Transcript SACSC Breakfast Presentation

GROWTHPOINT PROPERTIES LIMITED
SACSC BREAKFAST
ESTIENNE DE KLERK
8 APRIL 2014
REIT INDUSTRY OVERVIEW
A short history:
•
2006 Sector approaches National Treasury and SARS
•
2006 REIT Reality Conference
•
2007 National Treasury Discussion paper
•
2009 Whitepaper
•
2011 SEC 8G – TLAB
•
2013 SEC 25BB – REIT Rules
“The Regulation” SEC 13 of JSE Listing Requirements
2
REIT INDUSTRY OVERVIEW
•
3
The sector is dominated by a few large entities, with the biggest 10 accounting for
approximately 80% of the sector market capitalisation

28 listed property entities

Sector market capitalisation of c.R230 billion
50
South African Listed Property Companies
45
Market Cap -R billions
40
35
30
25
20
15
10
5
Synergy
Vividend
Vunani Prop
Octodec
Dipula
Premium
Hospitality
Arrowhead
Rebosis
Sycom
Emira
Acucap
SA Corporate
Vukile
Fortress
Fountainhead
Resilient
Capital
Hyprop
Investec Prop Fund
Source: Mcgregor
Redefine
GRT
0
Source: Bloomberg
UK
Australia
EPRA
US
SA
Growthpoint
Nov-13
Jun-13
Jan-13
Aug-12
Mar-12
Oct-11
May-11
Dec-10
Jul-10
Feb-10
Sep-09
Apr-09
Nov-08
Jun-08
Jan-08
Aug-07
Mar-07
Oct-06
May-06
Dec-05
Jul-05
Feb-05
Sep-04
Apr-04
Nov-03
Jun-03
Jan-03
Aug-02
Mar-02
REIT INDUSTRY OVERVIEW
4
Historic performance vs interest
SA Listed Property vs Global Property Indices
800
700
600
500
400
300
200
100
-
10-year swap rate
5-year swap rate
1-year swap rate
2-Feb-14
2-Jan-14
2-Dec-13
2-Nov-13
2-Oct-13
2-Sep-13
2-Aug-13
2-Jul-13
2-Jun-13
2-May-13
2-Apr-13
2-Mar-13
2-Feb-13
2-Jan-13
2-Dec-12
2-Nov-12
2-Oct-12
2-Sep-12
2-Aug-12
2-Jul-12
2-Jun-12
2-May-12
2-Apr-12
2-Mar-12
2-Feb-12
2-Jan-12
In %
DEBT
5
9
8.5
8
7.5
7
6.5
6
5.5
5
4.5
4
REIT INDUSTRY OVERVIEW
6
Asset Type
2% 1% 1%
15%
Retail
Office
Industrial
Hotels
Residential
28%
53%
Source: STANLIB Research
Other
0
Source: Avior Research
Hyprop
Acucap
Sycom
Emira
Capital Property
Redfine Properties
Growthpoint
Resilient
Fortress
Investec Australia
Capital & Countires
Intu
Rockcastle
Redfine International
NEPI
REIT INDUSTRY OVERVIEW
7
Foreign exposure
Foreign earnings as a % of total earnings
1
0.8
Australian Dollar
0.6
British Pound
Euro
0.4
US Dollar
0.2
SOUTH AFRICAN LISTED REAL ESTATE
8
• The South African listed property sector has experienced significant
growth over the past 10 years
230
198
200
Market Cap -R Billions
226
2014
South African Listed Sector
250
2013
• South Africa’s listed largest property company, Growthpoint, now has a
market capitalisation of R51 billion compared to R30 million in 2002
144
150
129
100
100
95
103
71
53
50
36
2012
2011
2010
2009
2008
2007
2006
2005
Source: Mcgregor
2004
0
SOUTH AFRICAN LISTED REAL ESTATE (cont’d)
•
9
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
80%
Sector Liquidity
70%
Liquidity % (year)
60%
Growthpoint
Hyprop
50%
Acucap
SAC
Redefine
FPT
40%
Emira
30%
Capital
Vukile
Sycom
Resilient
20%
Investec
10%
0%
Source: Mcgregor
0
10
20
30
Market Cap -R (billion)
40
50
60
REIT INDUSTRY OVERVIEW
Capital Raised
Year
Amount Raised
2011
R16bn
2012
R11bn
2013
R18bn
2014 (up to Feb)
R1bn
R46bn
Source: STANLIB Research
10
SOUTH AFRICA ENTERED A NEW REIT ERA
11
• 75% of South Africa’s listed property companies were not REITs
• These companies now 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 is the 8th largest REIT market globally
• South Africa’s largest listed property company, Growthpoint Properties
Limited (“GRT”) is the 40th largest REIT globally by market capitalisation
• Excluding the US REITs, GRT is the 15th largest REIT globally by market
capitalisation - the largest in emerging markets
WHO RANKS LARGEST IN WHAT COULD BECOME THE
8TH LARGEST REIT MARKET GLOBALLY?
•
US REITs still dominate globally
•
South Africa could become significant REIT
market
Turkey Belgium
2%
2%
Hong
South Kong
Africa 5%
6%
Non-US
global REITs
39.0%
Australia
24%
Singapore
9%
US REITs
61.0%
UK
11%
France
15%
Canada 13%
Japan
13%
Source: Bloomberg, Macquarie Research
12
Source: Bloomberg, Macquarie Research
WHO RANKS LARGEST IN WHAT COULD BECOME THE
8TH LARGEST REIT MARKET GLOBALLY?
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Australia
France
Canada
Japan
UK
Singapore
Source: Bloomberg, Macquarie Research
SA
Hong Kong
Turkey
Belgium
13
BENEFITS OF REITs
•
14
The smallest investor can obtain exposure to large commercial property e.g. V & A
Waterfront, Hyde Park Shopping Centre etc.
•
Property is a separate asset class that has different correlations to cash, bonds and equity
•
Investment is liquid and tradeable with low transaction costs
•
Benefit of scale and diversification reducing risk
•
Pre-tax yield that is predictable
•
Due to professional management and lower costs of debt it outperforms physical property
•
Ease of funds introduced and remitted is extremely comforting for foreign investors
•
Make use of the competitive labour costs: in professional services, wages are around 50% of
levels in Europe, and for manufacturing jobs, labour costs are around 1/3 cost of Europe
•
Been great performer over the past 14 years vs other asset classes:
Average return per annum:
• 5 year return
• 10 year return
-
13,5%
22,0%
Source: Old Mutual
15
SA REIT REGIME
WHY DID WE NEED REITS
16
•
Disparate and inconsistent tax regime for property investment entities
•
Internationally recognised tax dispensation optimal for the growing
industry
•
•
Current listed property entities have inherent tax problems
•
Usurious/excessive interest on debentures
•
Debenture interest deductibility problems
•
Capital Gains Tax (CGT) on property sales – double tax
Empowerment
STRUCTURE OF REGIME
17
Listed on JSE REIT Board
PLSs 20
Company REIT
JSE “Regulator”
PUTs 6
Trust REIT
Listings Requirements
Section 13
Taxation
Legislation
Amendment Bill
(2013) (TLAB)
Tax
Dispensation”
Section 25BB
REGULATION
•
•
•
Objective: -
Provide investor protection
•
Ensure prudent management without unnecessarily removing
flexibility
•
Transparency and good governance
Regulator:
Johannesburg Stock Exchange (JSE)
Regulatory Rules: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”
•
•
•
•
18
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
Empowerment
TAXATION
•
Tax Act remains applicable in full and each REIT has to submit tax returns
annually for the listed entity and its subsidiaries
•
REITs retain tax losses accrued to date
•
Applicable to controlled property companies - subsidiary as defined by IFRS
•
Section 25BB provides the tax dispensation
 No entry tax to become a REIT
 No CGT on sale of properties
 All Section 13 property allowances fall away
 Distributions on shares and debentures are deductible expenses
 Profit on minority stakes (<20%) and financial instruments disposal to be
deemed income
 Rental / distribution received on minority shares not part of “rental income”
19
IMPLICATION FOR INVESTORS
Local Investor
•
Will receive gross distribution in the form of taxable dividend free of dividend
withholding taxes
•
Tax on distribution at each shareholder’s applicable tax rate
•
Shareholders can use debt to acquire REITs and the interest paid should be
deductible in the production of income as treasury see the dividend as “rental” in
essence
Foreign Investor
•
Will be liable to pay dividend withholding tax at 15% post 1 January 2014 or
the relevant rate set in the applicable double tax agreement
20
REMAINING REITs TAX ITEMS FOR ATTENTION
• Disposal - <20% of holdings in property companies
• Depreciation of leasehold improvements and machinery and equipment
• Property company liquidations
• Inwardly listed property companies and foreign REIT income
• “Saving incentive”
• Unlisted property companies
21
22
SECTOR UPDATE
FUNDAMENTALS
•
Office
•
Industrial
•
Hotel
23
RETAIL: OUR SHOPPER
Upstairs:
Resilient –
•
High debt levels but mainly limited to asset finance and has experience on how to manage
debt.
•
High employment levels with relative strong growth in income
•
Appreciating assets
BUT
•
Negative sentiment on future – Rand collapse, politics, government, labour
•
Increasing interest rates
•
Erosion of disposable Income : - education, medical costs, tolls, indirect taxes
Downstairs:
Fragile •
Costs of upward mobility – schooling, utilities, transport, peer group pressure
•
Unsecured lending freeze
•
No new grants and sub-inflation growth of existing grants
•
Unemployment / strikes – direct impact and ubuntu
24
RETAIL: FOOTCOUNT/M2
25
40
36.036.4
35
33.233.4
30
25
20.920.2
20
15
15.7
14.4
16.015.5
15.9
14.7
13.914.1
15.015.0
14.314.9
13.313.2
16.115.7
14.414.1
11.6
16.216.1
13.0
10
5
0
IPD Regional Centres
2012 Ave Footcount/m²
2013 Average Footcount/m²
RETAIL: YEAR-ON-YEAR RETAIL SALES GROWTH
26
RETAIL: MAJOR CENTRE’S TRADING PERFORMANCE
JANUARY 2013 – DECEMBER 2013
CENTRE
27
YR-ON-YR TRADING DENSITY
GROWTH 2012/13
AVERAGE TRADING DENSITY
AVERAGE SPEND PER HEAD
13%
R 2,532
R 179
LAKESIDE MALL
2%
R 1,840
R 119
WATERFALL MALL
-8%
R 2,681
R 183
KOLLONADE
5%
R 2,648
R 201
WOODMEAD RETAIL PARK
6%
R 2,715
NO FOOTCOUNT
NORTHGATE
3%
R 1,679
R 123
THE CONSTANTIA VILLAGE
7%
R 5,659
R 170
LA LUCIA MALL
10%
R 2,659
R 177
WALMER PARK
8%
R 2,462
R 165
RIVER SQUARE
3%
R 1,939
R 138
GOLDEN ACRE
6%
R 2,388
NO FOOTCOUNT
14%
R 2,674
R 170
CITY MALL
4%
R 1,911
R 95
BEACON BAY
4%
R 1,723
NO FOOTCOUNT
HATFIELD PLAZA
5%
R 2,099
R58
CITY VIEW
1%
R 1,495
R 93
BROOKLYN MALL
LONGBEACH MALL
RETAIL: RENTAL AFFORDABILITY
Building Name
BROOKLYN MALL 82 - 75 %
LAKESIDE MALL
WATERFALL MALL
LA LUCIA
KOLONNADE 50%
NORTHGATE 50%
WALMER PARK SHOPPING CENTRE
WOODMEAD RETAIL PARK
THE CONSTANTIA VILLAGE
ALBERTON CITY (100%)
GLA
55,880
67,825
49,215
36,526
37,111
42,847
42,913
54,891
1,064
104
1,494
415
853
847
140
111
20,411
47,618
455,237
HYPROP
Canal Walk
Hyde Park
The Glen
Somerset Mall
Woodlands
Clearwater
Cape Gate
Vacancy
40
1,305
6,373
Value
1,855,200,000
1,166,000,000
1,242,200,000
991,200,000
885,700,000
741,400,000
824,400,000
740,900,000
765,400,000
874,400,000
10,086,800,000
28
Value/m2
Gross Rent/m2
33,200
235
17,191
145
25,240
193
27,137
208
23,866
199
17,303
139
19,211
150
13,498
158
37,499
302
18,363
153
Cost of
Occupancy
6.0%
7.0%
5.9%
6.3%
7.8%
8.3%
6.8%
5.9%
5.2%
7.1%
22,157
8.9%
8.6%
7.9%
7.5%
6.8%
6.7%
6.1%
29
INDUSTRY ISSUES AND TRENDS
INDUSTRY ISSUES
•
Rates and Taxes
•
Government
 Local
 National
•
Legislation and Regulation
•
Lack of investment opportunities
•
Growth in the economy
•
Over renting
•
Change in office layouts
•
Online shopping
•
Green buildings
•
Empowerment
30
FUTURE TRENDS
• Less capital
• More expensive capital
• Consolidations
• Continued pressure on institutional property owners for liquidity
• Development exposure
• Emerging Africa
• Bigger, more transparent sector
31
THANK YOU
MONTCLARE PLACE, Cape Town