Transcript www.texton.co.za

Texton Property Fund
INTERIM RESULTS FOR THE 6 MONTHS ENDED
31 DECEMBER 2014
TABLE OF CONTENTS
Page
1.
TEXTON AT A GLANCE
3
2.
RESULTS – KEY HIGHLIGHTS
5
3.
CORPORATE STRATEGY, GOALS, MANAGEMENT AND DISTINGUISHING FACTORS
7
4.
OVERVIEW OF PORTFOLIO
13
5.
FINANICAL RESULTS
18
6.
PROPOSED BEE TRANSACTION
26
7.
UNITED KINGDOM STRATEGY, ACQUISITIONS AND PIPELINE
33
8.
OUTLOOK AND CONCLUSION
39
9.
ANNEXURE I: ACQUISITIONS IN THE PAST 6 MONTHS
42
TEXTON AT A GLANCE
Texton at a glance
JSE Sector
Real Estate Investments and Services: Diversified REITS
Date listed
August 2011
Closing price (19 Feb’ 15)
Market Cap (19 Feb’15)
Number of properties
Asset manager
Asset manager annual fee
Property manager
Date of REIT conversion
BEE
R11.00
R2.3 billion
43
Texton Property Investments Proprietary Limited
50bps
JHI Property Managers and Kuper-Legh Property
Managers
25 June 2013
Level 3
4
RESULTS
KEY HIGHLIGHTS
Texton has tripled its property portfolio since listing in August 2011 to 43
properties delivering superior distribution growth and NAV to shareholders
Stated strategies:
• Accelerated growth
• Sectoral diversification
• Meaningful BEE vehicle
•UK acquisitions
Portfolio growth up by 68.3%
to R3.094 billion
Significant work performed
on established UK platform
(signed 2 deals R274m and
further pipeline)
and enhancing BEE profile
Texton
31 December 2014
Dividend per share increased
by 11.7% to 44.68 cps
Increase in market cap of
41% and
NAV up 13,5% to 996,43 cps
KEY PERFORMANCE INDICATORS
Vacancies
Tenant retention
Ave. lease escalation
Blue chip tenants
3.5%
Sector average of 11.1%
90.1%
Effective leasing strategy
7.5%
In line with expectations
75.6%
Protects income
Weighted ave. lease expiry
Rent collection
4.63 years
Diversification into lower
risk industrial and retail
90%
Tight management is best
defence
6
CORPORATE STRATEGY, GOALS,
MANAGEMENT AND
DISTINGUISHING FACTORS
Investment criteria and strategy
SOUTH AFRICA
1. Continue to invest in A & B grade assets
2. In each sector we will not deviate from the key success criteria and fundamentals needed in that sector
Offices
 Not less than 50% of the portfolio
 Same criteria as historical
Industrial
 Light industrial/warehousing
 Vanilla boxes (2,000m2 – 10,000m2)
with good yardage, floor-to-eaves
heights and small office component
 Stable nodes
 Stable tenants, longer leases, triple
net where possible
 Good access to motorways
Retail







Lower LSM
Commuter based
Value orientated
Defensible location
Good tenant profile and parking
Avoid undifferentiated centres
Avoid large centres
UNITED KINGDOM












Not less than 50% offices. Balance industrial and retail
Detailed market research
Efficient funding
Minimal currency exposure
We are cautious (but not averse) as UK retail is in flux. We will avoid ‘big box’ retail.
Secondary but stable nodes (outside M25)
A & B grade assets
Yields spread from 5.5% - 8.0%
AAA tenants
Long leases (+10 years)
Triple net leases
Looking for value extraction and yield kickers
8
Texton’s strategy and key goals have evolved as the fund has continued to grow
since listing
Key goals for the H1 2015
Investments
Operational
Resourcing
 Define new strategy
with an emphasis on
our ability to
successfully implement
it
 Tenant retention (90%)
 Employ and bed down
new, experienced
management
 Acquisitions of R900m
 Solid pipeline to
execute in H2’2015
 SA sectoral
diversification - Light
industrial and
commuter based retail
acquisitions
 Key Performance
Indicators
 Ensure the culture of
tight management is
retained
 Restructure
management to
accommodate growth
(specific allocation of
functions, reporting
lines and systems)
BEE transactions
 Select the right BEE
partners (4)
 Conclude BEE deals at
25% of shares in issue
 Ensure minimal, if any
dilution to
distributions
Balance Sheet/Funding
 Extend the Balance
Sheet to grow the
business
 Ensure we have the
capability to manage
the Balance Sheet
effectively
 Existing debt facilities
are efficient
 Geographic
diversification - UK
chosen as target
market and hence
detailed market
research (including the
best funding
mechanism) and source
assets
 Greening the portfolio Progress has been
slower than
anticipated
9
Key goals for the next 12 months will be focussed on the implementation of
strategy
Key goals for next 12 months
Investments
 Continued roll-out of
the new strategy
 UK: First 2 deals are
imminent (5
properties). Targeted
25% of asset base
being in the UK.
Cement relationships
and networks for
efficient deal flow.
Operational
 Tenant retention. 2015
is a busy year for
leasing
 Tight management
 Focus on our KPIs
 Clean, accurate, usable
reporting system
 Selected disposals of
non-core assets
Resourcing
BEE transactions
 Continue to build the
team to ensure we
retain tight
management
 Shareholder vote 19
March
 Ensure we have the
skills to manage an
expanding business
 Extract value and
penetrate new
networks
 Cement the BEE
relationship
 Leverage BEE
credentials
Balance Sheet/Funding
 The growing business
needs tighter BS
management
 Use acquisitions to
relieve pressure off the
BS
 Prudent funding
 70% hedged
 Convert the existing
pipeline
 R1.5bn of acquisitions
(subject to being able
to buy value)
 Lower our tenants cost
of occupation:
Implement the
Foretrust Greening
(circa R27m) and rollout to other properties
10
Consistent management style with a disciplined acquisition approach and yield
enhancing growth strategy
 Active management of existing assets (doing what we do well)
Efficient Management of
Existing Assets
 Focus on underlying property fundamentals whilst being opportunistic
 Tenant focused approach is delivering value
 Existing portfolio provides a solid platform
 Inject ‘sweeteners’ into the fund using management’s development skills to enhance the yield
Selective Property
Redevelopment
 Efficient refurbishment that enhance distributions
 Upside potential from 34,000m2 of undeveloped bulk (Sandton & Lynwood Ridge)
 Greening initiative is working
 Greatly enhanced deal flow with new management team
 Relationships with key players in the industry and continued ability to source opportunities
 Acquire A to B+ grade buildings in the main metropolitan areas
Disciplined Acquisition
Approach
 Remain office dominated however diversification into low risk industrial and retail assets
 Establishment of a platform for geographic diversification into the UK where management of TPI have
extensive knowledge and experience
 Acquisition of assets with upside potential
 Strong pipeline
Yield Enhancing Growth
Strategy
 Sustainable income growth and capital appreciation
 Grow portfolio while maintaining quality of portfolio as well as yield
 Grow by acquiring portfolios and through property refurbishments
11
TEXTON DIFFERENTIATING FACTORS
DEAL MAKING ABILITY
TO THE BENEFIT OF
SHAREHOLDERS (INCL.
BUT NOT LIMITED TO
BEE TRANSACTION)
WIDE NETWORK
ACROSS SA AND THE
UK
OFFICE SECTOR
EXPOSURE WITH
INHERENT UPSIDE
WHEN THE OFFICE
CYCLE TURNS
CONSISTENT ABOVE
MARKET
DISTRIBUTIONS
TIGHT KNIT, NIMBLE
MANAGEMENT TEAM
WITH DETAILED
EXPERIENCE AND
COMPLEMENTARY
SKILLS
ABILTIY TO GROW
RAPIDLY AND NOT
COMPROMISE
QUALITY OF EARNINGS
12
OVERVIEW OF PORTFOLIO
Growth in portfolio, tenant spread, decline in vacancy and enhanced lease expiry
profile contributed to Texton’s success
Key fund metrics
31 December 2014
30 June 2014
Number of properties
39% ↑
43
31
GLA
69% ↑
322,007m2
190,116m2
34,000
34,000m2
R3.09 billion
R2.21 billion
3.5%
5.3%
4.63 years
3.9 years
Undeveloped bulk in portfolio
Property portfolio book value
40% ↑
Vacancy
Weighted average lease expiry
19% ↑
Portfolio composition (by revenue)
Office: 80%
Office:
95%
Retail: 11%
Retail:
4%
Industrial:
1%
Industrial: 9%
Blue chip tenants
Tenant retention
7.6% ↑
75.6%
80%
90.1%
82.5%
14
7% of revenue comprises national companies, 21% Government and 44% listed
and large tenants. Total Blue Chip
76%
Tenant tenants
profile by GLAis
and
revenue
Tenant spread – Rentable area (%)
Tenant spread – Revenue (%)
80.0%
90.0%
70.0%
80.0%
70.0%
60.0%
60.0%
50.0%
50.0%
40.0%
40.0%
30.0%
30.0%
20.0%
20.0%
10.0%
10.0%
0.0%
0.0%
National
Government
31-Dec-14
Listed / large
entities
30-Jun-14
Other
Blue chip
National
31-Dec-13
Government
31-Dec-14
Listed / large
entities
30-Jun-14
Other
Blue chip
31-Dec-13
Lease expiry by GLA and revenue
Vacant
2015
2016
2017
>2017
3.5
27.7
21.8
20.6
26.4
-
26.9
23.8
28.4
20.9
Vacant
2015
2016
2017
>2017
5.3
28.0
22.6
15.3
28.8
-
25.6
26.4
8.0
40.0
Vacant
2014
2015
2016
2017
6.2
26.2
25.7
7.1
34.8
25.6
26.4
8.1
39.9
31 December 2014
Rentable area %
Revenue %
30 June 2014
Rentable area %
Revenue %
31 December 2013
Rentable area %
Revenue %
15
Geographic profile will always mirror economic activity and remains heavily
weighted to Gauteng (80%) and the Western Cape (13%)
Geographical profile by GLA and rental
Geographical – GLA (%)
Geographical – Rental (%)
90.0%
80.0%
80.0%
70.0%
70.0%
60.0%
60.0%
50.0%
50.0%
40.0%
40.0%
30.0%
30.0%
20.0%
20.0%
10.0%
10.0%
0.0%
Eastern Cape
Province
Gauteng
Province
KwaZulu
Natal
Province
31-Dec-14
North West
Province
30-Jun-14
Northern
Cape
Province
Western
Cape
Province
Free State
0.0%
Eastern Cape
Province
Gauteng
Province
31-Dec-13
KwaZulu Natal North West
Northern Western Cape
Province
Province Cape Province Province
31-Dec-14
30-Jun-14
Free State
31-Dec-13
Sectoral profile by GLA and rental
Sectoral – GLA (%)
Sectoral – Rental (%)
100.0%
100.0%
90.0%
90.0%
80.0%
80.0%
70.0%
70.0%
60.0%
60.0%
50.0%
50.0%
40.0%
40.0%
30.0%
30.0%
20.0%
20.0%
10.0%
10.0%
0.0%
0.0%
Office
Retail
31-Dec-14
30-Jun-14
Industrial
31-Dec-13
Office
Retail
31-Dec-14
30-Jun-14
Industrial
31-Dec-13
16
Geographical profile by Property Expenses and Net Income
Geographical – Property Expenses (%)
Geographical – Net Income (%)
90.0%
80.0%
80.0%
70.0%
70.0%
60.0%
60.0%
50.0%
50.0%
40.0%
40.0%
30.0%
30.0%
20.0%
20.0%
10.0%
10.0%
0.0%
0.0%
Eastern Cape
Province
Gauteng
Province
KwaZulu Natal North West
Northern Western Cape
Province
Province Cape Province Province
31-Dec-14
30-Jun-14
Eastern Cape
Province
Free State
Gauteng
Province
31-Dec-13
KwaZulu Natal North West
Northern Western Cape
Province
Province Cape Province Province
31-Dec-14
30-Jun-14
Free State
31-Dec-13
Sectoral profile by GLA and revenue
Sectoral – Property Expenses (%)
Sectoral – Net Income (%)
100.0%
120.0%
90.0%
100.0%
80.0%
70.0%
80.0%
60.0%
50.0%
60.0%
40.0%
40.0%
30.0%
20.0%
20.0%
10.0%
0.0%
0.0%
Office
Retail
31-Dec-14
30-Jun-14
Industrial
31-Dec-13
Office
Retail
31-Dec-14
30-Jun-14
Industrial
31-Dec-13
17
FINANCIAL RESULTS
Summary of Financial Performance
Unaudited
year to
31-Dec
2014
Unaudited
year to
31-Dec
2013
Number of shares/linked units in issue (‘000)
208,498
169,122
Weighted average number of shares/linked units (‘000)
177,454
142,850
Net asset value per share/linked unit (cents)
996.43
877.81
Tangible net asset value per share/linked unit (cents)
994.63
874.96
Basic and diluted earnings per shares/unit (cents)
52.79
1.17
Comparable basic and diluted earnings per share/linked unit (cents)
52.79
47.00
Headline earnings per share (cents)
45.10
1.17
Comparable headline earnings per share/linked unit (cents)
45.10
47.02
Distribution per share/linked unit (cents)
44.68
40.00
963.00
965.00
34.7
17.1
Market Cap.
R2.3bn
R1.6bn
NAV
R2.1bn
R1.5bn
Summary of Financial Performance
Share price (cents)
Loan to value (%)
19
Statement of Comprehensive Income
R’000
Investment property income
Straight-line rental adjustment
Revenue
Property expenses
Net property income
Other income
Other operating expenses
Asset management fees
Operating profit
Finance income
Finance costs
Fair cost amortisation
Fair value adjustments
Capital items
Profit before debenture interest and tax
Debenture interest
Profit before amortisation of debenture premium
Amortisation of debenture premium
Profit before income tax
Income tax
Profit for the year
Total comprehensive income for the year
Basic and diluted earnings per linked unit (cents)
Comparable basic and diluted earnings per share/linked unit (cents)
Headline earnings per share (cents)
Comparable headline earnings per share/linked unit (cents)
Distribution per share/linked unit (cents)
Property costs / property income
Unaudited
year to
31-Dec
2014
169,918
7,093
177,011
(57,406)
119,605
14,695
(2,811)
(6,313)
125,176
1,441
(30,307)
(234)
(2,163)
(114)
93,799
93,799
93,799
(120)
93,679
93,679
52.79
52.79
45.10
45.10
44.68
33.8%
Unaudited
year to
31-Dec
2013
124,534
2,380
126,914
(44,133)
82,781
5,800
(2,231)
(4,502)
81,848
1,107
(16,110)
909
67,754
(67,649)
105
2,159
2,264
(593)
1,671
1,671
1.17
47.00
1.17
47.00
40.00
35.4%
Audited
year to
30-Jun
2014
271,759
1,839
273,598
(89,571)
184,027
5,444
(4,689)
(9,588)
175,194
8,299
(41,421)
114,827
(9)
256,890
(64,022)
192,868
2,159
195,027
(370)
194,657
194,657
123.60
162.88
53.28
92.56
85.47
33.0%
20
Investment Income and Expenses analysis
R’000
Investment property income
Consist of:
Rental income
Recoveries from tenants
Recovery of assessment rates
Recovery of electricity
Recovery of water
Recovery of other municipal charges
Recovery of operating expenses
Property expenses
Assessment rates
Electricity consumption
Water consumption
Other municipal charges
Operating expenses
Repairs and maintenance
Property management fees
Unaudited
year to
31-Dec
2014
169,918
Unaudited
year to
31-Dec
2013
124,534
Total
growth
%
36.4
Growth
from
acquisitions
%
26.6
Growth
from
core portfolio
%
9.8
133,777
36,142
6,725
21,511
2,404
2,048
3,454
99,045
25,488
4,590
14,919
1,303
1,287
3,389
35.1
41.8
46.5
44.2
84.4
59.2
1.9
25.7
29.7
27.7
35.4
18.3
(8.4)
154.6
9.4
12.1
18.8
8.8
66.1
67.6
(152.7)
(57,406)
(12,132)
(19,723)
(2,398)
(1,943)
(14,847)
(1,947)
(4,416)
(44,133)
(8,812)
(15,095)
(1,312)
(1,434)
(12,039)
(1.722)
(3,719)
30.1
37.7
30.7
82.7
35.5
23.3
13.1
18.8
26.6
23.9
44.9
3.0
18.2
3.5
13.6
(14.2)
79.7
17.3
57.6
32.5
(44.5)
(13.8)
21
Detailed Expense Breakdown
3%
0%
1%
3%
6% 0%
21%
5%
0%
5%
31 Dec’14
8%
5%
3%
34%
4%
4%
0%
1%
2%
Management fees
5% 1%
20%
5%
1%
31 Dec’13
7%
8%
6%
34%
3%
3%
6% 1%
6%
16%
1%
1%
2%
5%
31Dec’12
1%
6%
9%
37%
4%
3%
3%
22
Statement of Financial Position
R’000
ASSETS
Non-current assets
Investment property
Property, plant and equipment
Other non-current assets
Deferred tax
Current assets
Trade and other receivables
Investment property reclassified as held for sale
Income tax receivable
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity
Ordinary share capital
Retained earnings / (Accumulated loss)
Non-distributable reserve
Debentures
Shareholders interest
Other liabilities
Other non-current liabilities
Other financial liabilities
Lease liability
Current liabilities
Current portion of other financial liabilities
Trade and other payables
Linked unit holder for distribution
Current tax payable
Total liabilities
Total equity and liabilities
Shares in issue (‘000)
Net asset value per share (cents)
Net tangible asset value less deferred tax per share (cents)
Unaudited
year to
31-Dec
2014
Unaudited
year to
31-Dec
2013
Audited
year to
30-Jun
2014
3,157,488
3,140,400
7,102
6,231
3,755
117,021
54,606
24,000
4,563
33,915
3,274,509
1,856,056
1,838,450
6,381
6,408
4,817
56,725
15,211
41,514
1,912,781
2,219,986
2,202,525
7,925
5,781
3,755
113,501
23,824
24,000
1,228
64,449
2,333,487
2,077,541
1,409,830
667,711
2,077,541
454,317
423
(50,253)
504,147
1,031,257
1,485,574
1,592,316
945,436
646,880
1,592,316
1,120,686
1,074,289
46,397
76,282
76,282
1,196,968
3,274,509
319,459
319,459
107,748
40,043
67,649
56
427,207
1,912,781
360,066
360,066
381,105
337,277
43,828
741,171
2,333,487
208,498
996.43
994.63
169,122
877.81
874.96
160,210
993.89
991.55
23
Investment property
Total portfolio (including new acquisitions)
New acquisitions concluded
3,140,400
925,077
Portfolio growth for the six months
42.6%
Acquisitions
42.0%
Capital appreciation
0.3%
Straightline
0.3%
31 Dec 2014
30 Jun 2014
Y-o-y movement
Vacancies
3.5%
5.3%
(43.5%)
Commercial
3.3%
5.1%
(45.0%)
Retail
0.1%
0.2%
(50.0%)
Industrial
0.1%
-
100.0%
24
DEBT PROFILE
45.2%
48.7% of debt hedged (49.2% at 30 June 2014)
Average length of swaps 2.8 years
Average blended rate 8.27%
21.1%
19.4%
14.3%
0.0%
0.0%
Dec 2014
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Dec 2019
25
PROPOSED BEE TRANSACTION
Proposed BEE Transaction
Overview
 Issue of shares to the newly formed BEE Consortium to the value of R443.5m, circa 20% issued at 30 day VWAP (no discount)
 PIC to fund the BEE parties to acquire the subscription
TPF
 Lock-in period of 6 years
 Total BEE shareholding to be greater than 25% on subscription date
 Achieves a Level 3 BEE rating in line with peer companies
TPI
 BEE partners (as detailed below), and PD Naidoo (through the PD Naidoo Family Trust) entered into operational agreements with TPI as part of a further
empowerment initiative which will ensure significant transfer of property and property asset management skills to previously disadvantage persons
 TPI remains responsible to Texton for the performance of all obligations under its asset management agreement with Texton
Structure and partners
Zava Capital
60%
Jade Capital Partners
Ditikeni
30%
10%
BEE Consortium
Operating
Agreements
Zava
Jade
Ditikeni
PD Naidoo Family Trust
20%
Texton Property Fund
Asset Management
Agreement
TPI
(Manco)
Zava Capital
Jade Capital Partners
Ditikeni
 Zava is a successful diversified investment
company which is 100% owned, managed and
controlled by Black People
 Jade Capital Partners is an investment holding
company which is 100% owned, managed and
controlled by Black People who are women
 Ditikeni is an investment holding group that
makes long-term investments as a broad-based
BEE entity
 Founders and shareholders are Romeo
Makhubela and Patrick Ntshalintshali both of
whom have extensive experience in asset
management
 Founded by Bukelwa Bulo and Zola Ntwasa
who both have extensive banking and property
experience
 Currently has eighteen shareholders, all of
which are non-profit organizations serving
communities of Black People at a grassroots
level
27
Salient terms of the PIC Put Option
PIC Put Option triggers
Exercise of the PIC Put
Option
Texton obligations
The PIC Put Option will be triggered by the breach of the following covenant (s) in terms of the PIC Loan
Agreement:
 Interest Cover by the BEE Consortium of 0.75x;
 Minimum Share Cover of 0.75x in year 1; 0.85x in year 2; 1.0x in year 3; 1.1x in year 4; 1.25x in years 5
and 6;
 Interest Cover by Texton of 2.0x;
 Maximum Loan to Value for Texton of 45%;
 Continued payment of distributions by Texton; and
the failure by the BEE Consortium to pay on the due date any amount payable pursuant to the PIC Loan
Agreement (“Default Event”).
In the occurrence of a Default Event in circumstances where the PIC wishes to call for an early repayment
of the PIC Loan through the exercise of the PIC Put Option, the PIC shall:
 First effect a cash sweep of all distributions paid to the BEE Consortium (less applicable taxation and
approved administration expenses)
 Thereafter call on the BEE Consortium to remedy the relevant Default Event within a period of not less
than 15 (fifteen) business days
 Thereafter, within a further period of 21 (twenty one) business days immediately following the period
above, with the approval of Texton, procure the sale of sufficient the Texton shares issued to the BEE
Consortium in order to restore any covenant or remedy any breach
 After which, and failing the remedy of any Default Event by the end of 36 (thirty six) business days, the
PIC shall be entitled to exercise the PIC Put Option
Within 90 (ninety) days of receiving a notice from the PIC relating to the exercise of the PIC Put Option,
Texton will be required to purchase the relevant Texton shares issued to the BEE Consortium from the
PIC and pay to the PIC an amount equal to the outstanding PIC Loan balance at that time (Texton has
effectively 4 months before the PIC can call on the PIC Put Option)
Notwithstanding the above, the exercise of the PIC Put Option will be subject to the Companies Act and
any other statutory or regulatory requirements and will require the approval of resolutions passed by
Texton shareholders at that time
28
Proposed BEE Transaction addresses Texton’s objective of having meaningful, sustainable
and commercially driven BEE shareholding and will provide a significant competitive
advantage to Texton in the execution of its growth strategy
RATIONALE
Advance Texton’s
contribution to
transformation and
enhance growth in the
sector
Compliance with BEE
Guidelines
Black ownership will be
c.25% (post
transaction)
Improve gearing
capacity
Business imperative
with Govt. occupying
20% of GLA
Significant skills
transfer
Powerful mix of
commercial and
property sector
networks and BEE
credentials
29
BEE SELECTION PROCESS
Ensure maximum compliance
with BEE Codes
Inclusion of broad-based BEE
participants and new entrants
Existing networks and alliances
within the property sector
leading to improved deal flow
Ability to assist Texton with its
broader transformation
initiatives
Good commercial acumen and
track record
Ability to add value to growth
strategy & provide commercial &
operating assistance to Texton
BEE CONSORTIUM
Romeo Makhubela
Zava Capital
Patrick Ntshalintshali
Zava Capital
Bukelwa Bulo
Jade Capital Partners
Zola Ntwasa,
Jade Capital Partners
Sahra Ryklief
Ditikeni
 Romeo has held various senior positions in reputable companies including Vunani Fund Managers,
Metropolitan Asset Managers, STANLIB and Liberty Asset Management
 Patrick has held various senior positions at Vunani Fund Managers and Old Mutual Asset
Managers and previously served on the board of Mvelaphanda as a non-executive director
 Bukelwa has over 12 years of experience in Investment Banking, having worked for 11 years in the
Private Equity Division of Investec Bank Limited. Bukelwa is currently a non-executive of Unispan
Holdings and Franki Geotechnical Proprietary and a member of the Women’s Property Network in
Gauteng
 Zola has extensive property sector experience having previously been a director in the Real Estate
Finance Division of Standard Bank, heading up the New Business Team, where she was a member
of the Executive Committee and the Deal Approval Committee. Zola currently serves as a nonexecutive director on the board of Hospitality Property Fund and is the Chairperson of the
Women’s Property Network (Gauteng) and member of The South African Property Owners
Association
 Sahra is the Secretary General of the International Federation of Worker’s Education Association
(IFWEA), a position she has held since 2008. Sahra was a former director of the Labour Research
Service (LRS), a position she held for a decade, until 2007. Sahra holds a master’s degree in
political science from the University of Liverpool and is an adjunct professor in the School of
Management and Labour Relation at Rugters University, New Jersey, USA
30
BEE shareholding comparative analysis
Introduction
 A comparative analysis of Texton with industry peers in the public sector and government leased property
segment of the property sector is as follows against the current generic scorecard:
Scorecard
Dipula Income Fund Limited
Delta Property Fund Limited
Ownership
20.00
Management & control
Texton Property Fund Limited
Before
After
18.00
1.66
20.00
9.51
7.75
3.10
3.10
Employment equity
0.00
0.00
0.00
0.00
Skills development
0.00
0.00
0.00
0.00
Preferential procurement
13.08
19.18
18.58
18.58
Enterprise development
10.00
8.55
10.00
10.00
Socio-economic
development
0.00
0.01
2.00
2.00
Economic development
8.00
0.00
0.00
0.00
Level 3
Level 2
Level 5
Level 3
BEE rating

The implementation of the Proposed BEE Transaction will enhance Texton’s empowerment credentials in the public sector and
government leased property segment of the property sector
Conclusion

This will provide a competitive advantage to Texton in the implementation of its organic and acquisition growth strategies

Under the Revised DTI BEE Codes which will come into operation on 30 April 2015, Texton anticipates achieving a Level 3 BEE rating
after the implementation of the Proposed BEE Transaction. The rating after the Proposed BEE Transaction is indicative only and is
subject to final sign off by an accredited BEE rating agency
31
Summary of salient dates and times
Last day to receive
irrevocable
undertakings/letters
of support
4 March
2015
Issue of shares to the
BEE Consortium
Record date to be eligible to vote
at the General Meeting
6 March 2015
13 March
2015
Announcement of the results of
the General Meeting published
in the press
19 March
2015
20 March
2015
23 March
2015
26 March
2015
Subscription for
Texton shares by the
BEE Consortium
Last day to trade Texton
shares in order to be recorded
in the register to vote at the
General Meeting
Texton General
Meeting to vote on
the Proposed BEE
Transaction
32
UNITED KINGDOM
STRATEGY, ACQUISITIONS AND PIPELINE
Investment into the United Kingdom
The acquisitions
provide Texton
with a low risk
platform to
conclude further
portfolio
enhancing
transactions in the
UK in a manner
consistent with its
investment
strategy
1
 Consistent with Texton’s stated strategy, the acquisitions take cognisance of the need for
geographic and sectoral diversification however not at the expense of growth and quality
 Initial acquisition of 2 low risk, long lease (+10 years), triple net payable quarterly (i.e.
management is minimal) let to AAA grade tenants well placed properties in the UK for £15m
(R274m1):
• a well located two-storey office building (“Talk Talk Building”) in Warrington, England; and
• a well-located retail warehouse (“Booker Warehouse”) in Burton-upon-Trent, England
 Salient details pertaining to the acquisitions have been set out in this section of the
presentation
 Texton has additional UK pipeline of c.13,707m2 (Q2 2015)
 Each property is held in its own company that is BVI domiciled and Texton owns directly 100%
of each BVI
 Administration is via British Virgin Isles
 Argo Real Estate Limited will be property managers (current managers in UK) until such time
as we establish a UK presence
 BVI has a tax treaty with UK (unlike SA)
 HMRS allows a deduction for tax pusposes
 Loan amount above 55% is at mezzanine rates
 Assets have been geared which impacts on our BS agility however loans are in GBP to
minimise currency risk
Converted at an exchange rate of £:17.98, being the spot rate as at 19 February 2015
34
RATIONALE
RATIONALE AND UK STRATEGY
Initial target of 25% 30% of total property
portfolio situated in
the UK
Potential upward
rental reversion
Pricing of property
acquisition
opportunities and
related financing in
domestic UK currency
is attractive
The UK is a region with significant economic stability
and growth prospects
TEXTON
INVESTMENT
INTO THE UK
Geographic and risk
diversification beyond
the South African
borders into the UK
TPI management has
extensive knowledge
and experience in the
UK
Transactions are yield
accretionary
“Asset type” is consistent with Texton’s current
portfolio
•Office, industrial and retail
•Underpin of strong tenant covenants & long lease
expiry profiles
35
OVERVIEW OF THE PROPERTIES
Talk Talk Building
Overview
 Two story office building, fully refurbished in 2003 and is an established high density call centre
 Tenant is Talk Talk Communications Limited (guaranteed by Talk Talk Telecom Group Plc, a London Stock Exchange listed company and a
constituent of the FTSE 250 Index)
 Full repairing and insuring (triple net) lease expiring in December 2025
Salient terms of the Talk Talk Building acquisition
Agreed purchase price
Gross Independent valuation
Purchase yield
Lease expiry
Tenancy
1
2
Location
£13,699,342 (R246.3m1)
Warrington, England
Sector
Office
£12,981,8062 (R233.4m1)
GLA (m2)
5,090.39
7.34%
Vacancy
0%
31 Dec 2025
Single
Weighted ave net rental per m2
Price per m²
£16.47 (R290.97)1
£2,691.22 (R48,388.14)1
All ZAR amounts have been converted at an exchange rate of £:17.98 , being the spot rate as at 19 February 2015
Difference in the purchase price and the gross independent valuation are supported by the fact that this is an off-market share transaction with opportunity to acquire a portfolio of properties
36
OVERVIEW OF THE PROPERTIES
Booker Building
Overview
 Comprises a two bay detached retail warehouse of steel frame construction
 Tenant is Booker Limited (a wholly owned subsidiary of Booker Group Limited, a London Stock Exchange listed company and a constituent of
the FTSE 250 Index)
 Booker has occupied the building for 20 years and operates a wholesale cash and carry business out of the Booker Building servicing the busy
Derby region
 Full repairing and insuring (triple net) lease expiring in June 2025
Salient terms of the Booker Building acquisition
Agreed purchase price
Gross Independent valuation
Purchase yield
Lease expiry
Tenancy
1
2
Location
£1,540,412 (R27.7m1)
Sector
Burton-upon-Trent,
England
Retail
£1,518,8602 (R27.3m1)
GLA (m2)
3,825.99
7.63%
Vacancy
0%
16 Jun 2025
Single
Weighted ave net rental per m2
Price per m²
All ZAR amounts have been converted at an exchange rate of £:17.98 , being the spot rate as at 19 February 2015
Difference between the purchase price and independent valuation is considered to be immaterial
£2.56 (R46.02)1
£402.62 (R7,239.07)1
37
UK Pipeline
TEXTON HAS A
SOLID PIPELINE
OF UK
ACQUISITIONS
 Retail and office portfolio
 Approximately 13,707m2 (Q2 2015) under negotiation
 Long lease expiry profiles
 Blue chip listed tenants
 c.25% of assets will be in the UK (c.R860m) by FYE
38
OUTLOOK AND CONCLUSION
A solid platform on which to build into the future has been established. Portfolio
continues to perform well (despite difficult economic environment)
Continued focus on our
strategy of growing the fund
with yield enhancing assets
without compromising on
quality
Additional expansion into the
UK following acquisition of 2
well-placed properties in the
£15.2m and additional
pipeline at an advanced stage
Greening projects are
progressing well and fund
remains committed to this
strategy
OUTLOOK
Leverage our BEE credentials.
BEE transaction to be voted
on 19 March 2015
Hard at work on leases
expiring in the next 12
months and are confident
that we will keep our
vacancies well below country
averages
Perform in line with or above
the listed property sector
performance for the next
financial year
40
CONCLUSION
PORTFOLIO






Current portfolio has limited risk
Continue to deliver above market distributions
Skills, networks and staffing to take Texton to the next level
Diversified geographic and sectoral spread
Solid pipeline
Deliver on strategy
PROPOSED BEE
TRANSACTION





Enhanced BEE rating
Excellent new BEE partners
Business imperative
Vote to take place on 19 March 2015
No yield dilution for existing shareholders
UK ACQUISITIONS
 Low risk entry to UK
 UK is recovering and poised for growth
 Acquisitions take cognisance of the need for geographic and sector diversification
however not at the expense of growth and quality
 Further pipeline of acquisitions (Q2 2015)
LTV POST BEE AND
UK
 Current LTV of 34.7%
 LTV of 35.4% post BEE and UK transactions (assuming funds from BEE are used for
property acquisitions)
41
ANNEXURE I
ACQUISITIONS IN PAST 6 MONTHS
42
Kempstar Mall
Investment highlights and tenant profile by revenue



Kempstar Mall
Anchored by Cambridge Foods expiring in 2021 (GLA: 1,470m2).
Other tenants include Old Mutual Finance, Capitec, ABSA and KFC
(Yum Foods) and leases are all market related
Centre is located on the very busy Kempton Park Station and has
high trading densities
Provides access to the station directly through the property
38.3%
45.6%
Large national / large
listed / Government
Listed National
Other
16.1%
Location
Salient terms of the Kempstar Mall acquisition
Agreed property value
Purchase yield (forward to June 2015)
Weighted average escalation
Weighted average lease expiry
Tenancy
Kempton Park
R93.6m
Sector
Retail
9.41%
Grade
B
8.0%
2.77 years
62% blue chip
GLA
Vacancy
6,019 m2
0%
Weighted average gross rental
R155.26 per m2
Price per m²
R15,551 per m2
43
Woodmead Commercial Park
Investment highlights and tenant profile by revenue
Woodmead Commercial Park

Well located within the greater Woodmead value node and is
undergoing rejuvenation

The property has been improved with a value centre offering that
have excellent exposure to the busy M1/N1 freeway
40.2%
59.8%
Listed National
Other
Location
Salient terms of the Woodmead Commercial Park acquisition
Agreed property value
Purchase yield (forward to June 2015)
Weighted average escalation
Weighted average lease expiry
Tenancy
Woodmead
R112.4m
Sector
Retail
9.93%
Grade
B
7.9%
2.34 years
Multi-tenant
GLA
Vacancy
13,086 m2
4.85%
Weighted average gross rental
R83.98 per m2
Price per m²
R8,589 per m2
44
Kuper-Legh Industrial Park
Investment highlights and tenant profile by revenue



Kuper-Legh Industrial Park
Well established within the Hermanstad Industrial node, approximately
5 kms north of the PTA CBD
The node has seen good interest from tenants who require larger
premises and good freeway access
38.3% of tenants are large national / large listed including Defy SA,
Metrofile, Steiner, Bidvest and Tshwane University of Technology
38.3%
39.1%
Large national / large
listed / Government
Listed National
Other
22.6%
Location
Salient terms of the Kuper-Legh Industrial Park acquisition
Agreed property value
Purchase yield (forward to June 2015)
Weighted average escalation
Weighted average lease expiry
Tenancy
Hermanstad
R143.2m
Sector
Industrial
9.75%
Grade
B
9.3%
1.81 years
61% Blue chip
GLA
Vacancy
44,029 m2
2.63%
Weighted average gross rental
R32.13 per m2
Price per m²
R3,252 per m2
45
54 Bompas Road
Investment highlights and tenant profile by revenue



54 Bompas Road
Offices of Kuper-Legh Property Management and Texton
Lease expiry profile of 4.92 years
Has a low bulk. Most properties in Bompas Road are being rezoned
and a bulk of 1.0 is easily achievable.
13.3%
Large national / large
listed / Government
Other
86.7%
Salient terms of the 54 Bompas Road acquisition
Agreed property value
Purchase yield (forward to June 2015)
Weighted average escalation
Weighted average lease expiry
Tenancy
Location
Dunkeld
R13.5m
Sector
Office
9.25%
Grade
B
6.5%
4.92 years
Single-tenant
GLA
Vacancy
750 m2
0%
Weighted average gross rental
R 140.76 per m2
Price per m²
R18,000 per m2
46
Blue Strata
Investment highlights and tenant profile by revenue



Blue Strata
Tenant is Blue Strata Trading, a Blue Chip, well established, solid
company and are fully backed by Investec as significant shareholders
Lease expiry profile of 4.17 years
Is one Erf away from Texton’s Linger Longer/Vodacom site. The site
can be bulked up considerably and Texton will also try and secure
the in-between property
Large national / large
listed / Government
100.0%
Location
Salient terms of the Blue Strata acquisition
Agreed property value
Purchase yield (forward to June 2015)
Weighted average escalation
Weighted average lease expiry
Tenancy
Wierda Valley
R40.2m
Sector
Office
9.25%
Grade
A
8.0%
4.17 years
Single-tenant
GLA
Vacancy
1,806 m2
0%
Weighted average gross rental
R173.60 per m2
Price per m²
R22,259 per m2
47
Kya Sands
Investment highlights and tenant profile by revenue
Kya Sands

Well located within the greater Kya Sands node

Malibongwe Drive is the main access route through this area and
provides easy access to the N14 and N1 freeways
Other
100.0%
Location
Salient terms of the Kya Sands acquisition
Kya Sands
Agreed property value
R40.6m
Sector
Industrial
Purchase yield (forward to June 2015)
11.81%
Grade
C
Weighted average escalation
Weighted average lease expiry
Tenancy
8.2%
1.50 years
Multi-tenant
GLA
Vacancy
12,909 m2
0%
Weighted average gross rental
R37.79 per m2
Price per m²
R3,145 per m2
48
Selby
Investment highlights and tenant profile by revenue
Selby

Selby and Crown Mines are established, mature, industrial nodes and
the surrounding properties are developed

The main building is two stories high with an average floor to ceiling
height of 7m and is situated in Main Reef Road, Selby
Large national / large
listed / Government
100.0%
Location
Salient terms of the Selby acquisition
Selby
R52.7m
Sector
Industrial and
commercial
Purchase yield (forward to June 2015)
9.0%
Grade
B
Weighted average escalation
8.0%
GLA
Agreed property value
Weighted average lease expiry
Tenancy
6.58 years
Multi-tenant
Vacancy
11,419 m2
0%
Weighted average gross rental
R38.98 per m2
Price per m²
R5,062 per m2
49
Babcock
Investment highlights and tenant profile by revenue

Babcock
The property houses Babcock Ntuthuko Engineering Proprietary
Limited, a national tenant, on a four year and 10 month triple net
lease
Large national / large
listed / Government
100.0%
Location
Salient terms of the Babcock acquisition
Babcock
R48.3m
Sector
Commercial
Purchase yield (forward to June 2015)
9.4%
Grade
A
Weighted average escalation
9.0%
GLA
Agreed property value
Weighted average lease expiry
4.5 years
Vacancy
Tenancy
Blue chip
Weighted average gross rental
Price per m²
3,865 m2
0%
R80.00 per m2
R12,503 per m2
50
Quintile
Investment highlights and tenant profile by revenue
Quintile

The property is a multi-storey office block that presents itself
attractively in the Bloemfontein CBD

Bloemfontein has enjoyed steady growth over a sustained period
and its central location in South Africa is of geographic advantage
that the provincial government is exploiting
Large national / large
listed / Government
100.0%
Location
Salient terms of the Quintile acquisition
Quintile
R47.5m
Sector
Commercial
Purchase yield (forward to June 2015)
9.6%
Grade
A
Weighted average escalation
8.0%
GLA
Agreed property value
Weighted average lease expiry
Tenancy
4.75 years
Single
Vacancy
3,404 m2
0%
Weighted average gross rental
R111.58 per m2
Price per m²
R13,954 per m2
51
Scott Street
Investment highlights and tenant profile by revenue
Scott Street

The building is four storeys high, two of which are basement parking

The architecture and finishes are commensurate with an A grade
office block
Large national / large
listed / Government
100.0%
Location
Scott Street
R107.8m
Sector
Commercial
Purchase yield (forward to June 2015)
9.5%
Grade
A+
Weighted average escalation
8.0%
GLA
Salient terms of the Scott Street acquisition
Agreed property value
Weighted average lease expiry
Tenancy
2.75 years
Single
Vacancy
4,329 m2
0%
Weighted average gross rental
R177.40 per m2
Price per m²
R24,834 per m2
52
St Georges Mall
Investment highlights and tenant profile by revenue
St Georges Mall

The property comprises two sectional title units located on the 1st
and 2nd floors in the scheme known as 5 St Georges Mall

It is a mufti-tenanted, multi-storied superbly renovated office block
on St George’s Mall in the centre of the CBD
Large national / large
listed / Government
100.0%
Location
Salient terms of the St Georges Mall acquisition
Agreed property value
Purchase yield (forward to June 2015)
Weighted average escalation
Weighted average lease expiry
Tenancy
St Georges Mall
R21.1m
Sector
Commercial
10.5%
Grade
B
8.0%
2.75 years
Single
GLA
Vacancy
1,242 m2
0%
Weighted average gross rental
R148.80 per m2
Price per m²
R17,013 per m2
53
Edcon
Investment highlights and tenant profile by revenue
Edcon

The building houses Edcon (Edgars) Head Office and Call Centre with
8,5 years to run on the triple net lease

The building is a multi-storey office block located in the
Johannesburg CBD

Internally, the specification is A grade
Large national / large
listed / Government
100.0%
Location
Salient terms of the Edcon acquisition
Edcon
R150.5m
Sector
Commercial
Purchase yield (forward to June 2015)
9.9%
Grade
A
Weighted average escalation
7.5%
GLA
Agreed property value
Weighted average lease expiry
Tenancy
8.0 years
Single
Vacancy
28,580 m2
0%
Weighted average gross rental
R43.90 per m2
Price per m²
R5,265 per m2
54