Arena Reit · ASX:ARF
Arena Reit — H1 FY2016 Earnings Presentation
39 slides from Arena Reit's earnings presentation, Feb 22, 2016
Slide 1: FY16 Interim Results
For personal use only Arena REIT FY16 Interim Results ARF.ASX Strong result drives FY16 DPS guidance upgrade 22 February 2016 Arena REIT 1HFY16 Results | www.arena.com.au 1
Slide 2: Important notice
Important notice For personal use only This presentation has been prepared by Arena REIT (ARF) 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 06
Slide 3: Agenda
Agenda For personal use only Page 1 Overview 4 2 Financial Results 7 3 Portfolio Update 12 4 Outlook 24 5 Questions 27 6 Appendices: Additional Information 28 Arena REIT 1HFY16 Results | www.arena.com.au 3
Slide 4: Overview
For personal use only 1 Overview Arena REIT 1HFY16 Results | www.arena.com.au 4
Slide 5: Half-year highlights
1.1 Half-year highlights Strong operational results For personal use only > Net Operating Profit $12.6 million (+20% on HY15) Strong financial > Distributable Income per security (EPS) 5.52 cents (+11% on HY15) results > Net Asset Value (NAV) per security up 13 cents to $1.46 (+10% on June 2015) > R
Slide 6: Six-month total return of 19.7%
1.2 Six-month total return of 19.7% Outperformance of S&P/ASX 300 A-REIT Index by 12.5% For personal use only Total return performance six months to 31 December 2015 25% ARF 20% 19.7% 15% 10% S&P/ASX300 A-REIT Index 5% 7.2% All Ordinaries 0% 0.4% (5%) (10%) Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15
Slide 7: Financial Results
For personal use only Financial Results 2 Arena REIT 1HFY16 Results | www.arena.com.au 7
Slide 8: Financial highlights
2.1 Financial highlights Strong operational result translates to increase in earnings and distributions For personal use only > Net Operating Profit $12.6 million, Earnings per security (EPS) Distributions per security (DPS) up $2.1 million (20% on pcp) 6 5.52 6 4.97 4.90 5.35 following: 5 5 4.13 •
Slide 9: Key drivers of growth in EPS – 11% on pcp
2.2 Key drivers of growth in EPS – 11% on pcp Disciplined execution of strategy delivering growth For personal use only Contributors to growth in EPS (half-year ended 31 Dec 2015) 7 6.5 6 +0.20 -0.20 +0.45 -0.10 5.52 11% EPS cents per security 5.5 +0.20 growth 4.97 5 4.5 4 3.5 3 1HY15 EPS Rental gro
Slide 10: Strong balance sheet with capacity for growth
2.3 Strong balance sheet with capacity for growth Allocation of capital focused on enhancing portfolio quality For personal use only $m Total Assets, Borrowing and Gearing $ Net Asset Value (NAV) per security > Total assets $481 million 500 100% 1.50 1.46 (up 7%) 400 80% 1.40 1.33 > Borrowings uncha
Slide 11: Pro-active capital management
2.4 Pro-active capital management New debt facility negotiated with terms improved For personal use only $m Debt maturity profile > Debt facility renegotiated resulting in 100 extended weighted average duration to four years 80 44.0 > Significant headroom in LVR and ICR debt 60 covenants 40 87.5 > W
Slide 12: Portfolio Update
For personal use only Portfolio Update 3 Arena REIT 1HFY16 Results | www.arena.com.au 12
Slide 13: Portfolio strategy continues to deliver results
3.1 Portfolio strategy continues to deliver results Positive results from a disciplined approach For personal use only Delivering > 2.5% income growth (like-for-like) on fixed/CPI rent reviews1 organic growth > Revaluation uplift $30 million Maximising > 23% annual underlying total property return p
Slide 14: Strong recurring income stream
3.2 Strong recurring income stream 100% occupancy and long WALE deliver income security and predictability For personal use only Medical Childcare Development Total Total centres centres sites 31 Dec 2015 30 Jun 2015 Number of properties 7 179 15 201 197 Book value ($m) 75 351 30 456 421 Like-for-li
Slide 15: Rental growth underpinned by fixed increases
3.3 Rental growth underpinned by fixed increases Market rent reviews not yet completed For personal use only Fixed/CPI rent reviews (87% of portfolio income): FY2016 portfolio rent reviews (by income) > Of which, 90% have a minimum 2.5% increase 1HFY16 100% FY16 Market > 48% of portfolio income subj
Slide 16: Tenant profile
3.4 Tenant profile Diversification by sector, location and tenant For personal use only > Portfolio weighted to high population growth states of NSW, VIC and QLD > 45% weighting to Goodstart Early Learning > Investor interest in childcare operators continues with privatisation of Affinity Education
Slide 17: Strong portfolio revaluation uplift
3.5 Strong portfolio revaluation uplift ….due to rental income growth and firming cap rates For personal use only > Six month net revaluation increase of Portfolio average passing yield $30 million 10% > 32% of the portfolio (by value) 9% independently valued at 31 December 2015 8% Childcare > Large
Slide 18: Portfolio composition
3.6 Portfolio composition Recycling to improve portfolio quality For personal use only > Divested two older style, vacant centres > Completed two purpose built centres on new 15 year leases > Increased development pipeline with six new projects added 201 197 +6 11 15 development -2 development proje
Slide 19: New ELC's for State of Victoria
3.7 New ELC’s for State of Victoria Innovative transaction building quality long term partnerships For personal use only > Agreement to design and construct six ELCs adjacent to new primary schools in Victoria > Leasehold interest on 26 year term at peppercorn rental Project > Leased to YMCA on trip
Slide 20: Completed developments
3.8 Completed developments Successful completion of two childcare centre projects For personal use only > Total net cost of $5.6 million and average initial yield on cost 9.2% p.a. Location Net cost Initial yield Lease term Lease start Rent review type ($m) on cost (years) date (%) Murwillumbah, NSW
Slide 21: Active development pipeline projects
3.9 Active development pipeline 14 projects forecast to be completed over next two years For personal use only > High quality projects with Arena’s standard lease structure 15 sites 2 properties in construction phase to be completed 2HFY16 Approx. $60 7 ready to commence construction, expected compl
Slide 22: Sector outlook
3.10 Sector outlook Rigorous investment process required Sector funding models to be finalised by Federal Government For personal use only > Proposed funding changes under consideration: > Childcare – November 2015 proposed changes in ‘Jobs for Families Childcare Package’ to increase childcare subsi
Slide 23: Childcare supply
3.11 Childcare supply Understanding micro-markets a key driver of decision making For personal use only > Ratio of children aged 0-4 years Arena Portfolio (demand) to available childcare places Ratio of children aged 0-4 years to available childcare places, (supply) is an indicator of market 1 by lo
Slide 24: Outlook
For personal use only Outlook 4 Arena REIT 1HFY16 Results | www.arena.com.au 24
Slide 25: Distribution guidance upgrade to 10.9 cps
4.1 Distribution guidance upgrade to 10.9 cps1 Forecast annual average distribution growth of 11% since listing in June 2013 For personal use only > FY16 distribution guidance upgraded Earnings and Distributions per security from 10.7 cps to 10.9 cps1 > Key drivers of FY16 distribution guidance incr
Slide 26: Strategy, structure and team support performance
4.2 Strategy, structure and team support performance Delivering a strong comparative advantage For personal use only Specialised portfolio strategy > Specialised sectors with favourable macro fundamentals driven by population growth or supply/demand imbalances > Preferred lease characteristics with
Slide 27: Questions?
For personal use only 5 Questions? Arena REIT 1HFY16 Results | www.arena.com.au 27
Slide 28: Appendices: Additional Information
For personal use only Appendices: 6 Additional Information Arena REIT 1HFY16 Results | www.arena.com.au 28
Slide 29: Income statement
6.1 Income statement For personal use only 31 Dec 31 Dec Change > 7% lease rental growth from $ million 2015 2014 $m (%) existing assets and new Income developments over FY15 Rental income 16.3 15.2 1.1 7 > Other income relates primarily to Other 0.3 0.1 0.2 200 unlisted funds Total Income 16.6 15.3
Slide 30: Balance sheet
6.2 Balance sheet Secure financial position For personal use only 31 Dec 30 June Change > Cash includes funds for near term $ million 2015 2015 $ % property acquisition settlements Cash 8.4 10.9 (2.5) -23 and development capex, plus liquid funds for AFSL Receivables and other assets 6.0 8.5 (2.5) -2
Slide 31: Interest rate management
6.3 Interest rate management Fixed rate maturity profile extended For personal use only Hedging profile 31 Dec 2015 $m % Hedge cover (%) 76 120 3.5 Weighted average hedge interest rate (%) 2.48 100 Weighted average hedge term (years) 4.3 80 60 2.5 40 20 0 1.5 FY16 FY17 FY18 FY19 FY20 FY21 FY22 Avera
Slide 32: Portfolio value movement
6.4 Portfolio value movement Number of Value Passing Yield Movement Independent Valuations assets ($m) (%) (%) For personal use only Queensland 8 22.5 7.7 9.8 New South Wales 3 4.0 7.8 9.8 Western Australia 5 9.8 7.6 8.7 Victoria 17 29.5 7.1 8.4 Tasmania 1 1.4 8.2 10.7 South Australia 1 3.0 7.9 0.5
Slide 33: Childcare portfolio metrics
6.5 Childcare portfolio metrics Active portfolio management has improved key ratios For personal use only Childcare portfolio overview 31 Dec 2015 30 Jun 2015 Change Leased childcare centres 179 177 +1% Available for sale / lease - 2 -100% Development sites 15 11 +36% Total childcare properties 194
Slide 34: Childcare state by state passing yields
6.6 Childcare state by state passing yields Strong cap rate compression For personal use only Childcare portfolio overview at 31 Dec 2015 Number of Carrying Rent (pa) Passing yield assets value ($m) ($’000) (%) Queensland 70 146.2 11,454 7.8 New South Wales 26 42.9 3,191 7.4 Victoria 49 94.2 6,666 7
Slide 35: Childcare property market sales evidence
6.7 Childcare property market sales evidence Recent sales show childcare centre yields continuing to firm For personal use only Childcare transactions indicative yields > 13 freehold sales tracked in last Eastern States (VIC, NSW, QLD) six months (Jun 2014 – Jan 2016) 0.12 > Sales evidence indicates
Slide 36: Historic supply of childcare centres
6.8 Historic supply of childcare centres Growth in supply returning to pre-GFC levels For personal use only > Average increase of 150 centres per annum over the last five years Number of long day care services in Australia 6,606 6,656 7,000 6,156 6,310 5,904 6,017 5,597 5,720 6,000 5,360 5,043 4,747
Slide 37: Proposed changes to childcare government subsidies
6.9 Proposed changes to childcare government subsidies Additional $3 billion of funding proposed For personal use only > Lower to middle income families reduced out of pocket expenses, expected to increase the number of children in care and hours of care 90% 80% Subsidy as percentage of actual fee 7
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 71 Flinders Lane Melbourne VIC 3000 Visit us at ww
Slide 39: For personal use only
For personal use only