1 Redefine pre-close investor roadshow for the half year ending 29 - - PowerPoint PPT Presentation
1 Redefine pre-close investor roadshow for the half year ending 29 February 2020 Our conversation 2 Strategic overview 1 Strategic overview 2 Property asset platform Property asset platform 3 Financial insights Financial insights
Redefine pre-close investor roadshow for the half year ending 29 February 2020
1
Redefine pre-close investor roadshow for the half year ending 29 February 2020
2
Strategic overview Property asset platform Financial insights
Strategic overview
Property asset platform
Financial insights
Redefine pre-close investor roadshow for the half year ending 29 February 2020
3
Strategic overview Property asset platform Financial insights
3
Section Purpose has become the engine of sustained value creation
Redefine pre-close investor roadshow for the half year ending 29 February 2020
4
Strategic overview Property asset platform Financial insights
The outbreak of the Coronavirus poses a new humanitarian threat and arrives at a precarious time for the world economy Growth prospects will remain tepid due to Eskom (a major source of fiscal and general macroeconomic risk), a slow reform agenda and the weak global environment A lower but still relevant probability of a slowdown in the US and Eurozone in a context of growing financial vulnerabilities and high policy uncertainty (Brexit, trade disputes) and increased geopolitical tensions (Middle East) weigh heavily on global economic prospects Persistently weak business and consumer sentiment with ongoing bouts of load shedding are likely to have a significant negative effect on 2020 Fiscal policy is a huge problem with stuttering tax collections and an apparent unwillingness of the government to cut the public sector payroll Operating in a continued vacuum of catalysts to stimulate meaningful and sustained economic change, we can expect soft local property fundamentals to prevail in the medium term
There is no medium-term prospect of improved property fundamentals
Source: RMB
Redefine pre-close investor roadshow for the half year ending 29 February 2020
5
Strategic overview Property asset platform Financial insights
Uncertainty pertaining to long-term impact of geo-political and socio-economic growth factors Impact of disruptive technologies Deteriorating public/state infrastructure and poor administrative delivery locally Inability to effectively manage our reputation Financial market volatility Inability to be environmentally resilient Damage to property and security-related threats Long-term impact of failing to transform at an acceptable rate Increased competition for tenants, capital and property assets Failure to comply with local and international laws and regulations Inability to maintain strong ethical and governance culture Inability to prevent computer fraud and respond to cyber security attacks Misalignment with international partners (in-country)
Elevated top risk Unchanged top risk Reduced exposure
World Economic Forum ranked climate action failure as its top global risk in terms of impact in 2020
The above items are extracted from our strategic risk register and reflect our view of inherent risk before application of any mitigating actions
Redefine pre-close investor roadshow for the half year ending 29 February 2020
6
Strategic overview Property asset platform Financial insights
Our purpose is to create and manage spaces in a way that changes lives We adopt an agile and uncompromising ethical approach to the way we do business
▪
We will continue to build an asset platform that sustains organic growth through: − Continuously improving, expanding and protecting our domestic portfolio − Recycling capital through the sale of assets at the end of their investment life cycle − Unlocking value through active asset management opportunities in offshore markets − Driving innovative business projects to ensure we remain relevant and futureproof our business
▪
We continue to broaden our interpretation of sustainability, looking beyond environmental considerations
▪
We continue to deepen our understanding of our stakeholders’ needs, while managing their impact on us and our impact on them
▪
We focus on proactively managing and enhancing our reputation in all that we do
Redefine pre-close investor roadshow for the half year ending 29 February 2020
7
Strategic overview Property asset platform Financial insights
The critical levers that impact our ability to create value
Grow Reputation Invest Strategically Optimise Capital Operate Efficiently Engage Talent
Creating sustained value for all our stakeholders Managing capital in a constrained and costly environment Operating responsibly in a low growth, rising administered cost context Harnessing our people’s skills, abilities and attitude Living our purpose
Strategic matters Strategic objectives
Redefine pre-close investor roadshow for the half year ending 29 February 2020
8
Strategic overview Property asset platform Financial insights
Our purpose-driven, strategic approach is appropriate for the current environment How we will get there in 2020 Anticipated outcome
Safeguard Redefine’s brand Improved stakeholder perceptions Remain relevant to stakeholders ESG considerations embedded in all areas of the business Heighten focus on ESG Continued focus on asset quality Improved quality and relevance of local portfolio Offshore expansion through development activity Expanded offshore logistics platform Restoring value of underperforming asset TNAV per share lifted by 6% Right-size asset footprint to capital base Improved forward yield Introduce dividend pay-out policy Lowered LTV ratio to comfort zone of below 40% Focus on organic growth Maintained active portfolio margin Expand non-GLA income sources Significantly reduced non-recurring income Roll out solar PV interventions Proactive utilities management Unlock procurement efficiencies Instil a culture of innovation and accelerate transformation Maintained staff engagement levels Improved transformation across all levels
Redefine pre-close investor roadshow for the half year ending 29 February 2020
9
Strategic overview Property asset platform Financial insights
The role of ESG has been elevated in every aspect of what we do
Apart from one, all resolutions tabled at the AGM were passed by the requisite majority of shareholders - it is worth noting:
2020 2019 Action
Number of shares voted 77% 76% Participation to be encouraged Dividend re-investment option approval 86% 96% A trend to watch Remuneration policy approval 92% 77% To be continuously reviewed Implementation of remuneration policy 71% 76% One-on-one engagement with shareholders Issue of shares to acquire assets 76% 73% Change to 5% of shares in issue Issue of shares for cash Withdrawn 93% Change to 5% of shares in issue
Level 3 BBBEE contributor status maintained Leon Kok to succeed David Rice as chief
1 September 2020 Filling the financial director role is a strategic
diversity at executive level All board committees comprise independent non-executive directors Staff are highly engaged with a score
the global and local benchmark of 64% Progress in transforming senior management through three new appointments Received an A (CDP Supplier Engagement) rating and the only South African company included in the 2019 Supplier Engagement leader board Achieved AAA ethics rating from Ethics Monitor – up from AA rating in 2019 and the third company to ever achieve this We continue to hold our position as the SA REIT with largest solar PV footprint Actively recruiting for an additional non- executive director to bolster skills
Redefine pre-close investor roadshow for the half year ending 29 February 2020
10
Strategic overview Property asset platform Financial insights
10
Section Positioning the portfolio to withstand prevailing conditions
Redefine pre-close investor roadshow for the half year ending 29 February 2020
11
Strategic overview Property asset platform Financial insights
Pursuing a proactive, relational approach to tenant attraction and retention
Retail Office Industrial
South African shopping centres have achieved sales (5.5%), trading density (4.3%) and foot count growth (2.5%) (September: SAPOA) Consolidation of offices, densification and remote working solutions are impacting demand for space Aside from pharmaceutical and food production, the manufacturing sectors at large are experiencing continued contraction Spend per head has dipped to its lowest level since the end of 2015 indicating frequent visits and spreading of spend Leasing is driven by three key elements being transport, cost and location Logistics operators in particular continue to consolidate supply chain operations into centralised mega distribution centres as in the case of Massmart, Sparepro and DSV Continued pressure to right-size retailers’ premises to improve trading performance Total cost of occupation is under pressure impacted by increases to utility and assessment rate costs. Municipal charges approximates 20% of gross income The cost of tenant retention and rising
Sector characterised by rental reversions on renewal and continued pressure on vacancies Quality assets and tenant retention remains the key driver of performance Previous mainstays of SA's economy such as the steel and mining sectors remain under pressure from low demand Continuous increases to administered costs and irregular electricity supply is impacting the margins of tenants Office development unlikely unless pre-let Demand for industrial space is expected to continue in the coastal regions with less interest inland Entertainment, food and healthy living are becoming points of differentiation as-well-as key drivers of footfall and spend National vacancies have increased to 11% impacting rent reductions and tenant incentives with an unlikely recovery over the next three years New developments are tenant driven with an emphasis on optimising efficiency in property design
Redefine pre-close investor roadshow for the half year ending 29 February 2020
12
Strategic overview Property asset platform Financial insights
12
Remaining relevant to the communities in which we operate
Overview
▪
Sales growth was 3.6%, trading density growth 1.6% and footfall reduction 1.8% (FY December 19)*
▪
Christmas spend moved to Black Friday – combined sales for November and December up by 2.8%
▪
Rent to turnover remains constant at 8%
▪
Rent reversions to January were -2.3% mainly driven by tenant retention at Matlosana Mall
▪
Edcon’s trading performance remains weak despite reduction in space. Portfolio exposure is 2% of total gross monthly rental (GMR)
▪
Massmart portfolio exposure is 1.9% of total GMR. Exposure to one Dion Wired store at Centurion Mall of 800 sqm. We anticipate a future reduction in the Game format
Disposals Developments
▪
Alberton and Ermelo Mall for R435 million
▪
Six properties for R1.6 billion subject to usual conditions for transactions of this nature
▪
Refurbishment and tenant reconfiguration at Kenilworth Centre completed and in progress at Sammy Marks Square, Centurion Lifestyle and Kyalami Corner totalling R116 million
Priorities
▪
Continue to monitor tenant performance and reduce exposure to tenants at risk
▪
Managing occupancies remains a constant focus
▪
Continuous meetings with national retailers with a focus on early renewal of leases
▪
Strategies for leasing big box vacancies
* Excludes development and new GLA
Redefine pre-close investor roadshow for the half year ending 29 February 2020
13
Strategic overview Property asset platform Financial insights
13
Enabling work-life integration through innovative, modern facilities
Overview
▪
Vacancy has remained constant at 10.2%. (National vacancy is 11%)
▪
Total rent reversions to January were -1.3%
▪
Lacklustre economic growth and muted employment inhibiting new leasing enquiries
▪
Asset management strategies are dictated by growing vacancies, rent reversions and reduced demand
▪
WeWork’s Rosebank Link is 95% occupied. 155 West is 30% occupied (two floors) and the remaining three floors ready for occupation mid February.
Disposals Developments
▪
22 Fredman Drive for R95 million
▪
Two properties for R91.1 million subject to usual conditions for transactions of this nature
▪
155 West Street upgrade completed for R152 million (currently 60% let)
▪
Refurbishment of Knowledge Park 1 and The Towers in progress for R47 million
Priorities
▪
Tenant retention and reducing vacancies remain our top priority
▪
Tenant relationship strategies continue, with a focus on early renewal of leases
▪
Improving the quality of assets is imperative to remain competitive in a leasing environment where new developments have vacancies
▪
Focus on continued leasing campaigns, direct canvassing and relationship building with broker houses
Redefine pre-close investor roadshow for the half year ending 29 February 2020
14
Strategic overview Property asset platform Financial insights
14
Providing efficiency to a cost-sensitive market
Overview
▪
Vacancy remains constant at 1.9%. (National vacancy is 3.4%)
▪
Ongoing and indefinite load shedding by Eskom is having a disruptive effect
▪
Lease renewal growth is 8% mainly due to short term and flexible leases over smaller premises
▪
We estimate that 5 000 permanent jobs will be created once S&J is fully developed
▪
Robor – expecting rental payments to April. We continue to engage with interested parties to re-let the property
Disposals Developments
▪ Various land portions for a total of R121 million ▪ Three properties for R713.2 million subject to
usual conditions for transactions of this nature plus land at Brackengate and Atlantic Hills for R200.3 million
▪ S&J Industrial Estate (90%) development of 18 580 sqm
completed and 68% let
▪ Massmart DC at Brackengate 2 (50.1%), Roche/Kapa
Biosystems and Sparepro DC at S&J (90%) are in progress together with precinct infrastructure development at S&J, Atlantic Hills and Brackengate 2
Priorities
▪ Early renewals and improving the overall lease expiry profile remain a business imperative ▪ Continued focus on product differentiation to improve and maintain the quality of the properties ▪ Sale and development of land holdings
Redefine pre-close investor roadshow for the half year ending 29 February 2020
15
Strategic overview Property asset platform Financial insights
15
Expanding in a growth sector
Priorities are included in offshore activities
Overview
▪
Construction activity in the Polish logistics/warehouse sector is still very strong
▪
The high level of speculative developments has led to a slight increase in national vacancy rates
▪
The vacancy rate for Poland was close to 7% (up 2% year-on-year) at September
▪
Prime rents remained stable but rental growth are somewhat mitigated by the high number of speculative developments
▪
Prime yields are still strengthening with high investor appetite for long-term Build-to-Suit schemes
▪
The vacancy is currently 14.6% with Lodz (16 685 sqm), Krakow II (12 555 sqm) and newly developed Bielsko (16 235 sqm) comprising the bulk
▪
Including leases that have been signed with tenants to take occupation, the occupancy increases to 91%
Disposals Developments
▪
The sale of Strykow was concluded on 31 January 2020 realising a net yield of 6,1% and a net profit of circa EUR8.1 million for Redefine
▪
On 31 January Madison received anti-monopoly clearance from the Polish authorities – clearing the way to close the transaction during the first week of March
▪
The first phase of two new developments were completed being Warsaw Logistics (24 790 sqm GLA) and Opole (9 074 sqm GLA)
▪
Three projects are currently under construction, the first phase of Torun and the second phases of Warsaw Logistics and Opole. The total GLA for the three projects is 80 062 sqm
Redefine pre-close investor roadshow for the half year ending 29 February 2020
16
Strategic overview Property asset platform Financial insights
United Kingdom Australia Poland
Redefine’s interests
▪ RDI REIT 29.4% ▪ Journal 90% ▪ Cromwell 2.3% ▪ EPP 45.4% ▪ European Logistics Platform 95% ▪ Chariot Top Group 25%
Priorities
▪ Options are under consideration for
Redefine to realise its stated objective of recovering value that has been lost
▪ Some options may require Redefine to
remain invested in the medium-term without committing further equity to RDI
▪ Funding arrangements to be put in place to
allow for the possible early redemption of EUR117 million exchangeable bond should corporate activity necessitate this
▪ A competitive bidding process run by JLL is underway
which has drawn a strong response
▪ The process is expected to close mid March ▪ Uni Place bookings for semester one stands at 89%,
impacted by the closure of the borders to anyone (other than citizens and permanent residents) travelling from mainland China for 21 days
▪ Central development on track to be completed by
mid-2020 in time for the second semester
▪ Disposal of Journal would release remaining Cromwell
units for disposal on the open market
▪ The disposals will greatly support our strategic priority
to strengthen our balance sheet
▪ Support EPP in recycling assets at upper
end of cycle rather than raising capital at high yields
▪ Grow logistics platform through
development pipeline
▪ Focus on leasing to extend logistics
standing portfolio WALT of 5.3years
▪ Improve logistics platform occupancy ▪ Support funding of the expansion of
European Logistics Platform, equity partner introduced
▪ Chariot is expected to unwind by the end of
2020, two DIY outlets were sold in January
Geographic diversification in hard currency markets
Redefine pre-close investor roadshow for the half year ending 29 February 2020
17
Strategic overview Property asset platform Financial insights
Student accommodation Other Africa ▪ Redefine is at an advanced stage in
disposing its 53.4% equity interest in Respublica Student Living and three student accommodation assets, which will be formally announced once agreements are signed
▪ Park Central comprising 14 949 sqm (inclusive of
balconies and sky gardens) 40.1% by sqm sold and 22.5% by sqm let (demand for rental units growing)
▪ Non-GLA opportunities such as LED screens,
exterior media, kiosks and Wi-Fi roll out is
▪ Opportunities to expand solar PV fleet under
constant consideration
▪ Continue to work closely with Cornwall Crescent
to restore some of the value lost on Delta
▪ Growthpoint Investec African Properties
(GIAP) are in the process of acquiring Oanda Wings
▪ The sale will be for shares in GIAP
Diversifying income streams and streamlining asset platform
Redefine pre-close investor roadshow for the half year ending 29 February 2020
18
Strategic overview Property asset platform Financial insights
18
Section Reducing balance sheet risk and improving quality of earnings
Redefine pre-close investor roadshow for the half year ending 29 February 2020
19
Strategic overview Property asset platform Financial insights
Rigorous review of external interim property valuations in progress Solid progress made on a strategic disposal process to lower LTV - most transactions will be implemented before year end Recycling activities will also simplify and streamline the investment property asset platform Maintained ample headroom within all Bank debt covenant thresholds Moody's affirmed Redefine’s long-term issuer credit rating of BAA3, with outlook changed to negative, following similar sovereign rating action Comfortable liquidity profile, with all debt maturities addressed well ahead of time Introduced a dividend pay-out policy, resulting in retention of R200 million of 2019 distributable income Critically evaluating carrying values of intangible assets and goodwill
Strengthening the balance sheet remains a strategic priority
Redefine pre-close investor roadshow for the half year ending 29 February 2020
20
Strategic overview Property asset platform Financial insights
It is anticipated that right-sizing our asset footprint will improve the LTV
# Actual exit yield * Anticipated exit yield Last reported LTV at 31 August 2019 Disposal of 48.5% of ELI (#7.1%) Disposal
(*5.0%) Local disposals transferred (#9.1%) Disposal of Strykow (#6.1%) Disposal of Cromwell (*6.5%) Disposal of Respublica (*9.5%) Local non-core property assets to be disposed (*9.0%) Headroom to absorb adverse LTV triggers Targeted LTV
31 August 2020
4.4%
39.9%
Redefine pre-close investor roadshow for the half year ending 29 February 2020
21
Strategic overview Property asset platform Financial insights
The overall risk environment has heightened Recycling activities will have a dilutionary impact on current year earnings Lowering of interest rates won't have meaningful impact on earnings Lower interest rate cycle presents attractive
hedging on local debt Emphasis on managing and improving recurring income streams continues with non-recurring income being phased
Distributable income per share for the 2020 financial year expected to be between 5% to 7% lower than 2019
Focusing on the variables under our control
Outcomes : On track Requires focus Slow progress
Half year 2020 progress report
Safeguard Redefine’s brand Remain relevant to stakeholders Heighten focus on ESG Continued focus on asset quality Offshore expansion through development activity Restoring value of underperforming asset Right-size asset footprint to capital base Introduce dividend pay-out policy Focus on organic growth Expand non-GLA income sources Roll out solar PV interventions Proactive utilities management Unlock procurement efficiencies Instil a culture of innovation and accelerate transformation
Redefine pre-close investor roadshow for the half year ending 29 February 2020
22 22
Strategic overview Property asset platform Financial insights