ALE Property GroupASX CEO Connect, Melbourne – 29 March 2018
Young and Jackson Hotel, Melbourne, VIC1
About ALE
Property Portfolio
Capital Management
FY19 Outlook and Performance
Attractive Investment Proposition
Development Case Studies
Contents
2Crows Nest Hotel, Sydney, NSW
About ALE
The Breakfast Creek Hotel, Brisbane, QLD
NSW14%
QLD31%
SA, 4%
VIC48%
WA, 3%
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
owner of licences and certain development rights
Substantially capital city metro locations
Weighted average lease expiry of 10.8 years with four options
for ALH to extend by up to 40 years
Operated as pubs for average 60+ years
High Quality PropertiesAbout ALE
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Geographic Diversity
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107433
Value Composition
ALH: Australia’s Largest Pub Operator
~ 330 licensed venues
~ 550 liquor outlets
~ 2,000 short stay rooms
ALH is 75% owned by Woolworths and 25% by the Bruce Mathieson Group
Woolworths is Australia’s largest liquor retailer
ALE owns 27% of ALH’s operated venues
ALH owns ~ 45 pub properties
ALH FY17 Revenue
$4,256m
Up 3.7% on pcp
ALH FY17 EBITDAR
$803m
Up 13.0% pcp
18.9% of revenue
ALH Continues to Perform StronglyAbout ALE
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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.
High Quality PropertiesAbout ALE
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Property Portfolio
$1,100.5mStatutory property values
5.14%Average capitalisation rate
10.8 yearsWeighted average lease expiry
1.7%CPI Income growth
100% Occupancy
Capital Structure
41.7%Net gearing
4.2 yearsAverage debt maturity
7.9 yearsHedge maturity
4.26%All up cash interest rate
Baa2Investment grade rating
Equity Performance
100%Distribution tax deferred
$14.6mDistributable profit
10.35 cpsDistribution
$949.5mASX market capitalisation
18.0% p.a.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).
Half Year to 31 December 2017
Group Highlights
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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)
Half Year to 31 December 2017 Distributable Profit
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1. Borrowing expense changed for two reasonsa. borrowings increased by $40mb. 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
Quality Income with Growth and OpportunitiesALE’s Property Portfolio
The Breakfast Creek Hotel, Brisbane, QLD
Land Holdings
Property Portfolio
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ALE’s 86 properties cover a land area of 954,000m. Equivalent to the core Sydney CBD
90%+ of land located in Australian capitals and major cities
$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
Average 25% of each property is occupied by pub and retail
liquor buildings (balance is car parking and vacant land)
Opportunities to continue to develop and expand existing
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
Significant Land Holdings
Property Portfolio
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335,000
72,00058,0006,500
482,000
Total Land Holdings By State (square metres)
While the spread remains high, movements in ALE’s average capitalisation rates are currently being driven by factors beyond movements in bond rates.
Capitalisation and Bond Rate Movements
Property Portfolio
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6.07%6.20% 6.45% 6.60% 6.44% 6.57% 6.59% 6.42%
5.99%5.53%
5.14%6.26% 6.45%
5.52%
5.10% 5.21%
3.04%
3.76%3.54%
3.01%
2.00%
2.66%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
ALE's average capitalisation rates
Australian 10 year bond rates
ALE's capitalisation rates
Future Increases In Income
Rents are expected to increase atcapped market rent review in Nov2018 and more materially at the uncapped review in 2028
Current Income
100% of the properties are leased to ALH
ALH is Australia’s largest pub operator
Long term triple net leases (83 of 86properties)
Properties have operated in current locationsas pubs for more than 60 years on average
Potential Long Term Value
ALE’s properties have a significant land value component
More than 90% of the ~1 square kilometre of land owned by ALE is located in Australian capitals and major cities
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
Layers of Value
Property Portfolio
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Capital Management
Queens Hotel, Perth, WA
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)
Interest cover at 2.6 times
Capital ManagementSound Debt Capital Structure
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Crows Nest Hotel, Sydney, NSW
Diversified Debt Maturities and Long Term Hedging Capital Management
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Note: Base interest rates exclude credit margins
Outlook and Performance
Balmoral Hotel, Victoria Park, Perth
2028 Market Rent Open market rent review where the full
extent of the material difference will be captured in each of the individual properties’ rents
Current vs Market Rent Current total rent is materially less than
current view of market rent (the difference)
Extent of the difference is not spread evenly across the portfolio. Difference is a result of factors including:
continual operational improvements of many pubs by ALH
capital expenditure undertaken by ALH to redevelop hotels and add Dan Murphy’s bottle shops and reactivate accommodation (at least 30,000 sqmover the past 14 years)
improved gaming regulatory framework, especially in Victoria
November 2018 Market Rent Each hotel’s earnings outlook, past earnings
results and applicable market rent parameters will be important to the outcomes
On current EBITDAR results, ALE is on strong grounds for a positive outcome
Given the uneven spread of the difference across the portfolio, we do not expect that all 76 individual hotels will receive the full 10% rental uplift
Certainty of Earnings with Long Term UpsideOutlook – Market Rent
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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
OutperformanceALE’s 14 Years of Equity Performance
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-5.6%
12.2%14.2%
-0.1%
5.7%
13.1%
6.8%
11.6%
3.5%
8.9%7.5%
22.9% 23.2%
10.4%
21.8%
-10%
-5%
0%
5%
10%
15%
20%
25%
1 yr 3 yrs 5 yrs 10 yrs Since IPO
Total Return
A-REIT 300 All Ords ALE
Development Case Studies
ALE’s Property Portfolio
Burvale Hotel, Melbourne, VIC20
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%
Before Development Completed Development
Anglers Arms Hotel, Gold Coast, QLDCase Studies – Property Development by ALH
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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%
Completed Development
Gepps Cross Hotel, Adelaide, SACase Studies – Property Development by ALH
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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
Reactivated Accommodation
Accommodation – 428 RoomsCase Studies – Property Development by ALH
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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
Young & Jackson Hotel, Melbourne, VICCase Studies – Melbourne Metro Rail Project
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Young and Jackson Hotel Melbourne Metro Rail Project
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
ALE’s Value Proposition
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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
About ALEResearch Analyst Coverage of ALE
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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
Experience and DiversityAbout ALE
Andrew WilkinsonManaging Director & CEO
• Appointed CEO November 2003 and Managing Director in November 2004
James McNallyExecutive Director
• Appointed as an executive director in June 2003
Pippa DownesNon-Executive Director
• Appointed as a non-executive director in November 2013
Paul SayNon-Executive Director
• Appointed as a non-executive director in September 2014
Nancy MilneNon-Executive Director
• Appointed as a non-executive director in February 2015
Andrew SladeCapital Manager
• Andrew joined ALE in July 2005
Board of Directors
• Board of Directors have extensive experience covering property, finance, risk management, compliance and capital management
• Board renewal and transfer of institutional knowledge is now well advanced
Senior Management Team
• Experienced and stable management team
Don ShipwayAsset Manager
• Don joined ALE in September 2010
Michael ClarkeCompany Secretary & Finance Manager
• Michael joined ALE in October 2006
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Robert MactierChairman & Non-Executive Director
• Appointed as a non-executive director in November 2016 and Chairman in May 2017
Andrew WilkinsonManaging Director & CEO
• Appointed CEO November 2003 and Managing Director in November 2004
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
ALE Property Group
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Stamford Hotel, Melbourne, VIC
ALE Property Group