Transcription of Finance News Network Interview with ALE Property Group Limited (ASX:LEP) Managing Director, Andrew Wilkinson
Carolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from ALE Property Group Limited (ASX:LEP) is Managing Director, Andrew Wilkinson. Andrew, welcome back.
Andrew Wilkinson: Thank you very much for having me.
Carolyn Herbert: ALE is Australia’s largest freehold owner of pubs. What’s your footprint and tenant profile?
Andrew Wilkinson: We have 86 properties spread all round the capital cities of Australia. Mainly in Melbourne and Brisbane, probably 85 per cent in those two capitals, the largest portfolio of any freeholds of any owner. ALH Group is the tenant in all the properties. ALH is the largest operator of pubs in Australia, more than 320 and we have around 27 per cent of their portfolio. ALH, they turnover more than $4 billion and their earnings before rent is around $700 million, so a high quality portfolio and a very credible tenant in its own right.
Carolyn Herbert: Now to your first half 2017 results, what were the highlights?
Andrew Wilkinson: It was a very strong set of results. The value of our properties increased to more than $1 billion. Our distribution is in line with guidance at 10.15 cents, 100 per cent tax deferred. And our gearing fell to 45 per cent, or just below 45 per cent, the lowest it’s ever been.
Carolyn Herbert: What drove these results?
Andrew Wilkinson: In essence, the valuations increased off increasing rents, but stable cap rates. Our gearing fell off the back of those valuations and our net assets increased by more than five per cent.
Carolyn Herbert: Now to the portfolio, can you tell us about the rent revenue that’s upcoming in 2018?
Andrew Wilkinson: We entered into 25-year leases in 2003 with ALH and they have four 10-year options, to extend out to 2068. We have a midterm revenue in 2018. So in around two years time, for the first time, there’ll be market rent revue on around 79 of the 86 properties. The rent can increase or decrease by around 10 per cent from that 2017 rent. And market rent is assessed on a percentage of earnings basis. So we’re watching the earnings at each of the individual hotels very closely, in the years leading up to November 2018. And can I say we’re very encouraged by the amount of money that ALH is spending at the properties, and the profit profile of the portfolio.
Carolyn Herbert: What about improvement to properties and further scope for development?
Andrew Wilkinson: I’ll give three examples of developments. The Crows Nest Hotel, it’s had its footprint doubled through major refurbishment, ALH has spent more than $8 million at that property. That opened in August of last year. It’s been very successful, very busy on Friday and Saturday nights, hard to get into. Another example is the Anglers Arms Hotel in Southport. A great old hotel, 1950s/1960s style hotel completely demolished, brand new hotel constructed and a Dan Murphy’s. The Dan’s opened just before Christmas, got off to a very good start and the new hotel will open next month.
Carolyn Herbert: What’s the plan for this year in terms of capital management?
Andrew Wilkinson: Back in 2014, we completed a very successful Australian corporate bond issue of $335 million. The first tranche of that is coming up for maturity in August this year, $110 million. We’re well advanced in our preparations and can I say, we’ve been very encouraged by the response from not just the Australian debt markets, but also offshore debt markets. So we will complete that in advance of August and update the market once it’s completed.
Carolyn Herbert: Finally Andrew. What’s the outlook for the remainder of this financial year?
Andrew Wilkinson: This year at June, we’ll have another look at the valuation of our properties. We’re on track to maintain our distribution at around 20.4 cents, 100 per cent tax deferred. And of course, we’ll continue on our preparations for the market rent review, completion of the refinancing and working with ALH around any opportunities for development of the properties. All in all, it’s a year we’re looking forward to.
Carolyn Herbert: Andrew Wilkinson, thanks for the update.
Andrew Wilkinson: Thank you.