Dexus · ASX:DXS
Dexus — DEXUS Property Group — H1 2008 Earnings Presentation
75 slides from Dexus's earnings presentation, Feb 21, 2008
Slide 1: DEXUS Property Group HY results
DEXUS Property Group HY results Victor Hoog Antink Chief Executive Officer DEXUS Funds Management Limited ABN 24 060 920 783 Australian Financial Services Licence Holder
Slide 2: DEXUS – our business today
DEXUS – our business today Assets under management: $15 billion No 1 in quality office space 3rd largest in industrial Leading third party property funds management Market leader in sustainability Highly experienced team: 250+ DEXUS House, 343 George St, Sydney 2
Slide 3: Our corporate strategy
Our corporate strategy Operational focus Property fundamentals – owner, manager, developer Sector focus Listed property portfolio: Office & Industrial Unlisted funds: Office, Industrial & Retail Geographic focus Target growth in selected markets Our approach A commitment to service excellence Partne
Slide 4: New corporate structure and brand
New corporate structure and brand
Slide 5: Our new brand
Our new brand ASX: DXS effective 25 Feb 2008 www.dexus.com 5
Slide 6: Rationale
Rationale Next logical step in the execution of strategy 100% internalised management to capture full value created Strengthen alignment of interests with all stakeholders Build on our existing leadership positions No separation issues as all systems and platforms operate independently M
Slide 7: Acquiring Deutsche Bank's interest
Acquiring Deutsche Bank’s interest Acquiring DB’s 50% interest in DB RREEF Holdings – the Responsible Entity for DRT with $15.2bn of FUM Price: A$130 million Effective: 21 February 2008 Represents: – 1.64% of FUM at 31 Dec 07 plus NTA – 10.5x of FY08 EBIT (stand alone business) Funded by e
Slide 8: Benefits of fully internalising
Benefits of fully internalising Enhances capacity to deliver full value from real estate value chain Delivers additional stable earnings growth for no increase in risk profile Eliminates brand confusion Enables DEXUS to establish its own brand Simplifies the Group’s corporate structure E
Slide 9: Continuity of the Board is maintained
Continuity of the Board is maintained Board will remain the same, ensuring continuity and expertise Independent Directors have invited DB nominated Directors to remain Directors subject to re-election by investors Maintaining existing corporate governance structure Christopher Elizabeth Barr
Slide 10: Group Overview
DEXUS PROPERTY GROUP
Slide 11: Strong financial performance
Strong financial performance 31 Dec 07 Distribution AIFRS operating profit1 $432.7m Distributions paid $173.0m Distribution per security 5.9 cps 5.4% Strong property portfolio Revaluations $337.1m NTA per security $1.90 15.2% Active capital management Gearing (look through basis) 31.3% 1
Slide 12: Sources of operating income for half year
Sources of operating income for half year Property Assets Operating income $9bn $271m $5m 12
Slide 13: Operational Highlights
Operational Highlights Portfolio occupancy 95.1% Lease duration 4.9 yrs Transactions – Owned assets1 $1.7bn – Third Party Funds $1.1bn Development pipeline – Owned assets $2.1bn – Third Party Funds $1.3bn Funds Under Management – Owned assets $9.0bn – Third Party Funds $6.2bn 1. Includes p
Slide 14: Development activity increasing value
Development activity increasing value Total future development cost $2.1bn Active recycling of completed developments - Disposal of 50% of Coles, Laverton development 2008 substantial commencement of office pipeline - 123 Albert Street, Brisbane (6 Star Green Star) - Space 1 Bligh, Sydney (6 S
Slide 15: Business Model
Business Model Quality workspace Maximising returns Service excellence Managing risk Customised solutions Creating new investment Proactive management opportunities Sustainability features Preferred employer Reward & recognition Career development Work-life balance 15
Slide 16: Our CR&S achievements
Our CR&S achievements On track to meet sustainability targets for 07/08 Office: Space and 123 Albert St – 6 Star Green Star Industrial: Rainwater Harvesting projects Achieved Australian SAM Sustainability Index (AuSSI) membership FTSE for Good Index since 2006 Founding signatory of Green
Slide 17: Well positioned for future growth
Well positioned for future growth Highest quality portfolio – 92% Premium or A-grade office – 74% of assets in Australia Strong balance sheet High sustainable property earnings Developing $2.1bn Proven management team 17
Slide 18: Financial Performance
Financial Performance Craig Mitchell Chief Financial Officer
Slide 19: Consistent improvement in key indicators
Consistent improvement in key indicators 19
Slide 20: Earnings from stable cash flows
Earnings from stable cash flows 600 $332m $(72)m 500 $438m 400 Unrealised Gains & Other distribution $m 300 adjustments $260m $5m $6m $3m $(82)m $260m International $(20)m 200 Assets $6m Minority $65m Interest $5m Australia & 100 New Zealand Assets Distribution $195m $173m 0 1 Net Property Funds Rea
Slide 21: Revaluation drivers NTA growth
Revaluation drivers NTA growth Total revaluations of $337m or 4.3% increase Australian portfolio increased by $382m or 6.8% European portfolio decreased by €21m (A$35m) or 9.5% North American portfolio decreased by US$9m (A$10m) or 0.5% 21
Slide 22: Capital Management
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Slide 23: Proactive capital management
Proactive capital management Strong internal capital management processes – Capital Market Committee – Board Finance Committee Refinanced majority of 2008 debt in 2007 No debt maturities in FY08 – only $300m in CY08 or 8% of debt Transparent debt structure – no off balance sheet debt 30 The
Slide 24: Strong financial risk management
Strong financial risk management Dec 06 Dec 07 Gearing (look through basis)1 38.9% 31.3% Interest Cover 2.9x 3.0x Headroom Approx. $300m Approx. $700m Duration of debt 3.1 yrs 3.2 yrs Interest hedge duration 5.9 yrs 7.2 yrs Weighted average cost of debt2 5.70% 5.50% Debt hedged 91% 88% Foreign balan
Slide 25: Our Portfolio
Our Portfolio Ben Lehmann Fund Manager
Slide 26: Well positioned and leveraging market conditions
Well positioned and leveraging market conditions Australian real estate fundamentals strong US and European real estate conditions softening Like on like growth 4.4% 5% under rented 30% exposed to market over next two years Development momentum 11 Talavera Road, Macquarie Park, NSW 26
Slide 27: Office
Office
Slide 28: Office highlights
Office highlights Very strong fundamentals Market rent growth strong Solid like on like growth Portfolio under rented Capital growth primarily driven by income Pre-eminent development projects underway 201 Elizabeth Street, Sydney, NSW 28
Slide 29: Very strong office market
Very strong office market Strong business expansion has led to Geographical Allocation strong office take-up Occupancy levels increased nationally Rents increasing in all major office markets Sydney market has tightened sharply with A grade space 98.3% occupied $4.3bn Source: DEXUS Group Res
Slide 30: Highest quality portfolio
Highest quality portfolio 251 office buildings = 92% Premium & A grade Net property income $116m – Like for like 5% increase – 9% under rented Occupancy 98%2 vs market 96.1%3 Retention rate 78% Average lease duration 5.9 yrs Increased portfolio value by 7.5% to $4.3bn Average capitalis
Slide 31: 123 Albert Street, Brisbane
123 Albert Street, Brisbane Developing Brisbane’s next 6 Star Green Star office tower (38,000 sqm) Partnering with Rio Tinto as major tenant (67% pre-commit) Commenced Feb 08 Scheduled for completion late 2010 Laing O’Rourke to construct – GMP1 Estimated development cost2 of $350m Esti
Slide 32: Space 1 Bligh Sydney
Space 1 Bligh Sydney Developing Sydney’s next iconic CBD building 6 Star Green Star (42,000 sqm) Commencing in Mar 08 Scheduled for mid-2011 completion Grocon to construct – GMP Estimated development cost1 of $393m Estimated yield on cost of 7.3% Negotiations with potential tenants ong
Slide 33: Industrial
Industrial
Slide 34: Industrial highlights
Industrial highlights Market conditions stable Rental growth – Strong in US – Moderate in Australia – Flat in Europe Under-rented Portfolio Valuation stable Enhanced development pipeline Axxess Corporate Park, Mt Waverley, VIC 34
Slide 35: Stable industrial market
Stable industrial market Australia take-up above 10 year average Geographical Allocation New road infrastructure driving relocation of logistics and warehousing Construction activity is strong – limited speculative US warehousing is experiencing weaker demand due to a slower economy $4.1bn
Slide 36: Industrial portfolio – strong property fundamentals
Industrial portfolio – strong property fundamentals High occupancy levels continue Diversified portfolio High retention rates Net Property Like for % Over / Retention Lease Portfolio Avg cap Occupancy 2 Income like Under Rented rates duration3 value4 rate Australia A$59 2% 98.5% 2% Over 73% 4.
Slide 37: Industrial - development
Industrial - development Property No of Projects NLA Est. Development Est. Yield on (sqm) Cost Cost Underway Australia 3 21,300 $25m 7.3% North America 4 107,400 $175m 9.2% Total Underway 7 128,700 $200m 8.9% Future Pipeline Australia 5 592,300 $970m 7.4% North America 3 241,900 $63m 9.8% To
Slide 38: Greystanes - a strategic industrial development
Greystanes - a strategic industrial development 47.6 hectares acquired Dec 07 Land delivered over next 18 months Strategically located Realisation via: – Stabilised asset development – Land sales Estimated total cost of $268m1 Estimated yield on cost of 7.4%1 Site plan for Greystanes, NS
Slide 39: Industrial - North America update
Industrial - North America update US portfolio update Acquired CalWest remaining 20% interest in JV – Provides greater flexibility to manage portfolio Seeking to strategically recycle US portfolio Chicago acquisition – Acquired Dec 07 US$29.5m yield 6.5% – Three distribution buildings Whirlpoo
Slide 40: Third Party Funds
Third Party Funds Victor Hoog Antink Chief Executive Officer
Slide 41: Third Party Funds – highlights
Third Party Funds – highlights Third Party Funds grown by $1.6bn or 34% Performance at 31 December 2007 to $6.2bn 19% Acquired $950m retail assets 18% Strong recurring earnings base 17% Performance of all funds remains strong 16% Diverse wholesale investor base 15% – off-shore investors in
Slide 42: Third Party Funds – a growing business
Third Party Funds – a growing business Total Third Party Funds $6.2bn DEXUS Wholesale Property Fund $3.2bn Mandates (AXA & STC) $2.8bn Syndicates $0.2bn Sector Allocation Source of Funds 42
Slide 43: Summary and outlook
Summary and outlook Victor Hoog Antink Chief Executive Officer DEXUS Property Group ABN 24 060 920 783 Australian Financial Services Licence Holder
Slide 44: Well positioned for future growth
Well positioned for future growth Fully integrated management structure Strong results across the business Diversified, quality investment portfolio Creating value through development Leading Third Party Funds platform Strong financial position with low level of gearing 44
Slide 45: Focus & outlook for the year ahead
Focus & outlook for the year ahead Actively manage high quality portfolio Further increase focus on service excellence Create value through the development process Expand selectively and prudently Deliver consistent growth and returns to our investors Reconfirm full year distribution gui
Slide 46: Questions
Questions
Slide 47: Appendices
Appendices
Slide 48: Strong balance sheet
Strong balance sheet DEXUS Property Group Note 30 Jun 2007 31 Dec 2007 Market capitalisation ($bn) 5,688 5,864 NTA per security (excluding minority interest) ($) 1.82 1.90 Gearing (net of cash) 1 35.6% 31.3% $m $m Cash & receivables 96 134 Investment properties 9,152 8,752 Other (including derivativ
Slide 49: Portfolio growth composition
Portfolio growth composition 10000 $570m $(1,001)m 9500 $9,027m $337m $9,003m 9000 $130m $(60)m 8500 $m 8000 7500 7000 6500 6000 Jun-07 Acquisitions Disposals Capital FX / Cash & Valuation Dec-07 Expenditure Other Increase 49
Slide 50: Profit to distribution reconciliation
Profit to distribution reconciliation 31 Dec 2007 $m Net Profit (after tax) 437.6 Profit attributable to minority interest (4.9) Profit attributable to stapled security holders 432.7 Adjustments: Property revaluations (337.1) Mark to market of derivatives 72.3 Fitout and cash incentive amortisation
Slide 51: Net property income reconciliation to P&L
Net property income reconciliation to P&L 31 Dec 2007 $m Property revenue 339 Less: Property expenses (82) Plus: Net Property Income from equity accounted investments 4 Less: Depreciation (1) Total adjusted NPI 260 Represented by: Office 116 Industrial Australia 59 Industrial North America 54 Indust
Slide 52: Interest Reconciliation
Interest Reconciliation 31 Dec 2007 $m Net borrowing costs 99.4 Less capitalised interest (7.0) Other borrowing costs 1.7 Fair value loss of interest rate swaps1 50.7 Net interest expense2 144.8 1. This represents realised gains of $12.4m and unrealised losses of $63.1m 2. Interest expense net of un
Slide 53: Contribution to DEXUS Property Group
Contribution to DEXUS Property Group DEXUS Holdings Pty Ltd DEXUS Operations Trust 6 months 6 months 31 Dec 2007 31 Dec 2007 $m $m Management fee revenue 40.6 Equity accounted profit (50%) 2.0 EBIT 10.8 Other income and expenses 0.4 Interest income 0.6 EBIT (pre MTM of derivatives) 2.4 Interest expe
Slide 54: Debt profile
Debt profile Facility Drawn Amount1 Facility Maturity Dates Security2 Currency Limit A$m A$m Syndicated debt 300 288 Sept 08 Unsecured Multicurrency3 300 122 Mar 10 238 235 Sept 10 Bilateral debt 360 318 Dec 10 Unsecured Multicurrency3 250 19 Dec 12 250 9 Sept 13 136 136 Dec 13 Secured debt 88 88 Ma
Slide 55: Capital Initiatives
Capital Initiatives ABCP Medium Term refinanced Club facility established Notes issue to refinance DIT CMBS 2nd Medium US CMBS A$m Term Notes repayment Syndicated US Private Debt Facility Placement issue USPP Tap issue 4,000 launched 3,500 3,000 2,500 Unsecured Debt 2,000 Unsecured Debt 1,500 1,000
Slide 56: Prudent debt position
Prudent debt position Facility Mix Dec 07 Maturity Profile Dec 07 1200 1000 800 A$m 600 400 200 0 CY08 CY09 CY10 CY11 CY12 CY13+ Capital Markets Debt - Term Bank Debt Very good diversification of funding sources No refinancing in FY08 Refinanced ABCP & US CMBS Only $300m refinance in CY08
Slide 57: Debt profile by jurisdiction as at 31 Dec 2007
Debt profile by jurisdiction as at 31 Dec 2007 Weighted average cost Interest bearing liabilities2 Interest hedge of debt1 duration Australia/New Zealand (A$) 6.07% A$651m 4.8yrs 3 North America (US$) 5.21% US$1,672m 8.2yrs Europe (€)4 4.68% €200m 6.2yrs Average/Total 5.50% A$2,883m 7.2yrs 1. Weight
Slide 58: Interest rate hedging profile
Interest rate hedging profile Interest rate hedging 1H08 FY08 FY09 FY10 FY11 FY12 Avg FY13+ A$m hedged 626 682 531 621 543 430 258 A$ hedge rate (%)1 5.90% 5.46% 4.57% 5.00% 5.31% 4.98% 5.83% A$m average rate (%)2 6.07% 5.86% 5.80% 6.21% 6.39% 6.62% 6.87% US$m hedged 3 1,473 1,640 1,633 1,652 1,544
Slide 59: Foreign income hedging profile
Foreign income hedging profile Foreign income hedging 1H08 FY08 FY09 FY10 FY11 FY12 Combined hedging profile 94% 95% 98% 95% 86% 88% US$ hedging profile1 99% 98% 100% 99% 96% 97% Foreign exchange contracts (US$m) 7.7 12.4 9.5 6.9 4.3 7.7 Average A$/US$ rate 0.7121 0.6978 0.6844 0.7169 0.7141 0.6996
Slide 60: Revaluation summary
Revaluation summary1 Office Industrial Retail North America Europe Total $m $m $m $m $m $m P&L Revaluations – investment properties External Valuations 82 26 - 3 (34) 77 Internal Valuations 210 62 - (13) - 259 292 88 - (10) (34) 336 Carry value – investment properties Externally Revalued 669 338 277
Slide 61: Whirlpool - investment program update
Whirlpool - investment program update Area Estimated acquisition cost Location Estimated acquisition date ‘000 sqm (m) Completed to date Orlando, FL, USA 06/07 47 US$25.1 Toronto, ONT, Canada 12/07 70 C$71.4 Perris, CA, USA 01/08 157 US$128.6 A$257.2 Locations secured Columbus, OH, USA Q1/09 145 US$
Slide 62: Developments – summary of completed and underway
Developments – summary of completed and underway Property Country Area Estimated Estimated Estimated time period sqm cost1 yield on cost ($m) (%) FY08 FY09 FY10 >FY11 Completed DEXUS Industrial Estate, Laverton Nth – Fosters Australia 45,271 32 7.4% Underway INDUSTRIAL DEXUS Industrial Estate, Laver
Slide 63: Developments – pipeline summary
Developments – pipeline summary Property Country Area Estimated cost1 Estimated yield on Estimated time period ($m) cost (%) FY08 FY09 FY10 >FY11 Industrial DEXUS Industrial Estate, Laverton Nth Australia 32.5ha 320 7.3% DEXUS Industrial Estate, Laverton Nth (land sales) Australia inc above 20 n/a 1
Slide 64: Acquisitions summary
Acquisitions summary Property Date Interest Acquisition cost Yield on Notes Acquisition Cost % $m A$m Acquisitions - Australia Greystanes, NSW 12/07 100 23.6 n/a $134.1m to be paid in four stages Acquisitions – North America Chicago, IL, USA 12/07 100 US$29.5 34.5 6.5% San Antonio, TX, USA 07/07 100
Slide 65: Disposals
Disposals Interest Settlement amount Property Date Notes % A$m Retail portfolio sale (5 properties) 10/07 50 950.4 Sale to DWPF DEXUS Industrial Estate, Laverton Nth – 12/07 50 58.0 Sale to AXA Coles Distribution Centre TOTAL Disposals 1,008.4 65
Slide 66: Specific updates
Specific updates 105 Phillip Street, Parramatta, NSW – Development ready to commence subject to suitable tenant demand Victoria Cross, North Sydney, NSW – Construction of new adjoining building commenced Jan 08 – Scheduled for completion Feb 09 Chicago, Illinois, USA – Three new high quality d
Slide 67: Retail
Retail Completed the sale of five retail assets to DWPF Portfolio income of $20m Whitford City Shopping Centre, WA, the remaining retail property Anticipated to be sold in financial year 2008/2009 Centre Whitford City Centre MAT ($psm) 7,074 Specialty MAT ($psm) 8,997 Total centre MAT growth
Slide 68: Australia / New Zealand Office – Lease expiry as at 31 Dec 07
Australia / New Zealand Office – Lease expiry as at 31 Dec 07 16.0% 14.0% 12.9% 14.0% 12.3% 12.0% 11.8% 11.5% 10.8% 12.0% 10.5% 9.8% 9.2% 9.1% 10.0% 8.7% 8.3% 8.2% 8.1% 7.3% 7.2% 8.0% 6.7% 5.4% 5.1% 6.0% 4.7% 4.0% 2.6% 2.0% 1.5% 2.0% 0.0% Vacant < 1 Year < 2 Years < 3 Years < 4 Years < 5 Years < 6 Y
Slide 69: Australian Industrial – Lease expiry as at 31 Dec 07
Australian Industrial – Lease expiry as at 31 Dec 07 30.0% 26.9% 25.0% 20.0% 16.5% 15.5% 13.9% 13.3% 15.0% 11.7% 11.6% 10.7% 10.2% 9.2% 8.7% 8.4% 10.0% 8.1% 6.3% 5.5% 4.4% 5.0% 3.0% 3.0% 3.0% 2.3% 2.3% 1.7% 1.5% 1.5% 0.0% Vacant < 1 Year < 2 Years < 3 Years < 4 Years < 5 Years < 6 Years < 7 Years <
Slide 70: US Industrial – Lease expiry as at 31 Dec 07
US Industrial – Lease expiry as at 31 Dec 07 25.0% 22.20% 20.90% 20.0% 15.60% 15.00% 13.40% 12.60% 15.0% 10.50% 10.20% 9.80% 10.0% 7.50% 7.30% 7.00% 6.40% 5.50% 5.00% 4.90% 4.00% 3.90% 3.70% 3.70% 3.50% 5.0% 2.90% 2.50% 2.10% 0.0% Vacant <1 Year & <2 Years <3 Years <4 Years <5 Years <6 Years <7 Year
Slide 71: Europe Industrial – Lease expiry as at 31 Dec 07
Europe Industrial – Lease expiry as at 31 Dec 07 36.00% 35.00% 40.0% Germany 35.0% 30.0% 25.0% 19.20% 19.20% 17.70% 20.0% 13.70% 12.00% 10.40% 15.0% 9.10% 7.80% 5.70% 5.30% 10.0% 4.50% 4.00% 5.0% 0.10% 0.20% 0.00% 0.00% 0.00% 0.00% 0.0% Vacant <1 Year <2 <3 <4 <5 <6 <7 <8 <9 <10 >10 & MTM Years Year
Slide 72: Retail – Lease expiry as at 31 Dec 07
Retail – Lease expiry as at 31 Dec 07 35.0% 31.7% 30.0% 25.7% 25.0% 20.0% 16.4% 16.3% 13.9% 13.6% 13.4% 13.4% 15.0% 11.4% 9.9% 8.2% 7.9% 10.0% 4.8% 4.7% 3.4% 3.0% 5.0% 0.6% 0.6% 0.4% 0.4% 0.2% 0.1% 0.0% 0.0% 0.0% Vacant < 1 Year < 2 Years < 3 Years < 4 Years < 5 Years < 6 Years < 7 Years < 8 Years <
Slide 73: Third Party Funds – growth in FUM
Third Party Funds – growth in FUM 7000 $149m $28m $6,204m $1,115m $288m 6000 5000 $4,624m 4000 $m 3000 2000 1000 0 Jun 2007 Acquisitions Valuation Capital Other Dec 2007 Increase Expenditure 73
Slide 74: Important information
Important information DEXUS PROPERTY GROUP
Slide 75: Important information
Important information This presentation is issued by DEXUS Funds Management Limited (DXFM) in its capacity as responsible entity of DEXUS Property Group (ASX:DXS). It is not an offer of securities for subscription or sale and is not financial product advice. Information in this presentation includin