Redefine Properties Limited · JSE:RDF
Redefine Properties — FY2013 Earnings Presentation
57 slides from Redefine Properties's earnings presentation, October 2013
Slide 1: Group Results for the year ended 31 August 2013
Property for people We’re not landlords. We’re people. www.redefine.co.za GROUP RESULTS for the year ended 31 August 2013 1
Slide 2: Agenda
AGENDA OVERVIEW PROPERTY FINANCIAL PROSPECTS Property for AND STRATEGY PORTFOLIO RESULTS people Marc Wainer David Rice Andrew Konig Marc Wainer (CEO) (COO) (FD) (CEO) 2 2
Slide 3: Overview and Strategy
Property for people We’re not landlords. We’re people. www.redefine.co.za OVERVIEW AND STRATEGY Marc Wainer 3
Slide 4: 2013 Key Milestones
2013 KEY MILESTONES Pleasing results despite market conditions Fountainhead: Redefine acquired 50% by year end Holding has since increased to 62% Property management being internalised Implementing portfolio upgrade Significant progress on restructuring: Acquisitions of R1.3 billion
Slide 5: Redefine's Investment Proposition
REDEFINE’S INVESTMENT PROPOSITION Attractive real yields Group Property Asset Portfolio (%) Prospect of capital appreciation Local Properties 85% High visibility of earnings Good quality diversified portfolio Limited speculative development Internationally diversified Fundamentals Elem
Slide 6: Growth and Capital Appreciation Prospects
GROWTH AND CAPITAL APPRECIATION PROSPECTS OUR GOALS STATUS Continuous improvement in the quality of core property portfolio Ongoing - substantially complete Improve property sector BEE rating Priority project Extend lease expiry profile Ongoing - work in progress Enhance the tenant profile Ongoing -
Slide 7: Focussed Property Management
FOCUSSED PROPERTY MANAGEMENT OUR GOALS STATUS Strengthen service to tenants Ongoing - work in progress Improve efficiencies and information flow Ongoing - work in progress Invest in staff Ongoing - work in progress Embrace technology for efficient communication Ongoing - work in progress 2013 Outcom
Slide 8: Transformation into a Pure Property Play
TRANSFORMATION INTO A PURE PROPERTY PLAY OUR GOALS STATUS Transformation of local investments from a hybrid into a pure property play On track for completion Invest in local listed securities if potential for control Continuous review 2013 Outcomes Realisation strategy of Hyprop implemented Sign
Slide 9: Prudent Management of Debt
PRUDENT MANAGEMENT OF DEBT OUR GOALS STATUS Secure the lowest cost of fixed and variable finance costs Ongoing Work in progress – as debt Optimise funding maturity profiles matures Broaden funding sources Ongoing Maintain conservative loan to value ratios Continuous process 2013 Outcomes Extended
Slide 10: Real Growth in International Markets
REAL GROWTH IN INTERNATIONAL MARKETS OUR GOALS STATUS Diversify risk geographically Ongoing Take advantage of investing in higher-yielding environments Continuous review Exploit income and capital growth opportunities at low risk Continuous review 2013 Outcomes Refinancing of Redefine Internationa
Slide 11: Exploit Value Add to Existing Properties
EXPLOIT VALUE ADD TO EXISTING PROPERTIES OUR GOALS STATUS Redevelop existing properties to enhance ability to earn revenue Ongoing - work in progress Cater for tenant demands Continuous review Maximise opportunities from existing well located properties Continuous review Uplift value Continuous revi
Slide 12: Property Portfolio
Property for people We’re not landlords. We’re people. www.redefine.co.za PROPERTY PORTFOLIO David Rice 12
Slide 13: Portfolio at August 2013
PORTFOLIO AT 31 AUGUST 2013 Portfolio value - R24 billion Number of properties – 251 Total GLA – 3.125 million m² The investment in retail is now 40% by value 65% of the portfolio is located in Gauteng (R15.5 billion) Top 20 properties make up 35% of portfolio by value Top 10 offices 3
Slide 14: Leasing
LEASING Tenant renewal retention was 80% Offices 87% Retail 88% Industria 63% (23% has been relet) Rent reversion on renewals was 6% with average escalations of 8% Offices 5% Retail 8% Industrial 5% Total vacancy is 5.3% Leasing Offices 8.6 Retails 3.6 Industrial 3.7 14
Slide 15: Lease Expiry Profile
LEASE EXPIRY PROFILE GLA Industrial Office Retail Total Year to August m² % m² % m² % m² % Monthly 28 003 3 19 3 256 471 8 199 536 28 932 2014 190 765 18 16 14 510 940 16 171 510 148 665 2015 209 032 20 23 16 609 113 19 238 902 161 179 2016 136 597 13 13 16 431 563 14 134 418 160 548 2017 61 212 6 9
Slide 16: Property Management
PROPERTY MANAGEMENT Significant increase to retail skills High tenant retention levels due to intense focus on tenant relationships throughout the portfolio Cleaning and security The cost of cleaning and security for the Redefine and Fountainhead portfolios totals R150 million per annum. Red
Slide 17: Property Management: Electricity
PROPERTY MANAGEMENT Electricity management Redefine's holistic approach to energy savings includes the elimination of energy waste, implementation of energy efficiency initiatives and the responsible introduction of renewable energy projects in an effort to optimise operating costs and reduce it
Slide 18: Property Management: Technology
PROPERTY MANAGEMENT Technology Discussions are under way with various service providers to install open access fibre to properties where appropriate, allowing tenants access to high speed data services at lower cost Wi-Fi is being installed in shopping centres and office buildings The creati
Slide 19: Development
DEVELOPMENT The competitive tender market continues to weaken as contractor order books fill. Commercial building costs are expected to rise by 7.5% in 2013 which will place upward pressure on required rentals to achieve acceptable development returns A specific focus over the past 2/3 years has
Slide 20: Major Developments
MAJOR DEVELOPMENTS 90 Grayston Drive Initial approved yield: 8.5% Estimated capital cost: R505 million Size: 19 343m² Commencement date: March 2012 Expected completion date: August 2014 90 Rivonia Road Major developments Developed primarily for Webber Wentzel attorneys (25000m²) In
Slide 21: Major Developments
MAJOR DEVELOPMENTS 190 Barbara Road Initial approved yield: 9% Major developments Estimated capital cost: R100 million Size: 16 000m² Commencement date: February 2013 Expected completion date: May 2014 21
Slide 22: Major Developments
MAJOR DEVELOPMENTS Essex Gardens Westville KZN Initial approved yield: 10.7% Estimated capital cost: R107 million GLA: 8 000m² Expected completion date: March 2015 Standard Bank Centre Initial approved yield: 6.4% Major developments Estimated capital cost: R530 million Size: 57 0
Slide 23: Major Developments
MAJOR DEVELOPMENTS Matlosana Mall, North West province Strategically located on N12 just outside Klerksdorp CBD Major developments Initial approved yield: 8.25% Estimated capital cost: R1.1 billion Size: 64 000m² Commencement date: April 2013 Expected completion date: October 2014 23
Slide 24: Acquisitions and Disposals
ACQUISITIONS AND DISPOSALS Acquisitions for the period amounted to R1.3 billion at an average commencing yield of 7.2%. The significant property being East Rand Mall at R1.115 billion Disposals amounted to R366 million at an average yield of 10.8% consisting of 12 properties mainly located in CB
Slide 25: Portfolio Sectoral Spread
PORTFOLIO SECTORAL SPREAD Office Retail Industrial Total (R000) (R000) (R000) (R000) 9 834 9 601 4 564 23 999 Maponya Mall - 51 % 727 727 Discovery, Cnr West & Freedman Dr - 50% 207 207 Design Quarter 432 432 Nicol Grove 392 392 Ericsson - Woodmead 240 240 Ellerines Cato Ridge (transferred after 31/
Slide 26: Top Properties by Value at August
TOP 10 PROPERTIES BY VALUE AT 31 AUGUST Value Valuation Property Sector Region Area (R’m) R/m² 1 East Rand Mall (50%) Retail Gauteng 62 445 1 115 35 711 2 Golden Walk Retail Gauteng 45 123 764 16 920 3 Pepkor Isando Industrial Gauteng 107 017 631 5 893 4 Standard Bank Centre Office Western Cape 55 2
Slide 27: Top Properties Including Fountainhead, Developments and Acquisitions
TOP 10 PROPERTIES INCLUDING FOUNTAINHEAD, DEVELOPMENTS AND ACQUISITIONS Value Valuation Property Sector Region GLA m2 (R’m) R/m² 1 Centurion Mall (62%) Retail Gauteng 134 582 2 088 25 033 2 East Rand Mall (50%) Retail Gauteng 62 445 1 115 35 711 3 Matlosana Mall (70%) Retail Other 65 000 720 15 830
Slide 28: Maponya Mall, Soweto
MAPONYA MALL, SOWETO Maponya Mall, Soweto Maponya Mall, Soweto Value : R1,37 billion Size: 69 768m² (100%) Major Tenants: Pick ‘n Pay, Edgars, Virgin Active, Woolworths, Mr. Price Current Occupancy: 98% Year Built: 2007 28
Slide 29: Retail Considerations for Next 12 Months
RETAIL CONSIDERATIONS FOR NEXT 12 MONTHS Nationals will continue to take up more retail space with various brands indicating a take up of between 3-10% Growing presence of international brands will create opportunities for certain new developments, expansions and competition for existing centres
Slide 30: Offices
OFFICES Premium and A-Grade have been the best performing segments however we are concerned there will be a further increase in vacancy levels across all sectors New development is on the rise and in the main tenant driven with fierce competition for corporate tenants. The name of the game is mu
Slide 31: Industrial
INDUSTRIAL Industrial vacancies have reduced to 2008 levels There remains a shortage of premium warehousing particularly with good transport linkages, greater stacking heights and a small office component This demand has been influenced by logistic companies and International and local retaile
Slide 32: Financial Results
Property for people We’re not landlords. We’re people. www.redefine.co.za FINANCIAL RESULTS Andrew Konig 32
Slide 33: 2013 Financial Highlights
2013 FINANCIAL HIGHLIGHTS Financial results ahead of market guidance Distribution growth of 7.3% to 68.7 cents (second half up 7.7%) Distributable income exceeds R2 billion In Rand terms distributable income has grown by 15.5% Balance sheet transformed and strengthened Total tangible ass
Slide 34: Current Corporate Structure
CURRENT CORPORATE STRUCTURE Redefine Properties Limited 100% 33% 62% Listed Securities Redefine Direct Property Fountainhead Hyprop 5%* International Portfolio Property Trust * Arrowhead 1% P.L.C. ** 12% The structure has been simplified Cromwell Property 14% Group * At 31 August 2013, the Hyprop ho
Slide 35: Distributable Income
DISTRIBUTABLE INCOME FOR THE YEAR ENDED 31 AUGUST 2013 Distributable Income Per Linked Unit Y-O-Y R’million cents Change % 2012 Actual 1 743 64.0 Less 2012 non-recurring (36) (1.3) Less dilution arising from new units (4.4) 2012 actual recurring 1 707 58.3 Organic growth 2013 270 9.2 2013 recurring
Slide 36: Distribution Contributors
DISTRIBUTION CONTRIBUTORS - CENTS 70 4.9 2.8 0.1 60 5.5 50 7.5 40 68.7 30 47.9 20 Core assets provide a 10 which to diversify strong base from - Redefine Hyprop Fountainhead Cromwell Arrowhead Redefine Distribution per International linked unit Redefine contributes 70% to the distribution Listed
Slide 37: IFRS Distributable Income Reconciliation
IFRS DISTRIBUTABLE INCOME RECONCILIATION FOR THE YEAR ENDED 31 AUGUST 2013 Audited Income Distributable IFRS Adjustments Income (R'm) (R'm) (R'm) Notes Revenue Property portfolio 3 221 (68) 3 153 Contractual rental income 3 153 3 153 Straight-line rental accrual 68 (68) 0 Non cash entry Listed secur
Slide 38: Drivers of Growth in Distributable Income
DRIVERS OF GROWTH IN DISTRIBUTABLE INCOME FOR THE YEAR ENDED 31 AUGUST 2013 2 150 2 100 -10 -28 65 2 050 -19 2 000 -78 99 50 -3 1 950 1 900 investment properties 2 013 1 850 Good growth in 194 1 800 1 750 1 743 1 700 2012 Net operating Listed Fee income Property Administration Share of Net finance T
Slide 39: Simplified Distributable Income Statement
SIMPLIFIED DISTRIBUTABLE INCOME STATEMENT FOR THE YEAR ENDED 31 AUGUST 2013 2013 2012 Change (R’m) (R’m) % Net operating income from investment properties - Redefine 2 130 1 936 10.0 Fountainhead distributable income 138 - 100.0 Listed securities portfolio 322 361 -10.8 Fee income 115 50 130.0 Prope
Slide 40: Analysis of Income from Active Portfolio
ANALYSIS OF INCOME FROM ACTIVE PORTFOLIO FOR THE YEAR ENDED 31 AUGUST 2013 2013 2012 Change (R’m) (R’m) % Active property portfolio revenue 2 258 2 137 5.7 Active property portfolio costs (502) (499) 0.6 Property income from active property portfolio 1 756 1 638 7.2 Net operating income from acquire
Slide 41: Active Portfolio Revenue Performance
ACTIVE PORTFOLIO REVENUE PERFORMANCE FOR THE YEAR ENDED 31 AUGUST 2013 Letting activity drives the year’s active property growth of 5.7% as follows: Offices Retail Industrial Other Total Contribution (R’m) (R’m) (R’m) (R’m) (R’m) to Growth 2012 property revenue 1 014 835 267 21 2 137 Add 2013 lettin
Slide 42: Active Portfolio Expenditure Analysis
ACTIVE PORTFOLIO EXPENDITURE ANALYSIS FOR THE YEAR ENDED 31 AUGUST 2013 2013 2012 Change (R’m) (R’m) % Net municipal charges 69 74 -6.8 Net electricity charges 8 33 -75.8 Operating costs 182 172 5.8 Property Management 102 80 27.5 Repairs & maintenance 44 48 -8.3 TI costs 38 36 5.6 Letting commissio
Slide 43: Active Portfolio Trading Efficiency
ACTIVE PORTFOLIO TRADING EFFICIENCY FOR THE YEAR ENDED 31 AUGUST 2013 Every R100 of property revenue converts into property income as follows: 2013 2012 2011 2010 % % % % Property revenue 100.0 100.0 100.0 100.0 Less property costs 22.2 23.4 24.5 25.6 Municipal charges net of recoveries 3.1 3.4 3.9
Slide 44: Abridged Statement of Financial Position
ABRIDGED STATEMENT OF FINANCIAL POSITION AS AT 31 AUGUST 2013 2013 2013 2012 2012 Group Redefine Redefine Group ASSETS (R’m) (R’m) (R’m) (R’m) Investment properties 32 812 21 707 21 281 29 736 Listed securities 2 050 2 052 5 640 5 341 Goodwill and intangible assets 5 264 4 371 4 163 4 659 Interest i
Slide 45: Listed Securities Mapped to Balance Sheet
LISTED SECURITIES MAPPED TO BALANCE SHEET AT 31 AUGUST 2013 Market value Interest held IFRS value (R’m) (%) (R’m) Listed securities Cromwell 2 031 12.4 2 031 Arrowhead 19 0.7 19 2 050 2 050 Interest in subsidiaries Fountainhead Property Trust 4 345 49.7 4 099 IFRS and market value Interest in associ
Slide 46: Funding
FUNDING AT 31 AUGUST 2013 Redefine Fountainhead Group (R’m) (R’m) (R’m) Bank borrowings 9 705 2 881 12 586 Debt capital market 2 429 - 2 429 Debt 12 134 2 881 15 015 Non-current liabilities held for sale 1 856 - 1 856 Total borrowings 13 990 2 881 16 871 Key debt statistics 39.9% Loan to value (Mana
Slide 47: Net Asset Value
NET ASSET VALUE AT 31 AUGUST Net asset value has increased by 8.6% 900 (1.1) 57.7 800 19.7 (46.3) 31.2 8.1 700 600 500 870.7 400 801.4 NAV bolstered by corporate activity value uplift and 300 200 100 - 2012 group net Additional units Acquistion of Fair value RIN Capital raised Other 2013 group net a
Slide 48: Summarised Cash Flow
SUMMARISED CASH FLOW FOR THE YEAR ENDED 31 AUGUST 2013 Redefine Fountainhead 2013 2012 (R’m) (R’m) (R’m) (R’m) Opening cash 351 - 351 660 Arising from Redefine International (293) - (293) - Arising from Fountainhead 342 342 Adjusted opening cash 58 342 400 660 Generated by operations 2 439 401 2 840
Slide 49: Current Top of Mind Risks
CURRENT TOP OF MIND RISKS BLACK SWAN EVENTS ARE BECOMING ROUTINE Risk Triggers Mitigating factors • World events • Hedging policy in place Interest rate • Fed policy on quantitative easing • Review of structuring debt • Interest rates at low end of cycle • Market illiquidity • Credit rating downgrad
Slide 50: Unitholder Profile
UNITHOLDER PROFILE Top 10 beneficial unitholders at end September 2013 Number of units % STANLIB 186 529 352 6.4 State Street 179 834 734 6.1 Government Employees Pension Fund 174 618 033 5.9 Investec 141 275 970 4.8 Old Mutual 126 897 327 4.3 Investment Solutions 121 885 827 4.2 Clearwater Property
Slide 51: Country Classification Beneficial Unitholders
COUNTRY CLASSIFICATION BENEFICIAL UNITHOLDERS Switzerland Balance 1.4% 3.2% United Kingdom 4.4% United States 6.9% investment has grown tenfold since 2008 International Change in international ownership: 2008: 1.4% 2009: 6.0% 2010: 10.1% South Africa 2011: 12.2% 84.1% 2012: 14.9% 2013: 15.9% 51
Slide 52: Redefine and Asset Class Returns
REDEFINE AND ASSET CLASS RETURNS 12 MONTHS TO END AUGUST 2013 125 120 115 110 105 100 95 easing announcement was the tipping point 90 May’s quantitative 85 RDF SA Listed Prop - J253 ALSI - J203 Bonds - ALBI Cash Redefine’s average monthly trade is R1.1 billion (around 4% of market capitalisation) an
Slide 53: Redefine's Unit Price Trend Against Bonds
REDEFINE’S UNIT PRICE TREND AGAINST BONDS 140 120 100 80 60 40 an inflation linked bond 20 in Redefine is akin to An equity investment 0 RDF R 212 R 202 R 186 R202 – inflation linked bond maturing December 2033 R212 – inflation linked bond maturing January 2022 R186 – government bond maturing from D
Slide 54: Assessment of Redefine on a Standalone Basis
ASSESSMENT OF REDEFINE ON A STANDALONE BASIS FOR THE 12 MONTHS TO END AUGUST 2013 Listed Group Securities Redefine (cents) (cents) (cents) Base information Net Asset Value 870.7 333.6 537.1 Market value 31 August 2013 per linked unit 916.0 364.6 551.4 Market value 25 October 2013 per linked unit 1 0
Slide 55: Prospects
Property for people We’re not landlords. We’re people. www.redefine.co.za PROSPECTS Marc Wainer 55
Slide 56: Redefine's 2014 Outlook
PROSPECTS REDEFINE’S 2014 OUTLOOK Recurring themes for 2014: Subdued trading environment Disproportionate increases in rates Continued financial market volatility Redefine is well focussed to manage the variables within its control Continued improvement of the portfolio without diluting
Slide 57: Questions
Property for people We’re not landlords. We’re people. www.redefine.co.za QUESTIONS 57