Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — FY2010 Earnings Presentation
36 slides from Challenger's earnings presentation, Aug 10, 2010
Slide 1: Challenger Diversified Property Group Results presentation FY10
Challenger Diversified Property Group (ASX: CDI) Results presentation for year ended 30 June 2010 (FY10) Trevor Hardie, Fund Manager Tim Evans, Assistant Fund Manager 10 August 2010 1
Slide 2: Important notice
Important notice Information contained in this publication is current as at 10 August 2010 unless otherwise specified and is provided by Challenger Listed Investments Limited (ABN 94 055 293 644) (AFSL 236887) (“Challenger”), as Responsible Entity of the Challenger Diversified Property Trust 1 (ARSN
Slide 3: Key points
Key points ¾ Operating profit met guidance; balance sheet strengthened − Operating profit: $49.2 million (up 16.7%); net property income: $64.6 million; − 2H10 distribution: 2.15 cents per unit (cpu); FY10 distribution: 4.2 cpu − Net tangible assets (NTA): 66 cpu, up 1 cent on prior half-year − Bala
Slide 4: Strategy
Strategy… The Forum, Cisco 4 St Leonards NSW
Slide 5: CDI strategic objectives
CDI strategic objectives ¾ Fund objective − to provide investors with exposure to a diversified portfolio of properties generating stable income returns and potential for capital growth ¾ Strategic objectives √ Grow earnings − Lease up expiries √ Maintain low cost of capital − Close the price-to-NTA
Slide 6: CDI outperforms by 9%
CDI outperforms by 9% ¾ Re-entered S&P/ASX300 A-REIT index in March 2010 ¾ Outperformed the benchmark S&P/ASX200 A-REIT Accumulation index by 9% in FY10 and by 25% since IPO in October 2006 CDI Accumulation Index Relative Performance (since IPO in October 2006 to 6 August 2010) 120 Entitlement Offer
Slide 7: EPU / DPU guidance
EPU / DPU guidance ¾ EPU guidance of 4.9 cpu ¾ DPU guidance of 4.0 cpu; payout ratio: 82% ¾ Guidance includes allowance for downtime and vacancies ¾ Letting up of major vacancies and removal of downtime would lift EPU ~6% ¾ No letting up on major vacancies and expiries would reduce EPU by ~5% +0.2 +
Slide 8: Financial Performance
Financial Performance… Taylors House 8 Waterloo NSW
Slide 9: Operating profit up 16.7%
Operating profit up 16.7% ¾ Profit from operating activities1: $49.2 million (up 16.7% on FY09) ¾ NPAT: $15.5 million compared to $47.1 million loss in FY09 ¾ Full-year distribution of 4.2 cpu ¾ Distribution payout ratio2 for FY10: 77% FY10 FY09 $’000 $’000 Net property income 64,573 67,888 Financin
Slide 10: NTA at 66 cpu
NTA at 66 cpu ¾ Net tangible assets per unit (NTA) up 1 cpu in 2H10 − primarily due to upward movement in property valuations 30 June 2010 31 Dec 09 30 June 2009 Pro forma post entitlement offer Total assets $m 799.2 794.0 835.8 Total liabilities $m 198.8 213.8 224.1 Net tangible assets $m 599.5 579
Slide 11: Facility expiry profile
Facility expiry profile ¾ One multi-currency facility of $261 million with 2 major domestic banks ¾ $115 million refinancing of August and October 2010 expiries completed − Two equal tranches for 2 and 3 years duration − Weighted average term of available debt increased from 0.7 years to 1.8 years ¾
Slide 12: Debt metrics; low cost of debt
Debt metrics; low cost of debt ¾ Average cost of drawn debt – 5.1% − includes average margin of 97 basis points on drawn debt ¾ Weighted average undrawn commitment fee: 129 basis points ¾ FY10 interest cover 5.1x Pro forma 30 June 20102 $ denominated € Total borrowings denominated borrowings Borrowi
Slide 13: Portfolio Performance
Portfolio Performance DIAC Building Belconnen ACT Discovery House 13 Woden ACT
Slide 14: State of play – CDI key markets
State of play – CDI key markets ¾ Australian Office (58% exposure) – Tenant enquiry levels continue to improve; positive net absorption however vacancies still yet to peak – Incentive levels have peaked in most markets; should start to decline in 2011 and 2012 – Effective rental growth is expected t
Slide 15: Portfolio overview – 30 June 2010
Portfolio overview – 30 June 2010 ¾ Key portfolio metrics − Occupancy – 94.7% (Dec 09: 96.4%); WALE – 5.1 years (Dec 09: 5.3 years) ¾ Domestic focus − 92% Australian; orderly disposal of French portfolio rescheduled to CY11 Australian portfolio French portfolio Total portfolio Investment property po
Slide 16: Diversification enhances portfolio quality
Diversification enhances portfolio quality As at 30 June 2010 Sector diversification (by value) Geographic diversification (by value) 3% 8% 7% Office 3% NSW 28% 16% Retail 4% ACT 5% VIC Industrial - Distr'n QLD Centre SA Industrial - High Tech 58% WA 18% 20% TAS France 29% Tenant diversification by
Slide 17: Tenant industry diversification
Tenant industry diversification ¾ 33% of CDI portfolio leased to government tenants ¾ Well diversified across industries Top 20 tenants1 % Of Total Contracted Tenant Name Tenant Industry Asset(s) Portfolio Contracted Gross Income Industry representation 33.0% 1 ABS Government ABS House 11.0% 2 DIAC
Slide 18: Portfolio revaluations at 30 June 2010
Portfolio revaluations at 30 June 2010 ¾ All properties revalued as at 30 June; 51% (by value) independently revalued ¾ Valuations1 up $15.2 million (2.1% across total investment portfolio) ¾ Market capitalisation rates firmed 11 bps from 8.40% to 8.29% ¾ French portfolio value down 1.4%3. Market ca
Slide 19: Lease expiries
Lease expiries ¾ Investment portfolio 94.7% occupied ¾ WALE 5.1 years ¾ Lease expiries proactively managed Lease expiry profile (by income)1 56.8% 56.8% % Expiry 12.9% 12.9% 10.7% 10.6% 7.8% 7.8% 6.6% 6.6% 5.2% 1 5.2% Vacant Jun-11 Jun-12 Jun-13 Jun-14 FY 2015 Beyond Period Note: 1. After adjusting
Slide 20: Leasing update
Leasing update CDI portfolio Property income1 Vacancy Leasing status 6 Foray St 0.5% 22.4% CSR leased remaining warehouse on short term licences expiring in late Q1 2011 Fairfield Offices remain vacant (3,696sqm), marketing ongoing for long-term tenants 75 Talavera Road 1.8% 47.3% Ground, L1&2
Slide 21: Portfolio construction to enhance quality
Portfolio construction to enhance quality ¾ Objective is to enhance quality of CDI’s portfolio − reduce exposure to properties with relatively weaker leasing fundamentals and reinvesting funds into properties more aligned to leasing criteria ¾ Sale of Heidelberg and Smithfield completed in 1H10 ¾ Th
Slide 22: Re-launching The Junction (stages 2&3)
Re-launching The Junction (stages 2&3) ¾ The Junction Industrial Park provides a competitive advantage in meeting freight and customer service requirements ¾ DA approved and early site works completed ¾ Strong enquiry from logistics/distribution operators wanting to locate in central western Sydney
Slide 23: Environmental sustainability
Environmental sustainability ¾ CDI committed to improving the environmental sustainability of properties − $1.4 million spent on Makerston House: high efficiency chillers, upgraded lighting and installation of an energy management system, reducing energy usage by 22% − Implementing procedures for co
Slide 24: Summary
Summary… DIAC Building 24 Belconnen ACT
Slide 25: Summary
Summary ¾ FY10 operating profit guidance met; balance sheet strengthened ¾ Property values up in 2H10; ¾ Leasing is our top priority; lease market improving ¾ Return to long term average occupancy and increase in distribution payout ratio will provide EPU growth in future years ¾ FY11 EPU guidance:
Slide 26: Contacts
Contacts Trevor Hardie Fund Manager Tel: + 61 (0)2 9994 7546 Email: thardie@challenger.com.au Tim Evans Assistant Fund Manager Tel: + 61 (0)2 9994 7131 Email: tevans@challenger.com.au Luke Keighery Investor Relations Tel: + 61 (0)2 9994 7633 Email: lkeighery@challenger.com.au Website www.challenger.
Slide 27: Appendices
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Slide 28: Distribution policy
Distribution policy CDI’s distribution policy is to distribute accounting profit earned from operating activities adjusted for non-cash expenses, straight-line rent, incurred and expected: leasing costs, debt establishment fees and capital expenditure to maintain the investment properties, subject t
Slide 29: Management
Management ¾ Management agreements published on website ¾ Bas management fee expense ratio (MER): 51.3 bps ¾ Management fees: Fee type Calculation Base management fee From 1 July 2010, 0.5% of gross assets of CDPG per annum, payable in cash. 5% of first 2% out performance against S&P/ASX200 property
Slide 30: Hedge profiles
Hedge profiles Interest rate hedges $A denominated hedges CDI AUD hedge profile 140 8.0% Notional Hedge rate Maturity date 120 7.0% $70m 3.35% Feb 2011 100 6.0% 5.0% $25m 4.57% Oct 2011 80 $m 4.0% $40m1 5.37% Feb 2014 60 3.0% 2 $12.5m 5.55% Oct 2015 40 2.0% 20 $12.5m2 5.39% Oct 2015 1.0% - 0.0% $40m
Slide 31: Lease expiry profile (by gross passing income)
Lease expiry profile (by gross passing income) Lease Expiry Profile 12.9% 2.07% Spotlight 2.10% Rexel 7.8% Jam Factory Car 0.50% Lenovo 1.94% Park 0.86% CSR 1.42% GDF 2.23% Kraft 0.89% Titan Warehouse Century City 0.83% Entertainment 4.21% Retail Specialty/ Other 3.64% Retail Specialty/ Other FY11 F
Slide 32: Rent review profile provides built-in growth
Rent review profile1 provides built-in growth ¾ Significant weighting to fixed and indexed rental reviews over next three years ¾ 81% of portfolio subject to rental reviews in FY11 Rent review profile (by income) Review type FY11 rental Rent reviews 20% 15% 18% proportion (%) 9% 9% 9% 2% 3% Fixed 55
Slide 33: CDI investment portfolio diversification
CDI investment portfolio diversification Geographic/sector diversification $300 $250 28% 29% $200 Industrial - High Tech Value ($m) 20% Industrial-DC $150 Retail Office $100 8% 5% $50 4% 3% 3% - NSW ACT VIC QLD SA WA TAS France $500 58% Sector/geographic diversification $450 $400 France $350 TAS $30
Slide 34: Net property income
Net property income Australian portfolio FY10 FY09 Variance ($'000) ($'000) ($'000) % Office ABS Building, Belconnen, ACT 6,967 6,950 17 - DIAC Building, Belconnen, ACT 4,942 4,807 135 3 The Forum, Cisco, St Leonards, NSW 4,820 4,657 163 4 Discovery House, Woden, ACT 4,463 4,379 84 2 The Forum, Veri
Slide 35: Net property income - continued
Net property income - continued French portfolio FY10 FY09 Variance (€'000) (€'000) (€'000) % 105, Route d'Orleans, Sully sur Loire 1,064 1,039 25 2 Rue Charles Nicolle, Villeneuve les Beziers 739 807 (68) (8) 140, Avenue Marcel Paul, Gennevilliers 694 669 25 4 Avenue Savigny, Aulnay sous Bois 644 6
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