Listed Property. Keillen Ndlovu Head of Listed Property May 2018

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1 Listed Property Keillen Ndlovu Head of Listed Property May 2018

2 Global Property

3 STANLIB Global Property Fund Objective Portfolio Characteristics The Fund invests in the global property market. Aims to provide superior long-term investment performance. Comprising mainly of developed territories. The Fund aims to outperform the S&P Developed REIT Index and peer average over time. We select stocks from the bottom up rather than attempting to take big regional bets. Based on sound fundamental research. The Fund has a very strong bias towards investors rather than developers. 3

4 STANLIB Global Property Fund Investment Style Target Market We look for companies that generate above average growth in their rental streams. Investors that seek a diversified portfolio of global property stocks that aims to diversify exposure away from the South African listed property market. We also favour companies that are trading at reasonable values relative to their growth prospects. We focus on defensive attributes such as balance sheet strength, tenant stability and core rental earnings. Investors that need to add diversity to their offshore cash, equities and/or bond exposure. Investors that need to diversify currency exposure. 4

5 STANLIB offshore meetings, conferences and site visits UK China China Japan Egypt UK & Ireland Romania France Philippines Philippines Poland Japan Turkey Thailand Indonesia Zambia & Mauritius Bulgaria Australia Philippines Hong Kong Nigeria Kenya Croatia Hong Kong Indonesia Taiwan Mexico Romania & Serbia Mexico & Brazil Poland Hong Kong UK UK Spain Indonesia Romania USA USA USA UK UK USA & Switzerland Germany Australia Romania USA France Philippines Singapore Romania Egypt China Germany Mexico Mexico Slovakia UAE Australia USA Spain & France Developed Markets Emerging Markets Africa Hungary Singapore Germany Netherlands Montenegro Germany & Norway Slovakia Kenya Netherlands Germany & Austria Serbia Hungary Germany Botswana Poland Switzerland Macedonia Bulgaria Brazil Mozambique Kenya Poland & Croatia Australia Slovakia Zambia Namibia Croatia Mozambique & Namibia Romania Mauritius Morocco Namibia Slovakia Mauritius Czech Croatia Swaziland UAE Hungary Serbia Source: STANLIB

6 We meet the leading global property companies Source: STANLIB Research September 2018 New York City, Merrill Lynch Global Real Estate Conference 6

7 Fund performance in US$ STANLIB Global Property Fund 1 Month 3 Months 6 Months 1 Year 3 Years 5 Years Since Inception Fund 1.60 (1.05) Benchmark 1.52 (2.82) (0.76) Relative Performance (0.38) (0.70) (1.97) Source: STANLIB Performance: Gross Total Returns to 30 April

8 Fund performance in rand STANLIB Global Property Feeder Fund 1 Month 3 Months 6 Months 1 Year 3 Years 5 Years Since Inception Fund (9.18) (3.24) Benchmark (12.52) (6.34) Relative Performance (0.08) (0.67) (1.49) (1.49) Source: STANLIB Performance: Gross Total Returns to 30 April

9 Region allocation Europe is our highest conviction % Portfolio Benchmark Difference Cash Europe Hong Kong Japan North America (USA and Canada) Oceania (Australia and New Zealand) Singapore UK Middle East Source: STANLIB Performance, 31 March

10 Hong Kong and Australia have been the best performers over the medium to long term FTSE EPRA/ NAREIT Dev REITs Week MTD QTD YTD 1YR 3YR 5YR Australia 2.1% 0.3% 4.8% -1.7% -0.3% 7.4% 9.9% United States 1.4% 1.8% 3.1% -4.9% -0.3% 3.3% 4.8% Continental Europe 0.8% -0.3% 5.3% -1.8% 0.7% 0.5% 6.7% United Kingdom 0.1% -0.2% 4.7% 1.0% 5.7% 2.2% 9.5% Singapore 0.1% -0.8% 2.3% -1.4% 14.5% 7.9% 5.4% Japan -0.5% -0.5% 2.2% 5.0% 0.4% 0.8% 4.0% Hong Kong -0.6% -3.4% -0.4% -7.0% 22.3% 15.7% 12.7% Source: FTSE, EPRA, NAREIT, Thomson Reuters DataStream, UBS Estimates, Total returns to 4 May

11 Fund exposure by sector Portfolio Benchmark Difference SECTOR % % % Retail REITs Office REITs Residential REITs Industrial REITs Specialized REITs Diversified REITs Real Estate Operating Companies Health Care REITs Cash Hotel & Resort REITs Diversified Real Estate Activity Source: STANLIB Performance, 31 March

12 Globally, industrial and residential are performing well - retail underperformed FTSE EPRA/ NAREIT Dev REITs Week MTD QTD YTD 1YR 3YR 5YR Global Office 2.5% 2.4% 5.5% 0.4% -2.6% 2.8% 6.8% Global Lodging & Resorts 2.3% 2.8% 8.8% 1.5% 1.0% 1.4% 10.1% Global Industrial 2.1% 1.6% 7.5% 4.2% 9.7% 13.4% 12.3% Global Retail 1.9% 1.5% 4.8% -6.8% -9.9% -3.2% 2.7% Global Residential 1.5% 1.3% 4.2% -0.3% 0.4% 7.4% 13.8% Global Diversified 1.2% 0.4% 5.4% 0.5% -1.3% 0.1% 3.8% Source: FTSE, EPRA, NAREIT, Thomson Reuters DataStream, UBS Estimates, Total returns to 4 May

13 Recent M&A activity amongst the largest global REITS Retail Retail Retail Industrial Unibail Rodamco and Westfield Hammerson, Intu and Klepierre General Growth Properties and Brookfield Property Partners Prologis and DCT Industrial Trust Source: STANLIB Research May

14 Global retail rental cycle Boston, Chicago, Houston Beijing Tokyo Los Angeles, San Francisco Washington DC New York London, Milan Shanghai, Madrid Rental Growth Slowing Rental Values Falling Mumbai Rental Growth Accelerating Rental Values Bottoming Out Berlin Dubai Singapore Delhi Paris Moscow, Sydney Hong Kong Americas EMEA Asia Pacific Source: JLL, February 2018 (refers to prime space) 14

15 Hammerson Plc s new acquisition Norwegian Outlet, Oslo Footfall up 17% and sales up 6% versus last year Source: STANLIB Research April

16 Possible new entrants to the Oslo, Norway retail market Source: Akerhus Eiendom April

17 Les Qautre Temps, Paris, France at lunch time Unibail Rodamco Source: STANLIB Research December

18 Undiz, Passage Du Havre, Paris, France Eurocommercial Properties Source: STANLIB Research December

19 Global industrial rental cycle San Francisco New York, Dallas Tokyo Beijing Philadelphia Chicago, Atlanta, Los Angeles Houston Rental Growth Slowing Rental Values Falling Amsterdam Boston, Sydney Singapore Milan, Stockholm Frankfurt Shanghai Rental Growth Accelerating Rental Values Bottoming Out London, Madrid Moscow Hong Kong, Singapore Americas EMEA Asia Pacific Source: JLL, February 2018 (refers to prime space) 19

20 Prologis Inc. logistics site visits, New York, USA Source: STANLIB Research September

21 Global office rental cycle prime offices Beijing, Chicago, New York Paris, San Francisco Tokyo, Hong Kong Boston, Dallas Los Angeles Frankfurt Stockholm, Prague Berlin Amsterdam, Madrid, Sydney, Toronto Milan Brussels Singapore Delhi Mumbai Rental Growth Slowing Rental Growth Accelerating Americas Rental Values Falling Rental Values Bottoming Out EMEA Asia Pacific Washington DC Shanghai Houston Seoul Istanbul, Mexico City London Dubai Sao Paulo Moscow, Johannesburg, Warsaw, Zurich Source: JLL, February 2018, based on Grade A space in CBD or equivalent 21

22 Co-working and flexible space transforming the office market A designer office, killer coffee, lovely lunches, smiling receptionists and meeting rooms on demand Source: STANLIB Research, Oslo and Geneva, March and April

23 Interest rates are going to go up because employment is going to go up. If employment goes up, then our apartments get filled. And if employment goes up, our office buildings get filled. The reality is that increased economic activity combined with increased interest rates is basically bullish for real estate. Sam Zell 23 PHOTO: THE WALL STREET JOURNAL

24 Global listed property prices tend to go up when interest rates rise Fed rate hike periods Fed rate hike periods Apr 1999 Apr 2001 Apr 2003 Apr 2005 Apr 2007 Apr 2009 Apr 2011 Apr 2013 Apr 2015 Apr 2017 FTSE EPRA/NAREIT DEVELOPED $ - TOT RETURN IND Source: Datastream, FTSE EPRA NAREIT, US Federal Reserve, UBS Estimate s April

25 Global listed property correlation with bonds and equities Mar 1993 Mar 1995 Mar 1997 Mar 1999 Mar 2001 Mar 2003 Mar 2005 Mar 2007 Mar 2009 Mar 2011 Mar 2013 Mar 2015 Mar 2017 Real Estate -Equity Correlation Real Estate-Bond Correlation Avg RE-Equity Avg RE-Bond Source: UBS April

26 Global listed property earnings track global GDP growth 30% 20% Long term average property earnings growth = 7.8% Global Earnings Growth 9% 7% 5% 10% 3% 0% 1% -10% -1% -3% -20% Global GDP Growth -30% Dec 1992 Dec 1994 Dec 1996 Dec 1998 Dec 2000 Dec 2002 Dec 2004 Dec 2006 Dec 2008 Dec 2010 Dec 2012 Dec 2014 Dec 2016 Dec 2018 GL EPS Growth (LHS, %YoY) GL GDP Growth (RHS, %YoY) -5% -7% Source: Datastream, UBS Estimates April

27 Global listed property trading 10% below net asset value 30% 20% Premium 10% 0% -10% -20% -30% Discount -40% Mar 1991 Mar 1993 Mar 1995 Mar 1997 Mar 1999 Mar 2001 Mar 2003 Mar 2005 Mar 2007 Mar 2009 Mar 2011 Mar 2013 Mar 2015 Mar 2017 Global Investors Long-term average = 1.8% discount to Net Asset Value Source: Datastream, UBS Estimates April

28 Yield spread between property and bonds 7 FTSE EPRA NAREIT Developed Index and JP Morgan Global Bond Index Spread CHEAP 2 1 EXPENSIVE Spread Average Source: BNP Cadiz and STANLIB Research April

29 Ratio between property and bonds FTSE EPRA NAREIT Developed Index and JP Morgan Global Bond Index Ratio CHEAP EXPENSIVE Ratio Average Source: BNP Cadiz and STANLIB Research April

30 2018 Outlook: Global listed property still offers positive dollar total returns 1 Year Bull Case Base Case Bear Case Total Return (Income and Capital) 14.00% 8.36% 3.26% Assumption 1: US 10 Year Bond Yield (Current 2.85%) 2.50% 3.00% 3.50% Assumption 2: Exit Yield (Current 4.75%)* 4.58% 4.83% 5.08% Assumption 3: Earnings Growth 5.00% 5.00% 5.00% 4 Years (Lower for Longer Interest Rates) Bull Case Base Case Bear Case Total Return (Income and Capital) 10.37% 9.14% 7.99% Assumption 1: US 10 year Bond Yield (Current 2.85%) 3.00% 3.50% 4.00% Assumption 2: Exit Yield (Current 4.75%) 4.83% 5.08% 5.33% Assumption 3: Average Earnings Growth 5.75% 5.75% 5.75% * 50% rating change to bond yield movements in our exit yields due to property having a low correlation with bond yields over time Source: STANLIB Research, UBS, S&P, Bloomberg, April

31 Regions compared Global property not over-geared, with best earnings growth from EU Price to Net Asset Value Dividend Yield 2018 Loan to Value Ratio Estimated Earnings growth per annum 2018 to 2021 Payout ratio 2018 EU ex UK % 34% 8.90% 83% UK % 22% 5.50% 88% US % 48% 4.90% 67% Japan % % 100% Singapore % 31% 2.80% 100% Australia % 30% 3.80% 80% Source: UBS forecasts and estimates, JLL data, April

32 Global listed property returns being driven by income Total return: 48% USD Income return: 54% Capital return : -6% Sep 2007 Sep 2008 Sep 2009 Sep 2010 Sep 2011 Sep 2012 Sep 2013 Sep 2014 Sep 2015 Sep 2016 Sep 2017 Source: STANLIB Research, Bloomberg,

33 Global listed property conclusion Upside Risk Better than expected economic growth Big gap between property yields and bond yields Mergers and acquisitions in the retail space Downside Risk Higher than expected increase in global bond yields and interest rates Global trade wars Lower than expected economic growth Impact of online shopping on retail centres Source: STANLIB Research April

34 Local Property

35 We continue to embrace our philosophy amid a downbeat and volatile listed property market Focus on fundamentals Income is the main driver of total returns We make calls based on property fundamentals through different cycles Source: STANLIB Research 2018 Invest for the long term We do not frequently trade the portfolio We make changes to the portfolio based on property fundamentals We also pay attention to management quality, funding and valuations Keep limited cash balances We focus on stock picking rather making a call on either cash or property We let our investors make the property asset allocation Focus on the on the ground research We continue to assess management s approach to managing their physical properties through regular site visits 35

36 SA asset class year to date performance 110 SA Bonds 5.6% 105 SA Cash 2.6% SA Equities - 1.3% 90 SA Property -16.3% Jan 2018 Feb 2018 Mar 2018 Apr 2018 May 2018 SA Bonds SA Property SA cash SA Equities Source: STANLIB Research, 11 May

37 Fund performance in rands STANLIB Property Income Fund 1 Month 3 Months Year to date 6 Months 1 Year 3 Years 5 Years 10 Years Since Inception Fund Benchmark Relative Performance Source: STANLIB Performance: Gross Total Returns to 30 April

38 9,32% Resilient: Revised structure Hammerson 0,8% 12,51% Resilient Resilient Education Trust 3,12% Nepi Rockcastle Fortress Greenbay 24,20% 20,12% FFA: 9,11%, FEB: 9,9% Fortress Education Trust Source: STANLIB Research, 20 February

39 Resilient group: Key concerns Cash flow hole Siyakaha Trust Latest reported cashflows (December 2017) reconciles to a positive movement when adjusted for scrip dividend etc Inflated Property values Resolved through restructuring of the trust to eliminate margin on loans to the trust Key question on fronting still remains Cross-holding? Current cap rates and historic growth don t seem to suggest inflated property asset values Manipulation of share price Resolved through the Distribution of Fortress B shares to Resilient shareholders Fortress leg of the cross holding may not be eliminated due to the A and B capital structure and elevated LTV s in Fortress Fakie Report complete but FSB Report still outstanding 39

40 SA listed property vs SA bond yields year to date SA Listed Property Index Year Bond Yield Jan 2017 Mar 2017 May 2017 Jul 2017 Sep 2017 Nov 2017 Jan 2018 Mar Source: STANLIB Research, Bloomberg; April 2018 JSAPY TR Index R186 (rhs) 40

41 SA listed property vs EUR ZAR exchange SA Listed Property Index EUR/ZAR Jan 2017 Mar 2017 May 2017 Jul 2017 Sep 2017 Nov 2017 Jan 2018 Mar JSAPY TR Index EUR/ZAR (rhs) Source: STANLIB Research, Bloomberg; 5 April

42 STANLIB listed property portfolio weighting vs index Hybrid, 19% SAPY weightings Hybrid, 12% STANLIB portfolio weightings Cash, offbenchmark exposure, 11% Offshore, 16% Local, 65% Local, 55% Offshore, 22% Source: STANLIB Research, Bloomberg; 20 March

43 STANLIB offshore meetings, conferences and site visits UK China China Japan Egypt UK & Ireland Romania France Philippines Philippines Poland Japan Turkey Thailand Indonesia Zambia & Mauritius Bulgaria Australia Philippines Hong Kong Nigeria Kenya Croatia Hong Kong Indonesia Taiwan Mexico Romania & Serbia Mexico & Brazil Poland Hong Kong UK UK Spain Indonesia Romania USA USA USA UK UK USA & Switzerland Germany Australia Romania USA France Philippines Singapore Romania Egypt China Germany Mexico Mexico Slovakia UAE Australia USA Spain & France Developed Markets Emerging Markets Africa Hungary Singapore Germany Netherlands Montenegro Germany & Norway Slovakia Kenya Netherlands Germany & Austria Serbia Hungary Germany Botswana Poland Switzerland Macedonia Bulgaria Brazil Mozambique Kenya Poland & Croatia Australia Slovakia Zambia Namibia Croatia Mozambique & Namibia Romania Mauritius Morocco Namibia Slovakia Mauritius Czech Croatia Swaziland UAE Hungary Serbia Source: STANLIB

44 Bulgarian retail now dominated by South Africans The Mall, Sofia - Hyprop Investments Serdika Center, Sofia - NEPI Rockcastle Source: STANLIB October 2017 Site Visits 44

45 2017 experienced a number of store closures and - more to come Source: STANLIB Research, June 2017 Site Visits 45

46 Listed property exposure to the Edcon group Company Edcon exposure (as disclosed) % of assets in SA Total portfolio exposure Accelerate 2.5% 94% 2.4% Attacq 2.6% 86% 2.2% Arrowhead 2.2% 100% 2.2% Emira 0.0% 93% 0.0% Echo Polska 0.0% 0% 0.0% Equities 0.0% 93% 0.0% Fortress 2.6% 55% 1.4% Greenbay 0.0% 0% 0.0% Growthpoint 2.2% 70% 1.5% Hyprop 7.9% 80% 6.3% Investec Prop 2.0% 93% 1.9% Liberty Two Degrees Not disclosed 100% 5.9% MAS Real Estate 0.0% 0% 0.0% NEPI Rockcastle 0.0% 0% 0.0% Redefine 3.2% 81% 2.6% Rebosis 2.7% 95% 2.6% Resilient 7.6% 53% 4.1% SA Corporate 1.6% 95% 1.5% Sirius 0.0% 0% 0.0% Vukile 5.3% 94% 5.0% Average 2.23% 1.77% Source: Anchor Stockbrokers May

47 Nepi Rockcastle Echo Polska SA Corporate Fortress Resilient Investec Property Rebosis Vukile Fairvest Emira Hyprop Growthpoint Redefine L2D Listed property latest retail sales numbers 10% 8% 8.3% 7.0% 7.0% 6.9% 6% 5.3% 4% 4.4% 4.0% 3.4% 3.0% 2% 2.2% 1.4% 1.3% 0.4% 0% -2% -1.7% -4% Source: STANLIB Research, April

48 Vukile Retail Investec Property Retail Fairvest Retail Accelerate Property Fund Retail Growthpoi nt Retail SA Corporate Retail Resilient Retail Average Redefine Retail Rebosis Retail Hyprop Retail Emira Retail Attacq Retail Latest retail net property income growth 12% 10.8% 10.6% 10% 9.3% 8% 8.1% 7.0% 6.8% 6.8% 6.8% 6.7% 6.6% 6% 6.1% 4% 2.5% 2% 0.3% 0% Source: STANLIB Research, April

49 Office buildings coming up in Sandton, Johannesburg Source: STANLIB Research January

50 Latest office net property income growth 15% 11.4% 10% 6.5% 5.9% 5% 3.1% 2.9% 0% -5% Attacq Office Rebosis Office Investec Property Office Average Growthpoint Office Redefine Office Emira Office -1.4% -10% -7.0% Source: STANLIB Research April

51 Tenants moving from older to new industrial buildings Source: STANLIB Research November 2017 Fortress Income Fund Site Visits 51

52 Composition of SA listed property total returns 40% 35.88% 30% 28.37% 26.52% 29.62% 26.64% 20% 14.07% 17.15% 10% 8.93% 8.39% 7.99% 10.20% 0% YTD -4.47% -10% -20% % -30% Income Return Capital Return Total Return Source: STANLIB Research, Bloomberg; April

53 Income is the biggest driver of returns Annual total return = 12.50% 400 Annual income = 7.5% Annual capital growth = 5% Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Source: STANLIB Research, Bloomberg; 5 April 2018 Income Return Capital Return 53

54 Recurring and non-recurring distributions in the sector 2017 Financial year actual DPS growth Recurring Non-recurring Pay-out ratio Growthpoint 6.5% 98.4% 1.6% 100% Redefine 7.0% 91.8% 8.2% 100% Hyprop 12.1% 97.9% 2.1% 100% SA Corporate 4.4% 97.3% 2.7% 100% Emira -2.0% 100.0% 0.0% 100% Accelerate 7.3% 98.8% 1.2% 100% Rebosis B 7.5% 90.5% 9.5% 100% Rebosis A 100.0% 0.0% 100% Arrowhead 6.0% 99.0% 1.0% 100% Investec Prop 2.4% 98.1% 1.9% 100% Vukile 7.1% 94.5% 5.5% 100% L2D 100.0% 0.0% 100% Equites 14.3% 100.0% 0.0% 100% Resilient 16.1% 100.0% 0.0% 100% Fortress B 25.1% 100.0% 0.0% 100% Fortress A 5.0% 100.0% 0.0% 100% Nepi Rock 19.2% 100.0% 0.0% 100% Greenbay 100.0% 0.0% 90% Echo Polska 100.0% 0.0% 100% Sirius 31.5% 100.0% 0.0% 65% MAS 30.0% 98.3% 1.7% 102% Total 97.7% 2.3% Non recurring distribution = capital profits, underwriting fees, foreign exchange gains, transaction fees Source: STANLIB Research, Bloomberg; March

55 South Africa listed property conclusion Downside risk Upside risk Better than expected economic growth ZAR weakness versus EUR Corporate action given valuation divergence Positive outcome on Resilient stable investigation Interest rate cuts Higher than expected increase in global bond yields and interest rates Continued tenant consolidation Lower than expected economic growth Investor hesitation to invest in the sector given recent events Source: STANLIB Research, January

56 Thank You

57 Disclaimer Collective Investment Schemes (CIS) in Securities are generally medium to long-term investments. An investment in the participations of a collective investment scheme in securities is not the same as a deposit with a banking institution. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from STANLIB Collective Investments ( the Manager ). Commission and incentives may be paid and if so, would be included in the overall costs. Forward pricing is used. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Liberty is a full member of the Association for Savings & Investment SA (ASISA). The Manager is a member of the Liberty group of companies. The information and content of this document are intended to be for information purposes only and STANLIB does not guarantee the suitability or potential value of any information contained herein. STANLIB Wealth Management Limited does not expressly or by implication propose that the products or services offered in this document are appropriate to the particular investment objectives or needs of any existing or prospective client. Potential investors are advised to seek independent advice from an authorised financial adviser in this regard. STANLIB Wealth Management Limited is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (Licence No. 26/10/590) 57

Local and Offshore Local Listed Property. Update. Keillen Ndlovu Head of Listed Property. October 2018

Local and Offshore Local Listed Property Update Keillen Ndlovu Head of Listed Property October 2018 Local Listed Property Jan 2018 Jan 2018 Jan 2018 Jan 2018 Jan 2018 Feb 2018 Feb 2018 Feb 2018 Feb 2018