Redefine Properties Limited · JSE:RDF
Redefine Properties — FY2015 Earnings Presentation
66 slides from Redefine Properties's earnings presentation, Aug 31, 2015
Slide 1: Group Results and Strategic Review
REDEFINE PROPERTIES LIMITED GROUP RESULTS and strategic review FOR THE YEAR ENDED 31 AUGUST 2015
Slide 2: Our Conversation
OUR CONVERSATION Section 1 SCORECARD AND STRATEGY Andrew Konig (CEO) Section 2 LOCAL PROPERTY PORTFOLIO David Rice (COO) Section 3 FINANCIAL RESULTS Leon Kok (CFO) Section 4 CONCLUSION AND PROSPECTS Andrew Konig (CEO) Section 5 SUPPLEMENTARY INFORMATION Redefine Group results and strategic review fo
Slide 3: Section 1: Scorecard and Strategy
Section 1 SCORECARD AND STRATEGY Andrew Konig
Slide 4: 2015 Leading Features
2015 LEADING FEATURES A redefining year • Relentless focus on managing the controllable variables • revenue protection • margin preservation • maximising cashflow • optimising sources of capital • highest and best use of capital • Continued expansion, improvement, diversification and preservation •
Slide 5: Stand Out Achievements in 2015
STAND OUT ACHIEVEMENTS IN 2015 Our vision is to be the best SA REIT • 15th year of listing • Establishment of the Redefine Empowerment Trust • 90 Grayston awarded SAPOA’s Innovative Excellence in Property Development • Ranked sixth in EY’s Excellence in Integrated Reporting Awards 2015 • Black River
Slide 6: 2015 Actions and 2016 Priorities
2015 ACTIONS AND 2016 PRIORITIES Refine asset allocation and active portfolio management 2015 ACTIONS Outcome Introduce specialist sector-specific asset management teams Refine master plan for each property Implement BEE strategy to improve BEE score Introduce energy/electricity supply through
Slide 7: 2015 Actions and 2016 Priorities
2015 ACTIONS AND 2016 PRIORITIES Focused and efficient shared services 2015 ACTIONS Outcome Refine business processes Maintain margins despite continued above inflation increases in rates and utility costs Introduce technology-based applications to improve communications with staff Introduce e
Slide 8: 2015 Actions and 2016 Priorities
2015 ACTIONS AND 2016 PRIORITIES Disciplined growth and diversification of the local property asset base 2015 ACTIONS Outcome Continue to acquire good quality assets and dispose of non-core assets to recycle capital Ongoing restructure without diluting earnings Selectively dispose the government
Slide 9: 2015 Actions and 2016 Priorities
2015 ACTIONS AND 2016 PRIORITIES Prudent management of funding 2015 ACTIONS Outcome Spread the debt maturity profile Broaden funding sources Improve the loan to value ratio Restructure expensive debt Expand presence in debt capital market Optimise funding of international investments Clo
Slide 10: 2015 Actions and 2016 Priorities
2015 ACTIONS AND 2016 PRIORITIES Growth and geographic diversification in international real estate markets 2015 ACTIONS Outcome Invest in listed offshore securities and direct property at attractive yields Gear up the Redefine International and Cromwell holdings Increase holding in Cromwell to
Slide 11: 2015 Actions and 2016 Priorities
2015 ACTIONS AND 2016 PRIORITIES Unlock value-add opportunities to existing properties 2015 ACTIONS Outcome Identify yield-enhancing development opportunities around owned properties Pursue pre-let/tenant demand-driven development opportunities Provide redevelopment services to Fountainhead Co
Slide 12: Strategy
STRATEGY Primary goal to grow and improve cash flow • In the end it all comes down to people • Implementation is more important than strategy itself • Alignment to the strategy and values, key to implementation • Our focus is on real estate and related investments, not a particular sector • We inves
Slide 13: Sources of Capital
SOURCES OF CAPITAL New environment demands a new approach Equity funding Funding of R19.8 billion raised • Redefine has narrowed the forward yield discount • Shares in issue increased by 39.4% Recycling • Record daily volume of 131 million shares set in 2015 of capital • All time high of R12.68 reac
Slide 14: Uses of Capital
USES OF CAPITAL Creating a platform that sustains value creation Application of R19.8 billion Risk management integral to robust asset management – Top Risks Development • Sluggish economic growth activity Redefine • Downgrade of SA Sovereign credit rating R1.8bn empowerment trust R3bn • Rise in int
Slide 15: International Review
INTERNATIONAL REVIEW Redefine is the only SA REIT to have exposure to multiple regions • Capital flows have become global International composition • Strong move to wealth preservation Other 5.2% • Prolonged low oil price and slump in China may curb weight of capital flows Direct • German portfolio
Slide 16: High Return Investments
HIGH RETURN INVESTMENTS New asset categories to be established • High return investments (loans and Emira holding) total R3 billion • Opportunistic investments will be pursued where value can be unlocked • Emira presents a recycling opportunity when required • Diversifying into student residential a
Slide 17: Section 2: Local Property Portfolio
Section 2 LOCAL PROPERTY PORTFOLIO David Rice
Slide 18: Total Portfolio Review
TOTAL PORTFOLIO REVIEW Total portfolio value R51.2bn Average property value R154m • Highest valued property in each sector is a 2015 acquisition Acquisitions R19.8bn • Yield of 8% Disposals R2.2bn • Non core properties | Yield of 9.3% Development Current R3.8bn Completed R1.4bn Vacancy 7.7% • 2014:
Slide 19: Portfolio Focus
PORTFOLIO FOCUS • Core portfolio is valued at R45.6 billion and non-core R5.6 billion • intended to dispose of non-core properties over time • once all investment alternatives have been exhausted • Acquire good quality, well located and tenanted retail and industrial properties • Focus on enhancing
Slide 20: Office Portfolio Review
OFFICE PORTFOLIO REVIEW Total portfolio value R19.5bn Value by grade Average property value R140m 36% 32% Acquisitions R6.5bn • Leaf Capital portfolio of P and A grade properties • 16 Fredman Drive Sandton (50%) Disposals R816m • 11 non-core properties 32% Development Current R1.92bn • 90 Rivonia Ro
Slide 21: Office Portfolio Focus
OFFICE PORTFOLIO FOCUS • No intention to acquire office property, unless there is a compelling investment reason • Efforts continue to dispose of government tenanted properties and other secondary non-core properties • certain properties have been sold individually • Market musical chairs continues
Slide 22: Industrial Portfolio Review
INDUSTRIAL PORTFOLIO REVIEW Total portfolio value R10.5bn Average property value R100m Value by type Acquisitions R4.1bn • Macsteel portfolio 9% 8% • S & J Land, off N3 highway, Germiston 8% R312m (45%) 160 hectares developable land 22% 12% Post August conditional transaction • Brackengate 2, off R3
Slide 23: Industrial Portfolio Focus
INDUSTRIAL PORTFOLIO FOCUS • Further acquisition of high quality, well located, modern properties • Dispose of non-core, obsolete properties not appropriate for redevelopment • Development of vacant land with a focus on the logistics and FMCG supply chain industry • mid size multi units close to the
Slide 24: Retail Portfolio Review
RETAIL PORTFOLIO REVIEW Total portfolio value R20.8bn Value by type Average property value R242m 9% 17% 7% Acquisitions R8.8bn • Stoneridge Shopping Centre 52 000m² 14% • Fountainhead Portfolio Disposals R1.3bn • 14 non-core properties 53% Development Current R917m • South Coast Mall • East Rand Mal
Slide 25: Retail Portfolio
RETAIL PORTFOLIO • Portfolio performance largely in line with Key portfolio statistics for 2015 SA retail sales growth • Development activity a drag on turnover growth Turnover growth total portfolio 9.6% this year • Footfall under pressure, customers visiting less often but spending more per visit
Slide 26: Retail Centre Focus
RETAIL CENTRE FOCUS • Current densities and rent to turnover ratios are in line with industry averages • Need to improve densities to drive turnover growth and increase rentals • Analytics helping us to understand the performance divergence of anchors and line shops as well as categories • Different
Slide 27: Section 3: Financial Results
Section 3 FINANCIAL RESULTS Leon Kok
Slide 28: 2015 Financial Highlights
2015 FINANCIAL HIGHLIGHTS • Second half distribution growth of 7.5% to 41 Market capitalisation cents Rbn Yield % • full year up 7.3% to 80 cents 60 9% • In Rand terms distributable income has grown by 36.3% to R3.3bn 8% 50 • Income producing assets up by R13bn to R64bn 7% • Total assets now R70.2bn
Slide 29: Simplified Corporate Structure
SIMPLIFIED CORPORATE STRUCTURE Redefine properties 25.6% 30.1% Direct local Local listed Direct international Cromwell RI PLC property portfolio securities properties R53.2bn R0.9bn German portfolio 50% R4.3bn R4.1bn Emira 11.5% R0.7bn Northpoint 50% Carried at fair value R0.7bn Equity accounted Int
Slide 30: Distributable Income per Share
DISTRIBUTABLE INCOME PER SHARE Year ended 31 August 2015 Distributable Per income share Y-o-Y (Rm) (cents) change 2014 distributable income 2 414 74.5 Less dilution arising from new shares -15.8 Local growth 731 17.7 International growth 145 3.6 2015 actual 3 290 80.0 7.3% Cents per share 90 +7.3% +
Slide 31: Contributors to Trading
CONTRIBUTORS TO TRADING Tailwinds Headwinds +R 1 247m - R371m Rm 3 950 43 23 17 4 60 143 220 (24) (37) 3 450 (54) (95) 737 (161) 2 950 2 450 3 290 1 950 2 414 1 450 950 2014 Property Local Australia Active German UK Higher fee Other Disposal Higher Foreign Property Higher 2015 Distributable acquisit
Slide 32: Fountainhead Acquisition
FOUNTAINHEAD ACQUISITION Merger concluded by acquiring minorities’ stake for R3,8 billion • Acquisition approved on 24 July 2015 at a swop ratio of 85 RDF shares for every 100 FPT shares • Acquisition implemented and 337 million shares issued on 3 August 2015 • Transaction was commercially effective
Slide 33: Simplified Distributable Income Statement
SIMPLIFIED DISTRIBUTABLE INCOME STATEMENT Year ended 31 August 2015 2015 2014 Change (Rm) (Rm) % Net operating income from investment properties 3 155 2 453 28.6% Listed security portfolio 685 465 47.3% Fee income 107 91 17.6% Property trading income (1) 1 -200.0% Total revenue 3 946 3 010 31.1% Adm
Slide 34: Active Portfolio Income Analysis
ACTIVE PORTFOLIO INCOME ANALYSIS Year ended 31 August 2015 2015 2014 Change (Rm) (Rm) % Active portfolio revenue* 2 469 2 375 4.0% Active portfolio costs** (481) (447) 7.6% Property income from active property portfolio 1 988 1 928 3.1% Net operating income from acquired / developed properties 998 2
Slide 35: Active Portfolio Revenue Growth
ACTIVE PORTFOLIO REVENUE GROWTH Year ended 31 August 2015 Office Retail Industrial Total Active portfolio average rental escalation 7.4% 7.3% 7.6% 7.4% Renewals plus new lets net of expiries (4.5%) (2.4%) (4.8%) (3.8%) Growth in rental income 2.9% 4.9% 2.8% 3.6% Growth in other income 0.5% 0.8% (0.9
Slide 36: Active Portfolio Expenditure Analysis
ACTIVE PORTFOLIO EXPENDITURE ANALYSIS Year ended 31 August 2015 2015 Change (Rm) % 2014 Property costs 447 Net municipal recoveries benefit from rates credits 3 4.2% Net electricity recoveries worse due to increased tariffs and back bills 7 22.6% Operating costs increased 17 10.6% Property managemen
Slide 37: Simplified Statement of Financial Position
SIMPLIFIED STATEMENT OF FINANCIAL POSITION Year ended 31 August 2015 31 Aug 15 31 Aug 14 CPS Group Group 1 400 (Rm) (Rm) Property assets 63 860 51 068 1 200 1 148.0 Goodwill & intangible assets 5 367 5 329 1 000 960.0 956.0 916.0 1 021.0 Other assets 951 1 093 976.0 830.0 900.4 870.7 Total assets 70
Slide 38: Growth in Net Asset Value
GROWTH IN NET ASSET VALUE Year ended 31 August 2015 Cents per share 1 200 76.6 1 100 251.3 7.3 (5.0) 1 000 (78.6) (27.9) 900 50.4 800 (229.1) 700 600 500 976.0* 1021.0 400 300 200 100 0 31 Aug 2014 Revaluation Dilution arising Capital Statutory profit FPT Other net 31 August 2015 Forex Distributions
Slide 39: Funding Profile
FUNDING PROFILE Year ended 31 August 2015 Unsecured commercial paper Aug 2015 Aug 2014 Unsecured bonds Funding snapshot (Rm) (Rm) 5% Bank borrowings 20 569 16 957 7% Debt capital markets 3 013 2 800 Unsecured bank debt 16% 2015 Total borrowings 23 582 19 757 71% Key debt statistics Secured bank debt
Slide 40: Debt and Hedging Maturity Profile
DEBT AND HEDGING MATURITY PROFILE Year ended 31 August 2015 % 9.0 2015 2014 8.5 Cost of funding (SA) (%) (%) 8.0 7.5 Average JIBAR 6.1% 5.5% 7.0 Bank margin 1.6% 1.7% 6.5 6.0 Floating rate 7.7% 7.2% 5.5 Cost of fixing 0.7% 1.0% 5.0 4.5 Average cost of debt 8.4% 8.2% 4.0 Yield on equity issued 7.6% 8
Slide 41: Section 4: Conclusion and Prospects
Section 4 CONCLUSION AND PROSPECTS Andrew Konig
Slide 42: Environmental, Social and Governance
ENVIRONMENTAL, SOCIAL AND GOVERNANCE Combining sustainability with ESG builds value Sustainability Environmental Social Governance Our impact on the environment is as Our properties are embedded in the We are serious about ethics important as it’s impact on us economy and community Smart meters to m
Slide 43: Redefine's Investment Case
REDEFINE’S INVESTMENT CASE A highly liquid opportunity to gain real estate exposure What makes the proposition compelling • Staff aligned with values and strategy Total return to 31 August 2015 Cents % return Change in RDF price 192.0 20.1% • Hands-on management to be ahead of cycles 2015 distributi
Slide 44: 2016 Outlook
2016 OUTLOOK A time for flexible, bold and decisive leadership Looking ahead GDP growth at slowest pace since 2009 • The fundamental picture remains bleak • No compelling reason to believe that prevailing conditions will change • Relentless focus on disciplined and decision execution of strategic pr
Slide 45: Section 5: Supplementary Information
Section 5 SUPPLEMENTARY INFORMATION
Slide 46: IFRS Distributable Income Reconciliation
IFRS DISTRIBUTABLE INCOME RECONCILIATION Year ended 31 August 2015 Statutory Income Distributable IFRS adjustments income Revenue (Rm) (Rm) (Rm) Notes Property portfolio 6 304 (163) 6 142 Contractual rental income 6 142 - 6 142 Straight-line rental income accrual 163 (163) - Non cash entry Listed se
Slide 47: Active Portfolio Expenses
ACTIVE PORTFOLIO EXPENSES Year ended 31 August 2015 2015 2014 Change (Rm) (Rm) % Net municipal charges 74 71 4,2% Net electricity recoveries (24) (31) (22.6%) Operating costs 177 160 10.6% Property management 107 113 (5.3%) Repairs and maintenance 54 48 12.5% TI costs 35 34 2.9% Letting commission 1
Slide 48: Abridged Statement of Financial Position
ABRIDGED STATEMENT OF FINANCIAL POSITION Year ended 31 August 2015 2015 2014 Group Group (Rm) (Rm) Assets Investment properties 49 899 40 906 Listed securities 989 2 751 Goodwill and intangible assets 5 367 5 329 Interest in associates 9 823 4 173 Other non-current assets 1 387 1 848 Current assets
Slide 49: Summarised Cash Flow
SUMMARISED CASH FLOW Year ended 31 August 2015 Redefine Fountainhead International 2015 2014 (Rm) (Rm) (Rm) (Rm) (Rm) Opening cash 72 258 21 351 359 Generated from operations 3 705 858 (361) 4 202 3 794 Net interest paid (1 189) (173) (15) (1 377) (1 324) Distributions paid (2 428) (696) - (3 124) (
Slide 50: 2016 Outlook: Sensitivity Analysis
2016 OUTLOOK Sensitivity analysis Forecast 2016 impact (cents per share) Change in vacancy by 10 000m² 0.3 Increase in municipal charges by 5% 0.3 Increase in electricity cost by 5% 0.5 Bad debts increase by R5 million 0.1 All acquisitions change by one month 0.1 Change in admin costs by 5% 0.2 Chan
Slide 51: Contributors to Growth
CONTRIBUTORS TO GROWTH Year ended 31 August 2015 Distribution contributors (cents) Net asset value composition (cents) Australia Germany Australia 6.8 cents 1.0 cents Germany 68.5 cents 8.5% 1.2% -3.3 cents 6.7% -0.3% United Kingdom United Kingdom 5.8 cents 83.3 cents 7.3% 8.2% Emira Emira 3.6 cents
Slide 52: The Cash Value Created by Redefine
THE CASH VALUE CREATED BY REDEFINE Year ended 31 August 2015 Minorities Employees 4.1% 3.3% Government Rm (Taxation) Revenue 6 528 520 1.5% Interest received 306 229 Municipalities Equity accounted result of associates 358 862 19.9% Property and other operating expenses (808 534) Cash value created
Slide 53: Portfolio Overview
PORTFOLIO OVERVIEW Year ended 31 August 2015 2015 2014 Office Retail Industrial Specialised Total Total Number of properties 139 86 106 2 333 270 Total GLA (m²) (million) 1.45 1.32 1.96 0.03 4.76 3.60 Portfolio Vacancy (%) 8.5 4.3 3.8 - 5.4 5.4 Asset Value (R billion) 19 21 10 0.4 51 30 Average Prop
Slide 54: Sectoral Spread
SECTORAL SPREAD Year ended 31 August 2015 2015 2014 GLA (%) GLA (%) 1% 30% 34% 33% 41% 28% 33% 2015 2014 Value (%) Value (%) 1% 20% 18% 38% 42% 40% 41% Office Retail Industrial Specialised Redefine Group results and strategic review for the year ended 31 August 2015 54
Slide 55: Geographic Spread
GEOGRAPHIC SPREAD Year ended 31 August 2015 2015 2014 GLA (%) GLA (%) 9% 11% 8% 10% 17% 48% 15% 64% 12% 6% 2015 2014 Value (%) Value (%) 8% 10% 6% 8% 39% 22% 17% 65% 14% 11% Greater Jhb Sandton Pretoria Western Cape KwaZulu-Natal Other Gauteng Redefine Group results and strategic review for the year
Slide 56: Sector Letting Activity
SECTOR LETTING ACTIVITY Year ended 31 August 2015 Renewals New leases Vacates Weighted avg Weighted avg Weighted avg Weighted avg Area expiry rental achieved Rental Area achieved Area rental Portfolio group reviewed m² R/m² rental R/m² growth % let m² rental R/m² m² R/m² Office 186 299 102 94 -8% 78
Slide 57: Vacancy Profile
VACANCY PROFILE Year ended 31 August 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 Office Office Retail Retail Industrial Industrial Specialised Specialised Total Total Province GLA m² GLA m² GLA m² GLA m² GLA m² GLA m² GLA m² GLA m² GLA m² GLA m² Gauteng 66 017 152 131 21 911 34 670 48 980
Slide 58: Lease Expiry Profile by GLA
LEASE EXPIRY PROFILE BY GLA (m²’000) Year ended 31 August 2015 Office Retail Beyond 2019 24% 355 Beyond 2019 32% 421 2019 5% 71 2019 11% 142 2018 14% 206 2018 17% 227 2017 20% 293 2017 15% 202 2016 19% 282 2016 16% 217 Monthly 8% 122 Monthly 4% 58 Vacancy 9% 124 Vacancy 4% 56 Industrial Specialised
Slide 59: Lease Expiry Profile by GMR
LEASE EXPIRY PROFILE BY GMR (R’M) Year ended 31 August 2015 Office Retail Beyond 2019 35% 51 Beyond 2019 28% 50 2019 6% 8 2019 11% 19 2018 12% 17 2018 21% 36 2017 20% 29 2017 19% 33 2016 19% 28 2016 17% 30 Monthly 8% 12 Monthly 4% 7 Industrial Specialised Beyond 2019 60% 47 Beyond 2019 100% 3.73 201
Slide 60: Tenant Grade
TENANT GRADE Year ended 31 August 2015 Office Retail Industrial 11% 8% 5% 28% 45% 27% 62% 50% 64% A B C Redefine Group results and strategic review for the year ended 31 August 2015 60
Slide 61: Top Office Properties and Tenants
TOP 10 OFFICE PROPERTIES AND TENANTS Year ended 31 August 2015 Value Top 10 Office properties Region (R'000) GLA m² Top 10 Office tenants GLA m² Black River Office Park Western Cape 1 054 53 Government 338 The Towers Western Cape 878 54 Discovery Health 54 90 Rivonia Road Sandton 776 36 Alexander Fo
Slide 62: Top Retail Properties and Tenants
TOP 10 RETAIL PROPERTIES AND TENANTS Year ended 31 August 2015 Value Top 10 Retail properties Region (R'000) GLA m² Top 10 Retail tenants GLA m² Centurion Mall Pretoria 3 885 119 Edcon 127 Blue Route Mall Western Cape 1 256 56 Shoprite 122 East Rand Mall (50%)* Greater JHB 1 187 31 Pick 'n Pay 101 G
Slide 63: Top Industrial Properties and Tenants
TOP 10 INDUSTRIAL PROPERTIES AND TENANTS Year ended 31 August 2015 Value Top 10 Industrial properties Region (R'000) GLA m² Top 10 Industrial tenants GLA m² Pepkor Isando Greater JHB 730 107 Macsteel 553 Robor Greater JHB 617 120 Robor 120 Macsteel Lilianton Boksburg Greater JHB 502 73 Pepkor 107 S
Slide 64: Local Investment Criteria
LOCAL INVESTMENT CRITERIA • Continued expansion across traditional sectors • Focus on younger (more efficient), bigger and better quality projects • Diversify into higher yielding non-traditional asset classes • Opportunistic investments will be pursued where value can be unlocked or for a strategic
Slide 65: International Investment Criteria
INTERNATIONAL INVESTMENT CRITERIA • Invest in international markets where: • we have local partner representation • interests with local partners aligned • tax regime and rules of law sophisticated • Co-invest with Redefine International and Cromwell (and other credible partners) where opportunities
Slide 66: Property Asset Classifications
PROPERTY ASSET CLASSIFICATIONS • Core represents local property assets that meet Redefine’s investment criteria with strong lease covenants to be held long term • International is listed and direct offshore real estate investments that provide reliable income streams with a Rand hedge in line with R