Arena Reit · ASX:ARF
Arena Reit — FY2014 Earnings Presentation
46 slides from Arena Reit's earnings presentation, Aug 25, 2014
Slide 1: FY14 results and internalisation opportunity
For personal use only Arena REIT (ASX code: ARF) FY14 results and internalisation opportunity Delivering on our strategy 25 August 2014
Slide 2: Presenters
Presenters For personal use only Bryce Mitchelson Gareth Winter Vin Harink Joint Managing Director Chief Financial officer Senior Portfolio Manager • Appointed to the Board in • Joined Arena in 2012. • Joined Arena in 2009. April 2010. • Previously a partner of • Previously CEO of • Previously held
Slide 3: Agenda
Agenda For personal use only 1 FY14 overview 5 2 Financial results 9 3 Portfolio update 14 4 Outlook 23 5 Questions 29 6 Appendices 30 In this presentation FY14 annual Distribution Opening of Internalisation results guidance the DRP opportunity Page 5 Page 11 Page 26 Page 27 Arena REIT FY14 Annual R
Slide 4: FY14 overview
For personal use only FY14 overview Bryce Mitchelson 5
Slide 5: Key achievements
1.1 Key achievements Acquisitions and active asset management driving growth For personal use only FY14 earnings of 8.85¢ per security, an increase of 7.5% Significant growth in earnings over FY13. Diversified into healthcare through addition of Delivered on our strategy 7 medical centres. Acquired
Slide 6: Strategy
1.2 Strategy Delivered on strategy to drive earnings growth For personal use only Objective Sectors Preferred characteristics Progress Relatively long remaining WALE improved to 8.5 years. lease terms. Childcare 80.9%* Premises that have strategic To generate importance to the Diversified into healt
Slide 7: Delivered on our plans
1.3 Delivered on our plans Solid progress since IPO For personal use only What we said1 “The Trust has a targeted gearing ratio in the range of 35% to 45%, giving it capacity to acquire additional assets with the aim of increasing scale, improving diversification and enhancing returns to Unitholders
Slide 8: Financial results
For personal use only Financial results Gareth Winter 9
Slide 9: Financial highlights
2.1 Financial highlights Stapling and acquisitions underpinned earnings growth For personal use only Key metrics FY14 FY13 Change (%) Statutory net profit $44.6m $17.2m 159% Distributable income $18.5m $11.2m 65% Distributable income per security 8.85¢ 8.23¢ 7.5% Distribution per security 8.75¢ 8.00
Slide 10: Solid distribution growth
2.2 Solid distribution growth FY14 DPS exceeded expectations with growth expected to continue into FY15 For personal use only Cents per security 10.0 11.4% 9.751 FY15 expected 9.5 growth 9.4% FY14 growth 9.0 8.75 8.65 8.5 8.2 8.0 8.0 7.5 1 On a status quo basis assuming no new acquisitions and devel
Slide 11: Earning growth drivers
2.3 Earning growth drivers 7.5% increase in earnings per security For personal use only 9.00 0.33 0.01 0.20 8.85 8.75 7.5% FY14 0.12 (0.29) growth 8.50 0.25 8.25 8.23 8.00 FY13 SHCT Affinity Rental Other Net of Reduced FY14 stapling acquisition growth reduced management average fee gearing & bank ma
Slide 12: Debt management
2.4 Debt management Strong credit profile For personal use only Key debt metrics FY14 FY13 Debt maturity profile and headroom ($m) Facility limit $155m1 $110m 90 80 Drawn amount $125m $25m 7.5 70 22.5 Undrawn amount $30m $85m 60 Average remaining facility term 4.0 years 3.0 years 50 40 Interest rate
Slide 13: Portfolio update
For personal use only Portfolio update Vin Harink 14
Slide 14: Key portfolio metrics
3.1 Key portfolio metrics Notable improvement over FY13 For personal use only Medical Leased childcare Vacant childcare Childcare Centre Total at As at FY14 centres centres centres development sites Total FY13 No of properties 7 (+7) 174 (+7) 2 (-4) 10 (+6) 193 (+16) 177 Carrying value ($m) 64.2 270
Slide 15: Increased tenant diversification
3.2 Increased tenant diversification Strengthening tenant covenant For personal use only • The stapling with Sydney Healthcare Trust and general childcare market consolidation has seen the tenant profile become further diversified with the addition of ASX listed Primary Health Care, Affinity Educati
Slide 16: Lease expiries
3.3 Lease expiries Lease maturity profile extended For personal use only By income 60% 50% 40% Office component 30% Healthcare portfolio 20% Childcare portfolio 10% % FY15 FY16 FY17 FY 18 FY19 FY20 FY21 FY22 FY23+ • WALE improved from acquisitions with long leases to Affinity Education and Primary H
Slide 17: Portfolio value movement
3.4 Portfolio value movement Positive portfolio gains For personal use only Investment property value ($ million) 400 $24.5 $355.8 350 $18.5 $33.7 ($11.1) +51% 300 $55.2 FY14 net 250 $235.0 growth 200 150 100 50 0 Portfolio at Healthcare Acquisitions Dev Disposals Revaluations Portfolio at FY13 stap
Slide 18: Acquisitions
3.5 Acquisitions Active portfolio management For personal use only Childcare acquisitions • 15 operating childcare centres were acquired during FY14, including a 14 property portfolio leased to Affinity Education on 15 year leases and our standard terms. • 6 properties were acquired for $11.9 millio
Slide 19: Developments
3.6 Developments Growing the Trust through construction and conversion For personal use only • In the current market, there are a limited number of freehold acquisitions available that would meet our investment criteria. • In order to grow the Trust, we are buying property to construct new centres o
Slide 20: Developments continued
3.6 Developments continued Pipeline of c$40m in place to drive growth beyond FY15 For personal use only Properties owned and in construction Estimated Total Average construction project initial 5 completion cost yield 1HFY15 c$11m 9.3% Properties owned or under contract, construction pending Griffin
Slide 21: Portfolio disposals
3.7 Portfolio disposals Successfully remixed the childcare portfolio For personal use only Proceeds Net gain/(loss) ($’000) Passing yield ($’000) Sale of 2 vacant centres in period to 31 Dec 2013 1,528 N/A (6) Sale of 10 childcare centres at auction on 25 June1 14,207 6.7% 3,790 Total 15,735 3,784 1
Slide 22: Outlook
For personal use only Outlook Bryce Mitchelson 23
Slide 23: Summary of FY14
4.1 Summary of FY14 Well positioned for earnings growth For personal use only Strong full year operating results and delivered on strategy. A significant growth in earnings. Well progressed with development pipeline. Successfully remixed the childcare portfolio. Strengthened tenant covenan
Slide 24: FY15 outlook
4.2 FY15 outlook Positive outlook for growth For personal use only • Continue the development pipeline of new childcare centres with suitable tenancy pre-commitments. • Continue actively seeking acquisitions in the childcare, healthcare, education and government sectors. • Continue to remix the chil
Slide 25: Opening of DRP
4.3 Opening of DRP To assist with the funding of future developments For personal use only • ARF is opening its Distribution Reinvestment Plan (DRP) for the September 2014 quarter distribution until further notice. • The key pricing parameters of the DRP for the September distribution will be as fol
Slide 26: Internalisation opportunity
4.4 Internalisation opportunity Key terms For personal use only • Exclusivity period of 6 months agreed with Citrus II Investments (ultimate owner of Arena Investment Management Limited) for ARF to consider an internalisation of its corporate governance and management function and to assume the mana
Slide 27: Internalisation opportunity continued
4.4 Internalisation opportunity continued Rationale For personal use only • ARF well positioned to significantly grow its asset base while continuing to generate attractive returns for security holders. • Enhances alignment of interests between management and security holders. • Improves competitive
Slide 28: Questions
For personal use only 29 Questions
Slide 29: Appendices
For personal use only 30 Appendices
Slide 30: Income statement
6.1 Income statement Operating earnings exceeded IPO expectations For personal use only $ million FY14 FY13 Change (%) Commentary Income Asset acquisitions, stapling of Arena REIT No. Lease rental 26.4 21.3 24% 2, average increase in rent reviews of 2.94%. Other 0.1 0.7 (86%) Investment in FET sold
Slide 31: Balance sheet
6.2 Balance sheet Secure financial position For personal use only $ million FY14 FY13 Change (%) Commentary Cash 4.0 5.0 (20%) $14.2 million receivable from investment Trade and other receivables 15.5 1.3 1,092% property sales. Healthcare and childcare asset additions Investment properties 355.8 235
Slide 32: Funds from operations
6.3 Funds from operations Funds from operations increased by 65% For personal use only $ million FY14 FY13 Change (%) • Funds from operations same as Distributable income 18.5 11.2 65% distributable income. Other adjustments 0.0 0.0 0% • Adjusted funds from operations Funds from operations 18.5 11.2
Slide 33: Interest rate management
6.4 Interest rate management Fixed hedging extended during period For personal use only Hedging profile by financial year Hedging profile FY14 120 Amount of debt hedged $85m 3.92% 3.60% % of drawn debt hedged 68% 3.76% 100 3.6 Weighted average interest rate of hedges 3.33% 3.33% 3.33% Weighted avera
Slide 34: Revaluation movements
6.5 Revaluation movements Positive during FY14 reflecting market growth For personal use only Carrying value Net revaluation Number of 30 June 2014 movement Percentage Portfolio overview assets ($’000) ($’000) Movement Properties subject to independent valuation 70 105,460 10,057 10.5% Properties no
Slide 35: Childcare portfolio metrics
6.6 Childcare portfolio metrics Favourable movements during FY14 For personal use only Portfolio overview FY14 FY13 % change • Leased childcare centres includes Leased childcare centres 174 167 4.2% acquisitions of 15 centre properties, Available for sale / lease 2 6 (66.7%) the disposal of 10 centr
Slide 36: Childcare state by state passing yields
6.7 Childcare state by state passing yields Strong cap rate compression For personal use only Number Carrying Rent (pa) Passing Portfolio overview of assets value ($’000) $’000 Yield • Evidence of strong cap rate compression in NSW, Victoria Queensland 68 109,433 9,977 9.12% and WA with Queensland N
Slide 37: Caboolture Medical and Dental Centre
6.8 Caboolture Medical and Dental Centre A quality asset located in Queensland For personal use only • A local community medical centre containing 12 GP consulting rooms, 2 active dental chairs and a 4 bed medical treatment room. • 100% leased for 15 years to Primary Health Care. • Strategically loc
Slide 38: Underlying demand driven capital growth
6.9 Underlying demand driven capital growth Recent sales show childcare yields firming in Victoria and NSW For personal use only 14% 11% New South Wales Victoria 12% 10% 10% 9% 8% 8% 6% 7% 4% 6% Sep-11 Apr-12 Oct-12 May-13 Nov-13 Jun-14 Dec-14 Nov-10 Apr-12 Aug-13 Dec-14 Sydney Canberra Regional Lin
Slide 39: Healthcare portfolio
6.10 Healthcare portfolio A portfolio of seven multi disciplinary medical centres For personal use only Bondi Junction Leichhardt Campbelltown Dapto Medical Wentworthville Mt Druitt Caboolture Medical and Medical and Medical and Centre, Medical Medical Medical and Dental Centre, Dental Centre, Denta
Slide 40: Revaluations
6.11 Revaluations Healthcare stapling portfolio revaluation uplift For personal use only 14 Asset revaluations ($ million) 13.2 13 12 12 12.3 12.4 +7.4% valuation 11 growth $ million 10 since 9.2 9 8.5 8.6 stapling 8.2 8 7.8 7.7 7.5 7 6.7 6 Bondi Junction Leichhardt Campbelltown Dapto Wentworthville
Slide 41: Productivity Commission Inquiry into Childcare
6.14 Productivity Commission Inquiry into Childcare Draft Report released in July 2014 – final report due in October For personal use only Recommendations include: • Government to combine Child Care Benefit and Child Care Rebate into a single child-based subsidy to be known as the Early Care and Lea
Slide 42: BSH and PHC Funds
6.12 BSH and PHC Funds Proposed externally managed funds For personal use only Banksia Street Heidelberg Joint Venture (BSH) • Unlisted JV scheme with 19 investors. • Property: 16 – 18 Banksia Street, Heidelberg, Vic. Pathology asset 100% leased to Primary Health Care with a remaining lease term of
Slide 43: A strong investment case
6.13 Investment case A strong investment case For personal use only Relatively long leases providing a predictable income stream • WALE of 8.5 years. A geographically diverse portfolio of property assets • Childcare centres located across all 6 states of Australia and the Northern Territory, 6 healt
Slide 44: For further information
For further information For personal use only Bryce Mitchelson Investor and Adviser Services Joint Managing Director Ph. 1800 008 494 Ph. 03 9093 9120 info@arenainvest.com.au Bryce.mitchelson@arenainvest.com.au www.arenainvest.com.au Arena REIT FY14 Annual Results | arenainvest.com.au 45
Slide 45: Important notice
Important notice This document has been prepared by Arena Investment Management Limited ACN 077 235 879 AFSL No. 233190 (“Arena”) as responsible entity of Arena REIT No. 1 ARSN 106 891 641 and Arena REIT No. 2 ARSN 101 067 878 (collectively referred to as “Arena REIT”). The information contained in
Slide 46: For personal use only
For personal use only