Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — BoA Merrill Lynch A-REIT Conference (October 2012)
45 slides from Challenger's conference presentation, October 2012
Slide 1: Challenger Diversified Property Group Results presentation
Challenger Diversified Property Group (ASX: CDI) Results presentation for half-year ended 31 Dec 2011 Trevor Hardie, Fund Manager Tim Evans, Assistant Fund Manager 7 February 2012 1
Slide 2: CDI performance
CDI performance CDI relative performance – total return since inception • In a global search for yield, CDI 140 represents an attractive cash yield of 130 120 7%1 110 100 – CDI has annual fixed rate or inflation rental 90 80 increases, providing investors annual rental 70 growth and inflation protec
Slide 3: A-REIT peers - Yield vs Discount to NTA
A-REIT peers - Yield vs Discount to NTA • CDI, both high yielding and discount to reported NTA Discount to NTA vs Yield 15.00% ALZ Discount to NTA ABP MGR WRT CPA 5.00% SGP CFX CDI IOF CRF GPT DXS -5.00% CQR BWP -15.00% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00% Distribution yield Source: Merrill Lyn
Slide 4: CDI summary and metrics
CDI summary and metrics Key metrics* all unit price metrics in presentation updated for 1:4 unit consolidation • High yielding earnings underpinned by Unit price $2.49 sound property fundamentals Market capitalisation (cap) $533 million Total assets $870 million • Domestic focus Net tangible assets
Slide 5: Strategy, de-risking the future
Strategy, de-risking the future DIAC Building Belconnen, Jam factory,ACT Melbourne VIC Jam Factory, Melbourne, Victoria, façade a work in progress
Slide 6: CDI strategic objectives
CDI strategic objectives Portfolio Active capital Portfolio Improve leasing Enhancement Active capital management enhancement metrics management Fund objective: To provide investors with Grow exposure to a diversified earnings portfolio of properties generating stable income returns and potential fo
Slide 7: Portfolio enhancement
Portfolio enhancement • Domestic focus – Continued medium term goal of orderly sale of the French properties • Improving portfolio mix – Sale of Giffnock Avenue, expected settlement Dec 2012 – Sale of Talavera Road, completed Stage 2, The Junction, Enfield – – Recycling capital into value add Bunzl
Slide 8: Improve leasing metrics
Improve leasing metrics Key leasing deals completed Property Tenant Area (sqm) Lease Term % Gross Rent Deal Type The Forum, Cisco Cisco 7,090 3yrs 2.8% renewal 1.9% Major lease Jam Factory Village 6,678 12yrs new + renewal completed Jam Factory TOPSHOP 1,657 10yrs 0.7% new since 30 June 2012, 31 Que
Slide 9: Improve leasing metrics
Improve leasing metrics Significant de-risking of future expiries • Significant leasing progress made in a challenging market 11.8% 12% • Reduced downside risk for FY13 10% and FY14 expiries 8% • WALE: 4.9 years 6.3% 5.5% 6.0% 6% • Occupancy: 94.5% 4% 2.3% 2.6% • Leasing remains CDI’s priority 2% 0%
Slide 10: Active capital management
Active capital management • Operating profit distribution payout ratio 82% – Medium term objective to lift ratio in line with progress on portfolio enhancement and leasing Cost of AUD denominated debt • Reduced cost of drawn Australian debt to 7.2% 6.4% Cost of debt incl margin 7.0% • Actively manag
Slide 11: Execution of strategy, de-risking the future
Execution of strategy, de-risking the future Portfolio Improve leasing Active capital Active capital management enhancement metrics management Distribution and earnings per unit Price movement over 2012 2.50 23 22 21.0c 2.40 21 Price (Dollars) 20 2.30 19 Cents 18 17.4c 2.20 17 2.10 16 15 2.00 14 13
Slide 12: FY13 earnings and distribution guidance
FY13 earnings and distribution guidance Earnings Earnings guidance walk – FY13 earnings guidance 21.0 cpu up 12% 22.0 on original FY12 guidance (18.8 cpu), or 21.5 5% up on upgraded guidance provided at 1H12 of 20.0 cpu 21.0 Cents – Largest contributor to earnings upgrade is 20.5 growth in net prope
Slide 13: Debt metrics
Debt metrics 31 Queen St Melbourne, VIC
Slide 14: Pro forma - Debt metrics
Pro forma - Debt metrics • Average cost of Australian drawn debt - 6.4% – includes average margin of 181 bps on drawn debt • Weighted average undrawn commitment fee: 100bps • Incremental cost of drawing additional Australian debt - 4.1% Pro forma 30 June 20121 AUD denominated Euro Total borrowings d
Slide 15: Pro forma - Facility expiry profile
Pro forma - Facility expiry profile • Facility limit of $300m with no expiries until FY14 • Undrawn $44m to fund committed developments and provide financial flexibility • Pro forma - Expiry profile1 200 150 - $m 100 - 44 50 110 100 46$25 - - Jul-12 Jul-13 Jul-14 Jul-15 Expiry Drawn Undrawn 1. Pro f
Slide 16: Portfolio performance
Portfolio performance Elders House, 27-29 Currie St Adelaide, SA
Slide 17: State of play
State of play Retail Office Industrial • In challenging retail market • Business confidence deteriorated in • Macro economic indicators show conditions during 2012 the 75bps early FY13, tenants are cautious and lower activity levels. Speculative cut to the official cash rate has tenant retention rat
Slide 18: Pro forma - Portfolio overview
Pro forma1 - Portfolio overview • Key portfolio metrics – Occupancy – 94.5% (Dec 11: 93.5%); WALE – 4.9 years (Dec 11: 5.0 years) • Domestic focus – 94.5% Australian; continuing orderly disposal of French portfolio • NABERS energy rating – 4 star weighted average2 (June 11: 3.6 star) As at 30 Octobe
Slide 19: Lease expiry profile - Future earnings de-risked
Lease expiry profile - (by gross income) Future earnings de-risked • Giffnock sale, expected settlement December 2012, reduces current vacancies • Cisco lease renewed out to July 2016, de-risking FY14 expiry profile 8.0% 7.0% 6.0% 5.5% 5.0% 1.5% The Forum, Verizon 4.0% 187 Todd Road 1.6% 3.0% 2.6% 2
Slide 20: Development progress
Development progress Artists impression, Innaloo retail 20 Woodlands, WA
Slide 21: Stage 2, The Junction complete
Stage 2, The Junction complete • CDI acquired an 8.56 ha site at Enfield in 2007 Key building for the purpose of developing circa 46,000sqm attributes of prime industrial facilities Area 20,211sqm, with 9.3% office component • Stage 2 is now complete, lease commencement Cubic ~313,000 m3 achieved 3
Slide 22: Domain Car Park complete
Domain Car Park complete • CDI took over the operating business of the Domain Car Park in May 2008, with 1,123 parking spaces • Situated at the junction of the Eastern Distributor, Sydney Harbour Tunnel and William Street, the Domain is ideally located for commuters travelling from the North, East a
Slide 23: Jam Factory repositioning progressing well
Jam Factory repositioning progressing well Key attributes and metrics • Tenancy remix nearing completion of the development 100% ownership Project cost $20m • Food court trading and car park upgrade complete Value on commencement $104m • Cinemas and entertainment continue to perform solidly Expected
Slide 24: Future value add opportunities
Future value add opportunities • Portfolio enhancement strategy also targets the continued value add to existing portfolio through the recycling of capital Uncommitted future projects ArtistsInnaloo Artists impression, Innaloo Retail, Office, Woodlands Perth W.A Perth Incremental Income Project Sect
Slide 25: Summary
Summary The Forum, Verizon 25 St Leonards, NSW
Slide 26: Summary
Summary • FY13 guidance – Normalised epu: 21.0 cents; dpu: 17.4 cents • Strategy progressing - closing the gap by growing earnings – Portfolio enhancement strategy – Active capital management – Improve leasing metrics • Property metrics – Occupancy: 94.5%; WALE 4.9 years – FY13 expiries reduced from
Slide 27: Contacts
Contacts Trevor Hardie Fund Manager Tel: + 61 (0)2 9994 7546 Email: thardie@challenger.com.au Website www.challenger.com.au/cdi Tim Evans Assistant Fund Manager Tel: + 61 (0)2 9994 7131 Email: tevans@challenger.com.au 27
Slide 28: Appendices
Appendices
Slide 29: 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 30: Management
Management • Management agreements published on CDI website • Management expense ratio: 64.41 bps • Management fees: Fee type Calculation Base management fee From 1 July 2010, 0.5% of gross assets of CDI per annum, payable in cash Performance fees 5% of first 2% out performance against S&P/ASX200 pr
Slide 31: Hedge profiles
Hedge profiles Interest rate hedges $ A denominated hedges Notional Hedge rate Maturity date Income hedges $20.0m 5.10% June 2014 Half year ending AUD/EUR $20.0m 4.16% Sept 2015 31 December 2012 0.7828 $40.0m 5.07% Feb 2016 * Given the strategic medium term objective of $20.0m 4.15% Feb 2017 selling
Slide 32: Diversification enhances portfolio quality
Diversification enhances portfolio quality As at 30 October 2012 Sector diversification (by value) Geographic diversification (by value) 5% 2% 6% 3% 3% 25% 17% NSW 5% ACT Office VIC Retail Industrial - DC QLD Industrial - HT SA 60% WA 18% TAS 29% France 26% Tenant diversification by type (by gross i
Slide 33: CDI investment portfolio diversification
CDI investment portfolio diversification As at 30 October 2012 Geographic Sector Diversification $300 29% $250 25% 26% $200 Value ($m) $150 $100 5% 6% $50 3% 3% 2% - NSW ACT VIC QLD SA WA TAS France Office Retail Industrial-DC Industrial - High Tech $600 60% Sector Geographic Diversification $500 $4
Slide 34: Tenant industry diversification
Tenant industry diversification As at 30 October 2012 • 33% of CDI portfolio leased to government tenants • Well diversified across industry types Top 20 tenants1 % Of Total Contracted Ranking Tenant Name Tenant Industry Asset(s) Portfolio Gross Industry representation Income 1 ABS Government ABS Ho
Slide 35: Lease expiry profile (by gross income)
Lease expiry profile (by gross income) As at 30 October 2012 80% % Expiry by gross income 70% 60.6% 60% 50% 40% 30% 20% 16.6% 12.4% 10% 5.5% 2.3% 2.6% 0% Vacant Jun-13 Jun-14 Jun-15 Jun-16 FY 2017 Beyond 35
Slide 36: Portfolio revaluations at June 2012
Portfolio revaluations at 30 June 2012 • All properties revalued: 66% (by value) independently revalued • Total Portfolio up $17.1m, up 2.2% from June 11 – Fair valuation movements down $0.7m1 • Market capitalisation rates remain stable at 8.23% (Dec 11 - 8.19%) • French portfolio value up 1.7% • Cu
Slide 37: Operating results – at June 2012
Operating results – at 30 June 2012 • Profit from operating activities, $44.8m or 20.24 cpu • Distribution of 16.80 cpu • Statutory NPAT: $36.2m compared to $51.5m FY11 • NTA per unit $2.74 FY12 FY11 $ million $ million Net property income 66.0 61.9 Financing costs 13.3 8.6 Profit from operating act
Slide 38: Income statement – at June 2012
Income statement – at 30 June 2012 30 June 2012 30 June 2011 $’000 $’000 Rental income 73,598 70,267 Other property income 11,727 9,530 Income from operating business activities 7,277 7,576 Interest income 497 396 Revenue 93,099 87,769 Property related expenses (19,366) (17,879) Expenses from operat
Slide 39: Reconciliation of profit – at June 2012
Reconciliation of profit – at 30 June 2012 Reconciliation of net profit after tax to profit from operating activities1 30 June 2012 30 June 2011 $’000 $’000 Net profit after tax attributable to unitholders of CDI 36,151 51,488 Adjusted for: Straight-lining of rental (income)/expense (2,894) (2,188)
Slide 40: Distribution statement – at June 2012
Distribution statement – at 30 June 2012 30 June 2012 30 June 2011 $’000 $’000 Profit from operating activities 44,781 44,353 Non-cash expenses Amortisation of borrowing costs 805 287 Other transfers per distribution policy Debt establishment costs (1,240) (575) Maintenance capital expenditure (3,20
Slide 41: Available funds from operations – at June 2012
Available funds from operations – at 30 June 2012 Available funds from operations (AFFO) 30 June 2012 30 June 2011 $’000 $’000 Profit from operating activities 44,781 44,353 Add/(deduct): Amortisation of borrowing costs 805 287 Leasing costs (4,378) (841) Maintenance capital expenditure (3,206) (3,7
Slide 42: Net property income – at June 2012
Net property income – at 30 June 2012 Australian portfolio 30 June 2012 30 June 2011 Variance ($'000) ($'000) ($'000) % Office ABS House, Belconnen, ACT 7,414 7,257 157 2 31 Queen Street, Melbourne, VIC 6,603 1,212 5,391 445 Acquisition DIAC Building, Belconnen, ACT 5,237 5,076 161 3 The Forum, Cisc
Slide 43: Net property income - continued
Net property income - continued French portfolio 30 June 2012 30 June 2011 Variance (€'000) (€'000) (€'000) % Sully, Sully sur Loire 1,089 1,045 44 4 Aulnay, Aulnay sous Bois, Paris 681 639 42 6 Beziers, Villeneuve les Beziers 713 688 25 4 Gennevillers, Gennevilliers, Paris 656 668 (12) (2) Tours, P
Slide 44: Important notice
Important notice Information contained in this publication is current as at 30 October 2012 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 (ARS
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