Presentation to MetCI Boutique Investment Manager Conference 9 10 June 2014 Presenter: Liliane Barnard

Transcription

1 1 Presentation to MetCI Boutique Investment Manager Conference 9 10 June 2014 Presenter: Liliane Barnard

2 Agenda Introduction to Metope Outlook for SA Listed Property Outlook for Global Listed Property 2 June 2014

3 Metope Investment Managers (Pty) Ltd Boutique investment management company focused exclusively on: listed property, and protected equity mandates Established in 2005 and totally independent (100% management owned) R2.7bn of assets under management and advisory mandates Key individuals are Liliane Barnard, Sybrandt du Preez and Anthony Hall (over 60 years of investment experience gained at institutions including OMIGSA, Coronation and Sanlam Capital Markets) with four additional investment professionals Prior to becoming a Premium Partner of MetCI, Metope exclusively managed segregated portfolios for institutional clients and high net worth individuals 3 June 2014

4 Outlook for SA Listed Property Has the sector reached it s peak? Sun setting? Broad daylight? 4 June 2014

5 Property unlikely to be a dog sector again Then Now Bad, unaccountable management = wild west! Excellent asset management No corporate governance Excellent corporate governance Over supply of new space and no demand: politics, business confidence Property markets more normalised Flights from the CBD s caused fragmentation of property markets Property counters behaving like they should delivering constant income growth 5 June 2014

6 Long term outperformance of SAPY vs other asset classes Total Return Indices 10 Year Annualised Total Returns % 20% % 8% Property Equity Bonds Cash SAPY Total Return ALSI Total Return ALBI Total Return Cash Source: INet 6 June 2014

7 SA Listed Property Sector The importance of compounding R100 invested in the SAPY 10 years ago will give you R800 today. Compounding interest results in a more than doubling of return Capital Appreciation Total Return Metope Property Portfolio Source: INet 7 June 2014

8 Stable Income Yields Listed Property benefits from: A high starting income yield providing long term benefits of compounding Inflation beating income growth Inflation hedged capital growth over long investment horizons Quality of distributions (>95% of income comes from rent and therefore distributions supported by cash earnings) SA Listed Property Returns 60% 50% 40% 30% 20% 10% 0% 10% % Income Capital Source: INet 8 June 2014

9 Listed Property relative to Bond Yields SA:GOVT 10YR BOND SAPY Dividend Yield JIBAR 3 MONTH Source: INet 9 June 2014

10 Listed Property Distribution Growth and Inflation Premium rating relative to bonds justified by inflation beating distribution growth: 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Rolling 12 Month Distribution Growth Distribution Growth Inflation Source: INet 10 June 2014

11 Increase Liquidity in SA Listed Property Sector The SA listed property sector has grown significantly over the last 10+ years Strong capital raisings which are well supported by investors Increase in liquidity and interest from foreign investors looking for high yielding investments Conversion to REIT structure should see this sector grow as private funds move to listed sector Listed property as a % of all share index Market Cap of SA Listed Sector (R'm) 4.5% 4.0% 3.5% 3.0% 2.5% Grown from c.r10bn to currently c.r250bn 2.0% 1.5% 1.0% 0.5% 0.0% Increased from <1% to 3% Source: INet 11 June 2014

12 Property Fundamentals Why Listed Property will still perform 12 June 2014

13 Rental Growth and the Supply of New Space Plans passed is a leading indicator of building activity Recent growth still far below peak levels Recovery seen losing momentum, tightening supply, supporting rentals 100% 80% Growth in Non Residential Building Plans Passed and Completed (Current Prices) Growth in Building Plans Completed Growth in Building Plans Passed 60% 40% 20% 0% 20% 40% 16% 14% 12% 10% 8% 6% 4% 2% Property Income Growth Source: INet 13 June 2014

14 Lower Vacancy Rates than Past Cycles Vacancies by Sector 25.0% 20.0% 15.0% Reduced industrial vacancies driving strong performance in 2013 Office remains challenging in low GDP growth environment Retail remains strong at < 5% 10.0% 5.0% 0.0% Office Retail Industrial All Property Source: IPD SA 14 June 2014

15 Managed Interest Rate Risk Conservative Gearing ratio at 34% Weighted average cost of funding across the sector is currently 8.4% Increased hedging and diversification of lenders through capital markets Relatively smooth profile of debt renewals no big shocks Source of Funding Source of Debt Interest Rate Risk Management Debt Equity Debt Capital Markets Traditional Bank Debt % of Debt Floating % of Debt Hedged 34% 17% 23% 66% 83% 77% Debt Expiry Profile 11% 21% 17% 20% 16% 12% 2% 1% Source: Metope Proprietary Research 15 June 2014

16 Good Cost Control, but limited because of administered prices Performance underpinned by Focus on cost control and reducing operating expenses 71% of increase in costs is in administered prices Source: IPD SA 16 June 2014

17 Global REIT Outlook 17 June 2014

18 Global Property Performance Currency effect SA market already offers significant diversification in inward listed foreign entities and foreign holdings of local entities For e.g. if you invested in a market cap weighted portfolio of the 10 largest counters listed on the JSE Exposure of top 10 stocks (weighted by market cap) Exposure of top 10 SAPY Constituents (weighted by market cap) Local Foreign Exposure Local Foreign Exposure 41% 24% 59% 76% Source: Metope Proprietary Research 18 June 2014

19 Global Property Performance Long Term SA Best performing market over 10 years Source: IPD 19 June 2014

20 Global Property Performance Currency effect South African REIT s 2013 performance significantly affected when taking into account currency depreciation Highlights importance of global diversification Source: IPD 20 June 2014

21 Global Property Offers Increased Diversification Correlation of returns over 10 years All property offers a low correlation to other asset classes which reduces overall portfolio risk JSE All Share SA Bonds Financials Industrials Top 40 Source: SA REIT Association, INet Global Property also offers low correlation between REIT s in different countries which increases diversification benefits Correlation to Property Regions to one another over 20 years US France UK Netherlands Australia Hong Kong Japan US 1 France UK Netherlands Australia Hong Kong Japan Source: CBRE Research 21 June 2014

22 Global REIT Market underpin of Income Return As in South Africa, performance in underpinned by stable income generation Lower income growth than SA Global Listed Real Estate Securities Historical Returns 30% 25% 20% Key Statistics 20 Years Total Return 9.90% Dividend Income 4.70% Price Appreciation 5.20% 15% 10% 5% 0% 5% 1 Year 3 Years 5 Years 10 Years 15 Years 20 Years Income Return Price Return Source: CBRE Clarion Securities 22 June 2014

23 What Can You Expect from Listed Property? Expect Total Return of 11 12% pa for SA Listed Property for the next two years (a real return of +5% pa) For Global Property 10% Total Return over next 12 months and 7.5% following 12 months. Suggest a reasonable weighting of 15% of portfolio in listed property Diversification benefits 23 June 2014

24 How MIM constructs its Funds Focus on high income yield and High growth in income Mix in defensive positions (eg: for rising interest rates) and Strong capital growth (to drive performance) Minimise trading noise while seeking out long term growth opportunities 24 June 2014

25 Annexures REIT Legislation Global REIT Market 25 June 2014

26 REIT legislation Taxation Laws Amendment Bill of 25 October 2012 To date 29 PUT s and PLS s have converted Minimum R300m property portfolio. Geared max 60% LTV Min 75% of income rental Min 75% payout ratio (retained income to be taxed) No conversion charge No deferred tax eliminated and no CGT payable on disposals No longer any transfer tax (STT) levied on the trade of REIT units. REITs can have external management companies Foreign withholding tax of 15% from January June 2014

27 Global REIT Market Global REIT market has grown to more than $2.1bn in assets This represents approximately 11% of total commercial real estate assets Newer REIT markets (e.g. South Africa) considered under securitised Growth to be driven by increased adoption of REIT legislature and acquisitions of assets by existing REIT s, given easier access to capital at attractive levels Global Real Estate Companies $776b Market Value 1% Global Real Estate Companies $2,066b Market Value 1% 8% 8% North America Europe 8% 8% North America Europe 19% 45% United Kingdom Asia ex Japan Australia / New Zealand 19% 45% United Kingdom Asia ex Japan Australia / New Zealand 8% 12% Japan Middle East / Africa 8% 12% Japan Middle East / Africa Source: CBRE Clarion Securities 27 June 2014