ALE Property Group · 2015-01-20 · Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278 Australian Leisure and Entertainment Property Trust ARSN 106

ALE Property Group December 2013 Half Year Results – 23 January 2014

Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049

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ALE’s 87 properties occupy nearly ONE SQUARE KILOMETRE of LandEquivalent to more than half of Melbourne’s CBD !

Source: Google Maps

Contents


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Highlights

December 2013 Half Year Results

Capital Management

Properties and Case Study

FY14 Outlook and Strategy

Attractive Investment Proposition

Attachments – About ALE and 10 Years of Equity Performance

Financial HighlightsHalf Year to 31 December 2013


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Distributable profit of $16.5m or 8.43 cps for the half year

Distribution guidance of 8.20 cps delivered, 93.80% tax deferred

FY14 distribution reaffirmed to be at least 16.35 cps and at least 75% tax deferred

Capital position remains strong no final debt maturities until 2016 interest rates hedged at low rates until 2022 covenant gearing reduced from 50.9% to 49.5% provides significant headroom DRP participation up from 25.4% to 30.2%. On-market buyback in progress

2003 investment of $1.00 in ALE has a current accumulated value of $7.32

Property HighlightsHalf Year to 31 December 2013


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Property revenue of $26.9m, up $0.5m vs pcp (driven by CPI rent review)

Property valuations increased by 2.2% to $803.2m due to rental growth

Portfolio value includes future market rent reviews arising from enhanced ALH profit significant capital expenditure by ALH at the properties Victorian gaming changes provide materially positive impact all June 2013 independent valuations adopted 10% increase in rent in 2018 potential for further valuation uplift from 2028 open market rent review

Weighted average lease expiry of around 15 years

ALE named 2013 AREIT of the year by PIR

December 2013 Half Year ResultsNet Profit (IFRS) and Distributable Profit


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Half Year ending 31 December 2013 $m

Total Revenue 27.9

Total Other Income (Fair value increments to investment properties) 17.2

Total Expenses (Cash expenses and fair value decrements to derivatives) (16.9)

Income Tax Expense (0.5)

Net Profit after income tax (IFRS) 27.7

Add Back: Fair value increments to investment properties (17.2)

Fair value decrements to derivatives 3.0

Employee share based payments 0.1

Non-cash finance costs 2.4

Income tax expense 0.5

Distributable Profit 16.5

ALE has a policy of only paying distributions from free cash flow, subject to the minimum requirement to distribute taxable income of the trust under the Trust Deed. Distributable Profit is a non-IFRS measure that shows how free cash flow is calculated by ALE and hence how distributions are determined. Distributable Profit excludes items such as unrealised fair value (increments)/decrements arising from the effect of revaluing derivatives and investment property, non-cash expenses and non-cash financing costs. The reconciliation between Operating Profit before Tax and Distributable Profit has not been audited or reviewed by KPMG. .

December 2013 Half Year Results Distributable Profit


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Half-Year Ended31 Dec 2013

$M31 Dec 2012

$MComments

Revenue from Properties $26.9 $26.4 Based on CPI based rent increases (Nov 2013 at 2.25%)

Other Revenue $1.0 $1.7 Reduced average cash balances and deposit rates

Borrowing Expense $8.2 $9.4 Low hedged base interest rates / counter hedges benefits

Management Expense $2.2 $1.8 Timing differences. One of lowest expense ratios in sector

Land Tax Expense $1.1 $1.1 Land tax for QLD properties only

Distributable Profit $16.5 $15.8 Exceeded guidance

Securities on Issue 195.7 193.6 DRP participation increasing

Distributable Profit (cps) 8.43c 8.18c Exceeded guidance

Distribution (cps) 8.20c 8.00c In line with guidance

1. Distributable Profit excludes non-cash accounting items – see full reconciliation to IFRS Net Profit. Rounding differences

December 2013 Half Year ResultsKey Metrics


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As at 31 Dec 2013 30 June 2013 Change

87 properties valuation $803.2m $786.0m 2.2%

Covenant gearing for ALE Notes 21 49.5% 50.9% (1.4%)

LVR2 50.6% 53.1% (2.5%)

Net assets $383.9m $368.4m 4.2%

Net assets per security $1.96 $1.90 3.2%

Price as premium / (discount) to NTA3 38.9% 40.5% (1.6%)

Market Capitalisation3 $532.3m $518.3m 2.7%

1. Covenant gearing = (Net Finance Debt – Cash) / (Total Assets – Cash – Derivatives Assets) as per ALE Notes 2 covenant. This ratio is considered, in the opinion of the Directors, most relevant to security holders as it is the debt covenant that has the least headroom available

2. LVR = Net Debt / Property Assets. Where Net Debt = Face Value of Debt less Cash3. Security Price was $2.72 as at 31 December 2013 and $2.67 as at 30 June 2013


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ALE Property GroupCapital Management


Debt Facilities

Capital ManagementCurrent Capital Structure

1. ALE has the option to extend ALE Notes 2 from August 2014 initial maturity date by one or two years to August 2016. No decision to extend has been made. An extension to August 2015 increases the redemption amount from $100 to $101. An extension to August 2016 increases the amount to $102.

2. Includes amounts in debt reserve and hedging security accounts.3. Base Rate for CIB is a Real Rate as balance escalates at CPI. FY14 net interest payable benefits from in the money counter hedging arrangements.

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FacilityAmount

($M)December 2013

Scheduled MaturityMaturity Term

(Years) atDecember 2013

Base Rate3

Credit Margin

CIB (Tranche AA) $140 November 2023 9.9 3.20% 0.20%

CMBS (Tranches AB and B) $160 May 2016 2.5 3.83% 2.34%

Total Secured Debt $300 5.9

ALE Notes 2 $165 August 2016 1 2.5 3.83% 4.00%

(Cash) On Deposit 2 ($58)

Total Net Debt Facilities $407 Weighted Average 4.8 2.29%

Domestic and offshore credit markets continued to strengthen

Focus is on any margin savings and other benefits from refinancing 2016 maturities

Capital Management Gearing Position


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Current covenant gearing of 49.5% (reduced from 50.9% at June 2013)

Substantial headroom to debt covenants continues to apply

Current headroom to ALE Notes 2 gearing covenant of 67.5%:

242 bps expansion in cap. rates (from 6.59% to 9.01%) or

26.9% reduction in property values

covenant

restricts further borrowings and

limits distributions to the greater of taxable and distributable profit

LVR of 50.6% (reduced from 53.1% at June 2013)

Capital Management Long Term Hedging


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Net debt fully hedged with low nominal fixed interest rates

New hedging put in place in December 2012

10 year term to November 2022

Hedged at a base interest rate of 3.83% p.a.

Locked in at close to Australian 100+ year lows

Existing nominal (counter) hedges remain in place until 2020 and in the money value will be substantially amortised by end of FY14

Hedging arrangements may be reviewed as part of any future refinancings

Capital Management Cyclically Low Rates Hedged until 2022


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Source: IRESS

As previously announced, the DRP is in operation for March 2014 distribution

Participation increased from 25.4% to 30.2%.DRP securities to be supplied from:

Current on-market buyback to be completed on or before 27 February 2014; and

Issuance of new securities to the extent required

DRP price to be advised following the 20 ASX trading days ending 30 January 2014

DRP provides convenience to participating securityholders

no scale back was applied to around 700 holders electing to participate

ALE will give ongoing consideration to the operation of DRP having regard to ALE’s potential future capital needs

Capital ManagementDistribution Reinvestment Plan


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ALE Property GroupProperties


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Valuations increased 2.19% incorporating November 2013 CPI rental increase of 2.25%

Cap. rate of 6.59% – has remained in the stable range of between 6.1% and 6.6% since 2006

Valuations substantially exclude significant capital expenditure by ALH over past six years

All June 2013 independent valuations (DCF) assumed a rent increase of 10% for 2018 review Weighted average lease expiry of around 15 years

PropertiesDecember 2013 – ALE Valuations

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Number of properties

Value ($m)

Average Value ($m) WACR Portfolio breakdown

by value

NSW 10 112.9 11.3 6.60%

QLD 32 237.9 7.4 6.38%

SA 7 32.7 4.7 6.71%

VIC 34 393.0 11.6 6.68%

WA 4 26.8 6.7 6.83%

Total 87 803.2 9.2 6.59%

Portfolio breakdown by geography (as at December 2013)

WACR: Weighted Average Cap Rate. Valuations include Shepparton as sale is pending settlement


Properties22% Building to Land Utilisation

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* Utilisation percentage is approximate only and excludes Dan Murphy’s and other additions made by ALH

Opportunity exists for ALH to expand its land utilisation across ALE’s portfolio

Any positive EBITDAR impact from land utilisation to be included in future market rent reviews


ALE is unable to provide forecasts of future ALH EBITDAR growth and corresponding market rent

Rent reviewed to market at 2018 (10% cap / collar), at 2028 and on ALH electing to extend, each 10 years to 2058 (open)

Independent valuers advise that market rent for pub properties in Australia is usually set at between 35% and 45% of the pub operator’s EBITDAR

Capital expenditure by ALH, ALH’s operating capability and Victorian gaming reforms are materially increasing ALH’s EBITDAR. This is all positive for future market rent reviews

PropertiesMarket Rent Outlook

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Statutory valuations by CBRE/Urbis adopt comparable property capitalisation rates and 10 year discounted cash flow (DCF) methodologies

All CBRE/Urbis June 2013 valuations assumed that a 10% increase in rent would occur in 2018. They included little if any value arising from the 2028 open market rent reviews. If these open reviews are included then the property valuations may change

ALE currently considers that a portfolio purchaser may be prepared to pay a premium for the portfolio given the value inherent in both the unique leasing arrangements and the independent valuers’ positive outlook for market rent

See separate announcement made on 12 November 2013 for more information

PropertiesPortfolio Valuation Outlook

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Portfolio enjoys 100% occupancy

Tenant continues to exhibit outstanding growth and strong credit quality

ALH is 75% owned by Woolworths and is Australia’s largest and most profitable pub operator

ALE’s properties are integral to ALH’s operations (~30% of ALH’s pubs are owned by ALE)

Expanded facilities with rollout of Dan Murphy’s (currently 20 on ALE’s land with others underway)

Average 22% building to land utilisation may provide opportunities for further development by ALH

Strong lease terms, strong ALH performance and a positive market rental outlook

Essentially triple net leases with favourable development, cross-default, assignment and funding security provisions

All capital expenditure financed by ALH to date

Sale of Victoria Hotel, Shepparton, regional Victoria

exchanged for its book value of $4.5m (representing a capitalisation rate of 6.35%)

settlement pending regulatory approvals and expected before 31 March 2014

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PropertiesUnique Characteristics and Shepparton Sale

PropertiesALH - A Strong and Performing Tenant

In November 2004 Woolworths / Mathieson JV acquired ALH for $1.33 billion

ALH now operates more than 320 licensed venues and over 460 retail liquor outlets across Australia, including BWS and Dan Murphy’s

For FY13 the ALH Group reported EBITDAR of $697m, up 29.5% pcp and includes impacts of Victorian gaming restructure and recent acquisitions

Woolworths operates more than 1,300 retail liquor outlets across Australia with liquor sales for the year to 30 June 2013 of $7.2 billion

ALH is Australia’s leading pub operator on any measure


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PropertiesALE & ALH: A quality and sustainable pub landlord and tenant arrangement

Capital city located properties with long term record of pub operation

Investment grade tenant with strong commitment to pub operations

Profitable tenant with capacity and willingness to fund capital expenditure

Rents are substantially below market rent levels given the operator’s strong profit profile

Sustainable longer term relationship between rent and operator profit driven by annual uncapped inflation indexed and market rent review in 2018

Triple net lease structure that ensures the tenant as operator has the freedom and incentive to make property improvements to maximise operating profit

Cross defaulting leases that maximise tenant compliance across the portfolio


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Case Study – Property RedevelopmentALE & ALH: A quality and sustainable pub landlord and tenant arrangement

Racehorse Hotel, Booval/Ipswich, Brisbane, QLD

Acquired in 2003 for $1.90m with 25 year triple net lease at cap rate of 9.0%

Independent valuation of $2.74m as at June 2007 at a cap rate of 5.72%

ALH redeveloped the hotel in 2009-11 at a cost to ALH of around $8m

New improvements feature new hotel, bistro and Dan Murphy’s

Rent remained unchanged as part of development process

Hotel EBITDAR for ALH is now significantly higher than before development

Rent will be reset to market having regard to the EBITDAR of the hotel - in 2018 (10% collar) and 2028 (open)

Independent valuation of $3.05m as at June 2013 at a cap rate of 5.72% does not yet fully recognise the capital expenditure and resulting profitability improvements


Note: That this case study is specific to this hotel and is not necessarily representative of the portfolio

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2007 2009 2014

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2009 2014



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The Breakfast Creek Hotel, Brisbane, QLD

FY14 Outlook and Strategy

FY14 Outlook and Strategy Lower Interest Rates Remain the Key Driver


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During the period ALE’s properties demonstrated their quality by increasing in value

Cyclically low interest rates locked in for the long term from simplified hedging is expected to provide significant ongoing value to securityholders

Positive outlook for market rent increases, as recognised by the independent valuersof the properties

ALE will continue to review acquisition opportunities that meet our strict strategy and criteria

FY14 Outlook and Strategy Distribution Guidance


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FY14 distribution guidance of at least 16.35 cents per security

FY14 distribution is expected to be at least 75% tax deferred

Notwithstanding long debt maturity profile, the Board is focussed on a range of refinancing options given the lower credit margins currently available

Distribution guidance includes benefits from in the money counter hedges that will be fully amortised in FY14

Materially reduced gearing position provides opportunity to maintain a stable through cycle distribution profile beyond amortisation of counter hedge benefits

All guidance assumes the existing portfolio, hedging and capital structure continues

ALE aims to grow distributions by CPI each financial year until the next refinancing

ALE’s Compelling Investment Proposition


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High quality tenant 75% owned by Woolworths Limited

Weighted average triple net lease

Remaining average lease term of 15 years plus options

Next market rent review in 2018 (10% cap & collar)

Portfolio under rented according to independent valuers and a range of indicators

Weighted average debt maturity of 4.8 years

Distribution yield of at least 6.0%1 for FY14

ALE Notes 2 current passing yield of 6.4%2

1. Based on closing security price of $2.72 as at 31 December 2013 and FY14 distribution guidance of at least 16.35 cents per security

2. Based on closing security price of $102.00 as at 31 December 2013 and current interest rate of 6.5717% to 20 February 2014

Attachments


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About ALE Summary of Portfolio and Leasing Arrangements


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ALE (ASX:LEP) is the largest freehold owner of pubs in Australia

Established in 2003 with properties acquired from Foster’s

Currently owns 87 pub freehold properties

High quality portfolio across the mainland capital cities

All on long-term triple-net1 leases

25 year initial term with average 15 years remaining

Four options for lessee to extend lease by up to 40 years

100% leased to ALH who is

Australia’s leading pub operator

75% owned by Woolworths Limited

Owner of licences and certain development rights

ALE’s 87 Pubs in Australia

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107434

1. Three of the 87 properties are on double-net leases

About ALEAcquisition and Divestment Strategy


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Disciplined and consistent approach

Over the past ten years ALE has:

acquired 11 properties for $100m at an average cap. rate of 7.2%

sold 23 properties for $132m at an average cap. rate of 6.1%

sold all properties at significant premium to acquisition cost

Acquisition criteria continue to include:

quality tenant covenant with diverse locations and sustainable profitability

long term leases with an indexed rental structure, where the outgoings and development risks are assumed by the tenant

smaller value properties that are attractive to a range of investors

pub properties that will remain strategically important to the tenant’s core operations

Note: Property sales exclude pending settlement of Victoria Hotel, Shepparton, VIC

10 Years of Equity Performance$7.32 of accumulated value


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ALE : $1.00 invested in 2003. $7.32 of accumulated market value1

1. Includes market value as at 31 December 2013 and reinvestment of distributions and 2009 renunciation payment

10 Years of Equity PerformanceConsistently outperforming all benchmarks

Total Returns to 31 December 2013 (p.a.) ALE A-REITs All Ords.

One year 23.6% 7.3% 19.7% Three years 21.0% 11.9% 8.5% Five years 20.4% 8.8% 12.3% Ten years since 2003 ASX listing 21.3% 2.2% 9.5%Source: UBS

ALE’s Longer Term Performance

Investment at 2003 ASX listing $1.00 (= $91m) Total distributions and payments so far $2.37 (= $258m) Tax preferred distributions so far $1.84 (= $207m) Accumulated market value to 31 December $7.32 (= 732%) Market capitalisation growth since 2003 $91m to $532m

1. Accumulated market value includes reinvestment of distributions since 2003 listing2. Distributions all distributions paid and declared to March 20143. Total returns include both distributions and security price movements to 31 December 20134. AREITs returns include S&P/ASX 300 Property Accumulation Index5. All Ords. returns include S&P/ASX 300 Accumulation Index


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About ALEResearch Analyst Coverage of ALE


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The following equity research analysts currently cover ALE’s stapled securities:

Paul Checchin & Rob Freeman Macquarie Securities

Rob Stanton & Scott Molloy JP Morgan Securities

Fiona Buchanan & Scott Murdoch Morgans (CIMB)

Adrian Atkins Morningstar

James Carlisle & Jason Prowd Intelligent Investor

ASX codes for ALE’s listed securities:

Stapled Securities (equity): LEP ALE Notes 2 (debt): LEPHC

ALE Property Group

Disclaimer

This presentation has been prepared by Australian Leisure and Entertainment Property Management Limited (ALEPML) ABN 45 105 275 278 for general information purposes only, without taking into account any potential investors’ personal objectives, financial situations or needs. Before investing in securities issued by entities managed by ALEPML, you should consider your own objectives, financial situation and needs or you should obtain financial, legal and/or taxation advice.

Past performance information provided in this presentation may not be a reliable indication of future performance. Information, including forecast financial information, in this presentation should not be considered as a recommendation in relation to holding, purchasing or selling shares, securities or other instruments of entities managed by ALEPML. Due care and attention has been exercised in the forecasts and any variation may be materially positive or negative.

This information contained herein is current as at the date of this presentation.ALE Property Group


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Documents

ALE Property Group · 2015-01-20 · Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278 Australian Leisure and Entertainment Property Trust ARSN 106