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December 07 Results Presentation - Simple & Secure20 February 2008
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
1
New Brighton Hotel, Manly, NSW
Breakfast Creek Hotel, Brisbane, QLD
Contents
Highlights Market OverviewALE’s Track RecordDecember 07 Half-Year ResultsProperty PortfolioCPI Hedge TransactionRisk ManagementCapital ManagementFuture DistributionsFY 08 Outlook and Strategy
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
2
Highlights – strong result and positive outlook
December 07 Half-Year Results
total distribution of 16.75 cents per security, up 6.7% on Dec 06
total distribution amount is 0.97 cents per security below distributable income
revaluation of property assets to $836.0m reflects November 2007 CPI rent increase
security buyback to date of 5.8% or $21.6 million
$245m CPI Hedge transaction in December 07 adds significant distributable cash flow
100% of ALE’s debt remains hedged for a weighted average 11.9 years
Looking forward
financial position and liquidity outlook are both sound
FY 08 full year total distribution guidance of at least 33.50 cents per security
strong focus on capital and risk management
valuable acquisition opportunities are expected to become available
disciplined focus on lower risk and higher quality properties will continue to apply
aim for future distributions to grow by at least CPI
distributions are expected to be 100% tax deferred for both FY 08 and FY 09
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
3
Market Overview
since July 2007 both property and credit markets have signalled a heightened risk of market volatilityAugust 2007 saw credit spreads start to increase significantly, particularly in sub-investment grade and offshore marketsmany asset and credit markets have now reverted to a more rational pricing of risk…particularly secondary assetsprime property assets continue to be attractive to long term investors with sustainable capital structurespipeline of acquisition opportunities is now increasing
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
4
ALE’s Track Record
ALE has been proactive in managing risk:
July 2007 onwards - declined to participate in a significant number of transactions that provided inadequate returns for the risks involvedAugust 2007 – ALE completed one of the last CMBS issues in the Australian market before the securitised debt market closedOctober 2007 - diversified funding sources and tapped the Australian banking markets for funding and additional undrawn lines of liquidity Early December 2007 – issued large CPI Hedge that
locked in interest rates for up to 16 yearsdelivered a significant increase in distributable cash flowprovided significant security for future distributions and capital protection
February 2008 – NAB extended financing maturity termFebruary 2008 – ALE delivered above guidance distributable income
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
5
ALE’s Track Record
ALE has consciously decided to:
acquire prime quality property in terms of strong tenants, long term leases and capital city locationsacquire properties with minimal capital expenditure demandsallow others to assume the various property development risks fund acquisitions with long term funding and hedgingavoid diluting security holder value with discounted equity issues
ALE has consciously decided to keep it simple and avoid additional risk !
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
6
December 07 Half-Year Results - Distributable Profit1
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
$M
Revenue 26.0
Borrowing Expense 1 (14.6)
Management Expense (1.3)
Land Tax Expense (0.8)
Distributable Fair Value Gains 6.0
Distributable Profit 1 15.3
Distributions Paid 2 14.4
1. Excludes non-cash accounting items. Figures include rounding.2. $900k under distribution due to positive impact of CPI Hedge post distribution
announcement
7
December 07 Half-Year ResultsDistributable Profit1 Compared to December 06
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
8
$M Impact
Increased Land Tax (0.1)
Distributable Profit Dec 2006 Half 14.4 Increased Property Income 0.9 Decreased Interest Income (0.3) Unchanged Borrowing Costs 0.0 Unchanged Management Costs 0.0
Distributable Fair Value Gains 0.4 Distributable Profit Dec 2007 Half 15.3 NB: Excludes non-cash accounting items. Figures include rounding. Up 6.25%
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
9
December 07 Half-Year Results – Financial Highlights
Income DPS 9.76¢ 0.26¢ 2.74%
Total DPS 16.75¢ 1.05¢ 6.69%
Property Values2 $836.0m $73.6m 12.94%
Gearing3 66% (1.00)%Net Asset per Security2 $3.42 $0.62 22.14%
1. Distributable Profit adds back non-cash accounting items and distributable fair value adjustments2. Based on sum of 102 individual property values + 3 development properties at cost3. Total Liabilities as a % of Total Assets (based on sum of individual valuations)
At 31 December 2007December
06 - 07$ Change
December06 - 07
% ChangeImpact
Property Portfolio - Valuation Results
independent valuation in June 07 assessed an average capitalisation rate on a sum of individual properties basis at 6.07%
independent advice from DTZ at 31 December 2007 confirmed that capitalisation rates for ALE’s prime quality properties remain at June 07 levels
independent assessment by DTZ at 31 December 2007 is that a premium would be paid on portfolio acquisition basis
capitalisation rate represents a margin over current Aust. Government long term real interest rates of around 3.5%
net assets per security of $3.40
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
10
Property Portfolio – Security of Rental Income and Market Demand
Security of Income
ALH - a tenant with strong credit quality
0% property vacancy
ALH has specific development rights
triple net leases with terms of up to 20.8 years + options
properties expanding with Dan Murphy rollouts
ALH earnings have exhibited outstanding growth
Demand from Investors
widespread demand continues for securely tenanted quality Australian properties valued at under $30m
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
11
Property Portfolio – Focus on Quality Acquisitions
Acquisitions totalling $33.3 million - all on long term indexed leases to ALH
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
12
Balmoral Hotel, Perth, WAPritchard’s Hotel, Mt. Pritchard, NSW
The Brass Monkey, Perth, WA
CPI Hedge Transaction - Key Benefits
locks in low real interest rates for the next 16 yearssubstantially reduces any distribution volatility driven by CPI and interest rate mismatchesextends hedging term from 6.7 to 11.9 yearsexpands the capital protection for security holders against any upward movements in real interest ratesimproves interest coverage ratios and reduces refinancing risk for debt maturities in 2011significantly increases distributable free cash flowallows around 75% of higher CPI to continue to be reflected in distribution growth
A value accretive risk management initiative !
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
13
CPI Hedge Transaction
CPI HedgeALE entered into a long term hedge on 7 Dec 2007term of 16 years to 20 Nov 2023ALE will receive
floating rate interest at BBSW + 25.75 bps on $245m ALE will pay
fixed rate interest at 3.61% on a balance that commences at $245m and escalates by CPI (same basis as existing CIBs)
amount repayable in 2023 under the Hedge is the amount by which $245m escalates by CPIALE can break at anytime and hedge provider has rights to break every five years $9m estimated first full year net cash flow to ALE
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
14
0%
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100%
2008
2009
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2011
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2015
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2020
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2023
CPI Hedge Transaction
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
Weighted average hedging term extended from 6.7 to 11.9 years
CMBS Maturity – May 2011ALE Notes Maturity – Sep 2011
CIB Maturity – May 2023
ALE is 100% hedged until September 2011
15
CPI Hedge Transaction
Crystallised value of pre-existing hedging
ALE previously had vanilla interest rate hedging in place in respect of the $245m of CMBS
ALE entered into offsetting swaps (counter swaps)
positive present value of $11m was locked in
will be progressively paid to security holders between FY 08 to FY 15 beginning at around $3m p.a. and gradually declining over time to FY15 (included in $9m first year benefit)
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
16
CPI Hedge Transaction
$245m CMBS Cash Interest Reduced by $9m in first full year
Before CPI Hedge:
ALE paid fixed rate interest at 6.1% = $15m
After CPI Hedge:
ALE pays fixed rate interest at 3.61% = $9m 1
ALE receives fixed swap benefits 2 = $3m
ALE pays net interest = $6m
Cash Interest Saving year 1 = $9m
Notes:
1. Amount of fixed interest expense will increase by CPI
2. Swap benefits arise due to offsetting of pre-existing fixed rate swaps. $3m pa will gradually reduce to nil by 2015
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
17
CPI Hedge Transaction
At the time of entering the CPI Hedgelong term real interest rates were at a relative low of 2.31%long term nominal interest rates were at a relative high of 5.99% (thereby maximising the counter swap benefits) long term bond market inflation expectations were at a relative high of 3.59%
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
18
Real & Nominal Interest Rates
0%
1%
2%
3%
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7%
Jan-0
5Mar-
05May
-05Ju
l-05
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-06Ju
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Nov-06
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7Mar-
07May
-07Ju
l-07
Sep-07
Nov-07
Long Term Nominal Bond Rate Long Term Real Bond Rate
Bond Market's Expectation of Future Inflation = 3.59%
Risk Management – Asset Scorecard
Focus on quality and risk management (as at February 2008)
strong tenant: ALH 75% owned by Woolworths
WAV lease term: 20.5 years
WAV options term: four options of 10 years
lease structure: triple net
rent increases: CPI (state based)
land tax exposure: QLD only
rent as % of pub earnings: compares favourably to market
geographic diversification: five states of Australia
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
19
Risk Management – Liability Scorecard
Focus on quality and risk management (as at February 2008)
WAV debt maturity term: 6.3 years
earliest debt maturity: May 2011 (in 3.3 years)
WAV hedging term: 11.9 years (WAV 5.1 yrs for LPTs)
earliest 100% hedge maturity: Sep 2011 (in 3.6 years)
gearing: 66% (reduced from 88% at IPO)
WAV interest rate: 4.150% p.a. (all up fixed rate)
debt covenant compliance: significant headroom
offshore assets: nil
foreign exchange risk: not applicable
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
20
Risk Management – Capital Structure
Debt Security Amount 1$M
Maturity Date Maturity Term Hedge Term All Up Fixed Interest Rate 2
CIB 132 3 Nov 2023 15.8 15.8 3.400%
CMBS / BANK 282 4 May 2011 3.3 14.6 2.870%
ALE NOTES 150 Sep 2011 3.6 3.6 7.265%
TOTAL DEBT & W. AVERAGES
564 6.3 years 11.9 years 4.150%
Current Capital Structure (as at 20 February 2008)
100% of ALE’s debt is hedged for an average 11.9 years at competitive margins
1 Average amount outstanding during 2008 calendar year (assuming no further funding required)2 Inclusive of credit margin and net of all swaps and counter swaps (excluding non-cash accounting items)3 CIB amount will be $125m increased by CPI over 17.5 years from May 20064 Comprises both $245m CMBS issue, $36m Bank facility and an increasing amount under the CPI Hedge.
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
12
Risk Management – Capital Structure
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
significant value is embedded in the capital structurelower than current market hedged base interest rateslower than current market credit marginslong term funding maturitieslong term hedging
gearing levels are significantly reduced from IPO levelsmark to market gains on hedging, present value of $11mcash / distributable average interest rate for 2008 of 4.150%
22
Risk Management - Capital Structure
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
diversity of funding sources and banking relationshipsundrawn standby banking facilities of $19mundrawn CMBS facilities of $54m can be tapped when markets reopen and become competitiveunsecured property of $33m is currently heldsignificant covenant headroom existsno material funding impacts from capital market volatilityno reliance on financial guarantors (monoline insurers)
ALE’s financial position remains secure !
23
Capital Management - Security Buyback Is Delivering Value
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
approval for on-market buyback of up to 10% or 9.08 million securities by 1 May 08status
buyback of 5.8% or 5.29m securities for $21.6m to datefunded from surplus cash and debt3.79m securities yet to be acquired for around $13m (at current prices)
ALE will continue to consider the value created by the buyback in light of acquisition opportunities, gearing levels and other financial risk management parameters
24
Future Distributions – December 2007 Distribution
Cents per Security % increase on December 2006
Income Distribution 9.76 up 2.74%
Ongoing Capital Distribution 6.99 up 12.74%
Total Distribution 16.75 up 6.69%
December 2007 Distribution
Confirmed and to be paid 28 February 2008
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
21
Future Distributions - Certainty of Funding
Before$M
After$M
CPI escalated rent 54 54
Land tax and management costs (5) (5)
Interest expense (net of hedging) (33) (24)
Distributable cash flow 16 25
Distributable cash flow (on 85.8 million securities) 29 cps*
Impact of CPI Hedge on distributable cash flow
Current outlook for 12 months to December 2008 (approximations only)
Assumes unchanged portfolio and existing capital / hedging structure continues
* cps: cents per stapled security
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
20
Future Distributions
CPI Hedge and crystallised hedge profits add to distributable net income
any requirement for debt drawdowns to fund capital distributions is now materially reduced
any medium and longer term distribution volatility is now materially reduced
distribution policy will continue to have regard to gearing levels that match the quality of the assets, acquisitions opportunities and any other relevant financial parameters
distributions expected to be 100% tax deferred until FY 09
and then at least 90% thereafter (on an unchanged portfolio basis)
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
27
FY 08 Outlook and Strategy - FY 08 Distribution Guidance
FY 08 total distribution guidance of at least 33.5 cps1
guidance equates to
FY 08 total distribution yield of at least 10.4%2
total distribution growth of at least 3.1%
Board’s current aim is to continue to pay total distributions that grow from current levels at a rate at least equal to the growth in CPI
1. cps is cents per security2. based on current security price of $3.23
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
28
FY 08 Outlook and Strategy - Focus Going Forward
Acquisitionsfocus remains on properties with secure long term leasesboth pubs and other commercial propertyselective and value accretivefunding credit margins for new acquisitions will be higher
Capital and Risk Managementcontinue to seek opportunities to reduce cost and riskfurther buyback if relative value is evidentreal interest rates remain low but higher inflation outlookfurther CPI Hedging under consideration
Maintain and increase the security of distributions
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
29
ALE Property GroupLevel 7, 1 O’Connell Street, Sydney NSW 2000
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
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049 26
Risk Management – Financial Ratio Analysis
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
31
Loan to Value Ratio (LVR) over time
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Asse
t Val
ue ($
m)
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alue
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VR)
Total (book) Equity Total (book) Debt LVR
Risk Management – Financial Ratio Analysis
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
32
Distribution of Cash over time
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Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008*
Cash
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)
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0.5
1.0
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2.0
2.5
Inte
rest
Cov
er R
atio
(ICR
) - ti
mes
Distributable Cash Cash Interest Costs ICR
* estimated
0
5
10
15
20
Jun2004
Dec2004
Jun2005
Dec2005
Jun2006
Dec2006
Jun2007
Dec2007
Jun2008
Cen
ts p
er S
tap
led
Sec
uri
ty
5.80¢* 6.20¢ 6.806.65¢
* pro-rata based on Jun 2004 distribution o f 7.50¢ from IPO (Nov 2003) to Jun 2004
9.20
16.80¢
Inco me10.57 ¢
C apita l6.23 ¢
C apita l6 .20 ¢
Inco me9.50 ¢
15.70¢
C apita l6.99 ¢
Inco me9.76 ¢
16.75¢
C apita l
Inco me
Guidance
16.75¢
Capital Management - Distribution Growth
Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278Australian Leisure and Entertainment Property Trust ARSN 106 063 049
33
16% p.a. (compound) income distribution growth
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