Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — H1 2011 Earnings Presentation
35 slides from Challenger's earnings presentation, Feb 8, 2011
Slide 1: Challenger Diversified Property Group Results presentation 1H11
Challenger Diversified Property Group (ASX: CDI) Results presentation for half-year ended 31 December 2010 (1H11) Trevor Hardie, Fund Manager Tim Evans, Assistant Fund Manager 8 February 2011 1
Slide 2: Important notice
Important notice Information contained in this publication is current as at 8 February 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 (ARS
Slide 3: Key points
Key points ¾ 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 4: Strategy…
Strategy… The Forum, Cisco 4 St Leonards NSW
Slide 5: CDI portfolio enhancement strategy
CDI portfolio enhancement strategy ¾ 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 ¾ Implementation: – Analyse opportunities, ensuring that diversification acr
Slide 6: Financial Performance…
Financial Performance… Taylors House 6 Waterloo NSW
Slide 7: Operating profit steady
Operating profit steady ¾ Profit from operating activities: $25.3 million (1H10: $24.7m) ¾ NPAT: $30.1 million compared to $13.7 million loss in 1H10 ¾ Half-year distribution of 2.0 cpu ¾ Distribution payout ratio1 for 1H11: 72% 1H11 1H10 $ million $ million Net property income 30.9 33.5 Financing c
Slide 8: NTA at 67 cpu
NTA at 67 cpu ¾ 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 30 June 2010 31 Dec 09 Total assets $m 781.4 799.2 794.0 Total liabilities $m 169.2 198.8 213.8 Net tangible assets $m
Slide 9: Facility expiry profile
Facility expiry profile ¾ One multi-currency facility of $261 million with 2 major domestic banks ¾ Current short-term profile reflects strategy of maintaining low cost debt ¾ $156 million drawn1 with undrawn capacity of $105 million • 31 December 2010 pro forma expiry profile1 120 100 80 $m 60 110.
Slide 10: Debt metrics; low cost of debt
Debt metrics; low cost of debt ¾ Average cost of current drawn debt – 4.8% − if facility fully drawn, average cost of debt would be 5.8% − expect to increase on debt rollover in Aug & Oct11 − includes average margin of 74 basis points on drawn debt ¾ Weighted average undrawn commitment fee: 127 basi
Slide 11: Portfolio Performance
Portfolio Performance DIAC Building Belconnen ACT Discovery House 11 Woden ACT
Slide 12: State of play – 2011: the year of recovery
State of play – 2011: the year of recovery ¾ 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 13: Portfolio overview – December 2010
Portfolio overview – 31 December 2010 ¾ Key portfolio metrics − Occupancy – 91.5% (Jun 10: 94.7%); WALE – 4.8 years (Jun 10: 5.1 years) ¾ Domestic focus − 93% Australian; orderly disposal of French portfolio still scheduled for second half CY11 Australian portfolio French portfolio Total portfolio T
Slide 14: Portfolio revaluations at December 2010
Portfolio revaluations at 31 December 2010 ¾ All properties revalued as at 31 Dec; 66% (by value) independently revalued ¾ Valuations1 up $6.4 million (0.9% across total investment portfolio) ¾ Market capitalisation rates firmed from 8.29% to 8.22% ¾ French portfolio value up 1.6%3. Market capitalis
Slide 15: Diversification enhances portfolio quality
Diversification enhances portfolio quality As at 31 December 2010 Sector diversification (by value) Geographic diversification (by value) 7% Office 3% 7% 3% NSW 28% 16% Retail 4% ACT VIC Industrial - Distr'n 6% QLD Centre SA Industrial - High Tech 59% WA 18% TAS 20% 29% France Tenant diversification
Slide 16: Tenant industry diversification
Tenant industry diversification ¾ 36% of CDI portfolio leased to government tenants ¾ Well diversified across industries Top 20 tenants1 Industry representation % Of Total Contracted Rank Tenant Name Tenant Industry Asset(s) Portfolio Contracted Gross Face Income 1 ABS Government ABS House 10.2% 2 D
Slide 17: Lease expiries
Lease expiries ¾ Investment portfolio 91.5% occupied ¾ WALE 4.8 years Lease expiry profile (by income) 60.6% 62.3% % Expiry 9.9% 11.1% 8.5% 6.1% 2.1% Vacant Jun-11 Jun-12 Jun-13 Jun-14 FY 2015 Beyond Period 17
Slide 18: Refurbishments enhance leasing prospects
Refurbishments enhance leasing prospects A. Forum Verizon, St Leonards Ownership 60% Portfolio income 3.2% (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 19: Refurbishments enhance leasing prospects
Refurbishments enhance leasing prospects B. 187 Todd Road, Port Melbourne: Ownership 60% Portfolio income 2.4% (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 20: Refurbishments enhance leasing prospects
Refurbishments enhance leasing prospects C. 75 Talavera Rd, North Ryde: Ownership 60% Portfolio income 1.5% 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 21: Value enhancing redevelopment projects
Value enhancing redevelopment projects Jam Factory (60% CDI) ¾ Repositioning centre ¾ Heads of Agreement with Target “Urban” for 1,200 sqm ¾ Village to undertake a refurbishment ¾ Tenancy remix ¾ 18 month project to completion in FY12 Domain car park (100% CDI) ¾ Refurbishment to commence March 2011
Slide 22: Summary…
Summary… DIAC Building 22 Belconnen ACT
Slide 23: Summary
Summary ¾ 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 19.9% − Maintained FY11 guidance: EPU: 4.9 cents; DPU: 4.0 cents ¾ Property valuations up; leasing market remains cha
Slide 24: 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 25: Appendices
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Slide 26: CDI outperforms the index
CDI outperforms the index ¾ CDI ranked 3rd best performing A-REIT in CY101 ¾ 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 27: 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 28: Management
Management ¾ Management agreements published on website ¾ Base management fee expense ratio: 66 bps1 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 Perfo
Slide 29: Hedge profiles
Hedge profiles Interest rate hedges $A denominated hedges CDI AUD hedge profile Notional Hedge rate Maturity date $70m 3.35% Feb 2011 $25m 4.57% Oct 2011 $40m1 5.37% Feb 2014 $12.5m2 5.55% Oct 2015 $12.5m2 5.39% Oct 2015 $40m1 5.07% Feb 2016 $10m 7.40% Jul 2018 Income hedges € Euro denominated hedge
Slide 30: Lease expiry profile (by gross passing income)
Lease expiry profile (by gross passing income) Lease Expiry Profile 9.9% 8.5% 2.01% Spotlight 1.50% 75 Talavera Rd 2.11% Rexel 3.22% The Forum, Verizon Jam Factory 1.91% Car Park 1.26% GDF 2.43% 187 Todd St 2.1% 0.84% CSR 1.81% Retail Specialty 0.33% Retail Specialty 0.90% Retail Specialty 1.05% Min
Slide 31: 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 77% of portfolio subject to rental reviews in FY11 Rent review profile (by income) FY11 FY12 FY13 Review type FY11 rental Rent reviews 14% 16% proportion 23% (%) 8% 8% 8%
Slide 32: CDI investment portfolio diversification
CDI investment portfolio diversification Geographic Sector Diversification $300 $250 28% 30% 29% $200 Value ($m) 20% $150 $100 7% 6% $50 4% 3% 3% - NSW ACT VIC QLD SA WA TAS France Office Retail Industrial-DC Industrial - High Tech Sector Geographic Diversification $500 59% $450 $400 $350 $300 Value
Slide 33: Net property income
Net property income Australian portfolio 1H11 1H10 Variance ($'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 34: 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
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Challenger Diversified Property Group — H1 2011 Earnings Presentation on 6ix