ALE Property Group Limited (ASX:LEP) Managing Director, Andrew Wilkinson discusses the company’s FY18 results, valuations and rent reviews.
Rachael Jones: Hello I’m Rachael Jones for the Finance News Network. Joining me today from ALE Property Group (ASX:LEP) is Managing Director, Andrew Wilkinson. Andrew, welcome back.
Andrew Wilkinson: I’m pleased to be back.
Rachael Jones: Now ALE is a freehold owner of pubs, including some of the most iconic in the country. What more can you tell us about ALE?
Andrew Wilkinson: ALE listed on the ASX around 15 years ago. We do own a large portfolio of 86 pubs all around Australia, mainly in the major capital cities. They’re all on long term leases to a company called ALH. ALH is the largest pub operator in Australia, 75 per cent owned by Woolworths Group (ASX:WOW), 25 per cent by the Mathieson Group. For example last year, the Group turned over nearly $4.3 billion and an EBITDA of more than $800 million. In terms of icon properties that we own, if I start in Melbourne the Young & Jackson Hotel, if I move to Sydney the Crows Nest Hotel and in Brisbane, the Breakfast Creek Hotel.
Rachael Jones: Now to your 2018 results. What were the highlights?
Andrew Wilkinson: The highlights were the distributions went up two per cent, the value of the properties went up five per cent, to more than $1.1 billion. Our gearing fell to an all-time low of 41 per cent and our total return for our security holders, was 24.5 per cent. And that saw us outperform all other indexes.
Rachael Jones: What was driving those results?
Andrew Wilkinson: The rents increase by CPI. That increased the distributions. And off the back of that and a very strong pub property investment market, the value of the properties increased to more than $1.1 billion.
Rachael Jones: Can you provide us a comment on ALE’s capital structure?
Andrew Wilkinson: ALE’s capital structure remains very sound. As I said, the gearing’s fallen to an all-time low. We have debt maturity spread over the next five years, hedging spread very conservatively over the next seven years. And we’re in very good shape with an investment grade credit rating, fully maintained throughout the year.
Rachael Jones: Now to the pub portfolio in more detail. What has happened to the value of those properties?
Andrew Wilkinson: As I said earlier, the value of the properties increased by five per cent to just over $1.1 billion. The properties sit across 97 hectares of land, mostly in the east coast capital cities. They’ve been operating in their current locations as pubs, for more than 65 years. So these sites are strategic, they’re important to ALH and there’s evidence of that. They’ve continued to spend money on the properties, improving them and making them more profitable. Examples of that in the last 12 months include the Miami Tavern near the Gold Coast, and the Gepps Cross in Adelaide.
Rachael Jones: You have a more significant rent review coming up in November. Where is that at?
Andrew Wilkinson: Almost all of our 86 properties review to market, during the coming financial year. The review to market can see the properties individually increase or decrease, by up to 10 per cent. As we’ve announced in the past, we do expect a positive result, but we have indicated that not all of the 86 properties will increase by that full 10 per cent. At the right time, we’ll give updates to the market.
Rachael Jones: Still on rent reviews now, the more significant event is for 2028. What happens then?
Andrew Wilkinson: After the completion of the 2018 review, we’ll have a very helpful precedent. 2028 is different in that there’s no caps or collars, there’s an opportunity for rent to fully revert to market levels.
Rachael Jones: Last question Andrew. What is the guidance for the financial year 2019?
Andrew Wilkinson: The distributions for many years have been 100 per cent tax deferred. We’re seeing the carry forward tax losses come towards an end. So accordingly for financial year 19, we expect the distributions to be partly taxed deferred. Following the completion of the rent review, the Board will take an opportunity to look at distributions, look at capital management policy. And consider, what were the results of the review, what are the conditions in the capital markets or the conditions in the property markets. And after a consultation with the wide group of security holders, we’ll make an appropriate decision around both distributions and capital management policy.
Rachael Jones: Andrew Wilkinson, thanks for the update.
Andrew Wilkinson: My pleasure.