Burstone Group Limited · JSE:BTN
Burstone — Investec Property Fund — H1 2020 Earnings Presentation
58 slides from Burstone's earnings presentation, November 2019
Slide 1: Investec Property Fund Results Presentation
INVESTEC PROPERTY FUND RESULTS PRESENTATION FOR THE PERIOD ENDED 30 SEPTEMBER 2019
Slide 2: Glossary
Glossary CCS Cross currency swaps CGT Capital gains tax Edcon Edcon Holdings Limited EV Enterprise value GAV Gross asset value GBF General banking facility HFS Held for sale IAPF Investec Australia Property Fund Ingenuity or ING Ingenuity Property Investments Limited IPF or The Fund Investec Propert
Slide 3: Contents
Contents 1. Six months in review 2. Financial review 3. Balance sheet management 4. SA property portfolio 5. Projects 6. Capital expenditure and sustainability 7. SA investments 8. Offshore investments 9. Capital allocation 10. Looking ahead 11. Annexures 3
Slide 4: Six months in review
SIX MONTHS IN REVIEW
Slide 5: Key highlights
Key highlights For the first half of the FY2020 year New leadership settled • Complementary skills with similar philosophies and aligned behind a common purpose and strategy • Supported by an experienced board of directors comprised of both property and financial / business skills SA portfolio is re
Slide 6: Key highlights (continued)
Key highlights For the first half of the FY2020 year (continued…) Sell down of IAPF to facilitate successful ASX listing • Decreased stake from 20.9% to 9.9% to support ASX listing in May 2019 – R584m proceeds • 27.4% total shareholder return for the period Further investment in UK Fund represents a
Slide 7: Key highlights (continued)
Key highlights For the first half of the FY2020 year (continued…) On track to deliver on full year DPS within FY20 guidance range • H1 2020 distribution growth of 3.1% • DPS growth impacted by tenant failures and Edcon rental rebate – c.3% impact on DPS growth YTD • Fund on track to deliver full yea
Slide 8: Key metrics – H1 2020
Key metrics – H1 2020 Good performance in a challenging environment SA portfolio in focus Offshore performance 3.1% 1.3% 2.9 years half year distribution growth like-for-like net property Weighted average EUR 20.1% 27.4% GBP 10% income growth lease expiry total return from PEL YTD total shareholder
Slide 9: Operational strategy
Operational strategy Living the strategy in the Fund’s H1 2020 accomplishments… • Focused on repositioning SA assets: • Explored opportunities in SA: › Extracting value from existing assets › across asset classes – industry › Positioning old / non-core assets for sale Focus on M&A consolidation › Ma
Slide 10: Financial review
FINANCIAL REVIEW
Slide 11: Distribution statement
Distribution statement 3.1% H1 2020 DPS growth, in line with guidance Actual Prior year Sep 2019 Sep 2018 ± Rm Rm % Net property income (excl. straight lining)¹ 701.2 720.7 (2.7) Base net property income 679.6 670.6 1.3 Acquisitions and disposals2 21.6 50.0 (56.7) Income from investments3 149.4 135.
Slide 12: Dividend bridge
Dividend bridge Offshore investments – remains a key contributor to growth Rm 33 (19) 9 (29) (4) 25 522 507 HY19 Increased PEL Reduction in Base Acquisitions Reduction of net Operating HY20 distribution platform revenue income from IAPF NPI growth and disposals finance costs¹ distribution NPI costs
Slide 13: Summarised income statement
Summarised income statement Significant fair value gains achieved on IAPF investment Actual Prior year Sep 2019 Sep 2018 ± Rm Rm % Net property income 689.6 744.3 (7.3) (incl. straight line adjustment) Other operating expenses (50.2) (46.1) (9.0) Fair value adjustments 251.8 367.2 (31.4) Mark to mar
Slide 14: Summarised balance sheet
Summarised balance sheet Significant offshore investment activity Sep 2019 Mar 2019 ± Rm Rm % Property related investments 21 741.3 20 903.4 4.0 South Africa¹ 17 283.4 17 284.2 (0.0) IAPF² 866.9 1 271.9 (31.8) UK³ 735.4 222.5 230.5 Europe⁴ 2 434.1 1 685.8 44.4 Ingenuity⁵ 119.2 133.0 (10.3) Izandla 3
Slide 15: Balance sheet construct
Balance sheet construct Remain committed to SA Asset risk vs. return profile Sep 2019 Mar 2019 • Investment strategy progressing towards assets Rm % of total Rm % of total that offer higher risk-adjusted returns SA investment property 17 283.4 79.5 17 284.1 82.7 Risk Ingenuity 119.2 0.5 115.8 0.6 Iz
Slide 16: Net asset value bridge
Net asset value bridge Growth from investments (IAPF and PEL) offset by negative fair value movements on swap book R’000 513 (405) (554) 748 10 (112) 13,131 13,331 3 Opening NAV Investment Investment Sale of IAPF Movement in Working capital Movement in Closing NAV 1 2 4 PEL & PELI UK Fund debt & cas
Slide 17: Balance sheet management
BALANCE SHEET MANAGEMENT
Slide 18: Balance sheet metrics
Balance sheet metrics Balance sheet well-positioned • Weighted average cost of funding reduced to 7.1% (March 2019: 7.9%) due to offshore deployment and treasury activity • Target gearing below 35% - to be achieved through active capital recycling • Took advantage of flatter swap curve in current pe
Slide 19: Balance sheet strategy: Fundamental focus
Balance sheet strategy Fundamental focus Years Weighted expiry profile (years) Sources of funding (%)¹ 5 11% 4 3.7 24% 3.5 3.6 3.4 3.0 3.0 3 32% 27% 2 6% 1 HQLA Bank Commercial Paper DMTN Foreign 0 Debt Swaps Cross currency swaps 31 Mar 2019 30 Sep 2019 19 1. By facility
Slide 20: Balance sheet strategy: Looking forward
Balance sheet strategy Looking forward Debt and swap expiry (%) R1.2bn committed facilities 40% of which R0.6bn is undrawn (excluding GBF) 33% 28% covers all imminent refinance risk 30% 19% 19% 20% 16% 14% 15% 14% 14% 9% 10% 10% 4% 3% 2% 0% 0% 0% FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 Total swaps T
Slide 21: SA property portfolio
SA PROPERTY PORTFOLIO
Slide 22: SA property portfolio
SA property portfolio NPI growth despite macro-economic challenges Actual Prior year Sep 2019 Sep 2018 ± Property portfolio Rm Rm % Sep 2019 Mar 2019 Gross income 850.9 828.1 2.8 No. of properties 99 102 Net expense (171.3) (157.4) (8.8) GLA (m²) 1 191 375 1 197 921 Base net property income 679.6 67
Slide 23: Office
Office Oversupply and subdued demand remain a challenge Actual Prior year Sep 2019 Sep 2018 ± Property portfolio Rm Rm % Sep 2019 Mar 2019 Gross income 326.8 343.3 (4.8) No. of properties 31 31 Net expense (67.2) (69.5) 3.3 GLA (m²) 249 781 249 243 Base net property income 259.6 273.8 (5.2) Vacancy
Slide 24: Industrial
Industrial Under pressure given increase in bad debts and arrears Actual Prior year Sep 2019 Sep 2018 ± Property portfolio Rm Rm % Sep 2019 Mar 2019 Gross income 183.5 172.7 6.2 No. of properties 37 38 Net expense (34.0) (30.3) (12.4) GLA (m²) 527 723 531 501 Base net property income 149.5 142.5 4.9
Slide 25: Retail
Retail Exhibited defensiveness despite subdued consumer spending Actual Prior year Sep 2019 Sep 2018 ± Property portfolio Rm Rm % Sep 2019 Mar 2019 Gross income 347.1 312.0 11.3 No. of properties 31 33 Net expense (76.6) (57.6) (32.7) GLA (m²) 413 871 417 177 Base net property income 270.5 254.4 6.4
Slide 26: Letting activity
Letting activity 89% expired space let or renewed YTD; 84% for full year Gross Gross Expiries & Renewals Expiries expiry new Rental Average Incentive cancellations & new lets let rental rental reversion escalation WALE (% lease Retention YTD GLA GLA (%) (R/m²) (R/m²) (%) (%) (years) value) (%) Offic
Slide 27: Property valuations
Property valuations Realistic forward yield of 9.1% Carrying Directors’ amount Revaluation Other valuation Revaluation 31 March and straight capital 30 Sep Total and straight Forward Prior year 2019 lining movements 2019 change lining yield yield (Rm) (Rm) (Rm) (Rm) (%) (%) (%) (%) Office 6 243.4 4.
Slide 28: Projects
PROJECTS
Slide 29: Projects: The Firs
Projects The Firs The Firs • A Rosebank landmark – mixed-use precinct • Phase 1 retail refurbishment – well on its way to being established as a food destination Re-positioning of offices • Offices generate significant interest for niched office users • 96% of customers (office tenants, office clien
Slide 30: Projects: Balfour Mall
Projects Balfour Mall • Work in progress for some time – 3-5 years Acquisition of Highlands Mall - assists in Allow free flow of feet from Louis Botha • Has all the location and target market requirements of a positioning Avenue (current taxi rank), general regional mall – IPF has not been able to t
Slide 31: Projects: Other
Projects Other 4 Sandown Valley Crescent Fleurdal Mall Phase 3 • Presented a brand identity – better access to offices • Improve visibility along Sandown Valley Crescent – give a better sense of arrival • Extension unveiled on 1 August – bigger, better shopping experience • Added 6 000m² – increasin
Slide 32: Capital expenditure and sustainability
CAPITAL EXPENDITURE AND SUSTAINABILITY
Slide 33: Capital expenditure and sustainability
Capital expenditure and sustainability • R165m spend on capital projects, refurbishments and maintenance capex during the year › R109m project spend on Fleurdal Mall extension, refurbishment of Benoni Multipark, Firs refresh and Clover head office › R35m attributable to maintenance capex spend • R91
Slide 34: SA investments
SA INVESTMENTS
Slide 35: SA investments: Ingenuity and Izandla
SA investments Ingenuity Izandla • Exited minority interest • There has been no further investment by IPF into the empowerment vehicle during the current period › Ingenuity repurchased all ING shares held by IPF at R1.08 per share, as part of a general offer to all shareholders • The shareholder loa
Slide 36: Offshore investments
4 ry WHS \ aapy SN OFFSHORE INVESTMENTS
Slide 37: Pan-European logistics portfolio
Pan-European logistics portfolio Platform gaining scale €106m deployed to date • Further €21.5m invested during the period to acquire a further 8 properties across Netherlands, France and Poland (GAV of €151m) • €106m deployed to date – €44m remaining of €150m commitment • Portfolio comprises assets
Slide 38: Pan-European logistics portfolio – letting activity
Pan-European logistics portfolio – letting activity 100% of expired space let YTD Highlights • 80% opening vacancy let • 100% of YTD expiries let at a reversion of positive 8.2% Expiries & Renewals & Gross expiry Gross new Rental cancellations new lets Expiries let rental rental reversion WALE GLA G
Slide 39: Pan-European light industrial investment
Pan-European light industrial investment Initial investment deployed • Acquired an initial 25% interest in an unlisted portfolio – 26 light industrial properties located across France, Germany and Netherlands › €10m deployed to acquire assets with gross asset value of €126m › €54.5m remaining of €64
Slide 40: IAPF
IAPF ASX-listing established and well received Key highlights Key portfolio metrics Sep 2019 Mar 2019 • IAPF completed ASX listing in May 2019 No. properties 31 28 • In conjunction with the listing: Total value of property AUD 1,180m AUD 1,063m › IAPF undertook a primary capital raise of A$100m Valu
Slide 41: UK Fund
UK Fund Strategic investment and provides optionality Further investment • IPF acquired an additional 22.5% interest in the UK Fund for £25m increasing its shareholding to 32.5% › Total value of investment in UK Fund at £37.2m Key portfolio metrics › IPF’s influence in the UK Fund has evolved to a p
Slide 42: Capital allocation
9 CAPITAL ALLOCATION
Slide 43: Capital recycling
Capital recycling Efficiently executed on return enhancing basis Looking forward: Rm Sep 2019 Yield (%) • 11 properties held for sale with expected selling Deployment funded by: price of R0.6bn Proceeds from SA property disposals – 4 properties 207.5 10.8 • Further R0.7bn of SA properties earmarked
Slide 44: Looking ahead
10 LOOKING AHEAD
Slide 45: H2 2020 priorities
H2 2020 priorities What to expect over the next 6 months Focus on navigating the SA portfolio through the economic slow down… • Continue repositioning the portfolio › Support performing assets and sell underperforming ones › Focus on property fundamentals ahead of anything else • Proactive asset man
Slide 46: Guidance: DPS growth of 3-5% for FY2020
Guidance DPS growth of 3-5% for FY2020 • Dividend guidance for the financial year ending 31 March 2020 remains unchanged at 3-5% • Assumes no material change to operating environment and no further material client failures occur • Low single-digit growth likely to be generated by South African portf
Slide 47: Conclusion
Conclusion • Good performance in H1 2020 • South Africa – excellent letting statistics have been marred by an increase in bad debts • Positive capital allocation in terms of deployment and disposal activity improving the quality of the balance sheet • PEL platform continues to drive distribution gro
Slide 48: Annexures
11 ANNEXURES
Slide 49: Appendix: Strategic pillars
Appendix Deliver sustainable long-term returns by… Strategic pillars …focusing on …ensuring …unlocking client experience best of breed assets the potential of space as a key differentiator Value add asset Cost efficiency Revenue security Client service management and and system and growth excellence
Slide 50: IPF performance vs. peers since listing
Appendix IPF performance vs. peers since listing¹ 250% 225% 200% 175% 150% 125% 100% 75% 50% Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 IPF Vukile Emira SA Corporate Growthpoint Redefine 1. Bloomberg data as at 11 Nov
Slide 51: Sector forward yields, gearing and market cap
20% 40% 60% 0% 5.3% IAPF 5.7% 7.0% Gearing Attacq 6.6% 7.4% Equites 7.3% Market cap (R'bn) 7.6% Fortress A 7.4% IAPF 9.9 8.6% Resilient 8.7% Attacq 8.3% Sector forward yields Stor-Age 8.4% Equites 8.9% Liberty 2Degrees Fortress A 8.9% 10.1% Resilient Growthpoint 9.5% 10.6% Stor-Age Vukile 9.7 11.5 3
Slide 52: Investec relative to peers: Price/NAV
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 Stor-Age 1.23 1.18 Price/NAV Equites 1.23 1.25 IAPF 1.21 1.12 Dipula A 1.08 1.06 Arrowhead A 1.07 Investec relative to peers 1.03 Fortress A 1.04 1.24 Friday, 11 October 2019 Source: Bloomberg as at 11 October 2019 Resilient 0.97 0.61 Vukile 0.95 0.96 Growthpoint 0.89
Slide 53: Portfolio composition
Portfolio composition Sectoral spread by revenue Sectoral spread by asset value Sectoral spread by GLA 22% 22% 35% 40% 42% 44% 38% 36% 21% Retail Retail Retail Office Office Office Industrial Industrial Industrial 53
Slide 54: Sectoral composition (by revenue)
Sectoral composition (by revenue) Retail Office Industrial 8% 2% 13% 24% 1% 12% 36% 64% 22% 40% 78% Shopping centres Single High tech industrial Standard units Retail Warehouse Multi Warehouses Manufacturing Motor dealership Logistics High street 54
Slide 55: Lease expiry (by revenue)
Lease expiry (by revenue) 89% of YTD expiries already let and 89% for full year 40% 34% 30% 23% 20% 17% 16% 14% 12% 10% 10% 10% 8% 9% 8% 7% 6% 6% 5% 5% 4% 4% 2% 1% 0% 2020 2021¹ 2022 2023 April 2023 Onwards Office Industrial Retail Portfolio 55
Slide 56: Retail trading performance
Retail Trading performance • Long term growth expected to be in line with long term wage growth Average like-for like turnover excluding Design Quarter and Balfour Mall (%) (4%-4.5%) 5.8% 6.0% • Centers resilient in a difficult market, holding onto market share 5.2% 5.3% 5.0% 4.5% 4.4% 4.7% 4.7% • N
Slide 57: Top tenants
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 5.8 Investec 5.4 Altron Ltd 2.2 Shoprite Checkers Group 3.0 Cliffe Dekker Hofmeyr 4.7 Kevro Trading (Pty
Slide 58: 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
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