GROWTHPOINT PROPERTIES LIMITED
PROPERTY SHOW CASE
RMB MORGAN STANLEY
21 May 2013
2
AGENDA

South African Real Estate

Global Context

South Africa is entering the REITs Era

Introduction to Growthpoint

Operational Overview and Operating Environment

RSA

V&A

GOZ

Sector consolidation and acquisition

Acquisitions, Disposals, Developments and Commitments

Prospects

Investment Case differentiator
3
SOUTH AFRICAN REAL ESTATE

The South African listed property sector has experienced significant growth over the
past 10 years Capital Management
South Africa’s listed largest property company, Growthpoint, now has a market
capitalisation of R54,5 billion compared to R30 million in 2001
300
South African Listed Sector
239
250
200
184
150
132
86
85
2008
100
2007
117
94
62
46
50
14
20
31
Source: INET Bridge
2013
2012
2011
2010
2009
2006
2005
2004
2003
0
2002
Market Cap -R Billions

4
SOUTH AFRICAN REAL ESTATE(CONT’D)
The sector is dominated by a few large entities, with the biggest 10 accounting for
approximately 80% of the sector market capitalisation

26 listed property entities

Sector market capitalisation of c.R239 billion
South African Listed Property Companies
50
45
40
35
30
25
20
15
10
5
Source: INET Bridge
VIVIDEND
VUNANI
SYNERGY
OCTODEC
HOSPITALITY
ARROWHEAD
DIPULA
PREMIUM
REBOSIS
INVESTEC
FORTRESS
EMIRA
SYCOM
VUKILE
SA CORPORATE
ACUCAP
NEPI
FOUNTAINHEAD
RESILIENT
CAPITAL
HYPROP
REDEFINE
0
GROWTHPOINT
Market Cap -R billions

5
SOUTH AFRICAN REAL ESTATE (CONT’D)
Attractiveness of the sector keeps improving:

Attracting new listings to the sector

Equity raising well supported by local institutions

Increase in interest from offshore investors

Increase in liquidity and tradability
Sector Liquidity
60%
Growthpoint
50%
Liquidity % (year)

SAC
Vukile
40%
Hyprop
Redefine
FPT
Emira
Acucap
30%
Capital
20%
Sycom
Resilient
Investec
10%
0%
0
10
20
30
40
Market Cap -R (billion)
Source: INET Bridge
50
60
70
6
SOUTH AFRICAN REAL ESTATE (CONT’D)

The escalating nature of leases underpins income growth
Sector Forward Yields
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
Source: Avior Research

Income growth of 1% - 9% can be expected annually
Redefine Int
Hospitality A
Arrowhead A
Fortress A
Vukile
SA Corp
Emira
Rebosis
Arrowhead B
Premium
Octodec
Redefine
Sycom
Capital
Acucap
Sector Avg
Investec
Fountainhead
Hyprop
Growthpoint
Resilient
0.0%
7
THE GLOBAL CONTEXT
The South African listed property sector outperformed REITs from the developed world over
the past 10 years. They are currently trading at all time highs
700
South African Property Listed Index vs Global REIT
Indices
600
500
400
300
200
100
UK
Australia
EPRA
US
Source: Bloomberg
SAPY
Growthpoint
Mar-12
Mar-11
Mar-10
Mar-09
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
0
Mar-02

8
SOUTH AFRICA IS ENTERING A NEW REIT ERA

Currently 75% of South Africa’s listed property companies are not technically REITs

These companies have synthetically created rental flow through the Property Loan
Stock structure – share stapled to debentures

South Africa’s weighting in the global REIT indices could potentially quadruple

South Africa will be the 8th largest REIT market globally

South Africa’s largest listed property company, Growthpoint Properties Limited (“GRT”)
is set to become the 40th largest REIT globally by market capitalisation

Excluding the US REITs, GRT will become the 15th largest REIT globally by market
capitalisation - the largest in emerging markets
9
REGULATION

Objective:
–
–


Regulator:
Regulatory Rules:


JSE
Listings Requirement Section 13
Initial
On-going
R300 million – Property Assets
√
√
Pay 75% of Distributable Income Annually
√
√
Maintain LTV Below 60%
√
√
Committee to ensure risk management and annual risk disclosure
√
Only enter into derivatives in ordinary course of business
√
75% of revenue “Rental”

Provide investor protection
Ensure prudent management without unnecessarily removing flexibility
Transparency and good governance
Responsibility:
√
Tax test
Board of Directors
Annual confirmation to be submitted in Certificate in Compliance
No prescribed management model: internal or external
No prescribed property sector investment requirement
10
INTRODUCTION TO GROWTHPOINT

The largest listed property company on the JSE with property assets valued at
R55,7 billion including 100% of Growthpoint Properties Australia (“GOZ”) and 50% of
the V&A Waterfront in Cape Town

Market capitalisation of R43,3 billion at 31 Dec 2012 (R24.50 per linked unit) (now
R54,5 billion)

Diversified property portfolio comprising 390 properties in RSA, 43 properties in
Australia which is 65.3% owned and a 50% interest in the properties of the V&A
Waterfront in Cape Town
Retail
Office
Office
Industrial
R13,5 billion

R14,8 billion
Industrial
R7,5 billion
Australia
R14,8 billion
AUD1,7 billion
V&A
Waterfront
R5,1 billion
Fully integrated internally managed property company employing 457 staff
11
GROWTHPOINT RSA - RETAIL
 Growth in centre turnovers are slowing down, tracking major
retailer sales performance. However, retailer occupancy costto-turnover ratios remain well within acceptable industry
norms
Size of portfolio:
Net Property Income
Portfolio Value
 RSA retailer expansion of international brands within existing
operations (Edcon & Foschini) and interest from European and
Australian international retailers creating demand at prime
centres
 Vacancies are at historical average and vacancy level at top 10
centres is below 1.5% if areas under development are excluded
Vacancy:
 Cost containment remains difficult - especially labour intensive
services and administration costs. Implementation of new
municipal valuation roll in 2013 could impact rental
affordability levels
 Redevelopments/Refurbishments/Extensions progressing well
with extensions to Brooklyn Mall, Kolonnade, Walmer Park,
Waterfall Mall and Northgate expected to open for trade from
Q3/2013 to Q3/2014
Dec 2011
R’million
581
521
13 578
12 180
%
%
Total portfolio
2.9
3.6
Top 10 centres
1.9
1.7
Balance of portfolio
4.7
5.2
R’million
R’million
Total
24,1
26,4
Bad debt provision
6,9
4,9
%
%
Renewal success rate
80.7
82.4
Renewal rental growth
5.0
7.1
Arrears:
 Second tier shopping centre performance under pressure in
terms of tenant retention, renewal rental levels and arrears
Dec 2012
R’million
Renewals:
12
GROWTHPOINT RSA - OFFICE
 The ongoing challenging economic conditions resulted in the
loss of several major tenants in the first half. Vacancies
increased to 7.1% but significantly outperformed the national
average for Q4/2012 of 10.6%
Size of portfolio:
Net Property Income
Portfolio Value
 New letting totalled 45 588m² and 70 454m² of leases expiring
in the first half were renewed. The declining renewal success
rate of 65.3% further emphasising the tough market conditions.
The renewal growth rate remains under pressure but is now
positive, a turnaround from (4.4%) reported last year
 Arrears have been kept under control through continued
proactive credit control, ending the first half at 6.9% of
collectables. The bad debt provision increased to R7,1 million
due to Government arrears at the end of Dec 2012. These
have subsequently been collected
 The second half will remain challenging with vacancies under
pressure. Five new developments and major redevelopments,
totalling 36 067m², of which 20 469m² has been let, will be
completed before Jun 2013. It is anticipated that a further 2
developments will achieve GBCSA certification, bringing the
total to 4
Vacancy:
Dec 2012
R’million
Dec 2011
R’million
690
655
14 802
14 282
%
%
7.1
6.7
R’million
R’million
Total
14,0
14,1
Bad debt provision
7,1
5,8
%
%
Renewal success rate
65.3
72.6
Renewal rental growth
0.7
(4.4)
Total portfolio
Arrears:
Renewals:
13
GROWTHPOINT RSA - INDUSTRIAL
 Challenging trading conditions, echoed by negative factory
output data
Size of portfolio:
 Continued increases in input costs, specifically electricity, is
negatively affecting the manufacturing sector. Implied
pressure on renewal growth and lease periods
Net Property Income
 Continued demand for warehousing and distribution facilities
(>10,000m²). Increasing consolidation is evident
Vacancy:
 Vacancy levels have stabilised. Expected to remain at ±3%
level for the near future
Portfolio Value
Total portfolio
Arrears:
Dec 2012
R’million
Dec 2011
R’million
396
359
7 486
7 161
%
%
3.1
2.7
R’million
R’million
 Arrears have remained stable
Total
9,9
8,8
 New development enquiries remain positive
Bad debt provision
4,1
4,6
 Acquisition growth remains limited due to high demand and
sellers expectations
Renewals:
%
%
Renewal success rate
70.5
73.8
Renewal rental growth
2.7
5.1
 Strategy:
 Key focus areas are vacancies, arrears and renewals
 Unlock value from existing portfolio
 Pursue new development and acquisition opportunities if
financially viable
14
V&A WATERFRONT (50%)
RETAIL
 Strong retail sales growth up by 18.4% for the rolling 12 months
 Voids at a record low of 1.2% with Victoria Wharf and
Clocktower retail space fully let
 Total and trading retail debtors at a level of 12% and 5%
respectively
 Footfall continued to grow year on year, despite the impact of
the food court development. Figures peaked in Dec with
footfall figures on 31st Dec reaching 185 000
 New openings include Market on the Wharf, Moyo, Bodyworlds
Exhibitions and the redeveloped Food Court which is performing
very well
Size of portfolio:
Net Property Income
Portfolio Value
Vacancy:
Total portfolio
Arrears:
Total
Bad debt provision
Dec 2012
R’million
Dec 2011
R’million
155
146
5 078
4 842
%
%
0.9
2.1
R’million
R’million
30,0
30,1
9,6
13,7
%
%
 Shimmy Beach Club with a GLA of 3 555m² opened during Dec
and by all accounts has traded well
Renewals:
OFFICE
Renewal success rate
71.2
94.7
Renewal rental growth
6.0
6.9
 Drop in office vacancies to 2.4% with key space being let. Just
over 2 000m² remaining vacant, of which key void space under
offer
 Trade debtors at a positive level of 8%
 Total debtors are being continually managed while focus
remains on closing off historic legal arrears
15
V&A WATERFRONT (50%) (CONT’D)
HOTEL
 Hotel occupancy levels and revenue per room have marginally
improved year on year and it is believed these have bottomed out
FISHING AND INDUSTRIAL
 Fishing and industrial revenue continues to be strong with no
vacancies
 Marina activity for the period is high, with the extension of
A-spines in the Marina providing additional berthing facilities
DEVELOPMENT AND LEASING UPDATE
 Allan Gray development progressing to plan for completion in
Jul 2013
 Development of Portswood Ridge into residential units for rental
will commence in Sep 2013. A small residential development
adjacent to Allan Gray office development to be launched in
Mar 2013
 Topshop on track for trading in late Apr 2013
 A new mall development to be created between the Link Mall and
Post Office Mall anchored by Edgars to commence in autumn for a
summer opening. This will open up additional retail space within
Victoria Wharf
 Development is underway for a new generation, flagship Pick ’n Pay store, expected
to open in Dec 2013. The new store at over 6 000m² will be significantly larger
than the current one at 2 600m² and will offer vastly improved access to parking
16
OVERVIEW - GOZ
Size of portfolio:
Dec 2012
R’million
Dec 2011
R’million
585
401
14 800
11 727
Net Property Income
Portfolio Value
HY 2013
results in
line with
guidance
 Distributable profit: AUD36,8 million; a 47.6% increase from HY2012
 9.0 cps distribution; 3.4% above HY2012 (before withholding tax of 0.38 cps
payable by international investors - Growthpoint RSA)
 24.1% total return for calendar year to 31 Dec 2012 (Aus$1.60 at
recapitalisation)
 9.3 cps distribution forecast for 6 months (before withholding tax of 0.39 cps
payable by international investors – Growthpoint RSA) to 30 Jun 2013 taking
total FY2013 distribution to 18.3 cps (4.0% growth)
 Distribution declared equates to 95% of distributable profit
Capital
management
 Net Tangible Assets (“NTA”) unchanged at AUD1.93
 Management Expense Ratio consistent at 0.4%
 Small gearing increase (45.6% to 46.9%) but 18.3% rise in Interest Cover Ratio to
2.5 times
17
OVERVIEW – GOZ (CONT’D)
 Two DRIPs raised approximately AUD48,9 million, well above NTA
Equity
 20.4% per annum total return over 3 year period
 Continued significant increase in market capitalisation (close to AUD1 billion)
and free float (AUD300 million)
Quality
investment
property
portfolio
 2.9% increase in like-for-like property income
 0.8% increase in property valuations; after writing off previous acquisition costs
and allowing for straight-line leasing adjustments, a decrease of 0.1%
 Completion of two fund through developments during the period
 Acquisition of well located and well tenanted, high yielding assets have
improved portfolio
 Diversified property portfolio valued at AUD1,7 billion
Summary
 Quality tenants with long WALE (7.0 years) and growing rental income
 98% occupied with minimal short term lease expiries providing a secure income
 GOZ will seek to continue the strong growth it has experienced
18
SECTOR CONSOLIDATION AND ACQUISITION

New listings to continue

Consolidation amongst smaller and ne listed funds to get critical mass

For Growthpoint there is a limited number but large in scale opportunities available

Continuous efforts to improve quality of portfolio

Focus on optimising portfolio weighting between retail, office and industrial

Redevelopments continue to add quality to the portfolio.
ACQUISITIONS, DISPOSALS, DEVELOPMENTS AND
COMMITMENTS
19
Retail
Office
Industrial
GOZ
Total
V&A
Purchase price of
acquisitions
13
-
-
524
537
-
Selling price of disposals
47
284
51
-
382
-
Developments and capex
65
241
106
602
1 014
128
303
656
157
398
1 514
129
Commitments
Refer to Annexures 3 and 16 for yields on Acquisitions and Disposals
 RSA properties (excl V&A) where amounts in excess of R30,0 million were spent on development during
the period include:
 Brooklyn/Design Square (75%)
Retail
R36,9m
 Lakeside 3
Office
R46,4m
 Grand Central Office Park
Office
R38,6m
 Meadowbrook Estate
Industrial
R37,5m
 Growthpoint RSA has capital commitments for various acquisitions and development projects of
R1,1 billion with the major ones being:
 Waterfall Mall
Retail
R215,8m
 Menlyn Corner
Office
R213,0m
 Deloitte & Touche
Office
R113,4m
 Hatfield Festival
Office
R129,7m
 GOZ has capital commitments for acquisitions and development projects of R397,5 million with the
major one being:
 27 – 49 Lenore Drive
Industrial
R393,6m
20
DEVELOPMENTS

Waterfall Mall Extension
 Current GLA of 49 287 m²
 Development GLA of 9 818 m²
 Completion Apr 2014
 Project value amounting to R216 million
 Project yield of 8.5%

Grand Central Office Park:
 7 108m² development in Midrand, opposite Gautrain Station
 Completion Apr 2013
 4 600m² let , including 3 000m² to Gautrain Management Agency
 GBCSA certification: application for Four Star Green Star Design Rating
 Project value amounting to R111 million
 Project yield of 10.0%
21
DEVELOPMENTS (CONT’D)

Menlyn Corner:
 10 047m² development in Menlyn ,Pretoria
 Completion early 2013
 3 600m² let to Liberty Group
 Significant Green components
 Project value amounting to R213 million
 Project yield of 9.3%

Lakeside 3:

6 152m² development in Centurion, opposite Gautrain Station

Completion early 2013

Actively marketing space

GBCSA certification: application for Four Star Green Star Design Rating

Project value amounting to R92 million

Project yield of 9.2%
22
PROSPECTS

RSA
 SA economy remains sluggish, negatively impacted by labour unrest and job losses
 Consumer spending coming under pressure, impacting retail sales
 Demand for office space remains weak
 Property fundamentals however remain stable
o Overall vacancies at 4.1%
o Property expense ratio at 23.9%
 Access to capital, debt and equity remains good
 Interest rates projected to remain at current low levels for the next 12 to 18 months
 Good investment opportunities are hard to find
 REIT legislation now promulgated, with PLS’s able to convert on or after 1 May 2013.
Growthpoint intends to convert to a REIT effective 1 July 2013 and will adopt a new MOI
 Distribution growth of between 7.0% and 7.5% projected for the year to 30 June 2013
23
PROSPECTS (CONT’D)

V&A
 Ongoing improvements being made to the development masterplan
 Significant improvements in letting of major vacancies
 Exciting new redevelopment opportunities in the Victoria Wharf Shopping Centre
 Allan Gray on target for completion in Jul 2013 and lease commencement in Sep 2013
 V&A on target to deliver budgeted distribution growth of circa 7%
24
GROWTHPOINT INVESTMENT CASE DIFFERENTIATOR

Unparrallelled diversification (sectorial and geographical)

Internal management (own and manage) with a track record

Access to South Africa’s premier office, retail and industry

Access to GOZ and V & A

Most traded and liquid property share
25
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THANK YOU
This presentation is available for downloading from our website:
http://www.growthpoint.co.za/Pages/Presentations.aspx