Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — Investor Presentation (April 2011)
44 slides from Challenger's investor presentation, April 2011
Slide 1: Challenger Diversified Property Group Investor presentation
Challenger Diversified Property Group (ASX: CDI) Investor presentation metrics updated for the acquisition of 31 Queen St and buyback Trevor Hardie, Fund Manager Tim Evans, Asset Fund Manager April 2011 1
Slide 2: Important notice
Important notice Information contained in this publication is current as at 8 April 2011 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 1
Slide 3: Agenda
Agenda Introduction and Strategy Updated for buyback announcement Highlights for the updated pro-forma half-year ended 31 December 2010 Portfolio performance Appendix 3
Slide 4: Introduction and strategy
Introduction and strategy… The Forum, Cisco 4 St Leonards NSW
Slide 5: Challenger Diversified Property Group
Challenger Diversified Property Group ASX: CDI Back-to-basics LPT with passive rental income High yielding quality earnings underpinned by sound property fundamentals FY11 guidance: EPU of 4.9 cents; DPU of 4.0 cents Conservative capital position; pro forma balance sheet gearing: 27.8%1 Co
Slide 6: CDI strategic objectives
CDI strategic objectives Fund objective − to provide investors with exposure to a diversified portfolio of properties generating stable income returns and potential for capital growth Strategic objectives √ Grow earnings − Return occupancy to long-term levels √ Maintain low cost of capital − Clo
Slide 7: On market unit buy-back
On market unit buy-back What? Why? • On market buy-back of up to 10% of • Management believe CDI is being issued capital (circa 91 million units) undervalued by the market under the 10/12 limit rule • Work to close the gap between NTA per unit and unit price • Assists in addressing the proposed dilu
Slide 8: CDI portfolio enhancement strategy
CDI portfolio enhancement strategy Objective: – to refresh the overall quality of the portfolio and enhance sustainable property income to allow more predictable and stable capital growth – Move portfolio to 100% domestic Implementation: – Analyse opportunities, ensuring that diversification acr
Slide 9: Delivering on strategy – 31 Queen St Melbourne
Delivering on strategy – 31 Queen St Melbourne Aligned to CDI’s portfolio enhancement strategy √ Follows on from successful sale of 4 properties √ Provides Melbourne CBD exposure √ Reduces reliance on single-tenanted occupancies √ Lifts asset quality and diversification of income √ Provides a re-lea
Slide 10: CBD location – 31 Queen St Melbourne
CBD location – 31 Queen St Melbourne 31 Queen St Melbourne √ Cnr Queen St & Flinders Lane √ Within western core precinct of Melbourne CBD √ Exposed to 3 street frontages √ Close to transport links √ Extensive views across Yarra to SE Melbourne 10
Slide 11: Results highlights
Results highlights… Taylors House 11 Waterloo NSW
Slide 12: Key points
Key points Operating profit on target − Operating profit: $25.3 million; net property income: $30.9 million − Statutory net profit after tax: $30.1 million versus pcp $13.7 million loss − 1H11 distribution: 2.0 cents per unit (cpu) − Net tangible assets (NTA): 67 cpu, up 1 cent from 30 June 2010 −
Slide 13: Operating profit steady
Operating profit steady Profit from operating activities: $25.3 million (1H10: $24.7m) NPAT: $30.1 million compared to $13.7 million loss in 1H10 Half-year distribution of 2.0 cpu Distribution payout ratio2 for 1H11: 76% 1H11 1H10 $ million $ million Net property income 30.9 33.5 Other incom
Slide 14: NTA at 67 cpu
NTA at 67 cpu Net tangible assets per unit (NTA) up 1 cpu in 1H11 − primarily due to upward movement in property valuations, sales above NTA and derivative valuations 31 Dec 2010 31 Dec 2010 30 June 2010 Pro-forma Total assets $m 866.8 781.4 799.2 Total liabilities $m 254.6 169.2 198.8 Net tangibl
Slide 15: Facility expiry profile
Facility expiry profile One multi-currency facility of $261 million with 2 major domestic banks Current short-term profile reflects strategy of maintaining low cost debt $241 million drawn1 with undrawn capacity of $20 million • Pro forma expiry profile1 200 150 $m 100 50 110.0 - 19.6 57.5 35.
Slide 16: Debt metrics; low cost of debt
Debt metrics; low cost of debt Average cost of current drawn debt – 6.2% − expect to increase on debt rollover in Aug & Oct11 − includes average margin of 129 basis points on drawn debt Weighted average undrawn commitment fee: 132 basis points Pro forma 31 December 2010(2) AUD Euro Total denomin
Slide 17: Portfolio Performance
Portfolio Performance DIAC Building Belconnen ACT Discovery House 17 Woden ACT
Slide 18: State of play – 2011: the year of recovery
State of play – 2011: the year of recovery Australian Office – Leasing and tenant enquiry levels have increased, however still subdued in some non-CBD markets – Vacancies have mostly peaked with limited supply overhang from the previous construction cycle – Incentive levels have likely peaked in m
Slide 19: Portfolio overview – 31 December 2010
Portfolio overview – 31 December 2010 Key portfolio metrics − Occupancy – 91.0% (Jun 10: 94.7%); WALE – 4.7 years (Jun 10: 5.1 years) Domestic focus − 94% Australian; orderly disposal of French portfolio still scheduled for second half CY11 Australian portfolio French portfolio Total portfolio T
Slide 20: Portfolio revaluations at 31 December 2010
Portfolio revaluations at 31 December 2010 All properties revalued as at 31 Dec; 70% (by value) independently revalued Valuations1 up $6.4 million (0.9% across total investment portfolio) Market capitalisation rates firmed from 8.29% to 8.19% French portfolio value up 1.6%3. Market capitalis
Slide 21: Diversification enhances portfolio quality
Diversification enhances portfolio quality As at 31 December 2010 Sector diversification (by value) Geographic diversification (by value) 6% 3% 6% Office 3% 3% NSW 14% 26% Retail ACT 4% VIC Industrial - Distr'n QLD Centre SA 17% Industrial - High Tech WA 63% 28% 27% TAS France Tenant diversification
Slide 22: Tenant industry diversification
Tenant industry diversification 36% of CDI portfolio leased to government tenants Well diversified across industries Top 20 tenants1 Industry representation % Of Total Contracted Portfolio Ranking Tenant Name Tenant Industry Asset(s) 40% Contracted Gross 34.3% 35% Income % of gross income 30% 1
Slide 23: Lease expiries
Lease expiries Investment portfolio 91% occupied WALE 4.7 years Lease expiry profile (by income) 59.5% % Expiry 9.6% 11.5% 9.0% 6.7% 2.2% Vacant Jun-11 Jun-12 Jun-13 Jun-14 FY 2015 Beyond Period 23
Slide 24: Refurbishments enhance leasing prospects
Refurbishments enhance leasing prospects A. Forum Verizon, St Leonards Ownership 60% Portfolio income 2.9% (based on current market rent) Vacancy 59% (area: 7,721 sqm) Refurbishment • Circa $1.6 million spent • Foyer upgraded • Floors returned to as-new condition • T5 Lighting installed Leasing stat
Slide 25: Refurbishments enhance leasing prospects
Refurbishments enhance leasing prospects B. 187 Todd Road, Port Melbourne: Ownership 60% Portfolio income 2.2% (based on current market rent) Vacancy 100% (9,722 sqm) Refurbishment • Circa $2.3 million spent • Building façade enhanced • Floors returned to as-new condition • BMS upgraded Leasing stat
Slide 26: Refurbishments enhance leasing prospects
Refurbishments enhance leasing prospects C. 75 Talavera Rd, North Ryde: Ownership 60% Portfolio income 1.4% Vacancy 40.1% (5,578 sqm) Refurbishment • Circa $2.0 million spent • Foyer upgraded • Floors returned to as-new condition • T5 lighting installed Leasing status • 843sqm leased to the NSW Gov’
Slide 27: Value enhancing redevelopment projects
Value enhancing redevelopment projects Jam Factory (60% CDI) Repositioning centre Heads of Agreement with Target “Urban” for 1,200 sqm Village to undertake a refurbishment Tenancy remix 18 month project to completion in FY12 Domain car park (100% CDI) Refurbishment to commence March 2011
Slide 28: Summary
Summary… DIAC Building 28 Belconnen ACT
Slide 29: Summary
Summary Operating profit on target − 1H11 distribution: 2.0 cents per unit (cpu) − Net tangible assets (NTA): 67 cpu, up 1 cent on 30 June 2010 − Pro forma balance sheet gearing at 27.8% − Maintained FY11 guidance: EPU: 4.9 cents; DPU: 4.0 cents Property valuations up; leasing market remains cha
Slide 30: 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 Website www.challenger.com.au/cdi 30
Slide 31: Appendices
Appendices
Slide 32: CDI outperforms the index
CDI outperforms the index CDI ranked 3rd best performing A-REIT in CY101 Unitholder return of 16.45%1 CDI Accumulation Index Relative Performance Calendar 2010 125 120 115 110 105 100 95 90 31-Dec- 31-Jan- 28-Feb- 31-Mar- 30-Apr- 31-May- 30-Jun- 31-Jul-10 31-Aug- 30-Sep- 31-Oct- 30-Nov- 31-Dec-
Slide 33: 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 34: Management
Management Management agreements published on website Base management fee expense ratio: 66 bps1 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 Perfo
Slide 35: Hedge profiles
Hedge profiles Interest rate hedges $A denominated hedges CDI AUD hedge profile 180 8.0% Notional Hedge rate Maturity date 160 7.0% 140 $25m 4.57% Oct 2011 6.0% 120 5.0% $15m 4.83% April 2012 100 $m 4.0% 80 $40m 5.37% Feb 2014 3.0% 60 $25m 5.11% April 2014 40 2.0% 20 1.0% $12.5m1 5.55% Oct 2015 - 0.
Slide 36: Lease expiry profile (by gross passing income)
Lease expiry profile (by gross passing income) Lease Expiry Profile 9.6% 8.9% Spot Light 1.81% 2.90% Verizon 0.00% Rexel 1.90% 1.35% 75 Jam Factory Car Talavera 1.76% Park 1.13% GDF 2.18% 187 Todd Rd 2.2% 0.75% City Century Entrtainment 1.34% 31 Queen Street 0.76% CSR 1.04% Retail 0.27% Retail 1.00%
Slide 37: Rent review profile provides built-in growth
Rent review profile1 provides built-in growth Significant weighting to fixed and indexed rental reviews over next three years 77% of portfolio subject to rental reviews in FY11 Rent review profile (by income) FY11 FY12 FY13 Review type FY11 rental Rent reviews proportion (%) Fixed 56% Average 3.
Slide 38: CDI investment portfolio diversification
CDI investment portfolio diversification Geographic Sector Diversification $300 $250 28% 26% 27% $200 Value ($m) $150 $100 6% 5% $50 3% 3% 3% $0 NSW ACT VIC QLD SA WA TAS France Office Retail Industrial-DC Industrial - High Tech Sector Geographic Diversification $600 63% $500 $400 Value ($m) $300 $2
Slide 39: Net property income
Net property income Australian portfolio 1H11 1H10 Variance ($'000) ($'000) ($'000) % Office ABS Building, Belconnen, ACT 3,593 3,407 186 5 DIAC Building, Belconnen, ACT 2,505 2,444 61 2 The Forum, Cisco, St Leonards, NSW 2,397 2,424 (27) (1) Discovery House, Woden, ACT 2,283 2,216 67 3 The Forum, V
Slide 40: Net property income - continued
Net property income - continued French portfolio 1H11 1H10 Variance (€'000) (€'000) (€'000) % Inteva, 105 Route d'Orleans, Sully sur Loire 521 544 (23) (4) Bricoman, 54 Avenue Savigny, Aulnay sous Bois 289 330 (41) (12) Exel, Rue Charles Nicolle, Villeneuve les Beziers 336 421 (85) (20) GDF, 140 Rue
Slide 41: Balance sheet
Balance sheet Pro forma 31 December 2010 31 December 2010 30 June 2010 $’000 $’000 $’000 Current assets Cash and cash equivalents 2,475 2,475 1,035 Trade and other receivables 1,182 1,182 1,035 Derivative financial instruments 1,327 1,327 1,303 Other assets 772 772 1,685 Development property - - 6,2
Slide 42: Income statement
Income statement 31 December 2010 31 December 2009 $’000 $’000 Property income Rental income 34,375 36,976 Other property income 4,890 4,964 Less: Property related expenses (8,371) (8,394) Net property income 30,894 33,546 Operating business income Revenue from operating business activities 3,658 3,
Slide 43: Distribution statement
Distribution statement 31 December 2010 31 December 2009 $’000 $’000 Net profit/(loss) attributable to unitholders of CDI 30,050 (13,705) Adjusted for transfers (to)/from reserves: Non-operating activities Fair value movement of derivatives closed out during the period - 7,787 Fair value movement of
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