stanlib fahari i-reit investor presentation 2018 fy · portfolio optimization initiatives 25...
TRANSCRIPT
STANLIB Fahari I-REIT
Investor Presentation
2018 FY Presenters:
- SFIR Ag. CEO, Nozipho Makhoba
- SFIR Asset Manager, Ruth Okal
29th March 2019
2
How we are structured…
Retail Office/light industrial Office/light industrial
100% 100% 100%
Office Building
100%
Real Estate
Investments
Cash & Cash
Equivalents
>75% of TAV <25% of TAV
Greenspan Mall Limited
100%
Bay Holdings
Limited 100%
Signature
International Limited 100%
Starling Park
Properties LLP* 100%
Trustee
Co-op Bank SERVICE PROVIDERS
• Property Managers
• Valuers
• Structural Engineers
• Legal Advisors
• Tax Advisor
• Auditor Institutional & Retail Investors
STANLIB Fahari I-REIT
Listed on NSE
KRA CMA
At least 80% of net income
Reporting line
100% Ownership
Appointments
Outsourced activities
Providers of operational services to the REIT for fees
Manages REIT Investments for management fee
Reporting line
NSE
Appointment Reporting line
REIT Manager
STANLIB Kenya
*Greenspan Mall Limited holds 1% of the partnership interests in Starling Park Properties in trust on behalf of STANLIB Fahari I-REIT. No economic benefit flows to Greenspan Mall
Limited as a result of this arrangement
Our Journey
The REIT journey to date
4
2015 • 30th September REIT
CMA license and
business registration
• Income Tax Act
amended to include
REITs exemption
2013
SKL begins conceptualization
of the REIT product
2016
16th August First intereim
reporting
2017 • Maiden 13 months
dividend of Kshs 0.50 per unit and NAV of Kshs 19.81
• Un-audited half year distributable earnings of Kshs 0.43 per unit
2018
2nd Dividend payment April 2018
Kshs 0.75 per unit and NAV of Kshs
20.26
CMA REITs
Regulations
enacted
27th November IPO Listing
• Un-audited
distributable
earnings of Kshs
0.13 per unit
March Inaugural annual report
April - 1st Dividend payment
• Acquisition of new property Kshs 850M
• Commenced construction of Cinema
Strategic Priorities
Growing the
portfolio
Optimising the
existing
portfolio
Resolving the
tax exemption
status
Strengthening
investor
relations
6
Our strategic priorities
4 3 1 2
Socio-economic Environment
Gross Domestic Product
Economic growth slowed to 4.9% in 2017. The subdued growth was as a result of a slowdown in some key sectors of
the economy . Political challenges, slowdown in credit growth and poor weather made it even more challenging.
In 2018, the Kenyan economy is estimated to have grown by between 5.5% - 6%. Favourable weather, reduced
political tensions and stable macro economic environment were supportive.
3.3%
8.4%
6.1%
4.6%
5.7% 5.3% 5.6% 5.9% 4.9%
5.5%
0%
2%
4%
6%
8%
10%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F
Credit Growth….constrained
• Has mainly affected the SMEs, who account for approximately 28.4 percent of GDP.
• Interest cap law enacted in Late 2016 made credit growth worse.
Debt Maturity
Debt maturity profile (KES’ 000 000)
• External debt maturities worth c.KES.230 Billion & KES. 300 Bln expected in 2019 & 2024.
• Debt Maturity (2019) to Reserves ratio is 28%. Ratio likely to increase to c.40% by 2024
(holding all constant).
• Dollar denominated debt will pile pressure on the shilling.
Real Estate Sector Update
Operating Environment
• Continued stagnation attributed to
saturation in certain locations, slow
recovery from the 2017 political
turmoil, uncertain regulatory
environment (interest rate capping
and demolitions) and weak economic
performance.
• These continue to exert downward
pressure on rentals and escalations
Property
• In July the Income Tax Act was
amended enabling home buyers a
15% relief on gross salaries if they
purchase properties under the
affordable housing scheme
• The Housing Levy Fund part of the
Finance Bill 2018 that was passed into
law will have every employee
contribute 1.5% of their monthly gross
salary. However, this was suspended
in December 2018 by the Employer
and Labor Relations Court
Regulatory
Retail
• Knight Frank and JLL, reported that prime retail
rents have stagnated between Kshs 340 – 510
per sq.ft per month attributed to oversupply in
certain locations making it a tenant’s market
• Occupancy levels for established malls stood at
90% whereas new retail centers average 40% -
75%. Broll reported an overall vacancy of 20%
across board
• Notable developments completed within the
year: The Waterfront, Karen & Signature Mall,
Mlolongo
Operating Environment – Property Space
Office
• Prime asking rents were flat at Kshs 116 – 152
per sq.ft per month but nodes such as Upperhill
averaged Kshs 80 – 100 due to oversupply
• Despite the oversupply, developers` confidence
remains high with over 2.4 million sq.ft anticipated
to be completed by 2022 according to JLL
• Notable developments completed within the year:
• One Africa Place, Westlands
• Kings Prism, Valley Road
13
Residential
• In 2018 rents increased by 8.6% compared to -
3.9% in 2017 revealing a marked and general
recovery in the residential property sector
according to Hass Consult.
• Apartments were the key driver registering a
15.9% growth after lack-luster performance
over the prior 10 years driven by intensive
building in Nairobi and its environs.
• The slower pace in apartment building
construction and development generally has
allowed demand to catch up with available
space, lifting occupancy and therefore rents.
Industrial
• Demand for decentralised high quality industrial
space remained strong in 2018 with more investors
taking interest in this niche market.
Africa Logistics Properties signed on a tenant on a 10-
year lease for 14,000 m² – the single largest letting
ever seen in industrial sector
Improvon Group and Actis announced the launch of a
53,820 square feet warehousing development at a
cost of Kshs 11 billion. Termed Nairobi Gate Industrial
Park located on the Eastern Bypass will sit on 103
acres with phase 1 stated for completion by the first
half of 2019.
Operating Environment – continued
14
Current Portfolio
Location Map
16
Property Photos – Greenspan Mall
17
Property Photos – 67 Gitanga Place, BHL & SIL
18
Portfolio at a Glance
19
Property Greenspan Mall 67 Gitanga Bay Holdings Signature International
Sector Retail Office Office/Light Industrial Office/Light Industrial
Market Value 2 276 000 000 857 000 000 232 700 000 40 000 000
Gross Lettable Area Sq.Ft 155 477 41 312 33 265 7 638
Value per Sq.Ft 14 638 20 740 6 995 5 236
GLA as % of Total Portfolio 65% 18% 14% 3%
Average In-Force Escalations 5.17% 7.50% 6.25% N/A
Weighted Average Remaining
Lease Period 4 4.17 5.75 N/A
Sectoral Split
20
Sectoral Split by Market Value
67%
30%
3%
Retail Office Industrial
66%
28%
6%
Retail Office Industrial
Sector Split by GLA
Tenancy Mix
21
0.17%
12.35%
2.93% 3.78%
11.84%
5.63%
31.29%
1.68% 2.70%
5.21%
22.42%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
Lease Expiry Profile
22
Vacant 2019 2020 2021 2022 2023 2024 2025+
Sq.Ft 20,515 9,907 12,739 1,726 5,770 86,637 11,531 6,652
% 12% 4% 5% 1% 2% 54% 19% 3%
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
0%
10%
20%
30%
40%
50%
60%
Axis
Tit
le
Well diversified expiry profile with spike in 2023 relating to Greenspan anchor tenant
and 67 Gitanga Place tenancies.
Vacancies
23
Property GLA Vacancy
% ( 2018)
Vacancy %
(2017)
Target Limit
%
Greenspan Mall 155,477 12.9 9.1 5
Bay Holdings 33 265 - - -
Signature
International
7 638 100 - -
67 Gitanga 41 312 - N/A -
Total/ weighted
average
237 6992 11.7 6.7 5
Existing Portfolio Optimization
24
Portfolio Optimization Initiatives
25
Managed Vacancies at 11.7% is within market average of circa 22% across all retail
sectors ( Broll Report : Sept 2018). Increase in vacancies (mainly attributable to
GML at 9.1% as at end 2017 and 12.7% as at end of 2018) was as a result of
strategic clean up of delinquent tenants and repositioning of the tenant mix
Strong Average Renewal Rates – Approximately 32,000 Sq Ft (21% of GLA) at
Greenspan was renewed in late 2017 through to 2018 including Aga Khan, Bata,
Multichoice, Simbisa (Formerly Innscor Limited)
Enhanced Tenant Mix – Crimson Media Letting introducing entertainment to the
portfolio to augment the main anchor
Focus – Tenant retention and letting of vacant space
• In 2018, developed a 300 pax 3-D; three screen multi-functional cinema. Expected launch
is May 2019. This initiative is expected to:
• Defend the portfolio from increasing competition from new developments.
• Complement other tenancies by drawings footfall, extending dwelling time in the mall,
cross-selling and improving customer loyalty
• Enhance entertainment offering in the mall
• Enhance overall mall yield and hence portfolio return
• Extensions and redevelopments are only undertaken if substantially pre-let and meet
acceptable yields to cushion unitholder value
• Space rationalization – Conversions, expansions and reductions and re-allocation of units
• Physical maintenance and capital preservation initiatives
Portfolio Optimization Initiatives Cont..
26
Video
Cinema Video
27
Financial Performance
28
Distribution flat at KShs 0.75 per unit
13% growth in earnings
Fund management cost
reduction
Property expense ratio
at
35%
NAV
20.58 per unit
Highlights
Key highlights
30
Distribution flat at KShs 0.75
per unit
13%
Net profit
43%
Interest income
Property expenses
9%
14%
Distributable earnings
Fund Mngt
expenses
4%
11%
Rental and related income
2018 2017 %
Details KShs KShs Change
Net profit for the year 193,491,759 171,126,409 13%
Rental and related income 309,763,210 279,433,136 11%
Interest income 56,433,877 99,852,345 -43%
Fund operating expenses 130,221,511 135,632,948 -4%
Property expenses 108,850,390 99,852,345 9%
Distributable earnings 127,885,294 149,113,640 -14%
Market value of property portfolio 3,405,700,000 2,460,000,000 38%
Net asset value per unit 20.58 20.26 2%
Distribution per unit 0.75 0.75 0%
Property expense analysis
31
Property expenses analysis 2018 2017 %
KShs KShs Change
Utilities (electricity and water) recovered from tenants 21,744,448 23,401,436 -7%
Marketing expenses recovered from tenants 3,548,660 2,291,613 55%
Other operating expenses recovered from tenants 48,420,141 44,676,721 8%
Total recoveries 73,713,249 70,369,770 5%
Landlord operating expenses 35,137,141 25,922,845 36%
Total property expenses 108,850,390 96,292,615 13%
Property expense ratio 35% 34%
Landlord property expense ratio 15% 12%
Property income return
\ 32
6.8% 7.5%
2.0% 0.9%
2018 2017
Re
turn
%
Income return Capital return
8.8%
Total return
8.6% 8.5%
11.1% 10.3%
2018 2017
Retu
rn %
Fixed and call deposit interest return Treasury bills income return
Interest income
\ 33
8.8% 8.5%
2018 2017
Retu
rn %
Total portfolio return
\ 34
0.83 0.81 0.89
11.39
4
17.67
0.8 0.80
Current 30 days 60 days 90 days 120 days + Total
KS
hs
(m
illi
on
s)
GML BHL SIL SPP
Debtors age analysis
\ 35
BHL arrears were only 0.047 million whereas SPP had no
outstanding rent arrears as at 31 December 2018
Net asset value prior and post distribution of 2018 earnings
36
As at 31 December (KShs) 2018 2017
Net asset value prior to distribution 3 723 943 826 3 666 181 292
Net asset value post distribution 3 588 214 601 3 530 452,067
Net asset value per unit prior to distribution 20.58 20.26
Net asset value per unit post distribution 19.83 19.51
Yield based on the value of the unit as at 31 December 2018 6.85% 7.00%
Net Asset Value Prior and Post Distribution of 2018 earnings
Portfolio asset mix
37
Portfolio asset mix KShs (m) 2018 2017 Average
Cash and investment securities 387 1 217 802
Investment properties 3 406 2 460 2 933
Total 3 793 3 677 3 735
Thank you
Appendices
Consolidated statement of comprehensive income
2018
KShs
2017
KShs
Revenue 332,249,472 270 689 177
Rental and related income 309,763,210 279 433 136
Straight-lining of lease income 22,486,262 (8 743 959)
Other income 57,193,985 101 606 066
Interest income 56,433,877 99 852 345
Sundry income 760,108 1 753 722
Operating expenses (239,071,901) (231 925 562)
Property expenses (108,850,390) (96 292 614)
Fund operating expenses (130,221,511) (135 632 948)
Fair value of investment property 43,120,203 30 756 728
Fair value adjustment to investment property 65,606,465 22 012 769
Straight-lining of lease income (22,486,262) 8 743 959
Net profit for the year 193,491,759 171 126 409
Other comprehensive income - -
Total comprehensive income attributable to unitholders for the year 193,491,759 171 126 409
40
Consolidated statement of financial position
41
2018 2017
ASSETS KShs KShs
Non-current assets
Investment properties 3,365,700,000 2,460,000,000
Fair value of investment property for accounting purposes 3,262,953,647 2,379,739,909
Straight-line lease adjustment 102,746,353 80,260,091
Property and equipment 5,140,466 4,138,729
3,370,840,466 2,464,138,729
Current assets
Investment securities 83,809,515 529,000,000
Trade and other receivables 55,148,773 80,298,715
Cash and cash equivalents 302,822,720 688,190,218
441,781,008 1,297,488,934
Asset held for sale 40,000,000 -
481,781,008 1,297,488,934
Total assets 3,812,621,474 3,761,627,663
EQUITY & LIABILITIES
Capital and reserves
Trust capital 3,479,540,745 3,479,540,745
Revaluation reserve 95,619,234 30,012,769
Retained earnings 148,783,847 156,627,778
3,723,943,826 3,666,181,292
Current liabilities
Trade and other payables 128,677,648 95,446,371
Total equity & liabilities 3,852,621,474 3,761,627,663
Consolidated statement of cashflow
42
2018 2017
KShs KShs
Cash flows from operating activities
Cash generated from operations 129,843,795 142,476,116
Subsidiary taxation paid - (5,034,901)
Distribution paid (135,729,225) (90,486,150)
Net cash (outflow)/inflow from operating activities (5,885,430) 46,955,065
Cash flows from investing activities
Acquisition of Limited Liability Partnership net of cash acquired (792,989,940) -
Additions to investment property (30,093,535) (2,987,231)
Additions to property and equipment (1,589,078) -
Decrease in investment securities 445,190,485 204,035,734
Net cash (outflow)/inflow from investing activities (379,482,068) 201,048,503
Net movement in cash and cash equivalents (385,367,498) 248,003,568
Cash and cash equivalents at beginning of year 688,190,218 440,186,650
Cash and cash equivalents at end of year 302,822,720 688,190,218