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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
Corr
ela
tion
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
Annualis
ed R
etu
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
Offshore Property (Developed Markets)
90% of all Millionaires Become so Through Owning Real Estate.
Andrew Carnegie
“ “
Global Property - We do stock picking in-house but we outsource most of the research
31
Monthly or quarterly conference calls Ad hoc conference calls
Conversations Email Bloomberg chats
Analysts visiting us at our offices One-on-one meetings
Property markets reports Daily reports Weekly reports Monthly reports
Property site visits Conferences Management meetings Internal debates
Broker research e.g
UBS MacQuarie Credit Suisse Morgan Stanley JP Morgan Bank Of America Merrill Lynch Deutsche Bank HSBC
Independent research e.g. Real Estate Brokers e.g. Jones Lang La Salle and CB Richard Ellis
Data providers SNL Real Estate Bloomberg I-Net Bridge
STANLIB’s foreign property management meetings, site visits and conferences
2012 2013 2014 2015
Hong Kong UK China China
UK Romania France Philippines
USA Turkey Thailand Indonesia
Romania Philippines Hong Kong Japan
Brazil Indonesia Taiwan Nigeria
Zimbabwe Hong Kong UK Mexico
Nigeria USA USA UK
Ghana Germany Australia USA
Tanzania Singapore Romania Romania
Mexico Slovakia Egypt
Hungary Singapore UAE
Slovakia Kenya Germany
Germany Botswana Netherlands
Brazil Mozambique Poland
Zambia Namibia Kenya
Mauritius Morocco Croatia
Swaziland Namibia 32
Developed Markets Emerging Markets Africa
STANLIB Global Property Fund ZAR returns to 31 August 2015
Source: STANLIB Performance Gross Total Returns 31 August 2015 33
ZAR
1 Month
3 Months
6 months
Year to date
1 Year
3 Years*
5 Years*
Since Inception*
STANLIB Global Property Fund 1.38% 6.38% 6.49% 12.58% 24.61% 24.33% 25.21% 22.79%
S&P Developed REIT Index -1.80% 1.68% 0.67% 5.10% 17.41% 23.95% 24.31% 22.22%
Relative Performance 3.18% 4.70% 5.82% 7.48% 7.20% 0.38% 0.90% 0.57%
Global listed property performance versus other asset classes over time (USD)
34
0
100
200
300
400
YTD 1 year 2 years 3 years 5 years 10 years 15 years
Pe
rfo
rma
nce (
%)
Performance in USD (over varying periods based to 100)
Global Cash Global Bonds Global Equity Global Property
Source: Cadiz BNP Paribus, Bloomberg and various indices to 31 August 2015
Global listed property performance versus other asset classes over time (ZAR)
35
0
200
400
600
800
YTD 1 year 2 years 3 years 5 years 10 years 15 years
Pe
rfo
rma
nce (
%)
Performance in ZAR (over varying periods based to 100)
Global Cash Global Bonds Global Equity Global Property
Source: Cadiz BNP Paribus, Bloomberg and various indices to 31 August 2015
Year-to-date Global Listed Property Performance +10% (ZAR) and -7% (USD) total return (3 Sept 2015)
36 Source: Bloomberg, S&P Sept 2015
S&P Developed REIT Total Return Index (USD)
850
870
890
910
930
950
970
990
1010
1030
2014/12/31 2015/01/31 2015/02/28 2015/03/31 2015/04/30 2015/05/31 2015/06/30 2015/07/31 2015/08/31
Short-term Relationship Between the US 10-year and global listed property
37
Source: Bloomberg, S&P Developed REIT Index Sept 2015
% Index
1.5
1.6
1.7
1.8
1.9
2
2.1
2.2
2.3
2.4
2.5
220
230
240
250
260
270
280
2014/12/31 2015/01/31 2015/02/28 2015/03/31 2015/04/30 2015/05/31 2015/06/30 2015/07/31 2015/08/31
US 10-year bond yield
Global listed property index
Global Listed Property Prices 29% below the 2007 peaks
38 Source: S&P, Bloomberg September 2015
Prices are 29% below 2007 peak
0
50
100
150
200
250
300
350
2006/08/07 2007/08/07 2008/08/07 2009/08/07 2010/08/07 2011/08/07 2012/08/07 2013/08/07 2014/08/07 2015/08/07
Global Listed Property Exposure Country and Sector Exposure
39 Source: STANLIB, S&P Developed REIT Index 2015
Positive Office Rental Growth Across Most Nodes
Source: JLL July 2015 40
Positive Rental Growth Across Most Retail Nodes
Source: JLL May 2015 41
City Mall, Almere, Netherlands Unibail-Rodamco
Source: STANLIB Research June 2015 42
Batavia Stad, Lelystad, Netherlands Hammerson
Source: STANLIB Research June 2015 43
Positive Industrial Rental Growth
Source: JLL July 2015 44
E-Commerce Driving Industrial/Logistics Space Demand
Source: Prologis, Goldman Sachs NAREIT June 2015 Presentation 45
Self-Storage Facilities in the US Tight supply and strong economy driving the market
46
47
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15
Yie
ld (
%)
FTSE EPRA NAREIT Developed Index and JP Morgan Global Bond Index Yield
FTSE EPRA/NAREIT Developed Index JP Morgan Global Bond Index
GLOBAL PROPERTY YIELDS
GLOBAL BOND YIELDS
Source: BNP Paribus Cadiz 31 August 2015
Property-Bond Yield Gap Global Listed Property
Property-Bond Yield Spread Global Listed Property
48
CHEAP
EXPENSIVE
Spread = Property Yield (EPRA/NAREIT) less Bond Yields (JP Morgan)
Source: BNP Paribus Cadiz 31 August 2015
1.46%
average
2.17%
Current
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15
Sp
rea
d (
%)
FTSE EPRA NAREIT Developed Index and JP Morgan Global Bond Index Spread
Spread
Property-Bond Yield Ratio Global Listed Property
49
CHEAP
EXPENSIVE
Ratio = Property Yield (EPRA/NAREIT) divided by Bond Yields (JP Morgan)
Source: BNP Paribus Cadiz , STANLIB Research Sept 2015
1.67
Average
2.37
Current
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
01
-Mar
-05
01
-Ju
l-0
5
01
-No
v-0
5
01
-Mar
-06
01
-Ju
l-0
6
01
-No
v-0
6
01
-Mar
-07
01
-Ju
l-0
7
01
-No
v-0
7
01
-Mar
-08
01
-Ju
l-0
8
01
-No
v-0
8
01
-Mar
-09
01
-Ju
l-0
9
01
-No
v-0
9
01
-Mar
-10
01
-Ju
l-1
0
01
-No
v-1
0
01
-Mar
-11
01
-Ju
l-1
1
01
-No
v-1
1
01
-Mar
-12
01
-Ju
l-1
2
01
-No
v-1
2
01
-Mar
-13
01
-Ju
l-1
3
01
-No
v-1
3
01
-Mar
-14
01
-Ju
l-1
4
01
-No
v-1
4
01
-Mar
-15
01
-Ju
l-1
5
Global Listed Property at Discount to Net Asset Value
Source: Data Stream, UBS Estimates, 31 Aug 2015 50
PREMIUM
DISOCUNT
Global Listed Property Correlation to Bonds
Source: BNP Paribus Cadiz Data as at 31 August 2015 51
0.803
0.883
0.797
0.546
0.425
0.291 0.269
0.457
0.510
0.281
0.00
0.25
0.50
0.75
1.00
15 yrs 10 yrs 5 yrs 3 yrs 1 yr
Co
rre
latio
n
Correlations between Global Equity($) and Global Bonds($) and Global Property($) over various time frames
Global Equity vs Global Property Global Bond vs Global Property
There is a Volatile Correlation Between Property (REITs) and Bonds over time
Source: Data Stream, UBS Estimates, June 2015 52
Global Listed Property Index Trends Over the Last Few Years
Source: UBS, FTSE, EPRA-NAREIT Total Return Index, DataStream June 2015 53
Global Listed Property Performance During Past Fed Hikes
Source: UBS, Data Stream, FTSE, EPRA/NAREIT Index, June 2015 54
Zooming in on the 2004-2006 Rate Hike Period
Source: UBS, Data Stream, FTSE, EPRA/NAREIT Index, June 2015 55
Global property earnings track GDP growth
56 Source: UBS, 31 Aug 2015
Global listed property outlook (USD)
Lower correlations, above average yield gap/ratios give some comfort*
One Year Bull Case Base Case Bear Case
Total Return (Income and Capital)
14.0%
7.6%
1.8%
Assumption 1: US Bond Yield (Current 2.1%) 2.00% 2.50% 3.00%
Assumption 2: Exit Yield (Current Hist Yield 4.1%) 4.00% 4.25% 4.50%
Assumption 3: Earnings Growth 8.0% 8.0% 8.0%
57 Source: STANLIB Research, Bloomberg Sept 2015
* NB: Hence we apply only a 50% rating change to bond yield movements in our exit yields
Four Years (Normalised) Bull Case Base Case Bear Case
Annualised Total Return (Income and Capital)
7.1%
5.9%
4.8%
Assumption 1: US Bond Yield (Current 2.1%) 3.75% 4.25% 4.75%
Assumption 2: Exit Yield (Current Hist Yield 4.1%) 4.88% 5.13% 5.38
Assumption 3: Average Earnings Growth 7.2% 7.2% 7.2%
Adding global listed property helps to boost returns in balanced portfolios
58
4.4 5.2
7.3
6.2
-3.9
4.6 5.3
7.5
6.3
-3.9
4.9 5.3
7.6
6.3
-3.9
5.2 5.4
7.8
6.4
-3.8
-6
-4
-2
0
2
4
6
8
10
15 yrs 10 yrs 5 yrs 3 yrs 1 yr
Annualis
ed R
etu
rn (
%)
Investment Horizon
Annualised Returns of Portfolios with Different Weightings in Property
0% Property 5% Property 10% Property 15% Property
Source: Cadiz BNP Paribus, Bloomberg and various indices to 31 August 2015
Global Listed Property Provides Stable Income
59 Source: UBS Investors Index , Bloomberg 31 Dec 2014
US
D
Global Listed Property Conclusion
Developed Markets
Downside Risk
Upside Risk ➜Better than expected economic growth, e.g. US and
Eurozone
➜Lower for longer interest rates
➜ Quantitative Easing in Europe
➜Wall of money chasing property
➜ Comfortable gap between bond yields and property yields
➜ Increase in allocation by sovereign funds
➜Recent transactions on trophy assets
➜ Starting to reflect in average property valuations
➜Limited supply of properties
➜ Lack of construction during sub-prime crisis
➜Banks starting to lend
➜ Market still equity driven rather than debt driven
➜ Rising global bond yields and interest rates
➜ Capital risk
➜ Lower than expected economic growth
➜ Income Risk
60
Real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth.
Robert Kiyosaki
“
“ Thank you
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62