STANLIB LISTED PROPERTY Quorum Presentation by Keillen Ndlovu October 2012
The STANLIB Listed Property Team Keillen Ndlovu Ndabezinhle Mkhize Riaan Gerber Craig Smith Head: Listed Property Funds Portfolio Manager BCom (Hons) Finance Property Development Programme CAIB(SA) 8 years asset management experience (8 years listed property) Property Analyst BSc (Actuarial Science) CAIA CFA 8 years asset management experience (6 years listed property) Property Analyst B Compt (Hons) Property Development Programme CA(SA) 5 years asset management experience (5 years listed property) Property Analyst BCom (Hons) Finance BSc (Hons) Property Studies Passed CAIA Level 1 Exams CFA 4 years physical property experience (1 year listed property) COPYRIGHT STANLIB 2012 2
TOP DOWN ANALYSIS
Listed Property Income (Distribution) Growth has never been Negative 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F -2.0-4.0 Source: IPD, SAPOA, MacQuarie, Econometrix, STANLIB Distribution growth (%) Property vacancies (%) GDP growth (%) COPYRIGHT STANLIB 2012 4
SA Listed Property Sector Stable & Growing Income Since 1994 350 300 250 200 150 100 50 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012F Source: Company data, Macquarie Research, July 2012 Cumulative sector DPS COPYRIGHT STANLIB 2012 5
Correlation. Listed Property has a High Correlation to Bonds 1.00 Correlations between Listed Property and Equity and Bonds over various time frames 0.75 0.586 0.631 0.739 0.749 0.663 0.50 0.462 0.359 0.331 0.319 0.25 0.259 0.00 15 yrs 10 yrs 5 yrs 3 yrs 1 yr Source: Cadiz 30 September 2012 Equities vs Local Property Bonds vs Local Property COPYRIGHT STANLIB 2012 6
10-YEAR BOND YIELDS Strong Negative Relationship with Bond Yields SA LISTED PROPERTY INDEX i.e. When bond yields move up (weaken), listed property prices generally come down. COPYRIGHT STANLIB 2012 7
Annualised Return (% ) Asset Class Risk-Returns over the Last Year 40 HIGH RETURN/LOW RISK average risk Local Property 35 30 25 Local Equities Foreign Equities 20 15 Local Bonds Local Inflation Linked Bonds average return 10 5 Local Cash Foreign Bonds 0 Foreign Cash -5 LOW RETURN/HIGH RISK -10 0 2 4 6 8 10 12 14 16 18 20 Annualised Standard Deviation (%) Source: Cadiz September 2012 COPYRIGHT STANLIB 2012 8
2011 Listings Resulting Improved Size, Choice and Liquidity Property Stock Listing Listing Market cap (+/-) Timing Vividend Income Fund R0.5bn Nov 2010 Investec Property Fund R1.8bn April 2011 Rebosis Property Fund R2.1bn May 2011 Vunani Property Fund R0,9bn Aug 2011 Dipula Income Fund R1.4bn Aug 2011 Attfund (reverse listing into Hyprop Investments) R5.0bn Sept 2011 Synergy Income Fund R0.5bn Dec 2011 Arrowhead Properties (Redefine unbundling) R0.8bn - Dec 2011 R12.3bn Premium Properties - R400m rights offer (Feb 2011) Fountainhead Property Trust - R1bn rights offer (April 2011) Growthpoint Properties total of R2.3bn: R331m distribution reinvestment option (March 2011) R1.8bn book build (July 2011) R167m distribution reinvestment option (September 2011) R3.7bn Source: STANLIB Research & Company Data COPYRIGHT STANLIB 2012 9
Equity Raisings so Far in 2012 Company/Fund Arrowhead Property Fund Rebosis Property Fund Sycom Property Fund Synergy Income Fund Hospitality Property Fund Vukile Property Fund Growthpoint Properties Vividend Income Fund Redefine Properties Acucap Properties Synergy Income Fund Size R400m R295m R746m R305m R530m R867m R793m R459m R650m R348m R370m R5.76bn Ascension and Annuity listed during the first half of 2012 (R1.2bn) Expecting more equity raisings from Ascension, Investec Property and Dipula Delta Property Fund is listing in early Nov market cap +/- R1.2bn Source: STANLIB Research & Company Data COPYRIGHT STANLIB 2012 10
SA LISTED PROPERTY OVERVIEW
2012 Year-to-Date: Asset Class Total Returns Source: I-Net Bridge Listed property was also the best asset class in 2010 and 2011 COPYRIGHT STANLIB 2012 12
Has Listed Property Run too Hard? Returns Since the previous Nov 2007 Peak Source: I-Net Bridge Total returns are primarily driven by income returns COPYRIGHT STANLIB 2012 13
Recent Results A Diverging Income Growth Trend Income Growth Income Growth Outlook* Resilient 10.40% 10% Fortress 10.20% 10% Octodec 9.50% 9.5% Hyprop 9.40% 5% to 7% Sycom 7.70% 5% Capital 6.12% 4% to 7% Growthpoint 6.10% 6.1% Acucap 6.00% 4% to 6% SA Corporate 5.70% Deliver positive growth Vukile 5.00% 6.5% to 7.5% Premium 3.10% On par with sector Redefine 1.60% 68 cents for full year Fountainhead 1.00% Marginal increase Emira -2.50% Increase in distributions Source: Company Data and STANLIB Research * Management guidance & STANLIB Forecasts (excludes the current reporting season) COPYRIGHT STANLIB 2012 14
Recent Results The Vacancy Picture not Looking Bad Fund/Company Vacancies Reason? Resilient Down from 1.9% to 1.8% Improved letting Acucap Down from 3.3% to 2.8% Completion of refurbishments Growthpoint Down from 5% to 4% Improved letting in industrial and offices Sycom Down from 4.5% to 3.7% Reduction in office vacancy SA Corporate Up from 5.6% to 7.4% Increase in retail and industrial vacancy Capital Down from 6.3% to 6.1% Reduction in industrial and office vacancy Redefine Down from 6.9% to 6.6% Improved letting in industrial and office Emira Down from 11.3% to 10.2% Reduction in retail and industrial vacancy Octodec Down from 15.9% to 14.5% Improved letting in office and industrial Vukile Down from 6.9% to 6.8% Reduction in retail vacancy Fountainhead Down from 7% to 6% Reduction in retail vacancy Nepi Down from 7.7% to 5.3% Improved letting across the board Fortress Down from 5.6% to 5.1% Improved letting Hyprop Down from 3.9% to 3.8% Reduction in retail vacancy Premium Up from 18.8% to 20.8% Increase in office vacancy Source: Company Data and STANLIB Research COPYRIGHT STANLIB 2012 15
SECTOR ANALYSIS RETAIL, OFFICE & INDUSTRIAL
SA Listed Property Sector Retail is the Biggest Exposure 2% 1% 1% 15% 28% 53% Retail Offices Industrial Hotels Residential Other Source: STANLIB Research and Company data COPYRIGHT STANLIB 2012 17
Real Estate Clock Industrial Sector Looking Good BOOM MARKET Excess Funding Rent Concession Retail Industrial Increasing Construction 12 Overbuilding Retail Funding Available Increasing Rents 9 3 Saturated Market Tightened Funding Less Construction RECOVERY Stabilizing Rents Increasing Absorption 6 Office Reduced Funding RECESSION Minimal Construction Source: STANLIB s view of the sectors but clock courtesy of Francois Viruly COPYRIGHT STANLIB 2012 18
Township Retail has Provided Better Risk-adjusted Returns SPAR, Zonke Shopping Centre (Vunani Properties), Motherwell Township, Port Elizabeth Source: STANLIB Research Source: IPD Research COPYRIGHT STANLIB 2012 19
Growth in Retail Developments Since 1993 Source: IPD Research Jabulani Mall (Resilient), Soweto Source: STANLIB Research COPYRIGHT STANLIB 2012 20
Shopping Centre Trends in South Africa Source: SAPOA Q1 2012 Decline largely due to explosion of new shopping centres (cannibalisation) COPYRIGHT STANLIB 2012 21
How do Shopping Centres Count the Number of Shoppers? Foot counting machine at Nelson Mandela Square, Sandton Source: STANLIB Research COPYRIGHT STANLIB 2012 22
Shopping Centre Trends the Bigger, the Better Spend per head per visit (Rand) Vacancies by shopping centre type (%) Neighbourhood SC Community SC Small Regional SC Regional SC Super Regional SC 0 5 10 Source: IPD/SAPOA COPYRIGHT STANLIB 2012 23
Hyprop Property Portfolio Example Source: Hyprop Results 30 June 2012 COPYRIGHT STANLIB 2012 24
National Industrial Vacancies Continue to Improve (go down) Source: SAPOA/IPD H2 2011 COPYRIGHT STANLIB 2012 25
Offices Vacancies Stabilizing but Rents are not Growing National vacancies National vacancies by grade Source: IPD/SAPOA Q3 2012 COPYRIGHT STANLIB 2012 26
Operating costs Rates & Taxes, Electricity and Management are the Biggest Source: IPD/SAPOA H1 2012 COPYRIGHT STANLIB 2012 27
Total Operating Costs as a % of Gross Income Prime Property is Better Source: IPD/SAPOA H1 2012 COPYRIGHT STANLIB 2012 28
VALUATIONS 29
Income Growth Outlook BULL BASE BEAR Year 1 6.5% 5.5% 4.25% Year 2 7.0% 6.1% 4.8% Source: STANLIB Research COPYRIGHT STANLIB 2012 30
Total Return Outlook One Year Forward Yield = 7.0% ONE YEAR BULL BASE BEAR Bond yields at end of year 1 6.5% 7.0% 7.5% SA Listed Property Total Return 14.6% 7.0% 0.5% TWO YEARS Bond yields at end of year 2 6.5% 7.0% 7.5% SA Listed Property Total Return (annualised) 13.7% 10.0% 6.6% Source: STANLIB Research Assumed no change in property rating (yield gap) relative to the bond market COPYRIGHT STANLIB 2012 31
Risk to the Listed Property Sector Outlook UPSIDE RISK Letting of vacancies in office space, particularly in A-grade space Continued recovery of the retail sector leading to take up of vacancies in smaller shopping centres Strong demand for retail space in bigger shopping centres Corporate action in our view, the sector is ripe for mergers and acquisitions DOWNSIDE RISK Rising bond yields Slow economic growth Deterioration in the vacancy profile of the B-grade office space Global markets volatility Increasing operating costs for tenants Rates and taxes Electricity Toll roads Prediction is very difficult, especially about the future - Niels Bohr COPYRIGHT STANLIB 2012 32
IMAGINATION IS A POOR SUBSTITUTE FOR EXPERIENCE HAVELOCK ELLIS PHYSICAL SITE INSPECTIONS AN IMPORTANT PART OF THE INVESTMENT PROCESS
Kathu Village Mall, Kathu (Resilient) Turnover up 26%, Foot count up 7.3% Anchor tenants are SuperSpar, Edgars and there is a full range of fashion, footwear, sportswear, restaurants, furniture and health care Game needs space Source: STANLIB Research COPYRIGHT STANLIB 2012 34
Where is Kathu? It s here COPYRIGHT STANLIB 2012 35
Diamond Pavilion Mall, Kimberley (Resilient) Turnover growth 20% year-on-year Foot count was up 12% to 4.9m shoppers Vacancy rate is 3% of GLA Source: STANLIB Research Anchor tenants: Checkers, Woolworths, Edgars and Fruit & Veg. House & Home will take up space vacated by cinemas The economy of Kimberley is driven by mining and tourism COPYRIGHT STANLIB 2012 36
Mafikeng Mall, Mafikeng (Resilient) Foot Count up 23% and Turnover up 18% The centre is anchored by Game, SuperSpar and Edgars Plans to bring in Fruit &Veg and Woolworths Checkers is looking to buy out Spar and be the new food anchor Source: STANLIB Research COPYRIGHT STANLIB 2012 37
Mall of Rosebank (Hyprop) to be increased from 37,000m² to 62,000m² The Mall of Rosebank project will cost R920m Standard Bank Rosebank 60,000m² and cost R1.6bn To accommodate 5,600 employees Source: STANLIB Research COPYRIGHT STANLIB 2012 38
New Shopping Centres Coming up Increased Competition Nicolway Bryanston Shopping Centre (Unlisted) Bryanston Shopping Centre (Listed) Brilliant community shopping centre. With an excellent tenant mix. Opened in April 2012. Untouched and unloved for 15 to 20 years Source: STANLIB Research COPYRIGHT STANLIB 2012 39
Bryanston Shopping Centre (Fountainhead) A Refurbishment at Last! To be completed sometime in November Source: STANLIB Research COPYRIGHT STANLIB 2012 40
Highveld Mall, Witbank Trading Very Well and being Extended (Resilient) Source: STANLIB Research COPYRIGHT STANLIB 2012 41
Malls Opening over the Next Few Years in South Africa Pretoria West Port Elizabeth Burgersfort Cape Town Secunda Krugersdorp We have visited all the above sites and other upcoming malls in Durban and Midrand Source: Various Artist Impressions COPYRIGHT STANLIB 2012 42
Midrand s new +115,000m² Mall by Waterfall City Mall of Africa (Atterbury) Location: Allandale Road (West of N1) Some of the tenants H&M, Zara, Food Lovers Market, Checkers, Woolworths, Cotton-On, Top Shop, Foschini, Chanel, Dolce & Gabana, Stuttafords, Gap, Guess, Pick n Pay Construction starts: September 2012 Scheduled completion: Early 2014 Source: Atterbury COPYRIGHT STANLIB 2012 43
Cradlestone Mall, Krugersdorp Retail Africa & Sasol Key West Mall (Acucap) Cradlestone Mall (Sasol & Retail Africa) Clearwater Mall (Hyprop) Clearwater Mall (Hyprop) and Key West Mall (Acucap) will be negatively affected Management of both centres are coming up with defensive mechanisms Source: STANLIB Research COPYRIGHT STANLIB 2012 44
Secunda to get a Regional Shopping Centre (Resilient & Sasol) Source: STANLIB Research COPYRIGHT STANLIB 2012 45
Still Lots of To Let Signs, Especially in the B-grade Office Space Source: STANLIB Research COPYRIGHT STANLIB 2012 46
New Developments Coming up in Sandton BEFORE AFTER Current Alexander Forbes offices to be demolished Redefine Properties Source: Redefine & STANLIB Research COPYRIGHT STANLIB 2012 47
Changing Sandton CBD Skyline Gautrain One of the Key Drivers join.gautrain.co.za Source: STANLIB Research COPYRIGHT STANLIB 2012 48
There is Increased Government Exposure in the Listed Property Sector Source: STANLIB Research Delta Property Fund (Listing in November 2012) Site Visits COPYRIGHT STANLIB 2012 49
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