Redefine Properties Limited · JSE:RDF
Redefine Properties — FY2014 Earnings Presentation
70 slides from Redefine Properties's earnings presentation, 2014
Slide 1: Group Results and Strategic Review
GROUP RESULTS AND STRATEGIC REVIEW For the year ended 31 August 2014 www.redefine.co.za
Slide 2: Agenda
AGENDA Introduction and Highlights Andrew Konig (CEO) Growth and Diversification Marc Wainer (Chairman) Property Portfolio David Rice (COO) Financial Results Andrew Konig (CEO) Prospects Andrew Konig (CEO) Supplementary Information 2
Slide 3: Introduction and Highlights
INTRODUCTION AND HIGHLIGHTS ANDREW KONIG
Slide 4: Key Management Changes
KEY MANAGEMENT CHANGES A focussed team Non executive board of directors Responsibilities • Acquisitions and disposals Responsibilities • International investments • Chairman of Remuneration and • Investor Relations Nomination Committee • Chairman of Investment Marc Wainer Committee Executive Chairma
Slide 5: 2014 Salient Features
2014 SALIENT FEATURES Another busy year • Strong focus on core properties • Sectoral and geographic diversification drove outcome • Tenant retention rate 86% (2013 : 80%) • Growth in income bolstered by acquisitions made in 2013 • Property acquisitions which transferred total R4.6 billion – a furthe
Slide 6: Strategic Priorities: Asset Allocation and Portfolio Management
STRATEGIC PRIORITIES Refine asset allocation and active portfolio management 2014 PRIORITIES OUTCOME ACTION • Dispose the government tenanted office portfolio Ongoing • Substantially complete the rationalisation of the property portfolio Ongoing • Continue to acquire good quality and dispose of
Slide 7: Strategic Priorities: Property Management
STRATEGIC PRIORITIES Focussed and efficient property management 2014 PRIORITIES OUTCOME ACTION • Take-on Fountainhead property management Done • Improve management information Continuous review • Focus on cost of services through leveraging economies of scale Continuous review • Introduce tech
Slide 8: Strategic Priorities: Growth and Diversification
STRATEGIC PRIORITIES Disciplined growth and diversification of the local property asset base 2014 PRIORITIES OUTCOME ACTION • Exit the remaining Hyprop holding Complete • Increase the holding in Fountainhead Done • Obtain direct control of Fountainhead assets Continuous review 2015 PRIORITIES
Slide 9: Strategic Priorities: Funding
STRATEGIC PRIORITIES Prudent management of funding 2014 PRIORITIES OUTCOME ACTION • Improve the loan to value ratio Continuous review • Establish American Depository Receipts programme First SA REIT • Increase funding from debt capital markets Ongoing • Increase the level of unsecure debt Co
Slide 10: Strategic Priorities: International Real Estate
STRATEGIC PRIORITIES Growth and geographic diversification in international real estate markets 2014 PRIORITIES OUTCOME ACTION • Set up SARB approved structure to invest in offshore property directly Done • Invest in listed offshore securities and direct property at attractive yields Continuous
Slide 11: Strategic Priorities: Development Opportunities
STRATEGIC PRIORITIES Unlock value-added development opportunities in existing properties OUTCOME ACTION 2014 PRIORITIES Continuous review • Exploit yield-enhancing development opportunities around owned properties • Make significant progress on current development pipeline Ongoing • Pursue pre-l
Slide 12: Sustainability
SUSTAINABILITY Energy efficiency is a business imperative – integrated into business strategy • 2014 carbon footprint represents an improvement compared to 2013 – a result of energy efficiency enhancements • Redefine is refining its Sustainability Policy covering the three pillars of sustainability
Slide 13: What Differentiates Redefine
WHAT DIFFERENTIATES REDEFINE A compelling investment proposition • Committed staff aligned with Redefine’s values International Property Local Property Assets Assets 14.5% 85,5% • Hands-on management approach • Quality diversified portfolio • Development capability with substantial pipeline • Global
Slide 14: Insight into Growth and Diversification
INSIGHT INTO GROWTH AND DIVERSIFICATION MARC WAINER
Slide 15: Investment Philosophy
INVESTMENT PHILOSOPHY • Redefine continues to look for acquisition opportunities • The following investment criteria are applied: - Acceptable initial yield - Geographic location - Growth in rental income and capital appreciation prospects • Will purchase across all sectors, i.e. retail, industrial,
Slide 16: Investment Philosophy cont.
INVESTMENT PHILOSOPHY cont. NEW OPPORTUNITIES • Looking for higher yielding opportunities • Student accommodation identified after extensive market research - Agreement in principle concluded with Respublica to acquire 51% - Capacity to grow into a substantial portfolio at attractive yields DISPOSAL
Slide 17: Disciplined Growth and Diversification
DISCIPLINED GROWTH AND DIVERSIFICATION • Significant strides have been made • Portfolio now bears little resemblance to what it was two years ago INCOME EARNING PROPERTY ASSETS Contribution to revenue Secondary 12% Core 59% International 20% Defensive 9% 17
Slide 18: Unfinished Business
UNFINISHED BUSINESS GOVERNMENT PORTFOLIO • Will be disposed of in tranches - prospective purchasers experience difficulty in obtaining funding • Redefine will provide some vendor finance to credible purchasers • Disposals will be above book value but will be disposed through a structured basis to mi
Slide 19: Recent Acquisitions
RECENT ACQUISITIONS • R1.9 billion portfolio • R2.7 billion portfolio • R1.1 billion (13.7% stake) • Acquisition yield 8.75% • 8.7% acquisition yield • Strategic acquisition (inclusive of Manco’s) • Triple Net lease • Not a take-over target for • 18 properties, 9 core which Redefine total 75% of the
Slide 20: Exposure and Expansion in Sandton
EXPOSURE AND EXPANSION IN SANDTON • Further exposure to the Sandton node will not be considered unless it is a long-term, fully leased property, at an acceptable yield • Total investment in Sandton will be R4 billion 90 Grayston 90 Rivonia Existing Properties Value • Cost : R504 million • Cost: R980
Slide 21: Geographic Diversification
GEOGRAPHIC DIVERSIFICATION • Will only invest in international markets with credible local partners - currently Cromwell and Redefine International • Redefine International reduced its stake in Cromwell. Redefine increased its stake • Will invest in listed entities where higher yields are achievable
Slide 22: Active Management – Value Add Opportunities
ACTIVE MANAGEMENT – VALUE ADD OPPORTUNITIES Redefine will continue to seek to add value to existing well-located properties STANDARD BANK – R533 MILLION ESSEX GARDENS – R18 MILLION Before After Before After OTTERY CENTRE – R79 MILLION SCOTTSVILLE MALL PHASE II – R41 MILLION Before After Before After
Slide 23: Property Portfolio
PROPERTY PORTFOLIO DAVID RICE
Slide 24: Property Portfolio
PROPERTY PORTFOLIO Value by sector GLA by sector GMR by sector Office Retail Industrial Notes: Fountainhead and JV’s at Redefine's portion Developments reflected at estimated value at completion 24
Slide 25: Portfolio Activity
PORTFOLIO ACTIVITY • Tenant retention 86% of GLA • Weighted average renewal growth of 5.4% with annual escalations of 7.4% • Total vacancy of 5.5% • R4.6 billion in acquisitions concluded at an initial yield of 8% which includes Annuity Properties at a cost of R1.4 billion • Further R3 billion in ac
Slide 26: Top 10 Properties
TOP 10 PROPERTIES Value GLA Property Sector (Rm) (m2) Centurion Mall, Centurion, Gauteng (66%) Retail 2 300 112 583 East Rand Mall, Boksburg, Gauteng (JV 50%) Retail 1 109 62 514 Matlosana Mall, Klerksdorp, Northwest Retail 1 029 63 563 90 Rivonia Road, Sandton, Gauteng Office 979 35 844 Golden Walk
Slide 27: Asset Management Focus
ASSET MANAGEMENT FOCUS • Asset management to extract value from portfolio • Leasing: - Letting of high value vacancies - Maintain and develop broker relationships - Early renewal of large leases • Tenant retention and relationships • Acquire well located properties that meet Redefine’s strategy • Di
Slide 28: Office Portfolio
OFFICE PORTFOLIO Value by Location Value by Grade 2% 5% 11% 25% 34% 15% 49% 26% 33% Greater JHB Sandton Western Cape Other Premium Grade A Grade Pretoria Kwa-Zulu Natal Other 28
Slide 29: Office Activity
OFFICE ACTIVITY • Tenant retention rate 89% of GLA Major Vacancies • Office vacancy 7.2% GLA (m2) • Weighted average renewal growth of 5.5% with annual lease escalations of 6.9% Commerce Square 8 500 • 90 Grayston Drive, 4 star green rated Sandton office block of 19 300m 2 – 88% let NBS Building 7 1
Slide 30: Industrial Portfolio
INDUSTRIAL PORTFOLIO Value by Type GMR by Type 9% 8% 12% 13% 37% 36% 18% 21% 24% 22% Warehousing High Grade / High Tech Light Manufacturing Other Industrial Units 30
Slide 31: Industrial Activity
INDUSTRIAL ACTIVITY • Tenant retention rate 77% of GLA-primarily due to two tenants in Major Vacancies liquidation (40 600m2) GLA • Weighted average renewal growth of 4.4% with annual lease escalations (m2) of 7.6% ERF 681, Alrode 20 935 • Industrial vacancy 5.3% S. Burde 9 929 Wingfield Park 6 435
Slide 32: Industrial Activity: Focus
INDUSTRIAL ACTIVITY Focus Develop efficient Distribution Centres and midi units with optimised roof heights, floor specifications, efficient energy optimisation and good vehicular circulation - Cornubia – 90 000m2 - Phase II Barbara Road – 12 000m2 - Waltloo Warehousing – 26 500m2 - Golf Air Park –
Slide 33: Retail Portfolio
RETAIL PORTFOLIO Value by Type GMR by Type 8% 10% 10% 11% 36% 43% 15% 15% 24% 28% Regional Centre Community Centre Small Regional Other Neighbourhood Centre 33
Slide 34: Retail Activity
RETAIL ACTIVITY • Tenant retention rate 89% of GLA • Retail vacancy 3.9% • Weighted average renewal growth of 5% with annual lease escalations of 7.2% • Successful completion of Matlosana Mall – 65 180m2 super regional mall opened on 23 October 2014 • Completion and re-tenanting of Bryanston Shoppin
Slide 35: Retail Activity: Strategy
RETAIL ACTIVITY Strategy • Focus on tenant mix and category performance which is a better indicator of hotspots and trends. Centre trading densities no longer a “good enough” benchmark • Continue to performance manage certain tenants and categories • Monitoring total cost of occupation • Ensure esca
Slide 36: Retail Activity: Benchmarking Major Tenants
RETAIL ACTIVITY Benchmarking some of our major tenants 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Game Clicks Shoprite Edcon Pepkor Woolworths Pick n Pay Musica Truworths Foschini JD Group Mr Price -5.0% -10.0% Portfolio Growth Portfolio Comparable Growth Reported Growth Reported Comparable Growth * Data use
Slide 37: Centre Technology – WiFi Analytics
CENTRE TECHNOLOGY – WIFI ANALYTICS Benmore Gardens Analytics BUSIEST DWELL TIME APP DOWNLOADS UNIQUE VISITS New visitors Day in venue 40m49s 48,236 Returning visitors 512 Friday Hour 44m 35s and 12pm Wi-Fi users counting 16m 28s APP SEARCH Top 3 Directions IN APP CONTENT DELIVERED Toilet
Slide 38: Financial Results
FINANCIAL RESULTS ANDREW KONIG
Slide 39: 2014 Financial Highlights
2014 FINANCIAL HIGHLIGHTS A number of milestones reached • Financial results ahead of market guidance Market Capitalisation • Second half distribution growth 9% to 38.14 cents – full year up 8.5% • Local distributable income equals R2 billion 40.0 • Recurring distributable income per share has grown
Slide 40: Distributable Income
DISTRIBUTABLE INCOME Year ended 31 August 2014 Distributable Income Per share Y-O-Y Change R’m cents % 2013 Actual 2 013 68.7 Less 2013 non-recurring (36) (1.2) 2013 actual recurring 1 977 67.5 Less dilution arising from new shares (6.4) Organic growth 2014 422 13.0 2014 actual recurring 2 399 74.1
Slide 41: 2014 Trading Results in Summary
2014 TRADING RESULTS IN SUMMARY A diversified portfolio at work Tailwinds Headwinds +R580 million - R179 million 2 600 51 (17) 3 (3) (5) 53 (88) 2 450 56 7 (40) (11) 84 (4) (11) 2 300 51 167 2 150 111 2 414 2 000 1 850 2 013 1 700 41
Slide 42: Simplified Statement of Financial Position
SIMPLIFIED STATEMENT OF FINANCIAL POSITION At 31 August 2014 2013 RDF FPT Global Group RDF FPT Global Group (R'm) (R'm) (R'm) (R'm) (R'm) (R'm) (R'm) (R‘m) Property assets 31 471 12 168 7 429 51 068 27 676 11 105 3 797 42 578 Intangible assets 4 436 893 0 5 329 4 371 893 0 5 264 Other assets 660 433
Slide 43: Growth in Net Asset Value
GROWTH IN NET ASSET VALUE Year ended 31 August 2014 Tangible net asset value increased by 128.5 cents (18.6%) -1.7 976.0 1 000.0 -3.6 870.7 -121.5 40.4 1.9 900.0 40.4 129.7 800.0 -96.4 58.4 129.7 700.0 -25.1 600.0 58.4 500.0 25.1 819.5 400.0 691.0 300.0 200.0 100.0 179.7 156.5 0.0 2013 Dilution aris
Slide 44: Capital Allocations and Returns
CAPITAL ALLOCATIONS AND RETURNS Year ended 31 August 2014 Cromwell Partners (% of Total) Return on Equity 0.3% : 0.2 Redefine International Yield 11.3% : 8.4 Redefine 8.2% Cromwell Fountainhead 7.5% 74.5 cents 5.6% : 4.1 Australia 5.8% RI PLC 10.5% Fountainhead Redefine 19.2% : 14.4 63.6% : 47.4 TOT
Slide 45: Simplified Distributable Income Statement
SIMPLIFIED DISTRIBUTABLE INCOME STATEMENT Year ended 31 August 2014 2014 2013 Change (R’m) (R’m) % Net operating income from investment properties - Redefine 2 453 2 124 15.5 Listed securities portfolio 465 381 22.0 Fee income 91 108 -15.7 Property trading income 1 4 -75 Total revenue 3 010 2 617 15
Slide 46: Active Portfolio Income Analysis
ACTIVE PORTFOLIO INCOME ANALYSIS Year ended 31 August 2014 2014 2013 Change (R’m) (R’m) % Active property portfolio revenue 2 476 2 359 5.0 Active property portfolio costs* (478) (473) 1.1 Property income from active property portfolio 1 998 1 886 5.9 Net operating income from acquired / development
Slide 47: Active Portfolio Revenue Growth
ACTIVE PORTFOLIO REVENUE GROWTH Year ended 31 August 2014 A tough leasing environment has diluted contractual revenue growth % of rental Growth vs % of Property Contribution income 2014 revenue to growth % Rental Income 5.1% 92.0% 4.7% Contractual lease escalations 76.8% 7.5% Renewals plus new lets
Slide 48: Active Portfolio Expenditure Analysis
ACTIVE PORTFOLIO EXPENDITURE ANALYSIS Year ended 31 August 2014 2014 Change (R’m) % 2013 Property costs 473 Net municipal charges driven mainly by rates and taxes 24 38.7 Net electricity recoveries through internalisation (41) -205.0 Operating costs flat through cost containment (1) 0 Property manag
Slide 49: Active Portfolio Trading Efficiency
ACTIVE PORTFOLIO TRADING EFFICIENCY Year ended 31 August 2014 Every R100 of property revenue converts into property income as follows: 2014 2013 2012 % % % Property revenue 100.0 100.0 100.0 Less property costs 19.3 20.1 23.4 Municipal charges net of recoveries 3.5 2.6 3.4 Electricity charges net of
Slide 50: Funding Profile
FUNDING PROFILE At August 2014 Redefine Fountainhead International Group Funding snapshot (R’m) (R’m) (R’m) (R’m) Bank borrowings 12 663 3 243 1 050 16 956 Debt capital market 2 800 - - 2 800 Total borrowings 15 463 3 243 1 050 19 756 Key debt statistics 14 Loan to value (Management target 35%) – in
Slide 51: Debt Maturity Profile
DEBT MATURITY PROFILE At 31 August 2014 Analysis of debt maturity in 2014 / 2015 Debt maturity profile R’m 6000000 600 R’m Debt capital market 1 761 5000000 500 Facility to be rolled 135 4000000 400 In process of extension to 2021 1 500 3000000 300 In process of restructure 324 200 2000000 Since rep
Slide 52: Cost of Capital
COST OF CAPITAL Market shifts dictated by US monetary policy normalisation Cost of Funding 2014 (%) Projected (%) Average JIBAR 5.5 6.4 Bank margin 1.7 1.8 Floating rate 7.2 8.2 Cost of fixing 1.0 1.2 Average cost of debt 8.2 9.4 Yield on equity raised 8.1 8.0 Weighted average cost of funding 8.2 8.
Slide 53: Shareholder Profile
SHAREHOLDER PROFILE Top 10 beneficial shareholders at end September 2014 Number of units % Government Employees Pension Fund 284 397 443 8.3 State Street (Custodian) 210 440 248 6.2 Investment Solutions 174 673 306 5.1 Stanlib 162 514 526 4.8 Coronation Fund Managers 125 378 349 3.7 Clearwater Prope
Slide 54: Country Classification
COUNTRY CLASSIFICATION Beneficial shareholders at end September 2014 Switzerland Balance 1.3% 2.1% United Kingdom 5.3% United States 8.8% South Africa 82.5% 2014 vs 2008 % holding has increased 12.5 times Value invested increased 72.5 times International Ownership 2008 2009 2010 2011 2012 2013 2014
Slide 55: The Value Created by Redefine
THE VALUE CREATED BY REDEFINE Year ended 31 August 2014 The cash value created Cash value distributed R’m Revenue 5 532 Employees 3.6% Municipalities 18.2% Providers of debt Interest received 159 (Interest) 30.2% Equity accounted result Minorities of associates 155 3.5% Profit from discontinued oper
Slide 56: Prospects
A PROPERTIES PROSPECTS ANDREW KONIG
Slide 57: Current Top of Mind Risks
CURRENT TOP OF MIND RISKS Risk framework focussed on identifying emerging risks Risk Mitigating factors 5 Year Risk Downgrading of SA’s • Proactive internal communication on strategic matters sovereign credit rating • Appropriate geographic diversification • Proactive engagement with all external st
Slide 58: Conclusion
CONCLUSION To be the best in all aspects of what we do Key take-outs: • Focus on creating value over cycles Sensitivity Analysis Impact Vs 2014 • Trading environment anticipated to not get easier (cents per (%) share) • Local portfolio restructure was well timed Change in renewals by 1% 0.1 0.1 • Pr
Slide 59: Questions
A PROPERTIES QUESTIONS moa i\
Slide 60: Supplementary Information
A PROPERTIES SUPPLEMENTARY INFORMATION
Slide 61: Content
CONTENT • Annexure 1: Strategic priorities • Annexure 2: IFRS distributable income reconciliation • Annexure 3: Active portfolio revenue performance • Annexure 4: Active portfolio expenses • Annexure 5: Abridged statement of financial position • Annexure 6: Summarised cash flow 61
Slide 62: Annexure 1: Strategic Priorities
ANNEXURE 1: STRATEGIC PRIORITIES EFFICIENT ASSET MANAGEMENT • Achieve competitive core income growth and long term capital appreciation • Optimise asset allocation between core, defensive and secondary properties • Be ahead of property market cycles • Continuously review the mix of property sectors
Slide 63: Annexure 1: Strategic Priorities
ANNEXURE 1: STRATEGIC PRIORITIES FOCUSED PROPERTY MANAGEMENT • Improve service to tenants • Optimise operating efficiencies and management information flows • Continuous investment in the development of our people • Fully embrace technology to enhance communications • Extend lease expiry profiles •
Slide 64: Annexure 1: Strategic Priorities
ANNEXURE 1: STRATEGIC PRIORITIES GROWTH AND DIVERSIFICATION OF THE LOCAL PROPERTY ASSET BASE • Recycle capital from non-core holdings to achieve higher future growth • Continuously improve the quality of the core property portfolio • Invest only in well serviced areas • Lower the property age profil
Slide 65: Annexure 1: Strategic Priorities
ANNEXURE 1: STRATEGIC PRIORITIES REAL GROWTH FROM INTERNATIONAL MARKETS • Diversify risk geographically • Benefit from investing in higher-yielding environments • Exploit foreign income and capital growth opportunities at low risk UNLOCK VALUE-ADDED DEVELOPMENT OPPORTUNITIES IN EXISTING PROPERTIES •
Slide 66: Annexure 2: IFRS Distributable Income Reconciliation
ANNEXURE 2: IFRS DISTRIBUTABLE INCOME RECONCILIATION Year ended 31 August 2014 Statutory IFRS Income Adjustments Distributable Income (R'm) (R'm) (R'm) Notes Revenue Property portfolio 5 372 (62) 5 310 Contractual rental income 5 310 - 5 310 Straight-line rental accrual 62 (62) - Non cash entry List
Slide 67: Annexure 3: Active Portfolio Revenue Performance
ANNEXURE 3: ACTIVE PORTFOLIO REVENUE PERFORMACE Year ended 31 August 2014 Letting activity drives the year’s active property growth of 5% as follows: Offices Retail Industrial Other Total Contribution (R’m) (R’m) (R’m) (R’m) (R’m) to Growth 2013 property revenue 1 045 879 426 9 2 359 Add 2014 lettin
Slide 68: Annexure 3: Active Portfolio Expenses
ANNEXURE 3: ACTIVE PORTFOLIO EXPENSES Year ended 31 August 2014 2014 2013 Change (R’m) (R’m) % Net municipal charges 89 62 43.5 Net electricity recoveries (39) 2 -205.0 Operating costs 173 174 -0.6 Property Management 113 107 4.7 Repairs & maintenance 52 44 15.9 TI costs 37 35 2.9 Letting commission
Slide 69: Annexure 5: Abridged Statement of Financial Position
ANNEXURE 5: ABRIDGED STATEMENT OF FINANCIAL POSITION At 31 August 2014 2014 2014 2013 2013 Group Redefine Redefine Group ASSETS (R’m) (R’m) (R’m) (R’m) Investment properties 40 906 29 715 21 707 32 812 Listed securities 2 751 2 753 2 052 2 050 Goodwill and intangible assets 5 329 4 435 4 371 5 264 I
Slide 70: Annexure 4: Summarised Cash Flow
ANNEXURE 4: SUMMARISED CASH FLOW Year ended 31 August 2014 Redefine Fountainhead International 2014 2013 (R’m) (R’m) (R’m) (R’m) (R’m) Opening cash 40 319 - 359 351 Arising from Redefine International - - - - (293) Arising from Fountainhead - - - - 342 Adjusted opening cash 40 319 - 359 400 Generate