ing real estate entertainment fund - open briefing 3 overview capital management • 10 assets sales...
TRANSCRIPT
ING Real Estate Entertainment Fund
August 2011
AUSTRALIA
Penrith Panthers, Penrith, NSW
2011 Annual Results Presentation
Agenda
Overview
Key Financials
Capital Management
Portfolio Update
Strategy and Outlook
Appendices
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3
Overview
Capital management
• 10 assets sales during the financial year with $64.4 million in proceeds applied to debt reduction
• Improved IEF’s debt position by reducing total debt by $99.1 million during the financial year, representing a 45% reduction over the prior corresponding period
• Completion of a $38.8 million capital raising in August 2010 enabled repayment of the convertible loan securities and improved LVR headroom
• No distribution was paid for the 2011 financial year
Operational
• Operating profit affected by lower rental income resulting from asset sales, one-off capital transaction costs and higher finance costs due to refinancing of debt at current market rates
• Continue to work closely with tenants as they aim to stabilise and improve their operating business
Strategic
• Following the ING Strategic review, IEF and ING Management Limited (IML) identified path to staple and restructure the Fund to accommodate operating activities
• Positioned the Fund to proceed with restructure and long-term plan for greater oversight and management of operations
Management's focus has centred on balance sheet improvement and working towards a restructure of the Fund:
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Key Financials
GPO Hotel, Fortitude Valley, QLD
Key Financials
• Statutory loss reduced substantially compared to the prior corresponding period however, trading difficulties and sector risks still weighing on asset valuations
• Property income impacted by asset sales and previously announced reduction in rent from the Fund’s major tenant
• Reduced gearing levels enabled compliance with debt covenants
1. Gearing is calculated as net debt to total look-through assets
2. Refer to Appendix 3 for further details
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Results summary – financial metrics FY 2011 FY 2010
Statutory loss - $m (21.1) (52.7)
Property income - $m 21.1 23.6
Operating income - $m 8.4 9.5
Operating income per unit - cents 1.5 5.4
Gearing1 -% 47.3 68.6
Net assets value per unit (NAV)2 - $ 0.17 0.49
9.5 (1.6)
0.6 (0.2) (0.2) 0.4 8.4
-
1.02.0
3.04.0
5.0
6.07.0
8.09.0
10.0
FY2010 Impact ofincrease infinancingmargins
Net impact ofsales
Increase inCLS interest
Increase in REfees
Other FY2011
Key FinancialsOperating income comparison to prior year
• Higher finance costs associated with the refinance of the Fund’s debt facilities
• Reduction in Icon’s rent as announced 22 Feb 2010 as part of IEF’s senior debt refinancing terms
$m
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1
1. Impact of sales includes lower rental income due to sale less interest savings through application of sales proceeds against debt and repayment of interest rate hedges
Key Financials
• Reduction to NAV per unit primarily due to a movement in asset valuation and the August 2010 capital raising
• Property valuations continue to be impacted by tenant performance and sector risks
Movement in NAV per unit
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48.9 (4.9)
0.2 1.5 0.6 (0.9) (29.0)
16.6
-
10.0
20.0
30.0
40.0
50.0
60.0
FY2010 Valuation ofInvestmentProperties
Valuation ofDerivatives
OperatingIncome
InsuranceClaim
Impairment ofreceivablesand other
Items
Issue of Equity FY2011
Cent
s pe
r uni
t
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Capital Management
Bowral Hotel, Bowral, NSW
• The Fund’s total debt has been reduced by 45% from $221.7m to $122.6m over the 12 months to 30 June 2011
• Facility 1 LVR covenant steps down from 65% to 60% limit at 31 December 2011
• The weighted average term of the Fund’s debt is 3.4yrs years
• ICR covenant remains strained due to higher debt margins and non-recurring costs
• Details of each of the Fund’s Facility covenants is at Appendix 4
Improved debt position
Capital Management
Debt maturity profile (as at 30 June 2011)
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$m
108.3
14.3
0
20
40
60
80
100
120
Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15
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Portfolio Update
Dolphin Hotel, Surry Hills, NSW
NSW
NZ
QLD
WA
Icon Hospitality
Panther Entertatinment Group
Partners Hotel Group
Capital Investments WA
Other
Rent by Geography (%)
Portfolio Update
Fund snapshot 30 Jun 2011 30 Jun 2010
Total assets $235.6m $323.4m
Weighted average capitalisation rate 9.6% 9.4%
Weighted average lease expiry 10.0yrs 10.7yrs
Number of properties 34 44
81%
8%
5%
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Rent by Operator (%)
13%
5%
8%
36%
38%
6%
Major tenant update – Icon Hospitality
• Receivers continue to operate Icon hotels in accordance with lease terms
• Work continues on long term strategy to restore operational performance
• Option to acquire operating business extended to 30 Sep 2011
• View to continue with previously stated strategy of acquiring the Icon operating assets -providing greater oversight and management of hotel operations
• The acquisition remains conditional on a number of factors including:
> Restructuring IEF into a stapled entity
> Execution of sale contracts
> Successful application for finance to complete the acquisition
> Exercise of the option to acquire the operating business prior to expiry
Portfolio Update
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Update on other tenants
Portfolio Update
Venue Current Position Focus
Panthers Performance remains consistent however trading headwinds continue to slow revenue growth
Panthers’ focus remains on continual improvement in trading performance, revenue diversification and cost management to improve profitability and member amenities
Partners Hotel Group Trading conditions in NZ continue to be difficult putting pressure on venue performance
IEF is continuing with sales strategy and withdrawal from this market
Courthouse Hotel, Cairns Regional downturn and reduced tourist inflows have impacted asset performance
IEF is reviewing options in relation to the site including potential for divestment
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Strategy and Outlook
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• Further assets sales will be pursued to achieve deleveraging objectives and to mitigate covenant default risk
• Management will look to reinstate distributions once the Fund’s asset value volatility stabilises and the capital position is improved
Operational • Continual monitoring of tenant performance
• Divestment strategy for NZ and regional assets continuing
Capital management
Strategic• Position the Fund in order to proceed with the long-term operation and plan to achieve
greater oversight and management of hotel operations
• Remain focus on managing a diversified portfolio of leisure and entertainment assets that deliver sustainable growth in the long-term
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Appendices
9,500
(621)
(1,619)
(17,670)
(721)
30,131
6,559
23,572
30 Jun 2010($’000s)
30 Jun 2011($’000s)
Revenue
Rental Income 21,057
Interest income 6,294
27,351Expenses
Property expenses (692)
Finance costs (15,947)
Responsible Entity’s fees (1,818)
Other (506)
Operating income 8,388
Operating Income Statement 1
Appendix 1
1. Operating income statement on a look through basis including contribution of discontinued operations. Operating income is calculated after adding back certain items recognised in the income statement including unrealised gains or losses of the funds properties and derivatives, unrealised impairments of receivables and one off extra-ordinary items.
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Appendix 2
Operating income reconciliation
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30 Jun 2011 ($’000s)
30 Jun 2010 ($’000s)
Statutory loss (21,092) (52,730)
Adjustments:Rental straight lining (571) 145Net loss on property revaluations 24,031 44,413Net (gain)/loss on derivatives revaluation (1,221) 1,585Net loss on investment properties – equity accounted 317 2,772CLS borrowing costs amortisation 16 365Write back provision for aborted due diligence costs (50) (299)Impairment loss on receivables 3,135 8,019Capital transaction costs 2,733 -Reversal of impairment loss on loans (2,409) -Insurance claim proceeds recognised as other income (3,377) -Loss from discontinued operations 4,617 2,048Operating income from discontinued operations 2,259 3,181
Operating income 8,388 9,500
30 Jun 2011 ($’000s)
30 Jun 2010 ($’000s)
AssetsCash and cash equivalents 6,272 1,696Receivables and other assets 5,028 4,853Investment properties 1 124,850 199,350Equity accounted investments 1 23,672 24,986Assets of discontinued operations 12,583 31,397Loan to associated entity 1 63,091 60,682Derivatives 95 395
Total assets 235,591 323,359LiabilitiesPayables 8,850 5,880Borrowings 120,217 219,315Derivatives 6,129 12,256Total liabilities 135,196 237,451
Net assets 100,395 85,908Unitholders interestIssued units 217,678 182,425Reserves and Accumulated losses (117,283) (96,517)
Total unitholders interest 100,395 85,908Net asset value (NAV) per unit $0.17 $0.49
Appendix 3
Balance Sheet
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1. Appendix 7 provides details of the properties held or secured via equity accounted investments or loan to associated entity respectively
Facility 1 Facility 2
Drawn amount ($m) 108.3 14.3
Loan to value ratio (LVR) actual 57.6% 53.5%
LVR bank covenant 65.0% 1 55.0%
Interest cover ratio (ICR) actual 2 1.56x 2.00x
ICR bank covenant 1.40x 3 1.50x
Facility expiry Feb 2015 Sep 2012
Debt Facilities
Appendix 4
1. LVR covenant steps down from 65% to 60% limit at 31 December 2011
2. ICR is calculated in accordance with the provisions of each of the Fund’s debt facility agreements. This calculation excludes certain non-recurring and unrealised costs, including fair valuation adjustments to the Fund’s assets and capital transaction costs.
3. ICR covenant increases to 1.5x on facility 1 for the period to 31 December 2011
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Appendix 5
Valuation Summary
Revaluations in the six months to 30 Jun 11 Proportion of portfolio
30 Jun 2011 Book value
($m)
30 Jun 2011Weighted Ave Cap Rate (%)
30 Jun 2010Weighted Ave Cap Rate (%)
Externally revalued 78.3% 107.5 9.4% 8.8%
Externally valued (NZ) 9.1% 12.6 13.0% 12.1%
Internally revalued 12.6% 17.3 11.1% 9.7%
Total 100.0% 137.4 9.9% 9.2%
Note: Valuation summary details direct investment properties including properties classified as discontinued operations
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18.61,93112.42,800NZWaikanae34 Main RoadWaikanae Hotel & Super Liquor 110.35,20011.14,800NSWMount Druitt13 Mount StreetUncle Bucks Retail Centre
9.210,5009.710,000NSWMount Druitt13 Mount StreetUncle Bucks Hotel
7.014,7008.113,000WAPerth292 Beaufort StreetThe Brisbane Hotel
9.385,6679.286,763NSWVarious locations14 sitesPanthers
Property Address SuburbState /
Country
30 Jun 11Valuation
($’000s)30 Jun 11
Cap rate (%)
30 Jun 10 Valuation
($’000s)30 Jun 10
Cap rate (%)
Ambarvale Tavern 57 Woodhouse Drive Ambarvale NSW 11,700 11.6 13,000 10.6
Bowral Hotel 408-412 Bong BongStreet Bowral NSW 5,400 10.4 6,400 8.7
Central Hotel 18 Targo Street Bundaberg QLD 3,100 12.2 3,350 10.7
Commodore Hotel 206 Blues Point Road North Sydney NSW 11,800 9.1 12,500 8.6
Courthouse Hotel 38 Abbott Street Cairns QLD 5,200 11.5 6,100 9.3
Dolphin Hotel 412-416 Crown Street Surry Hills NSW 11,050 8.1 10,500 8.7
El Toro Hotel 6 Homepride Avenue Liverpool NSW 13,950 9.2 15,500 8.3
Five Dock Hotel 74 Great North Road Five Dock NSW 17,600 7.9 17,400 8.0
General Gordon Hotel 20 Swain Street Sydenham NSW 10,050 12.4 11,500 11.0
GPO Hotel Ann & Ballow Streets Fortitude Valley QLD 2,900 10.2 3,000 8.0
Hibernian Hotel 145 Auburn Street Goulburn NSW 1,300 11.2 2,000 7.5
Lawson Park Hotel 1 Church Street Mudgee NSW 3,000 7.9 3,000 8.8
Portfolio overview
Appendix 6
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Property Address SuburbState/
Country
30 Jun 11 Valuation
($’000s)30 Jun 11
Cap rate (%)
30 Jun 10 Valuation
($’000s)30 Jun 10
Cap rate (%)
Alberts Sports Bar 1 692 Main Street Palmerston North NZ 2,359 9.9 2,918 8.3
Murphy’s Law 1 479 Main Street Palmerston North NZ 866 18.5 1,318 12.6
Exchange Hotel 1 132 Queens Drive Lower Hutt NZ 2,970 13.7 3,078 13.7
The Office 1 514 Main Street Palmerston North NZ 1,361 16.2 1,318 17.4
Realm Hotel 1 9-17 Mosham Ave Hataitai NZ 2,227 12 2,418 11.5
Total 224,196 9.7
Portfolio overviewAppendix 6 (cont’d)
10.83,029-NZPalmerston North532 Main StreetEmpire Hotel
10.05,711--NZWellington28 Cambridge TceCambridge Hotel
9.06,000--NSWWoolwich2 Gale StreetWoolwich Pier Hotel
9.06,100--NSWRozelle193-199 Evans RoadThree Weeds Hotel
9.511,500--NSWKings Cross26 & 28 Darlinghurst Road
Sydney Aussie Rules Social Club
7.53,800--NSWBroadmeadow1 Brunker RoadPremier Hotel
9.519,300--QLDBrisbane131 Edward StreetExchange Hotel
11.218,000--NSWKings Cross22-26 Darlinghurst RoadBourbon Hotel
Properties divested during 12 months to 30 June 2011
Turks Bar 5 Napier Road Havelock North NZ - - 1,116 20.6
Tote Hotel 74 Ararino Street Trentham NZ - - 2,887 9.9
Total 310,726 9.4
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1. NZ Properties are disclosed as discontinued operations within the Fund’s accounts for financial years ended 30 June 2011 and 30 June 2010
Property Address Suburb State30 Jun 2011
($’000s)
Properties secured against convertible loan to associated entity
Panthers Bathurst 132 Piper Street Bathurst NSW
Panthers Bathurst City Bowling Club William Street Bathurst NSW
Panthers Cardiff Cnr Munibung & Pendlebury Roads Cardiff NSW
Panthers West Epping 17 Mountain Street Epping NSW
Panthers Glenbrook 8 Hare Street Glenbrook NSW
Panthers Lavington 795 Centaur Road Lavington NSW
Panthers Newcastle Cnr King and Union Streets Newcastle West NSW
Panthers North Richmond 33 Beaumont Ave North Richmond NSW
Panthers Port Macquarie 1 Bay Street Port Macquarie NSW
Panthers Port Macquarie Sports Boundary Road Port Macquarie NSW
Panthers Triglav 80-84 Brisbane Road St Johns Park NSW
Panthers Wallacia 13 Park Road Wallacia NSW
Loans to associated entity – Panthers Investment Corporation Pty Ltd 63,091
Properties held through investment in associated entity
Panthers Penrith Mulgoa Road Penrith NSW
Panthers Mekong 117 John Street Cabramatta NSW
Equity accounted investments – Panthers Property Unit Trust 23,672
Panthers Portfolio
Appendix 7
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A copy of this presentation will be made available on www.ingrealestate.com.au
This presentation was prepared by ING Management Limited (ABN 15 006 065 032) (the "Responsible Entity") in respect of ING Real Estate Entertainment Fund (ARSN 108 982 627) (“IEF"). Information contained in this presentation is current as at 26 August 2011. This presentation is provided for information purposes only and has been prepared without taking account of any particular reader's financial situation, objectives or needs. Nothing contained in this presentation constitutes investment, legal, tax or other advice. Accordingly, readers should, before acting on anyinformation in this presentation, consider its appropriateness, having regard to their objectives, financial situation and needs, and seek the assistance of their financial or other licensed professional adviser before making any investment decision. This presentation does not constitute an offer, invitation, solicitation or recommendation with respect to the subscription for, purchase orsale of any security, nor does it form the basis of any contract or commitment.
Except as required by law, no representation or warranty, express or implied, is made as to the fairness, accuracy or completeness of the information, opinions and conclusions, or as to the reasonableness of any assumption, contained in this presentation. By reading this presentation and to the extent permitted by law, the reader releases the Responsible Entity and its affiliates, and any of their respective directors, officers, employees, representatives or advisers from any liability (including, without limitation, in respect of direct, indirect or consequential loss or damage or loss or damage arising by negligence) arising in relation to any reader relying on anything contained in or omitted from this presentation.
Disclaimer
The forward looking statements included in this presentation involve subjective judgment and analysis and are subject to significant uncertainties, risks and contingencies, many of which are outside the control of, and are unknown to, the Responsible Entity. In particular, they speak only as of the date of these materials, they assume the success of IEF's business strategies, and they are subject to significant regulatory, business, competitive and economic uncertainties and risks. Actual future events may vary materially from forward looking statements and the assumptions on which those statements are based. Given these uncertainties, readers are cautioned not to place reliance on such forward looking statements.
The Responsible Entity, or persons associated with it, may have an interest in the securities mentioned in this presentation, and may earn fees as a result of transactions described in this presentation or transactions in securities in IEF.
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