Waypoint REIT (WPR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Waypoint REIT 1H '26 Results Webcast. [Operator Instructions] I would now like to hand the conference over to Hadyn Stephens, CEO and Managing Director. Please go ahead.

Thank you, and good morning, everyone. A summary of the key highlights for the 6 months to 30 June is provided on Page 6 of the presentation. Starting with financial highlights for the half. Distributable EPS of $0.0859 was 3.4% higher than the corresponding period last year with higher net interest expense being offset by rental increases and the impact of the buyback that was completed in the second half of last year. NTA per security increased by $0.02 to $2.92 as at 30 June, primarily due to an increase in the value of our investment portfolio and our MER remains one of the lowest in the sector at 31 basis points on an annualized basis. Moving to our property portfolio. We saw a 10 basis point increase in Waypoint's weighted average cap rate during the half to 5.71%, which was offset by the impact of rent reviews across 94% of the portfolio with the net result being a $10.7 million valuation uplift. All 28 of our leases expiring in 2026 have now been resolved, with the tenant being retained on 26 of these sites and a 10.3% positive reversion achieved on renewals. Our focus now moves to the 2027 lease expiries as well as plans for the 2 sites where leases were not renewed in 2026, which I'll cover later in the presentation. As stated back in February, we're aiming to sell $10 million to $20 million of noncore assets this year. However, it's been a very quiet first half with the only update being the settlement of a previously announced disposal, Nowra, for $6.1 million in May. Aditya will cover the finance and capital management update shortly. But in terms of highlights, gearing fell slightly to 32.4% during the half, and we completed a new $250 million 6-year AMTN program in June which allowed us to repay bank facilities and maintain our weighted average debt maturity at 3.8 years. Average hedging for the second half of the year is 95% and our weighted average hedge maturity as at 30 June was 2.5 years. Our major tenant, Viva Energy reported a strong interim result earlier in the week with a summary included as an appendix to this presentation. Group EBITDA was up 154% with all business units reporting significant growth on the first half of 2025, particularly the refining business. Strong free cash flow enabled a 17% reduction in net debt with gearing reducing significantly and currently below Viva's through the cycle target. Within Convenience and Mobility business, EBITDA increased by 86% on the prior corresponding period with fuel volumes up 2% and fuel margins also strong during the half. Overall Convenience sales were up 1.3%, excluding tobacco, where sales were down 16.8% on the first half of 2025, but were in line with the second half with the impact of illicit tobacco on procurement retailer sales appearing to have now stabilized. Looking at the broader environment in which our tenants operate, new vehicle sales remain strong in the first 6 months with total sales increasing 1.7% versus the first half of 2025. There was a material increase in market share of EVs from March as a result of tensions in the Middle East with battery EV and petrol hybrid EVs accounting for approximately 1/4 of new car sales for the full half, or around double the market share of calendar 2025. We've included some slides in the pack looking at how the EV market share has progressed over the last few years as well as how increased penetration might impact the Australian vehicle fleet moving forward, which we know is a key consideration for our investors. 6-monthly fuel volumes across the industry were broadly flat on the first half of 2025 with operators also benefiting from strong fuel margins during the period. Industry C-store sales, ex tobacco were up 2.2%, although a 10.8% decline in tobacco sales resulted in total sales falling 0.6% versus the prior corresponding period. I'll now hand over to Aditya.

Thanks, Hadyn, and good morning. Turning to Slide 8, which sets out the half year results. DEPS for the half was up 3.4% to $0.0859, driven by higher earnings and lower securities on issue following completion of the buyback in 2025. Looking at earnings, rental income grew by 1.3%. This was underpinned by like-for-like rental growth of 3% which was partially offset by the loss of rent from the $44 million of noncore asset sales completed across 2025 and the first half of 2026. Operating expenses were in line with the prior period with higher corporate costs offset by lower property-related costs. Property expenses have averaged $1.3 million per annum over the last 5 years. And while the first half was lower than usual, we expect these to normalize in the second half. The MER remains relatively low at 31 basis points. Interest expense has also increased, driven by a higher average debt balance over the period as a result of the buyback. Finally, statutory profit for the period was $65.8 million, primarily driven by valuation movements on the investment portfolio. A full reconciliation between operating and statutory earnings is provided in the appendix. Turning to the balance sheet on Slide 9. The balance sheet has not moved significantly compared to December with the primary movements being the settlement of Nowra for $6.1 million in May 2026, the updated valuation of our investment properties and interest rate swaps as well as working capital movements. NTA was up slightly over the period to $2.92 per security. Our balance sheet and capital position remains strong, and we have set out the key metrics illustrating this on Slide 10. As shown in the table, gearing remains at the lower end of the target range. Our liquidity position is solid and a high level of hedging has been maintained, providing insulation against the current interest rate environment. Our weighted average cost of debt was steady at 4.7%. Lower margins from the refinancing activities conducted in 2025 offset increases in base rates across our hedges and floating rate debt. Our ICR also continues to show healthy headroom to the 2x covenant. Turning to Slide 11 to look a little more closely at our debt and hedging profile. On the debt front, we repaid and terminated $250 million of bank debt during the period. This was funded through the issuance of a new 6-year AMTN, which extends our debt maturity profile while also capturing a modest margin saving. Our next debt maturities are in 2028 and are listed on the slide, comprising $200 million of bank debt and a $200 million AMTN, which will mature in September 2028. On the hedging front, we have a high level of near-term hedging to support our overall resilience against interest rate volatility. We continued our approach of progressively adding hedging over time with coverage added for the second half of 2026 and the 2028 to 2031 period. As noted on the chart, average rates on the hedge book, including forward starts, sit at circa 3.1% to 3.4% through to FY '28, which is well positioned relative to the forward curve. We've also reiterated our cost of debt guidance for the full year at circa 5%. An overview of our valuations as at 30 June is also provided on Page 12. As per our valuation policy, we had a change of valuer ahead of our June valuation cycle with CBRE replacing Savills for the next 3 years. The process remained unchanged with independent valuations conducted on 74 assets and director valuations for the remainder. The director vals are informed by the outcomes of the independent valuations and are also subject to a desktop review by the independent valuer. As shown on the table, the weighted average cap rate increased by 10 basis points during the period with our Capital City assets experiencing the most expansion given they are generally on firmer yields. In particular, Melbourne saw cap rates soften by 21 basis points as negative sentiment regarding the Victorian economy has filtered through to transactions and values. This cap rate expansion was offset by the impact of rent reviews across more than 90% of the portfolio that were incorporated into the June valuations, resulting in an overall valuation uplift of $10.7 million for the period. I'll now hand back to Hadyn to provide a market and portfolio update and our outlook for the remainder of 2026.

As outlined on Page 14, while the number of fuel and convenience assets sold in the 6 months to 30 June was similar to the first half of last year, transaction volumes are significantly lower than the second half of 2025. Total transaction value was down approximately 20% to 30% versus the 2 prior 6-month periods, driven by a lower number of larger transactions with only a couple of deals in excess of $10 million. The average transaction yield was approximately 20 basis points higher, reflecting some yield expansion, but also a greater weighting towards higher-yielding regional assets during the half. In terms of current market conditions, agents report that activity levels are being impacted by uncertainty as a result of interest rates and conflict in the Middle East, whilst the recently announced federal budget has also affected near-term demand as investors have digested its potential impact. New stock is relatively limited as owners elect to hold on to properties until market conditions improve with interest rates being a key catalyst for a return to the level of activity that we saw in the second half of last year. As outlined on Page 15 of the presentation. With the final 3 lease expiries of the 2026 cohort resolved in the first half, all FY '26 lease expiries have now been finalized with options exercised on 26 of 28 leases, resulting in a 97.2% retention rate by income and an aggregate rental uplift of 10.3% on the 26 leases that have been renewed. Viva Energy has exited or will shortly exit 2 Brisbane sites being Brendale and Slacks Creek. We're currently in discussions with an operator for a fund-through development at Brendale, and we'll shortly be commencing an EOI campaign for Slacks Creek, where we are exploring a range of potential options as summarized on the slide. We'll endeavor to provide more information on both of these at our full year results in February. Moving to Page 16. Viva Energy provided an update on its network conversion program as part of its half year results this week, which is summarized on this page, along with an update on OTR conversions across the Waypoint portfolio. Some key things to highlight here. Firstly, as indicated by Viva at its February results, the broader OTR conversion program across Viva's network slowed in the first half with only 5 new stores opened or converted versus 35 in full year 2025. Secondly, Viva's network program for the second half is focused on new OTR stores from its development pipeline with a smaller number of conversions of existing stores expected to be completed. And thirdly, Viva has announced the introduction of a new unattended self-service offer, similar to the U-GO offer that Ampol has been rolling out over the last 6 to 12 months with 25 to 30 conversions to this format expected in the second half across the Viva network. Across our portfolio, landlord consent has been sought and provided for basic OTR conversions on 40 of our sites with 19 conversions having been completed to date. Viva has scheduled an Investor Day for November this year, where we expect to hear more about their longer-term plans from the newly appointed CEO of the Convenience and Mobility division. But for now, based on Viva's public disclosures, we anticipate a more moderate rollout of the OTR brand across both our portfolio and the broader Reddy Express network at least in the near term. Turning to the outlook for the second half of the year on Page 18. A key focus for the second half will be the market rent review and auction process with the 33 leases we have expiring in 2027, which represent approximately 7% of total rental income. Based on independent advice we've received from values, we believe this cohort is under-rented, but we obviously need to work through the process with our tenants, and we'll provide more details regarding the status of these leases at our full year results in February next year. With the recent $250 million AMTN issuance completed in June, our debt expiry profile is in good shape with no facilities maturing until March 2028. However, we continue to explore opportunities to reduce our cost of debt and optimize our debt facilities through early refinancing. As I mentioned earlier, it's a relatively subdued transaction market at the moment, but we're still looking to sell $10 million to $20 million of noncore assets this year. It's important to note that we don't have to sell these assets, but we will continue to explore avenues to do so when we believe there is a realistic opportunity to transact. And finally, I'm pleased to reaffirm our DEPS guidance for the full year at $0.1714, which represents 3% growth on last year. With that, I'll hand back to the operator to coordinate Q&A.

[Operator Instructions] Your first question comes from Adam West with JPMorgan.

My first question today is just it was a good outcome on the $250 million refinancing. I'm just wondering if you could talk to if the FY '28 expiries were to be part of that batch, what type of margin saving you would have expected or if it would have been sort of similar to what you're paying at the moment?

Thanks for the question, Adam. So you're trying to figure out the margin saving if we had refinanced the '28 expiries instead of the debt that we did repay. Is that your question?

Yes, all the potential upside you see in those expiries from a margin perspective.

Yes. Look, it's a tricky one. The $200 million AMTN that we have in September that's due to expire in September 2028, that's a fixed rate instrument. And that was put in place during really favorable conditions. So that's got an all-in cost of 2.4%. So that's all in, including margin and base rate. So it's a little bit hard to -- obviously, given how favorable that rate is to sort of give you an answer where we're repaying that rate instead of other debt. But just to give you a sense, the 6-year AMTN that we did issue, the equivalent sort of margin on that was 156 basis points. And that's sort of in the range of where we're seeing 5-year bank debt for us is around 150 and 6-years around 160 for bank debt. So hopefully, that gives you a bit of a sense.

Yes. Perfect. Maybe just my second question, but I'm just wondering, obviously, with the uptick in electric vehicles, just how attractive electric charging base would be for highway and roadside assets and whether or not it's attractive from both a leasing perspective, but then also from a resale perspective as well?

Yes, I'll take that one, Adam. Thanks. Look, I think the highway sites are obvious targets for EV chargers. We as the landlord, we don't have the ability to put those in ourselves. Obviously, we lease the entire site to our tenants. So it's obviously a tenant-led initiative. We do know that both Ampol and Viva and other operators are rolling out EV chargers across their network. Highway sites are a focus of those. In terms of the economics, I think economics probably marginal in the first few years, just given the usage. But obviously, longer term, they'll start to be more profitable. And I think from a resale point of view, anything like that, that helps future proof your asset is a positive when buyers are looking at them.

Yes. Perfect. And I guess maybe just a quick follow-up. How many of your highway sites currently have charging days on them?

So across our network, Viva has got 6 in place with EV networks, which is one of the operators, and they've been rolling them out. I don't have an exact number for you, to be honest, Adam, but I can get back to you on that.

Your next question comes from Carl Braganza with Jarden.

A few questions from me. The first one is based on your guidance, you've got second half earnings going slightly backwards. You've got more income flowing through from the FY '26 renewals and are quite highly hedged. What's the drag in second half then? Is it higher base rates, disposals or something else?