For personal use only Annual results to 30 June 2013 Positioned for earnings growth 30 August 2013 arenainvest .com.au
Presenters For personal use only James Goodwin Vin Harink Bryce Mitchelson Joint Managing Director Joint Managing Director Senior Portfolio Manager • Joined Arena in 2009. • Joined Arena in 2011. • Joined Arena in 2009. • Previously held senior • Previously held senior • Previously CEO of positions with Centro positions with Becton Austock Property Funds Properties Group and Property Group, Centro Management. Heine Management Properties Group and Limited. Freehills. Arena Investment Management | arenainvest.com.au 2
Agenda For personal use only Key achievements 4 1 2 Financial highlights 5 3 FY13 Financial results 6 4 Capital management 9 5 Childcare portfolio update 10 6 Strategy and FY14 outlook 19 7 Investment case 20 Questions 21 8 Annexures 22 9 Arena Investment Management | arenainvest.com.au 3
1. Key achievements A landmark year For personal use only Continued to provide steady income return (>9%) and capital growth (2.7%) over Property portfolio the period. Completed refinancings of debt facility on improved terms (extended term Debt facility and reduced margin). Broadened investment mandate to better diversify the portfolio and investment Successfully repositioned opportunities whilst seeking to maintain the predictability of the income streams; reduced responsible entity (RE) fees; and renamed to Arena REIT ( ARF ). The Trust’s units have traded above net tangible asset value since ASX Liquidity provided listing despite 10% fall in A-REIT market over June. Raised $75 million at a price of $1.01 per unit to fund potential buy-back Completed equity raising facility, reduce debt and create acquisition growth capacity. to enhance value Arena Investment Management | arenainvest.com.au 4
2. Financial highlights Solid improvement in earnings and a strengthened financial position For personal use only Performance for year ended FY13 FY12 Change Statutory net profit (million) $17.2 $15.7 9.8% Distributable income (million) $11.2 $8.5 31.8% Distributable income per unit 8.2 cents 6.4 cents 28.1% Distributions per unit 8.0 cents 6.5 cents 23.1% Tax deferred component (%) 82.8% 100% (17.2)% Return on equity (%) 12.6% 11.8% +80bps Financial position 30 June 2013 30 June 2012 Change Total assets ($ million) $241.3 $240.2 0.5% Balance sheet gearing (%) 10.4% 41.7% (75.0)% Net asset value ($ million) $210.1 $132.8 58.2% ASX market capitalisation ($ million) 1 $218.7 Not applicable Net tangible asset value per unit ($) $1.02 $1.00 2.0% Notes 1 Based on closing price of $1.065 as at 29 Aug 2013 Arena Investment Management | arenainvest.com.au 5
3. FY13 Financial results – income statement FY13 distributable income increased by 31.8% For personal use only Rental income is slightly down due to the $million FY13 FY12 Change sale of the New Zealand portfolio in April Income 2012. Adjusting for the NZ sale, total Lease rental income 21.3 21.7 (2.1%) Australian portfolio income was up 2.8%. Other income 0.7 0.8 (12.1%) FY13 trust expenses includes $0.2 Expenses million of one-off expenses. Direct property expenses (0.8) (1.1) (21.2%) Significant finance cost savings Management fees (2.4) (2.4) (1.1%) generated from improved financing Administration expenses (1.0) (0.9) 5.7% terms, repayment of debt and close of Finance costs (6.6) (9.6) (31.4%) swaps from New Zealand sale proceeds. Distributable income 11.2 8.5 31.8% Revaluation gain based on 47 Straight-line rental income 0.5 0.7 (33.6%) Independent and 119 Director valuations. Revaluation gain on investment Primary driver of valuation increases is properties 5.2 8.7 (40.6%) growth in underlying rent. Change in fair value of derivatives (0.1) (4.2) (96.7%) Revaluation gain on securities interest 1.4 1.4 2.2% Distributable income and distributions in- line with May 2013 PDS forecast of $11.1 Other (1.0) 0.6 (266.7)% million (refer Annexure 4). Net statutory profit 17.2 15.7 9.8% Distributable income per unit (cents) 8.2 6.4 28.1% Distributions per unit (cents) 8.0 6.5 23.1% Arena Investment Management | arenainvest.com.au 6
3. FY13 Financial results – FFO FFO increased by 31.8% For personal use only FFO same as distributable income. $m FY13 FY12 Change AFFO reflects the close out of interest rate Distributable income 11.2 8.5 31.8% derivatives. Other adjustments 0.0 0.0 0.0% Funds from operations 11.2 8.5 31.8% FY13 interest rate derivatives close out of $86 million due to repayment of debt from Interest rate derivative close out costs (2.1) (3.3) (36.4%) IPO proceeds. The Trust’s interest expense Adjusted funds from operations 9.1 5.2 75.3% was 100% hedged at 30 June 2013. FFO per unit (cents) 8.2 6.4 28.1% FY12 interest rate derivatives close out – AFFO per unit (cents) 6.7 3.9 71.8% used proceeds from New Zealand portfolio Notes sale. FFO and AFFO presented using principles of Property Council of Australia White Paper released in May 2013. Arena Investment Management | arenainvest.com.au 7
3. FY13 Financial results – balance sheet Balance sheet gearing reduced from 41.7% to 10.4% For personal use only $75 million of equity raised in June 2013. $ million FY13 FY12 Change Investment properties increased through Cash 5.0 5.6 (10.2%) increase in valuation and capex. Trade and other receivables 1.9 3.0 (36.7%) Investment properties 234.9 226.3 3.8% Investment in Australian Education Trust Indirect investments 0.0 6.4 (100.0%) (ASX:AEU) sold in December 2013 for $7.8 million, 22% above previous year Total assets 241.8 241.3 0.2% carrying value. Trade and other payables 3.3 3.6 (8.3%) Distributions payable 3.3 2.6 23.7% Borrowings substantially reduced due to: Borrowings 25.0 100.2 (75.0%) $5.6 million repaid in January 2013 Interest rate swaps 0.1 2.0 (96.5%) from sale of AEU units Total liabilities 31.7 108.5 (76.8%) $71 million repaid using equity raising proceeds (net of Net assets / unitholder equity ($m) 210.1 132.8 58.2% costs) Number of units on issue (m) 206.3 132.1 +74.2 Net tangible asset value / unit ($) 1.02 1.00 +0.02 $1.4 million redraw to fund development capex. Gearing ratio (%) 10.4% 41.7% (75.0)% Arena Investment Management | arenainvest.com.au 8
4. Capital management Substantial headroom and redraw capacity to fund acquisitions Interest Rates For personal use only 5.0% As at 30 June 2013 2012 Average hedge Average Interest rate 4.5% *Forecast Floating Rate Facility limit $110.0m $110.0m 4.0% Drawn amount $25.0m $100.2m 3.5% Undrawn amount $85.0m $9.8m 3.0% 2.5% Weighted average duration of 3.0 years 2.5 years debt 2.0% Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Interest rate hedging 100.0% 85.8% Gearing 10.4% 41.7% *Forecast floating rate is 30 day FRA as at 20 August 2013 Loan to value ratio 10.8% 44.5% Debt maturity profile Loan to value ratio (covenant) 50.0% 55.0% 120.0 100.0 Interest cover ratio 2.6x 1.9x Facility limit 80.0 Interest cover ratio (covenant) 2.0x 1.5x Millions 60.0 40.0 30 June 2013 debt 100% hedged to June 20.0 2016 at a base rate of 2.95%. Drawn amount 0.0 Buy-back facility of $20 million remains fully FY14 FY15 FY16 FY17 FY18+ available. Arena Investment Management | arenainvest.com.au 9
5. Childcare portfolio update – overview Geographically diverse portfolio of property assets For personal use only Portfolio overview By Number of Centres % Freehold 99.5% % Purpose built 91.3% % Metropolitan 58.0% Median age of centre (years) 9 Lease expiry by income 100% 78.2% 80% 60% 40% 19.8% 20% 0.6% 0.9% 0.6% 0% FY14 FY15 FY16 FY17 FY18 FY19 FY20+ Note: Percentages shown by value Lease extension options on 33 childcare centres with leases expiring in FY19 are able to be exercised in FY14 (5 years notice). Arena Investment Management | arenainvest.com.au 10
5. Childcare portfolio update – overview continued Quality portfolio of high yielding assets For personal use only Weighted Average Lease Expiry June 2013 June 2012 Portfolio overview Change (WALE) fell by less than 1 year due to Leased childcare centres 167 170 -3 completion of Mernda on a new 15 year Available for sale / lease 6 3 +3 lease and other changes. Development land 4 4 No change Rental growth FY13 running at CPI Total properties 177 177 No change (minimum 2.5% increase). WALE (years) 8.3 9.1 (0.8) Tenanted occupancy 96.5% 98.3% (1.8)% Operator occupancy improving. Passing yield 1 9.3% 9.5% (0.2)% Operator occupancy cost ratio declining Average places / leased 80.7 80.6 +0.1 slightly centres ($’000) Property Portfolio Movement Property portfolio ($’000) 234,934 226,292 +8,642 Portfolio at 30 June 2012 226,292 Average Value per place 16,673 16,182 +491 Property acquisitions 1,007 Average rent / leased place 1,546 1,513 +33 Property disposals -290 Rental growth (like for like) 2.5% 2.9% +40bps Revaluation 5,750 Avg operator occupancy 72.9% 72.7% +20bps Development and other capex 2,041 Operator gross revenue 4.3% n/a -% growth Maintenance capex 134 Portfolio at 30 June 2013 234,934 Notes 1 Excludes vacant centres and office suites Arena Investment Management | arenainvest.com.au 11
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