PRE-CLOSE INVESTORS PRESENTATION AND TRADING UPDATE INTERIM PERIOD - - PowerPoint PPT Presentation
PRE-CLOSE INVESTORS PRESENTATION AND TRADING UPDATE INTERIM PERIOD 31 AUGUST 2020 / 28 AUGUST 2020 TABLE OF CONTENTS INTRODUCTION AND 1. ENVIRONMENTAL UPDATE 2. IMPACT OF COVID-19 ON SPEAR 3. PORTFOLIO UPDATE 4. SECTORAL PERFORMANCE
PRE-CLOSE INVESTORS’ PRESENTATION AND TRADING UPDATE
INTERIM PERIOD 31 AUGUST 2020 / 28 AUGUST 2020
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INTRODUCTION AND ENVIRONMENTAL UPDATE IMPACT OF COVID-19 ON SPEAR PORTFOLIO UPDATE SECTORAL PERFORMANCE 3. 4. OUTLOOK AND PROSPECTS QUESTIONS 5. 6. 1. 2.
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1 / INTRODUCTION AND ENVIRONMENTAL UPDATE
EMAIL QUESTIONS TO INFO@SPEARPROP .CO.ZA
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1 / INTRODUCTION AND ENVIRONMENTAL UPDATE /
MISSION STATEMENT AND STRATEGY
To be the leading Western Cape-focused REIT and to consistently grow our distribution per share ahead of inflation and within the top quartile of our peer group.
MISSION STATEMENT STRATEGY
Adapted to Covid-19 operating environment Capital preservation and liquidity management Maintained income statement consistency and strong rental collections to date Letting of vacant space and quick turnaround times High level of tenant retention through active asset management Reduce controllable expenses Disposal of non-core assets
SHORT TERM
Narrow asset ownership to commercial, convenience retail and industrial Maintain distribution payment strategy Prudent recycling of capital Reduce gearing ratio in line with strategy Conservative debt hedged profjle Maintain high portfolio occupancy levels
MEDIUM TO LONG TERM
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2 / IMPACT OF COVID-19 ON SPEAR
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2 / IMPACT OF COVID-19 ON SPEAR /
LOCKDOWN OPERATING PERCENTAGES – REVENUE BASED ON RENTABLE AREA
LOCKDOWN OPERATING PERCENTAGES – REVENUE-BASED ON RENTABLE AREA
The percentages below illustrate the monthly revenue contributed to the group under the various lockdown levels:
* The above levels are based on tenants allowed on premises per regulations and do not take into account tenants that could operate from home August 2020 May 2020
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FY2021 OPERATING SCENARIOS – UPDATED TO AUGUST 2020 FROM MAY 2020
LOW ROAD
60% of FY2021 budget collected Spear breakeven point
MIDDLE ROAD
61% - 71% of total budget collected Spear moving towards profjt and accumulation of cash reserves 2 / IMPACT OF COVID-19 ON SPEAR /
FY2021 OPERATING SCENARIOS – UPDATED TO AUGUST 2020 FROM MAY 2020
85% of total budget collected* Spear profjtable and on track to stabilise income generation Balance sheet and income statement remain robust and meeting covenants** Liquidity availability has remained suffjcient to absorb various rental credits and deferrals and in addition to covering operating expenditure and interest:
Funders remain aligned with Spear strategies Spear suffjciently capitalised to meet short- and long-term commitments
HIGH ROAD
* Zero hospitality income included in various scenario plans ** Strictest covenant 50% LTV and 2 times ICR and being met
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3 / PORTFOLIO UPDATE
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3 / PORTFOLIO UPDATE /
PORTFOLIO SNAPSHOT
WESTERN CAPE
NUMBER OF PROPERTIES
ASSET VALUE
AVERAGE IN-FORCE ESCALATIONS
453 319M2
GLA
91.40%
OCCUPANCY
28 MONTHS
WALE
R91.10/M2/PM
AVERAGE RENTAL INCLUDING RATES
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March April May June July Aug* Total MTD Original budget (including utilities and hotels) (Rands) 44 653 849 44 001 509 44 320 065 44 601 273 46 676 767 48 408 522 272 661 985 Billed (including utilities, excluding hotels) (Rands) 41 333 448 39 524 308 37 026 221 35 231 057 41 510 667 44 192 574 238 818 275 Collected vs original budget (%) 91.60 87.87 81.58 75.26 80.15 74.34 81.67 Collected vs billings (%) 98.95 97.83 97.65 95.28 90.12 81.43 93.25
3 / PORTFOLIO UPDATE /
COLLECTIONS
Trading environment remains extremely challenging Spear’s hands-on approach and regional focus paying off YTD collections under the circumstances have been satisfactory and inline with management’s planning scenarios Billing reflects revenue after all credits and deferments including recoveries Original budget reflects pre-Covid-19 operating revenue including hotels and recoveries (set in December 2019) Zero hospitality income in billings recovered (factored into various scenario plans) Tenant arrears as at 26 August 2020 = R16.1 million (and reducing) Below excludes VAT
August 2020 included utility recoveries billed that are only due month-end and considered collectable and will increase collected vs billed and original budget for August to 85.55% and 78.10% respectively and increasing year to date to 94.01% and 82.34% respectively. *
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3 / PORTFOLIO UPDATE /
EXCLUSIONS, CREDITS AND DEFERRALS (EXCLUDING UTILITIES)
Classifjcation YTD amount % of YTD budget (rentable area only) Hospitality (12 314 291) * 5.95 Credit (10 397 333) ** 5.02 Deferral (5 129 657) *** 2.48 Stopped billing (1 152 532) **** 0.56 Variance to budget (28 803 742) 14.00
* Per May 2020 results presentation zero income forecast for hospitality ** Internal assumptions are that this number will not increase signifjcantly over balance of FY2021 *** R1.3 million of deferrals already billed and collected in August 2020 **** Worst-case scenario this amount increases to R2.4 million for FY2021
Spear has 419 tenants with 196 tenants provided with Covid-19 related relief.
COLLECTIONS
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Expiries and cancellations GLA Gross rental at expiry Average gross expiry rental R/m² Renewals/ new lets GLA Gross rental at renewals/ new lets Average gross new rental R/m² Average rental reversion % Commercial 13 899 1 895 882 136.41 9 170 1 448 829 158.00 15.83 Industrial 73 565 2 901 840 39.45 55 676 2 142 064 38.47
Retail 5 697 669 805 117.58 5 156 474 608 92.05
93 160 5 467 527 97.81 70 002 4 065 502 96.17
130 000m² coming up for renewal in FY2021, with a total of 93 160m² which has either been renewed or relet 30 000m² under negotiation with two existing blue-chip listed tenants Commercial positive reversion is due to No.1 Waterhouse relet at 30% above rental guarantee which expired June 2020 3 / PORTFOLIO UPDATE /
TENANT LETTING ACTIVITY
* Relates to two retail tenants. In line with management’s expectations and budgets.
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3 / PORTFOLIO UPDATE /
NON-CORE DISPOSALS
Property Value Net R’000 Yield % Status 10 Mill Street 55 800 9.5 Sold and transferred Property Value Net R’000 Yield Status 12 Pickwick 30 000 9.57 Under DD 142 Edward 42 000 9.50 Under DD Island Business Park 21 000 10.00 Under negotiation 93 000
In line with management’s less-is-more strategy to focus on assets valued at R100 million and above the following non-core asset disposal updates are listed below:
* Once all disposals have been concluded and transferred net proceeds of R148.8 million will be available. * All proceeds from non-core disposals to be deployed into Spear’s debt facilities.
R148.8 MILLION OF DISPOSALS CONCLUDED OR UNDERWAY
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4 / SECTORAL PERFORMANCE
Sector-wide the impact of Covid-19 has been felt in varying degrees. The resilience of the Spear portfolio has been displayed in the level
along with the following sectoral performance update.
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4 / SECTORAL PERFORMANCE
RETAIL
Spear has only ever invested into convenience retail assets as opposed to large regional or super regional shopping centres Retail portfolio occupancy: 91% Collections have been 87.86% versus revenue billed for the period to date Spear provided credits and deferments to retail tenants to the following values: R4m (credits) and R0.5m (deferments) May – August 2020 credits / deferments have reduced signifjcantly due to tenants reopening under Level 4 onwards During all levels of lockdown our retail assets have performed in line with expectations with all anchor tenants operating under Level 5 lockdown Letting activity in line with expectations with the bulk of renewals being concluded per management’s budgets for the period No signifjcant retail tenant failures occurred during the interim period, however, Spear has elected to not raise rental on gyms of which there are two within the retail portfolio 764m2 could be considered a Covid-19-related casualty created in the interim period Spear has no exposure to Edcon or Massmart
RETAIL (42 229M 2 GLA)
Lower level of income risk as close to 100% of tenants are trading and paying rent Gyms taking longer to recover to pre-lockdown levels requiring longer-term lease restructures Sharper drop in consumer spending as SA recession deepens, impacting convenience retail sector and tenants’ rental obligations
RISKS
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4 / SECTORAL PERFORMANCE
COMMERCIAL
All Spear’s commercial assets are located in highly attractive and established offjce nodes in Cape Town Offjce portfolio occupancy: 92% Collections have been 95.66% versus revenue billed for the period to date Spear provided credits and deferments to offjce tenants to the following values: R3.5m (credits) and R2.9m (deferments) May – August 2020 credits / deferments have reduced signifjcantly due to tenants reopening under Level 4 onwards Spear’s portfolio is attractively positioned to offer expansion and / or contraction space to third-party tenants due to its attractive lease terms and generally below-market asking rentals In certain parts of the portfolio tenants have needed to increase their premises to comply with Covid-19 social distancing requirements In other parts of the portfolio headwinds have emerged as kneejerk reactions to cut overheads led to non-renewal of certain offjce premises within the portfolio (the space in reference has been relet at a higher rental) The impact of loadshedding has caused tenants to rethink their decisions to work from home
COMMERCIAL (139 842M 2 GLA)
Asking rentals to soften as vacancies may rise higher than normal Increased vacancy equals increased competition for tenants Generally, the potential is high for negative rental reversions across the offjce sector Cost of installation of tenants will increase
RISKS
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4 / SECTORAL PERFORMANCE
INDUSTRIAL
Spear’s industrial portfolio has been exceptionally resilient during the interim period with a number of new lets and relets taking place in a very challenging market Industrial portfolio occupancy: 90%* (6.5% of vacancy relates to the No.1 Beacon Way redevelopment) Collections have been 93.89% versus revenue billed for the period to date Spear provided credits and deferments to industrial tenants to the following values: R2.5m (credits) and R1.2m (deferments) May – August 2020 credits / deferments have reduced signifjcantly due to tenants reopening under Level 4 onwards The vast majority of Spear’s industrial tenants were able to operate from Level 4 lockdown
INDUSTRIAL (243 158M 2 GLA)
Loadshedding may have a negative impact on manufacturing tenants Labour relations / Trade unions Increased capital requirements to maintain quality of industrial assets Major market or tenant failures
RISKS
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4 / SECTORAL PERFORMANCE
HOSPITALITY
Sector hardest hit by the impact of Covid-19 Management has eliminated hospitality income from its FY2021 forecasts FY2020 hospitality comprised ±7% of group revenue (Total group revenue FY2020 = R503m)
HOSPITALITY (28 090M 2 GLA)
15 on Orange Hotel under lease to Marriott will reopen on 1 September 2020 Spear has zero exposure to 15 on Orange Hotel property-related expenses Spear accrues rental on all hotel revenue generated on property Marriott remains responsible for all sales and marketing of the hotel with numerous accommodation and conference enquiries already being received for periods from November 2020 onwards
15 ON ORANGE HOTEL, CAPE TOWN
Generated R2.5m during Level 4 lockdown through repatriation services Prepared and distributed 50 000 meals to the needy and homeless in Woodstock, Salt River and Cape Town CBD Since 1 August 2020 corporate travel accommodation and conference bookings for September 2020 onwards have been received Post aggressive cost-cutting hotel breakeven achieved at 48% occupancy Operating summary on occupancy forecast: November 2020 – forecast 47% occupancy December 2020 – forecast 49% occupancy January 2021 – forecast 49% occupancy February 2021 – forecast 55% occupancy Average daily rate (ADR) forecast for the above period: R860 – R1 050 Rooms forecast to be sold from November 2020 – February 2021 = 11 109 (average monthly rooms sold = 2 800)
DOUBLETREE BY HILTON, CAPE TOWN
Business travel market recovers slower than expected SA borders remain closed for international travel market MICE market becomes reluctant to meet in larger groups Geopolitical risks increase Safety and security concerns Prolonged fjnalisation of Covid-19 vaccine and global rollout
RISKS
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4 / SECTORAL PERFORMANCE
ALL SECTORS
Tenant cost of occupancy continues (local authority charges) to rise well ahead of inflation Any new government restrictions that may limit tenant operations Major market or tenant failures Civil disobedience and property-related threats SA borders remain closed longer than expected
GENERAL BUSINESS CONTINUITY RISKS (ALL SECTORS)
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5 / OUTLOOK AND PROSPECTS
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5 / OUTLOOK AND PROSPECTS
OUTLOOK
Spear’s portfolio remains of a high quality, defensive in nature and underpinned by strong lease covenants Maintain our hands-on non-bureaucratic approach Implementation of required health and safety measures Fewer unknowns in the year ahead as general economic activity returns and travel slowly returns Rental recovery collections continue and are aligned with management’s scenario plans – the mid- to high-road scenario is the current status quo Good momentum on non-core disposals Spear remains well capitalised with suffjcient liquidity and headroom facilities circa R180 million The leasing and asset management team will as always remain close to the market and our tenants Fewer tenant failures than initially expected Good quality tenants with strong balance sheets Filling of vacant space with the right type of tenants in the current market. Positive progress made during the interim period Our regional focus and proximity to our assets remain a competitive advantage LTV range at interim reporting period expected to be between 43% and 46% No major valuations decline expected at interim period
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PROSPECTS
5 / OUTLOOK AND PROSPECTS
PROSPECTS
It is diffjcult to predict fully the economic outcomes of the pandemic on the real estate sector and on Spear. Spear will not be issuing any FY2021 distribution guidance until latest November 2020. Our various scenarios have not forecast any rental income to be generated on the hospitality portfolio for FY2021. Regular cash flow analysis is performed to stress test the cash flows on a rolling 12-month basis. This includes a range of scenarios of tenant collections and creditor requirements. Management is positive that the company has suffjcient cash resources available for the foreseeable future to meet all
Management’s focus and energy are on rental preservations throughout this pandemic, lockdown and
plan (Spear = profjtable)
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EMAIL QUESTIONS TO INFO@SPEARPROP .CO.ZA LIVE Q&A WITH CEO AFTER PRESENTATION