Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — FY2011 Earnings Presentation
45 slides from Challenger's earnings presentation, Aug 9, 2011
Slide 1: Challenger Diversified Property Group Results presentation FY2011
Challenger Diversified Property Group (ASX: CDI) Results presentation for full-year ended 30 June 2011 Trevor Hardie, Fund Manager Tim Evans, Assistant Fund Manager 9 August 2011 1
Slide 2: Important notice
Important notice Information contained in this publication is current as at 9 August 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
Slide 3: Results overview
Results overview Operating results − Statutory net profit after tax: $51.5 million − Profit from operating activities: $44.4 million; net property income: $61.9 million − FY11: EPU1 4.9 cpu, DPU 4.0 cpu − Net tangible assets (NTA): 67 cpu − Pro forma balance sheet gearing at 27.1%2 − Buyback as at
Slide 4: Challenger Diversified Property Group
Challenger Diversified Property Group Diversified property trust with focus on office income High yielding quality earnings underpinned by sound property fundamentals Continuing domestic focus Alignment with Challenger KEY DATA – CDI 30 June 2011 Unit price 8 August 2011 - 10 day VWAP 51.8 c
Slide 5: CDI outperforms the index
CDI outperforms the index Significant outperformance against benchmark over all periods Unitholder total return of 14.21% for FY2011 Total return 1 month 3 month 6 month FY11 2 year 3 year 4 year Inception (as at 30/6/2011) (%) (%) (%) (%) (%) p.a (%) p.a (%) p.a. (%) p.a. CDI Accum Index 3.7% 1
Slide 6: Strategy…
Strategy… 187 Todd Rd 6 Port Melbourne , Vic
Slide 7: CDI strategic objectives
CDI strategic objectives Portfolio enhancement Fund objective − to provide investors with Active exposure to a diversified capital Grow Improve portfolio of properties lease management earnings metrics generating stable income returns and potential for capital growth Close the price to NTA gap 7
Slide 8: Executing on portfolio enhancement strategy
Executing on portfolio enhancement strategy Reweighted exposure to Sold at 8% premium to book Melbourne CBD Total sales of $42m at a 8% Purchased 31 Queen St for $81m premium to book in March 2011 Sales represent an equivalent Purchased on an equivalent yield yield of 8.1%, despite vacancies
Slide 9: 31 Queen St
31 Queen St Acquisition 31 Mar 11 30 Jun 11 Value $81.0m $86.5m Occupancy 86.8% 92.5% Equivalent 8.2% 8.1% yield Property has outperformed acquisition model assumptions Melbourne face rents are increasing and Artist’s impression of new façade treatment incentives falling 40% Lease Expiry Profile
Slide 10: Jam Factory repositioning
Jam Factory repositioning Total spend of $16m (100%) estimated yield on cost of ~9% On completion valuation uplift from $104m to $123m Repositioning includes First Urban by Target, specialising in inner city fashion, opening end of August Well known international fashion group, to open fir
Slide 11: The Junction Industrial Park
The Junction Industrial Park Secured 10 year lease pre-commitment with Bunzl Stage 2 GLA 20,200 sqm Lease term 10 yrs Incremental cost $20.6m Initial income yield 8.15% on cost (including land) Target completion June 2012 Value on completion $34.0m Artist’s impression Seeking 12,560 sqm pre-commit
Slide 12: Development to enhance portfolio
Development to enhance portfolio Capitalising on latent value Development Spend Targeted income Targeted completion yield on cost The Junction – Stage 2 $20m 8.15% Completion June 2012 The Junction – Stage 3 $13m 8.15% Subject to securing pre- commitment Jam Factory repositioning $10m* 9% Completion
Slide 13: Results Highlights
Results Highlights 31 Queen St Artist’s impression of new façade treatment 13 Melbourne, VIC
Slide 14: Operating results
Operating results Statutory NPAT: $51.5 million compared to $15.5 million FY10 Profit from operating activities, $44.4 million; FY11 earnings1: 4.9 cpu FY11 distribution of 4.0 cpu NTA per unit 67cents up 1 cent on FY10 Distribution payout ratio for FY11: 82%2 FY11 FY10 $ million $ million
Slide 15: FY12 earnings and distribution guidance
FY12 earnings and distribution guidance 0.2 0.1 0.2 0.2 0.3 0.6 4.7 4.9 4.1 EPU guidance of 4.7 cpu DPU guidance of 4.1 cpu; payout Guidance includes: ratio: 87% Allowance for reletting assumptions Increased forecast FY12 leasing Anticipated sale of remaining costs and maintenance CAPEX
Slide 16: Capital Management
Capital Management The Forum, Verizon 16 St Leonards, NSW
Slide 17: On market buyback
On market buyback Continue 10% buyback subject to NTA, earnings accretion and the most efficient use of capital Management believe units are currently undervalued The buyback will partially mitigate dilution from strategic sale of French assets Current buyback metrics Total of 9.95m units
Slide 18: Facility expiry profile
Facility expiry profile Successfully executed refinance of all existing tranches Facility limit increased to $280m Weighted average term of debt extended to 3 years Undrawn $46m to fund committed developments and buyback • 30 June 2011 pro forma expiry profile1 200 150 $m 100 $46 50 $100 $90
Slide 19: Debt metrics
Debt metrics Average cost of Australian drawn debt post refinance – 7.0% − includes average margin of 182 bps on drawn debt Weighted average undrawn commitment fee: 100 bps Pro forma 30 June 20112 AUD Euro Total denominated denominated borrowings borrowings Borrowings A$182m A$52m1 A$234m Gearin
Slide 20: Portfolio Performance
Portfolio Performance ABS House 20 Belconnen ,ACT
Slide 21: State of play – 2011
State of play – 2011 Office – Tenant enquiry levels have increased but remain patchy. – Tenant retention rates remaining high. – Incentive levels have peaked; early signs of contraction are apparent in Melbourne and Perth. – Prime yields are expected to firm further as opportunities to acquire pri
Slide 22: Portfolio overview – 30 June 2011
Portfolio overview – 30 June 2011 Key portfolio metrics − Occupancy – 93.7% (Dec 10: 91.5%); WALE – 5.0 years (Dec 10: 4.8 years) Domestic focus − 93.5% Australian; continuing orderly disposal of French portfolio Australian portfolio French portfolio Total portfolio Total investment property por
Slide 23: Portfolio revaluations at June 2011
Portfolio revaluations at 30 June 2011 All properties revalued as at 30 June; 59% (by value) independently revalued Investment property valuations up $18.3m, up 2.2% from FY10 Market capitalisation rates firmed from 8.29% to 8.21% French portfolio value up 1.6% excluding currency movements
Slide 24: Leasing activity FY11
Leasing activity FY11 Office •Lease deals - 14 •Area 15,047 sqm •Rent $5.9m Total Retail •Lease deals - 27 • Lease deals - 47 •Area 7,644 sqm •Rent $3.5m • Area 75,156 sqm Industrial – Distribution • Rent $15.8m •Lease deals - 3 (18.1% of CDI portfolio gross income) •Area 48,327 sqm •Rent $5.6m Indu
Slide 25: Lease expiries
Lease expiries Investment portfolio 93.7% occupied WALE 5.0 years Strong progress made on June 12 expiries, down from 9.9% as at Dec 10 59.1% 60% % Expiry by gross income 50% 40% 30% 20% 11.8% 10.6% 10% 6.3% 6.2% 6.0% 0% Vacant Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 + 25
Slide 26: Diversification enhances portfolio quality
Diversification enhances portfolio quality - High sector weighting to office As at 30 June 2011 Sector diversification (by value) Geographic diversification (by value) 6% 7% 2% 63% 3% NSW 14% 25% 3% ACT 5% VIC QLD SA Office 17% WA Retail TAS Industrial - DC 28% France Industrial - HT 26% Tenant dive
Slide 27: Tenant industry diversification
Tenant industry diversification 34% of CDI portfolio leased to government tenants Well diversified across industry types Top 20 tenants1 % Of Total Contracted Ranking Tenant Name Tenant Industry Asset(s) Industry IndustryRepresentation representation Portfolio Gross 40% Income 33.6% 35% 1 ABS Go
Slide 28: Summary
Summary DIAC Building 28 Belconnen ACT
Slide 29: Summary
Summary Operating results on target − FY11 earnings and distribution of 4.9 and 4.0 cpu delivered − Net tangible assets (NTA): 67 cpu − Pro forma balance sheet gearing at 27.1% Property metrics improving − Investment property valuations up $18.3 million from 30 June 2010 − Occupancy: 93.7%; WALE
Slide 30: Contacts
Contacts Trevor Hardie Fund Manager Tel: + 61 (0)2 9994 7546 Email: thardie@challenger.com.au Website www.challenger.com.au/cdi Tim Evans Assistant Fund Manager Tel: + 61 (0)2 9994 7131 Email: tevans@challenger.com.au 30
Slide 31: Appendices
Appendices
Slide 32: 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 33: Management
Management Management agreements published on website Management expense ratio: 91.1 bps1 (includes 25bps performance fee for FY11) 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 performanc
Slide 34: Hedge profiles
Hedge profiles CDI AUD hedge profile Interest rate hedges 140 8% $ A denominated hedges 120 7% 6% 100 Notional Hedge rate Maturity date 5% 80 $25m 4.57% Oct 2011 4% 60 $m 3% $15m 4.83% April 2012 40 2% 20 1% $40m 5.37% Feb 2014 - 0% Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 $25m 5.11%
Slide 35: Lease expiry profile (by gross passing income)
Lease expiry profile (by gross passing income) 12.00% 11.8% 0.78% ATAC (France) 1.21% Excel (France) 10.00% 3.10% Toll Properties 8.00% 6.2% 6.3% Jam Factory, Village 6.00% 1.13% Offices The Forum, 1.57% Verizon 1.92% Rexel Makerston House, 1.49% Tourism Qld 4.00% 1.37% 75 Talavera Rd 1.14% Foray St
Slide 36: Rent review profile provides built-in growth
Rent review profile provides built-in growth Significant weighting to fixed and indexed rental reviews over next three years 74% of portfolio subject to rental reviews in FY12 Rent review profile (by income) FY12 FY13 FY14 Review type FY12 rental Rent reviews 18% proportion 25% 23% (%) 7% 7% 3%
Slide 37: CDI investment portfolio diversification
CDI investment portfolio diversification Geographic Sector Diversification $300 $250 28% 25% 26% Value ($m) $200 $150 $100 7% 5% $50 3% 3% 2% - NSW ACT VIC QLD SA WA TAS France Office Retail Industrial-DC Industrial - High Tech Sector Geographic Diversification $600 63% $500 Value ($m) $400 $300 $20
Slide 38: Income statement
Income statement 30 June 2011 30 June 2010 $’000 $’000 Property income Rental income 70,267 72,819 Other property income 9,530 9,132 Less: Property related expenses (17,879) (17,378) Net property income 61,918 64,573 Operating business income Income from operating business activities 7,576 6,445 Les
Slide 39: Reconciliation of profit
Reconciliation of profit Reconciliation of net profit after tax to profit from operating activities 30 June 2011 30 June 2010 $’000 $’000 Net profit after tax attributable to unitholders of CDI 51,488 15,535 Adjusted for: Straight-lining of rental (income)/expense (2,188) (1,840) Property, plant and
Slide 40: Distribution statement
Distribution statement 30 June 2011 30 June 2010 $’000 $’000 Net profit/(loss) attributable to unitholders of CDI 51,488 15,535 Adjusted for transfers (to)/from reserves: Non-operating activities Straight-lining of rental (income)/expense (2,188) (1,840) Property, plant and equipment depreciation 27
Slide 41: Available funds from operations (AFFO)
Available funds from operations (AFFO) Available funds from operations (AFFO) 30 June 2011 30 June 2010 $’000 $’000 Profit from operating activities 44,353 47,353 Add/(deduct): Amortisation of borrowing costs 287 245 Leasing costs (841) (2,004) Maintenance capital expenditure (3,716) (3,061) Debt es
Slide 42: Balance sheet
Balance sheet 30 June 2011 30 June 2010 $’000 $’000 Cash and cash equivalents 2,716 1,035 Derivative financial instruments 1,726 2,523 Development property - 6,280 Investment property held for sale 13,200 - Property, plant and equipment 2,895 2,562 Investment properties under development 18,500 19,0
Slide 43: Net property income
Net property income Australian portfolio FY11 FY10 Variance ($'000) ($'000) ($'000) % Office ABS Building, Belconnen, ACT 7,257 6,967 290 4 DIAC Building, Belconnen, ACT 5,076 4,942 134 3 The Forum, Cisco, St Leonards, NSW 4,931 4,820 111 2 Discovery House, Woden, ACT 4,588 4,463 125 3 The Forum, Ve
Slide 44: Net property income - continued
Net property income - continued French portfolio FY11 FY10 Variance (€'000) (€'000) (€'000) % Inteva, Sully sur Loire 1,045 1,064 (19) (2) Bricoman, Aulnay sous Bois, Paris 639 644 (5) (1) Exel, Villeneuve les Beziers 688 739 (51) (7) GDF, Gennevilliers, Paris 668 694 (27) (4) ATAC, Parcay-Meslay, T
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