Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — H1 2014 Earnings Presentation
37 slides from Challenger's earnings presentation, Feb 4, 2014
Slide 1: Challenger Diversified Property Group Results for half-year ended 31 December 2013
Challenger Diversified Property Group (ASX:CDI) Results for the half-year ended 31 December 2013 Trevor Hardie Fund Manager Tim Evans Assistant Fund Manager 4 February 2014 Draft
Slide 2: Outline
Outline Key highlights Trevor Hardie Fund Manager Vision and strategy Financial results Tim Evans Assistant Fund Manager Portfolio performance Trevor Hardie Fund Manager Key highlights 2
Slide 3: Key highlights
Key highlights challenger &
Slide 4: Key highlights
Key highlights Consistent strategy delivering EPU and DPU growth • Key metrics Earnings and distribution growth achieved • Portfolio enhancement Repositioning ongoing • Leasing Focussed approach to de-risking future expiries • Capital management Benefits achieved from active strategy • FY14 guidance
Slide 5: Key metrics
Key metrics Earnings and distribution growth achieved Discovery House, Woden, ACT 1H14 1H14 Normalised Statutory EPU1 up 4% NPAT1 to 11.1 cents $15.2m 1H14 Occupancy 95.4% DPU up 7% WALE 4.6 to 9.2 cents years FY14 FY14 Normalised EPU DPU guidance of guidance of 18.5 cents 22.3 cents2 Half-year 31 D
Slide 6: Outperforming the benchmark
Outperforming the benchmark Supported by strong fundamentals • CDI has exceeded its benchmark index 1 Total return comparison since inception 140 – 9% outperformance for 1H141 October 2006 index =100 120 – 52% outperformance since inception 100 80 • Outperformance achieved through 60 executing consi
Slide 7: Vision and strategy
Vision and strategy Full year 30 June 2013 > Vision and Strategy
Slide 8: Vision and strategy
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 manage tenant Actively manage capital value to a
Slide 9: Portfolio enhancement
Portfolio enhancement Repositioning ongoing The Forum properties, St Leonards, NSW • Continue upgrades and refurbishment to Office position properties for tenant retention and releasing • Adding value through redevelopment Retail and tenancy refurbishments • Secure pre-commitments and realise Indust
Slide 10: Leasing
Leasing Focussed approach to de-risking future expiries • Continued reduction in future expiries Future expiries 14% 12.8% – Makerston House ~5,500sqm renewed 12% – 187 Todd Road ~600sqm leased 10% 10.1% 8% • Occupancy at 95.4% (95.7% 30 June 6% 4.3% 4.6% 2013) 4% 2.8% 2% 1.2% – FY14 expiries low at
Slide 11: Capital management
Capital management Benefits achieved from active strategy Debt facility Debt maturity profile 1 • Earnings benefiting from refinancing 150 activity in June 2013 100 • No refinancing requirements until FY16 $m 21 • Undrawn capacity provides flexibility and 50 90 110 79 liquidity buffer - FY14 FY15 FY
Slide 12: Financial results
Financial results challenger &
Slide 13: Operating results
Operating results Earnings growth achieved Operating results 1 1H14 1H13 • Normalised EPU up 4% • Net property income down 2% 2 Net property income - $m 33.0 33.7 • Net income on like-for-like basis Finance costs - $m 6.6 7.3 2 1 Normalised earnings - $m 23.9 22.9 – down 1% from 1H13 due to va
Slide 14: 1H14 normalised EPU
1H14 normalised EPU Up 4% and on track to achieve FY14 guidance 11.5 0.1 (0.1) 11.0 0.3 cents per unit 0.1 10.5 11.1 10.7 10.0 9.5 1H13 EPU Improved Domain Car Reduced finance costs FX benefit Lower net property income 1H14 EPU Park contribution • Domain Car Park improving with further growth opport
Slide 15: 1H14 distribution
1H14 distribution Up 7% and on track to achieve FY14 guidance 1H14 1H13 $m $m • 1H14 normalised earnings payout Distribution to unitholders 19.7 18.4 ratio 82%, up from 80% in 1H13 Normalised earnings 23.9 22.9 Normalised earnings payout ratio 82% 80% • Medium term objective to lift normalised earni
Slide 16: Debt metrics
Debt metrics Strong balance sheet 31 December 2013 Australia France Consolidated • Pro forma balance sheet gearing (31%) 1 4 remains within target range of 25% to Borrowings – A$ 219m 59m 278m 35% Pro forma balance sheet 1 26.5% 95.7% 31.4% gearing 2 • Average cost of Australian drawn Facility geari
Slide 17: Portfolio performance
Portfolio performance eee challenger &
Slide 18: State of play
State of play Occupancy markets showing signs of improvement • Tenant demand expected to improve through 2014 • Incentives expected to remain elevated Office • Investment demand for prime well leased stock expected to continue • Improving investment demand for suburban/fringe well leased assets • Co
Slide 19: Portfolio overview
Portfolio overview High yielding diversified portfolio Australian French Total Portfolio overview – 31 Dec 2013 portfolio portfolio portfolio Portfolio metrics Total property portfolio - $m 799.6 60.6 2 860.2 • Occupancy 95.4% Number of investment properties 22 5 27 Portfolio weighting - % • WALE 4.
Slide 20: Lease expiry profile
Lease expiry profile Reducing future expiries 7% 6.4% 6% 6 Foray Street 1.7% 5% 4.6% 187 Todd Road 0.4% 4% Makerston House 3.7% 0.9% Executive Building 4.3% 2.7% 3% The Forum, Cisco 31 Queen Street 2.0% 1.6% 2% Makerston House 1.2% 0.4% The Forum, Verizon 1.4% The Forum, Verizon 1% 31 Queen Street 1
Slide 21: Key highlights
Key highlights Consistent strategy delivering EPU and DPU growth • Key metrics Earnings and distribution growth achieved • Portfolio enhancement Repositioning ongoing • Leasing Focussed approach to de-risking future expiries • Capital management Benefits achieved from active strategy • FY14 guidance
Slide 22: 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 www.challenger.com.au/cdi Half-year 31 December 2013 > Contacts 22
Slide 23: Appendices
Appendices
Slide 24: Appendices table of contents
Appendices Table of contents Portfolio metrics 31 Queen St, Melbourne, VIC • Diversified investment portfolio 25 • Rent review profile 27 • Tenant diversification 28 Financial results • Income statement 29 • Distribution statement 30 • Available Funds From Operations 31 • Net property income – Austr
Slide 25: Diversified investment portfolio
Diversified investment portfolio Sector diversification (by value) Geographic diversification (by value) 4% 7% NSW 2% 3% 25% 18% 3% ACT Office 5% VIC Retail Industrial QLD Hi-tech office SA 59% 19% WA 30% 25% 1 Tenant diversification by type (by gross income) Tenant credit rating (by gross income) 8
Slide 26: Diversified investment portfolio
Diversified investment portfolio Geographic sector diversification Sector geographic diversification $300 $600 30% 59% $250 $500 25% 25% $200 $400 Value $m Value $m $150 $300 $100 $200 19% 18% 7% $50 5% $100 3% 3% 2% 4% - - NSW ACT VIC QLD SA WA TAS France Office Retail Industrial Hi-tech office Off
Slide 27: Rent review profile
Rent review profile Rent review profile • Majority of portfolio has fixed or CPI 100% 9% 2% 17% 21% rental reviews over next three years 80% 7% 6% 11% 7% • 91% of portfolio subject to rental 11% No review 12% 60% Market review reviews in FY14 French CCI/ILAT 40% 71% 66% 60% CPI review Fixed review 2
Slide 28: Tenant diversification
Tenant diversification 1 Top 20 tenants Rank Tenant name Tenant industry Property(s) % Industry representation 1 ABS Government ABS House 9.5% 40% 33% 2 DIBP Government DIAC Building 6.7% % of gross income 30% 3 IP Australia Government Discovery House 6.2% 4 Village Cinemas Cinema Jam Factory, CCW,
Slide 29: Income statement
Income statement 31 December 31 December 31 December 31 December 2013 2012 Reconciliation of net profit after tax to 2013 2012 Income statement $’000 $’000 normalised earnings $’000 $’000 Rental income 37,248 38,176 Net profit after tax 15,172 20,797 Other property income 5,926 5,456 Income from ope
Slide 30: Distribution statement
Distribution statement Distribution statement 31 December 2013 31 December 2012 • CDI’s distribution policy is to distribute $’000 $’000 accounting profit earned from operating Normalised earnings 23,869 22,913 activities (“normalised earnings”), adjusted Non-cash expenses for non-cash expenses, str
Slide 31: Available Funds From Operations (AFFO)
Available Funds From Operations (AFFO) 31 December 31 December 2013 2012 • Aligned with Property Council of Available Funds From Operations (AFFO) $’000 $’000 Australia (PCA) methodology released Normalised earnings 23,869 22,913 in June 2013 Add/(deduct): Life-cycle capital expenditure (1,809) (2,3
Slide 32: Net property income – Australia
Net property income – Australia 31 December 31 December Variance Variance 30 June Variance Variance 1 Australian portfolio 2013 2012 2013 2013 2013 2013 2013 $’000 $’000 $’000 % $’000 $’000 % Office ABS House, Belconnen, ACT 3,880 3,767 113 3% 3,857 23 1% 31 Queen Street, Melbourne, VIC 2,993 3,360
Slide 33: Net property income – France
Net property income – France 1 French portfolio 31 December 31 December Variance Variance 30 June Variance Variance 2013 2012 2013 2013 2013 2013 2013 €’000 €’000 €’000 % €’000 €’000 % Sully, Sully sur Loire 414 474 (60) (13%) 415 (1) - Aulnay, Aulnay sous Bois, Paris 362 354 8 2% 346 15 4% Beziers,
Slide 34: Net property income – reconciliation
Net property income – reconciliation 31 December 31 December Variance Variance 30 June Variance Variance 1 Reconciliation to financials 2013 2012 2013 2013 2013 2013 2013 $’000 $’000 $’000 % $’000 $’000 % Australia 30,614 30,762 (149) - 30,426 187 1% Straight–lining of rental income (72) 810 (882) (
Slide 35: Hedge profiles
Hedge profiles CDI interest rate risk policy • CDI’s interest rate risk policy is to $A denominated hedges - as at 31 December 2013 Notional Hedge rate Maturity date effectively hedge $20.0m 4.16% Sep 2015 – interest rates on a minimum of 60% of $40.0m 5.07% Feb 2016 expected debt (31 December 2013
Slide 36: Management fees
Management fees • Management agreements published Management fees on CDI website Fee type Calculation • Management expense ratio 64.4 bps. 1 Base management fee 0.5% of gross assets of CDI per annum, payable in cash. Transactional fees payable only for Performance fee 5% of first 2% outperformance a
Slide 37: 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” or “CLIL”), as Responsible Entity of the Challenger Diversified Property Trust 1 (ARSN 121 484 606) and the Challenger Diversified Prop
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