Burstone Group Limited · JSE:BTN
Burstone — FY2024 Earnings Presentation
84 slides from Burstone's earnings presentation, May 2024
Slide 1: Results for the year ended 31 March 2024
Transform potential Results for the year ended 31 March 2024 MAY 2024
Slide 2: Burstone at a glance
Burstone at a glance We are a fully integrated international real estate business 30 years + R37bn R4.7bn 50+ 9 track record on-balance sheet third-party capital real estate countries assets under management professionals Investing in best of breed assets in select markets Fund Management Investment
Slide 3: Global reach with local presence
Global reach with local presence €1.1bn GAV EUROPE • Logistics and industrial portfolio across 7 countries • Platform established in 2017 • Proven track record of buying, working and profitably selling logistics real estate A$490m equity under management R14bn GAV AUSTRALIA SOUTH AFRICA • 50 / 50 JV
Slide 4: Overview of results
01 Overview of results Transform potential
Slide 5: Highlights
Highlights Full year results in line with Solid operational performances NAV: down 4.5% R15.45ps guidance SA LFL NOI: up 1.5% (Mar-23: R16.17ps) DIPS up 1.0% to 105.67cps EU LFL NOI: up 6.2% (EUR) Focused efforts to integrate (Mar-23: 104.64cps) Unrealised MTM on derivatives the Group internationall
Slide 6: Distributable earnings bridge
Distributable earnings bridge Benefited from internalisation, offset by higher funding costs Annualised Net management fee saving of R80m Rm Operational performance Other R13m Capex PEL 19% R23m 20m 1.0% Interest increases R66m 851 842 Capital light activity: R61m 6
Slide 7: Net asset value bridge
Net asset value bridge NAV per share down 4.5% to R15.45 (FY23: R16.17) Net additional debt drawn - R14m Rm Properties sold R390m Debt R260m 168 Deferred 13 014 R200m 12 439 2 3 1 1 1 Management companies net of amortisation of intangible asset 2 PEL impairment of c.1% offset by fx 7 3 Mark to marke
Slide 8: LTV y-o-y to March 2024
LTV y-o-y to 31 March 2024 Delivered on the sales we committed to SA Sales: R1.3bn * Reported LTV is 45.5%, which has been adjusted to include proceeds from sales of South African assets which have been agreed and all conditions met at the balance sheet date, but still awaiting transfer, to derive a
Slide 9: Strategic overview
02 Strategic overview Transform potential
Slide 10: We have a clear strategic focus in the short and medium term
We have a clear strategic focus in the short and medium term Integration Optimise current Maintain a robust Growth Holistic portfolios balance sheet sustainability • Unlock distribution • Maintain stability • Clear path to • Funds management • Further embed ESG synergies and capability reducing LTV
Slide 11: Integration
2.1 Integration Transform potential
Slide 12: Management company internalisation
Integration Management company internalisation • The internalisation was completed in July 2023 • Transition to an integrated business is key to the Group delivering on its growth ambitions • Unlocks several strategic advantages for the Group • Key outcomes from the integration of our international
Slide 13: Integration starting to reap benefits
Integration Integration starting to reap benefits • Benefiting from synergies created by the internalisation and integration of our business and our enhanced international footprint: - Annualised net management fee saving – 8% ahead of deal case of R74m - New third-party management mandate in German
Slide 14: Optimise current portfolios
2.2 Optimise current portfolios Transform potential
Slide 15: 2.2.1 Performance – South Africa
Optimise current portfolios 2.2.1 Performance – South Africa 15
Slide 16: SA snapshot of performance
Optimise current portfolios SA snapshot of performance Stable operational performance in a persistently challenging environment • Stable portfolio with sound LFL NOI growth Financial performance Letting performance • Strong letting activity across all sectors • +1.5% base LFL NOI growth (Mar-23: 5.3
Slide 17: SA retail portfolio
Optimise current portfolios SA retail portfolio Continued improvement in trading metrics and growth momentum maintained Financial and operational metrics Trading stats* Sector trends Arrears (% of Average turnover +4.6% • Trading activity has shown LFL NOI growth 5.9% 3.1% (Mar-23: 5.3%) collectible
Slide 18: SA industrial portfolio
Optimise current portfolios SA industrial portfolio Strong demand evidenced by letting activity and reduction in average vacancy Financial and operational metrics Sector trends • Positive supply-demand Arrears (% of LFL NOI growth 9.5% 0.8% collectibles) dynamics (Mar-23: 9.2%) (Mar-23: 0.9%) • Mark
Slide 19: SA office portfolio
Optimise current portfolios SA office portfolio The Group’s vacancy rates remain amongst the lowest in the sector Sector trends Financial and operational metrics • Loadshedding and change in corporate strategy is Gross income Arrears (% of 99% driving a return to office growth -3.5% collectibles) 3.
Slide 20: SA portfolio outlook
Optimise current portfolios SA portfolio outlook • In South Africa the Group has a stable and mature portfolio which supports a sustainable level of earnings • However, the South African macroeconomic backdrop remains muted, and the property sector faces many challenges • The South African portfioli
Slide 21: 2.2.2 Performance – Pan-European Logistics (PEL) Portfolio
Optimise current portfolios 2.2.2 Performance – Pan-European Logistics (PEL) Portfolio 21
Slide 22: EU market overview
Optimise current portfolios EU market overview • The European logistics sector remains robust and over the past few years has experienced strong demand and low vacancy levels which have driven rental growth, further supported by positive indexation across the Eurozone • Rental growth and indexation
Slide 23: PEL snapshot
Optimise current portfolios PEL snapshot Strong growth in contracted rent offset by adverse interest rate environment • Portfolio delivered rental reversion of c.5.2% demonstrating the ability to capture positive ERV growth Financial performance Letting performance • Vacancy rates remain low • 6.2%
Slide 24: PEL income statement
Optimise current portfolios PEL income statement Quality of earnings enhanced through strong contracted rental growth and cost rationalisation €’m Strong LFL NOI growth +6.2% 6.2% LFL ERV unlock, indexation and NOI growth stable vacancy Lower costs Restructuring initiatives starting to reap benefits
Slide 25: PEL property valuations
Optimise current portfolios PEL property valuations Portfolio at valued €1,055m down 1% due to macro driven yield expansion, underlying growth in NOI remains sound Valuation movement year-on-year (€’m) • Equates to an equity (NAV) valuation of €469m • Burstone Group share is €390m or R8.0bn Yield1:
Slide 26: PEL portfolio outlook
Optimise current portfolios PEL portfolio outlook • Performance of the PEL platform is underpinned by a strong, defensive portfolio that has capitalised on sector dynamics consistently since acquisition • The portfolio is geographically diverse, with a strong tenant base and a varied lease expiry pr
Slide 27: Maintain a robust balance sheet
2.3 Maintain a robust balance sheet Transform potential
Slide 28: Sound balance sheet and continued pro-active management
Maintain robust balance sheet Sound balance sheet and continued pro-active management • R1.1bn of undrawn committed facilities • Group debt refinance on track,targeted completion Q1 FY25 - Expected annual margin saving of c.20bps - Expected: weighted average debt expiry extends from 2.2 years to 3.2
Slide 29: Group funding profile and liquidity
Maintain robust balance sheet Group funding profile and liquidity Limited risk with opportunistic refinance far progressed • Healthy expiry profile with R1.1bn of committed undrawn debt • Opportunistic refinance underway, to reduce margin, extend expiry and optimise cash management • As at 31 March
Slide 30: PEL funding profile and liquidity
Maintain robust balance sheet PEL funding profile and liquidity Proactive liquidity risk management with refinance far progressed 53% 10.1% LTV Debt yield (70% covenant) (7.5% covenant) • €566m debt with an average expiry of 1.3 years • Weighted average margin of 225bps • Well progressed on a cash n
Slide 31: Group ZAR and euro swap expiry
Maintain robust balance sheet Group ZAR and euro swap expiry Expiry profile proactively managed EUR swap and CCIRS expiry ZAR swap expiry 44% All expire Q4 FY25 64% 31% 27% 11% 10% 9% 4% FY2025 FY2026 FY2027 FY2028 FY2029 FY2025 FY2026 FY2027 Fixed rate Fixed rate including margin 2.62% 2.01% 3.50%
Slide 32: Absorbing higher interest rates
2.4 Absorbing higher interest rates Transform potential
Slide 33: Managing short and medium-term interest rate impact
Absorbing higher interest rates Managing short and medium-term interest rate impact • The impact of rising global interest rates will impact funding costs by R70m in FY25 • We have proactively implemented several initiatives to help to absorb these costs in the short to medium-term Cost saving initi
Slide 34: LTV flightpath
2.5 LTV flightpath Transform potential
Slide 35: LTV flightpath
LTV flightpath LTV flightpath The Group is confident in achieving the anticipated sales during the next 12 months FLIGHTPATH NEXT 6 – 12 MONTHS* SA Short-term EU Short-term Additional sales Sales: R0.8bn Sales: €160m 37% to 40% -3% to -4% • Further c.R0.6bn of assets identified for sale in South Afr
Slide 36: Effective capital allocation
2.6 Effective capital allocation Transform potential
Slide 37: Effective capital allocation is a key component of our strategy
Effective capital allocation Effective capital allocation is a key component of our strategy • Ensure we deploy/recycle capital into the best international/local opportunities that will support our longer-term strategic plan and continue to create shareholder value • We will continue to internally g
Slide 38: Effective capital allocation and recycling
Effective capital allocation Effective capital allocation and recycling Sales during the year GAV Selling yield Profit on sale Net proceeds South Africa R1.3bn1 7% to 9% 1.5% premium R1.3bn EU €33m 3.1% 61% premium R0.2bn Total sources R1.5bn Recycled into Return Investment value Smithfield and ITAP
Slide 39: Case study: The Neighbourhood Square
Effective capital allocation Effective capital allocation Case study: The Neighbourhood Square Strategic rationale Property and market thesis • As part of its core strategic objectives, Burstone • A newly built, high quality open-air, dominant 4.3yrs 0% regularly assesses opportunities to enhance it
Slide 40: Case study: Irongate, Smithfield's transaction
Effective capital allocation Effective capital allocation Case study: Irongate, Smithfield’s transaction Investment overview Market thesis A$57.25m 1.7yrs • Acquisition of an established industrial estate in the • The Western Sydney Industrial market continues to Purchase price WALE Western Sydney s
Slide 41: Dividend payout
Effective capital allocation Dividend payout • Effective capital optimisation and lowering LTV remain key strategic imperatives • We also strongly believe that continued investment in several growth opportunities is key to delivering longer term shareholder value • We therefore intend to manage our
Slide 42: Growth
2.7 Growth Transform potential
Slide 43: Funds management strategy
Growth Funds management strategy OVERVIEW CONTRIBUTION TO EARNINGS • A fully aligned and internalised business, creates an • In the current year: opportunity for Burstone to further expand fund - Total third party capital under management: management strategies across all regions R4.7bn • The Group
Slide 44: Irongate Group
Growth Irongate Group Leading Burstone’s fund management roll-out • Currently manages over A$490m of equity (up 8% since acquisition) on behalf of some of the world’s leading investors, - Ivanhoe Cambridge, Phoenix Property Investors and Metrics Credit Partners • First industrial property acquisitio
Slide 45: Europe
Growth Europe • New asset management mandate of c.€170m of a light industrial portfolio in Germany, with opportunity for future co-investment - Contributed R10m to earnings in FY24 and is expected to increase in FY25 • PEL strategic partner: - The Group will continue to assess the option to introduc
Slide 46: South Africa
Growth South Africa • The Group has built the foundation for a third-party fund management platform in which institutional capital can invest • We do anticipate a slower roll out of initiatives given the relative depth of the local capital market • Will look to align over time with the strategies ad
Slide 47: Holistic sustainability
2.8 Holistic sustainability Transform potential
Slide 48: Our sustainability strategy
Holistic sustainability Our sustainability strategy We aim to create broader long-term stakeholder value that: 01 02 03 04 Is financial and Improves lives Acts as an enabler Aims to achieve impactful and livelihoods of ESG net-zero emissions i.e. profitable and of our staff, tenants and for our clie
Slide 49: Integrating ESG – South Africa
Holistic sustainability Integrating ESG – South Africa Driving down cost of occupation for our clients and transforming the society in which we operate Strategy Description Solar • 14.8MWp solar PV Energy Performance Certificates • 32 buildings Carbon Disclosure Project • B-rating Climate and Reduci
Slide 50: Delivering ESG – Europe
Holistic sustainability Delivering ESG – Europe Continue to assess initiatives to further embed ESG into business practices Strategy Description Solar • The business has planned to deliver a photovoltaic roll-out which will produce around 4.5MWp across the portfolio over the next 12 to 18 months LED
Slide 51: Looking ahead
03 Looking ahead Transform potential
Slide 52: Reflecting on the past year
Reflecting on the past year • Significant time and resource spent on internalisation – now well placed to benefit • Strategic focus on repositioning from a property investment business into an integrated international real estate fund and asset management company • Results for the year have been sup
Slide 53: Looking ahead
Looking ahead 3 to 6 months 6 to 12 months 2 – 5 years Target LTV of 37% to 40% Manage the impact Continue to seek PEL strategic partner Drive our Fund Conclude Group and – clearly identifiable of rate increases on growth remains a key Management PEL refinancing and executable plan future earnings o
Slide 54: In conclusion
In conclusion Looking forward • The South African portfolio is stable and is expected to deliver low single digit growth that is reflective of the current operating environment • Given sector dynamics, growth in contracted rent is expected to continue within the PEL platform with base NOI expected t
Slide 55: In conclusion: Guidance
In conclusion Guidance Taking the above into account, and the underlying performance anticipated from the South African and European portfolios and growth from new revenue streams, the Group expects to deliver a decline in DIPS of between 2% and 4% in FY25 FY24: Higher R851m interest DIPS costs Capi
Slide 56: We transform potential into value
We transform potential into value A successful history of creating, building and managing real estate businesses Real estate purists Dynamic capital allocation Hands on asset management and best of breed assets underpin Disciplined capital allocation and continued capital rotation all our decisions
Slide 57: Results for the year ended March 2024
Transform potential Results for the year ended 31 March 2024 MAY 2024
Slide 58: Annexures
Annexures Transform potential
Slide 59: Business snapshot
Business snapshot At 31 March 2024 South African direct Pan-European property logistics Australia IFRS balance sheet construct No. of properties 73 32 - 50/50 JV and 18.67% 2% Ownership interest 100% 83.15% In ITAP 36% A$490m equity under Asset value (local currency)** R14.2bn €1.1bn management 62%
Slide 60: Financial review
Financial review (©) Burstone REAL ESTATE PARTNERS 60
Slide 61: Distributable earnings statement
Distributable earnings statement Year ended Year ended YoY Marginal increase 1.0% Rm 31-Mar-24 31-Mar-23 % change in DIPS in line with SA portfolio Net property income 761 1 150 756 1 159 0.7% (0.8%) guidance Finance costs (389) (403) (3.5%) Sound operating performance Investment income 303 228 3
Slide 62: Summarised balance sheet
Summarised balance sheet As at As at YoY Rm 31-Mar-24 31-Mar-23 % change Property related investments SA valuations stable South Africa 14 450 14 885 (2.9%) Stable business and improved metrics; Europe - PEL 1 9 339 8 231 13.5% disposals during the period Australia 491 336 46.1% Goodwill and intangi
Slide 63: Internalisation benefit and saving achieved
Internalisation benefit and saving achieved Internalisation benefit Rm Notes Management fee saved – SA* 74 Per income statement - amount paid to Investec in FY23 Management fee saved – EU* 148 Per PEL income statement €7.9m x 83.15% (previously paid to Investec) Fee revenue – SA* 14 Per income state
Slide 64: SA REIT BPR ratios
SA REIT BPR ratios Notes Burstone 1. SA REIT NAV per share adjusts NAV by the H2 FY24 dividend Note SA REIT BPR methodology declared FFO per share (cps) 1 107.85 111.31 2. MTM on derivative instruments is included in SA REIT LTV and not included in Burstone’s calculation. NAV per share (cps) 2 1,408
Slide 65: Performance – South African property portfolio
Performance – South African property portfolio 65
Slide 66: SA income statement
SA income statement Stable operational performance in a persistently challenging environment Year ended Year ended YoY Rm 31-Mar-24 31-Mar-23 % change LFL NOI growth +1.5% Gross income 1 343 1 306 2.8% Strong letting activity across Net expense (316) (294) 7.5% all sectors Base net property income 1
Slide 67: SA office portfolio
SA office portfolio Sector oversupply resulting in negative reversions Key portfolio metrics Year ended Year ended YoY Mar 2024 Mar 2023 Rm 31-Mar-24 31-Mar-23 % change No. of properties 27 30 Gross income 529 548 (3.5%) Net expense (157) (145) (8.3%) Property asset value R5.0bn R5.4bn Base net prop
Slide 68: SA industrial portfolio
SA industrial portfolio Strong demand evidenced by letting activity and reduction in average vacancy Key portfolio metrics Year ended Year ended YoY Mar 2024 Mar 2023 Rm 31-Mar-24 31-Mar-23 % change No. of properties 28 30 Gross income 342 312 9.6% Net expense (65) (59) (10.2%) Property asset value
Slide 69: SA retail portfolio
SA retail portfolio Continued improvement in trading metrics and growth momentum maintained Key portfolio metrics Year ended Year ended YoY Mar 2024 Mar 2023 Rm 31-Mar-24 31-Mar-23 % change No. of properties 18 19 Gross income 472 446 5.8% Net expense (94) (89) (5.6%) Property asset value R5.9bn R5.
Slide 70: SA letting activity
SA letting activity Strong letting performance across all sectors with 90% of expired space re-let at 9.3% negative reversion Expiries and Renewals and Weighted average Weighted average Rental Average As at 31 March WALE Incentive Retention cancellations new lets gross expiry rental gross new rental
Slide 71: SA portfolio composition
SA portfolio composition Sectoral spread by NOI Sectoral spread by GLA Sectoral spread by asset value 27% 23% 29% 37% 42% 47% 24% 35% 36% Retail Office Industrial Retail Office Industrial Retail Office Industrial Industrial Retail Office 3% 3% 4% 10% High Tech Industrial 5% High Street Single-tenant
Slide 72: SA lease expiry profile (by revenue)
SA lease expiry profile (by revenue) The Group maintains a well-staggered lease expiry profile with 76% of leases expiring in FY26 and beyond 41.7% 41.8% 33.9% 29.3% 28.3% 24.3% 21.5% 19.8% 18.1% 18.6% 15.9% 16.0% 16.1% 15.7% 15.4% 14.0% PvJ please insert 9.9% 8.0% 5.9% 5.6% FY25 FY26 FY27 FY28 FY29
Slide 73: SA top 10 clients
SA top 10 clients Based on gross revenue and as % of total portfolio Retail % Office % Industrial % Shoprite Checkers 4.1% Woolworths 3.2% Reload Aquarius Shipping International 2.5% Foschini Retail Group 2.8% Clidet No 887 2.7% RTT Group (Pty) Ltd 2.1% Mr Price Group 2.4% Clover SA 1.5% Sumitomo Ru
Slide 74: Performance – PEL
Performance — PEL (©) Burstone REAL ESTATE PARTNERS 74
Slide 75: PEL income statement
PEL income statement Quality of earnings enhanced through strong contracted rent growth and cost rationalisation Year ended Year ended YoY €m 31-Mar-24 31-Mar-23 % change Net rental income 56.7 52.9 7.2% Strong LFL NOI Property expenses Base net property income (5.2) 51.5 (4.4) 48.5 18.1% 6.2% grow
Slide 76: PEL summarised balance sheet
PEL summarised balance sheet €m 31-Mar-24 31-Mar-23 % change Investment property Valuation reduction of 1% caused by Investment property 1 055 1 066 (1.0%) macro driven yield expansion (1%) Investment property – held for sale - 33 - Derivative financial instruments 17 28 (39.3%) Interest rate cap
Slide 77: PEL portfolio letting
PEL portfolio letting Strong start to leasing with 96% of space expiring re-let at positive 5.2% reversion As at Expiries and Renewals and new Gross new Rental Gross expiry rental Incentive Retention WALE 31 March 2024 cancellations lets rental reversion GLA (m²) GLA (m²) €/m² €/m² % % lease value %
Slide 78: PEL lease expiry to break (by SQM)
PEL lease expiry to break (by SQM) Extended lease expiry profile with 57% of leases expiring beyond 5 years 57.3% 13.9% 12.9% 9.9% 6.0% FY 25 FY 26 FY 27 FY 28 FY 29 Note: WALE sits at 5.3 years with 24% of the portfolio income based in France, where leases are typically governed by a 3/6/9 year lea
Slide 79: PEL top 10 clients
PEL top 10 clients Based on contracted rent and showing as % of total portfolio income Client name % Rhenus 10.2 CHI Deutschland 4.3 Geodis Logistics 4.1 Empik 3.5 Tiesse S.p.a 3.3 H. Essers Logistics 2.9 AF Logistik 2.7 Procter & Gamble 2.6 Neele-Vat Maasvlakte 2.5 WOLTU* 2.5 *Indexed rent with WOL
Slide 80: Balance sheet and treasury
Balance sheet and treasury 80
Slide 81: Balance sheet metrics
Balance sheet metrics As at 31 March 2024 Group PEL • Burstone is significantly progressed on refinances at ZAR debt EUR debt Total Group Europe both a Group level and in PEL anticipated to close by Quantum R9.9bn R2.0bn R11.9bn €566m Q2 FY25 Debt maturity (years) 2.8 2.4 2.2 1.3 • The metrics in th
Slide 82: Glossary
Glossary (©) Burstone REAL ESTATE PARTNERS 82
Slide 83: Glossary
Glossary Term Definition Board Board of directors of Burstone Group Limited Burstone or The Group Burstone Group Limited including its subsidiaries, investments in joint-ventures and any other investments CCS Cross currency swaps CGT Capital gains tax Cps Cents per share DIPS Distributable income pe
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