Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — FY2007 Earnings Presentation
43 slides from Challenger's earnings presentation, Aug 15, 2007
Slide 1: Challenger Diversified Property Group 2007 annual results and FY2008 DPU guidance upgrade
Challenger Diversified Property Group 2007 annual results and upgrade to FY2008 DPU guidance Carmel Hourigan – Fund Manager Trevor Hardie – Portfolio Manager Philip Marsden – Partner, King Sturge 15 August 2007
Slide 2: Important notice
Important notice Information contained in this publication is current as at 15 August 2007 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: Agenda
Agenda • Strong financial results exceed PDS forecasts • Solid portfolio operating performance • Implementation of ‘core-plus’ portfolio strategy • European market update • Upgrade to FY2008 DPU guidance 3
Slide 4: Strong financial results exceed PDS forecasts
Strong financial results exceed PDS forecasts
Slide 5: Financial performance
Financial performance • Distributable income of $30.2 million, 4.2% above PDS forecast – A combination of higher net property income and interest income – $0.8 million transferred to retained earnings • DPU of 5.48 cents, 1.5% above PDS forecast Actual PDS forecast Variance 12 Sep 06 to 12 Sep 06 to
Slide 6: Financial position
Financial position • Total assets increased to $806.5 million – Acquisition of French portfolio for €55 million ($87.5 million)* – 10 assets revalued for gain $35.5 million • NTA uplift to $1.03 per unit 7.3% (from $0.96 at Dec 2006) 30 Jun 07 31 Dec 06 Variance $m $m Total assets 806.5 673.9 +19.2%
Slide 7: Capital management
Capital management • Total borrowings of $208.1 million – Gearing (debt to total assets) remains conservative at 25.9% – 90.6% of borrowings hedged with average swap term to maturity of 3 years • Existing debt terms in line with market $ denominated € denominated Total $ borrowings borrowings Borrow
Slide 8: Funding commitments to June 2008
Funding commitments to June 2008 • Existing debt funding capacity $195 million • Total funding commitments of $83 million* for period to June 2008 • Assuming 100% debt funding of these commitments, CDI’s gearing would be 32.8% as at June 2008 Borrowings Gearing $m % 30 June 2007 - actual 208.1 25.9
Slide 9: Solid portfolio operating performance
Solid portfolio operating performance
Slide 10: Active asset management
Active asset management • Net property income (excl straight-lining of rental income) exceeded PDS forecast by 3.6% – Like-for-like net property income exceeded PDS forecast by 2.6% • Leasing success increased portfolio occupancy to 99.3% (by income) • Forward solving of FY2009 expiries enhancing st
Slide 11: Lease expiries coinciding with commencement of development projects
Lease expiries coinciding with commencement of development projects Lease expiry profile (by income) 14% 12% Verizon, The Forum 5.1% 10% 8% Heidelberg (repositioning) 3.3% Tetra Pak 1.3% 6% API (potential extension) Borders Books 1.7% 1.1% (Jam Factory) 4% Goodman Fielder Cisco, The Forum 2.2% (rema
Slide 12: Solid rent review profile
Solid rent review profile Rent review profile (by income) • Fixed reviews – average growth of 100% 11% 90% 10% 11% 3.3% in each year 1% 3% 80% 19% • Market reviews – 19% in FY2008 70% 60% • INSEE CCI – assumed forecast 63% 64% 50% average growth of 3% pa over next 54% 40% 3 years 30% 20% 25% 22% 10%
Slide 13: Portfolio revaluations
Portfolio revaluations • Ten assets revalued with 11.2% increase – Average cap rate for these assets firmed from 7.7% at IPO to 7.2% • Balance of Australian portfolio to be revalued during FY2008 Valuation at IPO ($m) Valuation ($m) Variance October 2006 at June 2007 ABS Building, Belconnen, ACT 82.
Slide 14: Industrial development projects underway
Industrial development projects underway Enfield, NSW Smithfield, NSW Total cost: $65.6m Total cost: $20.2m Yield on cost: 8.0% Yield on cost: 7.5% Timing: Mar 09 Timing: Mar 08 Development partner: ICPS Development partner: ICPS 14
Slide 15: Proposed Jam Factory redevelopment
Proposed Jam Factory redevelopment • Planned mixed-use retail/residential development • Taking advantage of prime location in strong demographic area • Preliminary discussions held with local council and major tenants • DA expected to be lodged end CY2007 15
Slide 16: Strategic relationships delivering acquisitions of core and value-add assets
Strategic relationships delivering acquisitions of core and value-add assets Acquisition: French portfolio Smithfield Cost: €55 million ($87.5 million) $20.2 million Return profile: FY2008 post cost yield 6.6% 7.5% yield on cost + development profit on sale Portfolio type: Core Value-add Trust: Pass
Slide 17: French portfolio acquisition
French portfolio acquisition • Consistent with CDI’s offshore investment strategy • Accretive to earnings and distributions from FY2008 onwards • Provides future growth opportunities – Exposure to annual INSEE CCI increases – Currently low site coverage ratios Total acquisition price €55 million Net
Slide 18: Implementation of core plus portfolio strategy
Implementation of core plus portfolio strategy
Slide 19: Achievements
Achievements • Strengthening of core portfolio • Minimising income risk • Diversification into Europe via established local partners • Development of organic opportunities • Expanding value add platform • ICPS alliance established • Smithfield opportunity secured 19
Slide 20: Strategy supported by stapled structure
Strategy supported by stapled structure Challenger Diversified Property Group CDI 1 CDI 2 • Target for active trust to contribute 10-15% of Passive trust Trading trust earnings over medium term • $800m in assets • Direct development • Trading trust activities activities across office, • Core assets
Slide 21: Future portfolio opportunities
Future portfolio opportunities Core (80%) Value-add (20%) • ROFO assets • Existing portfolio opportunities Domestic • Preferred partner status with Challenger • Acquisition of partial interests in development companies (60%) • Pipeline from completed • CDI active trust investments developments in ac
Slide 22: Upgrade to FY2008 DPU guidance
Upgrade to FY2008 DPU guidance • Distribution guidance upgrade of 3% in FY2008 to 8.45 cents per unit – French portfolio acquired June 2007 – Smithfield transaction to deliver development profit FY08 • Targeting 10-15% of earnings from the active trust over medium term 22
Slide 23: European Market Update
European Market Update August 2007 @ King Sturge
Slide 24: King Sturge offices and staff
23 King Sturge offices – 418 staff Associations/Affiliations in 15 countries – 750 staff King Sturge Offices – 50 King Sturge – 1,924 Staff Associations/Affiliations – 800 staff Total – 2,724 staff
Slide 25: Flight from UK markets to Europe
Flight from UK markets to Europe Rising interest rates resulting in UK secondary yields drifting out European yields still falling but rate slowing notably in many markets Funds targeting development projects – higher return characteristics Return expectations/hurdles falling Weight of capital appar
Slide 26: GDP % pa
EU27 Eurozone Poland GDP % pa Spain 2007-09 UK 2004-06 Austria Belgium France Germany Switzerland Portugal Italy 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Source: Experian, July 2007
Slide 27: Prime yields
10.00 Central Europe 9.00 Average 8.00 Europe Industrial 7.00 Western Europe Prime yields Office 6.00 Europe Retail 5.00 4.00 Euro Zone ECB Minimum bid rate 3.00 EUR 2.00 1.00 0.00 2002 2003 2004 2005 2006 2007 (H1) Year
Slide 28: Prime yields by country
' Sl 3.0 4.0 5.0 6.0 7.0 8.0 9.0 ov L it a k ia hu an i La a R o tvi a m an Source: King Sturge, August 2007 Gr ia ()) ee Po ce rtu E s gal to n H u ia ng Cz B e a ry ec l h g i um Re pu b P o li c N e la th nd er lan ds It a A u ly str F i ia nl Ge a n d rm an Sp y D e ai n nm S w a rk ! " #$% ed e
Slide 29: Yields by country
' 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 Es to ni La a R o tvi a m a S l n ia ov a Source: King Sturge, August 2007 C z P o kia ec r h tu g a Re l pu L it b l hu ic a +('' , H u nia ng G r a ry ee P o ce la n , Fi d nl a S w nd ed en It a A u ly s Ge tria Ne rm th any er l D e an d nm s ar Sp k
Slide 30: Secondary office yields
' Ro 3.0 4.0 5.0 6.0 7.0 8.0 9.0 m a H u n ia ng Lit ary hu a S l ni a ov ak Source: King Sturge, August 2007 E s ia to n Gr ia ee P o ce rtu ga Cz P Note: Secondary office yields recorded in the major cities. ec o la l h Re n d (,-. pu b F i lic nl an d It a l La y ,- tvi Au a ! " *$$& st B e ri a
Slide 31: Consumer spending and shopping centre outlook
' 0 Above average/rising consumer spending forecast coupled with low shopping centre GLA per Capita, in: Germany, Poland, Belgium, Portugal and Spain. Average pa rent growth forecast 2007-2011: (Source: Real Estate Forecasting) – Madrid 5% – Brussels 4.2% – Frankfurt 2.2% – Lisbon 3.8% – London 4.3%
Slide 32: Target European markets
' 0 1/ Target European markets – Major growth centers for higher yielding stock i.e Paris and Milan – Belgium, Holland: Due to the proximity of major ports of Antwerp, Rotterdam and Schipol plus certain other airport / port locations such as Paris, Madrid and London. Average pa rent growth forecast
Slide 33: Opportunistic strategy; Paris and regional France rental growth
' 0 (22 Opportunistic strategy however Paris and regional France look good for rental growth and indexation. Average pa rent growth forecast 2007 – 2011 – Paris: 8.5% (Vacancy declining to ca 5%) – Brussels: 5.5% (Vacancy static at 9.7%) – Munich: 5.1% (Vacancy heading towards 7%) – Frankfurt: 4.5%
Slide 34: European country map
3 FINLAND Austria NORWAY Belgium SWEDEN ESTONIA RUSSIA REPUBLIC France LATVIA OF IRELAND UNITED DENMARK KINGDOM LITHUANIA Germany NETHERLANDS POLAND BELARUS GERMANY Italy BELGIUM LUXEMBOURG CZECH REP UKRAINE Poland FRANCE AUSTRIA SLOVAKIA MOLDOVA SWITZERLAND Portugal HUNGARY SLOVENIA ROMANIA CROATIA
Slide 35: Summary
Summary • Strong financial results exceed PDS forecasts • Solid portfolio operating performance • New acquisitions enhance return profile • Existing funding capacity to support growth objectives • Upgrade to FY2008 DPU guidance and earnings growth prospects 35
Slide 36: Questions
Questions
Slide 37: Contacts
Contacts Carmel Hourigan Fund Manager Tel: 02 9994 7875 Email: [email protected] Trevor Hardie Portfolio Manager Tel: 02 9994 7546 Email: [email protected] Susie McPherson Investor Relations Tel: 02 9994 7958 Email: [email protected] 37
Slide 38: Appendices
Appendices
Slide 39: Income statement
Income statement Actual PDS Forecast Variance 12 Sep – 30 Jun 07 12 Sep – 30 Jun 07 % $000 $000 Net property income 39,482 36,143 9.2 Other income 247 150 64.7 Borrowing costs (5,904) (5,829) (1.3) Other expenses (2,076) (1,920) (8.1) Profit from operating activities 31,749 28,544 11.2 Net gain on r
Slide 40: Distribution statement
Distribution statement Actual PDS Forecast Variance 12 Sep – 30 Jun 07 12 Sep – 30 Jun 07 % $000 $000 Net profit attributable to unitholders 61,379 22,542 Adjusted for Fair value movement on investment properties (27,275) 6,002 large Fair value movement on derivatives (2,356) - - Straight lining of
Slide 41: Balance sheet
Balance sheet 30 June 2007 $000 Cash and cash equivalents 7,517 Trade and other receivables 4,069 Financial instruments 2,356 Other assets 623 Investment properties 791,944 Total assets 806,509 Trade and other payables 25,549 Interest bearing liabilities 208,112 Other liabilities 20,798 Total liabil
Slide 42: Income hedging profile
Income hedging profile Financial year ending AUD/EUR 30 June 2008 0.595 30 June 2009 0.583 30 June 2010 0.571 30 June 2011 0.560 30 June 2012 0.548 42
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