Arena Reit · ASX:ARF
Arena Reit — FY2017 Earnings Presentation
46 slides from Arena Reit's earnings presentation, Aug 24, 2017
Slide 1: FY17 Annual Results
PAGE 1 FY17 Annual Results Strategy continues to deliver strong earnings growth Arena REIT / FY17 Annual Results / www.arena.com.au
Slide 2: Agenda
Agenda PAGE 2 Highlights 3 Financial results 7 Portfolio update 12 Summary and outlook 22 Questions 25 Directory 26 Appendices 27 Important notice 46 Arena REIT / FY17 Annual Results / www.arena.com.au
Slide 3: Financial highlights
Financial highlights PAGE 3 Strong FY17 result building on successful track record for investors ASX annual total securityholder return (%) Earnings per Net Operating Distributions per 50% security (EPS)1 Profit security (DPS) 40% 36.3% 37.6% 26.7% Increase 30% 30% 24.6% $28.7m 12.3 cents 12.0 cents
Slide 4: Portfolio highlights
Portfolio highlights PAGE 4 All key metrics improved through active portfolio management Annual total property return (%) Average like-for- Weighted Average Lease extensions/ 25% like rental increase Lease Expiry renegotiations/ 19% 20% 19% 19% 20% renewals Increase 30% 15% 4.3% 12.8 years 129 profi
Slide 5: July 2017 – $65 million portfolio acquisition
July 2017 – $65 million portfolio acquisition PAGE 5 Nine purpose built early learning centres pre-committed to high performing tenant • Portfolio consistent with Arena’s preferred investment characteristics • Enhances portfolio key metrics – WALE extended, tenant diversification and rent review pro
Slide 6: FY18 DPS guidance – 12.8 cents (+6.7%)
FY18 DPS guidance – 12.8 cents (+6.7%)1 PAGE 6 Consistent growth in earnings and distributions Earnings and Distributions per security (cents) 16 14 12.8 12.3 12.0 12 11.1 10.9 10.0 10.2 10 8.8 8.9 8.0 8.2 8 6 4 2 - FY13 FY14 FY15 FY16 FY17 FY18FY18 DPS Guidance DPS (cents) EPS (cents) 1 FY18 Distri
Slide 7: Financial Results
PAGE 7 Financial Results Gareth Winter, Chief Financial Officer Arena REIT / FY17 Annual Results / www.arena.com.au
Slide 8: Financial performance
Financial performance PAGE 8 Net operating profit up 12%; Statutory net profit up 33% FY17 FY16 Change Highlights ($’000) ($’000) ($’000) (%) • Growth in operating income Property income 37,437 33,316 4,121 12% from: Other income 689 638 51 8% − structured annual rental Total operating income 38,126
Slide 9: Contributors to earnings growth
Contributors to earnings growth PAGE 9 Active portfolio and capital management underpin EPS growth of 11% Movement in EPS (cents) 14 0.55 0.21 12.30 11.11 0.56 12 ( 0.13 ) 10 8 6 4 2 0 FY16 EPS Like-for-like rental Completed Borrowing costs/ Net operating FY17 EPS income growth developments, Funding
Slide 10: Financial position
Financial position PAGE 10 Increase in NAV per security of 19%; four year NAV per security CAGR 16% 30 Jun 30 Jun 30 Jun 2017 Change 2017 2016 pro forma1 (%) ($m) ($m) ($m) Total assets 621.3 514.0 +21% 685.3 • $65 million portfolio acquisition and $55 Investment properties 591.7 491.4 +20% 656.7 mi
Slide 11: Capital management
Capital management PAGE 11 Additional capacity secured to fund future growth 30 Jun 2017 30 Jun 2016 Change Highlights Borrowings $171m $138m +24% • Borrowing facility increased to Borrowing facility limit $205m $175m +17% $205 million in January 2017 Gearing 27.5% 26.8% +70bps • DRP in operation –
Slide 12: Portfolio Update
PAGE 12 Portfolio Update Rob de Vos, Head of Property Arena REIT / FY17 Annual Results / www.arena.com.au
Slide 13: Portfolio strategy
Portfolio strategy PAGE 13 Value-adding business model focussed on specialised real estate Preferred property Arena portfolio characteristics Relatively long lease terms WALE 12.8 years Premises that have strategic 96% purpose built assets; tenant importance to tenant operations goodwill linked to l
Slide 14: Portfolio highlights
Portfolio highlights PAGE 14 Portfolio defensive characteristics enhanced Achievements • Average like-for-like rental growth of 4.3% (6.8% on market reviews) • 102 leases extended for an average of 6.2 years • Two properties sold at a premium to prior valuation • Eight development projects completed
Slide 15: Lease expiry profile
Lease expiry profile PAGE 15 Weighted average lease expiry (WALE) extended to 12.8 years through active portfolio strategy Lease Expiry Profile (by income) (30 June 2017) WALE (years) 80% 14 12.8 1.0% 13 70% 12 10.6 11 60% 9.7 10 8.7 8.9 8.9 8.8 9 8.3 8.5 50% 8 40% 7 74.4% Jun-13 Dec-13 Jun-14 Dec-1
Slide 16: Annual rent review profile
Annual rent review profile PAGE 16 FY17 average like-for-like rental growth of 4.3%; market rent reviews averaged 6.8% increase Annual rent review profile (by income) Highlights 120% • FY17 average like-for-like rental growth of 4.3% achieved +6.8% 6.6% 1.6% 100% 5.2% • Included positive impact of +
Slide 17: Valuation movement
Valuation movement PAGE 17 Net revaluation uplift of $66.1 million; increase of 12.6% Number of Value Change Change Passing yield Change (bps) assets ($m) ($m) (%) (%) ELC portfolio 198 507.6 60.3 13.5 6.73% (58) Healthcare portfolio 7 84.1 5.8 7.4 6.92% (33) Total portfolio 205 591.7 66.1 12.6 6.76
Slide 18: Eight ELC developments completed in FY17
Eight ELC developments completed in FY17 PAGE 18 Meeting Arena’s development project criteria and delivering competitive advantage to operators Initial Lease Long day Favourable physical locations Total cost yield on term care ($m) cost Supportive demographics (yrs) places (%) Sustainable rent
Slide 19: ELC development pipeline $113 million
ELC development pipeline $113 million PAGE 19 Seventeen projects due for completion in FY18; one project in FY19 Arena originates site, Fund through Arena pipeline1 secures tenant and Total pipeline structure2 constructs Number of projects 6 12 18 Forecast total cost $31m $82m $113m Portfolio initia
Slide 20: Market outlook – Early Learning
Market outlook – Early Learning PAGE 20 Demand drivers • 0-4 year old population growth; highest in Eastern states • Childcare participation rate has increased in correlation with growth in maternal workforce participation • Federal government ‘Jobs for Families’ package provides additional funding
Slide 21: Market outlook – Healthcare
Market outlook – Healthcare PAGE 21 Operating conditions Five year healthcare property sub-sector returns (as at 30 June 2017)1 • Growing and ageing population • Incidence of chronic illness increasing 25% • Increase in demand for primary, specialist and diagnostic services 20% 18.3% 17.7% • Governm
Slide 22: Summary and outlook
Market outlook – healthcare PAGE 22 Demand drivers • Increase in demand for primary, specialist and diagnostics services Insert transaction evidence chart • Summary and outlook Government policy continues to focus on access, affordability and prevention Operating conditions • Comment TBA Real estate
Slide 23: FY17 results summary and outlook
FY17 results summary and outlook PAGE 23 Continued strong performance • Earnings per security growth of 11% underpinned by annual rent reviews and new rent from developments completed in FY18 DPS FY16 and FY17 guidance • Significant revaluation uplift driving 19% increase in NAV per security to $1.8
Slide 24: Solid investment case
Solid investment case PAGE 24 Positioned to deliver predictable and growing earnings with a scalable business model Quality portfolio with annual rent Predictable reviews and long WALE income stream Equity raising has Population growing and Supportive increased capacity Active capital ageing, govern
Slide 25: Questions
PAGE 25 Questions Arena REIT / FY17 Annual Results / www.arena.com.au
Slide 26: Directory
Directory PAGE 26 www.arena.com.au Bryce Mitchelson Gareth Winter Rob de Vos Susie McPherson Managing Director Chief Financial Officer Head of Property Head of Investor Relations and Marketing +61 3 9093 9000 +61 3 9093 9000 +61 3 9093 9000 +61 3 9093 9000 +61 408 275 375 +61 421 054 758 +61 417 520
Slide 27: Appendices
PAGE 27 Appendices Arena REIT / FY17 Annual Results / www.arena.com.au
Slide 28: Historical financial data
Historical financial data PAGE 28 Period ended/as Period ended/as Period ended/as Period ended/as at 30-Jun-17 at 30-Jun-16 at 30-Jun-15 at 30-Jun-14 ASX closing price ($) 2.25 1.99 1.54 1.20 Securities on issue (m) 234.8 232.0 228.3 211.5 Market capitalisation ($m) 528.3 461.7 351.6 253.8 Total ann
Slide 29: Historical portfolio data
Historical portfolio data PAGE 29 FY17 FY16 FY15 FY14 Number of properties 205 203 197 193 Sector diversification (by value) Early Learning (%) 86 84 84 81 Healthcare (%) 14 16 16 19 Occupancy (%) 100 100 99 99 Weighted Average Lease Expiry (WALE) (years) 12.8 9.7 8.9 8.5 Portfolio valuation ($m) 59
Slide 30: Financial performance – FY17
Financial performance – FY17 PAGE 30 FY17 FY16 Change ($’000) ($’000) ($’000) % Rental income 37,437 33,316 4,121 12% Other income 689 638 51 8% Total Operating Income 38,126 33,954 4,172 12% Property expenses (1,152) (1,003) (149) 15% Operating expenses (3,535) (3,249) (286) 9% Finance costs (4,714
Slide 31: Balance sheet – 30 June 2017
Balance sheet – 30 June 2017 PAGE 31 30 Jun 17 30 Jun 16 Change ($’000) ($’000) ($’000) % Cash 9,082 9,446 (364) (4%) Receivables and other assets 9,672 2,250 7,422 330% Investment properties 591,712 491,439 100,273 20% Intangibles 10,816 10,816 0 0% Total assets 621,282 513,951 107,331 21% Payables
Slide 32: Pro forma balance sheet – post 30 June 2017 acquisition and equity raising
Pro forma balance sheet – post 30 June PAGE 32 2017 acquisition and equity raising Initial Future Pro forma at 30-Jun-17 acquisition development completion ($m) ($m) ($m) ($m) Cash and other 29.6 (1.0) 28.6 Investment properties 591.7 29.3 35.7 656.7 Total Assets 621.3 29.3 34.7 685.3 Borrowings 170
Slide 33: Borrowing and hedging summary – 30 June 2017
Borrowing and hedging summary PAGE 33 – 30 June 2017 30 Jun 30 Jun Tranche 1 Tranche 2 Total 2017 2016 Hedge cover 79% 72% Total facility $102.5m $102.5m $205m Weighted average hedge interest rate 2.39% 2.48% Amount drawn $87.5m $83.5m $171m Weighted average hedge term 4.3yrs 4.0yrs Available debt $
Slide 34: Portfolio valuations – 30 June 2017
Portfolio valuations – 30 June 2017 PAGE 34 Number of assets Value ($m) Passing yield (%) ELC – Independent Valuations Freehold Queensland 28 72.8 7.12% New South Wales 14 25.1 6.67% Western Australia 5 10.9 6.93% Victoria 10 31.6 5.41% Total 57 140.4 6.64% Leasehold 5 12.9 8.51% Total ELC independe
Slide 35: Portfolio diversification – 30 June 2017
Portfolio diversification – 30 June 2017 PAGE 35 Geographic diversification (by value) Tenant diversification (by income) 2% 1% 2% 3% Goodstart Early Learning 8% 7% QLD Primary Health Care 4% VIC Affinity Education 33% 5% NSW 40% 5% Oxanda Childcare 22% WA Petit Early Learning 5% SA Journey G8 Educa
Slide 36: Portfolio composition and movement
Portfolio composition and movement PAGE 36 Portfolio movements (30 June 2016 to 30 June 2017) 220 203 205 214 210 9 5 200 10 10 6 -1 14 190 7* -1 180 195 195 170 189 160 150 30-Jun-16 Asset sales Completed Development Development New sites 30-Jun-17 30-Jun-17 plus developments portfolio asset sales
Slide 37: ELC portfolio metrics – 30 June 2017
ELC portfolio metrics – 30 June 2017 PAGE 37 30 Jun 2017 30 Jun 2016 Variance Leased ELCs 188 182 3.3% Development sites 10 14 (28.6%) Total ELCs 198 196 1.0% WALE (by income) (years) 14.2 10.4 3.8yrs Tenanted occupancy (%) 100 100 - Average passing yield (%) 6.73 7.31 (58bps) Portfolio value ($m) 5
Slide 38: Healthcare portfolio metrics – 30 June 2017
Healthcare portfolio metrics – 30 June 2017 PAGE 38 30 Jun 2017 30 Jun 2016 Variance Medical centres 7 7 - Development sites - - - Total healthcare properties 7 7 - WALE (by income) (years) 5.5 6.5 (1yr) Tenanted occupancy (%) 100 100 - Average passing yield (%) 6.92 7.25 (33bps) Property portfolio
Slide 39: Portfolio location map
Portfolio location map PAGE 39 Arena REIT / FY17 Annual Results / www.arena.com.au
Slide 40: July 2017 ELC portfolio acquisition
July 2017 ELC portfolio acquisition PAGE 40 Nine ELC properties Portfolio under development Total cost1 $65 million Transaction structure Fund through2 Income yield 6.25% Green Leaves Early Tenant Learning Centres Lease term 20 years Lease structure Triple net lease Fixed 3% pa, market Rent reviews
Slide 41: 'Jobs for Families' package – from 1 July 2018
‘Jobs for Families’ package – from 1 July PAGE 41 2018 • 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 th
Slide 42: ELC market data
ELC market data PAGE 42 Number of children aged 0-4 years, number of children in Number of long day care centres, increase over prior long day care, long day care participation rate (%) year (%) 1,800,000 8,000 40.1% 39.4% 40.0% 41.2% 41.7% 42.2% 0.7% 2.0% 2.7% 3.8% 2.3% 4.0% 1,600,000 7,000 1,400,0
Slide 43: ELC supply – projects in construction
ELC supply – projects in construction PAGE 43 Number of ELCs ELC projects in Forecast % State September 20161 construction2 increase ACT 152 4 2.6% NSW 2,943 133 4.5% NT 75 5 6.7% QLD 1,489 42 2.8% SA 358 22 6.1% TAS 119 2 1.7% VIC 1,321 122 9.2% WA 570 26 4.6% Total 7,027 356 5.1% 1 Australian Gove
Slide 44: ELC property market sales evidence
ELC property market sales evidence PAGE 44 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 45: ELC property market sales evidence
ELC property market sales evidence PAGE 45 QLD passing yields Other states passing yield 14% 14.0% 12% 12.0% 10% 10.0% 8% 8.0% 6% 6.0% 4% 4.0% 2% 2.0% 0% 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 Linea
Slide 46: Important notice
Important notice PAGE 46 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 101 067 878). The