Redefine Properties Limited · JSE:RDF
Redefine Properties — H1 2014 Earnings Presentation
66 slides from Redefine Properties's earnings presentation, April 2014
Slide 1: Group Results and Strategic Review, half year ended 28 February 2014
Property for people We’re not landlords. We’re people. www.redefine.co.za GROUP RESULTS AND STRATEGIC REVIEW half year ended 28 February 2014 1
Slide 2: Agenda
AGENDA STRATEGIC PROPERTY INTERIM CONCLUSION ANNEXURES OVERVIEW PORTFOLIO RESULTS & PROSPECTS Marc Wainer David Rice Andrew Konig Marc Wainer (CEO) (COO) (FD) (CEO) 2 2
Slide 3: Strategic Overview
Property for people We’re not landlords. We’re people. www.redefine.co.za STRATEGIC OVERVIEW Marc Wainer 3
Slide 4: First Half 2014: Salient Features
FIRST HALF 2014: SALIENT FEATURES Distribution ahead of market guidance Sectoral and geographic diversification drove outcome Corporate activity on the increase since conversion to REIT R2 billion Annuity acquisition Property acquisitions total R2 billion New development pipeline of R2.8
Slide 5: Strategic Priorities and Action Plans: Growth and Capital Appreciation
STRATEGIC PRIORITIES AND ACTION PLANS GROWTH AND CAPITAL APPRECIATION PROSPECTS 2014 Priorities STATUS Dispose the government tenanted office portfolio On hold Substantially complete the rationalisation of the property portfolio Ongoing Continue to acquire good quality and dispose of non-core
Slide 6: Strategic Priorities and Action Plans: Focused Property Management
STRATEGIC PRIORITIES AND ACTION PLANS FOCUSED PROPERTY MANAGEMENT 2014 Priorities STATUS Take-on Fountainhead property management Done Improve management information Continuous review Focus on cost of services through leveraging economies of scale Continuous review Introduce technology-based
Slide 7: Strategic Priorities and Action Plans: Transformation into a Pure Property Play
STRATEGIC PRIORITIES AND ACTION PLANS TRANSFORMATION INTO A PURE PROPERTY PLAY 2014 Priorities STATUS Exit the remaining Hyprop holding Complete Increase the holding in Fountainhead – investment currently at 65,9% Ongoing Management Action Engagement with Fountainhead and regulatory bodies und
Slide 8: Strategic Priorities and Action Plans: Prudent Management of Debt
STRATEGIC PRIORITIES AND ACTION PLANS PRUDENT MANAGEMENT OF DEBT 2014 Priorities STATUS Improve the loan to value ratio Continuous review Establish American Depository Receipts programme First SA REIT Increase funding from debt capital markets Ongoing Introduce a dividend re-investment progr
Slide 9: Strategic Priorities and Action Plans: Real Growth in International Markets
STRATEGIC PRIORITIES AND ACTION PLANS REAL GROWTH IN INTERNATIONAL MARKETS 2014 Priorities STATUS Set up SARB approved structure to invest in offshore property directly Done Invest in listed offshore securities and direct property at attractive yields Continuous review Gear up the Cromwell hol
Slide 10: Strategic Priorities and Action Plans: Exploit Value-Add for Existing Properties
STRATEGIC PRIORITIES AND ACTION PLANS EXPLOIT VALUE - ADD FOR EXISTING PROPERTIES 2014 Priorities STATUS Redevelop existing properties to enhance ability to earn revenue Continuous review Make significant progress on current development pipeline Ongoing Pursue pre-let / tenant demand driven de
Slide 11: What Differentiates Redefine
WHAT DIFFERENTIATES REDEFINE Unique hands-on management approach International property assets 14.7% Good quality diversified portfolio Local property assets 85.3% Development capability with substantial pipeline Global diversification – Europe and Australia Robust balance sheet Capital
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 Overview
PORTFOLIO OVERVIEW At 28 February 2014 Description Office Retail Industrial Total Number of properties 98 88 66 252 GLA (m2) 1 048 597 1 024 243 1 130 298 3 203 138 Vacancy (m2) 77 645 45 752 33 106 156 557 Vacancy (%) 7 4 3 5 Total portfolio value (Rm)# 9 583 9 418 5 014 24 016 Value per m2 (excl b
Slide 14: Portfolio Activity
PORTFOLIO ACTIVITY To February 2014 Tenant renewal retention was 92% Offices 96% Retail 87% Industrial 88% Weighted average renewal growth of 6% and future escalations of 8.3% achieved Offices 1% 8.4% Retail 7% 8.1% Industrial 7% 8.4% Total vacancy is 4.9% Offices 7.4% Retail 4
Slide 15: Vacancies Remain Stable
VACANCIES REMAIN STABLE % of GLA Feb 2014 Aug 2013 Office 7.4 8.6 Retail 4.5 3.6 Industrial 2.9 3.7 4.9 5.3 Sector Location 12% 21% 14% 50% 47% 10% 29% 15% 2% Greater Johannesburg Sandton Pretoria Other Office Retail Industrial Western Cape KwaZulu-Natal 15
Slide 16: Lease Expiry Profile: Gross Monthly Rental
LEASE EXPIRY PROFILE: GROSS MONTHLY RENTAL 24% 25% 21% 20% 4% 7% 15% 13% 15% 6% 2% 10% 2% 9% 12% 10% 8% 6% 1% 6% 3% 2% 5% 7% 11% 7% 5% 6% 5% 5% 1% 1% 1% 0% 0% Monthly 2014 2015 2016 2017 2018 Beyond 2018 Office Retail Industrial Government % of Rent 16
Slide 17: Acquisitions and Disposals
ACQUISITIONS AND DISPOSALS At 28 February 2014 Office Retail Industrial Total Yield (Rm) (Rm) (Rm) (Rm) (%) Portfolio value at 31 August 9 877 9 558 4 564 23 999 - Capex and FVA 389 449 154 994 - Acquisitions - - 527 527 7.6 Ellerines Cato Ridge, KwaZulu Natal 467 467 7.4 Halifax Road, KwaZulu Natal
Slide 18: Development Highlights
DEVELOPMENT HIGHLIGHTS New development projects totalling R2 786 billion at an average yield of 8.2% are currently in progress in addition to R671 million of redevelopment projects at an average yield of 6.9% Major contractor order books not as filled as provisional statistics indicated last yea
Slide 19: Development Projects
DEVELOPMENT PROJECTS To February 2014 Initial Completion Redevelopment Type Comment R’m Yield (%) Start Date Date Essex Gardens (Phases 4-5) Office Additions and alterations to offices 23 8 Sept 2012 Sept 2015 Mall as Scottsville (Phase 2) Retail Additions and alterations to retail 37 9.9 Oct 2013 N
Slide 20: Acquisitions and Disposals Post February 2014
ACQUISITIONS AND DISPOSALS POST FEBRUARY 2014 Office Retail Industrial Total (Rm) (Rm) (Rm) (Rm) Portfolio value at 28 February 10 216 10 000 5 225 25 441 28 February 2014 Total Acquisitions after February 2014 5 263 10 143 1 066 16 472 Maponya Mall (51%) 700 700 21% Robor Land 93 93 40% Discovery H
Slide 21: Top 10 Properties by Value
TOP 10 PROPERTIES BY VALUE POST FEBRUARY 2014 Value Valuation Property Sector Region GLA m2 (R’m) R/m² Centurion Mall Retail Centurion, Gauteng 112 564 3 367 29 912 East Rand Mall (50%)* Retail Boksburg, Gauteng 62 514 1 079 34 520 Matlosana Mall Retail Klerksdorp, Northwest 59 281 1 100 19 200 90 R
Slide 22: Retail in Review
RETAIL IN REVIEW Further deterioration in consumer health predicted Trading down within categories and trading out of other categories expected to become more pronounced over the coming months January showed 7% growth in line with Stats SA ; likely attributable to delayed spending on the post-
Slide 23: Retail Considerations Revisited
RETAIL CONSIDERATIONS REVISITED Nationals continue to take up space Interest from international retailers remains healthy Consumer pressures continue to grow Cost of occupancy is increasing however healthy margins and returns are being maintained by retailers Seeing evidence of Pick ‘n Pay
Slide 24: So What Are We Thinking Now?
SO WHAT ARE WE THINKING NOW? Choice is going to drive where the customer shops – this means two things: We need to be drivers of bringing choice/differentiators to our centres Centres with no clear distinction in an over traded retail node could come under pressure in the medium term Working
Slide 25: Offices in Review
OFFICES IN REVIEW The market fundamentals have not changed National vacancies have remained range bound at an average of 11% since 2011 and this trend is likely to continue for at least the forthcoming year Leasing of vacant space is real challenge Even prime grade office vacancies in Sandto
Slide 26: So What Are We Doing Now?
SO WHAT ARE WE DOING NOW? Redefine has opened a Sandton office dedicated to the management, leasing and tenant relationships of its Sandton portfolio Employed an additional broker and canvasser for in-house office leasing team Continue to cement relationships with broker community Clear focu
Slide 27: Industrial in Review
INDUSTRIAL IN REVIEW Again no change to market fundamentals Nationally industrial vacancies remain at low levels yet there is no generally expected growth in rentals We are asked the question - is the industrial market robust? There is an oversupply of new developments in popular nodes in Ga
Slide 28: So What Are We Doing Now?
SO WHAT ARE WE DOING NOW? Continue relationship building with broker community Additional broker employed for in-house leasing team Redefine’s 90 Barbara road is now complete with various lease negotiations in progress. There is a specific focus on letting this property Continue to examine o
Slide 29: Interim Results
Property for people We’re not landlords. We’re people. www.redefine.co.za INTERIM RESULTS Andrew Konig 29
Slide 30: Half Year 2014 Financial Highlights
HALF YEAR 2014 FINANCIAL HIGHLIGHTS Financial results ahead of market guidance Distribution growth of 8% to 36.4 cents Distributable income exceeds R1 billion In Rand terms recurring distributable income has grown by 15.9% Accelerated book build raised R1.3 billion at attractive forward yi
Slide 31: Distributable Income
DISTRIBUTABLE INCOME Half year ended 28 February 2014 Distributable Per Linked Income Unit Y-O-Y Change R’million cents % 2013 Actual 987 33.7 Less 2013 non-recurring (26) (0.9) Less dilution arising from new units (1.4) 2013 actual recurring 961 31.4 Organic growth 2014 155 5.0 2014 actual recurrin
Slide 32: First Half 2014 Trading Results in Summary
FIRST HALF 2014 TRADING RESULTS IN SUMMARY Tailwinds Headwinds +R306 million - R177 million 1 350 1 300 +19 1 250 -21 -1 -14 -1 +61 -5 1 200 +25 1 150 +69 -135 1 100 +62 1 050 1 116 +70 1 000 987 950 32
Slide 33: Simplified Statement of Financial Position
SIMPLIFIED STATEMENT OF FINANCIAL POSITION At February 2014 As at 28 February 2014 As at 31 August 2013 RDF FPT Global Group RDF FPT Global Group R'million R'million R'million R'million R'million R'million R'million R'million Properties 25 404 10 848 675 36 927 21 708 11 105 32 813 Cromwell 2 048 2
Slide 34: Growth in Net Asset Value
GROWTH IN NET ASSET VALUE Half year ended 28 February 2014 Net asset value has increased by 51.1 cents and unit price premium to NAV over 8% 940 920 -0.4 900 +41.3 880 860 921.8 +48.7 -38.5 840 870.7 820 800 31 August 31 August 2013 2013 Dilution arising Revaluation of Capital raised Other net 2828F
Slide 35: Capital Allocations and Returns
CAPITAL ALLOCATIONS AND RETURNS Half year ended 28 February 2014 Distribution Contributors Net Asset Value Composition Return on Equity (Cents) (Cents) Yield 1.0% 7.4% 1.5% 7.2% 14.2 Redefine 8.3% 0.4 68.5 2.6 Fountainhead 8.4% 11.0% 13.2% 4.0 Global 8.1% 121.4 Cromwell 7.8% 36.4 cents 921.8 cents N
Slide 36: Simplified Distributable Income Statement
SIMPLIFIED DISTRIBUTABLE INCOME STATEMENT Half year ended 28 February 2014 2014 2013 Change (R’m) (R’m) % Net operating income from investment properties - Redefine 1 162 1 030 12.8 Fountainhead distributable income 212 3 100.0 Listed securities portfolio 18 158 -88.6 Fee income 38 59 -35.6 Property
Slide 37: Active Portfolio Income Analysis
ACTIVE PORTFOLIO INCOME ANALYSIS Half year ended 28 February 2014 2014 2013 Change (R’m) (R’m) % Active property portfolio revenue 1 269 1 200 5.8 Active property portfolio costs (245) (246) -0.4 Property income from active property portfolio 1 024 954 7.3 Net operating income from acquired / develo
Slide 38: Active Portfolio Revenue Performance
ACTIVE PORTFOLIO REVENUE PERFORMANCE Half year ended 28 February 2014 Letting activity drives the period’s active property growth of 5.8% as follows: Offices Retail Industrial Other Total Contribution (R’m) (R’m) (R’m) (R’m) (R’m) to Growth H1 2013 property revenue 520 460 214 6 1 200 Add H1 2014 le
Slide 39: Active Portfolio Expenditure Analysis
ACTIVE PORTFOLIO EXPENDITURE ANALYSIS Half year ended 28 February 2014 2014 Change (R’m) % 2013 Property costs 246 Net municipal charges driven by rates and taxes 15 53.5 Net electricity recoveries through internalisation (34) -161.5 Operating costs flat through cost containment 0 0 Property Managem
Slide 40: Active Portfolio Trading Efficiency
ACTIVE PORTFOLIO TRADING EFFICIENCY Half year ended 28 February 2014 Every R100 of property revenue converts into property income as follows: 2014 2013 2012 2011 2010 % % % % % Property revenue 100.0 100.0 100.0 100.0 100.0 Less property costs 19.3 20.5 24.3 24.9 26.8 Municipal charges net of recove
Slide 41: Funding Profile
FUNDING PROFILE At 28 February 2014 Redefine Fountainhead International Group Funding snapshot (R’m) (R’m) (R’m) (R’m) Bank borrowings 11 362 3 133 768 15 263 Debt capital market 2 629 - - 2 629 Total borrowings 13 991 3 133 768 17 892 Key debt statistics Loan to value (Management target 35%) – incl
Slide 42: Cost of Capital
COST OF CAPITAL Half year ended 28 February 2014 Redefine’s cost of capital is beholden to bond yields 120 85 110 95 5 Yr Swap Rate 105 R 186 100 115 Redefine 90 125 80 135 70 145 60 155 April, 2011 April, 2012 April, 2013 April, 2014 July, 2011 October, 2011 July, 2012 October, 2012 July, 2013 Octo
Slide 43: Unitholder Profile
UNITHOLDER PROFILE Top 10 beneficial unitholders at end March 2014 Number of units % Government Employees Pension Fund 189 040 788 6.2 Stanlib 182 798 749 6.0 Investment Solutions 142 105 654 4.6 Investec 139 066 188 4.5 Clearwater Property Holdings 98 984 125 3.2 Old Mutual Group 89 680 749 2.9 Esk
Slide 44: Country Classification
COUNTRY CLASSIFICATION Beneficial unitholders at end March 2014 Singapore 1.6% Balance Switzerland 5.9% 1.6% United States 6.9% South Africa 84.0% International Ownership 2008 2009 2010 2011 2012 2013 2014 1.4% 6.0% 10.1% 12.2% 14.9% 15.9% 16.0% 44
Slide 45: Redefine and Asset Class Returns
REDEFINE AND ASSET CLASS RETURNS To end April 2014 Daily trade in Redefine is up 36.8% 125 120 RDF 115 Property Sector 110 All Share 105 ALBI 100 95 Cash 90 85 80 01 February 2013 01 February 2014 01 June 2013 01 April 2013 01 April 2014 01 August 2013 01 December 2013 01 October 2013 For the six mo
Slide 46: The Value Created by Redefine
THE VALUE CREATED BY REDEFINE Half year ended 28 February 2014 The cash value created The cash value distributed R’million Municipalities Employees Revenue 2 164 1,8% 4,5% Interest received 61 Minorities 2,8% Equity accounted result 140 of associates Profit from discontinued 18 operations Property a
Slide 47: Conclusion & Prospects
Property for people We’re not landlords. We’re people. www.redefine.co.za CONCLUSION & PROSPECTS Marc Wainer 47
Slide 48: Conclusion
CONCLUSION Key take-outs: Corporate actions underway Trading environment anticipated to get tougher R’billion Property acquisitions 2.0 Local portfolio restructure was well timed – now largely defensive Development projects 3.5 Proactive property management approach adopted Fountainhead 3.0 to
Slide 49: Questions?
Property for people We’re not landlords. We’re people. www.redefine.co.za QUESTIONS? 49
Slide 50: Annexures
Property for people We’re not landlords. We’re people. www.redefine.co.za ANNEXURES 50
Slide 51: Content
CONTENT Annexure 1: Strategic Initiatives: Goals Annexure 2: Portfolio Geographical Split Annexure 3: Portfolio Sectoral Split Annexure 2: Portfolio Split by Value Annexure 3: Portfolio Split by GLA Annexure 4: Portfolio Split by Gross Monthly Rental/m2 Annexure 5: Tenant Grade by Gros
Slide 52: Annexure 1: Strategic Initiatives: Goals
ANNEXURE 1: STRATEGIC INITIATIVES: GOALS Growth and Capital Appreciation Prospects Continuous improvement in the quality of the core property portfolio Improve our property sector BBEE rating Strengthen cashflows from property assets Lower the age profile of the property portfolio to reduce
Slide 53: Annexure 1: Strategic Initiatives: Goals
ANNEXURE 1: STRATEGIC INITIATIVES: GOALS Prudent Management of Debt Secure the lowest cost of fixed and variable finance costs Optimise funding maturity profiles Broaden funding sources Maintain conservative loan to value ratios Real Growth in International Markets Continue to diversify ri
Slide 54: Annexure 2: Portfolio Sectoral Split
ANNEXURE 2: PORTFOLIO SECTORAL SPLIT Value GLA Gross Monthly Rent 21% 35% 19% 40% 33% 42% 32% 39% 39% Office Retail Industrial 54
Slide 55: Annexure 3: Portfolio Geographical Split
ANNEXURE 3: PORTFOLIO GEOGRAPHICAL SPLIT Value Gross Monthly Rent GLA 10% 10% 11% 46% 45% 19% 18% 48% 18% 7% 8% 8% 11% 13% 12% 7% 6% 3% Greater Johannesburg Sandton Pretoria Other Cape KwaZulu-Natal 55
Slide 56: Annexure 4: Portfolio Split by Value
ANNEXURE 4: PORTFOLIO SPLIT BY VALUE Office Retail Industrial 11% 10% 13% 42% 2% 44% 31% 4% 21% 31% 20% 7% 24% 22% 18% Premium Grade Neighbourhood Centre High Grade/High Tech A Grade Community Centre Industrial Units Small Regional Light Manufacturing Government Regional Centre Warehousing Secondary
Slide 57: Annexure 5: Portfolio Split by GLA
ANNEXURE 5: PORTFOLIO SPLIT BY GLA Office Retail Industrial 6% 14% 11% 48% 25% 46% 14% 2% 4% 11% 7% 34% 18% 40% 28% Premium Grade Neighbourhood Centre High Grade / High Tech A Grade Community Centre Industrial Units Government Small Regional Light Manufacturing Secondary Regional Centre Warehousing
Slide 58: Annexure 6: Portfolio Split by Gross Monthly Rental/m2
ANNEXURE 6: PORTFOLIO SPLIT BY GROSS MONTHLY RENTAL/M2 Office Retail Industrial 9% 10% 24% 24% 10% 29% 28% 10% 12% 28% 21% 31% 21% 22% 21% Premium Grade Neighbourhood Centre High Grade / High Tech A Grade Community Centre Industrial Units Government Small Regional Light Manufacturing Secondary Regio
Slide 59: Annexure 7: Tenant Grade by Gross Monthly Rental
ANNEXURE 7: TENANT GRADE BY GROSS MONTHLY RENTAL Office Retail Industrial 10% 27% 3% 15% 75% 15% 58% 38% 59% A Grade Nationals, Large Public Companies and Government B Grade Large Private Companies, Professional Partnerships and other Public Companies C Grade Close Corporations and smaller Private C
Slide 60: Annexure 8: Lease Expiry Profile by GLA
ANNEXURE 8: LEASE EXPIRY PROFILE BY GLA 30% 25% 25% 20% 20% 12% 8% 14% 15% 12% 4% 9% 9% 10% 5% 4% 6% 9% 3% 5% 5% 6% 4% 5% 2% 4% 1% 1% 7% 1% 0% 4% 4% 1% 3% 3% 2% 2% 0% 1% Monthly 2014 2015 2016 2017 2018 Beyond 2018 Vacancy Office Retail Industrial Government % of GLA 60
Slide 61: Annexure 9: Top 10 Properties by Value
ANNEXURE 9: TOP 10 PROPERTIES BY VALUE AT 28 FEBRUARY 2014 GLA Value Sector Location m² (R'm) 1 East Rand Mall Retail Boksburg, Gauteng 62 514 1 079 2 Golden Walk Retail Germiston, Gauteng 45 123 806 3 Pepkor Isando Industrial Isando, Gauteng 107 017 631 4 Standard Bank Centre Office Cape Town CBD,
Slide 62: Annexure 10: Top 10 Tenants
ANNEXURE 10: TOP 10 TENANTS AT 28 FEBRUARY 2014 GMR (Rm) GLA (m²) 1 Government 36 200 405 393 2 Edcon 8 855 112 279 3 Pepkor 7 641 133 799 4 Shoprite 7 000 103 660 5 Discovery Health 5 573 31 767 6 Standard Bank 5 026 42 765 7 ABSA 4 469 32 220 8 Pick 'n Pay 4 423 72 724 9 Ellerines 4 202 66 709 10
Slide 63: Annexure 11: IFRS Distributable Income Reconciliation
ANNEXURE 11: IFRS DISTRIBUTABLE INCOME RECONCILIATION Half year ended 28 February 2014 Statutory Income Distributable IFRS Adjustments Income (R'm) (R'm) (R'm) Notes Revenue Property portfolio 2 116 (61) 2 055 Contractual rental income 2 055 2 055 Straight-line rental accrual 61 (61) Non cash entry
Slide 64: Annexure 12: Active Portfolio Expenses
ANNEXURE 12: ACTIVE PORTFOLIO EXPENSES Half year ended 28 February 2014 2014 2013 Change (R’m) (R’m) % Net municipal charges 43 28 53.5 Net electricity recoveries (21) 13 -161.5 Operating costs 90 90 0 Property Management 60 52 15.4 Repairs & maintenance 28 23 21.7 TI costs 17 18 -5.6 Letting commis
Slide 65: Annexure 13: Abridged Statement of Financial Position
ANNEXURE 13: ABRIDGED STATEMENT OF FINANCIAL POSITION At 28 February 2014 2014 2014 2013 2013 Group Redefine Redefine Group ASSETS (R’m) (R’m) (R’m) (R’m) Investment properties 36 252 25 404 21 707 32 812 Listed securities 2 048 2 2 052 2 050 Goodwill and intangible assets 5 232 4 339 4 371 5 264 In
Slide 66: Annexure 14: Summarised Cash Flow
ANNEXURE 14: SUMMARISED CASH FLOW Half year ended 28 February 2014 Redefine Fountainhead International 2014 2013 (R’m) (R’m) (R’m) (R’m) (R’m) Opening cash 40 319 - 359 351 Arising from Redefine - - - - (293) International Arising from Fountainhead - - - - 342 Adjusted opening cash 40 319 - 359 400