ALE Property Group ASX CEO Connect, Perth - 22 March 2018 Queens Hotel, Highgate, Perth
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ALE Property Group
ASX CEO Connect, Perth – 22 March 2018
Queens Hotel, Highgate, Perth 1
Contents
About ALE
Property Portfolio
Capital Management
FY19 Outlook and Performance
Attractive Investment Proposition
Development Case Studies
Crows Nest Hotel, Sydney, NSW
2
About ALE
The Breakfast Creek Hotel, Brisbane, QLD
About ALE
High Quality Properties
Geographic Diversity
Australia’s largest portfolio of freehold pub properties
86 pub freehold properties across the five mainland capital cities
Long term triple net leases to ALH
Australia’s leading pub operator 32
4 7 10
owner of licences and certain development rights
33
Substantially capital city metro locations
Weighted average lease expiry of 10.8 years with four options WA, 3%
Value Composition
for ALH to extend by up to 40 years NSW
14%
Operated as pubs for average 60+ years VIC QLD
48% 31%
SA, 4%
4
About ALE
ALH Continues to Perform Strongly
ALH: Australia’s Largest Pub Operator ALH FY17 Revenue
~ 330 licensed venues $4,256m
~ 550 liquor outlets Up 3.7% on pcp
~ 2,000 short stay rooms
ALH FY17 EBITDAR
ALH is 75% owned by Woolworths and 25%
by the Bruce Mathieson Group $803m
Woolworths is Australia’s largest liquor retailer Up 13.0% pcp
ALE owns 27% of ALH’s operated venues 18.9% of revenue
ALH owns ~ 45 pub properties
5
About ALE
High Quality Properties
Rent and Term Structure
triple net leases*
fixed dollar rental (not turnover based) increasing annually by State based CPI (uncapped)
rent does not decrease with negative CPI movements
average initial lease terms remaining of 10.8 years
four options for ALH to extend leases by up to a further 40 years (to 2068)
Market Rent Reviews
rents can increase or decrease by 10% at November 2018**
open review in 2028 and at each 10 yearly extension date
* Three of the 86 properties are on double-net leases
** 74 of the properties have reviews at November 2018. The other nine properties have reviews in the years preceding and following November 2018.
6
Group Highlights
Half Year to 31 December 2017
Property Capital Equity
Portfolio Structure Performance
$1,100.5m 41.7% $14.6m
Statutory property values Net gearing Distributable profit
5.14% 4.2 years 10.35 cps
Average capitalisation rate Average debt maturity Distribution
10.8 years 7.9 years 100%
Weighted average lease expiry Hedge maturity Distribution tax deferred
1.7% 4.26% $949.5m
CPI Income growth All up cash interest rate ASX market capitalisation
100% Baa2 18.0% p.a.
Occupancy Investment grade rating Three year total return
Capitalisation rates, lease terms, interest rates, maturity terms and rental growth rates are all weighted averages.
Specific definitions are on other pages or in the statutory accounts.
Results are for the half year ending or as at 31 December 2017.
In addition to the weighted average lease expiry term, there are four 10 year options for ALH to extend (83 of 86 properties).
7
Distributable Profit
Half Year to 31 December 2017
Millions Dec 17 Dec 16 Comments
Revenue from properties $28.9 $28.4 Driven by annual CPI based rent increases
Other revenue $0.5 $0.4 Higher cash balances partly offset by lower interest rates
Borrowing expense 1
$11.1 $10.3 Lower interest rates on increased borrowings
Management expense $2.6 $2.3 Increased costs associated with market rent review preparations
Land tax expense $1.2 $1.1 Land tax for QLD properties only
Distributable Profit 2
$14.6 $15.1 Primarily impacted by increased borrowing expenses
Distributable Profit (cps) 3 7.48c 7.70c
Distribution (cps) 10.35c 10.15c In line with guidance. 2.87 cps paid from capital (cash reserves)
1. Borrowing expense changed for two reasons
a. borrowings increased by $40m
b. average all up interest rate reduced from 4.35% to 4.26% p.a.
2. Distributable Profit excludes non-cash accounting items – see full reconciliation to IFRS Net Profit.
3. 195.8 million securities were on issue as at both dates above
4. Rounding differences may arise
8
ALE’s Property Portfolio
Quality Income with Growth and Opportunities
The Breakfast Creek Hotel, Brisbane, QLD
Property Portfolio
Land Holdings
ALE’s 86 properties cover a land area of 954,000m. Equivalent to the core Sydney CBD
10Property Portfolio
Significant Land Holdings
90%+ of land located in Australian capitals and major cities
Total Land Holdings By State (square metres)
$1.1 billion of book value based on current rental income
86 properties occupy a land area of 954,000 square metres
Average property size of 11,100 square metres
Average book value of $1,150 per square metre of land
Book values also include value of buildings and long term
leases
335,000
Average 25% of each property is occupied by pub and retail
liquor buildings (balance is car parking and vacant land)
6,500 58,000 72,000
Opportunities to continue to develop and expand existing
482,000
hotels
complementary higher and better use strategies including vacant
land and existing buildings
considered jointly by ALE and ALH
As at 31 December 2017. All areas are estimates and rounded approximations only 11Property Portfolio
Capitalisation and Bond Rate Movements
ALE's capitalisation rates
ALE's average capitalisation rates
6.20% 6.45% 6.60% 6.44% 6.57% 6.59% 6.42%
6.07% 5.99%
5.53%
6.26% 6.45% 5.14%
5.52%
5.10% 5.21%
Australian 10 year bond rates
3.76%
3.54%
3.04% 3.01%
2.66%
2.00%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
While the spread remains high, movements in ALE’s average capitalisation rates are currently being driven by factors
beyond movements in bond rates.
12Property Portfolio
Layers of Value
Current Income Potential Long Term Value
100% of the properties are leased to ALH ALE’s properties have a significant land value
ALH is Australia’s largest pub operator component
Long term triple net leases (83 of 86 More than 90% of the ~1 square kilometre of land
properties) owned by ALE is located in Australian capitals and
Properties have operated in current locations major cities
as pubs for more than 60 years on average ALE and ALH continue to explore development
opportunities together for mutual benefit
Alternate use opportunities exist for a number of
the properties in the longer term
Future Increases In Income
Rents are expected to increase at
capped market rent review in Nov
2018 and more materially at the
uncapped review in 2028
13Capital Management
Young & Jackson Hotel, Melbourne, VICCapital Management
Sound Debt Capital Structure
Capital Management Priorities
Managing refinancing and interest rate risk
Growing securityholders’ distributions
Capital Structure with Positive Features
Low risk debt capital structure
Investment grade credit rating of Baa2 (stable)
Debt maturities diversified across next 5.9 years
Next debt maturity in August 2020
Base interest rates fully hedged for next 7.9 years
All up fixed cash interest rate of 4.26% p.a.
Gearing at 41.7% (42.7% at June 2017)
Crows Nest Hotel, Sydney, NSW
Interest cover at 2.6 times
15Capital Management
Diversified Debt Maturities and Long Term Hedging
Note: Base interest rates exclude credit margins
16Outlook and Performance
Stamford Hotel, Melbourne, VICOutlook – Market Rent
Certainty of Earnings with Long Term Upside
Current vs Market Rent November 2018 Market Rent
Current total rent is materially less than Each hotel’s earnings outlook, past earnings
current view of market rent (the difference) results and applicable market rent parameters
will be important to the outcomes
Extent of the difference is not spread evenly
across the portfolio. Difference is a result of On current EBITDAR results, ALE is on strong
factors including: grounds for a positive outcome
continual operational improvements of
Given the uneven spread of the difference
many pubs by ALH
across the portfolio, we do not expect that all
capital expenditure undertaken by ALH 76 individual hotels will receive the full 10%
to redevelop hotels and add Dan rental uplift
Murphy’s bottle shops and reactivate
accommodation (at least 30,000 sqm 2028 Market Rent
over the past 14 years)
Open market rent review where the full
extent of the material difference will be
improved gaming regulatory
framework, especially in Victoria captured in each of the individual
properties’ rents
18ALE’s 14 Years of Equity Performance
Outperformance
Total Return
25% 22.9% 23.2%
21.8%
20%
14.2%
15% 13.1% 12.2% 11.6%
10.4%
10% 8.9%
7.5% 6.8%
5.7%
5% 3.5%
0%
-0.1%
1 yr 3 yrs 5 yrs 10 yrs Since IPO
-5%
-5.6% A-REIT 300 All Ords ALE
-10%
1. Total return is the annual compound return (IRR) for the period shown to June 2017
2. Includes equity market price of $4.67 as at 30 June 2017 and reinvestment of distributions and 2009 renunciation payment
3. ALE, All Ordinaries Accumulation Index and UBS S&P REIT 300 Index data sourced from ASX, UBS and ALE
19ALE’s Property Portfolio
Development Case Studies
Burvale Hotel, Melbourne, VIC
20Case Studies – Property Development by ALH
Anglers Arms Hotel, Gold Coast, QLD
Before Development Completed Development
Located in Southport, Gold Coast next to an existing light rail stop
Acquired in 2003 for $4.4m at a cap rate of 8.4%
Hotel completely reconstructed and reopened June 2017
New Dan Murphy’s opened November 2016
Valued December 2017 at $10.7m at a cap rate of 5.36%
21Case Studies – Property Development by ALH
Gepps Cross Hotel, Adelaide, SA
Completed Development
Located in the north eastern suburbs of Adelaide
Acquired for $2.2m in 2003 at a cap rate of 9.9%
Substantially reconstructed and then reopened the hotel in May 2016
ALH joined forces with Coopers Brewing to create Adelaide’s first Coopers Alehouse
New Dan Murphy’s opened December 2017
Awarded Best Redeveloped Metropolitan Hotel for 2017 in South Australia by AHA
Valued December 2017 at $6.3m at a cap rate of 4.76%
22Case Studies – Property Development by ALH
Accommodation – 428 Rooms
Reactivated Accommodation
428 rooms are currently offered across 24 of ALE’s properties
Significant reactivation of accommodation in recent years
Large number of renovated and reopened rooms
ALH currently operates around 2,000 rooms nationally
Mostly three or four star short stay accommodation
Positive for ALH’s earnings
Positive for ALE’s future market rent prospects and property values
23Case Studies – Melbourne Metro Rail Project
Young & Jackson Hotel, Melbourne, VIC
Young and Jackson Hotel Melbourne Metro Rail Project
Major metro rail project (circa $6 billion)
Significant addition to CBD passenger capacity
New Town Hall metro station to surround hotel
Station access from both Flinders and Swanston Streets
Significant additional pedestrian traffic
Expected to be operational by 2026
Continuing dialogue with Cross Yarra Partnership and MMRA
24ALE’s Value Proposition
High quality pub property portfolio
Triple net leases to ALH, Australia’s largest pub operator
Long leases over strategically important property with terms averaging 10.8 years plus options
Current property rents are substantially below market levels
Potential opportunities from increased utilisation of land and further development of properties
Investment grade and low risk capital structure
FY18 distribution yield of at least 4.3%1
Aim to increase annual distributions by at least CPI
FY18 distribution expected to be 100% tax deferred. FY19 is expected to be partly tax deferred
Potential for enhanced distributions and/or capital management initiatives following 2018 rent review
1. Based upon a security price of $4.85 as at 31 December 2017 and FY18 distribution guidance of at least 20.40 cps plus CPI
25About ALE
Research Analyst Coverage of ALE
The following equity research analysts currently cover ALE’s stapled securities:
Johannes Faul Morningstar
Rob Freeman / Stuart McLean Macquarie Securities
Richard Jones JP Morgan Securities
Jon Mills Intelligent Investor
26About ALE
Experience and Diversity
Board of Directors Robert Mactier Andrew Wilkinson James McNally
Chairman & Non-Executive Managing Director & CEO Executive Director
Director • Appointed CEO November • Appointed as an
• Board of Directors have extensive • Appointed as a non-executive 2003 and Managing Director executive director
experience covering property, finance, director in November 2016 and in November 2004 in June 2003
risk management, compliance and Chairman in May 2017
capital management
• Board renewal and transfer of
institutional knowledge is now well
advanced Pippa Downes Paul Say Nancy Milne
Non-Executive Director Non-Executive Director Non-Executive Director
• Appointed as a • Appointed as a non- • Appointed as a non-
non-executive director executive director in executive director in
in November 2013 September 2014 February 2015
Senior Management Team Andrew Wilkinson Andrew Slade
Capital Manager
Don Shipway
Asset Manager
Michael Clarke
Company Secretary
Managing Director & CEO
• Andrew joined • Don joined ALE in & Finance Manager
• Appointed CEO November
ALE in July 2005 September 2010 • Michael joined ALE
• Experienced and stable 2003 and Managing Director
in October 2006
in November 2004
management team
27ALE Property Group
Disclaimer
Past performance information provided in this
This presentation has been prepared by presentation may not be a reliable indication of future
Australian Leisure and Entertainment performance. Information, including forecast financial
Property Management Limited (ALEPML) information, in this presentation should not be
ABN 45 105 275 278 for general considered as a recommendation in relation to
information purposes only, without taking holding, purchasing or selling shares, securities or
into account any potential investors’ other instruments of entities managed by ALEPML.
personal objectives, financial situations or Due care and attention has been exercised in the
needs. Before investing in securities issued forecasts and any variation may be materially positive
by entities managed by ALEPML, you or negative.
should consider your own objectives,
financial situation and needs or you should This information contained herein is current as at the
obtain financial, legal and/or taxation date of this presentation.
advice.
ALE Property Group
28ALE Property Group
Balmoral Hotel, Victoria Park, Perth
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