Burstone Group Limited · JSE:BTN
Burstone — Investec Property Fund — H1 2016 Earnings Presentation
43 slides from Burstone's earnings presentation, Nov 16, 2016
Slide 1: Investor Presentation Interim Results 30 September 2016
Investor Presentation Interim Results 30 September 2016 Presented 16 November 2016 1
Slide 2: Contents
Contents 1. Highlights 3 2. Market Review 7 3. Portfolio Performance 13 4. H1 Financial Review 25 5. Developments & Disposals 31 6. Corporate Social Responsibility 34 7. Conclusion 37 Annexures Property Portfolio 40 2
Slide 3: One: Highlights
oS Investec Property Fund Limited One Highlights
Slide 4: Highlights
Highlights Surpassing expectations Key metrics 9 .1% Distribution growth of 2.2% % ahead of guidance for 1.5 Vacancy rate Base net property income growth H1 DPS of 60.91 cents (30 Sep 16: 59.63 cents) 87 % (Mar 2016: 1.1%) R519 Assets sold or in the disposal process in order of H1 expiries let milli
Slide 5: Fund snapshot
Fund snapshot AT 30 September 2016 PROPERTY PORTFOLIO IAPF Market Capitalisation R10.7bn No. of properties 119 Investment value Share price R15.30 GLA 1 280 711 R0.6bn 30 VWAP R14.97 Vacancy 1.5% Gearing 32.6% WALE (years) 3.5 NAV R16.20 In-force escalation 7.8% Asset value R17.0bn Asset value (dire
Slide 6: Key differentiators
Key differentiators 1 2 3 Focus on quality Deliver returns over Defensive portfolio • Property fundamentals the medium to long • Sustainable earnings term • Quality assets hold value • Strong covenants • Capital return of 61% since • Well suited to bear market territory • Quality tenants listing ver
Slide 7: Two: Market Review
oS Investec Property Fund Limited Two Market Review
Slide 8: Property sector valuations
Property sector valuations Sector weighted average yield has increased from 7.3% in May to 8.1%. A gap is beginning to open up between large REITs with quality earnings and REITS with poorer quality earnings and lack of liquidity. 14.2% 16.0% 13.8% 13.7% 14.0% 11.5% 11.2% 10.8% 10.9% 10.7% 10.9% 10.
Slide 9: Price / NAV
Price / NAV Narrowing of IPF discount to NAV 200% 173% 180% 157% 160% 142% 128% 125% 140% 123% 122% 119% 116% 112% 108% 110% 110% 109% 107% 120% 103% 102% 101% 100% 100% 99% 98% 98% 97% 99% 98% 94% 94% 93% 92% 92% 92% 91% 100% 83% 83% 82% 80% 80% 80% 79% 79% 78% 78% 77% 72% 72% 72% 80% 67% 61% 60% 4
Slide 10: Base NPI growth comparison
Base NPI growth comparison Strong base NPI growth in comparison to our peers. Average base NPI growth in the last four years of 8.6%. 10.0% 9.1% 9.0% 8.0% 8.0% 7.3% 7.0% 6.6% 6.0% 5.6% 5.2% 5.2% 5.0% 4.4% 4.5% 4.0% 3.7% 3.0% 2.0% 1.0% 0.0% Synergy Emira Delta Redefine Arrowhead Hyprop Investec SA Co
Slide 11: IPF performance vs. peers last 12 months
IPF performance vs. peers last 12 months 120% 110% 100% 90% 80% 70% 60% Investec Vukile Emira SA Corporate Growthpoint Redefine Investec, 105% Vukile, 99% Emira, 81% SA Corporate, 110% Growthpoint, 101% Redefine, 103% Source: Bloomberg as at 10 November 2016 11
Slide 12: IPF performance vs. peers since listing
IPF performance vs. peers since listing Outperformance over long term 210% 190% 170% 150% 130% 110% 90% 70% 50% Investec Vukile Emira SA Corporate Growthpoint Redefine Investec, 167% Vukile, 131% Emira, 110% SA Corporate, 169% Growthpoint, 143% Redefine, 146% Source: Bloomberg as at 10 November 2016
Slide 13: Three: Portfolio Performance
Three Portfolio Performance 13
Slide 14: Portfolio net property income
Portfolio net property income NPI growth as a result of a dedicated internal focus Actual Actual Net cost to income 30 30 Sep 2016 +/- Sep 2015 September September 2016 2015 15.7% 17.9% Arears % collectibles Rm Rm % Base growth of 9.1% year-on- year, driven by letting activity in Sep 2016 Mar 2016 F
Slide 15: Industrial portfolio
Industrial portfolio Actual Actual +/- 30 Sep 2016 30 Sep 2015 Rm Rm % Gross Income 196.1 94.0 108.6 Gross Expenses (27.5) (17.1) (60.8) Net property income 168.6 76.9 119.2 Base net property Income 72.2 65.1 10.9 Net cost to income ratio 14.0 17.7 3.7 Arrears % collectibles 1.5 0.8 (0.7) Average es
Slide 16: Retail portfolio
Retail portfolio Actual Actual +/- 30 Sep 2016 30 Sep 2015 Rm Rm % Gross Income 294.1 178.9 64.4 Gross Expenses (54.4) (36.1) (50.7) Net property income 239.7 142.8 67.9 Base net property Income 154.9 140.0 10.6 Net cost to income ratio 18.5 20.2 1.7 Arrears % collectibles 1.1 1.1 0.0 Average escala
Slide 17: Retail portfolio market update
Retail portfolio Market Update Despite difficult economic period in the last 12 months, the Fund’s retail malls have performed well: Turnover growth of shopping centre regions at 30 September 2016 20% 16% 15% 13% 13% 10% 9% 8% 5% 0% Gauteng Western Cape Kwa Zulu Natal Limpopo Mpumalanga Free State -
Slide 18: Office portfolio
Office portfolio Actual Actual +/- 30 Sep 2016 30 Sep 2015 Rm Rm % Gross Income 324.5 166.0 95.5 Gross Expenses (46.0) (25.2) (80.4) Net property income 278.5 140.8 97.8 Base net property income 151.4 141.7 6.8 Net cost to income ratio 14.2 14.6 0.4 Arrears % collectibles 0.5 0.1 (0.4) Average escal
Slide 19: Office portfolio market update
Office portfolio Market Update Oversupply mitigating factors Defensive position in oversupplied nodes: 31 321m2 expiring in these areas in the next two years This equates to 11.6% of the office portfolio and 2.4% of the total property portfolio Properties are P-grade and in prime locations GLA
Slide 20: Focus on cost management
Focus on cost management 74% of the expense base comprises of municipal costs – dedicated in-house team in place TI & Comms (1.5%) Sep15: 1.6% Insurance (1.9%) Sep 15: 3.1% Marketing (0.8%) Sep 15: 1.8% Cleaning (2.9%) Sep 15: 2.9% Property Management (6.8%) Sep 15: 7.0% Security (5.1%) Sep 15: 6.5%
Slide 21: Lease expiry by revenue
Lease expiry by revenue 35.0 31.3 30.0 25.0 19.8 20.0 223 607 m2 17.1 15.5 15.0 11.9 10.0 4.3 5.0 0.0 2017 2018 2019 2020 2021 April 2021 onwards Industrial Office Retail Total Office Industrial Retail Total FY18 space expiring (m2) 27 765 127 289 68 553 223 607 At year-end the Fund reported 99 506m
Slide 22: Letting activity year to date
Letting activity year to date Gross Gross Expiries & Renewals/ Rental Average Expiry New cancelations New lets reversion escalation rental rental GLA R/m2 GLA R/m2 % % Office 8 356 169.61 7 914 169.79 0.1% 8.2% Industrial 61 463 42.11 50 428 40.38 (4.1%) 8.2% Retail 32 191 64.631 32 827 71.761 11.2%
Slide 23: Letting activity year to date
Letting activity year to date 87% of space expiring in H1 has been let 763m2 14 OPENING VACANCY OF 1.1% (69 582)m2 NEW LETS RENEWALS 68% retention ratio 2.1% reversion - m2 3553m2 ACQUISITIONS 102 010m2 (6 029)m2 NEW LETS & CANCELLATIONS NEW LETS DISPOSALS EXPIRIES 2,459 m2 relates to (21 587)m2 ope
Slide 24: Vacancy
Vacancy 2.3% 1.5% 1.4% 1.1% 1.1% 1.0% 0.8% 0.6% Office Industrial Retail Total 30 September 2016 31 March 2016 Marginal increase driven by the vacancy of a 8,450 m2 industrial property in the Western Cape subsequently let post period end IPF portfolio vacancy continues to be one of the lowest in the
Slide 25: Four: H1 Financial Review
oS Investec Property Fund Limited Four H1 Financial Review
Slide 26: Financial Highlights
Financial Highlights 60.91 dividend 2.2% up on prior all-in cost of funding. cents per year and ahead of market 9.1% Consistent despite volatile share guidance markets growth in IAPF dividend in operating margin. Significant ZAR as a result of active 84.3% improvement from 82.1% 11% foreign exchange
Slide 27: IFRS Income Statement
IFRS Income Statement Actual Actual 30 Sep 2016 30 Sep 2015 R‘m R‘m % Revenue 814.8 438.9 85.6 Straight-line adjustment 78.9 68.9 14.5 Property expenses (128.0) (78.5) (63.1) Net property income 765.7 429.3 78.4 Fund expenditure (7.5) (7.4) (1.4) Asset management fee (20.2) (21.1) 4.3 Net finance co
Slide 28: Distribution Reconciliation
Distribution Reconciliation Actual Actual 30 Sep 2016 30 Sep 2015 R‘m R‘m % Profit after tax 492.1 371.2 32.6 Adjusted for: Net fair value adjustments 23.9 (36.5) (165.5) Profit on sale of investment property (10.6) (2.6) 307.7 Straight-line adjustment (78.9) (68.9) 14.5 Antecedent dividend 0.0 2.1
Slide 29: Balance Sheet
Balance Sheet 30 September 2016 31 March 2016 +/- R’m R’m R’m Assets Investment property 16 427 16 459 (32) Investment in IAPF 588 532 56 Derivative financial instruments 10 42 (32) Trade and other receivables 156 159 (3) Cash and cash equivalents 144 53 91 Total assets 17 325 17 245 80 Shareholders
Slide 30: Debt metrics
Debt metrics Active debt management Sources debt capital Gearing 3% Sep 2016 Mar 2016 32.6% 34.1% 39% All in cost of funding 58% Sep 2016 Mar 2016 9.1% 9.0% Bank Corporate Bonds Commercial Paper WASE Sep 2016 Mar 2016 3.1 years 3.6 years Debt and swap expiry profile (based on facility) 30% 28% 25% W
Slide 31: Five: Developments & Disposals
Five Developments & Disposals 31
Slide 32: Developments
Developments Musina Mall Extension Extension of 21 323m2 Redevelopment yield of 9.2% Cost R331.7m (IPF share R221.1m) R137.5m (IPF share R91.7m) spent to date Project programme on track for 1 April 17 opening 88% pre-let. (85% board approved) Beit Bridge border disruption: initial miscommunication b
Slide 33: Disposals summary
Disposals summary Five buildings are expected to transfer by the end of the financial year, set to result in a total profit on book of R55.9 million. Selling Price Acquisition Acquisition price GLA Book value Property Date of Transfer (R’m) date (R’m) (m²) (R’m) Musina Mall (1/3) 1 77.1 Jun 12 48.3
Slide 34: Six: Corporate Social Responsibility
Six Corporate Social Responsibility 34
Slide 35: AMP clients now occupying 670m2 of space
AMP 8 clients now occupying 670m2 of space Initial meetings held with each business to understand aspirations, business and support requirements Entrepreneurs introduced to the right people at PM’s and Investec to ensure understanding of supplier offering and to develop relationships Networking even
Slide 36: Sustainability Update
Sustainability Update Sustainability is an area of focus for the Fund which involves improving the stability of electricity and water supply for clients while attempting to manage the increasing cost of occupation where possible. Current Projects Electricity and water bulk check meters to be complet
Slide 37: Seven: Conclusion
oS Investec Property Fund Limited Seven Conclusion
Slide 38: Conclusion
Conclusion Strong H1 underpinned by base growth Griffin and Zenprop performing in line with expectations Expect similar H2 performance Significant focus in H2 on FY18 letting activity and on maintaining of cost Continually looking for acquisition opportunities Growth to normalise in FY18 Fund object
Slide 39: Annexures
oS Investec Property Fund Limited
Slide 40: Annexures: Property Portfolio
Annexures Property Portfolio 40
Slide 41: Portfolio composition by sector
Portfolio composition by sector By Asset Value By Revenue By GLA 21% 37% 40% 32% 37% 39% 47% 24% 23% Office Industrial Retail Office Industrial Retail Office Industrial Retail 41
Slide 42: Portfolio composition by geography
Portfolio composition by geography By Revenue By GLA 1% 2% 5% 6% 10% 11% 2% 2% 2% 2% 10% 12% 66% 69% Free State Gauteng KZN Limpopo Mpumalanga Western Cape Other 42
Slide 43: 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
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