Slide 1: Arena REIT FY16 Annual Results
For personal use only Arena REIT FY16 Annual Results ARF.ASX Delivering predictable and growing income 25 August 2016 Arena REIT FY16 Annual Results | www.arena.com.au 1
Slide 2: Agenda
Agenda For personal use only Page 1 Highlights 3 2 Financial results 8 3 Portfolio update 12 4 Outlook 23 5 Questions 26 6 Appendices: Additional information 28 Arena REIT FY16 Annual Results | www.arena.com.au 2
Slide 3: Highlights
For personal use only Highlights 1 Bryce Mitchelson, Managing Director Arena REIT FY16 Annual Results | www.arena.com.au 3
Slide 4: Financial highlights
1.1 Financial highlights Strong underlying performance and strengthened financial position For personal use only Net Operating 16% Total Assets 14% Profit $514m $25.6m EPS 9% Gearing 230bps 11.1 cents 26.8% Return on Equity (ROE) 22.2% pa Weighted Net Asset average cost 45bps 16% Value of debt $1.54
Slide 5: Portfolio highlights
1.2 Portfolio highlights Solid property portfolio performance For personal use only Like-for-like Weighted rental income average 70bps 20bps growth passing yield 3.6%* 7.3% Development WALE 0.8yrs 12% completions 9.7 years $19.1m Total property return 19% pa Development Occupancy 1% 100% pipeline 16
Slide 6: Consistent strategy to deliver securityholder value
1.3 Consistent strategy to deliver securityholder value Attractive investment characteristics in a low inflation environment For personal use only > Net lease structure with minimal landlord capex Income > Long leases, with weighted average lease expiry 9.7 years predictability > Access to underlyin
Slide 7: Delivering superior performance
1.4 Delivering superior performance Strong track record since ASX listing For personal use only Earnings per security (EPS) growth* Total securityholder return (TSR)** 15.3% Compound 16% 37.6% 36.9% 40% 14% 33.4% annual 3 year 12% 30% EPS growth 9.0% 24.6% 10% 22.4% 11% pa 7.5% 7.9% 8% 20% 18.5% 6.5
Slide 8: Financial results
For personal use only Financial results 2 Gareth Winter, Chief Financial Officer Arena REIT FY16 Annual Results | www.arena.com.au 8
Slide 9: Financial performance
2.1 Financial performance Enhanced profitability through revenue growth and cost control For personal use only FY16 ($’000) FY15 ($’000) % Rental income 33,316 31,196 +7% Net Other income 638 480 +33% operating Total operating income 33,954 31,676 +7% profit Direct property expenses (1,003) (1,306)
Slide 10: Earnings growth drivers
2.2 Earnings growth drivers Growth in rental income drives EPS increase of 9% For personal use only Contributors to growth in EPS 12.00 Like-for-like rental income +0.20 -0.17 11.50 +0.18 -0.18 growth +0.43 11.11 +3.6% 11.00 +0.45 cents per security 10.50 10.20 Borrowing 10.00 costs reduced 9.50 -18
Slide 11: Financial position and capital management
2.3 Financial position and capital management Capacity to fund development commitments and growth opportunities For personal use only 30 June 2016 30 June 2015 Change (%) Total assets ($m) 514.0 450.6 +14% Reduced Borrowings ($m) 138.0 131.0 +5% gearing Gearing (%) 26.8% 29.1% -230bps 26.8% Net asse
Slide 12: Portfolio update
For personal use only Portfolio update 3 Rob de Vos, Head of Property Arena REIT FY16 Annual Results | www.arena.com.au 12
Slide 13: Intensive portfolio management delivers strong results
3.1 Intensive portfolio management delivers strong results Driven by disciplined approach For personal use only > Like-for-like rental income increased by 3.6%* Growth in rental > Completed 13 FY16 market rent reviews at 5.7% average increase income > Rent review structure provides real growth in a
Slide 14: Rent review structure provides real income growth
3.2 Rent review structure provides real income growth Income growth protected from impact of low inflation environment For personal use only FY16 rent review profile (by income) > FY16 like-for-like rental income growth 3.6%* > 78% of income subject to ‘Fixed’ or ‘Greater of Like-for-like 100% 2.5%
Slide 15: Rent review profile provides future income predictability
3.3 Rent review profile provides future income predictability Well positioned for rental growth in low inflation environment For personal use only FY17 – FY19 rent review profile (by income) FY17 – portfolio income subject 100% to ‘Fixed’ or 12% 12% 12% Only 12% of income subject to ‘Greater of 2.5%
Slide 16: Weighted average lease expiry extended to 9.7 years
3.4 Weighted average lease expiry extended to 9.7 years High lease renewal rate reflects quality of properties For personal use only Lease expiry profile (by income) 50% Lease . options 40% Healthcare FY21 expiry renewed Childcare moved to FY26+ 30% 100% 20% 10% Portfolio income 0% subject to FY17 F
Slide 17: Portfolio revaluation uplift
3.5 Portfolio revaluation uplift Driven by growing appreciation of long and attractive lease structures For personal use only Number of Value Valuation Valuation assets ($m) movement ($m) movement (%) FY16 Childcare Portfolio 196 413.2 40.5 10.8 valuation uplift Healthcare Portfolio 7 78.2 10.6 15.6
Slide 18: Portfolio diversification benefits
3.6 Portfolio diversification benefits Diversification mitigates concentration risk For personal use only Sector diversification Tenant diversification (by value) (by income) Developments Childcare 4% Healthcare 6% 3% Goodstart have enhanced Primary Health Care 16% Childcare 4% 5% Affinity geographi
Slide 19: Completed four childcare developments
3.7 Completed four childcare developments High initial yield on cost drives earnings growth and margins For personal use only Location Total Initial yield Yield on Lease Lease cost* on cost (%) completion term start date Weighted ($m) value (%) (years) average initial Murwillumbah, NSW 2.4 9.5 7.0 1
Slide 20: Development pipeline
3.8 Development pipeline Arena originated projects with long-term tenant pre-commitments For personal use only Weighted Valuation Development pipeline average yield on cost average passing yield on Projects completion (June 2016) enhancing portfolio 9.4% 7.3% FY15 7 projects Total cost $17 million i
Slide 21: Projects underway and due for FY17 completion
3.9 Projects underway and due for FY17 completion New childcare centres have comparative advantage in local markets For personal use only State of > Innovative delivery structure that rewards Arena’s Victoria PPP origination expertise program > Projects progressing on time and on budget with complet
Slide 22: Market outlook
3.10 Market outlook Opportunities to partner with established operators to provide real estate capital For personal use only Childcare Healthcare > Number of children and hours in care increasing > Ageing population Demand > Government committed to $3b > Increasing incidence of chronic illness incre
Slide 23: Outlook
For personal use only Outlook 4 Bryce Mitchelson, Managing Director Arena REIT FY16 Annual Results | www.arena.com.au 23
Slide 24: FY17 outlook positive
4.1 FY17 outlook positive Underpinned by contracted rental growth and development completions For personal use only Structured rental > All properties are subject to annual rent review > FY17 – 83% of portfolio income subject to rent review at ‘Fixed’ or ‘Greater of 2.5% growth or CPI’ – providing r
Slide 25: Consistent track record of annual distribution growth
4.2 Consistent track record of annual distribution growth Forecast growth in distribution of 7.4% for FY17* For personal use only Distributions per security (DPS) FY17 13.0 Distribution guidance of 12.0 11.70 * 11.7 cents 11.0 10.90 +7.4% * per security* cents per security 10.00 +9.0% 10.0 9.0 8.75
Slide 26: Questions?
For personal use only 5 Questions? Arena REIT FY16 Annual Results | www.arena.com.au 26
Slide 27: Important notice
Important notice For personal use only This presentation has been prepared by Arena REIT (Arena) comprising Arena REIT Limited (ACN 602 365 186), Arena REIT Management Limited (ACN 600 069 761 AFSL No. 465754) as responsible entity of Arena REIT No.1 (ARSN 106 891 641) and Arena REIT No.2 (ARSN 101
Slide 28: Appendices: Additional information
For personal use only Appendices: 6 Additional information Arena REIT FY16 Annual Results | www.arena.com.au 28
Slide 29: Income statement
6.1 Income statement Statutory net profit $72.6 million, up 19% For personal use only Change > Increase in rental income due to 30 June 30 June completed developments, lease $ ‘000 2016 2015 $’000 (%) renegotiations and rent reviews Income > Other income increased due to Rental income 33,316 31,196
Slide 30: Balance sheet
6.2 Balance sheet Net assets $357.5 million, up 18% For personal use only Change > Gearing reduced to 26.8% and NAV per security up $0.21 to $1.54 $’000 30 June 2016 30 June 2015 $’000 % following a revaluation uplift of Cash 9,446 10,888 (1,442) (13%) $51 million > Strong liquidity Receivables and
Slide 31: Interest rate management
6.3 Interest rate management Hedge term duration extended For personal use only Hedge maturity profile $m % 120 3.50 100 3.00 80 60 2.50 40 2.00 20 0 1.50 FY17 FY18 FY19 FY20 FY21 FY22 Average debt hedged (LHS) Average hedge rate (RHS) 30 June 2016 30 June 2015 Hedge cover 72% 69% Weighted average h
Slide 32: Portfolio valuations at June 2016
6.4 Portfolio valuations at 30 June 2016 Number of assets Value Passing Yield ($m) (%) For personal use only Childcare - Independent Valuations Queensland 8 23.4 7.57 New South Wales 4 9.0 7.25 Northern Territory 1 1.5 8.01 Victoria 17 49.5 6.29 Development sites 1 0.2 - Total 31 83.6 6.77 Childcare
Slide 33: Childcare portfolio metrics
6.5 Childcare portfolio metrics Active portfolio management has improved key ratios For personal use only Childcare portfolio 30 Jun 30 Jun Change Arena childcare portfolio – market analysis 2016 2015 (Ratio of children 0-4 years to available childcare places, by local catchment area) Leased childca
Slide 34: Portfolio composition and movement
6.6 Portfolio composition and movement Development pipeline replenished For personal use only Portfolio movements (1 July 2015 – 30 June 2016) 210 205 197 203 +7 -4 200 14 195 3 11 +4 190 -2 +1 185 180 189 3 186 175 170 1-Jul-15 Disposals Asset acquisitions Completed Completed New sites added 30-Jun
Slide 35: Childcare property market sales evidence (2011 – 2016)
6.7 Childcare property market sales evidence (2011 – 2016) Transactions show childcare centre yields continuing to firm For personal use only VIC Childcare transaction yields NSW Childcare transaction yields 14% 14% 12% 12% 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% Jan-11 May-12 Sep-13 Feb-15 Jun-16 Jan
Slide 36: Childcare market data
6.8 Childcare market data Demand supported by demographic and macroeconomic trends For personal use only 2 Population of children aged 0-4 years (m) 1 Number of children in long day care 2.2 700,000 643,810 631,400 1.76m 606,710 2.0 585,000 587,100 600,000 1.8 528,140 1.54m 476,170 1.6 500,000 ABS P
Slide 37: Childcare market data: operator analysis
6.9 Childcare market data Childcare operator analysis For personal use only Number of long day care services in Australia 1 Average hourly fees 2 7,000 6,606 6,723 9.00 6,310 5,904 6,017 6,156 8.30 8.35 5,597 5,720 8.50 8.05 8.05 6,000 5,360 7.95 5,043 7.80 4,747 8.00 7.50 7.65 7.60 5,000 4,471 7.40
Slide 38: Directory
Directory ASX Code: ARF For personal use only Arena REIT Limited Registry ACN 602 365 186 Boardroom Limited Level 12, 225 George Street Arena REIT Management Limited Sydney NSW 2001 ACN 600 069 761 AFSL 465754 Investor Services Freecall 1800 008 494 Level 5, 41 Exhibition Street Melbourne VIC 3000 W
Slide 39: For personal use only
For personal use only