Aug 2019
First World Hybrid Real Estate Plc
First World Hybrid Real Estate Investment offering
• Dividend yield around 4.5% in sterling - long leases, strong tenants
• Modest capital growth over time - rental growth an important driver
• Better liquidity and pricing certainty than typical direct property investments but less volatility than publicly quoted and traded property
• With the benefit of a Regulated Fund
– Isle of Man registered Collective Investment Scheme – Manager is Regulated by the FSA in the Isle of Man and the Fund is
approved by the FSCA in SA– Listed on TISE and subject to listing regs– Being IOM domiciled is non UK Situs asset and no dividend withholding tax– Distribution and accumulating share class options
REITs Direct Real Estate
• UK listed REITs, yielding approximately 3.5%
• Priced on stock market therefore readily tradeable and liquid
• Generate diversified, property related returns
• Primarily to provide liquidity for redemptions
• UK commercial real estate, yielding just under 6%
• Robust income - FRI, long leases (WAULT >10 years)
• Low volatility - each property is independently valued biannually on a rolling basis
First World Hybrid Real Estate
First World Hybrid Real Estate Solid track record – expansion
Dec 2014
Dec 2015
Dec 2016
Dec2017
Dec 2018
June 2019
No. of properties 2 7 12 16 18 19
Gross asset value £15m £37m £75m £107m £132m £142m
First World Hybrid Real Estate Performance – Returns (GBP, 12 months ending)
June2019
Dec2018
Dec 2017
Dec 2016
Dec 2015
Total 5.4% 3.3% 9.1% 6.7% 7.0%
Income 5.0% 5.1% 5.5% 5.3% 4.3%
Price 0.4% -1.8% 3.6% 1.4% 2.7%
Income return as expected - predictable Price return – impacted by property valuations and REIT
volatility • Yield compression has slowed • REITs prices down in 2nd half 2018 and up in 2019 YTD
First World Hybrid Real Estate Performance – Comparative returns (GBP)
Annualised ReturnsAnnualised Returns
1 Year30 June 2019
3 Years30 June 2019
FWHRE 5.4% 7.7%
UK REITs -5.4% 4.3%
Composite Index(S&P 500, FTSE 100 & FTSE EuroFirst 300) 7.7% 12.1%
SA Listed property (ZAR) 0.8% -2.3%
Positive comparative outcome Strong outperformance of UK REITS
First World Hybrid Real EstatePerformance - without the volatility
Listed volatilityRetail prime office emphasis
Independently appraisedDistribution warehousing emphasis
£900 000
£1 000 000
£1 100 000
£1 200 000
£1 300 000
£1 400 000
£1 500 000
£1 600 000
£1 700 000
Jan
14
Mar
14
May
14
Jul 1
4
Sep
14
Nov
14
Jan
15
Mar
15
May
15
Jul 1
5
Sep
15
Nov
15
Jan
16
Mar
16
May
16
Jul 1
6
Sep
16
Nov
16
Jan
17
Mar
17
May
17
Jul 1
7
Sep
17
Nov
17
Jan
18
Mar
18
May
18
Jul 1
8
Sep
18
Nov
18
Jan
19
Mar
19
May
19
First World Hybrid Real Estate NAREIT UK REITs TRGBPSource: Bloomberg & Marriott
Sector - targets 75% warehousing / 25% regional offices
Geographic Institutional locations – sector driven
Ticket size £4 to £20m
Maintain WAULT > 10 yrsMin 8 years individually
Lease type FRI, upwards only
Covenant 4A1 min
Rental growth
Yield
Property Portfolio - Strategy / acquisition filter
First World Hybrid Real Estate Property portfolio – why this property type?
• Distribution warehousing – E Retailing and logistics– Demand > supply = above inflation
rental growth
• Retail – Value retailers preferred – Traditional retailers on back foot
• Offices– Regional offices good value – London offices fully priced and
rental under pressure
Property selection influenced by profound changes in consumer shopping behaviour and technology
Property portfolio – Geographically spread
• All leases FRI, upwards only
• Earliest renewals in just under 5 years
• All offices leases have fixed or RPI linked upward reviews
• Strong tenants with substantial balance sheets
• Max exposure to any single tenant 13% - Crown
First World Hybrid Real Estate Property portfolio – lease criteria
Lease structure and length enhances income predictability
Tenant selection and financial standing underpins income certainty
12
First World Hybrid Real Estate Property portfolio – photography and property detail
• Access the Marriott website www.marriott.co.za and click on FWHRE in the home page to access details, photos and drone coverage of each property
• Or a single video clip of drone coverage of 3 properties –example of each property type
13
First World Hybrid Real Estate Property portfolio – deal 19, Q2 property acquisition
• Modern distribution warehouse located adjacent to Dundee airport, Scotland
• FRI, RPI linked lease with D&B 5A1 national tenant
• Lease has further 17 years to expiry (no breaks)
• Approx 50% of the property sublet to Amazon for 10 years
• Acq price £6.5m (initial yield 5 ¼ %), replacement cost of £13.8m
14
First World Hybrid Real Estate Property portfolio – under due diligence, deal 20
• Modern A grade regional office
• Broadlands Office park, Norwich
• Let to Aviva Insurance
• FRI, Upwards only, lease with 10 ½ years to expiry
• Acq price £12.875m (initial yield 6.3%), replacement cost of £22.8m
First World Hybrid Real EstatePortfolio valuation – policy and trends
Good investment demand for long lease, well tenanted property
Valuations supported by strong occupational market.
• Each property is independently valued on the anniversary of its acquisition and in six monthly intervals thereafter.
• Rolling valuations, by design, to reduce volatility. • Barclays requirement – every 3 years on a rolling basis• Valuation trend
• In 2018 - 13 up, 2 flat, 1 down• In 2019 – 5 up, 8 flat, 3 down
First World Hybrid Real Estate Portfolio debt - well justified
• Variable Rate: 77bps LIBOR + 1.90% margin = 2.67%
• 5 year fixed debt (approx. 50%) 1.34% all in + 1.90% margin = 3.24%
• Positive leverage upfront (<3% ave debt rate versus 5.8% direct property yield)
• Max 50% LTV on property acquisition price
• Actual LTV is currently 44% of property portfolio and <40% of total assets
• Interest covered 4.7 times by rental (the ultimate test)
Using debt simply makes good senseHedge increases predictability of income yield
First World Hybrid Real EstateREITs – Fundamental part of the structure
• REITs provide liquidity for redemptions and property related returns pending investment in direct property
• 4 REITS – Large and liquid, £ based, UK dominant
– Distribution warehousing emphasis – London Metric/Tritax Big Box/Segro/Lxi
• Performance – Outperformed NAREIT index
– Following weak 2nd half in 2018, strong price appreciation in 2019 YTD
First World Hybrid Real EstateLiquidity & Redemptions
• Liquidity target level – Target 25% of NAV, held primarily in REIT portfolio– Increased in Q3 from 20% given increased UK uncertainty – Yield dilutive but considered prudent– Reviewed quarterly based on market conditions and redemptions
• Actual liquidity – Averaged 30% 2019 YTD – Following strong net flows into fund – Pending acquisition - deal #19 – Post deal #20, liquidity will reduce to target 25% level
First World Hybrid Real EstateLiquidity & Redemptions
• Redemptions– 2019 YTD: 6% of NAV – 2018 and 2017 calendar years: 9% and 10%
REITs held as liquidity held to meet reasonable redemptions
• Gating and suspension provisions – As with all open ended funds, there are standard provisions to deal with
extraordinary circumstances– Gating – maximum weekly redemption is 5% of shares in issue, excess c/f– Suspension circumstances - where pricing is not reflective of underlying
property valuations or where not practical to realise an investment
There to protect the interests of all investors
First World Hybrid Real Estate UK Property Market – key considerations
• Property yields attractive relative to bonds – Meaningful positive yield differential between long lease property yields and UK
bonds
– UK 10 years bonds currently yielding around 50 bps (no income growth)
• Occupational market generally sound – With exception of retail which is being impacted by profound changes in
consumer shopping behaviour (with distribution property being beneficiary)
• Debt at manageable levels – At borrowing rates <3%, meaningful upfront positive leverage and comfortable
IC ratios (pre GFC the cost of debt necessitated unsustainable property returns)
– Debt leverage is much lower (ave LTVs in mid 50%s whereas in 2007 in mid 70%s); significant de-risking due to more restrictive banking regs. - a structural shift
First World Hybrid Real Estate Brexit – key considerations • 3 years on and Brexit uncertainty continues - frustrating for business
and UK public at large
• Despite this, UK economy and property market has performed better than most commentators had speculated post Referendum. Evidenced in bidding & valuations.
• Significantly, international investors are behind >50% of investment activity (weaker sterling positive for these buyers).
• FWHRE’s properties - No specific Brexit risk – no London or international head offices, no export focussed manufacturing or automotive related. Generally UK consumer focussed businesses.
UK to remain 1st world economy (with entrenched property rights and good levels of governance and transparency) and an attractive destination to store wealth
First World Hybrid Real Estate plc Summary
• Leases and tenant strength underpin robust and attractive dividend yield in sterling
• Occupational market supportive of modest capital growth over time
• Better liquidity and pricing certainty than typical direct property investments but less volatility than publicly quoted and traded property
• Comfort of a Regulated Fund