Waypoint REIT (WPR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for joining us today for Waypoint REIT's 2022 Annual General Meeting. This meeting comprises the Annual General Meeting of the shareholders of Waypoint REIT Limited and the general meeting of the unitholders of Waypoint Trust. It is just after 10:00, and I'm informed by the Company Secretary that a quorum is present. I declare the meeting properly constituted and open. Please take a moment to turn off your mobile phones. My name is Laurence Brindle, and I'm the Chair of Waypoint REIT. Joining me today are my fellow independent directors, Georgina Lynch; Susan MacDonald and Stephen Newton, along with Waypoint REIT's Managing Director and CEO, Hadyn Stephens; CFO, Kerri Leech, who are all present with me in Sydney. Our General Counsel and Company Secretary, Tina Mitas, is joining us by telephone from Melbourne. Finally, please welcome our auditors, Jane Reilly and Jamie Wills from PricewaterhouseCoopers; and our returning officer, [ Reggie Hardburn ], from our registry provider, Link Market Services, who are also all present in Sydney. We are holding this general meeting today as a hybrid meeting. And before we begin, I'll quickly run through some procedural matters. Voting on the items of business today will be carried out by way of a poll. Securityholders had the option of casting their vote before the meeting or by appointing a proxy to do so on their behalf. If you have not already done so, you can vote at today's meeting online or in person. You can do so at any time during the meeting starting from now as the polls are now open for voting. Voting will close shortly after the end of the meeting. If you need assistance with voting, please see the returning officer if you're attending in person or if you are participating online, please refer to the instructions in the Virtual Online User Guide available with your Notice of Meeting. [Operator Instructions] The Notice of Meeting was distributed on the 8th of April 2022 and will be taken as read. The formal part of the meeting comprises the presentation of the financial report, directors' report and auditor's report for the year ended 31 December 2021 as detailed in the 2021 annual report along with resolutions relating to the adoption of the remuneration report; the reelection of myself, Laurence Brindle, as Director; the election of Susan MacDonald as Director; the grant of performance rights to the Managing Director and CEO, Hadyn Stephens; the amendment of the constitutions of Waypoint REIT Limited and Trust to reinsert the proportional takeover provisions. Before we move to the formal business of the meeting, I will provide a short overview of Waypoint REIT's performance for the 2021 financial year before handing over to our CEO, Hadyn Stephens, to provide a brief business update. Financial year '21 was another very strong one for Waypoint REIT. Distributable earnings per security increased by 4.25% on the prior year, with the impact of asset sales and higher management costs being offset by rental increases, lower interest expense and a reduction in securities on issue due to Waypoint REIT's capital management program. Waypoint REIT has now delivered compound annual growth in distributable EPS of 4.5% over a 5-year period to 31 December '21. And our management expense ratio of 28 basis points remains one of the lowest in the sector. Growth in net tangible assets per security was also strong. It was an 18.5% increase from $2.49 to $2.95 over the 12-month period, driven primarily by valuation gains and a lower number of securities on issue as a result of capital management initiatives. Waypoint REIT's NTA per security has now increased by a compound annual growth rate of 7.9% over the 5-year period to 31 December '21. Portfolio optimization and capital management were key priorities for Waypoint REIT during financial year '21. With 40 assets sold for a total proceeds of $137.1 million and $173.3 million return to securityholders by way of a $41.1 million on-market buyback program and a $132.2 million capital return. Given the uncertain economic and geopolitical environment, we are very pleased with the progress of our noncore asset disposal program in financial year '21, which we believe has significantly derisked the longer-term outlook for Waypoint REIT's portfolio. Further progress has been made on noncore asset sales year-to-date, and Hadyn will speak to this shortly. Notwithstanding the asset sales and capital management initiatives completed during the year, Waypoint REIT's gearing of 30.1% as at 31 December '21 remained at the bottom end of our target gearing range. Finally, significant progress was made during the year on ESG with Waypoint REIT achieving its carbon neutral target, with Scope 1, Scope 2 and direct Scope 3 emissions under its operational control being offset through the purchase of carbon offsets. We continue to support our primary tenant which is Viva Energy Australia in their rollout of electric vehicle charging stations via the provision of easements and land owner consents, supporting the supply of electricity, and installation of charging and infrastructure on selected sites across our network. We acknowledge that there's plenty more work to do and value the commitments and actions taken by our tenant operators, including Coles' commitment to 100% renewable energy by 2025 and the net 0 targets recently announced by Viva Energy Australia. We look forward to continuing to work with our tenant operators in this space. I would like to extend my thanks to the Board and management team for their continued commitment to the success of Waypoint REIT. And to you, our investors, we thank you for your continued support. I'd now like to hand over to Hadyn to address the meeting to provide a brief business update.

Thank you, Laurie, and welcome to everyone attending in person or virtually this morning. Before turning to the formal AGM agenda, I just wanted to provide you with a quick update on Waypoint's operational focus and priorities, both year-to-date and for the rest of the year. The key focus for the Waypoint REIT team year-to-date has been on further portfolio improvement via noncore asset sales. And in late April, we were pleased to announce the sale of a portfolio of 29 assets to Fawkner Property Group for $141.8 million, with settlement expected at the end of June. This transaction takes us a long way towards our goal of selling $150 million of noncore assets this year. We've now sold 69 properties since commencing our noncore asset sale program 18 months ago or approximately 15% of the portfolio. Gross sale proceeds equate to $278.9 million with an average premium-to-book value of approximately 5%. Our disposal program has concentrated on smaller sites with shorter lease terms and regional locations where we believe that there is a relatively high risk of vacancy and/or negative rental reversion at the end of the current lease term. We based this assessment primarily on the operating metrics for each site, being fuel volume and gross fuel margin, and the 8% to 9% increase in these metrics across our portfolio as a result of these asset sales is a strong indicator of the overall improvement in portfolio quality. As Laurie mentioned earlier, given the uncertain economic and geopolitical environment that we're currently experiencing, we are very pleased with the progress of our noncore asset sale program which we believe has significantly derisked the longer-term outlook for Waypoint REIT's portfolio and achieved strong pricing and returns for our investors. Moving to our outlook for the remainder of the year. Waypoint REIT intends to continue with the cautious approach that we have taken over the last 18 months, with a focus on completing further asset sales and associated capital management initiatives. Although we do not currently believe that there is any imminent risk to our values, rising interest rates over the coming months clearly pose a risk to real estate as an asset class generally, and we're prepared to remain patient in relation to potential acquisitions. We have a strong balance sheet, and we're prepared to wait until we see compelling investment opportunities emerge that add real long-term value for our securityholders. And this same mindset apply to the diversification strategy outlined to securityholders with our results in February. Diversifying our investment portfolio remains a key long-term aim for Waypoint. However, we intend to take a very patient and disciplined approach in implementing this strategy, and we are not currently anticipating any acquisitions in the current financial year. In relation to capital management, our current guidance for this year incorporates $100 million of capital management initiatives funded from asset sales. Further details regarding this capital management program will be provided on or around the expected settlement date of the Fawkner transaction in late June. In terms of our exposure to rising interest rates, our average fixed rate cover for this year via either fixed rate debt or interest rate swaps is approximately 70%, which minimizes the impact of rising interest rates on this year's earnings. Hedging levels will be increased over time, balancing the flexibility required for asset sales with minimizing interest rate volatility. We will provide further details in conjunction with our half year results in August. As we announced to the market in early April, Waypoint's CFO, Kerri Leech, has resigned to take up another opportunity and is currently working out her notice period. I'd like to take this opportunity to thank Kerri on behalf of both the management team and Board for her contribution to Waypoint REIT over the last 2 years. She is a highly capable and dedicated executive who has done a wonderful job in her short time with us. She will be missed, but we wish her the very best in her new role. We have engaged an executive search firm to find a replacement CFO for Kerri, and the outcome of this process will be announced in due course. Finally, we're pleased to reconfirm Waypoint REIT's target distributable EPS for FY '22 of $0.1644 which represents 4% growth on last year. As always, this guidance assumes no material change in market conditions and no other factors adversely affecting financial performance. Once again, thank you to everyone attending our AGM today, and I'll now hand back to Laurie for the formal proceedings.

Thank you, Hadyn. I would now like to move to the formal part of the meeting. Before we consider each item, there are a few procedural matters which I'd like to run through first. Firstly, this is a securityholder meeting and only securityholders, proxies and power of attorneys or authorized company representatives are entitled to vote or speak at the meeting. Eligible securityholders or their duly appointed proxy or corporate representatives are entitled to vote and have been issued with a yellow voting card at the registration desk. Blue cards are for those entitled to speak but not to vote. Visitors holding a red card are not eligible to vote or speak but are most welcome to listen. If you believe you do not have the correct card, please see the staff at the registration desk now. Before voting on each resolution, the results of the proxy voting received at the close of voting at 10:00 a.m. on Tuesday, the 10th of May, will be shown on the screen behind me. When you complete your card, please indicate the manner in which the votes are to be cast by placing a mark in the for, against or abstain box for each resolution. I advise the meeting that I intend to vote all discretionary votes given to me in favor of the resolutions in the polls. When the floor is open for questions. If you have a question, please indicate that, and a roving microphone will be brought to you. When called upon, please give your name, and if appropriate, who you represent and present your yellow or blue admission card. Please place your completed voting card inside the ballot boxes held by the share registry staff located near the exit to the room before the closure of the poll. We will now move on to the items of business for this meeting as set out in the Notice of 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 7 items of business. The details of each item was set out in the Notice of meeting. The first item of ordinary business is consideration of the combined annual financial report for the company and the trust, including the directors' report, financial statements for the year ended 31 December '21, together with the independent auditor's report, which was set out -- sent out to the securityholders on the 29th of March '22. A copy is also available on the company's website. As mentioned earlier, Jane Reilly and Jamie Wills from PricewaterhouseCoopers, our auditors for the year 2021, are in attendance. Please direct any questions that you have for our auditors through me. As you will notice from your polling cards, there will be no vote on this item. It is a discussion item only. Securityholders can ask questions and make comments about the reports and the management of the company. Are there any questions? Tina, are there any questions online?

I confirm there are no online questions.

Okay. And are there any telephone questions?

No telephone question.

Okay. Thank you. This concludes our consideration of the financial reports. We now move to the substantive resolutions for this meeting. The next resolution is the adoption of the remuneration report. Under Corporations Act 2001, listed companies are required to include as part of their directors' report a remuneration report which includes specified information in respect of directors and key management personnel. The directors have prepared a remuneration report for the year ended 31 December '21, which is included in Pages 25 to 39 of the annual report. The Corporations Act also requires company to put to securityholders a nonbinding vote to enable securityholders to voice their opinion on matters included in the remuneration report. The Board will consider the feedback from securityholders when 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. Are there any questions? Tina, are there any questions online?

I confirm there are no questions online.

Moderator, are there any telephone questions?

No telephone question.

Okay. Thank you. There being no further discussion, I'll now move that the remuneration report for the year ended 31 December '21 be approved by passing an ordinary resolution as set out in the Notice of Meeting. The resolution proxy position are now on the screen, and I would like to please -- I'd ask you to please note your voting card for item #2. [Voting]

We'll now move to the resolution #3 in the Notice of Meeting, the reelection of myself as a director of Waypoint REIT Limited. I'll hand over the conduct of the meeting for this resolution to Mr. Stephen Newton who is Chair of the Audit and Risk Committee.

Thanks, Laurie. Mr. Brindle is eligible to stand for reelection, and Mr. Brindle's biographical details are set out in the Notice of Meeting and the annual report. The Board, with Mr. Brindle abstaining, recommends his reelection. I now move that Laurie Brindle retire by rotation under Clause 8.1(f) of Waypoint REIT's Constitution and, being eligible, is reelected as a Director of Waypoint REIT. Are there any questions? Tina, are there any online questions?

I confirm there are no online questions.

Moderator, are there any telephone questions?

No telephone question.

The resolution and proxy position are now on the screen. And I would ask you to please now mark your voting card for item #3. [Voting]

I will now hand back to the Chair.

Thank you, Steve. Next item is the election of Susan MacDonald. Ms. MacDonald was appointed to the Board with effect from 1 May 2022. Under the Constitution, Ms. MacDonald must retire and be reelected by securityholders at the Annual General Meeting. Ms. MacDonald's biographical details are set out in the Notice of Meeting. The Board, with Ms. MacDonald's abstaining recommends Ms. MacDonald's reelection. I now move that Susan MacDonald retire under Clause 8.1(i) of the Waypoint REIT's constitution and, being eligible, is reelected as a Director of Waypoint REIT. Are there any questions? Tina, are there any online questions?

I confirm there are no online questions.

And moderator, are there any telephone questions?

No telephone question.

Thank you. The resolution and proxy position are now on the screen. And I would ask you to please now mark your voting card for item #4. [Voting]

Moving on to the next item. The company is seeking approval be given for the grant of performance rights to the CEO, Hadyn Stephens, as his annual long-term incentive grant for the year ended 31 December '22 on the terms described in the explanatory memorandum to this Notice of Meeting. Are there any questions? Tina, are there any online questions?

There are no online questions.

Moderator, are there any telephone questions?

No telephone question.

Thank you. There being no further discussion, I will now move that the grant of performance rights to the CEO be approved by passing an ordinary resolution as set out in the Notice of Meeting. The resolution and proxy position are now on the screen. And I would ask you to now mark your cards for item #5. [Voting]

The company is seeking securityholder approval to amend the existing company constitution by reinserting the proportionate takeover approval provisions in Clause 16 for the period of 3 years from the close of the Annual General Meeting. Are there any questions? Tina, are there any questions online?

There are no online questions.

Moderator, are there any telephone questions?

No telephone question.

Thank you. There being no further discussion, I will now move that the constitution of Waypoint REIT Limited be amended in the manner set out in the explanatory memorandum accompanying the Notice of Meeting by passing a special resolution. The resolution and proxy position are now on the screen. And I would ask you to please now mark your voting card for item #6. [Voting]

VER Limited is seeking securityholder approval to amend the existing trust constitution by reinserting the proportionate takeover approval provisions in Clause 17 for the period of 3 years from the close of the Annual General Meeting. Are there any questions? Tina, are there any online questions?

There are no online questions.

Moderator, are there any telephone questions?

No telephone question.

Thank you. There being no further discussion, I'll now move that the constitution of the trust be amended in the manner set out in the explanatory memorandum accompanying the Notice of Meeting by passing a special resolution. The resolution and proxy position are now on the screen. And I would ask you to please now mark your voting card for item #7. [Voting]

Please complete your polling cards as they will now be collected by Link Market Services. Securityholders are reminded that they can submit their vote online until 5 minutes after the meeting closes. Ladies and gentlemen, that concludes the business of the meeting. On behalf of the Board, I'd like to thank you for your support, and I now declare the meeting closed. The results of the poll will be announced to the ASX later today. Thank you for your attendance and participation in the meeting. Good morning.