BCI GLOBAL CONFERENCE - Efficient Group Ltddocuments.efgroup.co.za/Documents/Boutique Collective... · 2015-05-19 · BCI GLOBAL CONFERENCE Listed Property ... 1600% 1800% 2000% Mar

BCI GLOBAL CONFERENCE

Listed Property Are We There Yet? Evan Jankelowitz May 2015

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How did we get here…

Unpacking SAPY returns How did we get here…?

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-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0%

200%

400%

600%

800%

1000%

1200%

1400%

1600%

1800%

2000%

Mar 2002 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015

Total Return Annual Return

Source: Sesfikile Capital, I-Net BFA


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0%

200%

400%

600%

800%

1000%

1200%

1400%

1600%

1800%

2000%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%


Total Return Property Yield Bond Yield Earnings Growth



5

0%

200%

400%

600%

800%

1000%

1200%

1400%

1600%

1800%

2000%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%


Total Return Property Yield Bond Yield Earnings Growth


Total return breakdown Core and secondary returns

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6.50%

8.50%

-4.17%

-3.39%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

Re RatingProperty

Re Rating Bonds

Growth

DistributionRating driven returns

Expected returns

Total return 7.4%

12 Month Forecast

7.4%

9.1%


Total return breakdown How has Property performed relative to Bonds?

Source: Sesfikile Capital, I-Net BFA 7

Inclusion of offshore stocks + non yielding developers makes the sector look more expensive

5.0

6.0

7.0

8.0

9.0

10.0

SA 10-year bond yield SAPY dividend yield

0.76

0.78

0.65 0.65

0.75

0.85

0.95

1.05

1.15

1.25

May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14

COMPOSITE vs. SA 10-year bond yield SAPY vs. SA 10-year bond yield

Total return breakdown Laggards…

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Still +/- 10% off all time highs

0.81

[VALUE] 0.65

0.75

0.85

0.95

1.05

1.15

1.25


GRT vs. SA 10-year bond yield SAPY vs. SA 10-year bond yield

0.65

[VALUE]

0.84

0.65 0.65

0.75

0.85

0.95

1.05

1.15

1.25


RDF vs. SA 10-year bond yield SAPY vs. SA 10-year bond yield


Total return breakdown And leaders

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At all time highs!!

[VALUE]

0.45

0.65

0.4

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2


RES vs. SA 10-year bond yield SAPY vs. SA 10-year bond yield

0.43

0.65

0.4

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2


NEP vs. SA 10-year bond yield SAPY vs. SA 10-year bond yield


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Facing some headwinds… but still intact.

Direct Property Update Retail: A disconnect between Landlords and Tenants

A “flight to quality” is warranted by a divergence in shopping centre performance

Source: Macquarie, StatsSA, IPD

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Growth Comparison: Retail Sales vs. Shopping Centre Space

Trading density growth (nominal):

Retail vacancy rate

Direct Property Update Retail: Examining the “what if” scenario

REIT industry exposure to Edcon (% direct property revenue)

3.1%

• A ‘Credit issue’ as opposed to an ‘Operational issue’

• The majority of Edcon's debt is due for refinancing in 2019

• There will be winners and losers but not the sequel to “Ellerines”

• Edcon will likely start consolidating stores by shutting down non-performing ones

• Jet is the most profitable brand and CNA has been ‘right-sizing’ to cater for e-commerce

• Landlords of prime centres will likely replace Edgars for one of the foreign retailers…

Source: Macquarie, Company data Photograph of Edgars Melrose Arch

Direct Property Update Retail: Demand coming from existing and new tenants

Expected retail store growth (2015 onwards)

• All major local retailers have store expansions plans despite a more challenging consumer

environment

• Landlords will also benefit from new foreign entrants

• Cotton On plans to expand to over 400 stores in the next few years

• H&M will open its first store in 2015 with a store size range of 3000–4500m²

Source: Company Data, Avior Research, Sesfikile Capital 13

Direct Property Update Office: A game of musical chairs

Source: SAPOA/IPD, Avior, Barclays, Sesfikile Capital, Texton Property Fund, Investec Photograph of Aegis and Fluxmans buildings 14

Office vacancy rates by grade

Office vacancy rate

• The office landlord has two choices in this market:

1) Incentivize the tenant via rent-free periods, lower rents or tenant installation 2) Leave the space vacant which has an ‘opportunity cost’ and ‘actual cost’ of rates & electricity

• However, Office rents may be close to the trough

1.10

1.20

1.30

1.40

1.50

1.60

1.70

15 Source: SAPOA, Paragon Architects Photograph of Alexander Forbes Sandton

Direct Property Update Office: The landlord’s dilemma

Ratio of A to B grade office rentals

2007 Now

Direct Property Update Industrial: Holding up well

Industrial vacancies are still low

Source: Capital Property Fund, Sesfikile Capital, Standard Bank Securities Photograph of Warehouse in Limbro Park

• There has been an increase in demand for “big box” logistics warehouses above 20 000m² • Companies are consolidating towards centralized logistics centres

• More warehouses are being used as depots for distribution into the rest of Africa

• Manufacturing remains a concern…

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So are we there yet?

Looking ahead Without getting stuck in the past

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Why should you look at Listed Property as an investment?

• Potential returns

• Is it priced fairly… not in the short term…

• But still has medium to long term potential

• Capital preservation

• Differentiate an existing investment portfolio

• Equity at 17x

• Bonds 7.7%

• Cash+/-5%... What isn’t fully priced?


A great inflation hedge Paying you to wait…

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20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

GRT distributions

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20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Adj for inflation GRT distributions


SAPY dividend yield vs. bond yield (10-year IRR)

Current Jun-07 diff.

SAPY initial yield 6.7% 6.8% -0.1%

Income growth p.a. (10y) 7.0% 7.0%

Exit yield (year 10) 10.0% 10.0%

IRR 10.7% 10.2% 0.5%

10y bond yield 7.9% 8.2% -0.3%

Yield differential 2.8% 2.0% 0.8%

SAPY div yield relative to 10-year bond yield

Conservative assumptions

Attractive risk-premium over bonds

Peak rating

• Property offers a 2.8% yield differential over bonds on a 10-year view with

conservative growth & exit yield assumptions

Our mid to long term view The sector still offers an attractive “risk premium”

SAPY Dps yield relative to 10-year bond yield SAPY dividend yield vs. bond yield (10-year IRR)

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0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14

SA Property Div Yield rel. SA 10-year Bond Yield 3-year Average


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