Arvida Group Limited — Interim / Quarterly Report 2017

Nov 29, 2016

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Morgans Investor Day

Aged Care & Retirement Living

30 November 2016

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WELCOME

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Bill McDonald, CEO Previously:

• General Manager of ING’s retirement assets division in New Zealand

• Regional Operations Manager for Stockland Limited in Victoria, Aust

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Jeremy Nicoll, CFO Previously:

• CFO for ING Property Trust and ING Medical Properties Trust (renamed Argosy Property Limited and Vital Healthcare Property Trust respectively)

• Managing Director of ING Real Estate and Managing Director of ING Insurance

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COMPELLING NZ MARKET DYNAMICS

Demographic demand underpins needs based growth

NZ’s Ageing Population (85+ years)

Shortage of Beds Looming

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10k 180k 60k
9k 160k
8k 50k
140k
7k
120k 40k
6k
100k
5k 30k
80k
4k
3k 60k 20k
40k
2k
10k
1k 20k
- - k
2017 2020 2023 2026 2029 2032 2008 2011 2014 2017 2020 2023 2026
Change (LHS) Number (RHS) Existing Beds Build Rate Supply Gap
Total NZ Population Aged 85+ years
Additional persons entering aged bracket No. Care Beds (assuming 95% occupancy)
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• 80% increase in population aged 85+ years over next 15 years

• Living longer/healthier leads to change in resident profile

• Net increase in beds lags demand

• 80-110% increase in capacity needed over next 10 years

Source: Ministry of Health, Statistics NZ.

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NZ AGED CARE MODEL

Arvida Model

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RV Care
Resident Resident
Dementia
Hospital Govt
Rest Home
RV Operator RV Operator
Fees Fees
Services
Statutory Level of Care
Supervisor Accommodation Payment on Entry Payment on Exit
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WHO IS ARVIDA?

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 IPO in 2014 successfully raised $80m

• Current market capitalisation of ~$385m

 Institutions represent ~25% of register

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75% Needs-Based Composition

85.5 years Resident Age

>2,700 Residents

>1,600 Staff

26 Villages[^] (24 with integrated care) 1,458/1,285 units/beds

^Conditional agreement to acquire Cascades announced 23 November 2016.

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OUR STRATEGY

The Attitude of Living Well

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Development

Our vision is to improve the lives and wellbeing of our residents by transforming the ageing process

Brownfield development activity within existing villages

Greenfield over time where we see value

Our commitment is to challenge ourselves to make our residents’ lives better with everything we do

Acquisition

Stated Criteria: location, quality of assets and current management, opportunities for development and immediately earnings accretive

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ACTIVE DEVELOPMENT PROGRAMME

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Consented Activity In Progress
Jonathan Ash 192/33 units/beds
Expected Date
GM Development First Resident
Copper Crest 40 Ongoing
 Localised project Oakwoods 22 Q1 FY18
management capability
established Aria Bay 24 Q3 FY18
 Right sized to current Park Lane 78 Q3 FY18
project pipeline
Rhodes on Cashmere 28 33 Q4 FY18
 Small in-house
Units Beds
development team
recently acquired Total Development Pipeline (incl. Consented)
Units 309
Beds 143
Other 100 Consented Planning
550+ development pipeline Yet to be assessed
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550+ development pipeline 20%+ increase in current portfolio

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PERFORMANCE TO DATE

Underlying Profit Per Share

Investment Property

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3.46c
3.11c
2.93c
1H16 2H16 1H17
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$358m
$295m
$273m
$212m
2H15 1H16 2H16 1H17
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• Top quartile EBITDA/Bed

• Resale margins

• “Fussy” in selecting assets to acquire

• Prime growth areas

• Procurement synergies

• Integration of central support

systems

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OUTLOOK

Introduction of Care ORA

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ROIC
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Standard Care Bed

ORA

• Stepped increase in ROIC

• Same EBITDA

• Minimal capex to convert

Integrated Care Model

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Captive Needs

• Compelling demographics

• Stability in cash flows

• Needs-based/defensive

• Care supports RV sales

• Higher barriers to entry

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SECTOR POSITIONING

Portfolio Composition

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(incl. % Needs Based)
10k
55%
8k
6k 19%
28%
75%
4k
2k
k
RYM MET SUM ARV
ILUs SAs Beds % Needs Based * Includes Cascades
Care Revenue Composition
100%
80%
60%
40%
20%
0%
RYM MET SUM ARV
FY14 FY15 FY16
Existing Units/Beds (No.)
Care Fees as a % of Revenue
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Market Landscape – Aged Care Beds
NZX Listed
14%
Arvida
4%
Small
Private/NFP Other
47% 14%
Bupa
Charitable 12%
9%
As a % of Beds, 2016.
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Market Metrics

	FY17 Gross Yield P/NTA ND/ND+E
ARV	5.1% 1.2x 9.6%
RYM MET SUM	2.1% 2.9x 32.5% 1.2% 1.0x 3.2% 1.6% 2.7x 37.2%

Source: Company Reports, Broker Reports, Ministry of Health

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Appendix:

FINANCIAL RESULTS

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FINANCIAL HIGHLIGHTS

Underlying Profit

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$9.6m
$8.5m
$7.3m
1H16 2H16 1H17
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Underlying Profit per Share2

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3.46c
3.11c
2.93c
1H16 2H16 1H17
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• Performance well ahead of last year

• Underlying Profit up 31% on prior corresponding period

• Strategy is delivering strong growth in underlying shareholder value

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1. Calculated with reference to the average number of shares on issue over the period.

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INCOME STATEMENT (IFRS)

Six-months ending 30 September Unaudited (NZ$m)	Actual First Half FY2016 Actual First Half FY2017
Care & village service fees Deferred management fees Other revenue Total revenue Fair value movement of investment property Total income Operating expenses Depreciation Total expenses	34.6 40.1 3.6 5.0 1.0 1.8
	39.2 49.9 3.8 14.3
	43.0 61.2 (30.4) (37.2) (1.4) (1.5) (31.8) (38.8)
Operating profit before financing, one- off costs	11.2 22.4
Financing costs One-off costs Profit before income tax Income taxation	(0.6) (0.4) (1.4) (0.1) 9.3 21.8 (1.9) (2.4)
Net profit after tax	7.4 19.4

Commentary:

• Increased in fee revenue driven by acquisition strategy

• Increase in DMF driven by acquisition strategy (circa 50%) and the balance through pricing strategy and resales

• Care facilities revenue at $33.5m comprises 72% of total revenue

• Fair value movement of Investment Properties assessed at $14.3m from desktop review completed by CBRE. Strong increases in Auckland and Rotorua villages

 Higher operating costs reflect a full period of Aria villages, Lansdowne Park for three months and continued reinvestment in staff and operations

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BALANCE SHEET

BALANCE SHEET
Six-months ending 30 September	Actual	Actual
Unaudited	First Half	First Half
(NZ$m)	FY2016	FY2017
Cash and cash equivalents	1.1	1.7
Property, plant and equipment	110.6	123.2
Investment property	272.9	357.8
Goodwill	39.0	39.5
Other assets	12.2	15.0
TOTAL ASSETS	435.8	537.2
External debt	10.0	32.4
Residents’ loans	134.1	176.4
Deferred tax liability	15.5	16.7
Other liabilities	23.5	27.0
TOTAL LIABILITIES	183.1	252.5
NET ASSETS	252.7	284.7
Issued capital	246.6	252.6
Reserves	1.0	3.0
Retained earnings	5.1	29.1
TOTAL EQUITY	252.7	284.7

Commentary:

• PP&E and Investment Property balances increased mainly due to Lansdowne Park acquisition, gains on revaluation and development work in progress

• Debt increased to fund acquisition of Lansdowne Park and development activity

 Remains conservatively geared at 10% (post capital raise and October acquisition settlements), with headroom to fund planned development activity and the Cascades acquisition under the new $80m multi tranche facility

• $6.0m of new shares issued during the period in relation to the Lansdowne Park transaction

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CASH FLOW

CASH FLOW
Six-months ending 30 September	Actual	Actual
Unaudited	First Half	First Half
(NZ$m)	FY2016	FY2017
Receipts from residents for care fees and village services	35.6	41.2
Residents’ loans	18.0	25.1
Repayment of residents’ loans	(9.1)	(11.4)
Payments to suppliers and employees	(29.3)	(35.5)
Other operating cash flows	0.1	-
Financing costs	(0.5)	(0.4)
Taxation	(2.5)	(3.7)
Net cash flow from operating activities	12.3	15.4
Purchase of investment property	(4.7)	(5.2)
Purchase of property, plant and equipment	(1.4)	(8.6)
Payments for investments in subsidiaries	(29.2)	(6.3)
Net insurance claim proceeds	17.8	-
Other investing activities	-	(0.3)
Net cash flow from investing activities	(17.5)	(20.4)
Net cash flow from financing activities	4.4	4.9
Net (decrease) / increase in cash	(0.7)	(0.0)
Opening cash balance	1.8	1.8
Closing cash balance	1.1	1.7

Commentary:

• Increase in cash flow from fees and services driven by acquisition activity

• $21.5m received from new residents over 87 resales and $3.6m received from 12 new sales

• $11.4m paid to exiting residents

• Main drivers of Investment Property addition is the acquisition of unit titles, Glenbrae development and adjoining site acquisitions

• PPE cash flow mainly on development activity at Park Lane, Rhodes on Cashmere and Glenbrae

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RECONCILIATION TO UNDERLYING PROFIT[1]

RECONCILIATION	TO UNDERL
Six-months ending 30 September Unaudited (NZ$m)	First Half FY2016 First Half FY2017
Net profit after tax	7.4 19.4
Less: Change in fair values	(3.8) (14.3)
Add: Deferred tax	(0.4) 0.4
Add: One-off costs	1.4 0.1
Underlying operating profit	4.6 5.7
Add: Gains on resale of existing units	2.0 3.2
Add: Gain on sale of new units	0.7 0.7
Underlying profit	7.3 9.6

1 Underlying Profit is a non-GAAP measure and differs from NZ IFRS net profit after tax by replacing the fair value adjustment in investment property values with the Board’s estimate of realised components of movements in investment property value and to eliminate deferred tax and one-off costs.

Commentary:

• Fair value change of $14.3m, deferred tax of $0.4m and transaction expenses of $0.1m removed from the calculation of Underlying Profit

• Gains from 87 resales of existing units totalled $3.2m. The aggregate value of resales was $22.0m. This represents an average resale price of $252k and a resale margin of 15%

• Development margins on 12 sales of new units totalled $0.7m. The aggregate value of new sales was $3.6m. This represents an average sale price of $296k and a sales margin of 19%

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