Arena Reit · ASX:ARF
Arena Reit — H1 FY2017 Earnings Presentation
42 slides from Arena Reit's earnings presentation, Feb 20, 2017
Slide 1: Arena REIT FY17 Interim Results
PAGE 1 Arena REIT FY17 Interim Results Strong earnings growth and distribution upgrade 20 February 2017 Arena REIT / FY17 Interim Results / www.arena.com.au
Slide 2: Agenda
Agenda PAGE 2 Highlights 3 Financial Results 7 Portfolio Update 12 Summary and Outlook 24 Questions 28 Directory 29 Appendices 30 Important notice 42 Arena REIT / FY17 Interim Results / www.arena.com.au
Slide 3: Highlights
PAGE 3 Highlights Bryce Mitchelson, Managing Director Arena REIT / FY17 Interim Results / www.arena.com.au
Slide 4: Financial highlights
Financial highlights PAGE 4 Strong first half result – statutory net profit $59.6 million Earnings per Highlights Net Operating Distributions per security (EPS) Profit security (DPS) (Operating) • Long-term predictable and Increase growing rental cash flow $14.2m 30% 6.11 cents 5.85 cents profit by
Slide 5: Portfolio highlights
Portfolio highlights PAGE 5 Improvement in all key portfolio metrics during 1H FY17 Highlights Average rent WALE Lease renewal review increase rate • All key metrics improved Increase through active portfolio 4.9% * 10.6 years 30% 100% management initiatives profit by 54% of income 7 of 7 options •
Slide 6: Delivering on investment objectives
Delivering on investment objectives PAGE 6 FY17 DPS guidance upgrade to 12.0 cents* Distributions per security (cents) INVESTMENT OBJECTIVE Generating attractive and 14 predictable distributions with 12.0 * 12 earnings growth prospects over 10.90 the medium to long term 10.00 10 8.75 8 8.00 • FY17 D
Slide 7: Financial Results
PAGE 7 Financial Results Gareth Winter, Chief Financial Officer Arena REIT / FY17 Interim Results / www.arena.com.au
Slide 8: Financial performance
Financial performance PAGE 8 Efficient delivery of 13% growth in net operating profit 1H FY17 1H FY16 Change Highlights ($’000) ($’000) $’000) • Income growth from: Rental income 18,047 16,284 1,763 structured annual rental growth Other income 337 312 25 and market reviews Total operating income 1
Slide 9: Contributors to earnings growth
Contributors to earnings growth PAGE 9 Portfolio strategy and capital management underpin EPS growth of 11% 6.40 0.12 6.20 0.25 6.11 - 0.07 6.00 - 0.04 0.33 cents +11% 5.80 5.60 5.52 5.40 5.20 5.00 1H16 EPS Like-for-like rental Completed Borrowing costs/ Net operating Asset sales 1H17 EPS income gro
Slide 10: Financial position
Financial position PAGE 10 Growth in net assets 31 Dec 2016 30 Jun 2016 Change NAV per security ($) ($m) ($m) (%) 1.80 Total assets 584.1 514.0 +14 CAGR 16% pa 1.60 Investment properties 563.2 491.4 +15 1.40 Borrowings 162.5 138.0 +18 1.20 1.00 Net assets 407.0 357.5 +14 0.80 Securities on issue 233
Slide 11: Capital management
Capital management PAGE 11 Additional capacity secured to fund future growth 31 Dec 2016 30 Jun 2016 Change Highlights ($m) ($m) Borrowings 162.5 138.0 +18% • Borrowing facility Borrowing facility limit 205.0 * 175.0 +17% increased by $30 million in January 2017 to fund Gearing 27.8% 26.8% +100bps f
Slide 12: Portfolio Update
PAGE 12 Portfolio Update Rob de Vos, Head of Property Arena REIT / FY17 Interim 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 10.6 years Premises that have strategic 97% purpose built assets; tenant importance to tenant operations goodwill linked to l
Slide 14: Portfolio highlights
Portfolio highlights PAGE 14 Active six months builds solid foundation for FY17 performance Active portfolio initiatives to de-risk income and access growth • 100% of lease options renewed • 1H FY17 average rent increase of 4.9% (5.8% on market reviews) • Seven ELC developments completed ahead of sc
Slide 15: Lease expiry profile
Lease expiry profile PAGE 15 Weighted average lease expiry (WALE) extended to 10.6 years Lease Expiry Profile (by income) (31 December 2016) WALE (years) 40% 11 10.6 ELC Healthcare 30% 10 9.7 9 8.7 8.9 20% 8.5 8.9 8.8 8.3 10% 8 0% 7 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Highlights
Slide 16: Rent review profile
Rent review profile PAGE 16 1H FY17 average rent increase of 4.9% Rent review profile (by income) Highlights 2% 100% • 54% of portfolio rental income 10% reviewed in 1H FY17 90% 21% 80% • 1H FY17 average rent increase of 54% 11% 4.9% achieved (5.8% on market 70% reviews) 60% • FY19 market reviews re
Slide 17: Valuation movement
Valuation movement PAGE 17 Net revaluation uplift of $43.5 million; increase of 8.4% Portfolio valuation 31 Dec 2016 Movement * Highlights ($m) ($m) % • 38 properties Independently valued; Early Learning 482.5 41.0 +9.3 170 at Director’s valuation Healthcare 80.7 2.5 +3.2 • 40 basis point firming in
Slide 18: Portfolio diversification
Portfolio diversification PAGE 18 Diversification by location and tenant enhanced Geographic diversification (by value) Tenant diversification (by income) 0.4% 2% 2.2% Goodstart Early Learning 8.3% 6% 2.0% QLD Primary Health Care 5% NSW 6% Affinity Education 32.4% VIC 40% 5% G8 TAS 30.2% SA 5% Oxand
Slide 19: Development project criteria aims to deliver competitive advantage
Development project criteria aims to deliver competitive advantage PAGE 19 Focus on long-term operator profitability and reward for risk Favourable physical location Sustainable Supportive rents demographics Development project criteria Purpose built Arena lease and flexible terms design Specialist
Slide 20: Development completions in 1H FY17
Development completions in 1H FY17 PAGE 20 Portfolio further diversified by tenant, location and ownership structure Total Initial yield Lease LDC cost on cost term places ($m) (%) (yrs) Leasehold properties Heather Grove, VIC 2.5 8.5 26 104 Pakenham, VIC 2.5 8.5 26 104 Casey Central, VIC 2.5 8.5 26
Slide 21: Development pipeline FY17 – FY18
Development pipeline FY17 – FY18 PAGE 21 Delivering efficient earnings growth with an acceptable level of risk Illustrative yield profile by project type (%) Highlights 18% Indicative initial yield on cost High risk 16% • Tenant partnerships providing access to 14% projects with different risk/retur
Slide 22: Demand driven by positive macro themes
Demand driven by positive macro themes PAGE 22 Demographic trends and government policy support demand for services Growing population Ageing population Chronic illness increasing Government policy focussed on: Facilitating efficient service delivery by private markets + Increasing economic producti
Slide 23: Market outlook
Market outlook PAGE 23 Ability to understand micro-markets is critical to identifying feasible opportunities Early Learning • ‘Jobs for Families package’ now forms part of larger Omnibus Savings and Childcare Reform Bill 2017 • If passed, additional funding of $3 billion to sector from 1 July 2018 •
Slide 24: Summary and Outlook
PAGE 24 Summary and Outlook Bryce Mitchelson, Managing Director Arena REIT / FY17 Interim Results / www.arena.com.au
Slide 25: 1H FY17 results summary
1H FY17 results summary PAGE 25 Active six months builds solid foundation for FY17 performance • Rental income growth key driver of EPS growth – up 11% to 6.11 cents • Significant valuation uplift driving 13% increase in NAV per security to $1.74 • Active portfolio initiatives to de-risk income and
Slide 26: FY17 DPS guidance upgraded to 12.0 cents
FY17 DPS guidance upgraded to 12.0 cents* PAGE 26 DPS compound average growth since listing 10% per annum Highlights Distributions per security (cents) Key contributors to upgrade: 14 • Transaction and development 12.0 * timing 12 10.90 • Renegotiation of 12 leases at 10.00 market rents 10 8.75 8.00
Slide 27: Solid investment case
Solid investment case PAGE 27 Positioned to deliver predictable and growing earnings with a scalable business model Quality portfolio with annual rent Predictable reviews and long WALE income stream Refinancing has lowered costs and increased capacity Population growing and Supportive ageing, govern
Slide 28: Questions
PAGE 28 Questions Arena REIT / FY17 Interim Results / www.arena.com.au
Slide 29: Directory
Directory PAGE 29 www.arena.com.au Bryce Mitchelson Gareth Winter Rob de Vos Susie McPherson Managing Director Chief Financial Officer Head of Property Head of Investor Relations and Marketing +61 3 9093 9000 +61 3 9093 9000 +61 3 9093 9000 +61 3 9093 9000 +61 408 275 375 +61 421 054 758 +61 417 520
Slide 30: Appendices
PAGE 30 Appendices Arena REIT / FY17 Interim Results / www.arena.com.au
Slide 31: Financial performance
Financial performance PAGE 31 1H FY17 1H FY16 Change ($’000) ($’000) ($’000) % Rental income 18,047 16,284 1,763 11% Other income 337 312 25 8% Total Operating Income 18,384 16,596 1,788 11% Direct property expenses (449) (439) 10 2% Operating expenses (1,635) (1,459) 176 12% Finance costs (2,078) (
Slide 32: Balance sheet
Balance sheet PAGE 32 31 Dec 16 30 Jun 16 Change Highlights ($’000) ($’000) ($’000) % Cash 7,928 9,446 (1,518) (16%) • Growth in assets due to: Receivables and other assets 2,189 2,250 (61) (3%) $29 million of development capex and acquisitions Investment properties 563,166 491,439 71,727 15% Inta
Slide 33: Interest rate management
Interest rate management PAGE 33 Hedge maturity profile 31 Dec 30 Jun 2016 2016 $m % 120 3.50 Hedge cover 71% 72% Weighted average hedge interest rate 2.37% 2.48% 100 3.00 Weighted average hedge term 4.0yrs 4.0yrs 80 60 2.50 40 2.00 20 0 1.50 FY17 FY18 FY19 FY20 FY21 FY22 Average debt hedged (LHS) A
Slide 34: Portfolio valuations – December 2016
Portfolio valuations – 31 December 2016 PAGE 34 Number of assets Value ($m) Passing yield (%) ELC – Independent Valuations Queensland 16 35.4 6.82 New South Wales 1 2.3 5.54 Western Australia 11 22.9 7.19 Victoria 4 13.6 6.77 Tasmania 3 5.5 6.84 South Australia 3 6.8 6.87 Total 38 86.5 6.88 ELC – Fr
Slide 35: Portfolio composition and movement
Portfolio composition and movement PAGE 35 Portfolio movements (30 June 2016 to 31 December 2016) 220 203 208 215 210 205 5 12 200 7 195 14 7 190 196 185 189 180 30-Jun-16 Completed Developments underway New sites added 31-Dec-16 developments Existing portfolio Development pipeline Arena REIT / FY17
Slide 36: ELC portfolio metrics
ELC portfolio metrics PAGE 36 31 Dec 2016 30 Jun 2016 Variance Leased ELC’s 189 182 3.8% Development sites 12 14 (14.3%) Total ELC’s 201 196 2.6% WALE (by income) (years) 11.5 10.3 1.2yrs Tenanted occupancy (%) 100 100 - Average passing yield (%) 6.84 7.31 (47bps) Portfolio value ($m) 482.5 413.2 16
Slide 37: ELC property market sales evidence
ELC property market sales evidence PAGE 37 VIC passing yields NSW passing yields 12% 12% 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% Jan-11 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Jan-11 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Metro Regional Metro Regional Linear (Metro) Linear (Regional) Linear (Regi
Slide 38: ELC market dynamics – growth in population and childcare participation
ELC market dynamics – growth in population and childcare participation PAGE 38 Population of children aged 0-4 years (million) Number of children using long day care 1.8 1.76m 700,000 677,380 1.7 643,810 650,000 1.6 1.54m 631,400 1.5 600,000 606,710 587,100 1.4 ABS projected data 585,000 1.3 from Ju
Slide 39: ELC market dynamics – growth in long day care services
ELC market dynamics – growth in long day care services PAGE 39 Number of long day care (LDC) centres * LDC centres Potential new LDC centres State currently under supply 7,500 March 2016 construction ^ 7,000 6,862 NSW 2,838 128 4.5% 6,500 6,723 QLD 1,473 50 3.4% 6,310 6,606 6,000 6,156 5,930 6,053 V
Slide 40: Healthcare portfolio metrics
Healthcare portfolio metrics PAGE 40 31 Dec 2016 30 Jun 2016 Variance Medical centres 7 7 - Development sites - - - Total healthcare properties 7 7 - WALE (by income) (years) 6.0 6.5 (0.5yrs) Tenanted occupancy (%) 100 100 - Average passing yield (%) 7.17 7.25 (8bps) Property portfolio ($m) 80.7 78.
Slide 41: Healthcare market dynamics – increase in primary, specialist and diagnostic services
Healthcare market dynamics – increase in primary, specialist and diagnostic services PAGE 41 Australian population and number of GP services Number of referrals, Pathology and Imaging claimed (million) requests per 100 GP encounters 160.0 60 140.0 +36% +34% 50 120.0 40 100.0 80.0 30 60.0 20 +37% 40.
Slide 42: Important notice
Important notice PAGE 42 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