Real Estate Investments Zambia PLC 2010 Investor road show presentation
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Transcript of Real Estate Investments Zambia PLC 2010 Investor road show presentation
![Page 1: Real Estate Investments Zambia PLC 2010 Investor road show presentation](https://reader034.fdocuments.us/reader034/viewer/2022052211/557c416fd8b42ab7528b4f1d/html5/thumbnails/1.jpg)
Farmers House Plc
Investor road show presentation – 2 March 2010US$30 million Debt/Equity Capital Raise
Robin Miller – Managing Director
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• Originally a Farmers’ Co-op in the 1920’s;
• Property investment company formed in 1981;
• The only listed property company on the LuSE since 1996;
• Continues to focus on a growth orientated strategy, in order to establish itself as the leading property investment, development and management company in Zambia;
• The development of various properties in Lusaka has resulted in a more aggressive strategy; and
• Intends to remain listed on the LuSE and form the common entry point for all Zambian institutional investors (pension funds) & international investors into the high yielding, up-market Zambian property sector on a diversified basis.
Introduction to Farmers House
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Current Shareholding
3.2%Chilanga Cement Pension Trust Fund
3.3%Sinyuka Property Development
24.8%Others – Institutions, companies & individuals
4.9%National Pension Scheme Authority
3.5%KCM Pension Trust Scheme
5.2%Stanchart Pension Trust Fund
9.8%Workers’ Compensation Fund
10.4%Barclays Bank Zambia Staff Pension Fund
34.9%Saturnia Regna
% shareholdingShareholder
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Milestones and achievements to date
Issued a short-term Commercial Paper for the purpose of raising bridging finance to secure certain properties
2009
Raised US$10 million via a rights issue for the development of the Celtel/Zain Head Office – completed and operational
2006
Raised US$1.98 million via a preference share rights issue for the purpose of developing phase III of Central Park
Raised Zambia’s first bank loan (US$2.6 million) specifically for a property development – The Lusaka Stock Exchange building -secured on its’ on cash flows; fully repaid
2001
2003
Issued first LuSE listed corporate bond and raised US$1 million to develop phase II of Central Park; all converted into Equity
1999Listed on the LuSE1996MilestoneDate
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Ø First ever Corporate Bond Issue in 2000• Raised US$1 million;• 85% institutional participation;• NAPSA underwriting; and• Most investors
converted to ordinary shares .
Farmers House milestonesSecured incremental capital to develop Phase I & II
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Ø Zambia/LuSE’s 1st US$2 million Preference Share issue – in 2001• Traded on the LuSE;• US$ denominated;• 8% minimum coupon, 10% maximum;• Non-voting; and• Redeemable/convertible.
Ø Central Park Phase IV also completed – reticulation & parking.
Central Park - Developed Phase II & IIIFarmers House milestones
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Ø Secured US$2.6 million of debt - 2003• US$ denominated;• 1st bank loan for investment property development;• Provided by Stanbic Bank; and• 5 year facility (now repaid).
Developed phase V & VI – Stock Exchange buildingFarmers House milestones
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Ø Ordinary share issue – Rights Issue 2006• Kwacha denominated rights issue;• Ratio 3:1;• Issued 32,059,434 shares @ K1,350;• Gross Subscription of K43.28 billion;• Underwritten by Aflife;• Occupied by Zain; and• 15 year renewable lease.
Developed Celtel/Zain headquarters
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Ø Secured a further 1 Ha. of land adjacent to Celtel/Zain site;
Ø JV with Standard Bank Properties (Pty) Limited;
Ø Secured Stanbic Bank Zambia as a tenant on long term lease;
Ø Construction began in October 2008; and
Ø All financing in place: phased hand over from June 2010.
Further FH property acquisitions
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Challenges faced by Farmers House in pursuit of its growth strategy:
Ø Low market capitalisation:
As at February 2010 market cap of K102 billion at K2,400 per share (US$22 million) vs. asset value of K205 billion (US$44 million);
Ø Low liquidity due to low market capitalisation;
Ø Many institutional investors have reached their investment limits with respect to investment in FH;
Ø Price to NAV discount of 50% is problematic;
Ø Shareholder returns vs. reinvestment for growth; and
Ø Optimisation of the FH capital structure.
Growth strategy challenges
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Farmers House market statistics
Note:With the exception of *, based on the FH Audited Financial Statements as at 31 March 2009
11.76%Dividend yield (at K850)%
%
KKK
K
US$’mFarmers House LuSE market
Market cap (Feb 2010)* 22.3 5,096Share price (Feb 2010)*Earnings per share“Headline” EPSPrice earnings ratio“Headline” PE ratioNBV per share
2,4002,575
132.760.93
18.084,810
17.9
Price to Book value 0.50 5.02Dividend yield (at K2,400)* 4.18 4.64
YoY capital gain in 2009 +170 +11.5
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Farmers House market statistics
Note:* “Headline” PE;Small caps The 5 LuSE listed companies with the smallest market caps
(Investrust; Cavmont; Bata; Pamodzi & AEL); andLarge caps 5 largest market cap – Zain; Zambia Sugar; Lafarge & Standard
Chartered & Zambrew (excludes Shoprite).
LuSE
Weighted average %
Weighted average %
Weighted average
Weighted average
US$’m
+11.5 +2.09-36.9+1702009 YoY increase
2.76
1.57
14.2
38.5
Small caps
2.99
4.47
17.6
1,660
Large caps
Farmers House
ALSI
Total market cap 22.3 5,273
PE ratio 18.08* 17.9
PBV ratio 0.56 5.02
Dividend yield 4.18 4.64
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Farmers House historical share price
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2009200820072006Inc statement for periods ended 31 March (US$’000)
10,643(455)(262)654Net foreign exchange gain/(loss)
(120)Loss from equity accounted Investee
K4,120K3,950K3,950K4,270Average rate K/$
75.9%21.6%8.2%Income increase
82%102%118%Operating Income increase
15,4444,7962,8810Revaluation of investment properties (IAS40)
26,7124,9342,999796Profit after tax(633)(163)7(29)Taxation
1,378756373171Net Operating Income(1,687)(986)(1,059)(1,153)Expenditure
3,0651,7421,4321,324Income
Farmers House PlcAudited Financial Performance Summary
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Farmers House PlcTotal expenditure summary
Increase 705%1,378171Net Operating Income
2009% of income
2009US$’000
2006% of income
2006US$’000
Period ended 31 March
(1,687)(1,153)Expenditure
44.94%12.81%Net Operating Inc. %
Increase 131%3,0651,324Income
2.22%6830.89%408Finance expenses
55.06%1,68787.19%1153Total expenditure
25.76%78921.94%290Administration expenses
27.08%83034.36%455Property expenses
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11.76%2.35%1.11%2.27%Dividend yield
82.25%25.61%27.63%41.24%Market cap to NAV discount
39.8529.7421.2513.15Total assets (US$’million)
36.7526.6218.786.11Net asset value (US$’million)
150%166%(40%)Dividend per share increase
K100K40K15K25Dividend per share
K5,595K3,670K4,245K3,275Year end rate K/$
38%41%207%Increase in NAV
4,2741,709641267Total dividend (K ’million)150%167%140%Total dividend increase
6.5219.8013.593.59Market cap (US$’million)
850170013501100Share price
44.94%43.39%26.04%12.81%Operating income %
2009200820072006Financial ratios as at 31 March
Farmers House Plc financial ratios
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Addressing the growth challenges
Ø Farmers House’s Board has considered various strategies that will:
• enhance and maximise shareholder value;
• improve price formation of FH shares on LuSE;
• reduce the significant discount to NAV;
• provide FH with much needed critical mass;
• reduce expenses as a proportion of income; and
• retain its status as the leading property investment company in Zambia.
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Strategies that have been considered in response to challenges
Ø FH Share buy-back;
Ø Claw-back rights offer; and
Ø Equity & Debt Rights Issues
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Debt/equity capital raise strategy and rationale
Rationale for the capital raise was driven by the following factors:Ø To immediately finance certain identified acquisitions with the view to
increase critical mass;Ø Create a “war chest” to take advantage of future acquisition
opportunities;Ø Grow company balance sheet and increase shareholder base;Ø Restructure balance sheet and income statement to address fiscal and
geared status of FH;Ø Eliminate the negative difference between the sum of the parts and
FH’s market cap; andØ Make the company less vulnerable to unwelcome suitors.
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Current status of the capital raise
Ø Shareholder permission to raise capital up to US$30 million:
• Up to US$15 million debt; and
• Up to US$15 million equity.
Ø Raised US$9 million by way of a Commercial Paper issue;
Ø Property Acquisitions underway subject to contract and/or shareholder approval:
• Counting House Square; and
• Eureka Park.
Ø Numerous potential acquisitions considered.
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Future property acquisitions
Ø Farmers House’s post-capital raise Weighted Average Cost of Capital (WACC) is an
important consideration in establishing property acquisition yields;
Ø The introduction of more debt on the FH balance sheet (gearing) will reduce its WACC
by 1 - 1.5% (in USD terms), as debt funding is generally cheaper;
Ø Indicative post-capital raise WACC:
9.8%5.2%
Post tax cost
(US$)
9.7%9.5%0.2%
WACC
100%96%4%
Preweighting
274,703,11176,748,740
Post capital raise
(K’000)
100%78%22%
Post weighting
9.8%5.2%
Post tax cost
(US$)
1.1%7,823,740Debt
WACCCurrent (K’000)
8.8%7.7%205,778,111Equity
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Future property acquisitions
Ø Farmers House has approved a property acquisition strategy that focuses on the following 5
development nodes, as well as considering individual opportunities outside Lusaka:
• Lusaka (Central Node) - development of buildings subject to availability of firm
tenants;
• Lusaka (Addis Ababa Node) - demarcated by existing Zain/Stanbic properties,
and potential acquisitions in that node;
• Lusaka (Thabo Mbeki Node) - demarcated by the acquisition of proposed Counting
House Square, possible acquisition of Arcades and development of the UNZA
land;
• Lusaka (Eastern Node) - demarcated by Chelston, Roma and Ibex Hill; and
• Lusaka (Southern Node) - with proposed Eureka Park property purchase, demarcated
by Baobab, Lilayi and Lusaka South multi facility economic zone.
• Other properties outside Lusaka that provide the requisite return.
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Ø US$15 million Equity Rights Offer• Ratio in range of 3 – 4 new rights offer shares for every 4 – 5 shares
held at the date of last registration.
Ø US$15 million Corporate Bond Rights Offer• Indicative pricing of US$1.10 per Corporate Bond;• Ratio in order of US$1.10 of new Corporate Bonds for every 3 shares
held at the date of last registration; and• Variable rate coupon made up of a fixed yield of 8% per annum
payable semi annually in arrears plus an amount charged to the income statement of 10% of net operating income.
Debt/equity rights offer transaction
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Timing of capital raise
12 April 2010Rights offer opens
7 May 2010Rights offer closes
17 May 2010New shares and Corporate Bonds listed on LuSE
Remainder of March
Road show to underwriters, prepare offer circular & obtain the necessary regulatory approvals and finalise pricing
2 March 2010Presentation to all FH shareholdersTimeActivities
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Way forward
Ø Presentation to all shareholders – 2nd March 2010
Ø Expected date of publishing of Offer circular – 12th April 2010;
Ø Expected date of closing of Offer – 7th May 2010;
Ø Expected date for refund of oversubscription amounts – 14th May 2010; and
Ø Commencement of strategic rollout.
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Conclusion
The Board, management and advisers of Farmers House PLC thank you for your time and attention in the support of the further
development of Farmers House PLC.