ALE Property Group (ASX:LEP) talks 1H18 results


by Jessica Amir

ALE Property Group Limited (ASX:LEP) Managing Director Andrew Wilkinson discusses the company’s 1H18 results, valuations and long-term opportunities.

Jessica Amir: Jessica Amir here with the Finance News Network. Joining me now from ALE Property Group is its managing director Andrew Wilkinson. Andrew, welcome back.

Andrew Wilkinson: I'm pleased to be back.

Jessica Amir: You're Australia's largest owner of freehold pubs. Just tell us about the company for those who are new.

Andrew Wilkinson: ALE is a real estate investment trust. We own 86 pubs spread throughout Australia. We have a market capitalization of $950 million. Our properties are located in the major capital cities, Brisbane, Sydney, Melbourne, Adelaide, and Perth. 90% in those capital cities. And we have a single tenant, ALH. ALH is 75% owned by Woolworths and 25% by the Bruce Mathieson family. We have long-term triple net leases with ALH across the properties, and they've been continuously operating as pubs for more than 60 years, so they're institutions in their local communities.

Jessica Amir: Now to your half-year results, just tell us some highlights.

Andrew Wilkinson: We saw the distributions increase by around 2%. We also saw the value of our properties increase to more than 1.1 billion, again an increase of around 2%. Our capitalisation rates remained steady at 5.15%, and our gearing is now at an all-time low.

Jessica Amir: What drove that?

Andrew Wilkinson: Our rents increase by CPI, and that's what increased the rental income. We saw our interest expenses rise off the back of, number one, a lower interest rate, but increased borrowings. And finally, our management costs were slightly higher, given we are spending additional money on preparing for market rent review.

Jessica Amir: Now, a little bit more about your gearing profile and your debt.

Andrew Wilkinson: ALE's gearing is at an historic low of 42%. It was previously, if I go all the way back to IPO, at 88%, and it has progressively reduced over the last 14 years to an all-time low at that level. Our debt maturity is spread over the next six years, and we are 100% hedged on all of our debt for the next eight years. In short, we have an appropriate capital structure, which Moody's rates investment grade, and we have maintained that rating.

Jessica Amir: Now to the pub portfolio. Just tell us how it's performing.

Andrew Wilkinson: As I said, the value of the properties increased more than $1.1 billion. Our cap rates remain steady at 5.14%, and we've seen, just in the last six months, a further two Dan Murphys added to the portfolio, one at the Miami Tavern on the Gold Coast, and the second at the Gepps Cross Hotel in Adelaide.

Jessica Amir: And what's the outlook for rents this year and further out?

Andrew Wilkinson: We have our first market rent review in November of this year, and we expect a positive outcome. The profitability of the hotels across the portfolio isn't evenly spread, so we don't expect the full 10% increase on all of the 76 properties that will be reviewed, but we're looking forward to that outcome.

Jessica Amir: Now, can you tell us about the significant opportunity that you have to develop land that connects the pubs?

Andrew Wilkinson: ALE owns nearly one square kilometre of land, or around 950,000 square metres. Of that 950,000, pub buildings and retail liquor buildings occupy around 25%. The rest is car parking or spare land. ALE and ALH have added around 30,000 square metres, or 3% of that 25%, over the last 10 years by working constructively together. We'll continue to work with ALH to add to the improvements and profitability of their operations.

Jessica Amir: Now, turning to the future, Andrew, what's your outlook for the second half?

Andrew Wilkinson: More of the same. We'll continue our preparations for the market rent reviews at the end of the year. We'll have the valuations of the properties updated at 30 June. And we'll continue to work constructively with ALH to consider various developments on the properties. I'd also add that ALE, over the last 14 years, has outperformed every other real estate investment trust in Australia, and we currently offer a distribution yield of just over 4%, 100% tax deferred.

Jessica Amir: Wonderful. Andrew Wilkinson, thank you so much for the update.

Andrew Wilkinson: Thank you.


Jessica Amir

Finance News Network
Jessica is a senior finance journalist and presents bulletins including the Market Outlook, Market at Midday and Market Wrap. She also interviews ASX CEOs and leading fund managers. She joined FNN in January 2017 with over six years of broadcast journalism experience including with Sky News Business, ABC 1, ABC's The Business and ABC24. She’s also worked as a TV reporter for Prime 7 and WIN News. Jessica has worked in financial planning for over six years with leading wealth managers and in real estate.