Burstone Group Limited · JSE:BTN
Burstone — Investec Property Fund — H1 FY21 Earnings Presentation
65 slides from Burstone's earnings presentation, Nov 18, 2020
Slide 1: Investec Property Fund Results Presentation
2020 INVESTEC PROPERTY FUND RESULTS PRESENTATION FOR THE 6 MONTHS ENDED 30 SEPTEMBER 2020
Slide 2: H1 in Review
H1 IN REVIEW
Slide 3: Key group highlights
Key group highlights H1 snapshot Protea Place, Sandton • De-gearing flightpath now complete • Balance sheet strengthened and liquidity preserved • Portfolio further simplified post IAP exit • SA portfolio materially affected by local lock down • European logistics platform performing in line with ex
Slide 4: Key metrics
Key metrics Full period impacted by COVID-19 but portfolio exhibited resilience Group Portfolio performance (33.9)% (5.1)% 39.8% SA portfolio distributable earnings decline decline in NAV per share to R17.27 gearing¹ (24.4)% 25.7% 90% 12.7% (Sep 19: 3.1% growth) (Mar 20: R18.19) (Mar 20: 47.5%) base
Slide 5: Regional performance highlights
Regional performance highlights Benefits realised from geographically diversified portfolio and logistics focus • Paid H2 FY20 dividend of 39.05 cps and declared top-up dividend of 29.82 cps General Electric, Midrand • Declaration of H1 FY21 dividend postponed due to uncertainty following European l
Slide 6: Focus on creating long-term value
Focus on creating long-term value 200 000 sqm (9% of total GLA) forward leased at an average WALE of 9.8 years South Africa PEL 63 715m2 at average WALE of 9.8 years 131 636m2 at average WALE of 9.9 years • Notable lease re-gears concluded during the period: • Notable lease re-gears concluded during
Slide 7: Operational landscape
Operational landscape Key themes… … over the last 6 months … going forward • COVID impact has fast-forwarded and had amplified impact on SA property • Continued pressure on office rentals and incentive levels › Working from home › Demand drivers absent – supply needs to be absorbed by alternate uses
Slide 8: IPF Strategy
IPF STRATEGY
Slide 9: Reiterating our strategy
Reiterating our strategy Geographic earnings exposure1 Best of breed assets • Strategically selected in targeted markets to take advantage of structural trends and compelling property fundamentals 2%2% • Offers shareholders unique exposure to a world-class Pan-European South Africa logistics portfol
Slide 10: Delivering on our FY21 strategic priorities
Delivering on our FY21 strategic priorities Whilst the short-term focus has been on navigating the COVID-19 crisis and executing on the de- gearing flightpath, we have made great strides in progressing our longer-term strategic priorities Strategic priorities Client engagement across all regions G
Slide 11: Financial Review
FINANCIAL REVIEW
Slide 12: Summarised income statement
Summarised income statement Gains from increased PEL investment offset by weak SA performance and portfolio write downs 30 Sep 2020 30 Sep 2019 Rm Notes Rm Rm % change Net property income (excl. straight line rental adjustment) 509 701 (27.4%) 1. MTM increased primarily as a result of interest rate
Slide 13: Distributable earnings statement
Distributable earnings statement 33.9% decline in distributable income per share impacted by COVID-19 30 Sep 2020 30 Sep 2019 Notes Rm Rm % change Net property income (excl. straight lining) 1 509 701 (27.4%) Base net property income 488 646 (24.4%) Acquisitions and disposals 21 56 (61.5%) Belgium n
Slide 14: Distributable earnings bridge
Distributable earnings bridge Offshore investments remain a key contributor to growth Rm 522 136 (9) (21) 377 (51) (3) (4) (158) (35) HY19 Base NPI Acquisitions Increased Witholding Reduction Reduction Operating Other¹ HY20 distributable growth and disposals earnings of dividend in income of net cos
Slide 15: Net asset value bridge
Net asset value bridge Decline in NAV following portfolio write downs Rm 14,645 2,494 13,901 (768) (184) (364) (661) (691) (450) (120) 31 March SA property Sale Sell down SA property UK Fund Net debt MTM on Working 30 September 2020 sales of IAP of 10% interest impairment impairment derivatives capi
Slide 16: Rent collections
Rent collections Collection experience across all regions has been improving % Collections (as % of contractual billings) Weighted Investment region April May June July August September average¹ South Africa 66% 78% 91% 97% 103% 107% 90% - Collection of monthly billings 66% 67% 76% 79% 86% 88% 77% -
Slide 17: Performance – SA Property
PERFORMANCE – SA PROPERTY
Slide 18: SA property portfolio
30 Jellicoe, Rosebank SA property portfolio Experienced severe pressure as a result of COVID Base NPI • H1 FY21 base NPI down 24.4% yoy due to discounts granted, insolvencies and increase in vacancy • Total COVID-19 relief granted: R87m (of which R55m discounts) • Retail hardest hit by rent free con
Slide 19: SA net property income downside
SA net property income downside 19.7 - Rm 23.8 29.0 27.7 2.7 54.7 (157.6) Total SA NPI SA rent free discounts¹ SA longer Loss in turnover rental SA bad debts⁴ Impact of lease Other downside at void periods² and increased costs³ re-gears⁵ 30 Sep 2020 vs. prior year Notes 1. Rent free concessions exte
Slide 20: SA property portfolio
SA property portfolio NPI down significantly vs. Sep 19 due to rental concessions granted Actual Prior year Property portfolio Sep 2020 Sep 2019 ± Rm Rm % Sep 2020 Mar 2020 Gross income¹ 695.1 813.5 (14.6) No. of properties 92 98 Net expense² (207.1) (167.9) 23.3 GLA (m²) 1 111 190 1 158 249 Base ne
Slide 21: Performance – Europe (A) Logistics
PERFORMANCE – EUROPE (A) LOGISTICS
Slide 22: Pan-European logistics portfolio
Pan-European logistics portfolio Exhibited resilience during the period Base NPI • Base NPI growth of 2.7% driven by reduction in base vacancy and positive letting Key portfolio metrics • Two tenant insolvencies (representing 2.9% of contracted income) 30 Sep 2020 31 Mar 2020 Cost base drivers • Bas
Slide 23: PEL balance sheet construct
PEL balance sheet construct 79% of asset base located across core markets of Germany, France and the Benelux Pro forma post Venlo, Netherlands refinance and Summarised balance sheet (incl. Belgium) (€m) Belgium transfer ASSETS Investment properties - PEL 920.1 Investment properties - Belgium 70.7 Ot
Slide 24: Capital expenditure
Capital expenditure Description Hoppegarten, Germany Property GLA Capex spend of capex work Hoppegarten 18 262m² FY20: €380k • New facade for office (Germany) FY21: €1.7m building • Works in respect of key tenant lease re-gear Carpiano C 18 180m² FY21: €2.5m • Unit upgrade (Italy) Hanover 24 551m² F
Slide 25: Impact of COVID-19 on logistics sector
Impact of COVID-19 on logistics sector COVID-19 has accelerated structural demand drivers in the logistics sector Demand from online retail has accelerated… • UK internet penetration surged Global supply chain reconfiguration has • The pandemic stunted global from 19% (Feb 20) to 33% increased deman
Slide 26: Impact of COVID-19 on logistics sector
Impact of COVID-19 on logistics sector Impact of demand / supply imbalance on European industrial and logistics property Strong occupier demand is generating robust INVESTMENT Prime logistics yields have been falling… YIELDS investor interest… • YTD European industrial and Prime logistics yields rel
Slide 27: Performance – Europe (B) Light Industrial
PERFORMANCE – EUROPE (B) LIGHT INDUSTRIAL
Slide 28: Pan-European light industrial investment
Pan-European light industrial investment Tracking in line with expectations Acquisition • At 30 September, the portfolio comprised 25 properties with c.€126m gross asset value • Further €0.9m deployed in July 2020, bringing total deployment to €10.9m to date IPF equity • €49m of GAV in pipeline inve
Slide 29: Performance – UK Fund
PERFORMANCE – UK FUND
Slide 30: UK Fund
UK Fund Earnings under pressure due to weak retail environment Performance update Key portfolio metrics • Base portfolio NPI declined 7.3% due to COVID-19 related tenant insolvencies and slower leasing Sep 2020 Mar 2020 due to UK lockdown Shareholding 38% 38% • 35.5% decline in distributable earning
Slide 31: Balance Sheet and Risk Management
BALANCE SHEET AND RISK MANAGEMENT
Slide 32: Balance sheet management
Balance sheet management Prudent management ensured balance sheet remained robust and liquidity was preserved through the volatility Implementation of de-gearing flightpath completed – total cash received of R4.5bn • R0.8bn proceeds raised from disposal of 7 assets • Sold remaining interest in IAP r
Slide 33: Balance sheet position
Balance sheet position Managing LTV through de-gearing flightpath 43.8% 1.2% 0.4% 1.0% 39.8% (6.6%) Reported H2 FY20 Transfer of PEL debt Proposed Gearing as at 30 Sep Tranche 1 dividend Belgian assets refinance H2 FY20 post flightpath 2020 top up dividend • Reported gearing at 43.8% at 30 September
Slide 34: Debt maturity – next 12 months
Debt maturity – next 12 months Limited liquidity risk • R1.4bn available cash • Acquisition bridges largely settled – c.€55m remaining • Total debt maturing over the next 12 months = R1.4bn (excluding c.€55m remaining acquisition bridge facility) › R1.2bn term debt funding package approved to early
Slide 35: Balance sheet strategy – covenants and hedging
Balance sheet strategy – covenants and hedging Significant headroom on interest and debt yield covenants Adequate headroom on debt yield and interest covenants Hedge percentage 97% Group • Group ICR of 2.3x (covenant of 2.0x) as a result of rental concessions and higher bridge interest • Expected to
Slide 36: Capital management
Capital management Matching in-country debt and assets (local currency) €987m R24bn R16.0bn investment base €583m R5.7bn¹ £266m Total debt and CCS £151m (39.8% LTV) R9.3bn SA (R) Europe (€) UK (£) LTV: 36% 59% 57% Assets Debt 1. Excludes debt allocated for cross currency swaps EUR debt = €100m ZAR d
Slide 37: Risk-adjusted LTV
Risk-adjusted LTV Gearing is considered on a risk-adjusted basis across all regions • Gearing in Europe is considered on a risk adjusted basis • Investments are all housed in western markets, currently linked to best real estate markets globally • Significant cashflow headroom given asset yields are
Slide 38: Opportunities
OPPORTUNITIES
Slide 39: Capital opportunities
Capital opportunities Opglabbeek, Belgium • PEL opportunities: › Development – €60m build cost to create €100m of value › Considering exiting certain regions to recycle capital into core markets • PELI acquisition pipeline: › €40-50m deployment into assets yielding 6-7% with strong rental growth • S
Slide 40: Looking Forward
LOOKING FORWARD
Slide 41: Dividend declaration
Dividend declaration The Firs, Rosebank • Payout ratio › To be reduce to 90% - 95% going forward › Aligns IPF’s policy with international market practice and provides efficient source of funding • Declaration of H2 FY20 top-up dividend of 29.82cps › In line with previous stated intention to consider
Slide 42: Looking ahead
Looking ahead The Firs, Rosebank • Continued focus on capital preservation and LTV • Active capital recycling across SA and Europe • SA – continue to navigate economic headwinds • Europe: › Push through second wave › Development opportunities › Capital partners • Long-term value creation vs. short-t
Slide 43: Annexures
2020 ANNEXURES
Slide 44: Annexures contents
Annexures Contents 1. Group overview 2. Financial review 3. SA portfolio 4. PEL portfolio 5. UK Fund 6. Balance sheet and treasury 44
Slide 45: Annexures – Group Overview
0 ANNEXURES GROUP OVERVIEW
Slide 46: Business snapshot
Business snapshot As at 30 September 20201 South Africa Pan-European IFRS balance sheet construct Logistics Pan-European UK Direct property Izandla (incl. Belgium) Light Industrial Fund 4% No. of properties 92 15 47 25 14 30% South Africa 66% Europe Ownership interest 100% 35% 65%2 25% 38% UK Asset
Slide 47: Annexures – Financial Review
0 ANNEXURES FINANCIAL REVIEW
Slide 48: Summarised balance sheet
Summarised balance sheet Balance sheet strengthened and further simplified 30 Sep 2020 31 Mar 2020 Notes Rm Rm % change Property related investments 27 111 29 806 (9.0%) South Africa 1 16 003 17 226 (7.1%) IAP 2 0 661 (100.0%) UK 3 1 029 1 148 (10.4%) Europe 4 10 079 10 770 (6.4%) Other assets 5 435
Slide 49: Annexures – SA Portfolio
0 ANNEXURES SA PORTFOLIO
Slide 50: SA portfolio composition
SA portfolio composition Sectoral spread by revenue Sectoral spread by GLA Sectoral spread by asset value 21% 22% 33% 37% 39% 44% Retail Retail Retail Office Office Office 42% 23% 39% Industrial Industrial Industrial Retail Office Industrial 5%3% 2% 9% 11% 40% High tech industrial 45% 21% Shopping c
Slide 51: Letting activity
Letting activity 67% of YTD letting concluded (Sep 19: 89%); 65% for full year • Opening vacancy remains largely unchanged – linked to office and industrial sectors › 5 600m² of the space relates to buildings in the process of being sold Gross Expiries & Renewals • Opening vacancy being aggressively
Slide 52: SA lease expiry (by revenue)
SA lease expiry (by revenue) 25% 23.5% 21.9% 20% 18.4% 16.8% 15% 13.1% 10.7% 11.0% 10% 9.5% 8.3% 8.4%8.4% 7.3% 6.4% 6.6% 5.4% 5.1% 5% 4.0% 4.0% 4.0% 2.5% 1.7% 1.2%1.2% 0.8% 0% 2021 2022 2023 2024 2025 April 2025 onwards Retail Office Industrial Total 52
Slide 53: Annexures – PEL Portfolio
0 ANNEXURES PEL PORTFOLIO
Slide 54: Pan-European logistics portfolio (excl. Belgium)
Pan-European logistics portfolio (excl. Belgium) Summarised income statement 30 Sep 2020 30 Sep 2019 Rm Notes €’000 €’000 % change Net property income 19 129 16 900 13.2% 1. Base portfolio NPI grew 2.7% driven by positive letting activity and positive reversions, offset by Base net property income 1
Slide 55: Pan-European logistics portfolio – letting activity
Pan-European logistics portfolio Letting activity • 73% of space expiring in H1 FY21 renewed or let at 14.1% positive reversion and 80% of space subject to break options during H1 FY21 re-let • 52% of space expiring in the full year renewed or let at positive reversion of 9.6% and 52% of space subje
Slide 56: PEL lease expiry (by revenue)
PEL lease expiry (by revenue) 60% 54.0% 50% 40% 30% 19.9% 20% 14.2% 10.0% 10% 2.0% 0% FY21 FY22 FY23 FY24 April 2024 onwards 56
Slide 57: Annexures – UK Fund
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Slide 58: UK Fund
UK Fund Summarised income statement £'000 Notes Sep 2020 Sep 2019 % change Total net property income 7 050 5 595 26.0% Base Portfolio 1 3 943 4 253 (7.3%) Acquisitions and disposals 2 3 107 1 342 131.5% Fund expenses (290) (301) 3.7% Asset management fee (865) (706) (22.5%) Finance costs 3 (3 265) (
Slide 59: UK portfolio composition
UK portfolio composition Hemel Hempstead, UK Sectoral spread by revenue Sectoral spread by asset value 17% 9% 16% 25% 12% 33% 32% 16% 23% 17% Multi-let industrial Multi-let industrial Urban logistics Urban logistics Last mile retail Last mile retail Supermarket Supermarket Retail warehouse Retail wa
Slide 60: UK lease expiry (by revenue)
UK lease expiry (by revenue) 80% 69% 60% 51% 40% 20% 18% 15% 13% 8% 4% 5% 6% 2% 2% 2% 3% - 1% 0% FY21 FY22 FY23 FY24 April 2024 onwards Retail Industrial Total 60
Slide 61: Annexures – Balance Sheet and Treasury
0 ANNEXURES BALANCE SHEET AND TREASURY
Slide 62: Balance sheet metrics
Balance sheet metrics IPF Europe in country As at 30 September 2020 Group SA – ZAR debt (post refinance) UK in country Debt maturity (years) 3.1 2.5 5.0 2.2 Swap maturity 3.3 3.5 5.0 5.9 Hedge percentage¹ 97% 96% 100% 92% Gearing % 39.8% - 59% 57% Average all-in cost of funding 6.5% 9.3% 2.3% 3.5% A
Slide 63: Balance sheet strategy – Group
Balance sheet strategy – Group Fundamental focus Weighted expiry profile (years) 30 Jellicoe, Rosebank 7 5.9 30 Jellicoe, Rosebank 6 5.0 5.0 5 4 3.3 3.1 3 2.2 2 0.9 1 0 Group Europe in country UK in country Debt Swaps Cross currency swaps The Fund’s weighted average debt maturity is monitored across
Slide 64: Balance sheet strategy – Group
Balance sheet strategy – Group Access to multiple sources of funding across various lenders SA debt split by bank Europe in country debt split by bank UK in country debt split by bank 17% 6% 16% 37% 19% 53% 63% 31% 59% Investec BAML HSBC Nedbank PBB PBB UK SBSA Investec UK Standard Chartered 64
Slide 65: Balance sheet strategy – Group
Balance sheet strategy – Group Debt and swap expiry profiles Group debt and swap expiry (%)1 100% 2 78% 75% 50% 42% 36% 27% 20% 21% 15% 25% 11% 10% 8% 13% 0% 6% 4% 2% 1% 0% 5% 0% FY21 FY22 FY23 FY24 FY25 FY26 + Cross currency swaps Interest rate swaps Debt Group debt expiry3 8 R billion 4 6.1 6 4.4
Investec Property Fund — H1 FY21 Earnings Presentation on 6ix