Transcription of Finance News Network Interview with Folkestone Education Trust (ASX:FET) CEO, Nick Anagnostou
Carolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from Folkestone Education Trust (ASX:FET), to discuss the company’s first-half 2016 results is CEO, Nick Anagnostou. Nick, welcome to FNN.
Nick Anagnostou: Thank you.
Carolyn Herbert: Before we get into your results, can you start by giving us a brief overview of the Trust?
Nick Anagnostou: FET is an ASX 300 listed property Trust. It focuses on childcare with about 400 childcare centres around Australia and New Zealand. It’s got a market capitalisation of about $550 million and on gross assets of about $710 million. Folkestone Limited is the manager and Folkestone has certainly a focus on social infrastructure, from an age care point of view all the way back to childcare.
FET clearly sees the correlation between population growth, the necessity for parents to be able to have dual incomes to pay for the cost of living today. And certainly the educational and social benefits of childcare, particularly in the important part of that 0-5 age group.
Carolyn Herbert: Can you explain what it is about the Trust that has driven such good returns to investors, and will this continue?
Nick Anagnostou: I think it will. Certainly the number of key points here that differentiate FET from other property trusts. And that’s really driven by the structure and that is, triple net leases importantly meaning there’s no leakage of CAPEX. I think our CAPEX budget last six months was $50,000. We’re incentive free, which a lot of investors are certainly starting to recognise now, as being a very important part of their returns and with the fact that we’re not having to borrow.
Certainly the view point that there’s a versatility in the land that the centres sit on, if they’re not going to be a centre in 10 or 15 year’s time, there’s certainly redevelopment potential. And there’s predictability here, they recognise in fact that there is latent demand. We’ve got 500,000 more children coming in this age group, in the next 15 years.
Carolyn Herbert: Now to your results for the half-year ended 31 December 2015. What were the highlights?
Nick Anagnostou: We had a 10 per cent increase in our NTA and that’s being compounding now. I think about 11 per cent per annum, over the last four or five years. And that’s really driven by the market actually recognising childcare assets for what they are, a better asset than say retail or industrial, or strata office in that under $5 million category. About a 13 per cent increase in our profit, our statutory profit over the term, together with a 5.5 per cent increase in our distributions.
Carolyn Herbert: Now to the portfolio, how many centres does the portfolio comprise and what’s the geographic spread?
Nick Anagnostou: We have 396 centres across Australia and New Zealand, and they spread from Darwin to Perth to Tasmania, back up to Brisbane. Including in that, we’ve also got about $100 million worth of development centres that are underway, and there’s 18 of those. So geographically, we’re as diverse as you can be.
Carolyn Herbert: What about the tenant profile?
Nick Anagnostou: We’ve got about 28 different tenants and that’s important to us, because part of good childcare is obviously good operators. So we’re out there seeking the best ones. And I think, there’s no one in the marketplace that can match us for the tenant diversity.
Carolyn Herbert: So what’s the WALE occupancy rate and what does the portfolio yield?
Nick Anagnostou: Yields about 7.6 per cent, that’s real estate on income. In terms of WALE, we’ve got 7.8 years as at 31 December. And that’s driven by the fact that FET has a five-year clause in its leases, that asks tenants to take up their options five years early, not the three or six months that traditional real estate has.
Carolyn Herbert: So how many properties do you have in development at the moment, and how long does it typically take to develop a new centre?
Nick Anagnostou: 18 properties under development at the moment, and they can vary depending upon where they are. But they’re generally somewhere between 11 and 18 months, in order to get one off the ground.
Carolyn Herbert: Can you comment on the early learning centre property market, what’s the outlook and what sort of trends are you seeing at the moment?
Nick Anagnostou: I mentioned before, the trend is that the sector’s being repriced. And that’s because small investors are out there and are now making the comparisons, saying I can have a 15-year triple net lease in childcare, with the versatility in my site. Or I can go and buy smaller or retail strata office, which typically has a three to five year lease structure, and then influenced by incentive.
So they look at this as being a little bit of low management, but it allows them to redevelop in the future if in fact, childcare doesn’t work. About 60 per cent of our value sits in land, and I think that’s a key driver for a lot of the people who buy our centres.
Carolyn Herbert: Finally Nick, what’s your guidance for the second half of FY2016?
Nick Anagnostou: We expect to do another 6.7 cents. So that’ll take us to 13.4, which is what we forecast at the start of the year.
Carolyn Herbert: Nick Anagnostou, thanks for the update.
Nick Anagnostou: You’re welcome.