Burstone Group Limited · JSE:BTN
Burstone — Investec Property Fund — H1 FY2018 Earnings Presentation
47 slides from Burstone's earnings presentation, Nov 14, 2017
Slide 1: Investor Presentation Interim Results 30 September 2017
Investor Presentation Interim Results 30 September 2017 Presented 14 November 2017
Slide 2: Contents
Contents 1. Highlights 2. Market Review 3. Portfolio Review 4. Sustainability 5. Financial Review 6. Strategy 7. Investments 8. Conclusion and guidance ANNEXURES — Portfolio Review — Investments — Composition 2
Slide 3: Highlights
Highlights
Slide 4: Highlights
Highlights Focus on property fundamentals and strategic initiatives paying “dividends” - De-risking revenue in advance | Client service | Efficiencies Key metrics Sep 2017 Mar 2017 4.1 years 3.2 years Performance Extended swap maturity 7 66 Sep 2017 Mar 2017 .2% .0% 12 92% Increased hedge percentage
Slide 5: Key events
Key events Ensuring sustainable growth Letting Activity — 66% of space expiring in FY18 has been let at a positive reversion of 2.4% — 13 416m2 let in post period end, reducing vacancy to 1.6% Financial Activity — Balance sheet further strengthened — Reduced all in cost of funding and extended swap
Slide 6: Operating environment
Operating environment Despite the challenging environment, the Fund continues to deliver core and clean income growth for shareholders — The South African economy is currently under pressure with consumer and business confidence at all time lows — Poor local operating conditions are impacting all se
Slide 7: Market Review
Market Review
Slide 8: Property sector valuations
Property sector valuations IPF has moved 80bps from 8.8% in May to 9.6% and average sector yield has increased to 8.2% from 7.9% in May 16.1% 18.0% 14.4% 16.0% 13.4% 12.4% 12.3% 12.0% 11.7% 14.0% 11.7% 11.5% 11.1% 10.8% 10.3% 10.1% 10.4% 12.0% 9.8% 9.6% 9.4% 9.1% 8.8% 8.2% 8.5% 7.9% 10.0% 7.5% 6.3%
Slide 9: Price to NAV
0% 100% 120% 140% 160% 180% 20% 40% 60% 80% Hospitality 68% Texton 71% Arrowhead 71% Rebosis B 71% Accelerate 72% Price/NAV Delta 74% Octodec 75% Emira 76% Price to NAV Tower 77% Gemgrow B 82% Attacq 83% Liberty 2Degrees 85% Safari 87% Rebosis A 87% Investec 90% Indluplace 93% SA Corporate 94% Fairv
Slide 10: Portfolio Review
Portfolio Review
Slide 11: Portfolio performance
Portfolio performance Year to Date Net Property Income Actual Actual Net cost to income 30 September 2017 30 September 2016 +/- Sep 2017 Sep 2016 Rm Rm % 16.6% 15.7% Gross income 808.5 752.9 7.4% Arears % collectibles Net expense (136.5) (119.3) 14.4% Sep 2017 Sep 2016 Base net property income 671.9
Slide 12: Office performance
Office performance Weathering the storm Actual Actual 30 September 2017 30 September 2016 +/- Rm Rm % Gross income 327.6 306.8 6.8% Net expense (50.4) (42.6) 18.3% Base net property income 277.2 264.2 4.9% Net Property Income 289.4 275.8 4.9% Net cost to income ratio 15.8% 14.2% (1.6%) Arrears % col
Slide 13: Industrial performance
Industrial performance Strong letting offset by bad debts Actual Actual 30 September 2017 30 September 2016 +/- Rm Rm % Gross income 186.8 175.3 6.6% Net expense (29.7) (23.8) 24.7% Base net property income 157.1 151.5 3.7% Net Property Income 181.6 168.6 7.7% Net cost to income ratio 14.2% 14.0% (0
Slide 14: Retail performance
Retail performance Growth indicative of quality portfolio Actual Actual 30 September 2017 30 September 2016 +/- Rm Rm % Gross income 294.1 270.8 8.6% Net expense (56.5) (53.0) 6.6% Base net property income 237.6 217.8 9.1% Net Property Income 270.4 242.9 11.3% Net cost to income ratio 18.9% 18.5% (0
Slide 15: Letting activity
Letting activity 66% of space expiring already renewed or re-let Expiries & Renewals & Gross Expiry Gross New Rental Average Cancellations New Lets Rental Rental Reversion Escalation WALE FULL YEAR GLA GLA R/m2 R/m2 % % Years Office 27 978 15 342 167.11 176.67 5.7% 8.1% 4.7 Industrial 142 255 99 096
Slide 16: Lease expiry and vacancy
Lease expiry and vacancy De-risking the revenue line Lease expiry by revenue 35% 35% 30% 25% 20% 18% 16% 15% 15% 12% 11% 12% 11% 10% 8% 7% 7% 6% 6% 6% 5% 4% 4% 4% 5% 2% 3% 3% 2% 1% 1% 0% 2018 2019 2020 2021 2022 April 2022 Onwards Industrial Office Retail Total Vacancy 4.0% 3.5% 3.5% 3.0% 2.8% 2.6%
Slide 17: Sustainability
Sustainability
Slide 18: Sustainability FY18 Roadmap
Sustainability FY18 Roadmap A 2 year programme has been approved with a total budget of Sustainability capex % of total FY18 sustainability R166.1m. Areas of focus for the upcoming year include – budget R 1.4m, Risk mitigation 1.9% — Water leak management R 2.5m, 3.5% R 9.7m, — Bulk check meters 13.
Slide 19: Water Initiatives
Water Initiatives Cape Town water shortage Mayor’s Briefing — The Mayor’s briefing on 4 October 2017 indicated that there is 27.6% useable water remaining which is likely to last until March 2018 — Current usage remains too high at 618 million litres per day. Usage needs to drop to 500 million litre
Slide 20: Financial review
Financial review
Slide 21: Financial snapshot
Financial snapshot Balance sheet de-risked Half year distribution up 7.2% on a normalised basis Including antecedent dividend distribution growth is 12.2% Decrease in cost of funding to 8.8% 92% hedged percentage and 4.1 year swap expiry profile Net Asset Value per share flat at R16.94 21
Slide 22: Simplified income statement
Simplified income statement Actual Actual 30 September 2017 30 September 2016 +/- Rm Rm % Revenue, excluding straight-line adjustment 888.5 814.8 9.0 Straight-line adjustment 16.5 78.8 (79.1) Revenue 905.0 893.6 1.3 Property expenses (147.1) (127.9) 15.0 Net property income 757.9 765.7 (1.0) Other o
Slide 23: Distribution statement
Distribution statement Normalised dividend growth of 7.2% Actual Actual 30 September 2017 30 September 2016 +/- Rm Rm % Profit after tax 473.6 492.1 (3.8) Net fair value adjustments 4.0 23.9 (83.3) Profit on sale of investment property (4.8) (10.6) (54.7) Straight line rental adjustment (16.5) (78.9
Slide 24: Simplified balance sheet
Simplified balance sheet Actual Actual 30 September 2017 31 March 2017 +/- +/- Rm Rm Rm % ASSETS 19 498 19 084 414 2.2 Non-current assets 19 184 18 771 413 2.2 Investment property 17 577 17 371 206 1.2 Investments 1 601 1 392 209 15.0 Other non-current assets 6 8 (2) (25.0) Current assets 314 313 1
Slide 25: Debt metrics
Debt metrics September 2017 March 2017 Rm Rm Total Investments 19 179 18 763 Total Debt 6 751 6 390 Swaps1 6 199 5 503 Facilities available 881 1 250 Gearing 35.2% 34.1% All in cost of Funding 8.8% 8.9% Average margin (ZAR) 1.63% 1.65% Average rate - interest rate swaps 7.71% 7.73% - UK CCS 2.32% n/
Slide 26: Debt metrics
Debt metrics Weighted expiry profile – Continuous risk management 4.5 4.1 3.9 4.0 3.5 3.5 3.2 3.2 3.0 2.81 2.5 2.0 1.5 1.0 0.5 0.0 Debt Swaps Cross currency swaps Sep 2017 Mar 2017 Sources of funding – Diversified funding base 70% 62% 60% 56% 50% 40% 40% 34% 30% 20% 10% 4% 4% 0% Comemrcial Paper Cor
Slide 27: Balance sheet strategy
Balance sheet strategy — Balance sheet and risk management remains a fundamental focus area for the business — The certainty of funding and cost of funding is paramount, especially in the current volatile operating environment Debt and Swap Expiry 35% 30% 28% 30% 25% 25% 20% 20% 17% 15% 15% 12% 12%
Slide 28: Strategy
Strategy
Slide 29: Local Strategy
Local Strategy — To date IPF has been an investor in South African “Core” real estate assets — Core real estate is represented by well-located assets with little to no vacancy risk, long WALEs, minimal asset management and strong tenant covenant — Core assets at the moment are very tightly priced, a
Slide 30: South African strategy shift
South African strategy shift Key parameters of broken core strategy Market Tenancy Property Financing Location conditions conditions conditions conditions Where upside can be found Where Position in the and how to improvements How to optimise Is building real estate & create an can be carried return
Slide 31: Offshore strategy
Offshore strategy Focus on building scale in the United Kingdom and Australia — International strategy to date has been premised on investing in geographies where the Investec Property group has a team on the ground with local property knowledge — In depth market understanding and network has been a
Slide 32: Investments
Investments
Slide 33: UK Investment
UK Investment £10m invested in Investec Argo Property Fund in June 2017 Portfolio value £197.4m Investec Argo Property Fund WAULT 7.9 years Vacancy 0% — Invested in a 10% stake (£10m) in an unlisted GLA 85,593m2 British Virgin Islands entity with real estate investments in the United Kingdom The por
Slide 34: Conclusion and guidance
8 Conclusion and guidance
Slide 35: Conclusion and guidance
Conclusion and guidance — Guidance provided in May to remain unchanged - full year dividend growth of 7% - 8% — The Fund’s focus on revenue protection through early and active client management, focus on client service excellence and quality portfolio is delivering growth through the downturn Potent
Slide 36: Annexures
9 Annexures
Slide 37: Fund snapshot
Fund snapshot At 30 September 2017 PROPERTY PORTFOLIO Market Capitalisation R11.3bn INVESTMENTS No. of properties 119 Share price R15.43 IAPF R1.3bn GLA (m2) 1 309 251 30 VWAP R15.44 UK Fund R0.2bn Vacancy 2.6% Gearing 35.2% Ingenuity R0.1bn NAV R16.94 WALE (years) 3.5 Property & investment value R1
Slide 38: Portfolio Review
Portfolio Review
Slide 39: Vacancy Reconciliation
Vacancy Reconciliation Year to Date 10 824m2 NEW LETS ON MONTH LEASES MONTH 278m2 17 OPENING VACANCY OF 1.4% 2 845m2 NEW LETS DEVELOPMENTS (561)m2 101 575m2 NEW LETS DISPOSALS NEW LETS & CANCELLATIONS EXPIRIES (22 057)m2 NEW LETS BY CANCELLATION1 (39 745)m2 COVERED NEW LETS RENEWALS 276m2 (14 234)m2
Slide 40: Investments
Investments
Slide 41: Acquisitions
Acquisitions Quality acquisitions of R234.5mn [ place image here ] SUMITOMO 36 INGERSOL SASFIN Major tenants Sumitomo Rubber South Africa Major tenants Advtech Resourcing Major tenants Sasfin Premier Logistics Acquisition Price R131.9m Acquisition Price R23.1m Acquisition Price R79.5m Jet Park, Boks
Slide 42: Developments
Developments Shoprite Vanderbijlpark’s refurbishment completed in August 2017 — The centre and Shoprite was redeveloped for a capital cost of R38.0m — The refurbishment allowed for: — An increase in the Fund’s thru rate rental — An extension of Shoprite and Shoprite Liquors’ lease — The redevelopmen
Slide 43: Composition
Composition
Slide 44: Portfolio Composition
Portfolio Composition Geographic spread by revenue Sectoral spread by revenue Sectoral spread by asset value 2% 1% 0% 2% 4% 24% 6% 39% 37% 38% 10% 12% 63% 38% 24% Gauteng KZN Western Cape Free State Limpopo Mpumalanga North West Eastern Cape Northern Cape Office Retail Industrial Office Industrial R
Slide 45: Tenant Composition
Tenant Composition 87% of tenants are listed, large nationals or professional firms 14% 15% 72% A B C A Large international |Listed (larger than R2bn market cap) | Large professionals | National & provincial government | Major franchises B Listed (smaller than R2bn market cap) | Local government | P
Slide 46: Top ten properties
Top ten properties OFFICE INDUSTRIAL RETAIL Asset value (Rm) Asset Value (Rm) Asset value (Rm) 1 & 1A Protea Place 820.7 Riverhorse 952.9 Zevenwacht Mall 898.0 2929 on Nicol 507.3 Brandhouse 445.3 Newcastle Mall 888.6 The Firs 477.8 Alrode Multipark 393.7 Dihlabeng Mall 581.9 30 Jellicoe 419.2 Aberd
Slide 47: 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 — H1 FY2018 Earnings Presentation on 6ix