PRE-CLOSE INVESTOR PRESENTATION - equites.co.za - The Vault
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e quite s .co. za PRE-CLOSE INVESTOR PRESENTATION FEBRUARY 2021
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
Equites’ strategy is focused on SOUTH AFRIC A
becoming a globally relevant
specialist REIT, specializing Develop
“best in class”
Develop
A-grade logistics
Acquisition
of assets or
Sale and
leaseback
in the logistics sector. logistics parks
on key strategic
assets on a
pre-let basis
portfolios should
they become
transactions
with retailers
land holdings available
We have a single-minded focus on
building our portfolio in line with UNITED KINGDOM
our strict investment criteria.
Unlock key Develop new Acquisition
tracts of land assets on a of portfolio
through the pre-let basis enhancing
relationship through the JV assets
with Newlands
01
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021 MARKE T TRENDS
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
STRONG TAILWINDS IN THE UK LOGISTICS MARKET
Take-up was robust in 2020; new leases were signed for 50 million sq ft of warehouse UK Internet sales was 28% of total retail sales in 2020, peaking at 36% in November
space, with Amazon accounting for 25% of the take-up. 2020, driving demand for warehousing, especially from 3PL providers.
40%
60, 000, 000 35%
30%
50, 000, 000
25%
INTERNET SALES %
40, 000, 000
20%
30, 000, 000
15%
20, 000, 000
10%
10, 000, 000
5%
0 0
DEC 13 DEC 14 DEC 15 DEC 16 DEC 17 DEC 18 DEC 19 DEC 20
Source: Savills Q1 Q2 Q3 Q4 Three-year rolling average Source: ONS
03
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
PRIME UK LOGISTICS YIELDS COMPRESSED DURING 2020
Prime UK yields Recent transactions in the UK logistics market were executed at record yields of
between 3.5% and 4.1%
9%
DATE PRO PERT Y TENAN T SQ FT LE AS E TERM Y I ELD PR I CE
8% 21 JAN BEDFORD AF BL AKEM ORE 16 4,8 5 0 20 £27,500,000 3.79%
20 DEC MANCHESTER LSE GROUP 13 6,0 0 0 15 £20,500,000 4.10%
7% 20 NOV WARRINGTON HERMES 162,071 13 £38,625,000 3.6 0%
SAVILLS PRIME YIELDS
20 DEC BEDFORD SAINSBURY’ S 4 62,74 6 15,6 £90,500,000 3.52 %
6%
21 JAN NORMANTON HERMES 10 9,98 3 15 £13,500,000 (UO) 3.8 5%
21 JAN SWINDON ICEL AND 2 21,173 15 £37,325,000 (UO) 4.0 0%
5%
20 DEC BIRMINGHAM J SAINSBURY 2 21,173 18 £143,000,000 3.75%
PLC (12,5 TO BREAK)
4%
Source: Gerald Eve
3%
AUG 06
DEC 06
APR 07
AUG 07
DEC 07
APR 08
AUG 08
DEC 08
APR 09
AUG 09
DEC 09
APR 10
AUG 10
DEC 10
APR 11
AUG 11
DEC 11
APR 12
AUG 12
DEC 12
APR 13
AUG 13
DEC 13
APR 14
AUG 14
DEC 14
APR 15
AUG 15
DEC 15
APR 16
AUG 16
DEC 16
APR 17
AUG 17
DEC 17
APR 18
AUG 18
DEC 18
APR 19
AUG 19
DEC 19
APR 20
AUG 20
DEC 20
Source: Savills Reatail Logistics London office Regional office
04
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
SA MARKET OVERVIEW STRONG GROW TH IN ONLINE SALES
FROM SA RETAILER S
Despite muted e-commerce penetration prior to the pandemic,
various SA retailers have shown significant growth in SA FBH - online sales grew by 119%, contributing 4%
e-commerce sales as a result of the lockdown. to South African sales (26 weeks ended Dec-20)
In addition to the growth of e-commerce, we continue to see
requirements from operators looking to optimize their supply SA online sales increased by 66% (13 weeks ended Dec-20)
chains.
We experienced reduced demand for new developments during Game grew online sales by 100%, Builders by 160%
2020, as the uncertainty from COVID-19 persisted in SA. The and Makro by 84% (at June 2020)
demand has, however, started to pick up towards the end of
2020.
Significant online sales growth of 353%
(six-months ended 31 Aug 20)
Transportation and logistics providers, FMCG retailers and
food producers proved to be the most resilient tenants in our
portfolio.
05
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021 L ATEST MILESTONES
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
Successfully transferred the Shoprite transaction
ACQUISITIONS with a portfolio value of R3.2 billion.
Concluded two development and lease agreements
WHAT WE
NEW DEVELOPMENT S with Amazon and Hermes in the UK (total capital
value = £114m).
ACHIEVED COMPLETED DEVELOPMENT S
DHL in the UK (£12m), Altron and Digistics
(R456m) in Meadowview and Imperial in Riverfields
(R175m).
IN 2H21 Concluded R1.6bn ESG-linked facility agreement
DEBT FACILITIES with Standard Bank.
Disposal of two UK logistics facilities for
REC YCLING OF C APITAL £43m, 6% above book value and 24% higher than
acquisition values.
07
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
SALE OF T WO UK LOGISTICS PROPERTIES
Concluded the sale of two quality logistics properties in the
UK at a 6% premium to book value and 24% above acquisition
value.
UK logistics market remains extremely liquid – transaction was
concluded over an 8-week period.
Proceeds will be reinvested in the Newlands JV.
The rationale for the disposals were relatively shorter lease
expiries and to release capital to fund the pipeline in the UK
Newlands JV.
AMA ZO N DSV TOTAL
ACQ U I S I T I O N DATE N OV 16 JU N E 17
PURCHAS E CO N S I D ER AT I O N 17 0 0 0 0 0 0 18 141 0 0 0 3 5 141 0 0 0
ACQ U I S I T I O N YE I LD 6 .1% 5 .7 % 5.9%
SALES PR I CE 22 300 000 21 10 0 0 0 0 43 400 000
E X I T Y I ELD 4 .7 % 4.9% 4 .7 9 %
BOO K VALUE - AUG 2 0 2 0 2 0 4 6 9 52 9 2 0 5 52 3 62 41 0 21 8 91
PREM I U M TO BOO K VALUE 8.9% 2 .7 % 5.8%
GROW TH S I N CE ACQU I S I T I O N S 31% 16 % 2 4%
08
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021 FINANCIAL AND OPER ATIONAL UPDATE
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
RENTAL COLLEC TIONS
We have collected an average of 99.7% and 100% of rentals
CO LLECT I O N S AS A %
invoiced for the five months ended January 2021 in SA and the O F REN T RECE I VABLE
S EP 2 0 O CT 2 0 N OV 2 0 D EC 2 0 JAN 21
UK, respectively.
SOUTH AFRICA 9 9.8% 10 0% 10 0% 9 9.4% 9 9.3%
100% our tenants are now operational, albeit some to a more
limited extent. UNITED KINGDO M 10 0% 10 0% 10 0% 10 0% 10 0%
We have adopted a stakeholder-inclusive view when assessing UK D EFERRED REN TAL S SA D EFERRED REN TAL S
the rent relief provided to tenants and our responsibility to act as
a responsible corporate citizen. £350 R22
£326
R20
£300
£250
R15
R13
£200
TH OUSAN DS
M I LLI O N S
R11
R10
£150 £145
£100
R5
R4
£50
£- R-
UK Long Term RSA Short Term RSA Long Term
Granted Collected Granted Collected
10PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
LE A SE E XPIRY BY REVENUE TENANT PROFILE BY REVENUE
70%
65 95% 3% 2%
60 60
60%
Jan 21
50%
94% 4% 2%
40%
30% Feb 20
20% 92% 3% 5%
14 14 13 14 14
10% 8 8
6 5 6
3 3 3 4 Feb 19
2
0%
Within 1 year Within 2 years Within 3 years
Within 4 years Within 5 years Beyond 5 years A B C
The lease expiry profile demonstrates that 60% of our leases expire beyond five As we build our portfolio for the future, we favour long-dated leases with low-risk
years. tenants.
Our WALE is increased from 10.2 years at February 2020 to 15.2 years at January Through targeted acquisitions, we have effectively increased our exposure to
2021, driven mainly as a result of the acquisition of the Shoprite properties. A-grade tenants from 94% at February 2020 to 95% at January 2021.
11PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
LOAN-TO -VALUE E XPIR ATION OF DEBT FACILITIES
CAPI TAL S TRUCTURE REMA I N S HE ALTHY WE I GHED AVER AGE DEBT MATURI T Y I S 3 . 5 YE ARS AT AUG -2 0,
L ARGELY I N LI N E W I TH AUG -19 AT 3 .6 YE ARS
35,00
5,0% 17,5%
29,5 FY21
30,00
27,3 FY22
26,1
21,4%
25,00 FY23
39,9%
FY24
20,00 16,2% FY25 and after
15,00
Aug 19 Feb 20 Aug 20
%
HEDGING
I N TERES T R ATE HED G I N G: REMA I N S CO N S I S TEN T W I TH AUGUS T 2 0 2 0.
CURREN CY HED G I N G: REMA I N S CO N S I S TEN T W I TH AUGUS T 2 0 2 0; N O I N CRE AS E I N N OT I O NAL O F CC I RS I N F Y21
12PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021 TR ANSAC TION UPDATE
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
EXAMPLES
OF COMPLETED
DEVELOPMENTS
IN SA
LO CAT I O N RIVERFIELDS, GAUTENG
IMPERIAL , TENAN T
CO M PLE T I O N
IMPERIAL
DECEM BER 2020
GAUTENG GLA 17 628 m 2
PURCHAS E PR I CE R175 MILLION
14PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
SUSTAINABLE
CALCUL ATED
GROWTH
LO CAT I O N ME ADOW VIEW
DIGISTICS, TENAN T
CO M PLE T I O N
DIGISTICS
DECEM BER 2020
GAUTENG GLA 21,026 m 2
PURCHAS E PR I CE R217 MILLION
15PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021 UK BUSINESS
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
UK LOGISTICS PORTFOLIO: UPDATE UK PORTFOLIO SCHEDULE OF INCOME
PRODUCING PROPERTIES
Portfolio remained resilient during Covid with a 100% rental PRO PERT Y & TEN TAN T LO CAT I O N FEB 2 0 VAL .
£ ’m
collection rate.
We expect the UK property valuations to remain buoyant.
I S L AN D ROAD WES T (D H L) RE AD I N G , U N I TED K I N GD O M 31
PE TERBO ROU GH GATE WAY 1 (DSV ) PE TERBO ROU GH , U N I TED K I N GD O M 32
The UK portfolio value of income producing assets (excluding D O DWELL S ROAD ( TES CO) H I N K LE Y, U N I TED K I N GD O M 39
land and developments) is now c. £250 million. PARC FELI N D RE , SWAN S E A (D PD) SWAN S E A , U N I TED K I N GD O M 12
PE TERBO ROU GH GATE WAY 2 (CO LO PL AS T ) PE TERBO ROU GH , U N I TED K I N GD O M 15
Disposed two assets in Stoke-on-trent for £43 million; 6% above S C I M I TAR WAY (KUEH N E + NAGEL) COVEN TRY, U N I TED K I N GD O M 44
book value and 24% above acquisition value. SUPER G - S PV 11 (PU MA) WAKEF I ELD, U N I TED K I N GD O M 33
TH E H UB - U N I T 1 (D PD) BURGES S H I LL , U N I TED K I N GD O M 13
The portfolio’s valuation is expected to increase to c. £300 TH E H UB - U N I T 3 (RO CH E ) BURGES S H I LL , U N I TED K I N GD O M 14
million in 3Q21, upon completion of the Amazon development, D H L (LEEDS)* LEEDS , UK 12
which will be 100% owned by Equites.
17PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
NEWL ANDS PARTNER SHIP: UPDATE
First two development agreements have been signed:
60% 40%
1. A super-hub will be developed for Hermes at a 5.3%
yield on cost (net of Newlands profits), with a total GLA
Equites Property Fund Limited Newlands Developments LLP
of 31,570m² and a total development cost of £72 million.
2. Last mile fulfilment centre will be developed for Amazon
at a 5.68% yield on cost (net of Newlands profits), with
a GLA of 13,629m² and a total development cost of
Equites Newlands Group Limited (ENGL)
£41 million.
Newlands is in negotiations with a global e-commerce provider
to develop a £200 million facility in Basingstoke. Equites will not
be funding the development, but we expect an attractive profit
share on the land holding.
Sell completed
The partnership with Newlands will allow Equites to build scale Sell developments
developments
in the top-end of the UK logistics market. in open market
to Equites
and recycle capital
International
18PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021 THE OUTLOOK
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
OUR E XPEC TATIONS
D IV I DEN D PER S HARE NE T AS SE T VALUE PER S HARE LOAN -TO -VALUE WE I GHTED AVERAGE
LE ASE E XPIRY PERI OD
Guidanc e of 2 % to 4% D PS Key driver s relate mainly to prop e r t y Conse r vat ive around E xpec ted to be
grow th is unc hanged. fair value a djustm e nts and F X imp ac t the mid - p oint of the in exc e ss of 15 ye ars .
of the UK op e rat ions . t arg e t rang e (2 5% - 3 5%)
Payout rat io will r e main
at 10 0 % .
20PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021 UPDATE ON THE UK STR ATEGY
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
CURRENT STRUC TURES BEING
INVESTIGATED TO FUND THE LI S T THE O FFS HO RE BUS I N ES S
UK PIPELINE
D I S POSAL O F UK PRO PERT I ES
SALE O F M I N O RI T Y S TAKE I N UK PORTFO LI O
POTENTIAL FUNDING OP TIONS DUAL LI S T I N G
R A I S E CAPI TAL O N THE JS E
S ELL THE DE VELO PM EN T S O N CE
CO M PLE TED; RE I NVES T THE PRO FI T S
CO RPO R ATE ACT I O N W I TH O FFS HO RE
LI S TED RE I T S
22PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
SIGNIFIC ANT PIPELINE IN THE UK NEWL ANDS POTENTIAL PIPELINE ON A COST BA SIS
We estimate the Newlands pipeline of potential development Amazon Hemes Further opportunities
opportunities could be £800 million over the next five years,
on a cost basis.
It is in Equites’ discretion which properties it wants to fund, i.e.,
Equites has no contractual obligation to fund any developments. £41 £72 £686
To date, agreements have been concluded with Amazon
and Hermes to develop two distribution warehouses with
development costs of £41 million and £72 million, respectively.
£8 0 0 MILLION / R16 BILLION
The development pipeline will increase the overall quality of
Equites’ portfolio and will assist in gaining scale in the UK
logistics market in the medium term.
23PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
OP TION TO FUND THE UK PIPELINE:
SALE OF MINORIT Y STAKE
One option could be to introduce a co-investor into the offshore platform.
POTENTIAL STRUC TURE
A new company (NewCo) will be formed, and the current UK portfolio of income
producing properties will be transferred to the NewCo via a transaction with the
co-investor, releasing further capital to Equites.
EQU ITES RE IT
Equites will retain control of the NewCo (60% share).
100%
The NewCo will not be involved with any of the developments. If Equites decides
to retain the properties upon completion, the NewCo will purchase the assets
from Equites International at open market values. EQU ITES
NE WL AN DS
60% 60% NE WCO
JV (EN GL) I NTERNAT IONAL
The strategy will be to build the asset base of the NewCo portfolio to
£1 billion (in value) over the next five years, whilst retaining control.
40% 40%
A liquidity event after five years will be structured with the co-investor.
This illustration is solely for information purposes and to facilitate discussions NE WL AN DS NE W I NVESTOR
with shareholders. It has not yet been approved by the Board of Directors.
0
204PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
F U N D I N G T H E P I P E L I N E ( T H E O R E T I C A L E X A M P L E ) : S E L L I N G A M I N O R I T Y S TA K E
COST OF TOTAL POTENTIAL FUNDING BRE AKDOWN –
DEVELOPMENT PIPELINE SNAPSHOT OF THE CUMUL ATIVE FUNDING PROFILE
COS T O F TOTAL POTEN T IAL TOTAL PI PELI N E COS T - N E WCO (PRO PERT I ES THAT W I LL N OT BE SO LD) 80 %
D E VELO PM EN T PI PELI N E
EQUITES SHARE 48 60
10 0 CO-INVESTOR SHARE 32 40
RE TA I N AS S E T S FU N D I N G BRE AK D OWN O F EQU I TES’ S HARE I N N E WCO PI PELI N E 48 10 0
I N TH E N E WCO
EQUITY: 40% SALE OF CURRENT UK PORTFOLIO (ESTIMATED EQUITY REALISATION) 8 17
20 80 EQUITY: PROFIT ON PROPERTY DISPOSALS TO NEWCO (ASSUMING A 15% MARGIN) 5 10
EQUITY: PROFIT ON SALE OF LAND / PROJECTS TO 3RD PARTIES 3 7
S ELL I N O PEN MARKE T PART N ER’S 4 0 % EQU I TES’ 6 0 %
EQUITY: SA DISPOSALS / SA EQUITY RAISED 13 26
/ FO RWARD SALES / S HARE I N AS S E T S S HARE I N AS S E T S
SALE O F L AN D
DEBT: IN-COUNTRY BANK DEBT / UK LISTED BONDS (40% LTC) 19 40
TO RE ALI ZE PRO F I T S
FO R RE I NVES T M EN T 32 48
LOAN-TO-COST (LTC) 40
LOAN-TO-VALUE (LTV) - ASSUMING A 15% DEVELOPMENT UPLIFT 35
This illustrates a potential funding structure. This information is illustrative only. The structure allows Equites to control a high-quality logistics portfolio in the UK with a target portfolio value
Any transaction of this nature would be subject to Board, and if necessary, Shareholder approved. of £1 billion in the medium to long term, whilst not being reliant on continuous equity raises on the JSE.
25PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
SUMMARY: SELLING A MINORIT Y STAKE The c ombination of the agreement with Newlands and the p otential struc ture with
the c o - investor will allow Equites to ef fec tively ac quire a 6 0% stake in the proper ties
IN THE UK PORTFOLIO at yiel ds whic h are at a 150 to 20 0 - bpts dis c ount to open market yiel ds, c reating
signific ant value to sharehol der s
The potential structure allows Equites to gain scale in the UK logistics
market whilst increasing the quality of the UK portfolio.
Equites will share solely in the valuation uplift of the pipeline (only Y I ELD ANALYS I S (U N GE ARED) – S I M PLI F I ED CALCU L AT I O N
completed buildings will be sold to the NewCo at open market values). DEVELOPMENT COST TO EQUITES 10 0
DEVELOPMENT YIELD (NET OF NEWLANDS PROFITS) 5.5%
The structure allows Equites to effectively acquire a 60% stake in the
properties at yields that ranges between 6.0% and 7.0% on-cost. Similar RENTAL INCOME PA 5.5%
logistics facilities currently transact at yields of between 3.5% and 4.5%. FAIR VALUE YIELD 4.5 0%
FAIR VALUE OF ASSET 12 2
The structure affords Equites to monetize a portion of the valuation uplift
of the pipeline, whilst remaining in control of the NewCo.
The strategy is immunized against capital market conditions to a large N E T EQU I T Y CO N TR I BU T I O N FRO M EQU I TES 51
extent and does not rely on continuous equity raises on the JSE.
TOTAL DEVELOPMENT COST 10 0
The proposed structure could potentially provide the best value creation LESS: SALE OF 40% AT FAIR VALUE (122X0.4) 49
to Equites shareholders. EQUITES SHARE IN RENTAL INCOME (60%) 3.3
NET EFFECTIVE EQUITY YIELD (UNGEARED) 6.5%
26PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021 Q & A
PRE - CLOS E I N VES TO R PRES EN TAT I O N SUSTAINABLE SHAREHOLDER VALUE CRE ATION | FEBRUARY 2021
Cape Town +27 21 460 0404 Johannesburg +27 10 286 0469
(Head Office)
14th Floor, Portside Tower 4 Meadowview Lane
4 Bree Street Equites Park, Meadowview
Cape Town Linbro Park
8001 2065
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