Vukile Property Fund Limited · JSE:VKE
Vukile Property Fund — H1 2015 Earnings Presentation
60 slides from Vukile Property Fund's earnings presentation, September 2014
Slide 1: www.vukile.co.za
www.vukile.co.za
Slide 2: Unaudited condensed consolidated interim results for the six months ended 30 September 2014
Unaudited condensed consolidated interim results for the six months ended 30 September 2014
Slide 3: Vukile Property Fund Limited corporate information
Vukile Property Fund Limited (Incorporated in the Republic of South Africa) (Registration number 2002/027194/06) JSE share code: VKE ISIN: ZAE000056370 NSX share code: VKN Granted REIT status with the JSE (“Vukile” or “the company” or “the group”) JSE Sponsor: Java Capital NSX Sponsor: IJG Group, Wi
Slide 4: Financial highlights
Financial highlights >7 .8% increase in the first half >G earing ratio of 23.60% normalised distribution down from 29.0% with 89.4% of debt hedged >L ike-for-like net property > Healthy acquisition revenue growth of 7.9% pipeline of selected properties >V acancies decreased to >L evel 4 BEE rating 5
Slide 5: Commentary
Commentary 1. Nature of operations The group is a long-term investor in commercial properties with strong contractual cash flows for sustainability and capital appreciation. 2. Basis of preparation The unaudited condensed consolidated interim financial statements (“interim financial statements”) for
Slide 6: Commentary (continued)
Commentary (continued) A simplified income statement (which is not IFRS compliant) is set out below: GROUP September September 2014 2013 Paragraph % R000 R000 reference variance Gross rental income and recoveries 744 110 657 365 13.2 Property expenses (275 105) (250 453) (9.8) Net profit from proper
Slide 7: Commentary (continued)
Commentary (continued) b) Asset management business Asset management fee income is 2.5% higher than the comparable period following the disposal of the R2.2 billion East Rand Mall in April 2013, which has led to a lower base of c.R6.9 billion on which to calculate on-going recurring asset management
Slide 8: Commentary (continued)
Commentary (continued) The LTV ratio net of available cash at 30 September 2014 equates to 25.3% (29.1% – September 2013). Swaps amounting to R674 million have been extended to mature in May 2016 (R261 million) and March/May 2019 (R413 million), at an additional swap cost equating to R4.9 million on
Slide 9: Commentary (continued)
Commentary (continued) national tenant mix of 88%. Anchor tenants include Shoprite, Pick n Pay, Edcon and the Truworths group. A purchase price of R320 million was agreed to acquire 80% of the centre which equates to an initial yield of 8.68%. The remaining 20% is owned by the Bakgatla-Ba-Kgafela. T
Slide 10: Commentary (continued)
Commentary (continued) The renewal escalations on expiry rentals are still positive when compared to expiry rentals: > Retail 9.4% > Office 6.6% > Industrial 3.0%* > Sovereign 7.5%# > Average 7.3% *Excluding the renewal of Mahle Behr South Africa (29 980m²) at Durban Valley View Industrial Park whic
Slide 11: Operating segment analysis, six months ended 30 September 2014
Commentary (continued) Operating segment analysis for the six months ended 30 September 2014 Retail Offices GROUP R000 R000 Group income for the six months ended 30 September 2014 Property revenue 452 469 134 011 Property expenses (180 972) (57 330) 271 497 76 681 Straight-line rental income accrual
Slide 12: Operating segment analysis (continued)
Commentary (continued) Asset Sovereign Motor- management Industrial offices Hospital related Total business Total R000 R000 R000 R000 R000 R000 R000 61 843 76 399 5 426 13 962 744 110 11 734 755 844 (14 389) (20 114) (618) (1 682) (275 105) (15 875) (290 980) 47 454 56 285 4 808 12 280 469 005 (4 14
Slide 13: Operating segment analysis, six months ended 30 September 2013
Commentary (continued) Operating segment analysis for the six months ended 30 September 2013 Retail Offices GROUP R000 R000 Group income for the six months ended 30 September 2013 Property revenue 413 583 139 493 Property expenses (158 987) (59 193) 254 596 80 300 Straight-line rental income accrual
Slide 14: Operating segment analysis 2013 (continued)
Commentary (continued) Asset Sovereign Motor- management Industfrial offices Hospital related Total business Total R000 R000 R000 R000 R000 R000 R000 60 284 23 833 13 189 6 983 657 365 78 472 735 837 (21 891) (7 779) (1 573) (1 030) (250 453) (19 602) (270 055) 38 393 16 054 11 616 5 953 406 912 58
Slide 15: Distribution announcement
Commentary (continued) 11. Distribution announcement Linked unitholders are advised that the board of directors of Vukile has declared a normalised interim cash distribution of 59.08600 cents per linked unit out of distributable income for the six-month period ended 30 September 2014. Vukile was gra
Slide 16: Salient dates and post period events
Commentary (continued) Salient dates and times The salient dates and times for the interim cash distribution are as set out below: Last day to trade cum dividend and receive a cash distribution Thursday, 11 December 2014 Linked units to trade ex-distribution Friday, 12 December 2014 Record date Frid
Slide 17: Commentary and prospects
Commentary (continued) On the assumption that the selling price of R167 million is invested in properties yielding at least 9.0% and taking the above transfer service fee income into account, the effect on Vukile’s distributable income for the years ending 31 March 2015 to 31 March 2017, based on bu
Slide 18: Condensed consolidated statement of financial position
Unaudited condensed consolidated statement of financial position at 30 September 2014 Unaudited Unaudited Audited 30 September 30 September 31 March 2014 2013 2014 GROUP R000 R000 R000 ASSETS Non-current assets 11 369 716 10 088 966 10 739 238 Investment properties 10 326 423 9 454 898 9 787 413 Inv
Slide 19: Condensed consolidated statement of comprehensive income
Unaudited condensed consolidated statement of comprehensive income for the six months ended 30 September 2014 Unaudited Unaudited Audited 30 September 30 September 31 March 2014 2013 2014 GROUP R000 R000 R000 Property revenue 744 110 657 365 1 389 625 Straight-line rental income accrual (20 972) 18
Slide 20: Reconciliation of net profit to headline earnings and distributable profit
Reconciliation of group net profit to headline earnings and to profit available for distribution at 30 September 2014 30 September 2014 30 September 2013 31 March 2014 Cents Cents Cents per per per Group linked Group linked Group linked R000 unit R000 unit R000 unit Earnings per share 170 742 33.28
Slide 21: Condensed consolidated statement of cash flow
Unaudited condensed consolidated statement of cash flow for the six months ended 30 September 2014 Unaudited Unaudited Audited 30 September 30 September 31 March 2014 2013 2014 GROUP R000 R000 R000 Cash flow from operating activities 456 816 467 376 969 578 Cash flow from investing activities (182 0
Slide 22: Condensed consolidated statement of changes in equity
Unaudited condensed consolidated statement of changes in equity for the six months ended 30 September 2014 Share capital Other and share components Retained GROUP premium of equity earnings Total Balance at 31 March 2013 56 116 2 533 337 36 734 2 626 187 Issue of share capital 8 880 — — 8 880 Divide
Slide 23: Notes: measurements of fair value
Notes to the condensed consolidated statements for the six months ended 30 September 2014 1. MEASUREMENTS OF FAIR VALUE 1.1 Financial Instruments The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy as follows: S
Slide 24: Notes: non-financial assets
Notes to the condensed consolidated statements for the six months ended 30 September 2014 1.2 Non-financial assets The following table reflects the levels within the hierarchy of non-financial assets measured at fair value at: September September March 2014 2013 2014 Level 3 Level 3 Level 3 Assets I
Slide 25: Notes
Notes 22 Unaudited condensed consolidated interim results for the six months ended 30 September 2014
Slide 26: Unaudited condensed consolidated interim results
Unaudited condensed consolidated interim results for the six months ended 30 September 2014
Slide 27: Agenda
Interim Results for the six months to 30 September 2014 Agenda • Highlights Laurence Rapp • Financial performance Mike Potts • Portfolio performance and overview Ina Lopion • Acquisitions and disposals Sedise Moseneke • Corporate activity Laurence Rapp • Prospects and plans Laurence Rapp • Questions
Slide 28: Introduction and highlights
Introduction and highlights LAURENCE RAPP 3 Highlights • 7.8% increase in the first half normalised distribution to 59.1 cpu • Strong operational performance o Like for like net property revenue growth of 7.9% o Vacancies decreased from 6.5% to 5.4% and even lower post reporting period o Positive re
Slide 29: Distribution history
Financial performance MIKE POTTS 5 Distribution history A decade of unbroken growth in distributions Cents per linked unit 160.0 140.3 140.0 131.6 124.8 126.5 13.8 117.7 120.4 11.2 120.0 111.43 13.4 109.0 8.7 100.0 107.9 97.9 80.0 88.3 76.8 71.7 60.0 68.5 68.2 63.8 62.8 61.5 60.9 59.1 54.8 53.8 52.2
Slide 30: Simplified income statement
Simplified income statement Sept Sept 2014 2013 Variance Rm Rm % Group net rental income 469.0 406.9 15.3 Sales commission – asset management business - 67.0 >-(100) Asset management fees 11.8 11.5 2.6 Asset management expenditure (15.9) (19.6) 18.9 Net finance costs (104.6) (98.4) (6.3) Corporate a
Slide 31: Group income
Group income - (R000) Distributable Income 800 755.8 700 600 500 422 400 333.8 300 - = 200 100 0 Gross income Expenditure Distributable income 9 Group income - (R000) Income R755.8 million Rates and taxes recovered, R 36 075 5% Income from listed Asset management fee property securities, income, R 2
Slide 32: Group expenditure and balance sheet
Group expenditure - (R000) Expenses R422.0 million Asset management Corporate admin, Tax, expenses, R 18 545 4% R 7 942 R 15 875 2% 4% Property management fees, R 20 871 Finance costs, 5% R 140 746 33% Rates and taxes, R 48 799 12% Property expenses, R 52 161 12% Electricity and water costs, R 117 1
Slide 33: Bad debt and arrears analysis; group debt structure
Bad debt and arrears analysis Prudent provisioning policy • Tenant arrears increased by R5.6 million from March 2014 to R38.2 million at September 2014 • Doubtful debt allowance increased by R5.8 million from March 2014 to R17.1 million at 30 September 2014. • Doubtful debt allowance expected to app
Slide 34: Group debt structure: maturity and interest rate profile
Group debt structure Maturity and interest rate profile of fixed interest bearing debt Fixed rate debt (R’m) Fixed interest rate [%] September 2018 74.6 8.12 March 2018 190.0 8.51 May 2017 240.0 8.83 April 2017 163.4 9.07 March 2017 200.0 8.97 September 2016 310.0 8.29 May 2016 200.0 8.51 April 2016
Slide 35: Group net cash flow and NAV bridge
Group net cash flow R’000 1 800 300 1 600 300 723 971 1 400 300 1 200 300 (365 236) 1 000 300 80 337 (259 656) 800 300 456 816 600 300 400 300 298 175 (564 925) 214 212 200 300 (38 903) (11 750) (104 617) 300 Borrowings repaid Proceeds on sale of investment investment properties and fixed Net financ
Slide 36: Linked unit price and trading volumes
Linked unit price and trading volumes 1 October 2013 to 30 September 2014 Price Volume Rand (000) 18.00 25 000 000 20 000 000 17.00 15 000 000 16.00 10 000 000 15.00 5 000 000 14.00 0 Volume Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep traded 2013 2014 19 Property portfolio performance and overvi
Slide 37: Overview: valuation parameters, leasing and tenant exposure
Overview Valuation parameters • Number of properties 79 • GLA 1 141 383m² • Valuation o Total portfolio R10.582 billion 51% of portfolio valued externally, values in line with director’s valuations o Average value per property R134m o Average discount rate 14.4% o Average exit capitalisation rate 10
Slide 38: Sectoral profile and portfolio composition
Sectoral profile Direct property Value: R10 582m GLA: 1 141 383m² Motor Hospital Motor Hospital Related Related 2% Sovereign 3% 1% Sovereign 1% 10% 10% Industrial 10% Industrial Retail Retail 21% 43% 54% Offices 22% Offices 23% Retail exposure at 56,5% with Fairvest and Synergy 23 Portfolio composit
Slide 39: 10 largest properties and geographic profile
10 largest properties Retail dominant Directors’ Rentable valuation at area Sep 2014 % Valuation Property Location Sector m² R000 of total R/m² East Rand Mall * Boksburg Retail 31 258 993.8 9.4 31 794 Durban Phoenix Plaza Durban Retail 24 363 624.4 5.9 25 630 Pretoria Navarre Building Pretoria Sover
Slide 40: Vacancy profile
Vacancy profile Further reductions post reporting period to 4.2% Vacancy [% of GLA] Vacancy [% of Rent] 17.5% 17.5% 14.1% 14.9% 14.0% 4.3% 10.7% 11.9% 5.1% 13.2% 8.9% 6.2% 8.9% 6.5% 4.8% 6.7% 7.0% 5.4% 4.8% 1.2% 3.8% 3.3% 4.7% 2.8% 3.4% 2.7% 2.7% 2.2% 1.1% 2.9% 5.8% 4.2% Retail Offices Industrial So
Slide 41: Expiry profile
Expiry profile 30% of the portfolio expiring in 2019 and beyond % of GLA 89% 100% 76% 70% 84% 50% 70% 34% 60% 39% 20% 6.5% 5.4% 15% 19% 21% 10% 14% 16% Vacant Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Beyond March 2019 100% % of Contractual Rent 90% 74% 66% 87% 46% 70% 58% 26.7% 36% 0% 16% 20% 22% 12% 17%
Slide 42: Expiry profile: offices
Expiry profile Offices % of GLA 87% 93% 100% 82% 68% 92% 86% 46% 73% 55% 31% 17.5% 14.0% 24% 17% 18% 13% 6% 8% Vacant Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Beyond March 2019 100% 94% % of Contractual Rent 81% 88% 65% 91% 85% 71% 37% 51% 28% 0% 23% 20% 15% 6% 9% Vacant Mar/15 Mar/16 Mar/17 Mar/18 Mar/19
Slide 43: Expiry profile: sovereign, hospital and motor related
Expiry profile Sovereign % of GLA 95% 100% 95% 44% 46% 43% 49% 16% 46% 14% 6.2% 30% 10% 13% 3% 5% 3.8% 6% 3% Vacant Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Beyond March 2019 96% 100% % of Contractual Rent 95% 36% 38% 58% 8% 35% 37% 6% 0% 7% 29% 2% 5% 4% 2% Vacant Mar/15 Mar/16 Mar/17 Mar/18 Mar/19 Beyond
Slide 44: Lease renewals and contracted rental escalation profile
Lease renewals and new leases concluded Positive reversions across all sectors Lease renewals - % escalation on expiry rentals 9.4% 7.5% * 7.3% 6.6% 3.0% * Retail Offices Industrial Sovereign Average * Excluding the renewal of Mahle Behr South Africa at Durban Valley View Industrial Park which skews
Slide 45: Weighted average base rentals R/m²
Weighted average base rentals R/m² (excluding recoveries) 8.0% 10.8% 7.5% 106.11 7.8% 9.0% 104.50 7.1% 102.56 100.38 98.27 95.77 91.36 91.18 90.56 89.09 89.09 86.80 86.69 84.59 83.82 83.44 83.39 80.95 3.3% 40.74 40.16 39.43 Retail Offices Industrial Sovereign Hospital Motor Related Total Sep-13 Mar-
Slide 46: Office and industrial weighted average base rentals
Office portfolio - weighted average base rentals R/m² (excluding recoveries) Pretoria Hatfield Festival Street Offices Jhb Houghton Estate Oxford Terrace Pretoria Lynnwood Sanlynn Sandton Hyde Park 50 Sixth Road Cape Town Bellville Suntyger Jhb Houghton 1 West Street Pretoria Hatfield 1166 Francis B
Slide 47: Other base rentals; ratio of recurring cost to property revenue
Other - weighted average base rentals R/m² (excluding recoveries) Pretoria Navarre Building Pretoria Koedoe Arcade Pretoria De Bruyn Park Sovereign Bloemfontein Fedsure House Cape Town Bellville Louis Leipoldt Hospital Cape Town Bellville Barons Motor Related Sandton Linbro Galaxy Drive Showroom - 2
Slide 48: Recurring expenses and refurbishments
Recurring expenses 82% of costs from top four categories Bad Debt Insurance Premiums Asset Management Sundry Expenses 3% 2% Fee 1% 6% Maintenance contracts 6% Property Government Management Fee Services 8% 44% Cleaning & security 11% Rates & Taxes 19% 43 Refurbishments Meadowdale Mall • Redevelopmen
Slide 49: Refurbishments: East Rand Mall; acquisitions and disposals
Refurbishments East Rand Mall • Joint development with co-owner Redefine Properties • The gross lettable area will increase by 6 785m² to 69 299m² • The total capex for the Vukile portion is R168,25 million • The extension will be anchored by Mr Price Emporium • Other major tenants in the centre are
Slide 50: Acquisitions and disposals
Acquisitions Transferred during H1 F2015 Purchase GLA Yield per price Transfer Property Sector (m²) annum (R'000) date Houghton Estate Oxford Terrace Office 2,460 8.5% 51,000 Apr-14 Maake Plaza (30%) Retail 4,560 13.5% 32,000 Jul-14 Midrand New Road (Undeveloped Land) Land n/a n/a 10,500 Mar-14 TOTA
Slide 51: Deals concluded
Deals concluded Linbro Park • 15 000m² mini factory/warehousing unit in Linbro Park, which is a prime industrial node in Johannesburg • 22 units ranging in size from 350m² to 1 870m² • Total capex of R124 million on a yield of 10% with a 1 year income guarantee • Completed 1 October 2014 • 15% let w
Slide 52: Deals in progress
Deals in progress Nonesi Mall – Queenstown Eastern Cape • 27 700m² dominant small regional shopping centre. • Anchored by Checkers, Pick n Pay, Game, Woolworths (National Component: 96%). • The centre offers a complete lifestyle and convenience shopping experience for the Queenstown consumer. • The
Slide 53: Deals in progress
Deals in progress Batho Plaza – Soshanguve Gauteng • 12 500m² community shopping centre • Anchored by Shoprite and Cashbuild (National component: 80%) • Batho Plaza is a convenient, well located community retail offering servicing the Soshanguve community. • The centre will be acquired for R140 mill
Slide 54: Corporate activity: Sanlam Property Asset Management
Corporate activity LAURENCE RAPP 55 Sanlam Property Asset Management • Agreement has been finalised to sell the Sanlam Asset Management business back to Sanlam • Effective date of 1 November 2014 but deal still subject to Competition Authority approval which is expected by end February 2015 • Vukile
Slide 55: Sanlam asset management pricing parameters; Synergy
Sanlam Property Asset Management Pricing parameters • Following the PWC report, the price agreed between the parties is R167m o Money is held in escrow by Vukile’s attorneys and to be released to Vukile on closing date o Anticipated to be received by end February 2015 • Further payments to be made t
Slide 56: Synergy: investment case for Vukile
Synergy Investment case for Vukile • Strong synergistic fit of the Synergy assets with Vukile’s lower income retail portfolio of c.R5.7bn o very experienced lower income retail management team within Vukile who can easily and readily absorb management of the portfolio • Introducing the Synergy portf
Slide 57: Synergy deal timelines
Synergy Deal timelines • Offer circular to be posted to Synergy unitholders on or about 4 December 2014 • Offer opens for acceptance on that date • Deal is still subject to Competition Authority approval o Expected in mid- to late February 2015 • Offer to remain open for 10 business days post receip
Slide 58: Strategy update and prospects
Strategy Update • Strong Operational focus to continue o Vacancies o Energy management o Alternative income management (AIM), non-GLA revenue o Bad debt and arrears management o New property management agreements concluded; full benefits to flow in F2016 • Continued cautious approach to balance shee
Slide 59: Acknowledgements and questions
Acknowledgements • Board • Property managers • Service providers • Brokers and developers • Tenants • Investors • Funders • Colleagues 65 Questions and answers CLOSING 66 56 Unaudited condensed consolidated interim results for the six months ended 30 September 2014
Slide 60: Slide 60