Burstone Group Limited · JSE:BTN
Burstone — H1 FY2024 Earnings Presentation
75 slides from Burstone's earnings presentation, November 2023
Slide 1: Interim results for the six months ended 30 September 2023
Transform potential Interim results for the six months ended 30 September 2023 NOVEMBER 2023
Slide 2: Burstone at a glance
Burstone at a glance We are a fully integrated international real estate business With a strong track record of delivering attractive and sustainable risk adjusted total returns for our investors and partners 30 years + R37bn R5.4bn 50+ 9 track record (€1.8bn) (€270m) real estate countries on-balanc
Slide 3: Global reach with local presence
Global reach with local presence €1.1bn GAV EUROPE • Logistics and industrial portfolio across 7 countries • Platform established in 2017 • Proven track record of buying, working and profitably selling logistics real estate A$450m equity under management R14bn GAV AUSTRALIA • 50 / 50 JV in Irongate
Slide 4: Overview of results
01 Overview of results Transform potential
Slide 5: Leveraging an integrated international platform
Leveraging an integrated international platform Against this backdrop, highlights for the six months: Key takeaways: 1H24 • Successfully completed the internalisation of the business in July 2023 and rebranded as the Burstone Group Focused efforts to integrate the Group internationally • Significant
Slide 6: Distributable earnings bridge
Distributable earnings bridge Earnings compression as a result of higher interest costs Strong operational performance in both regions Rm +R21m (5.0%) Increased base NPI +2.0% In South Africa +7.9% in PEL in Euros Increased ownership in PEL Net management fee saving as disclosed on PEL - solid opera
Slide 7: Net asset value bridge
Net asset value bridge NAV reflects internalisation of management companies Acquisition and internalisation of Properties management companies sold R390m Rm Debt Asset management functions R260m internalised with effect from July 2023 Deferred R200m 13 014 13 047 Properties sold Supporting LTV and t
Slide 8: Strategic overview
02 Strategic overview Transform potential
Slide 9: We have a clear strategic focus in the short and medium term
We have a clear strategic focus in the short and medium term Management Optimise current Growth Maintain a robust Holistic company portfolios balance sheet sustainability internalisation • Full alignment of • Maintain stability • Funds management • Clear path to • Further embed ESG management team r
Slide 10: Management company internalisation
2.1 Management company internalisation Transform potential
Slide 11: Management company internalisation
Internalisation Management company internalisation • The internalisation of the South African and European asset management businesses has several strategic advantages and was completed in July 2023 • Operating as an integrated business is key to the Group delivering on is ambitions to grow its busi
Slide 12: Optimise current portfolios
2.2 Optimise current portfolios Transform potential
Slide 13: Performance – South Africa
Optimise current portfolios 2.2.1 Performance – South Africa 13
Slide 14: SA snapshot
Optimise current portfolios SA snapshot Stable operational performance in a persistently challenging environment • Stable portfolio with sound LFL NPI growth Financial performance Letting performance • Strong letting activity across all sectors • +2.0% base LFL NPI growth (Sep-22: • 90% of space exp
Slide 15: SA industrial portfolio
Optimise current portfolios SA industrial portfolio Strong rebound in demand evidenced by letting activity and reduction in average vacancy Financial and operational metrics Sector trends Gross income Arrears (% of • Positive supply-demand 9.0% growth collectibles) 2.0% dynamics (Sep-22: +9.4%) (Mar
Slide 16: SA retail portfolio
Optimise current portfolios SA 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 • Trading activity has shown +9.3% growth 7.1% collectibles) 3.4% (Mar-23
Slide 17: SA office portfolio
Optimise current portfolios SA office portfolio Market leading vacancy factor Financial and operational metrics Sector trends Gross income Arrears (% of • Loadshedding and change in corporate strategy is driving growth -8.9% collectibles) 2.8% a return to office (Sep-22: 6.6%) (Mar-23: 3.5%) • As st
Slide 18: SA property valuations remain stable
Optimise current portfolios SA property valuations remain stable Base portfolio normalised yield stable at 9.1% (Mar-23: 9.2%) – Retail 8.2%, Industrial 9.9%, Office 9.8% Rm R14.6bn R14.2bn • Stable valuation reflecting: no material change in market conditions since March-23. • Disposals relate to I
Slide 19: Case study: Benoni multi-park
SA portfolio Optimise current portfolios Case study: Benoni multi-park Investment overview Property and market thesis • Industrial. • A well supported industrial park evidenced by continued low vacancy rates. 1 8 • Core + / Value-Add Strategy. property tenants • Capital spend and continued long-term
Slide 20: SA portfolio outlook
Optimise current portfolios SA portfolio outlook • The South African macroeconomic backdrop remains muted, and the property sector faces many challenges, not limited to rising municipal costs and an energy crisis which contributes to an increasing cost of occupation • While the South African portfol
Slide 21: Performance – Pan-European Logistics (PEL) Portfolio
Optimise current portfolios 2.2.2 Performance – Pan-European Logistics (PEL) Portfolio 21
Slide 22: PEL snapshot
Optimise current portfolios PEL snapshot Strong growth in contracted rent offset by adverse interest rate environment • Portfolio delivered rental reversion of c. 5.7% Financial performance Letting performance demonstrating the ability to capture positive • 7.9% base LFL NPI growth (Sep-22: 2.7%) •
Slide 23: PEL income statement
Optimise current portfolios PEL income statement Quality of earnings enhanced through strong contracted rent growth and cost rationalisation 6 months 6 months ended ended % change €m 30-Sep-23 30-Sep-22 Strong LFL NPI Net rental income 28.6 26.2 9.2% growth +7.9% Property expenses (2.5) (2.0) (25.0%
Slide 24: PEL property valuations
Optimise current portfolios PEL property valuations Portfolio stable at €1.1bn Valuations supported by: • Contractual rental and NOI growth • Negligible change in WALE of 5.2 years and vacancy of 0.9% • Value enhancing capital expenditure successfully deployed and major projects brought to a close •
Slide 25: PEL portfolio outlook
Optimise current portfolios PEL portfolio outlook • The European logistics sector remains robust • Whilst rental growth remains above the long-term trend, this is expected to moderate across most European markets as central banks raise interest rates to tackle inflation • New supply has been constra
Slide 26: Growth
2.3 Growth Transform potential
Slide 27: Funds management strategy
Growth Funds management strategy Overview • A fully aligned and internalised business, creates an opportunity for Burstone to further expand fund management strategies across all regions • The Group is well positioned to deliver against this strategy given the track record of the Irongate and Europe
Slide 28: Irongate Group
Growth Irongate Group Leading Burstone’s FM roll-out • Unlisted fund manager, Irongate Group, owned by Burstone and management, has previously delivered market leading returns • Currently manages over A$450m of equity on behalf of some of the world’s leading investors • Current capital across unlist
Slide 29: Europe
Growth Europe • The Group has two key pillars to its funds management strategy: - Introduction of a strategic partner into PEL: given the significant economic volatility, the Group is of the view that it is not the right time to introduce a strategic partner in the PEL platform as we do not believe
Slide 30: South Africa
Growth South Africa • Opportunities: - Improvement in industrial leasing and seeing signs of underlying rental growth - Access to pipeline of assets through Investec ROFO – bulk serviced industrial land in KwaZulu Natal - Neighbourhood and convenience retail present defensive returns and are an attr
Slide 31: Effective capital allocation is a key component of our growth strategy
Growth Effective capital allocation is a key component of our growth strategy • Ensure we deploy/recycle capital into the best international/local opportunities that will support our longer-term strategic plan and continue to create shareholder value • In summary, there are several capital deploymen
Slide 32: Maintain a robust balance sheet
2.4 Maintain a robust balance sheet Transform potential
Slide 33: Sound balance sheet and continued pro-active management
Maintain robust balance sheet Sound balance sheet and continued pro- active management • LTV stable at 43% post transaction activity (Mar-23: 42%), on track to reduce to c.41% in the short term • Active treasury management is a key priority in the short- to mid-term with a particular focus on managi
Slide 34: Effective capital recycling – redeploy into several opportunities
Maintain robust balance sheet Effective capital recycling – redeploy into several opportunities • During the period, the Group disposed of 11 assets in SA for R1.1bn at c.2% discount to book value • Of these assets, c.R0.7bn are awaiting transfer • In SA, the Group is targeting a further c.R0.8bn of
Slide 35: Indicative plan to maintain a healthy LTV
Maintain robust balance sheet Indicative plan to maintain a healthy LTV Manco Completed Still to come internalisation Completed in July 2023 43% 42% 41% R1.1bn asset sales completed Delivered in terms of flight path Look-through gearing Stable at 58% Continually consider other alternatives and sales
Slide 36: Group debt and swap profile
Maintain robust balance sheet Group debt and swap profile Debt metrics • 2.9 year maturity profile with R1.4bn refinancing risk in bond market • Sufficient liquidity to address FY24 expiries ZAR: R4.3bn 71% ZAR: 9.3% EUR: R6.7bn EUR debt as % of EUR: 3.3% investment (long- Cost of debt • Several ear
Slide 37: PEL debt and swap profile
Maintain robust balance sheet PEL debt and swap profile Exploring early refinancing opportunities with 2.0 years remaining • Active strategy to early refinance Debt metrics • Strong relationships with existing lenders • Continue to improve LTV and debt yield covenant headroom • Strength of underlyin
Slide 38: Holistic sustainability
2.5 Holistic sustainability Transform potential
Slide 39: Our sustainability strategy
Holistic sustainability Our sustainability strategy We aim to create broader long-term stakeholder value that: 01 02 03 04 Is financial and Improves lives Acts as an enabler Aims to achieve impactful and livelihoods of ESG net-zero emissions i.e. profitable and of our staff, tenants and for our clie
Slide 40: Holistic sustainability – progress to date
Holistic sustainability Holistic sustainability – progress to date • Burstone maintained its Level 1 B-BBEE status • The European business conducted several analyses including: commissioning a decarbonization review of the entire portfolio; and an assessment of "self-consumption" covering solar stra
Slide 41: Looking ahead
03 Looking ahead Transform potential
Slide 42: We transform potential into value
We transform potential into value A successful history of creating, building and managing real estate businesses Real estate purists Dynamic capital allocation Hands on asset management and best of breed assets underpin Disciplined capital allocation and continued capital rotation all our decisions
Slide 43: Reflecting on the past 6 months
Reflecting on the past 6 months • Strategic focus on repositioning from a property investment business into an integrated international real estate fund and asset management company • We believe that an integrated international offering will be a key differentiator as we implement our strategic plan
Slide 44: Looking ahead
Looking ahead • In the short-term we will continue to focus on: - maintaining the stability of the current portfolio - enhancing the quality of recurring earnings - maximising operational synergies - reducing LTV - effectively managing our capital allocation given the opportunities that are arising
Slide 45: We are aiming to evolve our investment strategy over the next 3-5 years
We are aiming to evolve our investment strategy over the next 3-5 years Today 3 – 5 years South Africa South Africa 44% 30% Significantly increased offshore component Geographic profile of assets under management International International 56% 70% Third-party capital Third-party capital <5% 25% Lev
Slide 46: We are aiming to evolve our investment strategy over the next 3-5 years
We are aiming to evolve our investment strategy over the next 3-5 years Today 3 – 5 years Impact sectors 10 - 20% Seek out opportunities in Impact sectors Minimal at present select impact sectors (residential, retirement) Other Industrial 5% Office 10% Office 16% Retail Office exposure is not 20–25%
Slide 47: In conclusion
In conclusion Guidance • Performance in the second half of the year (2H24) will be underpinned by: - Further operational efficiencies; - Positive impact from the recent management company internalisation; - Cost reduction measures and continued revenue growth in the European business; and - A contin
Slide 48: Thank you
Optimise current portfolios Thank you • Our Team • Investec • Sam Leon 48
Slide 49: Interim results for the six months ended 30 September 2023
Transform potential Interim results for the six months ended 30 September 2023 NOVEMBER 2023
Slide 50: Annexures
Annexures Transform potential
Slide 51: Business snapshot
Business snapshot At 30 September 2023 South African direct Pan-European property logistics Australia IFRS balance sheet construct No. of properties 77 32 - 50/50 JV and 18.67% 2% Ownership interest 100% 83.15% In ITAP 36% A$450m equity under Asset value (local currency)** R14.2bn €1.1bn management
Slide 52: Financial review
Financial review (©) Burstone REAL ESTATE PARTNERS 52
Slide 53: Distributable earnings statement
Distributable earnings statement 6 months 6 months ended ended Marginal decline in (5)% Rm 30-Sep-23 30-Sep-22 % change DIPS in line with expectation SA portfolio 410 403 1.7% Net property income 582 584 (0.3%) Stable operating performance Finance costs (172) (181) 5.0% in SA and Europe Investment i
Slide 54: Summarised balance sheet
Summarised balance sheet As at As at Rm 30-Sep-23 31-Mar-23 % change Property related investments SA valuations flat SA 14,490 14,885 (2.7%) Stable business and improved metrics; Europe - PEL 8,596 8,232 4.4% disposals during the period Australia 468 336 39.3% Total investments 23,554 23,453 0.4% De
Slide 55: SA REIT BPR ratios
SA REIT BPR ratios Burstone Notes Note SA REIT BPR methodology 1. No capitalised interest on loans to Izandla adjusted for in SA REIT BPR ratio during the current year – Burstone does not FFO per share (cps) 1 51.07 51.07 distribute interest that is not serviced by Izandla NAV per share (cps) 2 1,57
Slide 56: Performance – South African property portfolio
Performance – South African property portfolio 56
Slide 57: SA property portfolio
SA property portfolio Stable operational performance in a persistently challenging environment 6 months 6 months ended ended Rm 30-Sep-23 30-Sep-22 % change Gross income 664 659 0.8% Net expense (165) (170) 2.9% Base net property income 499 489 2.0% Industrial 146 131 11.5% Retail 176 166 6.0% Offic
Slide 58: SA industrial portfolio
SA industrial portfolio Strong rebound in demand evidenced by letting activity and reduction in average vacancy 6 months 6 months Key portfolio metrics ended ended Sep 2023 Mar 2023 Rm 30-Sep-23 30-Sep-22 % change No. of properties 30 30 Gross income 181 166 9.0% GLA (m²) 475,500 475,500 Net expense
Slide 59: SA retail portfolio
SA retail portfolio Continued improvement in trading metrics and growth momentum maintained 6 months 6 months Key portfolio metrics ended ended Sep 2023 Mar 2023 Rm 30-Sep-23 30-Sep-22 % change No. of properties 18 19 Gross income 226 211 7.1% GLA (m²) 283 600 294 700 Net expense (50) (45) (11.1%) V
Slide 60: SA office portfolio
SA office portfolio Market leading vacancy factor 6 months 6 months Key portfolio metrics ended ended Rm Sep 2023 Mar 2023 30-Sep-23 30-Sep-22 % change Gross income 257 282 (8.9%) No. of properties 29 30 GLA (m²) 237 000 243 500 Net expense (80) (90) 11.1% Vacancy 5.7% 7.4% Base net property income
Slide 61: SA letting activity
SA letting activity Strong letting performance across all sectors with 90% of expired space re-let at (12.2%) negative reversion Weighted Weighted average average Expiries & Renewals gross gross Rental Average Incentive cancellations & new lets expiry rental new rental reversion escalation WALE (% l
Slide 62: SA portfolio composition
SA portfolio composition Sectoral spread by NPI Sectoral spread by GLA Sectoral spread by asset value 23% 27% 28% 39% 41% 48% 24% 36% 34% Retail Office Industrial Retail Office Industrial Retail Office Industrial Industrial Retail Office 2% 4% 4% 8% High Tech Industrial 9% High Street Single-tenante
Slide 63: SA lease expiry profile (by revenue)
SA lease expiry profile (by revenue) The Group maintains a well-staggered lease expiry profile with 56% of leases expiring in FY26 and beyond 26.9% 25.2% 19.3% 15.1% 14.2% 13.6% 9.5% 9.9% 8.9% 8.3% 7.4% 6.2% 6.4% 6.4% 5.3% PvJ please insert 4.7% 5.3% 3.6% 3.4% 0.6% FY24 FY25 FY26 FY27 FY28+ Retail I
Slide 64: SA top 10 clients
SA top 10 clients Based on gross revenue and as % of total portfolio Retail % Office % Industrial % Shoprite Checkers 4.0% Woolworths 2.9% RTT Group (Pty) Ltd 1.9% Foschini Retail Group 2.5% Clidet No 887 2.5% Sumitomo Rubber South Africa (Pty)Ltd 1.4% Mr Price Group 2.0% Fluxmans Inc 2.0% African O
Slide 65: Performance – PEL
Performance — PEL (©) Burstone REAL ESTATE PARTNERS 65
Slide 66: PEL summarised balance sheet
PEL summarised balance sheet €m 30-Sep-23 31-Mar-23 % change Investment property Investment property 1,099 1,099 - Valuation increase of 3% driven by higher NOI, offset by sale of Schiphol €33m Flat Derivative financial instruments 29 28 3.6% Trade and other receivables 37 33 12.1% Cash 21 15 40.0
Slide 67: PEL portfolio letting
PEL portfolio letting Strong start to leasing with 96% of space expiring re-let at positive 5.7% reversion Weighted Weighted average average Expiries & Renewals gross gross Rental Incentive cancellations & new lets expiry rental new rental reversion (% lease Retention GLA (m²) GLA (m²) €/m² €/m² % v
Slide 68: PEL lease expiry to break (by SQM)
PEL lease expiry to break (by SQM) Extended lease expiry profile with 70% of leases expiring beyond 5 years 70% 14% 8% 7% FY24 FY25 FY26 FY27+ 68
Slide 69: PEL top 10 clients
PEL top 10 clients Based on contracted rent and showing as % of total portfolio income Client name % Rhenus 10.2 CHI Deutschland 4.3 Geodis Logistics 4.1 Empik 3.5 Tiesse S.p.a 3.3 H. Essers Logistics 2.9 AF Logistik 2.7 Procter & Gamble 2.6 Neele-Vat Maasvlakte 2.5 WOLTU* 2.5 *Indexed rent with WOL
Slide 70: Balance sheet and treasury
Balance sheet and treasury 70
Slide 71: Balance sheet metrics
Balance sheet metrics As at 30 September 2023 Group PEL ZAR debt EUR debt Total Group Europe Quantum R4.3bn R6.7bn R11.0bn €568m Debt maturity (years) 3.0 2.6 2.9 2.0 Swap maturity 2.4 0.9 1.8 2.0 Hedge percentage 86% 94% 95% 93% Gearing % - - 43% 49% Average all-in cost of funding 9.3% 3.3% 5.6% 3.
Slide 72: 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 3% 10% 4% 7% 13% 9% 33% 37% 18% 18% 81% 35% 32% RMB ABSA Nedbank Aareal Bank / Citibank senior Commercial paper Bank HQLA De
Slide 73: Glossary
Glossary (©) Burstone REAL ESTATE PARTNERS 73
Slide 74: Glossary
Glossary Term Definition Board Board of directors of Burstone Group Limited Burstone or The Fund or The Group Burstone Group Limited including its subsidiaries, investments in joint-ventures and any other investments CCS Cross currency swaps CGT Capital gains tax Cps Cents per share DIPS Distributab
Slide 75: 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