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Victory Offices Limited Results Presentation | Year Ended 30 June 2019 | 29 August 2019
Victory Offices LimitedResults Presentation | Year Ended 30 June 2019 | 29 August 2019
Contents
2
1. Overview 32. Financial Information 83. The Business 144. The Market 195. Outlook 22
AppendixA.1 Key Location Metrics 25A.2 Case Study – Barangaroo 26
WE MIND YOUR BUSINESS
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
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93% average overall occupancy 6.8 years WALE + 3.4 years average option Average customer licence term of 14.3 months
December 2013Victory Officesfounded
December 20165th location opened and first in Sydney (CBD)
August 201920th location opened in St Kilda Rd, Melbourne
June 2019Victory Offices successfully completes IPO and lists on the ASX
March 201919th location opened, the second Victory Lounge at
Chadstone in VIC
November 201710th location opened and
first in Brisbane (CBD)
August 20141st location opened in
Melbourne CBD
September 201814th 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 $29.4Net profit after tax $9.6 $5.7Operating cash flows $27.9 $18.9Net assets $44.7 $6.9Average total occupancy 93% 85%
Overview - Victory Offices at a Glance
5Notes: (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
6457559622
96%93%$9.6m71%
(1)(1)(1)(3)
(1)(2)(1)
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FY19 Revenue FY19 EBITDA Margin
FY19 NPAT Ave. Total Occupancy
Ave. Mature Occupancy
Locations Private Offices Meeting Rooms CoworkingDesks
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
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Perth CBD2 The Esplanade
Fortitude Valley900 Ann St(2)
Brisbane CBD175 Eagle StSydney CBD200 George St420 George St300 Barangaroo Ave100 Mount St, North Sydney(2)
ChadstoneChadstone Shopping CentreChadstone Shopping Centre (Lounge)
Box Hill990 Whitehorse Rd988 Whitehorse Rd
Sunshine12 Clarke St
Dandenong311 Lonsdale StMelbourne CBD420 Collins St 35 Collins St567 Collins St 600 Bourke St727 Collins St 333 Collins St418 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, outsource 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
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Victory Offices customer breakdown by reporting period
Victory Offices customers by industry
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A growing and diversecustomer base
Customer FY2019 FY2018Total Customers 2,264 915
Customers > $100,000 revenue 81 (39% revenue) 79 (65% revenue)Customers $10,000 - $100,000 697 (54%) 237 (31%)Customers < $10,000 1,486 (7%) 599 (4%)
Top 10 customers 13% revenue 30% revenueTop 20 customers 20% 38%Top 40 customers 27% 50%Top 100 customers 43% 71%
2. Financial Information
Financial Summary
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Net Profit After Tax ($m)
Revenue ($m)(1) CAPEX ($m)
Operating Cash Flows ($m)
Locations open at year-end
Average Total Occupancy (%)
WE MIND YOUR BUSINESSNotes: (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 $33.6 million
Depreciation and amortisation includes lease accounting expenses
Finance costs includes lease accounting expenses
Service charges have now ceased
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Proven business model
Income Statement %
RevenueRevenue from suite services 47,003 29,402 60%Service charges 584 2,106 -72%Interest 36 30 20%Total revenue 47,623 31,538 51%ExpensesEmployee benefits (6,539) (3,151) 108%Depreciation and amortisation (12,904) (7,897) 63%Other expenses (3,622) (2,790) 30%Occupancy costs (3,201) (2,034) 57%Service charges expenses (584) (2,106) -72%Finance costs (7,293) (5,354) 36%Total expenses (34,143) (23,332) 46%
Net Profit Before Tax 13,480 8,206 64%Income tax expense (3,884) (2,464) 58%Net Profit After Tax 9,596 5,742 67%
EBITDA 33,641 21,427 57%
FY2019 ($'000)
FY2018 ($'000) Movement
Cash Flows
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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 open 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 ($'000) Movement
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Impact of Lease Accounting
AASB 16 is the new leases accounting standard replacing AASB 117
The new standard is mandatory from 1 January 2020 although Victory Offices has adopted early and retrospectively
Under old standards leases treated as operating leases (only impact lease expense)
Under new standard requirement to create a right of use asset and corresponding liability at fair value of expected lease payments
Right of use asset amortised on a straight-line basis through depreciation & amortisation expense
Lease liability unwound through finance costs
Material impact on balance sheet and profit
No impact on cash flows
Lease accounting has a material impact on financial reporting
AASB 16 treatmentDepreciation and amortisation 9,346 6,944 Finance costs 7,046 5,190 Total AASB 16 lease expenses 16,392 12,134
AASB 117 treatmentLease expense 14,261 10,427 Total AASB 117 lease expenses 14,261 10,427
Impact on profit (pre-tax) 2,131 1,707
Impact on profit (post-tax) 1,492 1,195
FY2019 ($'000)
FY2018 ($'000)
Lease accounting impact
3. The Business
The Victory Offering
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Serviced offices
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 andadministration; marketing and printing; professional (legal, financial,accounting, HR); finance administration (e.g. bookkeeping andpayroll); chauffeur; concierge; health and wellbeing; interpreter; andoffice furniture hire. This list is not exhaustive.
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Why Victory Offices
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Product Suite
Providing a full suite of premium office 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
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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 office needs to Victory
Commercial real estate portals: office 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
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New Locations
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Melbourne180 St Kilda Road – 2,952 sqm
Opened August 2019
Fortitude Valley, Brisbane900 Ann St – 1,470 sqm
Scheduled to open 2QFY2020
North Sydney100 Mount St – 2,414 sqm
Scheduled to open 2QFY2020
Continuing to secure high quality locations
4. The Market
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)
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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)
33.5
44.5
55.5
66.5
77.5
1991 1998 2005 2012 2019 2026 2033 2040
mill
ion
Greater Sydney Greater Melbourne
0%
5%
10%
15%
20%
25%
1990 1994 1998 2002 2006 2010 2014 2018
Vaca
ncy
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
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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 office 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. Outlook
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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
Appendix
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A.1 Key Location Metrics
State City Location OpenedOccupancy
%
Floor space (sqm)
Remaining lease term
+ optionVIC Melbourne CBD 420 Collins St Aug-14 73% 750 0.1 + 10VIC Melbourne CBD 35 Collins St Apr-15 98% 1,682 5.8VIC Melbourne CBD 600 Bourke St Jul-16 99% 1,392 7NSW Sydney CBD 200 George St Dec-16 98% 1,239 3.3 + 5VIC Chadstone Shopping Centre Dec-16 99% 1,742 4.4 + 7VIC Box Hill 990 Whitehorse Rd May-17 95% 1,573 7.5VIC Melbourne CBD 727 Collins St Jul-17 98% 2,630 7.7 + 5NSW Sydney CBD 300 Barangaroo Ave Aug-17 99% 2,328 6.9QLD Brisbane CBD 175 Eagle St Nov-17 98% 994 8VIC Melbourne CBD 333 Collins St Dec-17 94% 2,363 8.4 + 10VIC Melbourne CBD 567 Collins St May-18 100% 351 2 + 6WA Perth CBD 2 The Esplanade Jul-18 99% 1,041 9VIC Dandenong 311 Lonsdale St Jul-18 100% 1,013 5.8 + 6VIC Melbourne CBD 416 Collins St (Lounge) Sep-18 N/A 263 9 + 5VIC Melbourne CBD 418 Collins St Sep-18 89% 400 9 + 5VIC Sunshine 12 Clarke St Oct-18 98% 1,793 9.2 + 5VIC Box Hill 988 Whitehorse Rd Dec-18 78% 2,451 7.5NSW Sydney CBD 420 George St Mar-19 73% 1,421 9.6VIC Chadstone Shopping Centre (Lounge) Mar-19 N/A 778 4.4
New locationsVIC Melbourne CBD 180 St Kilda Rd Aug-19 N/A 2,952 6.1 + 5NSW North Sydney 100 Mount St 2QFY2020 N/A 2,414 10.5QLD Fortitude Valley 900 Ann St 2QFY2020 N/A 1,470 11Data 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 online 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 over 90% within 6 months
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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 eventsBarangaroo location
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Important Notice and Disclaimer
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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, opinions 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 currentlyavailable 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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