Burstone Group Limited · JSE:BTN
Burstone — FY2020 Earnings Presentation
84 slides from Burstone's earnings presentation, Mar 31, 2020
Slide 1: Investec Property Fund Results Presentation
2020 INVESTEC PROPERTY FUND RESULTS PRESENTATION FOR THE YEAR ENDED 31 MARCH 2020
Slide 2: Contents
Contents 1. Year in review 2. Strategic overview – Recap 3. Financial review 4. Performance – SA property 5. Performance – Europe 6. Performance – UK 7. Performance – Australia 8. Capital allocation 9. Operating in a COVID-19 environment 10. Balance sheet and risk management 11. Looking ahead – FY21
Slide 3: Year in Review
YEAR IN REVIEW
Slide 4: Key highlights
Key highlights FY20 snapshot • 3.0% growth in full year earnings available for distribution in line with guidance › H2 2020 earnings available for distribution of 75.7 cps – 3.0% growth • 2.0% increase in NAV per share driven by revaluation of PEL portfolio • Significant offshore transaction activit
Slide 5: Business snapshot
Business snapshot IFRS balance sheet construct Pan-European South Africa Logistics Pan-European Direct property Izandla (incl. Belgium) Light Industrial UK Fund Australia 5% 3% South Africa No. of properties 98 15 47 25 15 30 27% Europe 65% Ownership interest 100% 35% 75%1 25% 38% 9% UK Australia As
Slide 6: Key metrics – FY20
Key metrics – FY20 Good performance in a challenging environment Group Offshore performance PEL 3.0% 11.5% 47.5% gearing full year growth in increase in NAV driven Expected to normalise earnings available for by performance of to c.34% post 9.0% 7.0% 8.4% distribution offshore investments de-gearing
Slide 7: Strategic Overview - Recap
STRATEGIC OVERVIEW - RECAP
Slide 8: Strategic pillars
Strategic pillars Business underpinned by core philosophy Deliver sustainable long-term returns by… …ensuring …focusing on client experience …unlocking best of breed assets as a key differentiator the potential of space Value add asset Cost efficiency Revenue security Client service management and a
Slide 9: Delivering on FY20 stated priorities
Delivering on FY20 stated priorities In our accomplishments for the year Stated priority How we have delivered on this… • Navigating SA portfolio through economic slow down • Proactive asset management has ensured positive NPI growth › Property fundamentals • 92% of FY20 expiring space re-let and 24
Slide 10: Financial Review
FINANCIAL REVIEW
Slide 11: Distributable earnings statement
Distributable earnings statement 3.0% growth in earnings available for distribution 31 March 2020 31 March 2019 Notes Rm Rm % change Net property income (excl. straight lining) 1 1 420.1 1 471.9 (3.5%) Base net property income 1 301.7 1 290.2 0.9% Acquisitions and disposals 118.4 181.7 (34.8%) Belgi
Slide 12: Distributable earnings bridge
Distributable earnings bridge Offshore investments remain a key contributor to growth Rm 1 132 24 37 20 78 (10) 1,048 12 (14) (63) HY19 Base Acquisitions Increased Increased Reduction Reduction Operating Other¹ HY20 distributable NPI growth and disposals earnings from UK Fund in income of net costs
Slide 13: Summarised income statement
Summarised income statement Significant fair value gains achieved due to European logistics portfolio 31 March 2020 31 March 2019 Rm Notes Rm Rm % change Net Property Income (excl. straight line rental adjustment) 1 420.1 1 471.9 (3.5%) Straight line rental adjustment (12.8) 31.9 (140.0%) Belgium NP
Slide 14: Summarised balance sheet
Summarised balance sheet Significant offshore investment activity 31 March 2020 31 March 2019 Notes Rm Rm % change Property related investments 29 889.4 20 903.4 43.0% South Africa 1 17 220.9 17 723.2 (2.8%) IAP 2 661.2 1 271.9 (48.0%) UK 3 1 148.3 222.5 416.0% Europe 4 10 859.0 1 685.8 544.2% Other
Slide 15: Net asset value bridge
Net asset value bridge Growth from European investments 5.7% 5.6% 747 Rm 65.7% 730 8,622 (611) (133) (4.7%) (1.0%) 11.5% 14,644 (6,665) (101) 13,131 (707) (50.8%) (0.8%) (5.4%) (369) (2.8%) Opening SA European UK Foreign Sale Sale Movement Working Derivative Closing NAV investments platforms Fund ex
Slide 16: Performance – SA Property
PERFORMANCE – SA PROPERTY
Slide 17: SA property portfolio
SA property portfolio Performance overview • Portfolio has demonstrated resilience and achieved positive growth • Retail affected by subdued consumer spending, office continues to struggle with oversupply, industrial impacted by slowing retail and manufacturing sectors Base NPI • Base growth of 0.9%
Slide 18: SA property portfolio
SA property portfolio NPI growth despite macro-economic challenges Actual Actual Property portfolio Mar 2020 Mar 2019 ± Rm Rm % Mar 2020 Mar 2019 Gross income 1 622.8 1 593.7 1.8% No. of properties 98 102 Net expense (321.1) (303.5) 5.8% GLA (m²) 1 158 249 1 197 921 Base net property income 1 301.7
Slide 19: Letting activity
Letting activity 92% expired space let or renewed for full year (March 19: 94%) Expiries & Renewals Gross Gross new Rental Average Incentive cancellations & new lets expiry rental rental reversion escalation WALE % lease Retention Full year GLA GLA R/m² R/m² % % Years value % Office 35 204 29 513 23
Slide 20: Property valuations
Property valuations Loosening of cap rates and income assumptions Weighted Year on year average Prior year Rbn Mar 2020¹ Mar 2019² change cap rate cap rate Directors Valuation 16.9 17.3 (2%) 9.1% 9.0% Office 6.2 6.3 (1%) 9.4% 9.3% Industrial 3.5 3.7 (6%) 9.5% 9.4% Retail 7.2 7.3 (1%) 8.4% 8.4% Notes
Slide 21: Performance – Europe (A) Logistics
PERFORMANCE – EUROPE (A) LOGISTICS
Slide 22: Pan-European logistics portfolio
Pan-European logistics portfolio Transformative transaction undertaken by IPF in terms of scale and ability to generate long-term value for shareholders Deal Key portfolio metrics • IPF increased its interest in the PEL portfolio from 42.9% to 75% 31 Mar 2020 31 Mar 2019 • Strategic partner introduc
Slide 23: Pan-European logistics portfolio: income statement
Pan-European logistics portfolio Summarised income statement Income statement 31 Dec 20191 31 Dec 2018 % Column1 €’000 €’000 Change Net property income 37 017.8 26 030.0 42.2% Base net property income2 24 899.4 22 853.3 9.0% Acquisitions and disposals 12 118.4 3 176.7 281.5% Fund expenses (9 171.7)
Slide 24: Pan-European logistics portfolio: letting activity
Pan-European logistics portfolio Letting activity • 81% opening vacancy let • 76% of total expiries let at a reversion of positive 7.0% • Majority of the 24% not let is in Italy and Germany and became available at the end of the financial year Expiries & Renewals Gross expiry Gross new Rental cancel
Slide 25: Performance – Europe (B) Light Industrial
PERFORMANCE – EUROPE (B) LIGHT INDUSTRIAL
Slide 26: Pan-European light industrial investment
Pan-European light industrial investment Tracking in line with expectations Acquisition • Initial 25% interest acquired in unlisted portfolio and pipeline of light industrial properties located across France, Germany and Netherlands for acquisition cost of €10.2m • Portfolio comprises 25 properties
Slide 27: Performance – UK
PERFORMANCE – UK
Slide 28: UK Fund
UK Fund Strategic investment providing exposure to urban logistics and strong cash flows Further investment Key portfolio metrics • Invested £25m during H1 2020 to acquire an additional 22.5% interest and a further £15.9m Mar 2020 Mar 2019 during H2 2020 to fund an asset acquisition and ratchet up a
Slide 29: UK Fund: income statement
UK Fund Summarised income statement Income statement £'000 Notes Mar 2020 Mar 2019 % change Total net property income 12 829 11 857 8.2% Base Portfolio 1 11 558 11 206 3.1% Acquisitions and disposals 1 271 651 95.2% Fund expenses (1 893) (1 722) 9.9% Finance costs (4 866) (4 274) 13.9% Net profit be
Slide 30: UK Fund: letting activity
UK Fund Letting activity Expiries & Renewals & Gross expiry Gross new Rental cancellations new lets rental rental reversion WALE Incentive Retention FY20 GLA GLA £/m2 £/m2 % Years % lease value % Light Industrial 9 875 2 994 96.3 124.8 29.6% 4.1 8.9% 30.3% Retail - - - - - - - - Subtotal 9 875 2 994
Slide 31: Performance – Australia
PERFORMANCE – AUSTRALIA
Slide 32: IAP
IAP Strong financial results underpinned by sound asset and capital management FY20 highlights Key portfolio metrics • Completed ASX listing in May 2019 Mar 2020 Mar 2019 Total value of property AUD 1 085m AUD 1 063m › Raised AUD100m and IPF sold down from 20.9% to 9.9% • DPU (post-WHT) of AUD 8.57c
Slide 33: Capital Allocation
CAPITAL ALLOCATION
Slide 34: Capital recycling
Capital recycling Efficiently executed on return enhancing basis – 140bps spread March 2020 Yield Looking forward: Rm % • R0.9bn of cash outstanding from 5 properties Deployment into: sold and awaiting transfer (still held for sale) European acqusitions¹ 3,498 10.1% • Further 8 properties valued at
Slide 35: Operating in a COVID-19 Environment
9 OPERATING IN A COVID-19 ENVIRONMENT
Slide 36: What are we seeing globally?
What are we seeing globally? Retail sector has been the hardest hit – only essential retailers trading during lockdown Demand side pressure is expected to adversely impact SMME’s Ramp up in online retail activity and e-commerce penetration Increased need for storage space due to supply chain reconfi
Slide 37: IPF benefits from a diversified balance sheet
IPF benefits from a diversified balance sheet Sectoral and geographical diversification ensures the portfolio delivers through the cycles Contribution Proportional consolidation to group by by asset value SA Europe UK Australia sector Retail 43% - 66% - 25% Industrial 11% - 34% 17% 10% Logistics 9%
Slide 38: IPF global retail exposure – 25% of total asset base
IPF global retail exposure – 25% of total asset base Underpinned by quality tenant base Global sectoral exposure on proportional IPF retail exposure What to expect going forward… consolidation basis (by asset value) • South Africa: • Short-term: › Constitutes majority of 25% global › Potential incom
Slide 39: IPF global industrial / logistics exposure set to benefit
IPF global industrial / logistics exposure set to benefit Resilient through the crisis with expected tailwinds IPF industrial / logistics exposure What to expect going forward… • Industrial and logistics exposure comprises majority • South Africa: of IPF balance sheet (56%) underpinned by PEL: › GDP
Slide 40: Strength of tenant covenants
Strength of tenant covenants IPF has a strong tenant base globally that has underpinned the portfolio’s resilience to date Tenant Weighted • Majority (88%) of tenant base grading SA Europe UK average* considered investment grade – A grade 72% 71% 56% 71% will continue to trade post lockdown B grade
Slide 41: Operating principles in the COVID-19 environment
Operating principles in the COVID-19 environment What we are adhering to in navigating through the COVID-19 volatility Heightened Supporting Stronger Rental relief engagement SMMEs tenant to support with over to the Fund’s relationships working capital 1 000 tenants best ability Ensuring malls Abili
Slide 42: Impact of lockdown
Impact of lockdown Rental collection experience across all regions has been strong % Collections April May Investment region (as % of April rent receivable) (as % of May rent receivable) South Africa 73% 79%1 Europe (logistics) 94% 65%2 UK 87% 79%3 South Africa: • R61.7m of rental relief agreed (4%
Slide 43: Impact of lockdown: tenant concessions
Impact of lockdown Tenant concessions Investment region Commentary South Africa • Deferral and discount requests in industrial and office sectors • Retailers requesting discounts › SMMEs unable to pay rent – IPF has provided relief › Attempts made to negotiate relief measures with large and medium s
Slide 44: IPF supports COVID-19 relief
IPF supports COVID-19 relief IPF has implemented various initiatives to support and ensure the sustainability of SMME’s and the community COVID-19 awareness and Service providers hygiene • Ensuring job preservation • Educational posters and full salaries to staff within • Provision of sanitisers sho
Slide 45: Balance Sheet and Risk Management
10 BALANCE SHEET AND RISK MANAGEMENT
Slide 46: Balance sheet management
Balance sheet management Well-positioned to withstand economic turbulence • De-gearing flightpath: › COVID-19 likely to impact implementation period 95.3% Group interest rate exposure hedged › Proceeds of R1.2bn from the disposal of SA properties – guarantees received, waiting for deeds offices (Mar
Slide 47: Update on PEL refinancing
Update on PEL refinancing • Continue to progress discussions with proposed funders › Due diligence and legal work far advanced › Slow progress over last six weeks due to COVID-19 volatility • Have engaged in wider process to support club deal › Positive feedback from funders that IPF is well placed
Slide 48: Debt maturity – next 12 months
Debt maturity – next 12 months Limited liquidity risk • R1.5bn available cash (including R0.9bn guarantees received on asset sales) • R0.9bn debt maturing in December 2020 • Two acquisition bridges › €205m extended for 12 months to April 2021 › €40m extended to May 2021 › To be settled through refin
Slide 49: Balance sheet strategy – covenants
Balance sheet strategy – covenants Significant headroom on interest and debt yield covenants Group covenants Covenant March 2020 Group LTV 50.0% 47.6% Group interest cover ratio 2.0x 2.9x Group NAV 7.0bn 15.0bn Minimum unencumbered asset % 30.0% 73.7% Europe UK Australia Debt yield: ICRs: ICR 8.7% t
Slide 50: Balance sheet position
Balance sheet position Key focus is PEL refinancing 47.5% (1.6%) 34.4% (8.7%) (2.3%) (0.5%) Current gearing (c.) SA asset disposals PEL platform refinance¹ Sell 10% of PEL Izandla mezz refinancing Gearing post flightpath (c.) and transfer of Belgium² 1. By gearing up to 60% LTV in PEL platform, in-c
Slide 51: Risk adjusted LTV
Risk adjusted LTV LTV considered on a risk-adjusted basis across each region Look-through gearing at c.49% post flightpath • Regional gearing is evaluated on a risk adjusted basis • Investments reside in developed markets, currently linked to best real estate markets globally • Significant cash flow
Slide 52: Balance sheet and liquidity key priorities
Balance sheet and liquidity key priorities Next 12 months and beyond In-country PEL debt refinance 1 • Expect successful outcome Key priority is PEL in-country 2 Completion of de-gearing flightpath and normalization of LTV down to c.34% debt refinance which reduces Group LTV 3 Refinancing of debt ma
Slide 53: Looking Ahead – FY21
11 LOOKING AHEAD – FY21
Slide 54: What we expect to see over the next 12 months
What we expect to see over the next 12 months… • Greater uncertainty around leasing activity and renewals • Short-term cashflow impact from: › Rental concessions affecting timing and quantum of cashflows › Gradual return to business as usual as lockdown is lifted › Pace of economic recovery • Operat
Slide 55: FY21 strategic priorities
FY21 strategic priorities Key focus elements driving our purpose in FY21 IPF Group priorities 1. Client engagement 2. Active balance sheet 3. Bedding down 4. Humanity… across all regions management Pan-European acquisition now, more than ever • Support through COVID-19 • Complete de-gearing flightpa
Slide 56: Final Dividend and Guidance
12 FINAL DIVIDEND AND GUIDANCE
Slide 57: Final dividend and FY21 guidance
Final dividend and FY21 guidance Focus on maintaining the longer-term competitive nature of the business Final dividend • Lack of clarity around COVID-19 impact and duration • Board has resolved to defer dividend declaration, to the extent permissible by regulators until such a time as there is more
Slide 58: Annexures: Performance – SA Property
13 ANNEXURES PERFORMANCE – SA PROPERTY
Slide 59: Office
Office Over supply and subdued demand remain a challenge Mar 2020 Mar 2019 ± Key portfolio metrics Rm Rm % Gross income 655.4 677.5 (3.3%) Mar 2020 Mar 2019 Net expense (129.2) (137.5) (6.0%) No. of properties 31 31 Base net property income 526.2 540.0 (2.6%) GLA (m²) 248 621 249 243 Acquisitions an
Slide 60: Industrial
Industrial Under pressure due to void periods and increases costs Mar 2020 Mar 2019 ± Key portfolio metrics Rm Rm % Gross income 371.0 359.3 3.3% Mar 2020 Mar 2019 Net expense (61.8) (56.5) 9.4% No. of properties 36 38 Base net property income 309.2 302.8 2.1% GLA (m²) 511 108 531 501 Acquisitions a
Slide 61: Retail
Retail Continues to produce growth despite subdued consumer spending Mar 2020 Mar 2019 ± Rm Rm % Gross income 596.4 556.9 7.1% Mar 2020 Mar 2019 Net expense (130.2) (109.5) 18.9% No. of properties 31 33 Base net property income 466.2 447.4 4.2% GLA (m²) 398 520 417 177 Acquisitions and disposals 113
Slide 62: Retail: trading performance
Retail Trading performance Average like-for like turnover excluding Design Quarter and Balfour Mall (%) • Retail Portfolio showing good growth in tough trading environment with Fleurdal 4.4% 4.3% 4.3% extension adding over 2% growth to the 3.8% 3.8% 4.3% 4.0% 4.1% 3.9% 4.0% 4.2% 3.6% 12-month turnov
Slide 63: Annexures: Capital Allocation
13 ANNEXURES CAPITAL ALLOCATION
Slide 64: Capital recycling
Capital recycling R1.2bn proceeds raised relating to SA properties sold (R0.9bn pending transfer) Value at 31 Mar 2020 Properties held for sale (Rm) Status Scientific Building 30.0 Interest from potential purchaser International SOS 6.0 Interest from potential purchaser Builders Warehouse Polokwane
Slide 65: Annexures: Balance Sheet
13 ANNEXURES BALANCE SHEET
Slide 66: Balance sheet metrics
Balance sheet metrics Europe Europe As at 31 March 2020 IPF Group SA (pre-refinance) (post-refinance) UK Australia Average all-in cost of funding 6.1% 8.9% 2.1% TBC 3.5% 3.1% Average debt margin (local currency) 1.8% 1.4% 2.1% TBC 2.4% n/a Average all-in fixed rate - EUR 2.0% n/a n/a n/a n/a n/a Ave
Slide 67: Balance sheet strategy – Group
Balance sheet strategy – Group Fundamental focus Weighted expiry profile (years) 6 Years 5.3 4 3.8 3.1 2.8 2.5 2.1 2 1.6 0 Group debt Europe in country debt UK in country debt Debt Swaps Cross currency swaps The Fund’s weighted average debt maturity is consistent across all platforms: • South Africa
Slide 68: Balance sheet strategy – Group
Balance sheet strategy – Group Access to multiple sources of funding across various lenders SA debt split by bank Europe in country debt split by bank UK in country debt split by bank 7% 13% 15% 6% 13% 37% 28% 57% 28% 63% 33% Investec Nedbank BAML HSBC Nedbank HQLA Nedbank Bridge PBB PBB UK SBSA Sta
Slide 69: Debt and swap expiry profiles
Balance sheet strategy – Group Debt and swap expiry profiles Group debt and swap expiry (%) 40% 30% 30% 27% 20% 22% 21% 21% 20% 17% 14% 14% 10% 10% 3% 1% 0% FY21 FY22 FY23 FY24 FY25 FY26 + Total swaps Total debt Group debt expiry 7.1¹ R billion 8 6 4 3.2 2.0 2.1 2.4 2.1 1.7 1.4 2 0.9 1.0 0.7 0.5 0.2
Slide 70: Balance sheet strategy – SA
Balance sheet strategy – SA Sources of funding Sources of funding (%)¹ 2% 24% 42% 14% 18% ZAR bank Foreign bank² HQLA DMTN Commercial paper 1. By facility 2. Excluding bridge funding. If bridge funding is included, foreign bank debt increases to 43% 70
Slide 71: Annexures: SA Property Portfolio
13 ANNEXURES SA PROPERTY PORTFOLIO
Slide 72: SA portfolio composition
SA portfolio composition Sectoral spread by revenue Sectoral spread by asset value Sectoral spread by GLA 20% 22% 37% 34% 41% 43% 37% 22% 44% Office Office Office Industrial Industrial Industrial Retail Retail Retail 72
Slide 73: SA sectoral composition (by revenue)
SA sectoral composition (by revenue) Retail Office Industrial 7% 2% 7% 7% 13% 36% 47% 18% 64% 78% 21% Shopping centres Single High tech industrial Retail Warehouse Multi Standard units Motor dealership Warehouses High street Manufacturing Logistics 73
Slide 74: SA lease expiry (by revenue)
SA lease expiry (by revenue) 92% of full year expiries let 30% 25.3% 25% 19.5% 19.8% 20% 18.7% 16.7% 15% 10.8% 10% 9.5% 9.0% 9.0% 8.2% 6.4% 6.2% 7.3% 7.7% 6.3% 5.0% 5.0% 4.8% 5% 3.5% 1.3% 0% FY21 FY22 FY23 FY24 April 2024 onwards Industrial Office Retail Total 74
Slide 75: SA top tenants
SA top 10 tenants Retail Office Industrial Gross revenue Gross revenue Gross revenue % of total portfolio % of total portfolio % of total portfolio Tenant name % Tenant name % Tenant name % Massmart 4.8 Investec 4.4 Altron Ltd 1.8 Shoprite Checkers Group 2.5 Cliffe Dekker Hofmeyr 4.1 Kevro Trading (
Slide 76: Annexures: PEL Property Portfolio
13 ANNEXURES PEL PROPERTY PORTFOLIO
Slide 77: PEL lease expiry (by revenue)
PEL lease expiry (by revenue) 60% 52.3% 50% 40% 30% 20% 18.4% 14.5% 10.8% 10% 4.0% 0% FY21 FY22 FY23 FY24 April 2024 onwards 77
Slide 78: PEL top tenants
PEL top 10 tenants Logistics Gross revenue % of total portfolio Tenant name % Rhenus 9.1% CHI Deutschland 6.2% Geodis Logistics 5.5% DHL 5.3% Odin Warehousing & Logistics BV 4.5% AF Logistik 4.0% Vilmorin & Cie 3.7% Procter & Gamble 3.6% Galeria Warehouse 3.4% 78
Slide 79: Annexures: UK Property Portfolio
13 ANNEXURES UK PROPERTY PORTFOLIO
Slide 80: UK portfolio composition
UK portfolio composition Sectoral spread by revenue Sectoral spread by asset value 14% 9% 22% 18% 35% 27% 37% 38% Industrial Industrial Supermarkets Supermarkets Retail warehousing with conversion ability Retail warehousing with conversion ability Traditional retail warehouse Traditional retail ware
Slide 81: UK lease expiry (by revenue)
UK lease expiry (by revenue) 80% 73.1% 60.7% 60% 40% 20% 13.8% 11.9% 12.4% 6.7% 2.4% 2.4% 3.7% 4.1% 2.6% 4.1% 1.9% 0.0% 0.3% 0% FY21 FY22 FY23 FY24 April 2024 onwards Retail Industrial Total 81
Slide 82: UK top tenants
UK top 10 tenants Retail and Industrial Gross revenue % of total portfolio Tenant name % Sainsburys Supermarkets Ltd 26.7% B&Q Plc 11.7% Tesco Stores Ltd 9.3% Go Outdoors Ltd 6.5% Kuehne & Nagel Ltd 2.7% Smiths Detection Watford Ltd 2.6% Haag Streit UK Ltd 2.3% Wren Kitchens Ltd 2.2% Kingston Digita
Slide 83: Glossary
Glossary Abbreviation Meaning Abbreviation Meaning CCS Cross currency swaps IRS Interest rate swaps CGT Capital gains tax Izandla or Izandla Property Fund Izandla Property Fund Proprietary Limited DPS Distribution per share or dividend per share MTM Mark to market Edcon Edcon Holdings Limited NAV Ne
Slide 84: 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