Average e
Slide 21: Overview
Overview • F the For th 6 months th ended d d 30 S September t b 2013 leases l were concluded l d d with ith a: – Total contract value R538.3 million – Total rentable area 150 579m² • Tenant retention 78% • Portfolio exposure: Large national and listed tenants and major franchises 45% National and l
Slide 22: Historical Portfolio Overview
Historical Portfolio Overview M h 2010 tto S March September t b 2013 March September Growth 2010 2013 Number of Properties 73 81 11% Average Value per Property R67.0m R127.7m 91% Average Value per m² m R5 399/m² 399/m R8 973/m² 973/m 66% Market Value R4 889m R10 342m 112% – Stable Portfolio R4 021m
Slide 23: Overview
Overview Market Value [Rm] R10,342m R7,694m R6,113m R4,889m R5,350m R4,318m R4,531m R3 652 R3,652m R3 863m R3,863m R3,131m Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Sep-13 R8,973/m² R7,442/m² R6,591/m² R5,399/m² R5,767/m² R5,049/m² R4,354/m² R4,809/m² R3,400/m² R2,941/m² Mar-05
Slide 24: Sectoral profile
Sectoral profile Value [R10.369bn] GLA [1.150.729m²] Market Value [R/m²] 14,605 30 1 12,791 14,03 20 000 20,000 11,567 10,697 9,229 9,171 8,973 15,000 8,354 8,327 7,442 R/m² 4,339 3,936 10,000 5,000 0 Retail Offices Industrial Sovereign Hospital Motor Related Average Mar-13 Sep-13 24
Slide 25: Portfolio composition
Portfolio composition first year yield analysis 1st 2nd Quartile 3rd Quartile 4th Quartile (bottom 25%) Proper- Quartile 10 props (13% of 19 props (25% of remaining) 44 props (57% of remaining) ties to be (Top 26%) remaining) R2.5bn R2.6bn sold to 4 props R2 5bn R2.5bn yield 9 9.9% 9% yield 9 9.2% 2
Slide 26: 10 largest properties
10 largest properties Area Value % of P Property t L Location ti S t Sector m²² R Rm t t l total Boksburg East Rand Mall (50%) * Boksburg Retail 31,258 1,049.8 10.1 Durban Phoenix Plaza Durban Phoenix Retail 24,348 556.3 5.4 Pretoria Navarre Building Pretoria Sovereign 47,519 495.1 4.8 Pretoria De B
Slide 27: Geographic profile (GLA m²)
Geographic profile (GLA m²) Northwest Northern Eastern Mpuma- 4% Cape Western Cape Limpopo langa 2% Cape 3% Total Portfolio 6% Free State 5% KwaZulu- 13% 8% Natal Gauteng 1% Mpumalanga Northwest Northern Namibia 40% 2% 2% Cape 13% KwaZulu- Gauteng 83% Natal Limpopo 1% 22% 3% Free State E Eastern Cap
Slide 28: Vacancy profile
Vacancy profile Vacancy [% of GLA] Vacancy [% of Rent] 14.6% 14.4% 14.2% 12.5% 10.7% 8 6% 8.6% 6.6% 6.8% 7.2% 7.1% 6.7% 5.9% 6.7% 5.1% 3.9% 4.9% 4.5% 4.0% 3.6% 3.1% 0 0% 0.0% 0 0% 0.0% 0 0% 0.0% 0 0% 0.0% Retail Offices Industrial Sovereign Hospital Motor Total Retail Offices Industrial Sovereign Ho
Slide 29: Individual properties vacancy profile
Individual properties vacancy profile (% of GLA) (vacancy > 1 000m²) Pretoria Midtown Building (100%) Roodepoort Hillfox Power Centre (20%) Jhb Parktown Oakhurst (49%) Cape Town Bellville Tijger Park (18%) Pretoria Arcadia Suncardia (12%) Randburg g Square q ((7%)) Randburg Trevallyn Industrial Park
Slide 30: Expiry profile
Expiry profile 100% 90% 100% 84% 75% 80% 74% 75% 60% 59% 50% 42% 43% 25% 25% 18% 20% 16% 16% 6.8% 18% 6% 6.7% 0% V t Vacant M 14 Mar-14 M 15 Mar-15 M 16 Mar-16 M 17 Mar-17 M 18 Mar-18 B dM Beyond h March 2018 GLA Cumulative Cumulative as at Mar-13 30
Slide 31: Lease renewals and new leases concluded
Lease renewals and new leases concluded Lease renewals - % escalation on expiry rentals 6.3% 2.9% 0.8% 0.8% Retail Office Industrial Average g New leases concluded - (Ratio of rental concluded against budget) 109.7% 93 7% 93.7% 91 1% 91.1% 96 4% 96.4% Retail Office Industrial Average 31
Slide 32: Contracted rental escalation profile
Contracted rental escalation profile 10.0% 8.9% 9.0% 8.6% 7.9% 8.1% 8.1% 8 0% 8.0% 7 5% 7.5% 7.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Retail Offices Industrial Sovereign Hospital Motor Related Total 32
Slide 33: Weighted average base rentals R/m²
Weighted average base rentals R/m² (excluding recoveries) 120.00 13.3% 9.3% 7.5% 100.00 6.9% 98.27 7 1 8% 1.8% 90.56 89.09 86.76 80.00 84.68 84.59 83.82 83.07 82.87 80.95 74.09 60 00 60.00 7 1.4% 40.00 39.43 38.89 20.00 3 - Retail Offices Industrial g Sovereign p Hospital Motor Related Total Mar-13
Slide 34: Retail portfolio - weighted average base rentals R/m²
Retail portfolio - weighted average base rentals R/m² ( (excluding l di recoveries) i ) Boksburg East Rand Mall (50%) Durban Phoenix Plaza D b Workshop Durban W k h Durban Qualbert Centre Mbombela Truworths Centre Pinetown Pine Crest (50%) Windhoek 269 Independence Avenue Sandton Bryanston Grosvenor
Slide 35: Office portfolio - weighted average base rentals R/m²
Office portfolio - weighted average base rentals R/m² ( (excluding l di recoveries) i ) Cape Town Bellville Suntyger P t i Lynnwood Pretoria L dS Sanlynn l Sandton Hyde Park 50 Sixth Road Jhb Houghton 1 West Street Pretoria Hatfield 1166 Francis Baard Street Jhb Parktown Oakhurst Cape Town Parow De
Slide 36: Industrial portfolio - weighted average base rentals R/m²
Industrial portfolio - weighted average base rentals R/m² ( (excluding l di recoveries) i ) Kempton Park Spartan Warehouse Centurion Samrand N1 Randburg Tungsten Industrial Park Midrand Sanitary City Pinetown Richmond Industrial Park Midrand Allandale Industrial Park Germiston Meadowdale R24 Pinetow
Slide 37: Ratio of gross recurring cost to property revenue
Ratio of gross recurring cost to property revenue - excl property sold to date 40% 36.7% 36 7% 35.5% 35.7% 35% 32.7% 33.0% 31.3% 30.4% 30.1% 30% 25% 20% 18.3% 18.3% 17.7% 17.0% 17.7% 17.1% 17.8% 16.9% 15% 10% 5% 0% Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Sep-13 All recurring expenses All re
Slide 38: Recurring expenses
Recurring expenses Asset Management Insurance Premiums Fee 3% Bad Debt Sundry Expenses 6% 1% 6% Maintenance Government Services 6% 43% Property Management Cleaning & Fee security 8% Rates & Taxes 11% 16% R40.62/m² R34.69/m² Expense comparison to IPD Benchmark 75/m² 93/m² R16.7 R15.9 R8.65/m²² R5.93/
Slide 39: Re-developments / upgrades: Randburg Square
Re developments / upgrades Re-developments RANDBURG SQUARE: BEFORE AND AFTER 39
Slide 40: Re-developments / upgrades: Randburg Square
Re developments / upgrades Re-developments RANDBURG SQUARE: BEFORE AND AFTER START COMPLETION June 2010 October 2013 Valuation [Rm] R208 2m R208.2m R362 2m R362.2m Valuation [R/m²] R4,053/m² R7,061/m² National tenant component (Retail) 64.2% 87.3% Average foot count 594 948 797 027 Average outstandi
Slide 41: Re-developments: projects approved and in process
Re developments / upgrades Re-developments Projects approved and in process Total Additional Completion Property Project detail capex Yield GLA [m²] date Rm Upgrade expected to (1) D b Workshop Durban W k h U Upgrade d tto th the mallll areas 50 5 increase 50.5 i renewall N November b 2014 rentals C
Slide 42: Overview of empowerment transaction/transformation strategy
Overview of empowerment transaction/transformation strategy LAURENCE RAPP 42
Slide 43: Overview of Encha transaction
Overview of Encha transaction Transformation Structure c.16.0%* (pre exercise of the Option) c.20.7%* (post exercise of the Option) Encha Vukile Property Fund Limited 100% owned 100% ownership Encha Encha Property Manco Services Property management agreement Sovereign Core Portfolio Tenant Portfolio
Slide 44: Overview: key transformation features
Overview K transformation Key t f ti features f t • Property Sector Charter compliance: – achieve significant initial ownership compliance with intention to increase Encha’s shareholding above 25.1% utilising the equity funding platform • Net proceeds to Encha of circa R490 million will be invested
Slide 45: Encha acquisition - earning enhancement
Encha acquisition - earning enhancement • T t l purchase Total h price i off R1 047.2 047 2 million illi on a yield i ld off 9 9.5% 5% • Price adjusted downwards by R56 million to cater for identified capex on buildings to be acquired • R356 million funded by way of issuing Vukile equity: 22.84 mill
Slide 46: Transformation strategy
Transformation strategy Progress Scorecard Comments/Action plans chart Ownership Use equity tap structure to grow Encha holding above 25.1%. Need to explore women’s and broad based participation Management Control NED board to be fully compliant by year end through appointment of an additional black
Slide 47: Review of Sovereign Tenant Portfolio
Review of Sovereign Tenant Portfolio SEDISE MOSENEKE 47
Slide 48: Overview
Overview • Market Value R1.0 billion (10% of total portfolio) • Average value per property R261 million • GLA 113 205m² (10% of total portfolio) • Number of properties 4 (5% of total portfolio) 48
Slide 49: Overview (cont.)
Overview (cont.) (cont ) Expiry profile Portfolio e exposure pos re 100% 7% Large national and 46% 48% 52% listed tenants, government and 15% 16% 18% 28% major franchises 6 6% 6.6% 2% 1% 2% 93% 8% Vacant Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Beyond Other March 2018 GLA Cumulative Average base rentals A
Slide 50: Pretoria Navarre
Pretoria Navarre KEY FACTS Region Pretoria, Gauteng Sector Sovereign Tenanted Total GLA 47 519m² Grade B+ LOCATION Navarre is situated in Pretoria Central at 231 Pretorius Street. The building extends from Pretorius Street, and can be accessed through a pedestrian mall from Schoeman Parking 200 bays
Slide 51: Pretoria De Bruyn Park
Pretoria De Bruyn Park KEY FACTS Region Pretoria, Gauteng Sector Sovereign Tenanted Total GLA 41 418m² Grade B LOCATION De Bruyn Park is situated in Pretoria Central on the corner of 253 Vermeulen Parking 257 bays Street and Thabo Sehume (Andries). Monthly Rental* R76.50/m² DESIGN Commercial, with r
Slide 52: Pretoria Koedoe Arcade
Pretoria Koedoe Arcade KEY FACTS Region Pretoria, Gauteng Sector Sovereign Tenanted Total GLA 13 402m² Grade B+ LOCATION Koedoe is situated in Pretoria Central at 236-250 Pretorius Street, between Parking 61 bays Andries Street and Bank Lane. DESIGN Commercial, retail on the ground floor. Monthly Re
Slide 53: Bloemfontein Fedsure
Bloemfontein Fedsure KEY FACTS Region Bloemfontein, Free State Sector Sovereign Tenanted Total GLA 10 866m² Grade B LOCATION Fedsure is situated in Bloemfontein at 15 West Burger Street. The building is Parking 140 bays accessible from Maitland Street and St. Andrews Streets, with an arcade connecti
Slide 54: Option Property: Pretoria Momentum
Option Property : Pretoria Momentum KEY FACTS Region Pretoria, Gauteng Sector Sovereign Tenanted Total GLA 37 704m² Grade A- LOCATION Momentum is situated in Pretoria Central at 339 Pretorius Street Street, just off Prinsloo Street. It faces the rear of the State Theatre. It is along the bus Parking
Slide 55: Acquisitions, disposals, prospects, plans and acknowledgements
Acquisitions, disposals, prospects, plans and acknowledgements LAURENCE RAPP 55
Slide 56: Acquisitions
Acquisitions East Rand Mall Hammarsdale Junction • Acquired 50% for R1.1 billion effective 1 April 2013 • Acquired effective 1 June 2013 • GLA of 62 500m² • Yield of 9.5% with a first year income guarantee • National tenant component of 87% • 19 399m² GLA with 81% national tenants • Initial y yield
Slide 57: Disposals
Disposals Status GLA Yield Sales price transferred P t Property S t Sector ( ²) (m²) per annum (R000) 2013 Durban Embassy Offices 32,365 9.9% 238,000 23 May Midrand Allandale Land (Halfway House Industrial 21,850 16 August Ext 65) Bloemfontein Bree Street Warehouse Industrial 6,563 6.7% 13,900 13 Au
Slide 58: Update on transactions
Update on transactions Lethlabile Linbro Park Momentum Building • 17 600m² centre in Lethlabile, ± 30km North y • 15 000m² mini factory/warehousing g unit in p • Option q to acquire p p y from Encha as p property part of Brits at a cost of R194 million Linbro Park, which is a prime industrial node o
Slide 59: Update on transactions
Update on transactions McCormick Joint Venture Edendale Maake Modjadji • 50% 0% iinterest iin Ed Edendale d l MMall, ll • 30% iinterest iin the h lleasehold h ld centre • 30% iinterest iin the h centre llocated d227 Pietermaritzburg, a 31 700m² retail centre located 25 kilometres south-east of kilom
Slide 60: Fairvest transaction
Fairvest transaction • Strategy of being open to investing in other listed funds if strategically aligned • Selling 4 properties to Fairvest in exchange for a shareholding of c.30% in Fairvest • Subject to Fairvest shareholder approval – expected in December 2013 Sales price Property p y Sector Yiel
Slide 61: Fairvest transaction
Fairvest transaction • Yi ld enhancing Yield h i ttransaction ti – Assets sold at a yield of 9.6% – Shares acquired at a yield of 10% • Maintains retail focus but allows Vukile to get exposure to centres of below 10 000m² on an indirect basis and without diluting management effort • Strong belief in
Slide 62: Funding of acquisitions
Funding of acquisitions • U lik l to h Unlikely have to raise i ffurther h equity i iin this hi fifinancial i l year • In excess of R800 million of available bank facilities • Anticipated equity take-up of December 2013 distribution reinvestment plan • Access tto Encha A E h equity it tap t facility
Slide 63: Strategy update
Strategy update • On-going O i ffocus on operational ti l excellence ll and dddriving i i performance f ffrom currentt portfolio • Continue looking for selective acquisitions that are both earnings and quality enhancing • Continued preference for retail assets • Critical success factors as highlight
Slide 64: Prospects
Prospects • Significant progress in changing the portfolio to a better quality, quality lower risk profile • 65% of assets comprise retail, sovereign tenant and hospital assets: – Retail (52%) - centres performing well with continued strong tenant demand – Sovereign Tenant Portfolio (10%) - longer l
Slide 65: Forecast guidelines for March 2015
Forecast guidelines for March 2015 • Acquisitions will contribute to income for full year to March 2015 vs. March Cost % % 2014 Rm Initial yield WACC(1) • Encha (4 properties) 7 months 1 047.0 9.5 7.54 • Momentum c.3 months 380.0 9.5 8.84 • Hammarsdale Junction 9 months 198.0 9.5 5.0(2) • Edendale M
Slide 66: Acknowledgements
Acknowledgements • B d Board • Property managers • Service providers • Brokers and developers • Tenants • Investors • Funders • Colleagues g 66
Slide 67: Questions and answers
Questions and answers CLOSING 67
Vukile Property Fund — H1 FY2014 Earnings Presentation on 6ix