ATLANTIC LEAF PROPERTIES LIMITED Six months ended 31 August 2018 - - PowerPoint PPT Presentation

ATLANTIC LEAF PROPERTIES LIMITED

Six months ended 31 August 2018

STATE OF THE UK MARKET

3

ECONOMIC ENVIRONMENT

Brexit

• Uncertainty remains
• Investment sentiment remains mixed
• Property transactions volumes still strong
• Impact on industrial market could be positive

CVAs (Company Voluntary Arrangements)

• 2018 has had an increase in CVAs to the detriment of landlords
• British Property Federation (BPF) are lobbying against the CVA process given the punitive impact on

landlords

• Given the challenging retail environment, CVAs stand to have a large impact on both high street and

retail overall however the industrial and logistics sectors remains fairly resilient

Interest rates

• 2017 saw the first increase in 10 years - rates still inherently low - further increase expected
• Not expected to have a major impact on commercial real estate pricing
• Average UK prime property yield stands at 5.3% for the year while UK 10 year bonds are at 1.69%
• Still a positive carry between yield and interest rate

4

PROPERTY ENVIRONMENT

• Consistently the best performing sector in the market.
• Expectation is for the trend to continue.
• Occupiers looking to protect themselves against Brexit by ensuring

they have sufficient capacity in the market.

• ALP have 70% exposure to this sector.

Growth

• Demand and pricing remain firm.
• Ongoing rental growth across the industrial sector in 2018.
• Yields have softened, other than in major

metropolitan areas

• A lack of stock should drive future

demand particularly in the SE and regional cities and keep vacancy levels in check.

• Relatively positive sentiment should

support occupier demand, but flexibility will remain a key driver

• ALP has 20% exposure to the regional
• ffice sector.

Growth

• Overseas capital continues to target the

UK office market due to attractive yields.

• The valuation of shopping centres showing

decline

• Outlook remains negative
• ALP has no exposure to shopping centres but

does have targeted exposure to retail

• Weakness in the retail market is expected

to persist.

Growth

• A weaker economic outlook, the business

rates revaluation and the ongoing structural change in the sector are just a few of the headwinds facing the UK retail sector, which continues to see an ongoing reduction in demand for physical space.

INDUSTRIAL SECTOR OFFICE SECTOR RETAIL SECTOR

Prime Rents: Limited opportunities for rental growth, with rents continuing to soften across secondary centres. Prime Yields: Predominantly stable with outward movement in secondary locations Supply: Availability is expected to tick up going forward, as CVAs and store closures continue Demand: Demand remains selective focusing on key locations RETAIL MARKET OUTLOOK

0,0 1,0 2,0 3,0 4,0 5,0 6,0 Standard industrials

2012-2016 2017 2018-2022

0,0 1,0 2,0 3,0 4,0 5,0 6,0 Distribution warehouses INDUSTRIAL ANNUAL RENTAL GROWTH FORECASTS (%)

FINANCIAL SUMMARY

6

SIX MONTHS ENDED IN REVIEW

NET RENTAL REVENUE*

£12.3 million

£11.4 million (Aug 2017) EARNINGS FROM JV**

£1.8 million

Nil (Aug 2017) DISTRIBUTABLE EARNINGS

£9.0 million

£6.4 million (Aug 2017) ADJUSTED EARNINGS PER SHARE

4.76 pence

4.51 pence (Aug 2017) DIVIDEND PER SHARE

4.65 pence

4.5 pence (Aug 2017) NAV PER SHARE 1.08 1.09 (Aug 2017) SOLID PERFORMANCE FOR THE PERIOD

* Net Rental income includes straight line lease adjustments relating to rent free incentive periods but excludes inflation related straight line lease adjustments and nets off tenant expenses against tenant recoveries ** Excludes fair value adjustments in JV

Net Property Income

+19%

Distributable Earnings

+41%

Dividend

+3.33%

7

STATEMENT OF FINANCIAL POSITION

31 Aug 2018 £’m 28 Feb 2018 £’m Investment Properties 333.4 319.4 Investment in JV 24.5 25.8 Listed investments 4.1 7.1 Cash 8.4 6.6 *Interest bearing borrowings (164.2) (153,0) Fair value of derivatives (0.4) (0.6) Other net assets/(liabilities) (2.3) (1.1) Net assets 203.5 204.2 *Interest Bearing Borrowings (164.2) (153.0) Long term interest bearing borrowings (102.5) (131.8) Short term interest bearing borrowings (61.7) (21.2)

8

NAV RECONCILIATION TABLE

GBP PENCE NAV – 28 Feb 18 108,06 Dividend paid - May 18 (4,60) Clean NAV 103,46 Fair value adjustments: Properties (net)* (0,46) Other (listed investments and swaps) (0,06) Distributable earnings 6 months ended 31 Aug 18 4,76 NAV – 31 Aug 18 107,70 Dividend payable - Nov 18 (4,65) Clean NAV 103,05

* Brecon (£1,71m), Thomas Cook £580k, Newcastle £180k, McBrides £100k and Upton (£132k)

9

ADJUSTED EARNINGS

12,3 9,0 1,8 0,7 0,6

• 1,7
• 2,7
• 0,8

2 4 6 8 10 12 14 16 Net rental income Earnings from joint venture Other income Property operating expenses Other operating expenses Finance costs Tax expense Distributable earnings GBP millions

10

SUMMARISED BALANCE SHEET

333,3 203,5 24,5 4,1 8,4 164,2 0,4 2,2 100 200 300 400 Investment Property Investment in Joint Venture Listed investment Cash* Interest bearing debt Fair value

• f derivatives

Other net liabilities Net assets GBP millions *Cash held for dividend

11

• Concluded refinance of existing debt of £115m owing to HSBC
• Terms agreed to refinance existing debt of £23m owing to Santander
• Maturity of the new debt - October 2022/23:
• Will result in a weighted average maturity profile of 4 years on

the date of the refinance

• Weighted average cost of funding will increase to approx. 3.5%-3.6%

depending on applicable swap rates

• Once implemented, current portion of long-term debt will shift to

non-current in the balance sheet

• The refinance removes the risk of possible disruption in the finance

market that could be caused by Brexit in 2019 and 2020

DEBT MATURITY PROFILE

REFINANCE WILL RESULT IN A 4 YEAR WEIGHTED AVERAGE DEBT MATURITY TERM

12

KEY FINANCIAL METRICS

*On a gross proportional look through to the JV debt ** The calculation of the ICR ratio has been amended to: (Operating Income less straight line lease income)/Interest Expense 47 46 47 49 Feb 17 Feb 18 Aug 18 Proforma LOAN TO VALUE RATIO* (%) 3,7 3,6 3,6 3,3 Feb 17 Feb 18 Aug18 Proforma 3.2 3.2 3.3 3.6 Feb 17 Feb 18 Aug 18 Proforma 2,9 2,0 1,5 4,1 Feb 17 Feb 18 Aug 18 Proforma INTEREST COVER RATIO** COST OF DEBT (%) MATURITY DEBT (YEARS) 74 66 66 66 Feb 17 Feb 18 Aug 18 Proforma DEBT HEDGED* (%)

(INCLUDING PRO-FORMA BASED ON DEBT REFINANCE)

ALL DEBT COVENANTS HAVE BEEN MET. IMPACT ON THE DEBT REFINANCE IN THE CURRENT YEAR HAS BEEN ILLUSTRATED AS A PROFORMA

ASSET MANAGEMENT

14

PROPERTY PORTFOLIO – 31 AUGUST 2018

SALIENT DETAILS

Feb 2018 Aug 2018

AUM – Direct assets (£m) 319 333 AUM - % share of DFS assets (£m) 45 45 No of properties 59 59 No of tenants 15 33 Property forward yield 7.1% 7.1% WALT (years) 10.66 10 Vacancy (sq ft) 2.6% 2.85%

SECTOR SPREAD (by value) TENANT CLASSIFICATION (by income) REGIONAL SPREAD (by value)

31% 12% 7% 7% 6% 5% 5% 4% 4% 3% 3% 3% 3% 3%2% 2%

Booker DFS Santander Halfords DHL Thomas Cook Epwin Other

• E. ON

B&M Inspirepac Buffaload Gestamp EE Bauer Robert McBride

23% 16% 14% 11% 12% 8% 8% 4% 2% 2%

North West North East West Midlands South West East Midlands Scotland York & the humber South East Eask Anglia Wales

66% 21% 13%

28-Feb-18 Industrial warehouse/logistics Office Retail warehouse

70% 20% 10%

31-Aug-18

15

ASSET MANAGEMENT INITIATIVES

Booker, Newcastle Lease Re-gear

• Successfully acquired the Freehold interest in the property
• Post acquisition, management have completed the term extension for the existing leasehold interest from 38

to 125 years

• This has resulted in a £180,000 uplift in the value of the leasehold interest and through improving the

freehold ground rent, has also maintained the value of the freehold interest at the purchase price.

Inspirepac/ Smurfit Kappa

• Lease re-gear has been completed resulting in assignment of lease to stronger covenant of Smurfit Kappa and

extending leases by 5 years to provide a WALT of 13.4 years

• The rent reviews on both assets have also been agreed which results in a 11% increase (£95,000 per annum)

Deacon Park, Knowsley

• Following successful onboarding of the asset lease renewals and new lettings have reduced the overall vacancy

rate to circa 0.5% of the total lettable space from 2-3% when acquired

• Result is positive income growth

Additional income Thomas Cook Property

• New leasing initiative has been agreed to redevelop unutilised space within the building
• Will result in £18K of additional income and open discussions for a further lease extension

Disposal of Epwin asset in Upton - June 18

• Successful implementation of the sale of non-core assets
• Property was sold for £1.2m reflecting a 6% NIY and resulting in an after tax IRR of 21%.
• Will assist in future revaluations due to price achieved on this sale

16

CHALLENGES

HOMEBASE, BRECON

FORMER P&H, HAYDOCK

• CVA implemented with resulting 45% rent

reduction

• Strong alternative occupier interest has been

received

• Property written-down to £4.1 million (write-

down of £1.71 million) until an alternative

• ccupier is secured
• Management aims to secure a new tenant at full

rental

• Loss of rent – £16k per month from October

2018

• The property is being actively marketed by two
• f the leading occupational agents in the North

West

• Refurbishment works have been completed
• Additional alterations are in planning to boost

re-letting prospects

• At previous financial year end written-down to

£7.5 million (write-down of £3.7 million) until an occupier is secured

• Investment value should be restored once
• ccupied
• Expected rental of £49K per month

17

• Actively manage the existing portfolio
• Extract value through the sale of certain assets
• Work with tenants to improve long term valuation of properties
• Currently Booker and DFS have opportunities on existing sites
• Redeploy equity into newer investments with greater rental growth and

capital appreciation potential

• Evaluate new opportunities that could contribute positively to earnings

growth (dependant on availability / cost of new capital)

STRATEGY GOING FORWARD

PORTFOLIO REPOSITIONING: PRESERVING VALUE AND DRIVING GROWTH

EXECUTE LEASING INITIATIVES TO ENSURE FULLY LET PORTFOLIO

OUTLOOK FOR SECOND HALF 2018/19

19

• Cost of capital remains high – difficult to do accretive deals
• Trading at a discount to NAV – considering most our assets acquired in the last

two years, i.e. no significant revaluations in our portfolio and held close to cost

• Our dividend yield is higher than most of our peers – even non-REIT basis
• ALP not yet in a key index – this affects some institutions’ ability to invest

As a result, we will:

• Implement the REIT conversion
• Let vacant and low rental properties as a key priority
• Reposition certain assets
• Be patient to raise capital to grow

CURRENT CHALLENGES

OUR GROWTH IN DISTRIBUTIONS REMAIN ABOVE UK INFLATION

20

ATLANTIC LEAF STATUS

REIT CONVERSION AND BENEFITS

• Better comparison with peers
• Mauritius secondary listing:
• Semi-annual reporting
• LSE listing to be considered at

the appropriate time

• Tax benefits to our

shareholders

• Once off costs will be incurred
• On REIT basis we expect the

yield in a full year to increase by c. 9%

GEARING LEVELS

• Below 50% LTV in place
• Hedged at 75% after

refinance

• Debt maturity of 4 years
• Interest levels remain

attractive

ASSET STRATEGY

• Upton sold at 21% IRR
• Further planned asset

management activities:

• Other smaller assets

considered for disposal

• New acquisition under

review Aim is to strengthen the asset profile and diversify the tenant base

REGULAR DISTRIBUTIONS

• 3 consecutive years of

distribution growth

• 2018 - actual 9.1 pence

(7.1% growth)

• 2019 guidance - 9.30 pence

(2-3% growth)

21

GUIDANCE 2018/2019

SLIGHTLY ADJUSTED FORECAST WOULD SEE GROWTH OF 2-3% (previously communicated 5% target)

9.30

GBP PENCE per share

ASSUMPTIONS

Current leases and portfolio Higher finance costs on new debt package Some asset management activity No income from the Haydock vacancy and lower rental from Brecon Property

DISTRIBUTION TARGET AND ASSUMPTIONS

9.50

GBP PENCE per share if a REIT 2019/2020

• Booker and DHL

escalations

• Re-let of

Haydock and Brecon These will benefit the company’s earnings and NAV.

SHARE ACTIVITY & TRADING INFORMATION

Annexure A

23

SHAREHOLDERS & LIQUIDITY

21 597 30 600 51 952 119 974 24 640 73 977 81 890 31 Aug 16 30 Nov 16 31 Aug 17 30 Nov 17 28 Feb 18 31 May 18 31 Aug 18 AVERAGE NUMBER OF SHARES TRADED PER DAY 216 290 324 395 487 567 28 Feb 16 31 Aug 16 28 Feb 17 31 Aug 17 28 Feb 18 31 Aug 18 TOTAL NUMBER OF SHAREHOLDERS (as at) 2.2 4.2 5.1 2.8 2.9 4.8 30 Nov 16 31 Aug 17 30 Nov 17 28 Feb 18 31 May 18 31 Aug 18 PERCENTAGE OF ISSUED SHARES TRADED OVER LAST 100 TRADING DAYS (%) 337 175 220 204 217 31 Aug 17 30 Nov 17 28 Feb 18 31 May 18 31 Aug 18 DAYS TO TRADE R250M

24

KEY SHAREHOLDERS/FUND MANAGERS

25 SEPTEMBER 2018

No shares % Held Vukile Property Fund Limited 65 958 606 34,90% Sentinel Retirement Fund 49 068 405 25,97% Visio Capital Management 13 889 791 7,36% Atlantic Property Investments Limited 9 448 825 5,00% Absa Asset Management 7 425 091 3,93% Mazi Capital 5 682 004 3,01% Coronation Fund Managers 5 253 911 2,78% LCIP (Pty) Limited 5 062 266 2,68% Truffle Asset Management 4 409 554 2,33% Namibian GIPF 4 159 609 2,20% Old Mutual Group 3 570 107 1,89% Investec Asset Management 3 048 735 1,61% Total 176 986 904 93,66%

25 This document is not, nor is it intended to be, any financial, investment, trading, tax, legal, accounting, actuarial or other professional advice (“advice”). Atlantic Leaf Properties Limited (“Atlantic Leaf”), their agents and affiliates, are dealing with you exclusively on the basis that you have sufficient knowledge, experience and/or professional financial, tax, legal and other advice to undertake your own assessment of the information. The views in this document are those of Atlantic Leaf and are subject to change, and Atlantic Leaf has no obligation to update its views or the information in this document. This document does not aim to notify you of any possible risks, direct or indirect, in undertaking a transaction and counterparties should ensure that they fully understand and obtain professional advice in respect of the terms of the transaction, including the relevant risk factors and any legal, tax and accounting consideration applicable to them, prior to transacting. The information contained in this publication has been obtained from sources that Atlantic Leaf believes are reliable but we do not represent or warrant that it is accurate or complete. The information may be based on assumptions or market conditions and my change without notice. Market fluctuations and changes in exchange rates may have an effect on the value or price of investments. Past performance is not a guide to future investment performance. This document is confidential and the recipient may not distribute it to other persons without prior written consent of Atlantic Leaf. Distribution of this information may be restricted by law and persons who come into possession of this document should seek advice on and observe any restrictions. Neither Atlantic Leaf nor any of its affiliates or agents accepts any liability whatsoever for any direct, indirect or consequential damages or loss arising from any use of or reliance on this documentation or its contents. No proposal put forward in this document is intended to be binding upon Atlantic Leaf or any of its affiliates or agents whether by way of agreement, representation or otherwise. Atlantic Leaf will not be obliged to carry out any proposals or fulfill any terms mentioned herein. All terms hereby proposed are subject to, among other things, obtaining the necessary mandate appointment for Atlantic Leaf, completion of due diligence as required and execution of the documentation. Level 3, Alexander House 35, Cybercity, Ebene 72201 Republic of Mauritius T: +230 403 0800 E: info@atlanticleaf.mu W: www.atlanticleaf.mu