Challenger Limited · ASX:CGF
Challenger — Challenger Kenedix Japan Trust — Merger or Acquisition (December 2009)
27 slides from Challenger's merger presentation, Dec 9, 2009
Slide 1: Challenger Kenedix Japan Trust: Recommended cash offer from Challenger Life
Challenger Kenedix Japan Trust (ASX:CKT) Recommended cash offer from Challenger Life 9 December 2009
Slide 2: Important notice
Important notice Information contained in this publication is current as at 9 December 2009 unless otherwise specified and is provided by Challenger Listed Investments Limited (ABN 94 055 293 644) (AFSL 236887) (“CLIL”) as Responsible Entity of the Challenger Kenedix Japan Trust (ARSN 124 068 971) (
Slide 3: Section 1: Transaction overview
Section 1 Transaction overview
Slide 4: Proposal overview
Proposal overview ¾ Challenger Listed Investments Limited (CLIL), the Responsible Entity of Challenger Kenedix Japan Trust (CKT) announced a proposal (Proposal) wherein Challenger Life¹ will acquire 100% of the units in CKT for consideration of $1.00 cash per CKT unit ¾ The December 2009 estimated d
Slide 5: Transaction pricing
Transaction pricing ¾ The Proposal consideration of $1.00 cash per CKT unit offers a significant premium to recent trading values Offer premium to recent trading values1,2 $1.20 Challenger Life Proposal $1.00 49.0% 48.3% 45.2% 45.1% $0.80 82.9% $0.60 $0.40 $0.20 $0.00 Last close 1 week VWAP 1 month
Slide 6: Reasons for Independent Directors' recommendation
Reasons for Independent Directors’ recommendation CKT Independent Directors unanimously recommend the Proposal, in the absence of a superior proposal, based on the following considerations: ¾ In the absence of the Proposal CKT is unlikely to trade at $1.00 or more for the foreseeable future given CK
Slide 7: Transaction conditions
Transaction conditions Conditions Precedent ¾ Unitholders approving the scheme ¾ Independent Expert concluding the Scheme is in the best interests of unitholders ¾ No material adverse change of an ongoing nature to the business, financial position or performance of CKT ¾ No reduction in net property
Slide 8: Section 2: Background to the Proposal
Section 2 Background to the Proposal
Slide 9: CKT performance since IPO
CKT performance since IPO ¾ Continued sound underlying portfolio performance − Strong cash flows underpinned by high occupancy (100%) and long lease expiries (14.9¹ years WALE) − Recent scheduled market rent reviews confirm relative stability of underlying income² − Sound underlying performance has
Slide 10: Factors contributing to CKT's performance
Factors contributing to CKT’s performance Key issues currently facing CKT: Japanese market ¾ Japanese real estate market conditions remain difficult, with property values conditions continuing to fall, lack of liquidity in asset markets and with little evidence of stabilisation or improvement in the
Slide 11: Property valuations
Property valuations ¾ Revaluation of 100% of CKT’s portfolio as at 30 November 2009 resulted in a 4.7% reduction in value ¾ Reduction in portfolio value has reduced pro forma NTA ¾ The weighted average capitalisation rate has increased from 5.17% as at 30 June 2009 to 5.41% as at 30 November 2009 CK
Slide 12: CKT's current gearing position
CKT’s current gearing position ¾ Headroom under LVR covenants has reduced materially due to recent property devaluations ¾ Capital hedge unwind is continuing, with current capital hedge liabilities of c.$10m¹ − ongoing exposure to AUD/JPY volatility, with particular impact on NTA CKT gearing by debt
Slide 13: Section 3: Strategic options
Section 3 Strategic options
Slide 14: Strategic options considered
Strategic options considered The Board has been pro-active in considering options to improve unitholder value ¾ Maintaining the status quo ¾ Recapitalising through an equity raising ¾ Targeted asset sales with proceeds applied to debt repayment to reduce gearing ¾ An orderly wind up ¾ Merger with an
Slide 15: Capital management
Capital management ¾ Target gearing ratio of 40%-50% to support 2012 refinancing ¾ Risk of further property devaluations leading to covenant breaches ¾ 1 for 1 entitlement offer would reduce pro forma portfolio gearing to c.51% (if priced at 20% discount to TERP¹ to raise c.$71m) − unlikely to be su
Slide 16: Capital management
Capital management ¾ To de-gear CKT to an LVR of 40%-50% would require an equity raising of c.$80m-$155m1 Target gearing 40% 50% Offer ratio 2.81 for 1 1.17 for 1 Equity raising size ($m) 154 81 Discount to TERP (20%) (20%) TERP ($) 0.45 0.57 Offer price ($) 0.36 0.45 NTA ($) 0.73 1.06 Units on issu
Slide 17: Capital management
Capital management ¾ An equity raising has been considered at various entitlement ratios ¾ Any equity raising will be highly dilutive given CKT’s cost of equity and very low cost of debt Post deal Required FY10 EPU yield to trade at: Equivalent of $1.00 NTA Entitlement Gross amount Property NTA/ EPU
Slide 18: Capital management: EPU yield comparison
Capital management ¾ Post an equity raising, CKT units would need to trade on a materially lower EPU yield to achieve an equivalent value per existing CKT unit of $1.00 − as a benchmark, the S&P/ASX 300 A-REIT Index (excl. Westfield) currently trades on c.8.8% FY10E EPU yield ¾ Would require a mater
Slide 19: Orderly wind up
Orderly wind up ¾ Market conditions in Japan suggest that liquidating CKT’s portfolio could only be achieved at a material discount to book value − portfolio sale also likely to take considerable time ¾ CKT sought proposals from potential purchasers of assets during 2009 − at the time, indications o
Slide 20: Merger with a J-REIT
Merger with a J-REIT ¾ CKT engaged with a number of parties in relation to asset sales ¾ J-REITs are unlikely to participate in Australia-Japan cross-border M&A − attractiveness of CKT likely insufficient to offset effects of regulatory hurdles and cross-border complexities ¾ J-REIT trading environm
Slide 21: Merger with another A-REIT
Merger with another A-REIT No suitable candidates have been identified to provide greater value than the Proposal ¾ Several impediments to merger with ASX listed Japanese property trusts − management contracts − merged entity pro-forma gearing ¾ A-REITs with no existing Japanese platform are unlikel
Slide 22: Proposals to acquire CKT
Proposals to acquire CKT ¾ Information has been provided to and discussions were held with a number of parties − the Board considered these parties might be interested in the opportunity to make a material investment in the underlying assets of CKT, or to acquire all of CKT ¾ The Proposal was the on
Slide 23: Section 4: Indicative timetable
Section 4 Indicative timetable
Slide 24: Transaction timetable
Transaction timetable Announcement of transaction 9 December 2009 Scheme Booklet received by Unitholders early January 2010 CKT unitholder meeting to vote on the Proposal late January 2010 Implementation date early February 2010 24
Slide 25: Appendix A: Portfolio metrics
Appendix A Portfolio metrics
Slide 26: Portfolio metrics as at 30 November 2009
Portfolio metrics as at 30 November 2009 ¾ The weighted average capitalisation rate has increased from 5.17% as at 30 June 2009 to 5.41% as at 30 November 2009 Indep. Indep. Valuation Cap rate Cap rate Valuation Lease Valuation 30 Jun 09 30 Jun 09 30 Nov 09 30 Nov 09 change term (¥m) % Property name
Slide 27: Slide 27
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