Capital Raise. Presentation June Capital Raise. June 2017

Transcription

1 Presentation 1

2 Table of Contents 1. Spear REIT at a Glance 2. Highlights 3. Financial Performance 4 months ended 28 February 2017 MISSION STATEMENT To be the leading Western Cape-focused REIT and to consistently grow our distribution per share ahead of inflation and within the top quartile of our peer group. 4. Group Structure & Directors 5. Portfolio Overview 6. New Acquisitions 7. Revised Financial Information - FY Outlook 10. Questions 11. Appendix Top 14 Spear REIT Assets 2

3 Spear REIT at a Glance 3

4 Spear REIT at a Glance As at 28 February 2017 Post Transfer Anticipated July 2017 Portfolio Value R1.4 billion Rentable Area (GLA) m 2 No Of Properties 25 Occupancy Rate 99% Average Escalation % 8% Average Portfolio Rental R91/m 2 Wale Gearing (LTV) 33% Average Property Value 46 months R57.8m Average Property Valuation per m 2 R8 380/m 2 R2.6 billion m % 8% R85/m 2 51 months 45% R83.7m R8 500/m 2 4

5 Highlights 4 months ended 28 February

6 Highlights 4 months ended 28 February 2017 *The performance was measured against the PLS issued on 21 October 2016* Distribution Per Share cents 16.75% over forecast Tangible Net Asset Value Per Share 7.01% to R10.03 Investment Property 3.79% to R1.446 billion d R during period Gearing (LTV) From 42.11% to 33.09% Significant Transactions R1.08 billion in new acquisitions after period end 6

7 Financial Performance to 28 February

8 Summary Income Statement Consolidated Statement of Comprehensive Income for the 4-month period ended 28 February 2017 Total revenue Property operating and management expenses Net property-related income Administrative expenses Net operating profit Fair value adjustment Investment properties Depreciation Formation and listing cost Share-based payment expense Profit from operations Net interest Profit before taxation Taxation Profit for the year Group Audited 28 Feb 17 R (16 294) (4 558) (4) (1 873) (3 939) (16 662) Basic headline earnings per share (Cents) Diluted headline earnings per share (Cents) Distribution per share (Cents) Interest Cover Ratio

9 Summary Balance Sheet Consolidated Statement of Financial Position ASSETS Non-current assets Current assets TOTAL ASSETS EQUITY AND LIABILITIES Shareholders interest Non-current liabilities Current liabilities TOTAL EQUITY AND LIABILITIES Number of ordinary shares in issue Treasury shares Net ordinary shares in issue Group Audited 28 Feb 17 R ( ) Gearing ratio 33.09% Net asset value per share (Cents) Tangible net asset value per share (Cents)

10 Funding at 28 February 2017 LTV 33.09% Total Borrowings Average Cost of Funding Hedged Funding R478 m 9.65% 59% Funding Maturity 10

11 Group Structure & Directors 11

12 Revised Group Structure Post Acquisitions SPEAR HOLDCO Directly Held Properties Subsidiary Companies Double Tree by Hilton Hotel at Upper Eastside. Incl Retail & Commercial Sable Square Pembury Retirement Complex Burger King Strand 25 Assets (incl *Mega Park & *Virgin Active George) *15 on Orange Hotel by Marriott *No. 2 Long Street * Not yet transfered 12

13 Board of Directors EXECUTIVE Mike Flax CHIEF EXECUTIVE OFFICER Quintin Rossi MANAGING DIRECTOR Christiaan Barnard FINANCIAL DIRECTOR NON-EXECUTIVE Abu Varachhia NON-EXECUTIVE CHAIRMAN Jalal Allie LEAD INDEPENDENT NON-EXECUTIVE DIRECTOR Brian Goldberg INDEPENDENT NON-EXECUTIVE DIRECTOR Niclas Kjellström-Matseke INDEPENDENT NON-EXECUTIVE DIRECTOR 13

14 Portfolio Overview 14

15 Portfolio Overview at 28 February 2017 Active Asset Management Western Cape: 95.3% of assets Gauteng: 4.7% of assets Number of properties: 25 Portfolio Value: R1.446 billion Average property valuation per m 2 : R8 380/m 2 15

16 Tenant Profiles at 28 February 2017 Proximity to Assets Tenant Profile by GLA Profile by Number of Tenants Vacancy Profiles at 28 February 2017 Focused Tenant Retention Total Vacancy 1 584m 2 High Occupancy Rates Vacant area m 2 16

17 Top 10 Tenants by Annual Rental = R65.2 m The below-mentioned Top 10 Tenants by rental p.a. equate to 37.8% of the total portfolio annual contractual income FY 2018, being R174.9 million (excludes any new acquisitions after the period) 17

18 Lease Expiry Profile by GLA & Revenue 18

19 New Acquisitions 19

20 New Acquisitions High Quality Real Estate Portfolio Growth supported by accretive acquisitions The Group entered into agreement to acquire the following properties Expected transfer date Acquisition value R 000 Debt funding R 000 Equity funding R Long Street, Cape Town - 15 on Orange, Cape Town - Mega Park, Bellville - Virgin Active George, George 1 Jul 17 1 Jul 17 1 Jun 17 1 Jul

21 No. 2 Long Street, Cape Town Main tenants: Physical address: DRA Projects SA, Fairheads Benefits, SAMSA No. 2 Long Street, Cape Town GLA: m 2 Sector: Commercial Acquisition price: R Acquisition yield: 9.32% WALE: 3 years Planned CapEx: R

22 No. 2 Long Street, Cape Town Cont. Opportunity: Iconic Cape Town CBD high rise office building with gross rental upside potential situated in the heart of the financial district. CBD office vacancies have been on a steady decline since late 2014 and rental rate averages have steadily increased in this period from R 120/m 2 to R 143/m 2. No. 2 Long Street averages a rate of R 122/m 2 which management believes is a R 18/m 2 rental upside opportunity waiting to be exploited. Per Jonas Lang LaSalle Q Cape Town Office Market Report there is a shortage of large space options in excess of 3 000m 2 and they note that this is a hurdle for large occupiers who are keen to move into the City. Spear management considers the latter a major opportunity given the building size and gross lettable area of No.2 Long Street. Asset Description: Well established office market in Cape Town CBD; Excellent location within walking distance of all major transportation offerings, general amenities, the Cape Town International Convention Centre and V&A Waterfront; MyCiTi RBT station located 200m from building entrance; Built in 1963, 23 Office levels with efficient floor plates of approximately 1 300m 2 per floor & parking ratio of 3,7 bays per 100m 2 ; Currently 85% occupied with a rental income guarantee over all unoccupied space & vacant parking for a period of 18 months. Investment Rationale: Demand for A Grade office accommodation in the Cape Town CBD has continued to increase over the past 12 months as the effects of building use conversions to residential use, set in creating a shortage of A Grade office accommodation in the Cape Town CBD; The property fits into the Spear investment strategy of increasing the funds exposure to high quality real estate assets within the Western Cape; Potential to unlock further value through securing 3rd party signage contracts on the 1st parking level facade along with rooftop signage would potentially unlock new revenue streams for the asset; The Cape Town CBD is a well-established commercial office node with in excess of m 2 of existing A-Grade office space. Currently A-Grade office vacancies are on a steady decline with the vacancy average in the A-Grade market being 7,4% as at Q (Source: Cape Town Office Market Report Q JLL). 22

23 No. 2 Long Street, Cape Town Cont. Property Locality Plan 23

24 15 on Orange Hotel & Conference Facility, Cape Town Main tenant: Physical address: Marriot Hotels International 15 Orange Street, Cape Town GLA: m 2 Sector: Hospitality Acquisition price: R Acquisition yield: 9.55% Hotel lease tenure: 16 years 24

25 15 on Orange Hotel & Conference Facility, Cape Town Cont. Opportunity: 15 on Orange Hotel & Conference Facility is in a trendy area of Cape Town between Gardens and the famous Long Street. The hotel is both for the young and hip, as well as the modern day business person. Developed at a cost of R 750 million Spear management has identified this luxury 5 star asset as a premier value investment opportunity. The hotel occupancy rates have been steadily increasing over the last 12 months but remain below the 5 star market competitor set. Given Spear managements excellent understanding of the hospitality sector and the management of similar sized hospitality assets as 15 on Orange management is confident that further innovative value can be extracted out of the asset in time. The 12 month hotel occupancy average has been 75%. Asset Description: The Hotel has over 123 spacious rooms, each with a stunning design and has been fitted with ultra luxury finishes; The Hotel has spectacular views of the famous Table Mountain and the perfect central location, this hotel is ideal for anyone wanting to experience the city life of Cape Town; Excellent location within walking distance of all major transportation offerings, general amenities, historic sites and a short drive to the V&A Waterfront; The property consists of a sectional title scheme of which the Hotel, Conference Facility and Retail areas are the sections being acquired by Spear. The latter mentioned sections comprise the majority of the sectional title scheme. Investment Rationale: The Western Cape continues to enjoy a large influx of foreign tourists specifically into the greater Cape Town area as a weaker ZAR, excellent climate and diverse offerings make South Africa a premier holiday destination; Tourism numbers continue to show compounded growth of 8% year on year fuelling demand for hotel accommodation across the Mother City; 15 on Orange Hotel is coming off a low base in terms of both ADR (average daily rates) of R 1613 and RevPar (revenue per available room) of R (28% growth on prior 12 months) compared to other CBD 5 star hotels achieving a higher ADR & RevPar thus management believes that revenue growth is highly likely on this asset going forward; The property fits into the Spear investment strategy of increasing the funds exposure to high quality real estate assets within the Western Cape. 25

26 15 on Orange Hotel & Conference Facility, Cape Town Cont. Property Locality Plan 26

27 Mega Park Industrial Estate, Bellville South Main tenants: Physical address: Massbuild, Consol Glass, Imperial, Tuffy Group & Storage Team Cnr Pieter Barlow & Mill Road, Bellville South GLA: m 2 Sector: Industrial logistics, manufacturing & warehousing Acquisition price: R Acquisition yield: 9.30% WALE: 2 years 27

28 Mega Park Industrial Estate, Bellville South Cont. Opportunity: Mega Park Industrial Estate is known as one of the most successful brownfields developments undertaken in Cape Town in recent years. The property presents a very unique investment opportunity given that the estate offers both warehousing, storage, manufacturing and ad hoc office accommodation to users. Mega Park has been developed in such a manner that the estate can compete within the industrial manufacturing sector and warehousing sector due to the type of offerings on site. Mega Park boasts KVA of electricity supply which should satisfy most power-demanding tenants. Other features include a circular access road for inter-link trucks with 24 hour security and access control. Asset Description: Located on a m 2 site with over m 2 of gross lettable area; Variety of product offerings onsite ranging from small industrial units to 14m high bulk warehousing facilities; The property has a very high occupancy rate in the region of 90%. The Seller has provided Spear with a 24 month gross rental income guarantee on any vacant space that may come up in the estate over the 24 month period; Mill Road is in the process of being extended to connect to the R300 thus creating a new arterial connection between the R 300 and Bellville South. The latter opens up Mega Park to a plethora of new potential users that may require logistics facilities that are accessible immediately off the R 300. Investment Rationale: Strong demand for quality industrial space within the greater Cape Town area continues;. The property has been acquired at under R 4 500/m 2 which is substantially below replacement costs of similar type assets. The latter reinforces Spears value investor approach to real estate; The property has an average rental rate of R39/m 2 which is a highly competitive rate compared to the average Cape Town industrial rental rate of R 46/m2; The property fits into the Spear investment strategy of increasing the funds exposure to high quality real estate assets within the Western Cape; The Seller has converted 100% of his equity in the asset to Spear REIT paper which has been a major endorsement of our business strategy and ability to acquire quality Cape Town assets from Sellers who see the many benefits of transacting with a REIT such as Spear. 28

29 Mega Park Industrial Estate, Bellville South Cont. Property Locality Plan 29

30 Virgin Active, George Main tenant: Physical address: Virgin Active South Africa No. 1A Witfontein Road, George GLA: 2 500m 2 Sector: Specialised retail Acquisition price: R Acquisition yield: 9.22% WALE: 5 years 30

31 Virgin Active, George Cont. Opportunity: The property is a single tenanted property let on a long term lease to Virgin Active South Africa. Management has identified this asset as a good investment opportunity for Spear as the fund ventures beyond its Cape Town bias. The effects of semigration can be seen in the Southern Cape with influx of new residents into the George area. The property management requirements on this asset are minimal and the tenant takes care of the majority of repairs & maintenance items that occur on site. Virgin Active have no long term plans to bring on another gym offering in this area therefore management believes that this asset is an excellent investment opportunity. Asset Description: The only Virgin Active Gym offering in George; Situated in a well established residential node in close proximity to the picturesque Fancourt Golf Estate; The asset is located next to a convenience retail centre anchored by Spar; The property has excellent access and egress with ample parking available for both retail shoppers and gym members; The gym boasts a strong membership base of over members. Investment Rationale: Long dated income for the fund with little management resources required with regard to day to day property management; The property fits into the Spear investment strategy of increasing the funds exposure to high quality real estate assets within the Western Cape; Average rental rate per square meter of R 72/m2 is considered by management to be below market for specialised retail thus rental growth potential is very strong. 31

32 Virgin Active, George Cont. Property Locality Plan 32

33 Sable Square - Retail & Office Additions Addition: Physical address: Retail & office space Cnr Bosmansdam & Ratanga Road, Milnerton New GLA: 3 000m 2 Sector: Retail & Office Cost of additions: R Yield on additions: 9.25% Completion: December

34 Sable Square - Retail & Office Additions Cont. Opportunity: The property currently comprises of m 2 of retail space and 7 000m 2 of office space. The property was acquired with a large component of undeveloped and approved bulk in the region of m 2. Spear management has identified areas on the property that are able to be further developed in a response to the strong demand for both retail and office space in this precinct. Currently the property is 99,6% let due to strong space demand thus giving management the comfort to proceed with a Phase 1 value add of 3 000m 2 of specialised retail and additional office accommodation. Management is currently in the planning phase to develop 110 residential apartments on the property for lease only that will make Sable Square a fully fledged mixed use scheme. Asset Description: Situated within the well established Century City precinct; MyCiTi RBT station located 50m from building entrance; Parking ratio of 6-7 bays per 100m 2 available for current use as well as for Phase 1 additions to the property; Sable Square is a convenience retail centre anchored by Pick n Pay with a R 13m per month turnover. Investment Rationale: The additions have been in response to demand in the market for additional specialised retail and office space in this precinct. Management are bringing on the additions at highly competitive rental rates and at an acceptable initial yield (Retail at R 145/m 2 & Offices at R 125/m 2 ); 50% of the 3 000m 2 additions to the property has already been let on a 10 year lease to a national tenant; Potential to unlock further value through securing 3rd party signage contracts onsite as well as to responsibly develop out the unrealised bulk on the property. 34

35 Sable Square - Retail & Office Additions Cont. Property Locality Plan 35

36 Revised Portfolio Overview Post Acquisitions Active Asset Management Western Cape: 97% of assets Gauteng: 3% of assets Number of properties: 31 Portfolio Value: R2.6 billion Average property valuation per m 2 : R8 500/m 2 36

37 Revised Financial Information FY

38 Revised Spear REIT Financial Forecast Income Statement Post Acquisitions TOTAL REVENUE Property Operating Expenses NET PROPERTY RELATED INCOME Head Office Costs OPERATING COSTS Finance Costs NET PROFIT ANTECEDENT DIVIDEND DISTRIBUTABLE DIVIDEND TOTAL NUMBER OF SHARES (Million) DISTRIBUTION PER SHARE (Cents) Per PLS - 12 months ending 18 Feb (Rm) (46.8) (7.3) (50.9) months ending 18 Feb Revised (Rm) (69.2) (11.9) (91.1) *The above revised FY 18 Income Statement has not been reviewed or reported on by the Company s Auditors. 38

39 Revised Spear REIT Illustrative Balance Sheet Post Acquisitions ASSETS Non-current assets Current assets TOTAL ASSETS Audited R Feb Unaudited R 000 Post Transactions EQUITY AND LIABILITIES Capital and reserves Non-current liabilities Current liabilities TOTAL EQUITY AND LIABILITIES Shares in issue at period end Gearing ratio % % Net asset value (Cents) Tangible net asset value (Cents) *This illustrative Balance Sheet does not constitute pro forma or forecast information and is provided for illustrative purposes only and has not been reviewed or reported on by the company s auditors 39

40 Revised Spear REIT Funding - Post Acquisitions LTV 45% Total Borrowings Average Cost of Funding Hedged Funding R1.163bn 9.41% 24% Funding Maturity Management will closely monitor the market to determine an opportune time to hedge additional debt as part of management s debt management policy Post acquisitions management will work towards restoring the hedged funding percentage to between 55%- 60% Management will ensure that the maximum Debt to Value ratio is maintained at no more than the 45% - 50% level 40

41 41

42 Rationale INVESTMENT RATIONALE BENEFITS OF GROWTH Investment pipeline of over R1bn Management has a proven ability to execute its investment strategy in the Cape market Growth with the aim of enhancing investor return and liquidity 83 % increase in asset value of fund 77% increase in rental GLA of fund Spears operating platform is set up to handle a significantly larger portfolio with little additional incremental costs Improving income the net initial yield of each new acquisition is accretive to the fund yield Better liquidity in the shares, resulting from larger market cap and broader investor universe Economies of scale Improved portfolio diversification The opportunities discussed are expected to be accretive to the Company s earnings and dividend payments 42

43 Our objective is to generate sustainable and growing Key Features of the income as a specialised REIT Amount to be placed Indicative Placing price Revised FY 18 Forward Yield Opening of Private Placement Closing of Private Placement Notification of Allotments Issue of Shares Approximately R280 million R R % 09H00 on Monday, 29 May H00 on Friday, 2 Monday, 5 Monday, 12 43

44 Anticipated Shareholding Post ( 000) Cape Real Estate Specialist Strong management & shareholder alignment Relatively high percentage of free float 65% Management lock in agreements in place 44

45 Use of Proceeds Proceeds Deployment ACQUISTION: Acquisition value R 000 R 000 Total acquisition costs Less bank debt Equity raise fees Less issue to vendor (Mega Park) Equity required Max Cash reserves funding ( ) (3 938) ( )

46 Outlook 46

47 Value Proposition & Prospects Regionally specialised Cape Town - SA s highest growth area Diversification across all property sectors Favourable economic & property fundamentals High-quality real estate portfolio Portfolio value R2,64 billion after anticipated July 2017 transfers GLA of m 2 Occupancy rate - 99% Strong management & shareholder alignment Internally managed fund Led by industry veterans with a successful track record Proximity of management to assets is excellent Substantial shareholding by directors Capital structure LTV of 45% Anticipated market capitalisation R 1,45bn TNAV per share R9.95 Prospects Revised distribution FY18 76c-78c (initially 74c forecast PLS) Realisation of undeveloped bulk Growth supported by accretive acquisitions Moved to the JSE Main Board on 22 May

48 Questions 48

49 Appendix Top 14 Spear REIT Assets 49

50 Sable Square Shopping Centre - Century City area Main tenants: Physical address: GLA: Sector: Zoning: Available bulk: Stand size: Parking ratio: Independent valuation: Pick n Pay, Spur, Clicks, China Town, Baby City Cnr Bosmansdam & Ratanga Road, Milnerton m 2 Retail & Commercial General Business m m 2 6/100m 2 R

51 Double Tree by Hilton Cape Town at Upper Eastside Physical address: Phase 2 31 Brickfield Road UES Phase 2 Hotel GLA: Commercial, Retail & Residential Sector: Zoning: Stand size: Parking ratio: Independent valuation: m m 2 Leisure, Commercial, Retail, Residential Mixed use m 2 5/100m 2 R

52 Range Road DC Blackheath Main tenant: Physical address: GLA: Sector: Zoning: Available bulk: Stand size: Parking ratio: Independent valuation: Liquor Runner SA Cnr Range & Anfield Road, Blackheath m 2 Industrial General Business m m 2 N/A R

53 Nampak Liquids 11 Hewett Avenue, Epping Physical address: GLA: Sector: Zoning: FAR: Unutilised bulk: Total bulk: Stand size: Independent valuation: 11 Hewitt Avenue, Bofors Circle, Epping m 2 (Warehouse) Industrial General Industrial m m m 2 R

54 Distell Distribution Centre - Parow Physical address: GLA: Sector: Zoning: Unutilised bulk: Total bulk: Stand size: Independent valuation: 1 Beacon Way, Cnr Jan Smuts and Jan van Riebeeck Drive, Parow m 2 Office & Warehouse General Industrial 7 100m m m 2 R

55 Edward Street, Tygervalley Portfolio Main tenants: Physical address: Total GLA: Sector: Zoning: Total Independent valuation: Naspers, City of Cape Town, Hyundai, Clickatell Edward Street, Tygervalley, Bellville m 2 Office & Retail Secondary Business R

56 28 & 30 Marine Drive Paarden Eiland Main tenants: Physical address: Joint GLA: Sector: Zoning: Height restriction FAR: Max coverage: Total bulk: Joint stand size: Parking ratio: Joint independent valuation: ABSA, Bloomsbury Cars 28 & 30 Marine Drive, Paarden Eiland m 2 Mixed Use Majority Retail General Industrial None Max 100% m m 2 N/A R SPEAR REIT IPO

57 142 Bree Street Cape Town Potential redevelopment site Main tenants: Physical address: GLA: Sector: Zoning: Height restriction FAR: Max coverage: Unutilised bulk: Total bulk: Stand size: Parking ratio: Independent valuation: IDM, Supa Quick 142 Breë Street, Cape Town 3 024m 2 Office General Commercial C5 37m Actual: 1 Storey % m m m /100m 2 R

58 Disclaimer The information contained in this presentation has been prepared by Spear REIT Limited ( Spear ) for information purposes only for the purpose of providing information to invited investors with regard to Spear. This presentation does not constitute, envisage or represent an offer to the public, as envisaged in the Companies Act No. 71 of 2008, as amended ( Companies Act ), nor does it constitute a prospectus registered in terms of the Companies Act. This presentation is being made available only to and is directed at persons who fall within any of the categories envisaged in section 96(1)(a) of the Companies Act or who wish to subscribe for placement shares, the subscription cost of which exceeds R1 million per single addressee acting as principal (as contemplated in section 96(1)(b) of the Companies Act) (all such persons together being referred to as Relevant Persons ). Any investment activity to which this presentation relates will only be available to and will only be engaged with Relevant Persons. Spear has expressed its own views in the presentation and these may change. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested The information in this presentation has not been independently verified and is subject to change. In particular, some of the financial information herein has not been audited or reviewed. No reliance may be placed for any purpose whatsoever on the information, representations or opinions contained in this presentation, and no liability is accepted for any such information, representations or opinions by either Spear or PSG Capital Proprietary Limited ( PSG Capital ). This presentation does not constitute either advice or a recommendation regarding any securities. Any person who is in any doubt about the subject matter of this presentation should consult their advisors or any duly authorised person. None of Spear, PSG Capital or any other person makes any guarantee, representation or warranty, express or implied as to the accuracy, completeness or fairness of the information and opinions contained in this presentation, and none of the Spear, PSG Capital or any other person accepts any responsibility or liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. Forecast risk warning: This presentation includes forward-looking statements. These forward-looking statements include all matters that are not historical facts, statements regarding the Spears intentions, beliefs or current expectations concerning, among other things, Spear s results of operations, financial condition, liquidity, prospects, growth, strategies, and the sectors in which Spear intends to operate. By their nature, forward-looking statements involve risks and uncertainties. You are cautioned that forward looking statements are not guarantees of future performance and that Spear s actual results of operations, financial condition and the development of the sectors in which Spear intends to operate may differ materially from those made in or suggested by the forward-looking statements contained in this presentation. No representation, express or implied, is made that any changes to the information herein will be provided to you. Neither this presentation nor its contents may be distributed, published or reproduced, in whole or in part, by you or any other person for any purpose. In particular, neither this presentation nor any copy of it may be distributed or transmitted in or into the United States of America, Canada, Australia or Japan or in any other country where such distribution may lead to a breach of law or regulatory requirements or transmitted, distributed or sent to or by any national, resident or citizen of such countries. The distribution of this presentation in certain jurisdictions may be restricted by law and therefore persons into whose possession this presentation comes should inform themselves about and observe any such restrictions. Any such distribution could result in a violation of the law of such jurisdiction. 58

59 5th Floor Double Tree by Hilton at the Upper Eastside 31 Brickfield Road Woodstock 7925 Cape Town T