Waypoint REIT (WPR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Viva Energy REIT AGM. I would now like to hand the conference over to Mr. Laurence Brindle, Chairman. Please go ahead.

Good morning, ladies and gentlemen, and welcome to the 2020 Annual General Meeting of Viva Energy REIT, comprising the Annual General Meeting of Shareholders in Viva Energy REIT Limited, the company, and the General Meeting of Unitholders of Viva Energy REIT Trust, the trust. My name is Laurence Brindle, and I am Chairman of Viva Energy REIT. I regret that we are prevented from convening under the same roof as is customary for us at this time of the year, and I think I speak for everyone when I say that we look forward to hosting an AGM of a more familiar style in 2021. The format of this meeting is also different from our previous AGMs, as we have advised in our Notice of Meeting. This year's meeting is being conducted with the assistance of teleconferencing as we play our part in the social distancing that is crucial as all Australians work together to slow down the spread of the coronavirus. We are webcasting the entire meeting live and every effort has been made to ensure that this runs smoothly for our security holders. However, if any technology issues do arise, a recording or a transcript of the meeting will be available on our website. We requested that questions be received from security holders prior to the meeting, and we have endeavored to answer those questions in today's meeting. I confirm that a quorum is present by virtue of the proxies that I hold as Chair, and I now formally declare the meeting open. Let me commence our business for today with some introductions. Members of the Board joining us via teleconference today are Georgina Lynch, Independent Non-Executive Director; Stephen Newton, Independent Non-Executive Director and Chair of the Audit and Risk Management Committee; Lachlan Pfeiffer, non-Executive Director; and Jevan Bouzo, Non-Executive Director. Also joining us today are Hadyn Stephens, Chief Executive Officer of VER Manager, which is the manager of Viva Energy REIT; Kerri Leech, Chief Financial Officer of VER Manager, both dialing in today from Sydney. Also present is Charles Christie, our auditor from PricewaterhouseCoopers, from Melbourne. Tina Mitas, Company Secretary, is also joining us from Melbourne. We also welcome Julie Stokes, our returning officer with our registry provider, Link Market Services, who is present in Melbourne. All resolutions today will be declared on a poll based on proxies that were submitted before the meeting. I declare the poll open, and we'll now vote all directed proxies in accordance with the directions provided by security holders. As advised in the Notice of Meeting, I will also vote all available undirected proxies in favor of all Board-recommended resolutions. [Voting]

I now declare the poll closed. The formal results of the poll will be notified to the ASX after the meeting and will be posted on Viva Energy REIT's website, and I will also display the voting outcome for each item of business. The Notice of Meeting was distributed on the 9th of April 2020 and will be taken as read. The formal part of the meeting is to present the financial report, the Directors' Report and auditor's report for the year ended 31 December 2019, as detailed in the 2019 Annual Report. We'll also vote on the 2019 remuneration report and the reelection of Ms. Georgina Lynch as director of the company. We'll also be seeking approval to change the name of the company from Viva Energy REIT Limited to Waypoint REIT Limited and to amend the constitution of the company and the trust, as outlined in the Notice of Meeting. Before we move to the formal business of the meeting, I will give a short address, which will be followed by a business update from Hadyn Stephens, Chief Executive Officer of VER Manager. The 2019 financial year saw steady growth for Viva Energy REIT, with strong performance both financially and operationally. Viva Energy REIT delivered distributable earnings of $0.1454 per security, which was 3.7% higher than the previous financial year and at the upper end of our 3% to 3.75% guidance range. Net tangible assets per security increased 4.1% during the year to $2.29. During the 2019 financial year, Viva Energy REIT invested $88.5 million across 15 acquisitions and fund-through projects at a weighted average capitalization rate of 6.8%. This, in addition to $100 million valuation uplift across the portfolio, resulted in Viva Energy REIT's portfolio having a value of $2.65 billion at year-end. All the investments made during the 2019 financial year have added to the strength of the portfolio, cemented the geographical diversity and added to stable long-term income growth, which is supported by quality tenant covenants and long-term leases with a portfolio WALE of 11.7 years. In December 2019, Viva Energy REIT was assigned a Baa1 investment-grade corporate rating by Moody's Investment -- Investors Services, which is a testament to the strength of our balance sheet and tenant covenants and which we expect will provide funding optionality, both domestically and offshore, once market conditions stabilize. Viva Energy REIT's strong credit position was also demonstrated by the support we received from the majority of our banking syndicate during the debt review event that was triggered by Viva Energy REIT Australia's -- Viva Energy Australia's sale of its 35.5% stake in Viva Energy REIT in February, and we thank these lenders for their ongoing support. The Board remains focused on maintaining a strong balance sheet with gearing at the end of 2019 of 30.4%, which is at the bottom end of our range of 30% to 45%. This commitment to prudent capital management resulted in Viva Energy REIT raising $123.4 million of equity during the year, during the 2019 financial year, at a weighted average security price of $2.33. Viva Energy REIT's management expense ratio remains one of the lowest in the REIT sector due in large part to the effective management of the vehicle, led by Margaret Kennedy and Guy Farrands. Changes to the management team were announced in the second half of 2019 financial year, with Margaret and Guy stepping down from their roles of Managing Director and Chief Financial Officer, respectively. On behalf of the Board and the security holders, I would like to thank both Margaret and Guy for their service and wish them every success in the future. Hadyn Stephens commenced as Chief Executive Officer at the start of 2020, and Kerri Leech joined the team as Chief Financial Officer in late January. I would like to take this opportunity to welcome both Hadyn and Kerri to the team. As announced to the market this morning, Viva Energy REIT has agreed terms with Viva Energy Australia and VER Manager to internalize the management function moving forward. Hadyn will cover this in more detail in his address. However, from a Board viewpoint, we are very pleased with this result as it enables -- establishes the vehicle as an independent stand-alone business following Viva Energy Australia's sell-down of its stake in Viva Energy REIT. Consistent with this internalized model and separation from Viva Energy Australia, Viva Energy REIT intends to change its name to Waypoint REIT at today's meeting. Viva Energy Australia's nominee directors, Jevan Bouzo and Lachlan Pfeiffer, will also resign as Directors of Viva Energy REIT effective at the conclusion of this meeting. Viva Energy Australia remains a strategic -- key strategic partner of Viva Energy REIT, and I would like to thank both Jevan and Lachlan, along with previous Viva Energy Australia nominee director and CEO of Viva Energy Australia, Scott Wyatt, for their contributions to Viva Energy REIT. We look forward to maintaining our strong landlord/tenant relationship for many years to come. The beginning of 2020 financial year has seen the global community hit by a period of unprecedented disruption caused by the outbreak of the COVID-19 novel coronavirus. We continue to monitor the potential impacts of this virus on our business, and Hadyn will go into more detail on this during his business update. I can, however, assure you that the Board and management team continue to work hard to ensure the right structures and frameworks are in place to enable Viva Energy REIT to deliver quality results year-after-year and have the right skills to manage the business through even the hardest of times whilst continuing to deliver on our strategic objectives. I would like to extend my thanks to the Board and the management of VER Manager, which is the manager of Viva Energy REIT, and all staff for their continued commitment to the success of Viva Energy REIT. And to our investors, we thank you for your continued support. I would now like to invite Hadyn Stephens to address the meeting and provide a business update.

Thank you, Laurie, and good morning, ladies and gentlemen. As Laurie has just described, the 2019 financial year was a successful one for Viva Energy REIT, and we are in a strong position to withstand the extraordinary economic and social conditions that we now find ourselves in. I'm sure you will agree that 2019 feels like a long time ago, and with that in mind, I would like to focus on recent events impacting Viva Energy REIT and the outlook for the business moving forward. Following Viva Energy REIT's announcement of its FY '19 results on the 20th of February, Viva Energy Australia announced that it had sold its entire 35.5% stake in Viva Energy REIT, with 10% being sold to Charter Hall and the remaining 25.5% to a range of institutional investors. Viva Energy REIT's debt facilities included a review event if Viva Energy Australia's holding fell below 20%, and accordingly, this review event was triggered, requiring Viva Energy REIT to consult with its lenders regarding the continuation or otherwise of its various debt facilities. As announced to the market on the 28th of April, this review event has now been concluded and waivers received in relation to 89% of the facilities impacted, with these facilities to continue on the same terms and with no fees payable by Viva Energy REIT. This was an excellent result in the current climate and validates the strong financial position and credit profile of the vehicle. Pleasingly, at the same time that the review event was underway, Viva Energy REIT was able to secure a new full year $275 million revolving credit facility with a group of existing lenders, which was used to replace $300 million of shorter-dated facilities. On behalf of the Board and management team, I would like to extend our thanks to those lenders that supported us through this period, with Viva Energy REIT now in a strong position with in excess of $100 million in liquidity and no expiries on drawn facilities until June 2022. We are very comfortable with this position, noting that the vehicle has very low nondiscretionary capital requirements as a result of its predominantly triple net lease structure. Following the sale of Viva Energy Australia's stake in the REIT, Viva Energy REIT's independent directors have worked constructively with Viva Energy Australia with respect to future management arrangements for the vehicle with Viva Energy Australia's nominee directors remaining on the Board during this time to facilitate an orderly transition. As announced this morning, Viva Energy REIT has agreed unconditional terms with Viva Energy Australia to internalize the management function, which, along with the proposed change of name to Waypoint REIT, will establish the REIT as a completely independent, stand-alone business. The implementation deed and associated documentation that has been executed by the parties provides that. The internalization will be implemented no later than 31 October with the ability to complete sooner upon finalization of all transition arrangements. VER Manager will retire as the manager of Viva Energy REIT with effect from the implementation date but will continue to provide management services until this time. The current management team will resign from Viva Energy Australia and be employed directly by Viva Energy REIT from the implementation date. Viva Energy REIT will make a $2.5 million internalization payment to Viva Energy Australia on the implementation date to facilitate the transaction. And Viva Energy REIT will have the right to acquire properties owned by third parties and tenanted by Viva Energy Australia where the third-party owner wishes to sell and Viva Energy has a preemptive right as tenant that it does not wish to exercise. Viva Energy REIT's independent directors have determined that the internalization is in the best interest of security holders with key benefits, including an enhanced governance framework with the management team employed directly by Viva Energy REIT and reporting directly to the Board; establishment of a clear separation between Viva Energy REIT and its largest tenant, Viva Energy Australia; the formalization of arrangements in relation to preemptive rights that Viva Energy Australia might enjoy in relation to properties that it leases, noting that approximately half of the properties acquired by Viva Energy REIT since IPO in August 2016 have been sourced from its relationship with Viva Energy Australia; and finally, continuity and certainty in relation to the management arrangements for the vehicle moving forward, which is expected to assist access to both debt and equity capital. Given the proximity of this announcement to the AGM and the format of this year's AGM to comply with social distancing requirements, questions in relation to the internalization can be directed to Natalie Barrington at the e-mail address provided. Turning to Slide 9. I would now like to update you generally on the business. Although the broader Australian economy has been severely impacted by COVID-19, I can confirm that Viva Energy REIT has experienced minimal direct impact to date. The vast majority of our tenant base does not qualify for rent relief under the mandatory Code of Conduct applying to commercial tenancies, either because they are too large in terms of revenue and/or because they have not experienced the requisite level of financial hardship or distress. As it currently stands, we're in discussions with 6 of our 14 nonfuel tenants regarding retail relief, and we are actively working to support these tenants during this time and in line with the code guidelines. These 6 tenants represent approximately 0.3% of Viva Energy REIT's annual rental income. In terms of the REIT's acquisition pipeline, I'm pleased to announce that we have settled $26.4 million of transactions so far in 2020 with a further $24.3 million under contract and likely to settle this year. This brings our total contracted pipeline for the year to $50.7 million at a weighted average cap rate of approximately 6.4%. Although the direct market currently appears to be holding up well, particularly for properties with strong covenants and long leases, we are taking a prudent approach to acquisitions in the current environment. We will continue to assess the market and our pipeline over the coming weeks and months, and we'll provide a further update on the outlook for acquisitions at our half year results in August. Viva Energy REIT's debt facilities and liquidity have clearly been a priority for the Board and management team over the last couple of months, and we are very pleased with the outcome of the review event and the establishment of a new $275 million revolving credit facility during this time. Viva Energy REIT is in a strong position with low gearing and adequate liquidity given the nature of our business. We remain focused on exploring opportunities to diversify our funding sources and to extend the weighted average maturity of our debt book with the Baa1 investment-grade credit rating assigned by Moody's in December 2019 providing a strong platform from which to do so. We are well placed to access longer-tenor debt options such as U.S. private placement or domestic medium-term notes when conditions normalize, and we are watching developments in these markets closely. Finally, I'm pleased to confirm that our FY '20 earnings guidance remains unchanged with distributable earnings per security growth of 3% to 3.75% expected relative to FY '19. This guidance remains subject to no material change in market conditions and no other factors adversely affecting Viva Energy REIT. I will now hand it to Laurie.

Okay. Thank you, Hadyn. I would now like to move to the formal part of the meeting. The minutes of the previous AGM were approved by the Board and signed by myself as Chair. Copies are available should any member wish to see them. There are 5 items of business. The details of each item were set out in the Notice of Meeting. Given the format of this Annual General Meeting, we have asked for questions to be submitted prior to the meeting. We have received one question from an investor in respect of COVID-19 pandemic, which we spoke about in my opening speech and also in the CEO's address. We have also received some questions from the Australian Shareholders' Association, which I will address as we go through the resolutions. The first item of ordinary business is consideration of the combined annual financial report for the company and the trust, including the Directors' Report and the financial statements for the year ended 31 December 2019, together with the independent auditor's report, which was sent out to security holders on the 30th of March 2020. A copy is also available on the company's website. As mentioned earlier, Charles Christie is present today from PricewaterhouseCoopers, our auditor for the year 2019. On this item, there are some questions from the ASA. I'll read the question and also provide our answer. "The Australian Shareholders' Association holds proxies from VVR security holders. The ASA urges VVR to comply with ASIC guidance in respect to future meetings. In particular, security holders should be given the ability to ask questions in real time and to cast their vote after hearing the presentations and any debate. The technology to enable this is available now, and many other companies have already used this approach in their recent meetings this season. Will VVR commit to use -- to the use of technology to better engage security holders?" And our answer is engagement with our security holders is of the utmost importance to us, and as such, our Notice of Meeting -- in our Notice of Meeting, we outlined the impact of COVID-19 restrictions would have on our AGM. Security holders were encouraged to submit questions prior to the meeting via e-mail to our Investor Relations manager or through our registry provider, Link Market Services. Viva Energy REIT does not have the ability to use direct voting as our constitution does not allow for this. As such, holding our AGM by way of a hybrid meeting this year was not possible. The Treasurer's determination, which came into effect mid last week, is not available to Viva Energy REIT as it was implemented too late for us to issue a new Notice of Meeting and was not practical for us to change our meeting arrangements within the time frame available. We continue to work to improve the manner in which we hold our AGM should social distancing measures continue in the future. A second question from the ASA is, "Could you please confirm that VVR as landlord is not directly exposed to the price variability of oil nor to the level of sales achieved in any of its properties, that is its revenue does not depend on these factors?" And the answer is VVR is not directly exposed to the price variability of oil nor to the level of sales achieved at any of its properties under its formal lease arrangements. We now move to the substantive resolutions for the meeting. Resolution 1 is a nonbinding advisory vote on the remuneration report. The first resolution is the adoption of the remuneration report. Under the Corporations Act 2001, listed companies are required to include as part of their Directors' Report a remuneration report, which includes specified information in respect to -- in respect of directors and key management personnel. The directors have prepared a remuneration report for the year ended 31 December 2019, which is included in Pages 21 to 23 of the annual report. The Corporations Act also requires companies to put security holders -- put to security holders a nonbinding vote to enable security holders to voice their opinion on matters included in the remuneration report. The Board will consider the feedback from security holders in reviewing the company's approach to remuneration going forward. I note that voting exclusions apply to this resolution as set out in the Notice of Meeting. The Board recommends the adoption of the remuneration report. There are questions from the ASA on this item of business, which I'll read. "The company's day-to-day business is conducted by an appointed manager, VER Manager Pty Limited, which is a wholly owned subsidiary of a separate listed company, Viva Energy Group Limited. What rights does the VVR Board have in respect of, a, the appointment of key executives in VER; and b, the setting of their salaries? What was the Board's role in the appointments made in 2019?" The answer is under the management agreement, VER Manager is responsible for the appointment of key executives of VER and setting their salaries. VER Manager will consult with the VVR Board and consider in good faith comments provided by the VVR Board in respect to the employment of key personnel. VVR Board must consent to any incentive or bonus scheme arrangements. Further to our announcement earlier today that VVR will internalize the management, we note that all key employees have accepted offers to work directly for VVR, conditional upon the completion of the implementation, at which time the management agreement with VER Manager will terminate. Going forward, the Board will establish the requisite remuneration and nomination subcommittees to oversee the remuneration and employment of employees. A second question from the ASA is, "The management -- the company's management expense ratio, MER, has increased this year by 10% despite increase in total assets. Notwithstanding that the MER is low compared to peers, what assurances can the Board give that the MER will not continue to increase and that the Board will be vigilant to maintain a tight MER and not let it creep up?" The answer is management is cost conscious and, wherever possible, actively seeks to control costs by tendering large expense items and ensuring quality service is received for fees paid. Given the cost recovery nature of our management services, we expect that we'll continue to have one of the lowest MERs in the sector. The results of the voting are displayed on the webcast presentation. This resolution has been passed. Resolution #2 is the reelection of a director, Georgina Lynch. Ms. Lynch is eligible to stand for reelection, and Ms. Lynch's biographical details are set out in the Notice of Meeting and the annual report. The Board, with Ms. Lynch abstaining, recommends Georgina's reelection. Georgina was last elected on 16th of May 2017. She is a member of the Audit and Risk Management Committee, and the Board considers her to be an Independent Non-Executive Director. The Board believes that Georgina continues to make a valuable contribution to the Board, noting her expertise in the financial services and property industry. I can attest to Georgina's absolute commitment to her role. We have a question from the ASA on this resolution. I'll read the question. "The ASA believes directors should require -- acquire equity in the company equivalent to 100% of their base fees within 3 years of joining the Board. Pleasingly, Ms. Lynch meets this requirement. Please outline what VVR's policy is on director shareholding. And will it consider formally adopting the ASA guideline?" The answer is VVR does not have a formal policy in this regard. It will be a matter for our Remuneration and Nomination Committees to take under advisement once established on completion of the internalization. A second question from the ASA is as follows. "The ASA has a similar policy for key management personnel. What is the equity holding in VER of Mr. Hadyn Stephens, the CEO of the company's manager, VER?" The answer is Mr. Hadyn Stephens does not currently hold equity in Viva Energy REIT, noting that he only commenced employment with VER Manager in September 2019. Future arrangements will be determined by the Remuneration Committee once established upon completion of the internalization. The results of voting on this resolution are displayed on the webcast presentation. The resolution has been passed, and I now have the pleasure of declaring Georgina Lynch reelected as a director of the company. Resolution #3 is change of company name. Security holder approval is sought to change the company's name from Viva Energy REIT Limited to Waypoint REIT Limited. In February 2020, Viva Energy Group Limited ceased to be a security holder of Viva Energy REIT following the sale of its entire 35.5% security holding in Viva Energy REIT. Following that sale, Viva Energy REIT intends to obtain security holder approval to change the name of Viva Energy REIT to Waypoint REIT Limited via a special resolution. The results of the voting are displayed on the webcast presentation. I confirm the resolution has been passed. I now declare that the company's name has been changed to Waypoint REIT Limited. Resolution #4 is an amendment to the company constitution. The company is seeking shareholder -- security holder approval to amend the existing company constitution. The amendment will introduce a capital reallocation provision to enable capital to be allocated between the company and the trust in the ordinary course of business in a more efficient manner that reflects current market practice. The specific amendment to the company constitution was set out in the Notice of Meeting. The results of the voting are displayed on the webcast presentation. I now declare the resolution passed. Resolution #5 is an amendment to the trust constitution. VER is seeking security holder approval to amend the existing trust constitution. A summary of the key changes to the trust constitution proposed by the resolution is set out in the Notice of Meeting. Also, a copy of the constitution marked up to show the proposed changes is available on the company's website. The results of the voting are displayed on the webcast presentation. I now declare the resolution passed. The results of this meeting will be provided to the ASX by close of business today and posted on Viva Energy REIT's website. Thank you all for your interest. We appreciate the time you have taken to attend today. We look forward to your continued support in the coming year. I now declare the meeting closed.