Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — H1 2013 Earnings Presentation
47 slides from Challenger's earnings presentation, Feb 7, 2013
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: Outline
Outline Highlights Trevor Hardie Vision and strategy Fund Manager Financial results Tim Evans Assistant Fund Manager Capital management Portfolio performance Trevor Hardie Summary Fund Manager 2
Slide 3: Highlights
Highlights 31 Queen Street Melbourne, VIC
Slide 4: 1H13 highlights
Highlights Half year 31 December 2012 1H13 highlights • Operating results – Net property income $33.7 million in line with 1H12 – Total portfolio like for like net property income up 4% on 1H12 – Profit from operating activities $22.91 million down from $23.9 million – 1H13 normalised earnings per u
Slide 5: Track record of outperformance
Highlights Half year 31 December 2012 Track record of outperformance Total return comparison since inception • Since inception CDI has outperformed the 140 S&P/ASX 200 Property Accum Index by 120 48% 100 Out performance • CDI has continued to outperform its 80 48% benchmark, the S&P/ASX 200 Property
Slide 6: CDI key metrics
Highlights Half year 31 December 2012 CDI key metrics 31 Dec 2012 30 Jun 20122 Unit price1 $2.48 $2.26 Market capitalisation (cap) 1 $531 million $485 million Total assets $882 million $880 million Net tangible assets (NTA) $2.74 $2.73 Discount to NTA1 9.4% 17.4% Pro forma gearing 30.2% 29.8% Weight
Slide 7: Vision and strategy
Vision and strategy DIAC Building Belconnen, ACT
Slide 8: Vision and strategy
Vision and strategy Half year 31 December 2012 Vision and strategy Our Vision Be the preferred mid-cap Australian diversified REIT and a member of the S&P/ASX 200 Property Index Our Strategy Our Strategy Our Strategy Portfolio enhancement Leasing Capital management Actively manage and add Actively m
Slide 9: Portfolio enhancement
Vision and strategy Half year 31 December 2012 Portfolio enhancement • Improve portfolio composition – Exit from North Ryde market completed – Reduced exposure to industrial hi-tech office sector Innaloo Cinema Centre, WA – artist’s impression retail expansion • Value add initiatives – Repositioning
Slide 10: Portfolio enhancement
Vision and strategy Half year 31 December 2012 Portfolio enhancement Sector Objective Initiatives • Maximise exposure to core markets Growth through • Diversify tenant exposure Office development of existing • Continue upgrade and refurbishment of portfolio and acquisition 31 Queen Street and Makers
Slide 11: Improve leasing metrics
Vision and strategy Half year 31 December 2012 Improve leasing metrics Future expiries de-risked • Leasing remains a strategic priority 12% • Continued leasing progress made 10% in a challenging market 8% – The Forum Cisco - Cisco renewed 5.9% 6.0% 5.7% with expiry now in FY17 6% 4.1% 4% – 2-10 Toll
Slide 12: Active capital management
Vision and strategy Half year 31 December 2012 Active capital management • Capital redeployed from buy-back to other Cost of AUD denominated debt value add initiatives in 1H13 • Operating profit distribution payout ratio 7.2% 80%, up from 76% in 1H12 7.0% – Medium term objective to lift payout ratio
Slide 13: Financial results
Financial results ABS House Belconnen, ACT
Slide 14: Operating results
Financial results Half year 31 December 2012 Operating results • Profit from operating activities $22.9m or 10.70 cpu • Distribution 8.60 cpu up 5% on 1H12 • Statutory NPAT of $20.8m up from $18.8m in 1H12 • NTA $2.74 per unit 1H13 1H12 Net property income1 - $m 33.7 33.8 Financing costs - $m 7.3 6.
Slide 15: Change in normalised epu
Financial results Half year 31 December 2012 Change in normalised epu 6 months to 30 June 2012 6 months to 31 December 2012 11.0 0.6 0.4 10.0 0.2 Cents per unit 0.7 0.7 10.7 0.3 10.7 9.0 9.6 9.3 8.0 1H12 epu Vacancies Domain car One off legal Unit buy-back 2H12 epu Net property Reduction in 1H13 epu
Slide 16: Capital management
Capital management Discovery House Woden, ACT
Slide 17: Debt metrics
Capital management Half year 31 December 2012 Debt metrics • Average cost of Australian drawn debt 6.4% – includes average margin of 1.8% on drawn debt • Weighted average undrawn commitment fee 1.0% • Incremental cost of drawing additional Australian debt 4.0% Pro forma 31 December 20121 AUD Euro Co
Slide 18: Facility expiry profile
Capital management Half year 31 December 2012 Facility expiry profile • Refinance of $110m in July 2013 presents an opportunity to lengthen and further stagger maturity profile • Undrawn $33m to fund committed developments and provide financial flexibility 31 December 2012 pro forma expiry profile1
Slide 19: Portfolio performance
Portfolio performance Stage 2, The Junction Industrial Park Enfield, NSW
Slide 20: State of play
Portfolio performance Half year 31 December 2012 State of play Retail Office Industrial Industrial • Consumer confidence indicates a • White collar employment weak with • Positive Australian GDP growth and continuing trend of cautious job ads falling to a three year low increased port volumes over 2
Slide 21: Portfolio overview
Portfolio performance Half year 31 December 2012 Portfolio overview • Key portfolio metrics – Occupancy 94.3% (30 June 2012 - 94.1%) – WALE 4.8 years (30 June 2012 - 5.0 years) • NABERS energy rating – 4 star weighted average (applicable to rated buildings) Australian French Total 31 December 2012 p
Slide 22: Portfolio revaluations
Portfolio performance Half year 31 December 2012 Portfolio revaluations • All properties revalued with 52% (by value) independently valued • Total portfolio valuations up $10.3m (1.2%) from 30 June 20121 – Fair value movement of investment properties held at 31 December 2012 was flat • Market capita
Slide 23: Lease expiry profile
Portfolio performance Half year 31 December 2012 Lease expiry profile • Future earnings strengthened, 90% of expiries in FY15 and beyond 7.0% 6.0% 5.7% 5.0% 187 Todd Road, 1.6% 4.0% The Forum, Verizon, 1.6% 3.0% 2.4% Floors currently The Forum, Verizon, 0.2% Makerston House, 0.9% being 2.0% refurbis
Slide 24: Rent review profile provides built-in growth
Portfolio performance Half year 31 December 2012 Rent review profile provides built-in growth • Significant weighting to fixed and indexed rental reviews over next three years • 92% of portfolio subject to rental reviews in FY13 Rent review profile (by income) 100% 8% 8% 12% Review type FY13 rental
Slide 25: Jam Factory repositioning
Portfolio performance Half year 31 December 2012 Jam Factory repositioning • Car park upgrade completed and revenue Key attributes and metrics is increasing of the development 100% ownership1 Project cost $20m • Construction of new Village office space completed and rent commenced Value on commencem
Slide 26: Future value add opportunities
Portfolio performance Half year 31 December 2012 Future value add opportunities Portfolio enhancement is a strategic priority Ongoing value add via recycling existing portfolio capital Uncommitted future projects Other latent development opportunities Schemes under development to take advantage of S
Slide 27: Summary
Summary The Forum, Cisco 27 St Leonards, NSW
Slide 28: Summary
Summary Half year 31 December 2012 Summary • Operating results – Normalised earnings and distribution of 10.70 and 8.60 cpu – Net tangible assets (NTA) of $2.74 cpu, trading at a 9.4%1 discount to NTA – Pro forma balance sheet gearing of 30.2% • Property metrics – Occupancy 94.3% – WALE 4.8 years –
Slide 29: Contacts
Contacts Trevor Hardie Tim Evans Fund Manager Assistant Fund Manager Tel: + 61 (0)2 9994 7546 Tel: + 61 (0)2 9994 7131 Email: thardie@challenger.com.au Email: tevans@challenger.com.au Website www.challenger.com.au/cdi 29
Slide 30: Appendices
Appendices
Slide 31: Appendices – Table of contents
Appendices Half year 31 December 2012 Appendices – Table of contents Portfolio metrics Diversification enhances portfolio quality 32 CDI investment portfolio diversification 33 Tenant industry diversification 34 Lease expiry profile 35 Financial results Income statement 36 Reconciliation of profit 3
Slide 32: Diversification enhances portfolio quality
Appendices Half year 31 December 2012 Diversification enhances portfolio quality Sector diversification (by value) Geographic diversification (by value) 6% 5% 2% 3% 3% 25% 17% Office 5% Retail NSW ACT Industrial - DC VIC Industrial - HT QLD SA 60% WA 18% TAS 30% France 26% Tenant diversification by
Slide 33: CDI investment portfolio diversification
Appendices Half year 31 December 2012 CDI investment portfolio diversification Geographic sector diversification $300 30% $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 Sector geographic diversification
Slide 34: Tenant industry diversification
Appendices Half year 31 December 2012 Tenant industry diversification • 34% of CDI portfolio leased to government tenants • Well diversified across industry types • Top 20 tenants comprise 66% of portfolio, down from 87% at IPO Top 20 tenants1 % of total contracted Industry representation Ranking Te
Slide 35: Lease expiry profile
Appendices Half year 31 December 2012 Lease expiry profile 80% 70% 61.3% % expiry by gross income 60% 50% 40% 30% 20% 16.8% 12.6% 10% 5.7% 1.2% 2.4% 0% Vacant FY13 FY14 FY15 FY16 FY17 and beyond 35
Slide 36: Income statement
Appendices Half year 31 December 2012 Income statement 31 December 31 December Income statement 2012 2011 $’000 $’000 Rental income 38,176 36,811 Other property income 5,456 6,439 Income from operating business activities 3,627 3,772 Interest income 81 301 Revenue 47,340 47,323 Property related expe
Slide 37: Reconciliation of profit
Appendices Half year 31 December 2012 Reconciliation of profit Reconciliation of statutory net profit after tax to 31 December 31 December profit from operating activities 2012 2011 $’000 $’000 Net profit after tax attributable to unitholders of CDI 20,797 18,847 Adjusted for: Straight-lining of ren
Slide 38: Distribution statement
Appendices Half year 31 December 2012 Distribution statement 31 December 31 December Distribution statement 2012 2011 $’000 $’000 Profit from operating activities 22,913 23,859 Non-cash expenses Amortisation of borrowing costs 215 590 Other transfers per distribution policy Debt establishment costs
Slide 39: Available funds from operations
Appendices Half year 31 December 2012 Available funds from operations 31 December 31 December Available Funds From Operations (AFFO) 2012 2011 $’000 $’000 Profit from operating activities 22,913 23,859 Add/(deduct): Amortisation of borrowing costs 215 590 Leasing costs (188) (2,880) Maintenance capi
Slide 40: Net property income – Australia
Appendices Half year 31 December 2012 Net property income – Australia Australian portfolio 31 Dec 2012 31 Dec 2011 Variance 30 Jun 2012 Variance ($'000) ($'000) ($'000) % ($'000) ($'000) % Office ABS House, Belconnen, ACT 3,767 3,693 74 2% 3,722 45 1% 31 Queen Street, Melbourne, VIC 3,360 3,181 179
Slide 41: Net property income - France
Appendices Half year 31 December 2012 Net property income - France French portfolio 31 Dec 2012 31 Dec 2011 Variance 30 Jun 2012 Variance (€'000) (€'000) (€'000) % (€'000) (€'000) % Sully, Sully sur Loire 474 533 (59) (11%) 556 (82) (15%) Aulnay, Aulnay sous Bois, Paris 354 337 17 5% 343 11 3% Bezie
Slide 42: Net property income - reconciliation
Appendices Half year 31 December 2012 Net property income - reconciliation Reconciliation to financials 31 Dec 2012 31 Dec 2011 Variance 30 Jun 2012 Variance ($'000) ($'000) ($'000) % ($'000) ($'000) % Australia 30,762 29,716 1,046 4% 28,200 2,562 9% Straight–lining of rental income 810 1,322 (512)
Slide 43: Hedge profiles
Appendices Half year 31 December 2012 Hedge profiles $A denominated hedges1 Notional Hedge rate Maturity date CDI interest rate risk policy $20.0m 5.10% Jun 2014 • CDI’s interest rate risk policy is to $20.0m 4.16% Sep 2015 effectively hedge interest rates on a minimum of 60% of total debt $40.0m 5.
Slide 44: Distribution policy
Appendices Half year 31 December 2012 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 life-cycle capital expenditure
Slide 45: Management fees
Appendices Half year 31 December 2012 Management fees • Management agreements published on CDI website • Management expense ratio 59.61 bps • Management fees: Fee type Calculation Base management fee 0.5% of gross assets of CDI per annum, payable in cash Performance fees 5% of first 2% out performan
Slide 46: Important notice
Important notice Disclaimer: The material in this presentation 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 121 484 606) and the Challenger Diversified Property Trust
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