Thank you for standing by, and welcome to Waypoint REIT's 2022 half-year results call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the Star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Hadyn Stephens, CEO and Managing Director. Please go ahead.
Thanks, Rachel, and thank you to everyone for joining us on our half-year results call this morning. Starting on page six of the presentation that hopefully you have in front of you, I'd just like to quickly call out some of the highlights for the six months to 30 June. Distributable EPS of AUD 0.0859 was up 10% on the first half of last year, with rental growth, lower interest expense, and a reduced number of securities on issue offsetting the loss of income from non-core asset sales. As previously announced, Waypoint REIT agreed to sell 29 assets to Fawkner Property Group during the period for AUD 141.8 million, and we've now sold 69 assets, or about 15% of the portfolio, over the last 18 months for total proceeds of just under AUD 280 million.
Our investment portfolio now consists of 404 properties, with a combined book value of AUD 3.1 billion, with 10 basis points of cap rate compression and fixed rental reviews delivering a gross valuation uplift of AUD 139.5 million or 4.7% for the six-month period. Waypoint's weighted average cap rate now sits at 5.02%. Valuation gains were a key driver behind a AUD 0.23 or 7.8% increase in the NTA per security to AUD 3.18. Along with asset sales, also resulted in Waypoint's gearing reducing from 30.1% in December to 27.3% in June or 26.1% after adjusting for asset sales settled post balance date.
Debt and interest rate hedging have been a key focus for the team in recent months, and pleasingly, we just last week completed an extension of our FY 2024 AUD 275 million revolving credit facility, which has pushed out our weighted average debt maturity to 4.9 years with no debt expiries before 2025. We've also been active on the hedging front, which Kerry will talk to in more detail later, but our current hedge position is 90%. We have an average hedged position for the remainder of this financial year of 89% and an average hedged position for next financial year, so 2023, of 78% .
In terms of the performance of our key tenant, Viva Energy Australia, we know that Viva posted a record half-year result last week, with exceptionally strong results from the refining and commercial divisions, more than offsetting a softer performance from retail as a result of lower fuel margins, lower shop royalties, and higher operating and marketing expenses. Strong free cash flow resulted in Viva ending the period in a net cash position of AUD 324 million, compared with net debt of AUD 95 million only six months ago. I'll now hand over to Kerri just to take you through the financials in a bit more detail.
Thank you, Hadyn. Turning to slide nine is an overview of Waypoint's financial performance for this half year. Rental income decreased AUD 1.5 million or 1.8%, largely due to AUD 3.7 million lower rent as a result of asset sales, net of 3.1% like-for-like rental growth. Our MER remains low relative to the wider REIT sector at 29 basis points. The AUD 0.3 million increase in M&A expenses this half represents higher insurance and consultancy costs and resumed business travel, partially offset by favorable timing differences and property expenses. The AUD 1.9 million decrease in interest expense is largely attributed to base rate interest savings following the replacement of AUD 275 million of swaps of 2% in August 2021, with floating rate debt and our inaugural AUD 200 million AMTN issuance in September 2021.
Distributable EPS growth of AUD 0.0078 or 10% was similarly driven by interest expense savings, more than covering the net reduction in rental income, as well as a decrease in the number of stapled securities on issue following last year's security consolidation and Waypoint's buyback activity. 10 basis points of cap rate compression were recognized this half year. However, statutory profit decreased AUD 38.1 million or 15.1%, largely due to these valuation gains being lower than the 19 basis points recorded in the prior comparable period, as well as the impact of asset sales. A detailed reconciliation between distributable earnings and statutory profit is included in the appendix on slide 23. Now, turning to slide 10, we present Waypoint's balance sheet.
Cash of AUD 114.6 million at 30 June includes proceeds from the settlement of 21 assets on the last day of the period. These funds were used to pay down debt in early July. Other assets increased AUD 45.9 million, largely due to AUD 18.1 million of favorable derivative movements and a AUD 24.9 million net increase in assets held for sale. At balance date, 14 assets valued at AUD 58.8 million were classified as held for sale. Today, five assets valued at AUD 16 million remain held for sale, including three for which conditional contracts have been exchanged. Investment properties increased AUD 8 million due to AUD 140.3 million of gross property valuation gains, largely neutralizing the impact of assets sold or transferred to held for sale during the period. Borrowings increased by a net AUD 11.4 million.
This represents AUD 23 million of additional drawn debt and AUD 0.7 million of lower unamortized borrowing costs and AMTN discount, partially offset by AUD 12.3 million of USPP-related net FX and fair value hedge movements. Overall, net tangible assets increased AUD 0.23 or 7.8% to AUD 3.18 per stapled security at thirty June. The vast majority of this NTA growth is again attributed to the valuation gains recorded on the portfolio during the cycle. I will now hand back to Hadyn to provide a market update and to speak to our property portfolio.
Thanks, Kerri. Turning to page 12 of the presentation, where we've set out some data from the last two and a half years based on our own internal transaction base, and just to show what's happening in the direct market. As you can see, fuel and convenience transaction activity has certainly slowed in the last six months with a circa 30% drop in the number and value of transactions, or about 50% if we exclude Waypoint's transactions with Fawkner Property Group. There's also been a greater skew in terms of transactions towards higher yielding regional assets and assets outside of New South Wales and Victoria, which has seen average cap rates remain in that mid-5% range. Turning to valuations on page 13.
We saw 10 basis points of cap rate compression across the portfolio, compared with 22 basis points in the second half of last year. The gross valuation uplift was AUD 139.5 million, with retail reviews delivering approximately 57% of the uplift and cap rate compression the remaining 43%. Cap rate compression was focused largely in Waypoint's metropolitan and highway sites, with no change in weighted average cap rate for the regional portfolio. As I mentioned earlier, Waypoint has now sold approximately 15% of its portfolio since the beginning of last year, with key observations relating to the disposal program outlined on page 14. 70% of the assets sold by value have been regional sites, and we have achieved an average premium to prevailing book value of 4.9%.
We believe that the sales have resulted in a much more resilient portfolio in terms of tenant operating metrics, and have left us with a core portfolio with improved recovery, higher underlying land value, and higher population density within the relevant trade areas. As previously advised, we do anticipate selling a further approximately 5% of the portfolio over the next three to five years, market conditions permitting, but are not currently assuming any further significant disposals this year over and above the assets held for sale at 30 June. Back to Kerri for capital management.
Thank you, Hadyn. Turning to slide 17, we present our key debt metrics. Gearing and liquidity were 27.3% and AUD 152.3 million, respectively, at 30 June. Including proceeds from assets contracted but not yet settled as at balance date, pro forma gearing and liquidity are 26.1% and AUD 199.6 million. Our cost of debt has reduced from 3.5% in FY 2021 to 2.9% in the current half, largely due to base rate interest savings derived from the replacement of AUD 275 million of swaps at 2% in August 2021, with floating rate debt and our inaugural AUD 200 million AMTN issuance in September 2021. The weighted average debt maturity was 4.5 years, and 72% of debt was hedged at 30 June.
Our interest cover ratio also improved from 5.5 x in December to 5.7 x in June. I'll speak to the capital management actions undertaken both during the period and post-balance date on the next slide. Turning to slide 18, we provide a snapshot of our current debt and hedging profiles. The interest rate environment has been very challenging to navigate over the past six months. In May, we entered AUD 80 million of interest rate caps for a five-year term to replace 78.9 million of swaps set to mature in August to maintain our hedging levels. These caps were purchased for AUD 3 million and have a 2.5% strike price.
To provide greater certainty over FY 2023 and FY 2024 earnings growth while balancing the tenor of our hedge book, the tenor of AUD 196.5 million of existing swaps maturing in FY 2025 were shortened by six months. This served to counter the impact of the interest rate caps on our weighted average hedge rate in these years. In mid-August, we took advantage of a temporary pullback in medium-term interest rates to top up our hedge book with an additional AUD 63 million of five-year vanilla swaps, an average rate of 3.55%. Post these activities, Waypoint is 90% hedged today, and our weighted average hedge maturity is 3.5 years.
As Hadyn mentioned, we are also pleased to announce that we recently extended the tenor of our AUD 275 million revolving credit facility, increasing our weighted average debt maturity from 4.5 years to 4.9 years on a Pro Forma basis, with no debt now due until April 2025. Turning to slide 19. We are also pleased to formally announce an on-market buyback program for up to 40 million securities or approximately AUD 100 million that's now been initiated. Waypoint will be permitted to buy back securities from mid-September under this program. We believe the buyback represents the best use of surplus funds, given the near-term acquisition outlook, and that Waypoint is currently trading on a 6.3% yield and an 18.6% discount to NTA.
Post-completion of the buyback, Waypoint will have returned AUD 300 million to security holders, with the vast majority funded through non-core asset sales. Importantly, with pro forma gearing of 29.3% and liquidity of circa AUD 100 million, Waypoint remains in a strong position to pursue acquisitions, reinvestment in the portfolio, and/or further capital management initiatives as deemed appropriate in the future. We will also continue to explore opportunities to further increase our hedging profile as the buyback program is undertaken. Before I pass back to Hadyn, this is my final results call with Waypoint, and accordingly, I would like to take a moment to express my gratitude to Hadyn and the team, the Waypoint board, and our security holders for their collective support over the past few years. I'm proud of what we've accomplished together and wish Waypoint continuing success.
Hadyn, with that, I'll pass back to you to talk to our key priorities and outlook for the remainder of the year.
Thanks, Kerri. Turning to page 21, our focus for the next six months is primarily on selling the five non-core assets that remain on our balance sheet, three of which are actually under conditional contracts at the moment, and completing the on-market buyback program of up to 40 million securities for approximately AUD 100 million that we've announced today. With pro forma gearing below the bottom end of our target range, we're well-placed to take advantage of any acquisition opportunities that may arise, whether they be fuel and convenience or opportunities that are consistent with our long-term strategy to diversify the portfolio away from fuel and convenience into other asset classes backed by long-term triple net leases to strong covenants. However, we remain cautious in the current environment, and we're not currently assuming that we make any acquisitions over the remainder of this financial year.
Our Distributable EPS guidance for FY 2022 remains unchanged at AUD 0.1644, representing 4% growth on last year. This guidance assumes approximately AUD 150 million of asset sales, approximately AUD 100 million of capital management initiatives, and an average BBSW rate of 2.7% for the remainder of the year. Noting again that we are 89% hedged for the remaining four months of the year. As always, this guidance remains subject to the disclaimer set out on this page. That concludes the formal part of the presentation today, and I'd now like to hand back to Rachel to coordinate any Q&A.
Thank you.
Back to you, Rachel.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Richard Jones from JP Morgan. Please go ahead.
Good morning, Hadyn. How you going? Just interested just to see how your thinking has developed over the last six months just in relation to expanding the portfolio, beyond fuel and convenience.
Yeah, look, Richard, thanks for the question. We've looked at a couple of opportunities over that period, but to be frank, there hasn't actually been a lot come to market for us to look at. We've taken a cursory look at three or four opportunities, but really the focus, given what's been going on with interest rates and the like, is really selling those non-core assets and working out what we're gonna do on the capital management front. So no real update there. As we've always said, it's very much a long-term strategy. We'll continue to look at opportunities as they come up, but at this point, you know, no material change over the last six months.
Any development on what you may be interested in and what you're probably less interested in, just in the
No, not really. We're keeping an open mind. It's gonna be led by opportunities now, you know, a chance to look at those opportunities. Yeah, again, we're keeping an open mind. We're not narrowing it down at this point. I think we will look to do that over the next six months. With our full year results for the year, I think we'll be in a position to provide a bit more detail around this. We're not assuming that we're buying anything with fuel and convenience or other asset classes over the next six months, just given what's going on.
Sure. A couple of other portfolios have traded, including a couple in New Zealand. Just wondering if you've looked at those and.
No. Look, for us, New Zealand's a new market that we don't, you know, we don't particularly understand. We already own a AUD 3 billion fuel and convenience portfolio. We're still open to opportunities in the fuel and convenience at the right price. But going into a new market in the same sector just didn't make a lot of sense to us. I think if we look at that portfolio, you know, clearly it's a reasonably large portfolio, but it's a low cost, unmanned network. It's not really in keeping with where we think things are going from a fuel and convenience point of view.
Being in a new market, it just wasn't something that we spent a lot of time on.
Sure. Okay. That's it. Thanks, Hadyn.
Thank you. The next question is from Phil Montgomerie from BTIG. Please go ahead.
Hi there. I find it interesting that you're now looking to potentially buy assets when I don't really believe you actually have a mandate to do so. I think your mandate is being priced in market with a big 20% discount to NTA. Is your mandate's really to sell assets and continue to sell assets. In fact, you probably should be looking to wind up the vehicle. Any comments on that?
Well, I'd be surprised if there's anyone that's sold a similar proportion of their portfolio over the last eighteen months, Phil. You know, we have sold 15% of the portfolio. These are very small lot sizes, so you know, 70-odd assets that we've sold.
I agree. You've done a fantastic job on that, and congratulations. Actually being one of the few REITs that actually has identified selling assets when pricing has been what it has been. I think to start looking at buying assets to try to be more relevant, I think is a mistake.
That's a long-term strategy, Phil. I think if you listen to what I just said, we've actually got no intention of. Well, certainly not planning to buy anything in the next six months. I think, you know, to your question about selling assets and winding up the vehicle, you need to be realistic about your ability to sell assets. You know, trying to continue to chip away and sell assets, you know, at acceptable prices in the current environment, I think with the uncertainty out there and the spread that you're really seeing in most asset classes between buyers and sellers is just unrealistic.
As a management team and a board, we are always open to, you know, to activity for the vehicle and, you know, if that comes about as a whole, and that's something that would be considered. I think to chip away and try and sell 400 assets in the direct market when your average asset size is AUD 7 million or AUD 8 million, you know, it's a pretty tough ask in the current environment.
Yeah. Therefore NTA at AUD 3 is that perhaps unrealistic then?
Say again, sorry, Phil, you cut out then.
Sorry. The NTA at AUD 3.18, is that perhaps then unrealistic?
No, no, that's been set by independent valuations like any REIT and then directors valuations, using those, as a benchmark. I think valuations are what they are. You know, clearly the market, as with most REITs, thinks that there's, you know, they could well be overvalued and that we're gonna see some cap rate expansion over the next six to 12 months, and that's reflected in the discount to NTA.
Okay. Look, thanks anyway. Look, I like what you've been doing selling assets. I think you should continue to do that, not look to expand, whether it be near term, medium term or even long term. It'd be good to see money handed back to shareholders.
Okay. Thank you. That's what we're trying to do.
Thank you. The next question comes from Murray Connellan from Moelis Australia. Please go ahead.
Morning, Hadyn. Morning, Kerri. Was just wondering whether you'd comment on, you know, just in relation to the buyback, given that AUD 100 million would be in excess of 5% of your market cap. I was just wondering whether you could comment on liquidity on markets and, you know, I mean, I guess how much you're reasonably expecting to deploy over what time period and whether you would look to do a cash return for so the balance of whatever you're not able to buy back on the open market.
Hi, Murray. Thanks for that. I think as we're sitting here today, with our discount to NTA, we're confident that we'll be able to buy back a fair bit of that. We're assuming that it's all done before Christmas. As you said, we've got a backstop that we could do a capital return and security consolidation like we did last year if we weren't able to buy it all back on market. I think the economics of things are quite different today, where we're trading relative to where we were when we did it last year.
Great. Thanks very much.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. There are no further questions at this time. I'll now hand back to Mr. Stephens for closing remarks.
Thanks, Rachel. Thank you to everyone for joining us this morning. We've got some one-on-ones with many of you over the next few days, so we look forward to those. Just before I go, I just want to say a big thank you to Kerri for her contribution to Waypoint over the last two and a half years. It's been an absolute pleasure with working with her. She's done a fantastic job, and we wish her all the best in her new role. Thank you, Kerri. Thanks again, everyone, and we will speak soon. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.