Victory Offices Limited Results Presentation | Year Ended 30 June - - PowerPoint PPT Presentation

Victory Offices Limited

Results Presentation | Year Ended 30 June 2019 | 29 August 2019

Contents

2

• 1. Overview

3

• 2. Financial Information

8

• 3. The Business

14

• 4. The Market

19

• 5. Outlook

22 Appendix A.1 Key Location Metrics 25 A.2 Case Study – Barangaroo 26

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Overview – History of Victory Offices

Victory Offices Overview

• Victory Offices is an Australian company that provides a suite of premium flexible workspace solutions as an

alternative to traditional office spaces

• Established in 2013, Victory has grown to:

 22 locations across four states  ~2,250 customers  Over 33,000 sqm of floor space 3  93% average overall occupancy  6.8 years WALE + 3.4 years average option  Average customer licence term of 14.3 months

December 2013 Victory Offices founded December 2016 5th location opened and first in Sydney (CBD) August 2019 20th location

• pened in St Kilda

Rd, Melbourne June 2019 Victory Offices successfully completes IPO and lists on the ASX March 2019 19th location opened, the second Victory Lounge at Chadstone in VIC November 2017 10th location opened and first in Brisbane (CBD) August 2014 1st location opened in Melbourne CBD September 2018 14th location opened, the first Victory Lounge in Melbourne (CBD) July 2018 12th location opened and first in Perth (CBD)

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Overview – FY2019 Highlights

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• 5,000,000

10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 35,000,000 40,000,000 45,000,000 50,000,000 FY2015 FY2016 FY2017 FY2018 FY2019 Number of locations 2 2 6 11 19 Locations opened 2

• 4

5 8

• Strong result in FY2019 in-line

with recent Prospectus forecasts

• Net profit after tax up 67% to $9.6

million

• Operating revenue up 60% to

$47.0 million

• Operating cash flows increased to

$27.4 million

• Average total occupancy remains

strong at 93%

• Eight locations opened in FY2019
• Eight locations scheduled to open

in FY2020 with three announced post year-end

Growing revenues from flexible workspace services

Total square metres 2,432 2,432 8,378 17,044 26,204

A solid year of growth in line with the recent Prospectus

Summary metrics FY2019 ($'million) FY2018 ($'million) Revenue from flexible workspace services $47.0 $29.4 Net profit after tax $9.6 $5.7 Operating cash flows $27.9 $18.9 Net assets $44.7 $6.9 Average total occupancy 93% 85%

Overview - Victory Offices at a Glance

5

Notes: (1) As at 30 June 2019 (2) Locations that have been operating for greater than 12 months (3) Includes St Kilda Rd, Melbourne (opened August 2019), North Sydney and Fortitude Valley (scheduled to open 2QFY2020)

$47.6m 645 75 596 22 96% 93% $9.6m 71%

(1) (1) (1) (3) (1)(2) (1)

WE MIND YOUR BUSINESS FY19 Revenue FY19 EBITDA Margin FY19 NPAT

• Ave. Total

Occupancy

• Ave. Mature

Occupancy Locations Private Offices Meeting Rooms Coworking Desks

Overview - Geographic Spread

• Victory Offices operates 22 locations across Australia, with locations concentrated in Melbourne and Sydney as these

are Australia’s two largest markets within Australia

• New locations announced post-listing include: 180 St Kilda Rd, Melbourne; 100 Mount St, North Sydney; and 900 Ann

St, Fortitude Valley 6

Perth CBD 2 The Esplanade Fortitude Valley 900 Ann St(2) Brisbane CBD 175 Eagle St Sydney CBD 200 George St 420 George St 300 Barangaroo Ave 100 Mount St, North Sydney(2) Chadstone Chadstone Shopping Centre Chadstone Shopping Centre (Lounge) Box Hill 990 Whitehorse Rd 988 Whitehorse Rd Sunshine 12 Clarke St Dandenong 311 Lonsdale St Melbourne CBD 420 Collins St 35 Collins St 567 Collins St 600 Bourke St 727 Collins St 333 Collins St 418 Collins St 180 St Kilda Rd(1) 416 Collins St (Lounge) Notes: (1) 180 St Kilda Rd, Melbourne opened in August 2019 (2) 100 Mount St, North Sydney and 900 Ann St, Fortitude Valley are expected to open in 2QFY2020

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Diversified Australian portfolio

Overview - Client Base

High quality customer base seeking a premium service

• Multinational corporates – establishing a presence

within Australia, without the requirement for traditional commercial office space

• Large local corporates – seeking to optimise costs,
• utsource non-core functions and have flexibility to

scale up and down

• SMEs – wanting access to high quality facilities and

a more prestigious address in proximity to clients

• Professionals – seeking high quality facilities with

flexible leases and minimal lead times to set-up The customer base is growing in number and diversity

• Diversified revenue across customers – top 40

customers account for only 27% of revenue

• Customer numbers increased to 2,264 in FY2019 up

from 915 in FY2018

• A diverse spread of industries with a high

proportion of customers in growing service related businesses - finance, legal, recruitment, technology and consulting 7

Victory Offices customer breakdown by reporting period Victory Offices customers by industry

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A growing and diverse customer base

Customer FY2019 FY2018 Total Customers 2,264 915 Customers > $100,000 revenue 81 (39% revenue) 79 (65% revenue) Customers $10,000 - $100,000 697 (54%) 237 (31%) Customers < $10,000 1,486 (7%) 599 (4%) Top 10 customers 13% revenue 30% revenue Top 20 customers 20% 38% Top 40 customers 27% 50% Top 100 customers 43% 71%

• 2. F

Finan ancial al Informatio tion

Financial Summary

9

Net Profit After Tax ($m) Revenue ($m)(1) CAPEX ($m) Operating Cash Flows ($m) Locations open at year-end Average Total Occupancy (%)

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Notes: (1) Excludes services charges revenue

Profit and Loss

• Net profit after tax up 67% to

$9.6 million

• Operational revenue up 60% to

$47.0 million

• EBITDA up 57% to $33.6 million
• Depreciation and amortisation

includes lease accounting expenses

• Finance costs includes lease

accounting expenses

• Service charges have now

ceased 10 WE MIND YOUR BUSINESS

Proven business model

Income Statement % Revenue Revenue from suite services 47,003 29,402  60% Service charges 584 2,106 

• 72%

Interest 36 30  20% Total revenue 47,623 31,538  51% Expenses Employee benefits (6,539) (3,151)  108% Depreciation and amortisation (12,904) (7,897)  63% Other expenses (3,622) (2,790)  30% Occupancy costs (3,201) (2,034)  57% Service charges expenses (584) (2,106) 

• 72%

Finance costs (7,293) (5,354)  36% Total expenses (34,143) (23,332)  46% Net Profit Before Tax 13,480 8,206  64% Income tax expense (3,884) (2,464)  58% Net Profit After Tax 9,596 5,742  67% EBITDA 33,641 21,427  57% FY2019 ($'000) FY2018 ($'000) Movement

Cash Flows

11 WE MIND YOUR BUSINESS

Strong operational cash flows

• Operating cash flows up 47% to

$27.9 million

• Operating cash flows include

notional interest paid component of lease payments pursuant to AASB 16

• P,P&E for FY2019 includes $8

million in costs for locations to

• pen in FY2020
• Prior bank guarantees funded

via founder, now funded via business cash flows

• Lease liabilities in total is $10.1

million and is less than lease expenses due to rent-free period lease incentives

• Victory was part of tax

consolidated group until listing in June 2019, tax payments made via related party loans Cash Flow Highlights % Receipts from customers 52,808 35,595 Operational payments (19,261) (14,178) Interest received 36 29 Interest paid (leases) (5,722) (2,521) Operational cash flows 27,861 18,925  47% Purchase of P,P&E (26,226) (21,246) Payment for bank guarantees (1,372)

• Term deposits

(20,986)

• Investing cash flows

(48,584) (21,246)  129% Landlord incentives received 1,756 6,930 IPO proceeds (net) 28,165

• Related parties (net)

(2,989) (4,370) Lease liabilities (rent) (4,399) (1,629) Hire purchase (58) (95) Financing cash flows 22,475 836  >100% Net cash flows 1,752 (1,485)  >100% Opening cash 1,447 2,932 Closing cash 3,199 1,447 FY2019 ($'000) FY2018 ($'000) Movement

Balance Sheet

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Well positioned for growth

• Cash and cash on deposit is

$25.1 million

• Other financial assets related to

100% cash backed bank guarantees ($9.1 million) required for each location and cash on term deposits ($21.9 million)

• P,P&E – right of use assets and

Lease liabilities pursuant to AASB 16 ‘Leases’ both significantly impact deferred tax balances

• Trade and other payables

includes $9.1 million loan to founder who funded bank guarantees, will be repaid as bank guarantees returned (in- part of in-full) Balance Sheet Highlights % Cash 3,199 1,447 Trade and other receivables 1,080 6,057 Other financial assets 30,931 8,574 P,P&E - right of use assets 98,005 76,907 P,P&E - other assets (inc. fit out) 41,447 19,600 Deferred tax assets 35,420 29,950 Total assets 210,082 142,535  47% Trade and other payables 14,024 17,356 Borrowings

• 294

Provisions 1,384 842 Lease liabilities 116,522 88,127 Other liabilities 3,267 2,674 Provision for income tax 157

• Deferred tax liabilities

30,045 26,320 Total liabilities 165,399 135,613  22% Net assets 44,683 6,922  >100% FY2019 ($'000) FY2018 ($'000) Movement

13 WE MIND YOUR BUSINESS

Impact of Lease Accounting

• AASB 16 is the new leases accounting standard

replacing AASB 117

• The new standard is mandatory from 1 January

2020 although Victory Offices has adopted early and retrospectively

• Under old standards leases treated as
• perating leases (only impact lease expense)
• Under new standard requirement to create a

right of use asset and corresponding liability at fair value of expected lease payments

• Right of use asset amortised on a straight-line

basis through depreciation & amortisation expense

• Lease liability unwound through finance costs
• Material impact on balance sheet and profit
• No impact on cash flows

Lease accounting has a material impact on financial reporting

AASB 16 treatment Depreciation and amortisation 9,346 6,944 Finance costs 7,046 5,190 Total AASB 16 lease expenses 16,392 12,134 AASB 117 treatment Lease expense 14,261 10,427 Total AASB 117 lease expenses 14,261 10,427 Impact on profit (pre-tax) 2,131 1,707 Impact on profit (post-tax) 1,492 1,195 FY2019 ($'000) FY2018 ($'000) Lease accounting impact

3.

• 3. T

The e Busi siness ss

The Victory Offering

15 Serviced

• ffices

Serviced private offices, typically on 12-18 month terms. Virtual office services Provision of virtual receptionist services, including phone and mail handling and providing a primary business address. Coworking Space in coworking areas on typically 12-18 month terms. Day suites Single use licence fee for private offices. Meeting and training rooms Single use licence fee for meeting and training facilities. Hot desks Licensing of desks in coworking areas. Lounge membership Members of Victory Lounge can utilise meeting and entertaining facilities. Services offered by Victory Offices Additional services offered by Victory include: reception and administration; marketing and printing; professional (legal, financial, accounting, HR); finance administration (e.g. bookkeeping and payroll); chauffeur; concierge; health and wellbeing; interpreter; and

• ffice furniture hire. This list is not exhaustive.

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Why Victory Offices

16 Product Suite

• Providing a full suite of premium
• ffice spaces and additional value-

add services to clients on flexible terms with no hidden costs. ICT Capability

• Continuous investment in Victory’s

technology platform. Victory has a in-house development team which has delivered a leading technology platform. Brand & Scale

• Size of network, brand and existing

relationships provide scale efficiencies with suppliers and access to favourable locations through off-market transactions with landlords. Business Support

• Comprehensive business support

services to suit all sizes and types of

• businesses. These services are

delivered consistently across all locations.

Growth in Victory Offices brand driving interest from commercial landlords

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Sales and Marketing

17 Marketing to customers through a number of channels:

• Radio and print: advertisements on

various FM radio stations, newspapers and magazines

• Digital advertising: Google priority

search preferences, industry related reports and social media

• Serviced office brokers: commission

for referring clients requiring specific

• ffice needs to Victory
• Commercial real estate portals:
• ffice and desk listings on

commercial real estate portals

• Business development networking:

sales staff communicate with existing and potential clients

• Referrals: word-of-mouth referrals

from existing clients Victory Offices increasing growth in brand recognition is organically driving inbound interest from both prospective clients and commercial landlords WE MIND YOUR BUSINESS

New Locations

18 WE MIND YOUR BUSINESS Melbourne 180 St Kilda Road – 2,952 sqm Opened August 2019 Fortitude Valley, Brisbane 900 Ann St – 1,470 sqm Scheduled to open 2QFY2020 North Sydney 100 Mount St – 2,414 sqm Scheduled to open 2QFY2020

Continuing to secure high quality locations

4.

• 4. T

The e Mark rket

The Australian Workplace is Changing

Australia's changing workplace

• The flexible workspace industry has existed

for over 40 years within Australia and has evolved from individual desk space to coworking spaces, virtual offices, meeting rooms and hybrid combinations of all services

• In 2018 approx. 65,300 sqm(2) of commercial

space was used for flexible office solutions, more than the combined amount for 2015 through 2017 Growth in demand

• According to the ABS, Sydney and Melbourne

(almost 40% of Australia’s population) are forecast to experience double digit population growth between 2018 and 2027(1)

• Growing demand for flexibility and cost

efficiencies with 23 days on average to source a space and 99% of flexible workspace leases are less than 24 months

• Appeals to the preferences of millennials who

will represent 42% of the Australian workforce by 2025(1) 20

Australia office market vacancy rate(1)

Notes: (1) Property Council of Australia, Office Market Report 2019 (2) Office Hub, The Australian Coworking Market Report 2017/2018

Sydney & Melbourne population growth(2)

3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 1991 1998 2005 2012 2019 2026 2033 2040 million

Greater Sydney Greater Melbourne

0% 5% 10% 15% 20% 25% 1990 1994 1998 2002 2006 2010 2014 2018 Vacancy Rate (%)

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The Future of Flexible Working in Australia

Global trends provide a positive outlook for Australia

• The global market for flexible workspaces has been

growing annually by an average of 13% over the past decade(1)

• The global co-working sector is projected to grow at

24% CAGR between 2016-2020(1)

• It is estimated that 30% of corporate real estate

portfolios could be flexible workspace by 2030(2)

• Flexible work space has greater market penetration in

more developed markets overseas which Australia may follow

• Large corporates increasingly recognise the efficiencies

in complementing fixed office space to improve utilisation 21

City Penetration Sydney 2.6% Melbourne 1.6% London 4.0% Shanghai 8.0% Chengdu 8.0% Singapore 3.9% Hong Kong 3.0%

Source: Colliers International, The Flexible Workspace Outlook Report, 2018

Office space occupied by flexible workspaces Five large operators in the Australian market by locations(3)

Highly fragmented market

• The market is highly fragmented and segmented across

differing key target markets

• The five large comparable Australian flexible solution

providers account for only 162 centres

• Australia’s total office stock increased by 4.8% over the

five years to 2017 to reach 25.3 million sqm

• Similar growth through to 2030, would increase total
• ffice stock to around 28.5 million sqm

Notes: (1) GCUC and Emergent Research: Number of U.S. and Global Coworking Spaces and Members (2) JLL Research: Technology and real estate: the road to 2030 (3) Company websites correct as at 28 August 2019 (4) Property Council of Australia, quoted in Office Market Report, Preston Rowe Paterson, First Half 2017

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Regus 88 Servcorp 23 Victory Offices 22 WeWork 20 The Executive Centre 9

• 5. Ou

Outlook

• ok

23 WE MIND YOUR BUSINESS

Outlook

• Current trading providing a positive

start to FY2020

• Target of eight new locations in

FY2020 with three already secured

• Continue to pursue new locations

with a disciplined approach

• Focused on maintaining market

leading occupancy

• Well positioned to capitalise on the

increasing trend to flexible workspace within the Australian market

Appe Append ndix

25 WE MIND YOUR BUSINESS

A.1 Key Location Metrics

State City Location Opened Occupancy % Floor space (sqm) Remaining lease term + option VIC Melbourne CBD 420 Collins St Aug-14 73% 750 0.1 + 10 VIC Melbourne CBD 35 Collins St Apr-15 98% 1,682 5.8 VIC Melbourne CBD 600 Bourke St Jul-16 99% 1,392 7 NSW Sydney CBD 200 George St Dec-16 98% 1,239 3.3 + 5 VIC Chadstone Shopping Centre Dec-16 99% 1,742 4.4 + 7 VIC Box Hill 990 Whitehorse Rd May-17 95% 1,573 7.5 VIC Melbourne CBD 727 Collins St Jul-17 98% 2,630 7.7 + 5 NSW Sydney CBD 300 Barangaroo Ave Aug-17 99% 2,328 6.9 QLD Brisbane CBD 175 Eagle St Nov-17 98% 994 8 VIC Melbourne CBD 333 Collins St Dec-17 94% 2,363 8.4 + 10 VIC Melbourne CBD 567 Collins St May-18 100% 351 2 + 6 WA Perth CBD 2 The Esplanade Jul-18 99% 1,041 9 VIC Dandenong 311 Lonsdale St Jul-18 100% 1,013 5.8 + 6 VIC Melbourne CBD 416 Collins St (Lounge) Sep-18 N/A 263 9 + 5 VIC Melbourne CBD 418 Collins St Sep-18 89% 400 9 + 5 VIC Sunshine 12 Clarke St Oct-18 98% 1,793 9.2 + 5 VIC Box Hill 988 Whitehorse Rd Dec-18 78% 2,451 7.5 NSW Sydney CBD 420 George St Mar-19 73% 1,421 9.6 VIC Chadstone Shopping Centre (Lounge) Mar-19 N/A 778 4.4 New locations VIC Melbourne CBD 180 St Kilda Rd Aug-19 N/A 2,952 6.1 + 5 NSW North Sydney 100 Mount St 2QFY2020 N/A 2,414 10.5 QLD Fortitude Valley 900 Ann St 2QFY2020 N/A 1,470 11

Data correct as at 30 June 2019

A.2 Case Study - Barangaroo

Background

• Level 25, III International Towers, Barangaroo

Sydney opened in September 2017

• Barangaroo was identified as an appealing

location due to its premium city location, access to public transport (Wynyard Station) and proximity to local amenities including restaurants and retail department stores Marketing

• Once Victory received the lease agreement

and began construction, a targeted marketing campaign was conducted which that included advertising through radio, Google AdWords, web banners, real estate portals and an

• nline virtual tour
• Having operated the successful Level 32, 200

George Street, Sydney centre, Victory was able to leverage its business relationships to generate additional demand for Barangaroo Outcome

• Barangaroo was designed to maximise the

quality of all offices and communal spaces inline with the targeted premium clientele

• At the time of launch, Barangaroo had pre-

commitments of 25% occupancy and reached

• ver 90% within 6 months

26

Inspections and subsequent lease negotiations

• April 2017

Heads of Agreement Signed

• April 2017

Design & Development

• May 2017

Lease Signed

• May 2017

Final Approval of Fitout Plans

• June 2017

Pre-leasing Commencement

• July 2017

Lease & Construction Commencement

• July 2017

Outstanding 25% Pre-Commitment

• August 2017

Official Launch

• September 2017

60%+ Occupancy

• November 2017

75%+ Occupancy

• December 2017

90%+ Occupancy

• March 2018

Timeline of events

Barangaroo location

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Important Notice and Disclaimer

27

This presentation is issued by Victory Offices Limited, (“VOL, Victory Offices or Victory”) to provide summary information about Victory Offices Limited and its associated entities and their activities current as at the date of this document. The information contained in this document is of a general background nature and does not purport to be complete. It should be read in conjunction with VOL’s other periodic and continuous disclosure announcements lodged with the Australian Securities Exchange, which are available at www.asx.com.au. This presentation has been prepared by VOL based on the information available. To the maximum extent permitted by law, no representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information,

• pinions or conclusions in this presentation and VOL, its directors, officers, employees, agents and advisers disclaim all liability and

responsibility (including for negligence) for any direct or indirect loss or damage which may be suffered by any recipient through use or reliance or anything contained in or omitted from this presentation. Past performance information contained in this presentation is given for illustrative purposes only and should not be relied upon (and is not) an indication of future performance. This presentation contains certain “forward looking statements” and prospective financial information. These forward looking statements and information are based on the beliefs of VOL’s management as well as assumptions made by and information currently available to VOL’s management, and speak only as of the date of this presentation. All statements other than statements of historical facts included in this presentation, including without limitation, statements regarding VOL’s forecasts, business strategy, synergies, plans and objectives, are forward looking statements. In addition, when used in this presentation, the words “forecast”, “estimate”, “expect”, “anticipated” and similar expressions are intended to identify forward looking statements. Such statements are subject to significant assumptions, risks and uncertainties, many of which are outside the control of VOL and are not reliably predictable, which could cause actual results to differ materially, in terms of quantum and timing, from those described herein. Readers are cautioned not to place undue reliance on forward looking statements and VOL assumes no obligation to update such information. The information in this presentation remains subject to change without notice. In receiving this presentation, you agree to the foregoing restrictions and limitations. All figures in this document are in Australian dollars (AUD) unless stated otherwise. This presentation is not for distribution or release in the United States or to, or for the account or benefit of, US persons.

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