LDR Capital Property Fund (LED) Earnings Call Transcript & Summary

Good morning, and welcome to the LDR Capital Property Fund Half Year Results Presentation. Most of you would be aware the fund was formerly known as Elanor Commercial Property Fund. I'm David Burgess, Fund Manager of LED, the new ticker of the vehicle. And with me is Ryan Pittman, our CFO. The LDR Capital team is pleased to present this inaugural market presentation to the market. Given the transition of the fund to LDR only occurred at the beginning of this month, the half year financials have been prepared with support from Elanor investors, and we thank them for their assistance on this. For those who are unaware, the fund was originally listed on the ASX in December 2019. It now has 8 commercial office buildings with a gross asset value of $425 million. A lot has happened over the last 6 months, most recently with the change of the responsible entity that occurred on the 4th of February with the appointment of Evolution Trustees as the independent RE of the fund. Evolution subsequently appointed LDR Capital as the investment and property manager. As a result of these significant changes, the fund has a completely aligned manager with the Lederer Group owning 43% of LED. By way of background, LDR Capital is a newly established real estate funds management business owned by the Lederer Group. It is now responsible for managing approximately $1.4 billion of commercial assets across Australia. LDR Capital brings together an experienced team with expertise across investment management, origination, corporate M&A, asset management and finance. We have the support of the Lederer Group that has investments across multiple asset classes and as such, brings a broader perspective to real estate invested. Importantly, the key management team all have significant experience in the listed REIT space. Since our establishment, we have been an active investor, having acquired over $300 million in new real estate, including the headquarters of the Department of Health in Canberra. This was funded by $170 million equity raise in our inaugural fund. I'll now pass over to Ryan to discuss this in more detail and some immediate steps we have now taken.

Thanks, David, and I would like to thank everyone for the opportunity to present today. Slide 6 explains the history of Lederer Group's involvement in this fund. The Lederer Group has been an investor in what was then ECF since as early as August 2021. It originally acquired a 1.3% interest in the fund when it participated in ECF's equity raising to acquire 50 Cavill Avenue. Fast forwarding to September 2024, Lederer Group acquired a further 12.7% interest in ECF from Elanor for $24 million. It subsequently sub-underwrote a rights issue committing a further $50 million to the fund. On completion of this equity raising, the Lederer Group held a 26% interest in ECF. As uncertainty continued around the solvency of Elanor and concerns grew around the performance of the fund, the Lederer Group announced an off-market takeover for ECF in August 2025. The Lederer Group's offer at $0.70 per security represented a 9% premium to the 30-day VWAP at launch and a premium to the ECF trading price in the prevailing 12 months. The off-market takeover concluded in October 2025 and resulted in the Lederer Group holding a 42.7% interest in the fund. In the off-market takeover materials released, the Lederer Group had indicated its intention to change the responsible entity and the investment manager. Before we move off from the takeover offer, I just wanted to take a step back and try and answer the question that we've had from a number of investors. Why was Elanor entitled to receive a compensation payment? Since the IPO of the fund, Elanor has been entitled to a compensation payment if they retired as either the investment manager or the property manager. This was a contractual obligation captured in both agreements and disclosed in the product disclosure statement at the time of the IPO. The calculations to determine the compensation amount broadly represented a payment of 2x the revenue generated in the last 12 months for each respective agreement. In the target statement released by the previous RE, it indicated the relevant fees for calculating the compensation payment was approximately $3 million for the investment management agreement and $2.5 million for the property management agreement. Based on this disclosure, it indicated that Elanor would have been entitled to a compensation payment of $11.5 million if they were paid in full. In the months leading to December 2025, the Lederer Group and Elanor negotiated a transaction whereby Elanor agreed to resign as the investment manager and property manager in return for a compensation payment of $8.5 million. This resulted in a $3 million saving for all investors versus the calculations inferred by the previous RE. Investors have subsequently overwhelmingly voted in favor to replace the previous RE and LDR Capital was appointed the manager of the fund in early February 2026. Looking forward, the Lederer Group is the largest unitholder in the fund and committed to supporting LED in the future, including implementing the necessary steps to position LED as a top-performing REIT. Whilst LDR Capital only became the manager this February, the team has had the benefit of listening to investor feedback over the course of the last 8 months. We've heard both the positive and negative views around the fund. On Slide 7, we've included a SWOT analysis that summarizes the fund's current position. As a team, it is clear to us that we need to take action to address the perceived weaknesses of the fund and exploit the opportunities. Importantly, we remain very positive around the office sector and a number of assets in the portfolio will materially benefit from a lack of new supply over the next 4 to 5 years. Moving forward, LDR Capital's focus can be broken down into 2 main components. At the asset level, we are acutely focused on improving the cash flows of each asset. We aim to look through the market conventions of face rents, and we want to understand how much cash each asset consistently produces each year. Having undertaken that review, we will explore the potential to recycle some of the noncore assets in the portfolio and look to reinvest in newer in-demand buildings in great locations. We will also be looking for assets that can enhance the portfolio WALE. At the fund level, we are committed to improving communications to all investors and being clear on our plans. To put it simply, we want to return the fund's focus to delivering a sustainable distribution that will grow into the future and reversing the NTA declines that have been experienced over the preceding years. We will take a much more proactive approach to the management of the portfolio to achieve these results. In line with our refocused efforts at the asset and fund level, the LDR team has identified 5 priority areas. Whilst it sounds cliche, we are committed to delivering these outcomes within 100 days. Firstly, we have immediately reduced fund expenses. In our previous communications to the market, we indicated an estimate of $1 million of savings per annum. Having reviewed the half year results today, we note that the related party disclosures indicate that group management expenses for the half year were $2.3 million, and that included $0.7 million of property management fees charged by the previous manager. LDR Capital will forgo that $0.7 million in the future. As such, we are on track to deliver $1.4 million of cost savings on an annualized basis. Over and above this, we are reviewing all service contracts, and we intend that we will deliver meaningful outcomes and meaningful savings over the coming years. In relation to asset recycling, we are continually reviewing the portfolio composition to ensure the portfolio delivers results for all investors. As highlighted in the previous slide, we understand that what investors want and that they expect great cash returns and an enhanced portfolio. We are also actively reviewing the debt profile of the business. Currently, LED's gearing is at 42%, which is above the target range, and we also note that the current hedging profile unfortunately rolls off in August 2026. In line with our other actions, we are looking at ways to improve the terms of our finance and achieve a target gearing that is more suitable for this portfolio. In undertaking this review, we will benefit from the broader experience of the Lederer Group who is an active participant in the fixed income markets. I'll now turn to summarizing the half year results. The following slide highlights the key financial and operating statistics of the fund. The fund's FFO per security was $0.036 for the half year. Whilst this is below Elanor's original FFO guidance, we will flag that LDR Capital removed certain one-off revenue items from the FFO result that would have otherwise contributed a further $0.075. The distribution per security was in line with guidance at $0.0325 for the half year. LED's pro forma NTA security is $0.64, which we acknowledge is down $0.05 since June '25. Amongst other things, this decline was due in part to the payment of the compensation payment, $2 million of one-off transaction costs incurred by the previous RE and LDR Capital adopting a more conservative approach to valuations. Simply, valuations are down $2 million since June 2025. This includes writing off $6 million of CapEx that was spent on the assets over the period. Whilst we believe this -- we believe this represents a low point in LED's NTA per security and LDR Capital will work tirelessly to restore NTA over the medium term. Pro forma gearing is 41.6%, which is above the top end of our target gearing range. This gearing calculation reflects approximately $8 million of capital notes were sold in January 2026 by the previous RE, which in turn partially funded the compensation payment. As we've previously highlighted, the group's debt position is a key priority area for LDR Capital to address over the next 100 days. I'll now hand back to David.

Thanks, Ryan. The portfolio is invested in the Queensland, Western Australia, South Australia and ACT markets. As a broad statement, these markets have been performing well from a leasing perspective. 51% of the portfolio is in just 2 assets being 50 Cavill Avenue on the Gold Coast and WorkZone West in Perth. Cavill Avenue has gone up in value since it was acquired a number of years ago due to its dominant position in the market, a market with very little supply and rental growth that has been significant. WorkZone West is 1 of only 3 assets in WA that is 6-star NABERS Energy and Carbon Neutral rated. This is a 15,500 square meter building that was fully leased to CPB to August of last year, but they were only occupying a few floors. Approximately 10,500 square meters has since been leased, including Levels 1 and 2 to CPB, who now occupy 4,880 square meters and extended their occupancy to 2032. Existing sub leased season, the building have converted to 2 direct leases and have extended their lease terms. Despite all this portfolio occupancy has declined due primarily to the remaining vacancies in WorkZone West. Portfolio WALE has increased to 4.1 years given the leasing at WorkZone and the extension of the Commonwealth Government at Garema Court in Canberra. We announced this lease renewal yesterday, which extends the government's lease from 30 June 2026 to May 2030. Following up on Ryan's comments around valuations, asset values and capitalization rates in the portfolio have remained relatively stable. The weighted average cap rate is 7.85%, is in our view, attractive and is well above our peer group portfolios. Looking forward, we expect valuations will be supported given the upward pressure on market rents that we are seeing in the markets that we are invested in. Whilst there has been rental growth across many of the assets, there's also been an increase in CapEx requirements, specifically in assets such as Limestone Centre and Garema Court. This has resulted in the asset values remaining relatively flat for the period. The DNA of the Lederer Group is to focus on the detail, roll up the sleeves and execute. In a short period of time, we've been on the front foot in relation to all CapEx and leasing initiatives at every single asset. For example, the minor works required at WorkZone on the vacant areas to enhance the leasing in that building to medium-term projects such as potential lobby upgrades at Cavill Avenue to ensure that this asset remains a preeminent office building on the Gold Coast. We are in the process of reviewing all service contracts and specifically ensuring that we have the best leasing teams on every asset in the portfolio. A few key focus areas to note. Firstly, leasing at WorkZone West is an obvious one with 4,500 square meters of vacant space in that building. Establishing strategy for Garema Court to ensure it is in the best possible position prior to the new lease expiry, which is in 2030 and ensuring Cavill remains the most preeminent office asset in that market. This, amongst other actions across all of the assets will ensure we maximize income and capital values. The portfolio has a diversified expiry profile with only 3% expiring for the remainder of this financial year and only 6.9% in financial year 2027. Of the 25 small tenancies expiring over the next 18 months, all are located in Southeast Queensland, which has been a very strong market with very little supply and upward pressure on rents. 55% of the expiries are in Cavill Avenue alone. To summarize, the team at LDR Capital is focused on executing across the 5 priority areas that we have mentioned. These priorities will deliver strong cash flows to fund a sustainable distribution and grow NTA over the medium term. Distribution guidance will remain unchanged at $0.065 per unit for the full financial year. FFO guidance per security is now $0.065 to $0.07 per security, primarily due to the reclassification of a material one-off payment. We'll now pause one moment to see if there's any questions that are coming through the line.

We've received one question so far. And if there's anyone online that would like to ask a question, we'll just flag that, that needs to be submitted online through the portal. The one question we've received to date is the question is, will the Lederer Group be considering taking LED private? Put simply, the off-market takeover was launched, as we've mentioned in the presentation, in August last year and has closed in October 2025. The outcome of a 43% interest was very well received by Mr. Lederer. Whilst we can't make kind of comments around future intentions around the Lederer Group, we will reiterate that there will be very strong support from the Lederer Group to support this REIT going forward in a listed context. We're just waiting if anyone else would like to ask a question online, we'll give another 30 seconds for further questions to be provided. It does not appear that anyone has provided any further questions online. I'll hand back to David.

So thank you all for dialing in and showing interest in the LDR Capital Property Fund. We appreciate your time and interest. The LDR management team will remain available to discuss these results further and any other questions you may have in the future. Thank you.