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STANLIB LISTED PROPERTY
Quorum Presentation by
Keillen Ndlovu
October 2012
Ndabezinhle Mkhize
Property Analyst
BSc (Actuarial Science)
CAIA
CFA
Riaan Gerber
Property Analyst
B Compt (Hons)
Property Development
Programme
CA(SA)
8 years
asset management
experience
(6 years listed property)
5 years
asset management
experience
(5 years listed property)
The STANLIB Listed Property Team
Keillen Ndlovu
Head: Listed Property Funds
Portfolio Manager BCom (Hons) Finance
Property Development Programme
CAIB(SA)
8 years
asset management
experience
(8 years listed property)
Craig Smith
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
COPYRIGHT STANLIB 2012
Source: IPD, SAPOA, MacQuarie, Econometrix, STANLIB
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F
Distribution growth (%) Property vacancies (%) GDP growth (%)
4
SA Listed Property Sector –
Stable & Growing Income Since 1994
0
50
100
150
200
250
300
350
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012F
Cumulative sector DPSSource: Company data, Macquarie Research, July 2012
COPYRIGHT STANLIB 2012 5
Listed Property has a High Correlation
to Bonds
0.359 0.331 0.319
0.462
0.259
0.586 0.631
0.739 0.749
0.663
0.00
0.25
0.50
0.75
1.00
15 yrs 10 yrs 5 yrs 3 yrs 1 yr
Corr
ela
tion
.
Correlations between Listed Property and Equity and Bonds over various time frames
Equities vs Local Property Bonds vs Local PropertySource: Cadiz 30 September 2012
COPYRIGHT STANLIB 2012 6
Strong Negative Relationship with
Bond Yields
COPYRIGHT STANLIB 2012
SA L
IST
ED
PR
OPERT
Y IN
DEX
10-Y
EA
R B
ON
D Y
IELD
S
i.e. When bond yields move up (weaken), listed property prices generally come down.
7
Asset Class Risk-Returns over the
Last Year
COPYRIGHT STANLIB 2012
Source: Cadiz September 2012
Local Equities
Local Bonds
Local Property
Local Inflation Linked Bonds
Local Cash
Foreign Equities
Foreign Bonds
Foreign Cash
-10
-5
0
5
10
15
20
25
30
35
40
0 2 4 6 8 10 12 14 16 18 20
Annualise
d R
etu
rn (
% )
Annualised Standard Deviation (%)
HIGH RETURN/LOW RISK
LOW RETURN/HIGH RISK
average
return
average risk
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 re-
investment option
(March 2011)
• R1.8bn book build (July
2011)
• R167m distribution re-
investment option
(September 2011)
R3.7bn
Source: STANLIB Research & Company Data
COPYRIGHT STANLIB 2012 9
Equity Raisings so Far in 2012
Company/Fund Size
Arrowhead Property Fund R400m
Rebosis Property Fund R295m
Sycom Property Fund R746m
Synergy Income Fund R305m
Hospitality Property Fund R530m
Vukile Property Fund R867m
Growthpoint Properties R793m
Vividend Income Fund R459m
Redefine Properties R650m
Acucap Properties R348m
Synergy Income Fund R370m
R5.76bn
Source: STANLIB Research & Company Data
• 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
10 COPYRIGHT STANLIB 2012
SA LISTED PROPERTY OVERVIEW
2012 Year-to-Date:
Asset Class Total Returns
Listed property was also the best asset class in 2010 and 2011 Source: I-Net Bridge
COPYRIGHT STANLIB 2012 12
Has Listed Property Run too Hard?
Returns Since the previous Nov 2007 Peak
Total returns are primarily driven by income
returns Source: I-Net Bridge
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
* Management guidance & STANLIB Forecasts (excludes the current reporting season) Source: Company Data and STANLIB Research
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
53%
28%
15%
2% 1% 1%
Retail
Offices
Industrial
Hotels
Residential
Other
COPYRIGHT STANLIB 2012
Source: STANLIB Research and Company data
17
6
9 3
12
BOOM MARKET
Saturated
Market
Increasing
Construction
Funding
Available
Increasing Rents
Stabilizing Rents
Increasing Absorption
Overbuilding
Rent Concession Excess Funding
Tightened Funding
Less
Construction
Reduced
Funding
RECESSION
RECOVERY
Retail
Office Minimal Construction
Source: STANLIB’s view of the sectors but clock courtesy of Francois Viruly
Real Estate Clock – Industrial Sector
Looking Good
COPYRIGHT STANLIB 2012
Industrial
Retail
18
Township Retail has Provided Better
Risk-adjusted Returns
COPYRIGHT STANLIB 2012 19
Source: IPD Research
SPAR, Zonke Shopping Centre (Vunani
Properties), Motherwell Township, Port Elizabeth
Source: STANLIB Research
Growth in Retail Developments
Since 1993
COPYRIGHT STANLIB 2012
Source: IPD Research Jabulani Mall (Resilient), Soweto
Source: STANLIB Research
20
Shopping Centre Trends in South Africa
COPYRIGHT STANLIB 2012
Decline largely due to explosion of new shopping
centres (cannibalisation) Source: SAPOA Q1 2012
21
How do Shopping Centres Count
the Number of Shoppers?
Source: STANLIB Research
Foot counting machine at Nelson Mandela Square, Sandton
COPYRIGHT STANLIB 2012 22
Shopping Centre Trends – the Bigger,
the Better
COPYRIGHT STANLIB 2012
0 5 10
Super RegionalSC
Regional SC
Small RegionalSC
Community SC
NeighbourhoodSC
Spend per head per visit (Rand) Vacancies by shopping centre type (%)
Source: IPD/SAPOA
23
Hyprop Property Portfolio Example
Source: Hyprop Results 30 June 2012
COPYRIGHT STANLIB 2012 24
National Industrial Vacancies Continue
to Improve (go down)
COPYRIGHT STANLIB 2012
Source: SAPOA/IPD H2 2011
25
Offices Vacancies Stabilizing but Rents
are not Growing
COPYRIGHT STANLIB 2012
National vacancies National vacancies by grade
Source: IPD/SAPOA Q3 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%
BULL BASE BEAR
ONE YEAR
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%
Assumed no change in property rating (yield gap) relative to the bond market
Source: STANLIB Research
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%
Source: STANLIB Research
• Anchor tenants are SuperSpar, Edgars and there is a full range of fashion,
footwear, sportswear, restaurants, furniture and health care
• Game needs space
COPYRIGHT STANLIB 2012 34
Where is Kathu?
It’s here
COPYRIGHT STANLIB 2012 35
Diamond Pavilion Mall, Kimberley
(Resilient)
Source: STANLIB Research
• Turnover growth 20% year-on-year
• Foot count was up 12% to 4.9m shoppers
• Vacancy rate is 3% of GLA
• 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%
Source: STANLIB Research
• 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
COPYRIGHT STANLIB 2012 37
Mall of Rosebank (Hyprop) to be
increased from 37,000m² to 62,000m²
COPYRIGHT STANLIB 2012
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 38
New Shopping Centres Coming up –
Increased Competition
COPYRIGHT STANLIB 2012
Brilliant community shopping centre. With an
excellent tenant mix. Opened in April 2012.
Untouched and unloved for 15 to 20 years
Source: STANLIB Research
Nicolway Bryanston Shopping Centre (Unlisted) Bryanston Shopping Centre (Listed)
39
Bryanston Shopping Centre
(Fountainhead) – A Refurbishment at
Last!
COPYRIGHT STANLIB 2012
Source: STANLIB Research
To be completed sometime in November
40
Highveld Mall, Witbank – Trading Very
Well and being Extended (Resilient)
COPYRIGHT STANLIB 2012 Source: STANLIB Research 41
Malls Opening over the Next Few Years
in South Africa
COPYRIGHT STANLIB 2012 Source: Various Artist Impressions
We have visited all the above sites and other upcoming malls in Durban and Midrand
Pretoria West Port Elizabeth Burgersfort
Cape Town Secunda Krugersdorp
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
Source: STANLIB Research
• Clearwater Mall (Hyprop) and Key West Mall (Acucap) will be negatively affected
• Management of both centres are coming up with defensive mechanisms
Key West Mall (Acucap) Cradlestone Mall (Sasol & Retail Africa) Clearwater Mall (Hyprop)
COPYRIGHT STANLIB 2012 44
Secunda to get a Regional Shopping
Centre (Resilient & Sasol)
COPYRIGHT STANLIB 2012 Source: STANLIB Research 45
Still Lots of “To Let” Signs,
Especially in the B-grade Office Space
COPYRIGHT STANLIB 2012
Source: STANLIB Research
46
New Developments Coming up in
Sandton
Source: Redefine & STANLIB Research Current Alexander Forbes offices to be demolished – Redefine Properties
BEFORE AFTER
COPYRIGHT STANLIB 2012 47
Changing Sandton CBD Skyline –
Gautrain One of the Key Drivers
COPYRIGHT STANLIB 2012 Source: STANLIB Research
join.gautrain.co.za
48
There is Increased Government
Exposure in the Listed Property Sector
COPYRIGHT STANLIB 2012 Source: STANLIB Research – Delta Property Fund (Listing in November 2012) Site Visits 49
THANK YOU
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