Transcend Residential Property Fund

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Transcend Residential Property Fund TRANSCEND RESIDENTIAL PROPERTY FUND The market leader in quality affordable housing in South Africa Investor presentation – November 2018 0 DISCLAIMER This document has been compiled by Tenurey BSM Proprietary Limited (“Tenurey”) from information provided by the management of Transcend Residential Property Fund Limited (“Transcend”) and from publicly available sources. Information contained herein involves elements of subjective judgment and analysis which may or may not be correct and has not been independently verified. While the information contained herein is believed to be accurate, Tenurey has not conducted any investigation with respect to such information. No representation or warranty, express or implied is or will be given by Transcend or Tenurey or their respective directors, partners, employees or advisors or any other person as to the accuracy, completeness or fairness of this document and, so far as permitted by law and except in the case of fraud by the party concerned, no responsibility or liability whatsoever is accepted for the accuracy or sufficiency thereof or for any errors, omissions or misstatements negligent or otherwise relating thereto. Transcend shall only be bound by those particular representations and warranties set forth in definitive written transaction documents, when and if such transaction documents are executed and subject to such restrictions and limitations as may be contained therein. This document includes certain statements, estimates, targets, forecasts and projections provided by Transcend with respect to Transcend’s anticipated future performance. Such statements, estimates, targets, forecasts and projections reflect significant assumptions and subjective judgments and analysis by Transcend’s management concerning anticipated results which may or may not prove to be correct and there can be no assurance that any estimates, targets, forecasts or projections are attainable or will be realised. Tenurey does not assume responsibility for verifying any of such statements, targets, estimates, forecasts and projections. Nothing contained in this document is, or shall be relied upon as, a promise or representation, whether as to the past or the future. Accordingly, neither Transcend nor Tenurey nor any of their respective directors, partners, employees or advisors nor any other person, shall be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in or omission from this document and any such liability is expressly disclaimed. In particular, but without limitation, no representation or warranty is given as to the achievement or reasonableness of, and no reliance should be placed on, any estimates, targets, forecasts or projections contained in this document (or otherwise provided by or on behalf of Transcend with respect to the subject matter of this document). In all cases, addressees should conduct their own investigation and analysis of Transcend and the information contained in this document. This presentation and the documents provided with this presentation are confidential and may not be disclosed to any third party without the prior written consent of Tenurey and Transcend. TRANSCEND RESIDENTIAL PROPERTY FUND 1 PRESENTERS Rob Wesselo Solly Mboweni Myles Kritzinger Chief Executive Officer – Chief Operations Officer Chief Financial Officer Transcend Managing Director – IHS TRANSCEND RESIDENTIAL PROPERTY FUND 2 PRESENTATION OUTLINE Page 1. Executive summary 4 2. Transcend 7 2.1 Current group structure 8 2.2 Current portfolio overview 9 2.3 Current board of directors 10 2.4 Proposed board and management 11 2.5 Role of IHS 12 2.6 Investment case – why Transcend 14 3. Proposed Transactions 15 3.1 IHS Res 1 Transactions 16 3.2 Other Transactions 18 3.3 Funding and capital structure 19 4. Financials 20 4.1 Pro forma effects – DPS 21 4.2 Pro forma balance sheet 22 5. Conclusion 23 Annexures 26 I Transcend existing portfolio 27 II IHS Res 1 Properties, Protea Glen & Silverleaf 44 III Portfolio post Proposed Transactions 55 IV Transcend vs MSCI Residential Benchmark 57 V IHS and MMA (Hunt) 59 TRANSCEND RESIDENTIAL PROPERTY FUND 3 1. EXECUTIVE SUMMARY Transcend at a glance (status quo) Current market metrics Rmil Closing share price (R) 5,60 • Listed on the Altx in December 2016 at R6.75 (21% Shares outstanding (mil) 73.6 discount to NAV) Market capitalisation 412,2 Listing • Intention to migrate to the Main Board (speciality Net interest bearing debt 509.3 REIT sector) post implementation of the Proposed Enterprise value 921,5 Transactions Investment property 1 252 • A residential REIT, focused on affordable housing Gearing (LTV) 42% that is lifestyle enhancing and well located in high Net asset value (NAV) as at 30 June 2018 764.8 Profile growth urban areas NAV per share (R) 10,39 • Exposure to Gauteng, Mpumalanga* and the Interim DPS (Cents) 30.10 Western Cape Discount to NAV -46% Forward yield 12,2% • 14 properties comprising 2,532 units* • 128,915m² GLA Share price since listing (R) • Portfolio value of R1.25bn Portfolio overview^ Volume traded since listing: 226,082 shares • Occupancy: 96%^ 8,00 Value traded since listing: R1,393,907 • Avg gross rental per unit: R5,576 1,981 shares traded at R5.60 • 90% of portfolio comprising 2 bed, 1 bath units 7,00 6,00 • Transcend = 2nd largest residential focused listed property fund, with high quality assets, safe and 5,00 secure lifestyle complexes and a focus on greening Jun-17 Jun-18 Sep-17 Sep-18 Dec-16 Dec-17 Mar-18 Investment case • Properties are +/- 5 years old Mar-17 • Defensive asset class Geographic spread of properties • Residential fund expertise through International Housing Solutions’ (“IHS”) – a market leader in residential real estate investment • Access to a future R6.4bn asset pipeline consisting Pipeline of 9,900 units through IHS *Includes Acacia Place (sale agreement signed in Sep 2018 to dispose of Acacia Place for R127.5mil) 4 ^As at 1 Nov 2018. Occupancy includes Acacia Place with a 10% vacancy TRANSCEND RESIDENTIAL PROPERTY FUND 4 1. EXECUTIVE SUMMARY Proposed Transactions and Capital Raise • Res 1 Properties: 1,983 units spread across 7 properties from IHS Res 1 Fund for R1.21bn (9.76% yield and 13.4% discount to independent valuation); • Protea Glen: 176 units from a wholly owned subsidiary of South Africa Workforce Housing Fund (“SAWHF”) for Acquisitions R60mil (10.3% yield and 2.1% discount to independent valuation); • Silver Leaf: 76 units for R44.5mil (9.6% yield); and • Vanguard: 60 units for R33.3mil (9.8% yield) (transferred in Aug 2018) • Total purchase consideration: ±R1.35bn at an average acquisition yield of 9.78% • Purchase consideration (including transaction costs) funded by: debt of ±60% (R825mil) and equity of ±40% Funded by (R551mil) • R6.29 per share (ex-div), c. R6.44 cum dividend (as at 1 Dec 2018) Equity raise • Forward yield of 10.5% (post Proposed Transactions) • Discount to NAV of 31% (post Proposed Transactions) Pre-commitments and • Emira Property Fund: up to R337mil of equity (max 34.9% shareholding and a min 25.1% shareholding) and a SH loan facility of R105mil underwrite • MMA Capital Management (“MMA”): Underwrite of R105mil Shareholding post • SAWHF: 38.4% (intention is for SAWHF to dilute over time, as Transcend pipeline is executed) • Emira: 25.1% (minimum) Proposed Transactions • Public: 36.5%^ (assuming no underwrite take-up) • Investors meetings (12 – 21 Nov) • Site visit (22 Nov) Timing • Final CPs (expected to be received by 30 Nov) • Equity commitments (by 30 Nov) • Effective date – targeting 1 Dec and issue of new shares – 1st week of Dec ^Includes SA Corporate Real Estate Limited (4.3%), who has communicated that they will dispose of their stake as part of the new equity raise or post the Proposed Transactions 5 TRANSCEND RESIDENTIAL PROPERTY FUND 5 1. EXECUTIVE SUMMARY Rationale of Proposed Transactions ✓ Ability to secure portfolio at deep discount to fair value, despite scarcity value of large residential portfolios ✓ Lifestyle enhancing properties in well located, high growth urban areas ✓ Stable income stream at an attractive yield ✓ Highly sought after properties of superior quality to comparable portfolios in the market ✓ Favourable arrangement with IHS provides ability to access significant future pipeline ✓ Benefits of institutional knowledge of assets, which also ensures efficient handover ✓ Adds critical scale providing portfolio efficiency benefits ✓ Facilitates increased free float, liquidity and Main Board migration Snapshot of Transcend post the Proposed Transactions 81% Gauteng, Market Cap 31% discount 10.5% forward 22 properties 254,201m2 GLA 19% Western R970m to NAV yield Cape* Portfolio value R6,406 avg 9,900 units LTV of gross monthly of 4,442 units 46.0% 5.99% vacancy (R6.4bn) R2.63bn rental / unit^ pipeline 6 *Based on value ^ For forecast period of FY2019 TRANSCEND RESIDENTIAL PROPERTY FUND 6 2. TRANSCEND TRANSCEND RESIDENTIAL PROPERTY FUND 7 2.1 CURRENT GROUP STRUCTURE IHS Property SA Workforce IHS Asset Management Other SA Corporate Emira Housing Management (“IHSPM”)3 Fund SA 1 (“Manco”) 100% 0.9% 9.0% 9.9% 80.2% SAWHF PVE (“SAWHF”) Property Management Asset Management Agreement Agreement • Fee: annual asset management fee of 0.50% of • Avg collection fee of 6.5% (+ VAT) company EV (+ VAT) • 3 month’s notice to cancel • Term: 10 years from Dec 2016 and option for 100% ownership of 14 Transcend to renew for further 5 years (every 5 years) properties1 • Option: Transcend has option to purchase equity or business of Manco at fair value (to be negotiated) once market cap reaches R4bn Acacia 67 on 7th Alpine Ekhaya Ekhaya Jackalberry Kensington Molware Village Terenure Theresa Trade- Vanguard(2) Parklands Place(1) Edenvale Mews Fleurhof Jabulani Close Place Estate Seven Estate Park winds Stone Arch Estate Estate Notes 1. Acacia Place: As announced on 18 September 2018, Transcend has concluded a sale agreement to dispose of Acacia Place (325 units) for R127.5mil 2.
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