Arena Reit · ASX:ARF
Arena Reit — H1 FY2018 Earnings Presentation
38 slides from Arena Reit's earnings presentation, Feb 22, 2018
Slide 1: Arena REIT FY18 Interim Results
PAGE 1 Arena REIT FY18 Interim Results Strengthening the resilience of earnings 22 February 2018 Arena REIT / FY18 Interim Results / www.arena.com.au
Slide 2: Agenda
Agenda PAGE 2 Highlights 3 Financial results 6 Portfolio update 10 Outlook 18 Directory 22 Appendices 23 Important notice 38 Arena REIT / FY18 Interim Results / www.arena.com.au
Slide 3: Highlights
PAGE 3 Highlights Bryce Mitchelson, Managing Director Arena REIT / FY18 Interim Results / www.arena.com.au
Slide 4: Financial highlights
Financial highlights PAGE 4 Active six months driving solid financial results Highlights Net operating Earnings per Distributions per profit security (EPS)1 security (DPS) • Growth in rental income from Increase existing portfolio, acquisitions $16.8m 30% 6.42 cents 6.40 cents and completed developm
Slide 5: Portfolio highlights
Portfolio highlights PAGE 5 Focus on enhancing portfolio quality to deliver a growing and predictable income stream Average like-for- Highlights Weighted Average Portfolio value like rent review Lease Expiry increase1 • Structured annual rent Increase reviews providing predictable 2.5%1 13.1 years 3
Slide 6: Financial Results
PAGE 6 Financial Results Gareth Winter, Chief Financial Officer Arena REIT / FY18 Interim Results / www.arena.com.au
Slide 7: Financial performance
Financial performance PAGE 7 Solid result underpinned by predictable and growing income stream 1H 1H Highlights Change FY18 FY17 ($’000) ($’000) ($’000) (%) • Growth in property income due to development completions in FY17 Property income 20,701 18,047 2,654 15% and 1HFY18 and rent reviews Other in
Slide 8: Financial position
Financial position PAGE 8 Equity raising providing capacity to fund new opportunities 31 Dec 30 Jun Highlights Change Change 2017 2017 ($m) (%) ($m) ($m) • Increase in investment properties Total assets 704.3 621.3 83.0 13% primarily due to $64.5 million in acquisitions and development Investment pr
Slide 9: Capital management
Capital management PAGE 9 Borrowing facility refinanced to extend term and increase limit 31 Dec 2017 30 Jun 2017 Change Highlights Borrowings $169m $171m (1.2%) Debt refinance during period: Borrowing facility limit $230m $205m 12.2% • Average facility term extended to 4.9 years (+2.4 years) Gearin
Slide 10: Portfolio Update
PAGE 10 Portfolio Update Rob de Vos, Head of Property Arena REIT / FY18 Interim Results / www.arena.com.au
Slide 11: Portfolio overview
Portfolio overview PAGE 11 Development completions enhancing portfolio quality and extending WALE Lease management Geographic diversification (by value) • 100% occupancy maintained 3% 2% 1% • Weighted average lease expiry (WALE) extended to QLD 7% 13.1 years VIC 32% NSW • Average like-for-like rent
Slide 12: Lease expiry profile
Lease expiry profile PAGE 12 WALE extended to 13.1 years • Eleven completed developments added to portfolio – average lease term of 19.8 years • Only 2% of portfolio income subject to expiry prior to June 2022 Lease Expiry Profile (by income) (31 December 2017) 25% Early Learning Healthcare 20% 0.9%
Slide 13: Annual rent review profile
Annual rent review profile PAGE 13 1HFY18 average like-for-like rent review increase of 2.5% Annual rent review profile (by income) Highlights 100% • 1HFY18 10.6% 18.1% – 54% of annual rent reviews 5.5% completed 80% 10.0% – Average like-for-like rent review increase of 2.5% achieved 60% – All FY18
Slide 14: Valuation movement
Valuation movement PAGE 14 Six month net revaluation uplift of $21.3 million; increase of 3.6% Number of 31 Dec 2017 Net revaluation 31 Dec 2017 assets Valuation movement Passing yield Change ($m) ($m) (%) (%) (bps) ELC portfolio Leasehold portfolio 6 15.6 0.2 1.9 8.60 - Freehold portfolio 201 577.1
Slide 15: Eleven ELC developments completed in 1HFY18
Eleven ELC developments completed in PAGE 15 1HFY18 Weighted Long day Number of Total cost Initial yield average lease care projects ($m) on cost (%) term (yrs) places Leasehold portfolio 1 2.5 8.7 25.3 108 Freehold portfolio 10 65.5 6.8 19.6 1,246 Total/Weighted average 11 68.0 6.8 19.8 1,354 YMCA
Slide 16: Early learning market conditions
Early learning market conditions PAGE 16 Operating market conditions more challenging Demand • Childcare affordability negatively impacted by increasing number of families reaching subsidy cap • Additional government funding to sector from July 2018 focussed on improving affordability for lower and
Slide 17: ELC development pipeline $45 million
ELC development pipeline $45 million PAGE 17 Six projects due for completion in FY18; one project in FY19 • Development pipeline reflects current preference for higher weighting to developments that offer a lower risk profile • Focus on leveraging our real estate skills to secure quality assets with
Slide 18: Outlook
PAGE 18 Outlook Arena REIT / FY18 Interim Results / www.arena.com.au
Slide 19: FY18 outlook
FY18 outlook PAGE 19 On track with capacity available to fund growth • 2HFY18 earnings growth to be underpinned by additional rental income from: – Development completions – Annual rent reviews scheduled in 2HFY18 (46% of portfolio income subject to review) • Additional government funding to ELC sec
Slide 20: FY18 DPS guidance reaffirmed – 12.8 cents
FY18 DPS guidance reaffirmed – 12.8 cents (+6.7%)1 PAGE 20 Earnings and Distributions per security (cents) 16 14 12.8 12.3 12.0 12 11.1 10.9 10.0 10.2 10 8.8 8.9 8.0 8.2 8 6.40 6.42 6 4 2 - FY13 FY14 FY15 FY16 FY17 FY18 1HFY18 DPS (cents) EPS (cents) FY18 DPS Guidance 1 FY18 Distribution guidance is
Slide 21: Questions
PAGE 21 Questions Arena REIT / FY18 Interim Results / www.arena.com.au
Slide 22: Directory
Directory PAGE 22 www.arena.com.au Bryce Mitchelson Gareth Winter Rob de Vos Susie McPherson Managing Director Chief Financial Officer Head of Property Head of Investor Relations and Marketing +61 3 9093 9000 +61 3 9093 9000 +61 3 9093 9000 +61 3 9093 9000 +61 408 275 375 +61 421 054 758 +61 417 520
Slide 23: Market outlook – healthcare
Market outlook – healthcare PAGE 23 Demand drivers • Increase in demand for primary, specialist and diagnostics services Insert transaction evidence chart • Appendices Government policy continues to focus on access, affordability and prevention Operating conditions • Comment TBA Real estate transact
Slide 24: Financial performance – 1H FY18
Financial performance – 1H FY18 PAGE 24 1H FY18 1HFY17 Change ($’000) ($’000) ($’000) % Property income 20,701 18,047 2,654 15% Other income 317 337 (20) (6%) Total Operating Income 21,018 18,384 2,634 14% Property expenses (401) (449) 48 (11%) Operating expenses (1,687) (1,635) (52) 3% Finance cost
Slide 25: Balance sheet – December 2017
Balance sheet – 31 December 2017 PAGE 25 31 Dec 17 30 Jun 17 Change ($’000) ($’000) ($’000) % Cash 9,026 9,082 (56) (1%) Receivables and other assets 7,842 9,672 (1,830) (19%) Investment properties 676,593 591,712 84,881 14% Intangibles 10,816 10,816 - 0% Total assets 704,277 621,282 82,995 13% Paya
Slide 26: Borrowing and hedging summary
Borrowing and hedging summary PAGE 26 31 Dec 30 Jun Tranche 1 Tranche 2 Total 2017 2017 Hedge cover 75% 79% Total facility $80m $150m $230m Weighted average hedge interest rate 2.42% 2.39% Amount drawn $80m $89m $169m Weighted average hedge term 6.3yrs 4.3yrs Undrawn - $61m $61m Expiry date 31 Mar 2
Slide 27: Portfolio composition and movement
Portfolio composition and movement PAGE 27 Portfolio movements (30 June 2017 to 31 December 2017) 230 214 220 +9 - 11 -1 210 +1 10 7 200 +11 190 180 207 170 195 160 150 30 Jun 2017 Development Asset 30 Jun 2017 Development Development Development 31 Dec 2017 Operating projects acquisitions Developme
Slide 28: ELC portfolio metrics – 31 Dec 2017
ELC portfolio metrics – 31 Dec 2017 PAGE 28 31 Dec 2017 30 Jun 2017 Variance Leased ELCs 200 188 6.4% Development sites 7 10 (30%) Total ELCs 207 198 4.5% WALE (by income) (years) 14.4 14.2 0.2yrs Tenanted occupancy (%) 100 100 - Average passing yield (%) 6.49 6.73 (24bps) Portfolio value ($m) 592.7
Slide 29: ELC portfolio valuations – 31 December 2017
ELC portfolio valuations – 31 December 2017 PAGE 29 Number of assets Value ($m) Passing yield (%) ELC – Independent Valuations Leasehold 1 2.5 8.56 Freehold Queensland 13 32.1 6.91 New South Wales 7 21.7 5.77 Victoria 10 40.8 5.56 Western Australia/Northern Territory 6 15.5 6.28 Tasmania 3 6.6 6.74
Slide 30: ELC developments completed in 1HFY18
ELC developments completed in 1HFY18 PAGE 30 Total cost Initial yield on Lease term Long day care Tenant ($m) cost (%) (yrs) places Leasehold properties Torquay North, VIC YMCA 2.5 8.7 25 108 Freehold properties Auburn, NSW Oxanda 5.6 6.3 20 111 Killara, NSW Oxanda 7.7 6.0 20 92 Port Macquarie, NSW
Slide 31: Healthcare portfolio metrics – 31 Dec 2017
Healthcare portfolio metrics – 31 Dec 2017 PAGE 31 31 Dec 2017 30 Jun 2017 Variance Medical centres 7 7 - Development sites - - - Total healthcare properties 7 7 - WALE (by income) (years) 5 5.5 (0.5yrs) Tenanted occupancy (%) 100 100 - Average passing yield (%) 6.95 6.92 3bps Property portfolio ($m
Slide 32: Arena investment case
Arena investment case PAGE 32 Positioned to deliver predictable and growing earnings with a scalable business model Quality portfolio with Predictable structured annual rent income stream reviews and long WALE Equity raising and Population growing and Supportive debt facility refinance Active capita
Slide 33: ASX total return performance
ASX total return performance PAGE 33 ASX total return performance (as at 31 December 2017) 30% 27.7% 25% 19.5% 20% 15% 11.9% 11.3% 9.9% 10% 8.6% 8.8% 6.4% 5% 3.3% 0% Six months One year compound Three year compound Arena REIT Accumulation Index S&P/ASX300 A-REIT Accumulation Index S&P/ASX300 Accumul
Slide 34: 'Jobs for Families' package – from July 2018
‘Jobs for Families’ package – from July 2018 PAGE 34 • New activity test (previously minimum 24 hours of subsidy) Maximum number of hours of Hours of activity (per fortnight) subsidy (per fortnight) 8 – 16 hours 36 hours Families earning less than $65,710 that do not 16 – 48 hours 72 hours meet the
Slide 35: ELC market data
ELC market data PAGE 35 Number of long day care centres, increase over prior year (%) Estimated number of long day care centres in construction 9,000 Estimated 3.4% 0.8% 2.2% 2.9% 3.2% 3.1% 4.1% ELC projects in number of Forecast % 8,000 construction ELCs Dec increase (February 2018)2 State 20171 7,
Slide 36: ELC property market sales evidence
ELC property market sales evidence PAGE 36 VIC passing yields NSW passing yields 14% 14% 12% 12% 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Metro Regional Metro Major Regional Regional Linear (Metro) Linear
Slide 37: ELC property market sales evidence
ELC property market sales evidence PAGE 37 QLD passing yields Other states passing yield 14% 14% 12% 12% 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Metro Regional Gold & Sunshine Coasts Linear (Metro) Other
Slide 38: Important notice
Important notice PAGE 38 This presentation has been prepared by Arena, comprising Arena REIT Limited (ACN 602 365 186) and 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 101 067 878). The informati