Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — FY2009 Earnings Presentation
69 slides from Challenger's earnings presentation, Aug 6, 2009
Slide 1: Challenger Diversified Property Group Results and Entitlement Offer
Challenger Diversified Property Group (ASX:CDI) Results for year ended 30 June 2009, Entitlement Offer and guidance for FY10 Trevor Hardie – Fund Manager Tim Evans – Assistant Fund Manager 6 August 2009 NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO US PERSONS
Slide 2: Important notice
Important notice This document has been prepared by Challenger Listed Investments Limited (CLIL) as responsible entity for Challenger Diversified Property Trust and Challenger Diversified Property Trust 2 (together, Challenger Diversified Property Group or CDI). This document is in relation to an En
Slide 3: Agenda
Agenda Overview Financial results and portfolio performance Entitlement Offer summary Key financials Key risks and other Entitlement Offer arrangements Appendices A. Additional full year results and other financial information B. International selling restrictions C. Glossary 3 NOT FOR DISTRIBUTION
Slide 4: Overview
Overview NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO US PERSONS
Slide 5: Overview
Overview Financial results and portfolio performance ¾ Financial performance in line with guidance ¾ Portfolio fundamentals remain sound Entitlement Offer to raise approximately $130 million ¾ 4 for 7 fully underwritten, non-renounceable Entitlement Offer – Issue price of $0.40 per New Unit ¾ Streng
Slide 6: FY09 Financial results and portfolio performance
FY09 Financial results and portfolio performance NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO US PERSONS
Slide 7: FY09 financial results and performance
FY09 financial results and performance ¾ Operating performance – in line with guidance – Rental income: $75.3 million1 (up 7.5%) – Net property income: $67.9 million (up 5.0%) – Profit from operating activities:2 $42.2 million (FY08: $42.9 million) – 2H09 distribution: 3.0 cents per unit (cpu) – FY0
Slide 8: FY09 financial results and performance (cont)
FY09 financial results and performance (cont) ¾ Capital management initiatives executed – Reduction in development capital expenditure – Distribution policy adjusted to 80-85% of operating profit before development property write downs – Distribution Re-investment Plan (DRP) activated – Pursuing ass
Slide 9: FY09 operating performance
FY09 operating performance ¾ Net property income: $67.9 million (up 5% on FY08) ¾ Profit from operating activities1: $42.2 million (down $0.7m or 1.8% on FY08) − Financing costs up $4.9 million ¾ Full year distribution of 6.7 cpu − Distribution payout ratio2: 86.3% FY09 FY08 $’000 $’000 Net property
Slide 10: Portfolio overview – 30 June 2009
Portfolio overview – 30 June 2009 ¾ Portfolio characterised by sound fundamentals − Occupancy – 98.92% (30 June 2008: 99.97%) − WALE – 5.7 years (30 June 2008: 6.2 years) ¾ Domestic focus – 91% Australian Australian portfolio French portfolio Total portfolio Total investment property portfolio value
Slide 11: Portfolio management update
Portfolio management update ¾ Smithfield − Conditional contract1 exchanged for sale of new warehouse facility for $6 million2 − Equal to written down book value at 30 June 2009 − Settlement expected in December 2009 ¾ Heidelberg − Non-binding heads of agreement entered into for sale at $8 million3 −
Slide 12: Entitlement Offer summary
Entitlement Offer summary NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO US PERSONS
Slide 13: The Entitlement Offer
The Entitlement Offer ¾ CDI is undertaking a fully underwritten $130 million institutional and retail entitlement offer (the “Entitlement Offer”) − Institutional entitlement offer approximately $110 million and retail entitlement offer approximately $20 million − 4 for 7 non-renounceable Entitlement
Slide 14: Rationale for the Entitlement Offer
Rationale for the Entitlement Offer ¾ The Entitlement Offer, the June 2009 DRP and Smithfield1 and Heidelberg2 asset sales significantly strengthen the balance sheet − Covenant Gearing3 reduced to 26.8% from 43.9% at 30 June 2009 vs. covenant of 50% − Balance Sheet Gearing4 reduced to 25.1% from 39.
Slide 15: Liquidity
Liquidity ¾ Sufficient liquidity to meet all debt maturity and forecast capital expenditure requirements until October 2010 ¾ Approximately $55 million of debt refinance or non-core asset sales expected to meet October 2010 debt maturity 30 June 2009 pro forma FY10 Liquidity to June 2011 300 $14 250
Slide 16: Balance sheet impact and debt covenant analysis
Balance sheet impact and debt covenant analysis ¾ Approximately $388 million (46% fall in asset values) buffer to Covenant Gearing level of 50% ¾ Forecast FY10 ICR of 4.5x post Entitlement Offer vs. covenant of 2.0x Covenant Gearing Balance Sheet Gearing (total liabilities / (total assets less defer
Slide 17: EPU / DPU guidance
EPU / DPU guidance ¾ Pro forma FY10 EPU1,2 guidance of 5.2 cents ¾ Pro forma FY10 DPU3 guidance of 4.2 cents − Down from normalised 5.5 cpu to 4.2 cpu on a like-for-like basis ¾ Distribution policy4 remains unchanged 8 DPU movement from FY09 actual to FY10 guidance 7 - 0.7 + 1.3 6 - 0.5 + 0.3 - 2.7
Slide 18: Entitlement Offer pricing
Entitlement Offer pricing ¾ Issue price of $0.40 per New Unit − 13.0% discount to last close − 11.5% discount to 5 day VWAP − 42.0% discount to pro forma NTA per unit 13.0% discount to 11.5% discount to 42.0% discount to pro last close 5 day VWAP forma NTA per unit $0.50 $0.50 $0.80 $0.46 $0.69 (13.
Slide 19: Peer comparison
Peer comparison FY10 EPU yield1 FY10 DPU yield1 20% 18.4% 20% 15% 13.0% 15% 13.2% 11.6% 9.2% 10.1% 11.0% 10.5% 8.1% 8.8% 8.8% 8.2% 8.3% 10% 7.3% 10% 7.0% 7.8% 7.8% 8.0% 6.7% 6.4% 6.6% 6.9% 5% 5% 0% 0% Australand Bunnings Stockland Charter Dexus Macq. GPT Australand CDI Mirvac Bunnings Clth Office St
Slide 20: Indicative timetable
Indicative timetable Event Date Announcement of Entitlement Offer; institutional Entitlement Offer opens 10.00am AEST, Thursday 6 August 2009 Unitholder declaration forms due to Orient Capital 4.00pm AEST, Thursday 6 August 2009 Institutional Entitlement Offer closes 10.30am AEST, Friday 7 August 20
Slide 21: Key financials
Key financials NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO US PERSONS
Slide 22: Gearing sensitivity analysis
Gearing sensitivity analysis ¾ Ability to withstand further asset value impairment − Approximately $388 million (46% fall in asset values) buffer to Covenant Gearing level of 50% Covenant Gearing (total liabilities / total assets less deferred tax asset) 60% Balance Sheet Gearing (total debt / total
Slide 23: NTA sensitivity analysis
NTA sensitivity analysis $1.00 $0.80 NTA per unit ($) $0.60 $0.88 $0.86 $0.69 $0.40 $0.63 $0.58 $0.20 30-Jun-09 Post balance date adjustments¹ Post Entitlement Offer 50bps cap rate expansion 100bps cap rate expansion Weighted average capitalisation rate 8.1% 8.1% 8.6% 9.1% Note: 1. Post June 2009 DR
Slide 24: Balance sheet – pro forma
Balance sheet – pro forma Post balance date adjustments 30 June 2009 Pro forma post Entitlement Pro forma post 30 June Distribution, balance date Offer Entitlement ($m) 20091 DRP & fees2 Asset sales3 adjustments adjustments Offer Assets Cash and receivables 2.8 2.8 2.8 Investment and development pro
Slide 25: Debt maturity profile
Debt maturity profile Debt maturity profile at 30 June 2009 180 160 Pro forma post 140 30 June 2009 Entitlement Offer 48 120 30 Total facility ($m) $500 $372 100 15 $m 80 Total drawn ($m) $334 $210 60 110 98 95 1 40 Total undrawn ($m) $166 $162 20 31 36 36 - - - Weighted average term of 1.3 1.6 Oct-
Slide 26: Summary
Summary Financial results and portfolio performance ¾ Financial performance in line with guidance ¾ Portfolio fundamentals remain sound Entitlement Offer to raise approximately $130 million ¾ 4 for 7 fully underwritten, non-renounceable Entitlement Offer – Issue price of $0.40 per New Unit Strengthe
Slide 27: Key risks and other Entitlement Offer arrangements
Key risks and other Entitlement Offer arrangements NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO US PERSONS
Slide 28: Summary of key risks
Summary of key risks Related party ownership Other general business risks ¾ Property risks Key primary business risks ¾ Tenant risks ¾ Debt covenants ¾ Changes in property markets ¾ Gearing ¾ Property leasing ¾ Availability of funding ¾ Capital expenditure ¾ Fair value of investment properties ¾ Fix
Slide 29: Related party ownership
Related party ownership Related party ownership The potential effect that the issue of the stapled units will have on the control of CDI and the consequences of that effect, will depend upon a number of factors, including investor demand. If all unitholders take up their entitlements under the Entit
Slide 30: Related party ownership
Related party ownership Related party ownership The actual voting power of the Challenger Financial Services Group following the Entitlement Offer will depend upon the following factors: •the extent to which other unitholders take up their entitlements under the Entitlement Offer •the extent to whic
Slide 31: Key primary business risks
Key primary business risks Outline ¾ This section summarises some of the key risks that may affect the future performance of an investment in CDI. This is not an exhaustive list of the relevant risks. If any of the following risks materialise CDI's business, financial and operational results are lik
Slide 32: Key primary business risks (continued)
Key primary business risks (continued) Availability of funding ¾ Real estate investment is highly capital intensive. CDI’s ability to raise funds on favourable terms for future refinancing and acquisitions depends on a number of factors including general economic conditions, political, capital and c
Slide 33: Key primary business risks (continued)
Key primary business risks (continued) Transactions ¾ The contract for the sale of the Smithfield property is conditional upon registration of strata division and associated documents, obtaining a building certificate, obtaining a development approval for use and minor works and completing construct
Slide 34: Key primary business risks (continued)
Key primary business risks (continued) Co-ownership and rights in relation to properties ¾ A number of CDI's properties (Properties) are co-owned with Challenger Life Company Limited (Challenger Life). Owning an interest in an asset with co-owners imposes restrictions which do not apply where the as
Slide 35: Other general business risks
Other general business risks Property risks ¾ Property assets are by their nature illiquid investments. Therefore, it may not be possible for CDI to dispose of assets in a timely manner ¾ To the extent that CDI invests in properties for which there may be only a limited number of potential investors
Slide 36: Other general business risks (continued)
Other general business risks (continued) Property leasing ¾ There is a possibility that tenants may default on their rental or other obligations under leases with CDI, leading to capital losses or a reduction in income to CDI which will impact the value of an investment in CDI ¾ In addition, there i
Slide 37: Other general business risks (continued)
Other general business risks (continued) Competition ¾ CDI faces competition from other property groups and other organisations in the countries in which CDI operates ¾ CDI also operates with the threat of new competition entering the market ¾ Competition may lead to an oversupply through overdevelo
Slide 38: Other general business risks (continued)
Other general business risks (continued) Economic environment ¾ If the Australian economy experiences a prolonged economic downturn, this could have an adverse impact on CDI's earnings. Aspects of the business that could be affected include reduced rental income as a result of increased vacancy rate
Slide 39: Other general business risks (continued)
Other general business risks (continued) Environmental matters ¾ CDI will, from time to time, be exposed to a range of environmental risks including soil and water contamination, construction (lead paint, asbestos, PCBs), cultural heritage (Aboriginal), flora and fauna (native vegetation, endangered
Slide 40: Other general business risks (continued)
Other general business risks (continued) Occupational health and safety ¾ There is a risk that CDI fails to comply with the necessary occupational health and safety legislative requirements across the jurisdictions in which CDI operates which could result in fines, penalties and compensation for dam
Slide 41: General market risks
General market risks Negative effects of market influences ¾ The price of CDI units on ASX may rise or fall due to numerous factors which may affect the market performance of CDI, including: – Australian and international general economic conditions, including fluctuations in inflation rates, intere
Slide 42: Ineligible Unitholders
Ineligible Unitholders ¾ Nominee to administer ineligible unitholder entitlements − Some unitholders resident outside Australia and New Zealand are not eligible to participate in the entitlement offer due to securities law restrictions on the offer of CDI units in certain jurisdictions (Ineligible U
Slide 43: Underwriting arrangements
Underwriting arrangements ¾ The Entitlement Offer is fully underwritten by UBS AG, Australia Branch ¾ The Underwriter’s commitment is conditional on Challenger Life Company Limited taking up its entitlement under the Entitlement Offer ¾ Underwriter termination events include: – Challenger Life Compa
Slide 44: Important holding information
Important holding information ¾ Stock lending and other transactions − Eligible Unitholders will be entitled to apply under the Entitlement Offer for a certain number of New Units held as at the Record Date being 7.00pm on 11 August 2009. Notwithstanding the Record Date for the Entitlement Offer, CD
Slide 45: Appendix A: Additional full year results and other financial information
Appendix A Additional full year results and other financial information NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO US PERSONS
Slide 46: Debt summary post Entitlement Offer
Debt summary post Entitlement Offer ¾ Total borrowings of $210 million ¾ Average cost of debt – 4.7% (includes average margin of 51 bps on drawn debt) ¾ Weighted average line fee on undrawn debt is 30 bps Post Entitlement Offer 30 Jun 09 Borrowings1 $m 210 334 Gearing (debt to total assets) % 25.1 3
Slide 47: Diversification enhances portfolio quality
Diversification enhances portfolio quality As at 30 June 2009 Sector diversification (by value) Geographic diversification (by value) 2% 9% 10% Office 3% NSW 29% Retail 4% ACT 18% VIC 7% Industrial - Distr'n QLD Centre SA 54% Industrial - High Tech WA 20% TAS 18% France 26% Tenant diversification by
Slide 48: Tenant industry diversification
Tenant industry diversification1 ¾ 30% of CDI portfolio leased to government tenants ¾ Financial services sector exposure low at 2.6% ¾ Strong diversity Top 20 tenants Industry representation % Of Total 30.4% Contracted Rank Tenant Name Tenant Industry Asset(s) Portfolio Contracted Gross Income 1 AB
Slide 49: Portfolio revaluations as at 30 June 2009
Portfolio revaluations as at 30 June 2009 ¾ 50% (by value) independently revalued at 30 June 2009 (31 Dec 2008: 94% revalued) ¾ Valuations have fallen $16.7 million representing 4.2% across properties revalued1 ¾ Market capitalisation rates softened 23 bps from 7.84% to 8.07% ¾ French portfolio valu
Slide 50: Leasing transactions underpin fundamentals
Leasing transactions underpin fundamentals ¾ Proactive focus on leasing - occupancy at 98.92% ¾ FY09 − deals completed include renewal and new leases at: Makerston House, Jam Factory, Century City Walk, Cosgrove Industrial Park, 6 Foray St Fairfield, Goodman Fielder, Taylors College4 and Verizon4 (L
Slide 51: Strategies in place for upcoming lease expiries
Strategies in place for upcoming lease expiries ¾ Portfolio 98.92% occupied Lease expiry profile (by income)2 53.1% ¾ WALE 5.7 years ¾ Lease expiries proactively managed − emphasis on retaining tenants 15.5% 8.4% 8.0% 7.4% 6.5% 1.1% Vacant Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 FY 2015 Beyond % portfoli
Slide 52: Rent review profile provides built-in growth
Rent review profile provides built-in growth ¾ Significant weighting to fixed and indexed rental reviews over next three years ¾ 90% of portfolio subject to rental reviews in FY10 Rent review profile (by income) Review type FY10 rental Rent reviews proportion (%) 11% 14% 22% Fixed 55% Average 3.4% 1
Slide 53: CDI portfolio diversification by geography & sector
CDI portfolio diversification by geography & sector Geographic Sector Diversification 300 29% 250 26% 200 20% Industrial - High Tech Value ($m) Industrial-DC 150 Retail Office 100 9% 7% 50 4% 3% 2% 0 NSW ACT VIC QLD SA WA TAS France Sector Geographic Diversification 500 450 54% 400 France 350 TAS 30
Slide 54: Net property income (AIFRS)
Net property income (AIFRS) Australian portfolio FY09 FY08 Variance Variance ($'000) ($'000) ($'000) % Office ABS Building, Belconnen, ACT 6,950 6,641 309 4.7 The Forum, Cisco, St Leonards, NSW 4,657 5,282 (625) (11.8) DIAC ("DIMA") Building, Belconnen, ACT 4,807 4,656 151 3.2 Discovery House, Woden
Slide 55: Net property income (AIFRS) (continued)
Net property income (AIFRS) (continued) Australian portfolio (continued) FY09 FY08 Variance Variance ($'000) ($'000) ($'000) % Industrial – High-Tech Goodman Fielder, North Ryde, NSW 2,276 2,251 25 1.1 Rexel, North Ryde, NSW 1,359 834 525 62.9 Kraft, Port Melbourne, Vic. 1,517 1,417 100 7.1 Pacific
Slide 56: Management
Management ¾ Management agreements published on website ¾ Management expense ratio (MER): 48.60bps ¾ Management fees: Fee type Calculation Base management fee 0.5% of gross assets of CDPG per annum, however this fee is reduced to 0.3% per annum for the period from allotment to June 2008 for IPO asse
Slide 57: 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, leasing costs, debt establishment fees and capital expenditure incurred to maintain the investment properties, subject to the ongoing
Slide 58: Appendix B: International selling restrictions
Appendix B International selling restrictions NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO US PERSONS
Slide 59: International selling restrictions
International selling restrictions European Economic Area (Belgium, Germany, Italy and the Netherlands) ¾ The information in this document has been prepared on the basis that all offers of New Units will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as imp
Slide 60: International selling restrictions (continued)
International selling restrictions (continued) France ¾ This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L. 411-1 of the French Monetary and Financial Code (Code monétaire
Slide 61: International selling restrictions (continued)
International selling restrictions (continued) Hong Kong ¾ WARNING: This document has not been, and will not be, registered as a prospectus under the Companies Ordinance (Cap. 32) of Hong Kong (the "Companies Ordinance"), nor has it been authorised by the Securities and Futures Commission (the "SFC"
Slide 62: International selling restrictions (continued)
International selling restrictions (continued) Ireland ¾ The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by the Irish Financial Services Regulatory Authority or any other Irish regulatory auth
Slide 63: International selling restrictions (continued)
International selling restrictions (continued) Sweden ¾ This document is not a prospectus and has not been prepared in accordance with the prospectus requirements under the Swedish Financial Trading Act (Lag (1981:980) om handel med finansiella instrument) nor any other Swedish enactment. Neither th
Slide 64: International selling restrictions (continued)
International selling restrictions (continued) Switzerland ¾ The New Units may not be publicly offered, sold, advertised, distributed or re-distributed, directly or indirectly, in or from Switzerland, and no solicitation for investments in the New Units may be communicated, distributed or otherwise
Slide 65: International selling restrictions (continued)
International selling restrictions (continued) ¾ In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financi
Slide 66: Appendix C: Glossary
Appendix C Glossary NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO US PERSONS
Slide 67: Glossary
Glossary Term Definition AEST Australian Eastern Standard Time ASX Australian Securities Exchange Balance Sheet Gearing Total debt / total assets Cap rate Capitalisation rate One unit in Challenger Diversified Property Trust 1 and one unit in Challenger Diversified Property Trust 2 CDI unit stapled
Slide 68: Glossary (continued)
Glossary (continued) Term Definition EPU Earnings per unit FY Financial year (July to June) Interest Coverage Ratio EBIT / net interest expense (ICR) New Unit(s) New CDI Unit(s) issued under the Entitlement Offer NTA Net tangible assets Underwriter UBS AG, Australia Branch VWAP Volume weighted avera
Slide 69: Not for distribution or release in the United States or to US persons
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO US PERSONS
Challenger Diversified Property Group — FY2009 Earnings Presentation on 6ix