Charter Hall Group · ASX:CHC
Charter Hall — FY2011 Earnings Presentation
63 slides from Charter Hall's earnings presentation, Aug 25, 2011
Slide 1: FY11 Annual Results
Charter Hall Group FY11 Annual Results 25 August 2011
Slide 2: Contents
Contents 1 FY11 results summary David Harrison Joint Managing Director 2 Property investment 3 Property funds management David Southon Joint Managing Director 4 Development investment 5 Financials and capital management 6 Strategy, outlook and guidance 7 Annexures 2
Slide 3: FY11 results summary
Charter Hall Group 01 FY11 results summary
Slide 4: Full year highlights
Full year highlights Earnings 3% above guidance Operating earnings of $60.4m Statutory net profit of $52.3m Operating EPS of 20.60cps, 22% up on prior corresponding period (pcp)1 DPS of 16.50cps, 29% up on pcp1 84% of EBITDA derived from “annuity style” activities2 Property investment – EB
Slide 5: Full year highlights
Full year highlights Active management enhances property portfolio metrics and earnings Investment property – Leased 345,968sqm of lettable floor space – Maintained well above industry average WALEs across funds (6.5 years) – Weighted average rent reviews of 3.66% – Generated $943m of gross rental
Slide 6: Key metrics
Key metrics FY11 FY104 Change Operating earnings1 $60.4m $35.8m 69% Operating EPS 20.60cps 16.83cps 22% Payout ratio 80.1% 76.0% 4% DPS 16.50cps 12.80cps 29% Statutory NPAT $52.3m $6.8m $45.5m At 30 June 2011 At 30 June 20104 Change Funds under management $10.7bn $10.2bn 5% Total Charter Hall assets
Slide 7: Group earnings and investment overview
Group earnings and investment overview Charter Hall is a diversified property group with a vertically integrated business model – $51.9m (84% of Charter Hall EBITDA) is annuity style with $37.4m3 from property investments and $14.5m1 from property funds management Charter Hall Group (ASX:CHC) Stap
Slide 8: Group earnings breakdown
Group earnings breakdown Operating EBITDA of $61.9m1, up from $36.1m on pcp $37.4m Property Investment EBITDA $37.4m (60.4%) $27.1m FY10 FY11 $20.7m Funds Management $7.9m EBITDA $20.7m (33.5%) Development Investment $3.8m EBITDA $1.1m $3.8m (6.1%) Property Investment Funds Management Development
Slide 9: Property investment
Charter Hall Group 02 Property investment
Slide 10: Property investment
Property investment CHC invests $594m in direct property ($17m) and co-investments in its managed funds($577m) – Full year income of $37.9m1 reflecting average gross yield of 6.4% with a weighted average rent review profile of 3.66% 1 Investments (by value) Property income Sector diversity (by val
Slide 11: CHPT portfolio metrics
CHPT portfolio metrics Charter Hall managed properties weighted average market capitalisation rate of 7.92%, 128bps above 2007 peak of 6.64% Charter Hall managed properties weighted annual average rent reviews of 3.66% Weighted average lease expiry of 6.5 years 3,150 tenants across the portf
Slide 12: Property investment portfolio
Property investment portfolio Direct property and co-investments (30 June 2011) Ownership CHPT FY11 Market cap Discount rate Rental investment1 CHPT income rate reviews (%) ($m) ($m) (%) (%) (%) Listed Funds Charter Hall Office REIT (CQO)1 10.0%5 185.6 11.6 7.51% 9.27% 3.61% Charter Hall Retail REIT
Slide 13: Property funds management
Charter Hall Group 03 Property funds management
Slide 14: Acquisition and fund inflows
Acquisition and fund inflows Charter Hall sourced $1.1bn of assets in off-market transactions during FY11 – $384m of third party mandate acquisitions – $700m of acquisitions by Charter Hall managed funds and Charter Hall direct property acquisitions – $1.1bn of asset acquisitions split by sector a
Slide 15: Property funds management
Property funds management Funds under management increased from $10.2bn to $10.7bn, despite $0.6bn of divestments and $0.5bn of negative foreign exchange movements 30 June 2010 30 June 2011 Wholesale Unlisted Wholesale Unlisted Funds Funds $2.5bn (25%) $3.6bn (33%) Retail Investor Retail Investor
Slide 16: Funds under management reconciliation
Funds under management reconciliation Acquisitions and revaluations more than offset negative FX movements and divestments ($577m) +$1,084m ($490m) +$467m $10,700m $10,216m 2 FY10 Revaluation Acquisitions Divestments FX Movement FY11 Notes: 1. FUM includes assets currently under management and is
Slide 17: Funds management income
Funds management income 70% of fund management revenue “annuity style” Average of 80bps of FUM (41bps investment management and 39bps from other services) – Increase from 72bps of FUM for the 6 months ending 31 December 2010 EBITDA margin expansion potential due to scalability and cost efficie
Slide 18: Investment management revenue
Investment management revenue Strong increase in investment management revenue (up 86%) through diversification of equity sources FY10 - $23.3m FY11 - $43.4m Wholesale Unlisted Wholesale Unlisted Funds Funds $10.9m (47%) $11.6m (27%) Retail Investor Retail Investor Funds Funds $4.1m (18%) $7.8m (1
Slide 19: Property management and leasing
Property management and leasing Charter Hall provides leasing, property management and asset management services across the platform Property management1 Leasing2 712,000sqm Office FY Gross Income - $366m 150,946sqm4 508,987sqm Retail FY Gross Income - $162m 69,266sqm 309,000sqm Industrial FY Gros
Slide 20: Development management services
Development management services Revenue of $6.8m over the year – Current projects across Office, Retail, Residential and Industrial Active development book of $1.3bn across range of managed funds – 17 active projects across platform – Total development book of $1.9bn (active projects and captive
Slide 21: Case study - WorkZone
Case study - WorkZone WorkZone, located at 202 Pier Street Perth, will comprise two A-grade buildings of 15,573sqm and 12,338sqm on completion Leighton Contractors has committed to lease 21,149sqm (76% of the total NLA) in WorkZone1 Tenant enquiry to lease the remaining space is solid Design
Slide 22: Development investment
Charter Hall Group 04 Development investment
Slide 23: Investments in Development
Investments in Development $40m of development co-investments (book value), diversified across eight projects Projected equity multiple of 1.5x from existing development investments – Targeting an equity multiple of >1.7x for future equity commitments – Equity IRR target of 20%+ required on futu
Slide 24: Investment in CIP
Investment in CIP Charter Hall owns 50% of industrial pre-lease developer (CIP)1 CIP operates in all states of Australia and has 98 employees2 Important strategic off market source of investments for Charter Hall funds and mandates Tenants pre committing in FY11 include Toll, Grace, Brisbane
Slide 25: Financials and capital management
Charter Hall Group 05 Financials and capital management
Slide 26: Operating earnings
Operating earnings FY11 FY10 (DRF net contribution (DRF net contribution FY11 operating earnings of $60.4m basis) basis) Direct net property income 0.7 0.7 Ahead of previous FY11 guidance Indirect property income 37.2 26.6 – Property income is higher reflecting strong Property investment income
Slide 27: Reconciliation to statutory profit
Reconciliation to statutory profit ($19.2m) +$12.8m ($1.8m) ($3.3m) +$3.4m $60.4m $52.3m 1 2 3 Operating earnings Impairment of Non-operating Other Gains/loss on sale FV adjustments AIFRS profit management rights investment earnings relating to CQO Notes: 1. ‘Other’ includes non-operating tax expens
Slide 28: Cashflow reconciliation
Cashflow reconciliation 20.60cps ($3.3m) +$4.3m ($4.2m) +$1.5m 16.50cps $60.4m $58.8m $48.5m 1 Operating Earnings Net trade Earnings vs Depreciation Other Operating Cashflow Distribution receivables/payables Distribution received Notes: 1. ‘Other’ includes movement in other operating assets and liab
Slide 29: Balance sheet
Balance sheet 30-Jun-11 30-Jun-10 $m (DRF on net (DRF on net contribution basis)1 contribution basis) Fair value adjustments: $12.8m Cash 23.9 26.8 increase Property investments 593.5 565.7 Intangibles: $19.2m impairment relating Development investments 68.8 52.4 to CQO management rights followi
Slide 30: Capital management profile
Capital management profile $4.3bn of drawn debt across platform with weighted average maturity of 2.7 years – $3.5bn of debt refinanced over FY11 Charter Hall on balance sheet gearing target of 0-10% – Distribution re-investment plan has been switched off as Charter Hall has sufficient liquidity
Slide 31: Strategy, outlook and guidance
Charter Hall Group 06 Strategy, outlook and guidance
Slide 32: Group strategy
Group strategy Charter Hall’s medium term strategy is: – Leverage off integrated property services platform through capital raising for unlisted funds, external mandates and partnerships – Focus on recycling capital to enhance return on equity from the co-investment platform – Drive de-risking and
Slide 33: Group strategy
Group strategy Enhance return on equity through recycling of co-investment capital across all funds Property Investment Improve quality of funds earnings through improving property metrics, simplifying derivative structures and proactively refinancing debt facilities Grow business through exis
Slide 34: Asset recycling strategy
Asset recycling strategy Charter Hall has an active strategy to recycle capital into higher return investments 1 Expected equity recycling over the next 12-24 months $m Mentone Showrooms $16.7m 2 Diversified Property Fund $27.0m Direct Retail Fund 3 $42.7m Excess CQO special distribution (distribu
Slide 35: Trends and initiatives
Trends and initiatives Trends Initiatives Preference for geographic specific funds Complete reweighting of portfolios to Australia Focus on capital management Listed Funds Focus on quality of earnings and earnings growth Global investors more relevant Corporate governance review of CQO a
Slide 36: Outlook and guidance
Outlook and guidance Outlook Despite recent movements in equity markets, property markets globally have been recovering Expect medium term NOI growth through reduced vacancies, rental growth and reduction in funding costs Equity flows are increasing to unlisted real estate (in particular given
Slide 37: Annexures
Charter Hall Group 07 Annexures
Slide 38: Annexures
Annexures A Sustainability B Property portfolio movement C–D Portfolio metrics E Funds management platform F–I Fund strategies J Reconciliations K DRF reconciliation L Capital management M Debt expiry profile N-R Unlisted property portfolios 38
Slide 39: Annexure A: Commitment to Sustainability
Annexure A: Commitment to Sustainability Sustainability Policy updated and endorsed by Charter Hall Board – Committed to implementing sustainable business practices across our Funds and operations – Practical action will add value to our business and align with our strategy We are: – Responding
Slide 40: Annexure B – Property portfolio movement
Annexure B – Property portfolio movement 30 June 11 Movement 30 June 2010 CHPT stake CHPT Change in Other Acquisition / CHPT stake CHPT (%) investment accounting movements sale (%) investment ($m) treatment ($m) ($m)1 ($m) ($m) Listed Funds CQO 10% 185.6 - (6.6) 37.0 8% 155.2 CQR 8% 88.1 - (1.6) 7.4
Slide 41: Annexure C - Intangibles
Annexure C - Intangibles Charter Hall has impaired the valuation of CQO’s management rights by $19m to $47m – Reflects the CQO US portfolio disposal and CQO’s pro-rata special distribution that will reduce Charter Hall’s asset’s under management by $1.5bn1 As at 30 June 2011, the carrying value
Slide 42: Annexure D – Portfolio metrics
Annexure D – Portfolio metrics Weighted average rent reviews CQO 3.6% 1 CQR 4.1% CPOF 3.9% CPIF 3.1% DRF 3.4% CHUF 3.5% DPF 3.7% CHDPF 3.9% CHPT 3.7% Notes: 1. Based on Australian speciality leases only 42
Slide 43: Annexure D - Portfolio metrics
Annexure D - Portfolio metrics Quality of earnings improving with proactive management of well diversified portfolio Capitalisation rates WALE (by income in years)1 CQO 7.5% CQO 5.1 CQR 8.1% CQR 6.7 CPOF 7.7% CPOF 6.0 CPIF 8.2% CPIF 11.5 DRF 8.5% DRF 7.0 CHUF 8.1% CHUF 8.1 DPF 8.2% DPF 7.1 CHDPF 8
Slide 44: Annexure E – Funds management platform
Annexure E – Funds management platform Funds under management (FUM) of $10.7bn Listed Funds Wholesale Investor Funds Retail Investor Funds $5.6bn $3.5bn $1.5bn ($274m co-invested) ($197m co-invested) ($139m co-invested) Opportunistic Core Plus CQO2 CQR3 $1.0bn $2.6bn $3.6bn $2.0bn ($186m / 10%) ($
Slide 45: Annexure F - Listed REITs Strategy
Annexure F - Listed REITs Strategy Achieved over the last 12 months to 30 June 2011 Strategy going forward CQO CQO Sold interest in Japanese assets CQO (post sale of the US) will be a high quality Australian office Exchanged contract to sell 100% of the US portfolio only REIT Sold interest i
Slide 46: Annexure G – Wholesale Funds Strategy
Annexure G – Wholesale Funds Strategy Achieved over the last 12 months Strategy going forward CPOF Currently raising new equity for CPOF Outperformed most core office peers over the three years to 30-June-11 47% of $200m target commitments secured for CPOF Raised $94m of new equity from domest
Slide 47: Annexure H - Wholesale Opportunistic Fund Strategy
Annexure H - Wholesale Opportunistic Fund Strategy Achieved over the last 12 months Strategy going forward CHOF4 CHOF4 CHOF4’s Home HQ North Shore project in Artarmon 100% leased Focus on sale of 2 remaining assets to maintain the current Bunnings Trade store secured for part of the Gepps X si
Slide 48: Annexure I - Charter Hall Direct Strategy
Annexure I - Charter Hall Direct Strategy Achieved over the last 12 months Strategy going forward Launched three sector specific unlisted direct property funds and a liquid Continue to acquire and actively manage quality property for the AREIT fund. All four products received the highest or seco
Slide 49: Annexure J - Net tangible assets bridge
Annexure J - Net tangible assets bridge +$2.8m ($3.9m) +$4.4m ($19.7m) +$7.5m +$5.5m +$12.0m +$649.8m +$641.2m Net Tangible Operating Increase in tax DRP Equity Other Fair value FX movement Net Tangible Assets (30 surplus losses accounting adjustments Assets (30 June 2010) adjustments - June 2011) C
Slide 50: Annexure K – DRF reconciliation Operating earnings
Annexure K – DRF reconciliation Operating earnings FY11 FY11 FY11 (DRF income statement) / (DRF consolidated) (DRF net contribution basis) adjustment Direct net property income 15.1 (14.4) 0.7 1 Indirect property income 31.6 5.6 37.2 Property investment income 46.7 (8.8) 37.9 2 Investment management
Slide 51: Annexure K – DRF reconciliation Balance Sheet
Annexure K – DRF reconciliation Balance Sheet $m 30-Jun-11 30-Jun-11 DRF equity accounted 30-Jun-11 (DRF consolidated) DRF balance sheet co-investment (DRF on net contribution basis) Cash 26.3 (2.3) 23.9 Property investments 694.6 (162.4) 61.3 593.5 Development investments 68.8 - 68.8 Other tangible
Slide 52: Annexure L - Capital management
Annexure L - Capital management 1 ($m) CHC CQO CQR CPOF CPIF DRF CHUF DPF CHDPF CHOF4 CHOF5 Asset values2 N/A 3,628 1,891 1,449 441 181 261 176 506 112 287 Net debt drawn2 8 1,556 739 603 139 84 102 96 206 67 68 Duration3 3.0 2.9 3.7 2.6 1.9 2.4 N/A 1.1 2.2 N/A N/A (years) Gearing Balance sheet 1% 3
Slide 53: Annexure M – Look through debt expiry profile
Annexure M – Look through debt expiry profile (by drawn amount) Arranged $3.5bn of debt over FY11 CHC CQO $1,200m $1,184m CQR Wholesale Unlisted Funds Retail Investor Funds $962m $813m $800m $509m $484m $400m $222m $0m FY12 FY13 FY14 FY15 FY16 FY17+ 53
Slide 54: Annexure N – Unlisted portfolio detail
Annexure N – Unlisted portfolio detail CORE PLUS OFFICE FUND (CPOF) BOOK VALUE INDEPENDENT MKT CAP MKT CAP MCR VALUER’S WALE MIN. RENT VALUATION RATE RATE CHANGE DISCOUNT REVIEW DATE 30 JUN 11 30 JUN 10 RATE/ IRR ($m) (%) (%) (%) (%) (YEARS) (%) 331 & 333 George St, Sydney, NSW 73.6 31-Dec-10 7.38%
Slide 55: Annexure O – Unlisted portfolio detail
Annexure O – Unlisted portfolio detail CORE PLUS INDUSTRIAL FUND (CPIF) BOOK INDEPENDENT MKT CAP MKT CAP MCR VALUER’S WALE MIN. RENT VALUE VALUATION RATE RATE CHANGE DISCOUNT REVIEW DATE 30 JUN 11 30 JUN 10 RATE/ IRR ($m) (%) (%) (%) (%) (YEARS) (%) 372 Eastern Valley Way, Chatswood, NSW 31.5 30-Jun
Slide 56: Annexure P – Unlisted portfolio detail
Annexure P – Unlisted portfolio detail DIRECT RETAIL FUND (DRF) BOOK INDEPENDENT MKT CAP MKT CAP MCR VALUER’S WALE MIN. RENT VALUE VALUATION RATE RATE CHANGE DISCOUNT REVIEW DATE 30 JUN 11 30 JUN 10 RATE/ IRR ($m) (%) (%) (%) (%) (YEARS) (%) Menai Central, Sydney, NSW 37.0 30-Jun-11 8.50% 8.50% 0.00
Slide 57: Annexure Q – Unlisted portfolio detail
Annexure Q – Unlisted portfolio detail DIVERSIFIED PROPERTY FUND (DPF) BOOK INDEPENDENT MKT CAP MKT CAP MCR VALUER’S WALE MIN. RENT VALUE VALUATION RATE RATE CHANGE DISCOUNT REVIEW DATE 30 JUN 11 30 JUN 10 RATE/ IRR (%) ($m) (%) (%) (%) (%) (YEARS) 400 Kent St, Sydney, NSW (75%) 40.2 30-Jun-11 7.50%
Slide 58: Annexure R – Unlisted portfolio detail
Annexure R – Unlisted portfolio detail DIRECT PROPERTY FUND (CHDPF) BOOK INDEPENDENT MKT CAP MKT CAP MCR VALUER’S WALE MIN. RENT VALUE VALUATION RATE RATE CHANGE DISCOUNT REVIEW DATE 30 JUN 11 30 JUN 10 RATE/ IRR (%) ($m) (%) (%) (%) (%) (YEARS) 2 Wentworth St, Parramatta, NSW 35.3 30-Jun-11 9.70% 8
Slide 59: Disclaimer
Disclaimer This presentation has been prepared by Charter Hall Group (Charter Hall Limited (ABN 57 113 531 150) and Charter Hall Funds Management Limited (ABN 31 082 991 786) (AFSL 262861) as the responsible entity for Charter Hall Property Trust (ARSN 113 339 147). It is a presentation of general b
Slide 60: Disclaimer
Disclaimer CQO US sale proceeds In determining the net sale proceeds from the sale of the US portfolio and the pro-rata special distribution to CQO unitholders, it is assumed that the conditions for closing are met for the entire US portfolio, thereby achieving closing of the sale of all properties.
Slide 61: Fund Key
Fund Key Listed Funds CQO Charter Hall Office REIT CQR Charter Hall Retail REIT Wholesale Unlisted Funds CPOF Core Plus Office Fund CPIF Core Plus Industrial Fund Wholesale Opportunistic Funds CHOF4 Charter Hall Opportunity Fund 4 CHOF5 Charter Hall Opportunity Fund 5 Retail Investor Funds DPF Diver
Slide 62: Further information
Further information David Southon David Harrison Joint Managing Director Joint Managing Director +61 2 8908 4025 +61 2 8908 4033 david.southon@charterhall.com.au david.harrison@charterhall.com.au Kylie Ramsden Head of Listed Investor Relations +61 2 8295 1016 kylie.ramsden@charterhall.com.au
Slide 63: charterhall.com.au
charterhall.com.au