Download pdf - Keillen Ndlovu Head: Listed Property Funds Sept 2015€¦ · STANLIB Property Income Fund: Returns to 31 August 2015 Source: STANLIB Performance Gross Total Returns 31 August 2015

Keillen Ndlovu Head: Listed Property Funds Sept 2015

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“ “

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 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


9.5% 8.2% 7.1%


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 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


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


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


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)


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


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


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


Annualis

ed R

etu

rn (

%)

Investment Horizon

Annualised Returns of Portfolios with Different Weightings in Property

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


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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