Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — H1 FY2008 Earnings Presentation
39 slides from Challenger's earnings presentation, Feb 22, 2008
Slide 1: Challenger Diversified Property Group
Challenger Diversified Property Group Half-year results for six months ended 31 December 2007 and reaffirmation of FY08 distribution guidance Carmel Hourigan Fund Manager 22 February 2008
Slide 2: Important notice
Important notice Information contained in this publication is current as at 22 February 2008 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 (AR
Slide 3: Highlights
Highlights • Solid first half financial results • Stable earnings underpinned by solid operating performance • On track to deliver FY08 distribution guidance of 8.45 cents per unit • Strong balance sheet – existing capacity to fund growth objectives • Continuing domestic focus – significant internal
Slide 4: Exceeding key objectives
Exceeding key objectives • On track to deliver FY08 DPU of 8.45 cents – 3.3% higher than PDS forecast • NTA $1.08 per unit – up 4.9% • Australian portfolio annual total return 17.8%* FY08 Distributions per unit NTA per unit 1.10 8.5 8.45 1.08 8.4 1.08 8.3 1.06 cents cents 8.20 8.2 1.04 1.03 8.1 1.02
Slide 5: Solid financial results
Solid financial results
Slide 6: Financial performance on track
Financial performance on track • Profit from operating activities $22.6 million • Key driver of performance was net property income • DPU 4.22 cents – on track to deliver FY08 DPU guidance of 8.45 cents 1 Jul 07 to 12 Sep 06 to 31 Dec 07 31 Dec 06 * $000 $000 Net property income 31,896 11,214 Profit
Slide 7: Secure financial position
Secure financial position • Total assets increased by 10% to $887 million – Acquisition of Discovery House Stage 2 – $33.3 million – Acquisition of Smithfield site – $10.0 million – Development capex – $6.5 million • NTA uplift of 4.9% to $1.08 per unit (from $1.03 at June 2007) – 15 assets revalued
Slide 8: Revaluations increase NTA to $1.08 per unit
Revaluations increase NTA to $1.08 per unit • Revaluation uplift $33.0 million over previous valuations ($26.1 million over carrying value) • Real estate fundamentals remain strong across key markets – Australian portfolio cap rate 7.20% – French portfolio cap rate 5.91% Australian portfolio French
Slide 9: Conservative capital position
Conservative capital position • Total borrowings of $274.3 million • Gearing (debt to total assets) remains conservative at 30.9% • 76% of borrowings hedged with average hedge duration of 3.0 years • Interest cover 4.1 times $ denominated denominated Total borrowings borrowings Borrowings ($m) 186.1
Slide 10: Borrowing facility increased by $150 million
Borrowing facility increased by $150 million • November 2007 – borrowing facility syndicated and increased to $500 million • Facility provided over multiple tranches • Tranche 1 ($100m) expires Oct 2008 with option to refinance to longer dated borrowings • $274.3 million drawn at 31 December 2007 –
Slide 11: Capacity to fund existing commitments
Capacity to fund existing commitments • Total identified funding commitments of $21 million for remainder of FY08 – Capacity to comfortably fund within existing facilities – Gearing forecast to remain conservative at circa 33% as at June 2008 Borrowings Gearing $m % 31 December 2007 - actual 274.3 3
Slide 12: Portfolio performance
Portfolio performance
Slide 13: Portfolio overview – 31 Dec 2007
Portfolio overview – 31 Dec 2007 Australian portfolio French portfolio Total portfolio value ($m) 785.6 89.3 No. of properties 26 6 Portfolio weighting (by value) (%) 90 10 Net lettable area (sqm) 332,410 42,341 Occupancy (%) 99.5 100.0 WALE (by income) (yrs) 6.6 6.2 Weighted average cap rate (%) 7.
Slide 14: Active asset management delivering results
Active asset management delivering results • Core portfolio continues to deliver strong, predictable results – Net property income above management expectations – Leasing success in 1H08 – 5,733sqm at Forum, Cisco (2.5% portfolio income) resulting in no rental downtime – exceeding management expecta
Slide 15: Strategies in place for upcoming lease expiries
Strategies in place for upcoming lease expiries • Only 6.6% of portfolio vacant/ Lease expiry profile (by income) 70% expiring in next 18 months 60.1% 60% 50% • Redevelopment/ repositioning 40% strategies in place for three major 30% 20% expiries (5.1% of portfolio income) 5.7% 13.1% 7.4% 12.4% 10%
Slide 16: Rent review profile provides built-in growth
Rent review profile provides built-in growth • Significant weighting to fixed reviews over next three years • 82% of portfolio subject to review in FY09 Rent review profile (by income) Review type FY09 rental Rental growth outlook proportion 100% (%) 18% 18% 17% Fixed 51% Average 3.3% 80% 9% 9% 9% 1
Slide 17: Strategy and pipeline
Strategy and pipeline
Slide 18: CDI well positioned
CDI well positioned • Market conditions CDI portfolio allocations (by value) France, – Property market space fundamentals currently 10% in equilibrium – Continue to monitor potential softening in cap rates in 2008 Australia, 90% • CDI well positioned Value-add, 5% – Security of cash flows from quali
Slide 19: State of play – CDI key markets
State of play – CDI key markets • Australian Office (55% exposure) – Supply and demand remains in check across most markets – Brisbane supply expected to dampen rental growth over the medium term – Canberra two-tier market developing • Australian Industrial (23% exposure) – Sydney and Melbourne Indu
Slide 20: Core plus portfolio objective robust
Core plus portfolio objective robust • Core plus portfolio objective maintained through real estate cycles – Core portfolio – target 80% of portfolio value • Focussed on predictable, long term cash flows • Long-term leases to quality tenants with a high proportion of fixed annual rent reviews – Valu
Slide 21: Significant organic development pipeline
Significant organic development pipeline Estimated Calendar year cost* Trust Sector $m Area sqm 2008 2009 2010 2011 2012 Organic development opportunities Cosgrove Road, Enfield Passive Industrial 65 45,660 Cooper Street, Smithfield Active Industrial 19 14,820 Century City Walk, Glen Waverley Passiv
Slide 22: Update on projects underway
Update on projects underway Century City Walk, Cosgrove Road, Cooper Street, Glen Waverley Enfield Smithfield Total forecast cost $1.2m $65.6m $19.0m Costs incurred to date $0.1m $28.8m $14.0m Delivery yield n/a 8.0% 7.5% Development partner n/a ICPS ICPS Forecast completion date Aug 2008 June 2008*
Slide 23: Planned projects – Jam Factory
Planned projects – Jam Factory • Mixed use development with strong retail offering – 54,000sqm retail – including Dept store, DDS, supermarket and 70 specialties – 8,000sqm commercial – 100 key boutique hotel • Total cost circa $700 million – CDI 60% share $420 million • Current cap rate 7.75% • Tar
Slide 24: Planned projects – Jam Factory
Planned projects – Jam Factory • Positive feedback from existing and new tenants • Discussions currently underway with local council • DA expected to be submitted 1H FY09 • Two year planning/DA approval • Three year project expected to complete FY12 24
Slide 25: Potential projects to enhance return profile
Potential projects to enhance return profile • CDI has been nominated as preferred proponent for: Raymond Terrace Shopping Centre • Long-term leasehold • Development of 24,388sqm sub-regional shopping centre • Total cost estimate $100 million • Due diligence forecast for completion March 2007 – proj
Slide 26: Potential projects to enhance return profile
Potential projects to enhance return profile • CDI has been nominated as preferred proponent for: Domain Car Park • Long-term leasehold with Royal Botanic Gardens Trust • Upgrade and management of car park • Total cost estimate $8 million • Negotiations expected to complete May 2008 • Investment to
Slide 27: Summary
Summary • Solid first half financial results • Stable earnings underpinned by solid operating performance • On track to deliver FY08 distribution guidance of 8.45 cents per unit • Strong balance sheet – existing capacity to fund growth objectives • Continuing domestic focus – significant internal pi
Slide 28: Questions
Questions
Slide 29: 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] 29
Slide 30: Appendices
Appendices
Slide 31: Income statement
Income statement 1 Jul – 31 Dec 07 12 Sep – 31 Dec 06 $000 $000 Net property income 31,896 11,214 Other income 213 102 Borrowing costs (7,220) (1,554) Other expenses (2,316) (559) Profit from operating activities 22,573 9,203 Net gain on revaluation of financial derivatives 299 750 Net gain/(loss) f
Slide 32: Distribution statement
Distribution statement 1 Jul – 31 Dec 07 12 Sep – 31 Dec 06 $000 $000 Net profit attributable to unitholders 50,180 3,623 Adjusted for Fair value movement on investment properties (26,090) 6,330 Fair value movement on derivatives (299) (750) Straight lining of rental income (1,716) (1,040) Deferred
Slide 33: Balance sheet (page 1 of 2)
Balance sheet (page 1 of 2) 31 Dec 2007 30 Jun 2007 $000 $000 Cash and cash equivalents 4,426 7,517 Trade and other receivables 3,319 4,069 Other assets 953 623 Total current assets 8,698 12,209 Derivative financial instruments 2,655 2,356 Development properties 42,824 26,315 Investment properties 8
Slide 34: Balance sheet (page 2 of 2)
Balance sheet (page 2 of 2) 31 Dec 2007 30 Jun 2007 $000 $000 Unitholders Equity Contributed equity 520,760 519,984 Undistributed income 858 858 Unrealsied gains reserve 58,669 31,154 Total equity attributable to unitholders of the parent 580,287 551,996 Minority interest 311 54 Total Equity 580,598
Slide 35: Hedging profiles
Hedging profiles Foreign exchange income hedging 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 Interest rate hedging Amount Hedge rate* Expiry $48 million 6.28% Nov 2009 $80 million 6.94% Feb 2011 38 million 4.30% May 201
Slide 36: Portfolio summary (page 1 of 3)
Portfolio summary (page 1 of 3) Property CDI Net lettable Occupancy WALE (by Valuation* Valuation Book value ownership area % income) $m date 31-Dec-07* interest % sqm years $m Office portfolio ABS House 60 31,041 100.0 9.1 93.2 31-Dec-07 93.2 The Forum, Cisco 60 16,589 100.0 5.4 75.0 31-Dec-07 75.0
Slide 37: Portfolio summary (page 2 of 3)
Portfolio summary (page 2 of 3) Property CDI Net lettable Occupancy WALE (by Valuation* Valuation Book value ownership area % income) $m date 31-Dec-07* interest % sqm years $m Industrial portfolio Distribution centres Tetra Pak 100 24,108 100.0 1.4 20.4 30-Jun-06 20.5 Spotlight 100 20,723 100.0 4.4
Slide 38: Portfolio summary (page 3 of 3)
Portfolio summary (page 3 of 3) Property CDI Net Occupancy WALE (by Valuation* Valuation Book value ownership lettable % income) $m date 31-Dec-07* interest % area sqm years $m Development portfolio Cosgrove Road, Enfield 100 n/a n/a n/a 28.8 28.8 Cooper Street, Smithfield 100 n/a n/a n/a 14.0 14.0
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Challenger Diversified Property Group — H1 FY2008 Earnings Presentation on 6ix