Arena Reit · ASX:ARF
Arena Reit — Morgan Stanley Australian Emerging Companies Conference 2014
25 slides from Arena Reit's conference presentation, Jun 18, 2014
Slide 1: Exploring competitive advantage
For personal use only Morgan Stanley Australian Emerging Companies Conference 2014 Arena REIT (ASX Code: ARF) Exploring competitive advantage Bryce Mitchelson 18 June 2014 Joint Managing Director
Slide 2: About Arena REIT (ARF)
About Arena REIT (ARF) A relatively high yielding social infrastructure small cap A-REIT For personal use only • Established as an unlisted trust in 2003 investing into childcare centres. • GFC and collapse of ABC Learning (major tenant) in 2008 demonstrated resilience of portfolio and management. •
Slide 3: Agenda: Exploring our competitive advantages
Agenda Exploring our competitive advantages For personal use only driven by… enables... resulting in... A unique investment Relatively high strategy Stable cash flow 10 income yield 24 Favourable 14 macro A well drivers 11 Underlying diversified Earnings growth demand driven portfolio Strong capital
Slide 4: A well diversified portfolio
A well diversified portfolio Relatively small assets in many locations For personal use only Sector diversification (by value) • Total assets: $331.8 million Healthcare • Number of direct properties: 199 17% • Average age of property: 9 years • >25 tenants Location diversification Childcare 83% Poin
Slide 5: A well diversified portfolio continued: strong childcare portfolio with long WALE
A well diversified portfolio continued A strong childcare portfolio with long WALE For personal use only Childcare portfolio key metrics 31 Dec 2013 Leased childcare centres 183 Available for sale / lease 3 Development land 7 Total properties 193 WALE (years) 8.8 Tenanted occupancy 98.4% Passing yie
Slide 6: Typical childcare centre layout
A well diversified portfolio continued Typical childcare centre layout For personal use only Arena REIT | arenainvest.com.au 7
Slide 7: Medical centre portfolio all leased to PRY and situated in NSW
A well diversified portfolio continued Medical centre portfolio all leased to PRY and situated in NSW For personal use only • Services – GP, radiology (diagnostic imaging), pathology, physiotherapy, chemist, and dentistry. (PRY bulk billing model). • Tenant responsible for all statutory and building
Slide 8: Bondi Junction Medical and Dental Centre – serving the community
A well diversified portfolio continued Bondi Junction Medical and Dental Centre – serving the community For personal use only Arena REIT | arenainvest.com.au 9
Slide 9: A unique investment strategy
A unique investment strategy Focusing on non-traditional property sectors For personal use only Objective Preferred characteristics of investments Sectors Relatively long remaining lease terms. Childcare Premises that have strategic importance to the operations of the tenant. To generate an attracti
Slide 10: Favourable macro drivers
Favourable macro drivers Demand being driven by demographic and economic factors For personal use only Childcare sector1 Healthcare sector2 More children Aging population +16% projected growth in number of children 0-4 +3.3% expected growth in +65 age years from 2013-2025. bracket 2012-2022. Higher
Slide 11: Strong Board and management
Strong Board and management Experience combined with a multi disciplinary team to implement strategy For personal use only Board of Directors Non-executive Non-executive Non-executive Joint MD Joint MD Chairman Director Director Bryce Mitchelson James Goodwin David Ross Dennis Wildenburg Simon Parso
Slide 12: Operator partnering
Operator partnering Committed to long term relationships with our tenants to drive growth For personal use only • Long term relationships with childcare and medical operators are very important. • Combining the operator’s and Arena (landlord perspective) expertise provides the opportunity to identif
Slide 13: Stable cash flow
Stable cash flow Strengthening tenant covenant from broader strategy and consolidation For personal use only Goodstart Affinity Education (AFJ) • Not for profit • Newly ASX listed with market cap of • Largest childcare operator in the market approximately $200 million • FY13 net operating cash flow
Slide 14: Stable cash flow continued: long lease structure ensures stable income
Stable cash flow continued Long lease structure ensures stable income For personal use only • All childcare leases are triple net lease structure i.e. tenant responsible for all outgoings, structural repairs, refurbishment etc. Access to monthly operating data. • Medical centres double net lease str
Slide 15: Comfortable debt headroom position
Stable cash flow continued Comfortable debt headroom position For personal use only Financiers Limit Drawn Expiry • Both Lenders have expressed $70m $70m 30 June 2017 their desire to increase exposure ANZ/NAB over time. $70m $37m 30 June 2019 • Other lenders have also actively Financial debt covenan
Slide 16: Earnings growth: strong distribution growth since IPO
Earnings growth Strong distribution growth since IPO For personal use only Cents per security 9.0 8.8 8.75 8.65 8.6 Est. FY14 8.4 distribution 8.2 growth 9.4% 8.2 8.0 8.0 7.8 7.6 Actual June 13 Nov 13 Feb 14 IPO upgrade upgrade FY13 FY14 distribution guidance Arena REIT | arenainvest.com.au 17
Slide 17: Earnings growth continued: further distribution growth potential
Earnings growth continued With further distribution growth potential For personal use only Annual rent Accretive reviews: property • Min 2.5% or CPI acquisitions • Market reviews FY14 distribution Lower growth from FY13 Development interest projects costs and margins 9.4% coming on line Remixing to
Slide 18: Value adding opportunities: growing childcare development pipeline
Value adding opportunities Growing childcare development pipeline For personal use only Strong rationale How we choose our sites • Opportunity to secure well located sites with suitable • Favourable childcare needs demographics and construct high quality centres. assessment. • Must have pre-committe
Slide 19: Accessing better quality property for higher returns
Value adding opportunities continued Accessing better quality property for higher returns – pro forma returns For personal use only Regional Fringe VIC Inner suburban Operating metrics Queensland metropolitan VIC Places 105 103 150 Occupancy 80% 80% 85% Daily fee ($) 75 85 110 Total revenue ($’000)
Slide 20: Underlying demand driven capital growth
Underlying demand driven capital growth Recent sales show childcare yields firming in Victoria and NSW Victoria New South Wales For personal use only 11% Melbourne 12% Sydney 10% 10% Regional 11% Canberra 9% 10% 9% Regional 8% 9% 8% 8% 7% 7% 7% 6% 6% Feb-11 Sep-11 Apr-12 Oct-12 May-13 Nov-13 Jun-14
Slide 21: Active risk management
Active risk management Risk can be managed to improve quality of income streams For personal use only Key manageable risk Mitigation Concentration - sector and tenant • Broadening of property type and tenants • Tenants becoming better capitalised Tenant lease default • Tenant business goodwill valua
Slide 22: Typical reversionary risk management approach
Active risk management continued Typical reversionary risk management approach For personal use only Is tenant likely to exercise lease Yes Retain in extension option (notice period)? portfolio No Yes Release to new Is centre profitable? operator No Yes Is it an operator issue? No Yes Fix. Issue ten
Slide 23: Relatively high income yield
Relatively high income yield Favourably positioned For personal use only Asset type Childcare & Healthcare Childcare only Healthcare only Total assets $321.8 million $429.4 million $246.5 million 193 childcare (incl sites) Number of properties 351 childcare 10 healthcare 6 healthcare Location Austra
Slide 24: 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 Suggested reference material available on website • ARF Product di
Slide 25: Important notice
Important notice For personal use only 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 inf
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