Keillen Ndlovu Head: Listed Property Funds Sept 2015 STANLIB Property Income Fund: Returns to 31 August

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  • Keillen Ndlovu Head: Listed Property Funds Sept 2015

  • We are the

    biggest listed

    property asset

    manager in South

    Africa

    We cover all

    property markets

    in the world

    Property products

    across all regions

    and managed

    internally

    Only Africa Listed

    Property Fund in

    the world

    Our Emerging

    Markets

    Property Fund

    is one of the

    few in the world

    Ranked top

    quartile across

    global property

    universe

    DID YOU KNOW?

    Awards for STANLIB

    Global Property

    Feeder Fund •2012 Morning Star

    •2014 Raging Bulls

    Most awarded

    local property fund •6 Financial Mail

    S&P/Micropal/

    Morningstar Awards

    •7 Raging Bull Awards

  • Buy land, they are not making it anymore.

    Mark Twain

    “ “ Local Property (South Africa)

  • STANLIB Property Income Fund: Returns to 31 August 2015

    Source: STANLIB Performance Gross Total Returns 31 August 2015 *annualised

    4

    1 Month

    3

    Months

    6 Months

    Year to date

    1 Year

    3 Years*

    5 Years*

    10 Years*

    Since Inception

    (2002) *

    STANLIB Property Income Fund -0.30 4.41 2.27 12.95 28.66 16.73 20.74 21.20 24.89

    SA Listed Property Index 0.22 4.99 1.41 12.34 27.50 15.30 19.49 19.68 23.75

    Relative Performance -0.52 -0.58 0.85 0.61 1.16 1.43 1.25 1.52 1.14

  • Asset Class Performance Year-To-Date

    Source: I-Net Bridge 31 August 2015

    5

  • Asset Class Performance over the last 10 Years

    Source: I-Net Bridge 31 August 2015

    6

  • Underlying Property Fundamentals Fairly Good

    Source: STANLIB Research & Company Data 03 September 2015

    Company

    Income Growth

    Reported

    Income Growth Outlook

    Vacancy Trend

    Resilient 19.13% 18% Down from 2.2% to 2.0%

    Fortress 20.3% 18% Down from 4.9% to 4.1%

    Octodec 9.3% 8% - 9% Down from 11.5% to 10.7%

    Hyprop 15% 10% to 15% Down from 2.4% to 2%

    Rebosis 8.2% 8% to 10% Up from 2% to 2.2%

    Capital 9% 9% Up from 4.5% to 6.7%

    Growthpoint 7.5% 5% to 6% Up from 4.9% to 5.7%

    Arrowhead 19% 11.8% Up from 6.3% to 8.9%

    Vukile 7.8% 7.5% to 8% Down from 6.7% to 5.4%

    SA Corporate 11.2% 10% Down from 3.7 to 3.0%

    Redefine 7.1% 7% - 8% Up from 4.9% to 5.5%

    Fountainhead 5.5% 5% to 6% Down from 11.3% to 6.8%

    Emira 9% 8% to 8.5% Down from 4.5% to 4.0%

    Hospitality -7.7% No guidance

    Investec 10.1% 8% - 10% Up from 2.6% to 2.8%

    Synergy 4% 4% to 6% Up from 3.2% to 6.3%

    Dipula 6.8% 6.5% to 7.5% Down from 12% to 10%

    Delta 15.7% 8% Up from 4.7% to 7.1%

    Fairvest 10.0% 9% to 10% Down from 7.0% to 3.9%

    Texton 10.9% 7.5% to 8% Up from 5.3% to 7.9%

  • Continue to See Appetite for SA Listed Property …but the trend is likely to slow down

    Year Amount Raised

    2011 R16bn

    2012 R11bn

    2013 R18bn

    2014 R40bn

    2015 to date R18bn

    TOTAL R103bn

    Source: STANLIB Research Estimates & Company Data September 2015

    8

  • New Frontier Properties Coopers Square, Burton-on-Trent, UK Source: STANLIB Research July 2015

    9

  • Potential New Listings of Specialist Funds Stor-Age

    Source: STANLIB Research April 2015, Stor-Age Presentation June 2015 10

  • SA Listed Property Sector Exposure

    Source: Afrifocus & STANLIB Research 2014 11

    Retail, 48.9%

    Offices, 31.9%

    Industrial, 14.9%

    Residential, 1.6%

    Other, 2.7%

  • Office Vacancies Stabilising, but Rental Growth Remains Muted

    Source: SAPOA Q2 2015, SBG Securities July 2015 12

  • Sandton Office Developments

    Sasol Head Office - Sasol/Alchemy Discovery Head Office - Growthpoint/Zenprop

    Webber Wentzel Head Office - Redefine Properties Werkmans Head Office - Investec Property Group

    Source: STANLIB Research June 2015

    13

  • New Office Developments Equate to 4% of Existing Office Stock

    Source: SAPOA Q2 2015, SBG Securities July 2015 14

  • Retail Vacancy Rate Trending higher driven by smaller shopping centres

    Source: SAPOA Q1 2015 15

  • Extension of Existing Centres 89,000m² Wonderpark Shopping Centre, Pretoria (30,000m² extension)

    16

  • Some of the Malls Coming up in Johannesburg

    Source: Rode, JLL Johannesburg Retail Market Outlook Q1 2015

    17

  • New shopping centres coming up 65,000m² Mall of the South, Johannesburg South

    18

    Source: STANLIB Research June 2015

  • 19

    New shopping centres coming up 131,000m² Mall of Africa, Midrand Johannesburg

    Source: STANLIB Research July 2015

  • Supply of New Retail Outpacing Retail Sales Growth

    Source: Deutsche Bank, SACSC, Stats SA July 2015 20

  • Load shedding and shopping centres

    21 Source: STANLIB Research August 2015

  • Industrial Vacancies are Low, but Minimal Real Rental Growth

    Source: SAPOA Q1 2015 22

  • SA Listed Property Relationship with Bond Yields

    Source: I-Net Bridge 03 September 2015 23

  • Strong correlation between property and bonds

    24

    0.217 0.265

    0.064

    -0.120

    0.517

    0.636 0.680

    0.717 0.698

    0.602

    -0.25

    0.00

    0.25

    0.50

    0.75

    1.00

    15 yrs 10 yrs 5 yrs 3 yrs 1 yr

    C o rr

    e la

    ti o n

    Correlations between Listed Property and Equity and Bonds over various time frames

    Equities vs Local Property Bonds vs Local Property

  • Bond to Yield Ratio Current ratio @ 0.67 Historic ratio @ 0.88

    Source: STANLIB Research, I-Net 03 September 2015 25

  • SA Listed Property Outlook Limited capital growth - Focus on income

    *Note: Based on STANLIB’s adjusted historical property-bond yield ratio

    Source: STANLIB Research September 2015 26

    One Year Bull Case Base Case Bear Case

    Total Return (Income and Capital)

    6.8% 1.2% -3.8%

    Assumption 1: Bond Yield Assumption 8.50% 9.00% 9.50%

    Assumption 2: Property-Bond Yield Exit Ratio 0.707 0.707 0.707

    Assumption 3: Income Growth 9.0% 9.0% 9.0%

    Four Years Bull Case Base Case Bear Case

    Annualised Total Return 5.6% 4.5% 3.4%

    Assumption 1: Bond Yield Assumption 9.25% 9.75% 10.25%

    Assumption 2: Property-Bond Yield Exit Ratio 0.837 0.837 0.837

    Assumption 3: Average Income Growth 7.4% 7.4% 7.4%

  • What if SA Listed Property remains “Expensive”?

    *Note: Based on STANLIB’s adjusted historical property-bond yield ratio

    Source: STANLIB Research September 2015 27

    Four Years @ 0.698 Bull Case Base Case Bear Case

    Total Return (Income and Capital)

    9.5% 8.2% 7.1%

    Assumption 1: Bond Yield Assumption 9.25% 9.75% 10.25%

    Assumption 2: Property-Bond Yield Exit Ratio* 0.707 0.707 0.707

    Assumption 3: Income Growth 7.4% 7.4% 7.4%

    Four Years @ 0.78 Bull Case Base Case Bear Case

    Annualised Total Return 7.2% 6.0% 4.9%

    Assumption 1: Bond Yield Assumption 9.25% 9.75% 10.25%

    Assumption 2: Property-Bond Yield Exit Ratio* 0.78 0.78 0.78

    Assumption 3: Average Income Growth 7.4% 7.4% 7.4%

  • Adding listed property helps to boost returns in balanced portfolios

    28

    14.2

    13.0 12.8

    11.7

    2.9

    14.7

    13.4 13.2

    11.9

    4.1

    15.3

    13.8 13.5

    12.1

    5.3

    15.8

    14.2 13.9

    12.3

    6.5

    0

    2

    4

    6

    8

    10

    12

    14

    16

    18

    15 yrs 10 yrs 5 yrs 3 yrs 1 yr

    A n n u a lis

    e d R

    e tu

    rn (

    % )

    Investment Horizon

    Annualised Returns of Portfolios with Different Weightings in Property

    0% Property 5% Property 10% Property 15% Property

    Source: BNP Paribus Cadiz 31 August 2015

  • SA Listed Property Conclusion

    Upside Risk

    Downside Risk

    ➜ Strong demand for retail space in bigger shopping centres

    ➜ Increased offshore exposure, portfolio and currency diversification

    ➜ Corporate action – conclusion of pending mergers and take-overs

    ➜ Rising bond yields

    ➜ South African listed property counters falling outside global indices

    ➜ Low economic growth

    ➜ Frequent power outages

    ➜ Increasing office vacancies

    ➜ Increasing operating costs

    ➜ Rates and taxes

    ➜ Electricity

    29

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    90% of all Millionaire