Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — H1 FY2012 Earnings Presentation
45 slides from Challenger's earnings presentation, Feb 9, 2012
Slide 1: Challenger Diversified Property Group Results presentation
Challenger Diversified Property Group (ASX: CDI) Results presentation for half-year ended 31 Dec 2011 1
Slide 2: Important notice
Important notice Information contained in this publication is current as at 7 February 2012 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 (ARS
Slide 3: Results overview
Results overview Operating results • Profit from operating activities: $23.91 million; net property income: $33.8 million • Statutory net profit after tax: $18.8 million, impacted by fair value movements • 1H12 normalised EPU: 2.67 cents; DPU: 2.05 cents • Net tangible assets (NTA): 68 cpu • Pro f
Slide 4: Challenger Diversified Property Group
Challenger Diversified Property Group High yielding quality earnings underpinned by sound property fundamentals Domestic focus Diversified properties with focus on office income Positioned well for macro volatility KEY DATA – CDI 31 December 2011 Unit price 6 February 2012 - 10 day VWAP 49 c
Slide 5: Strategy
Strategy… Talavera Rd 5 North Ryde, NSW
Slide 6: CDI strategic objectives
CDI strategic objectives Improve Portfolio Active capital Grow Close price to leasing enhancement management earnings NTA gap metrics Fund Objective: to provide investors with exposure to a diversified portfolio of properties generating stable income returns and potential for capital growth 6
Slide 7: Portfolio enhancement
Portfolio enhancement • French marketing campaign initiated Q4 2011 Domestic focus • French properties remain on market for orderly sale • Increase focus on multi tenanted properties • Reduce exposure to purpose built properties Diversify portfolio • Concentrate on properties in deeper leasing marke
Slide 8: Update on sale of French properties
Update on sale of French properties Marketing campaign initiated Q4 2011 Challenging market conditions in France and Europe as a whole, investors remain cautious, with uncertain economic conditions and limited credit availability Properties remain on market for orderly sale Properties 100% o
Slide 9: Improve leasing metrics
Improve leasing metrics Total deals completed Ongoing success with renewals Lease deals - 20 WALE: 5.0 years Area 44,247 sqm Occupancy: 92.9% Expiries and vacancies remain Gross rent $6.4m our priority (6.8% of CDI portfolio gross income) Office Industrial – Distribution • Lease deals
Slide 10: Active capital management
Active capital management Actively managing balance sheet gearing levels to a 25% – 35% range Active management of debt limits and available liquidity, to maintain financial flexibility Judicious use of buyback to date Buyback cautiously slowed given current status of asset sales Efficient
Slide 11: Results highlights
Results highlights 31 Queen St 11 Melbourne, VIC
Slide 12: Operating results
Operating results Statutory NPAT: $18.8m compared to $30.1m 1H11 Profit from operating activities, $23.9m or 2.67 cpu Distribution of 2.05 cpu NTA per unit 68 cents Distribution payout ratio for 1H12: 75.9%2 1H12 1H11 $ million $ million Net property income 33.8 30.9 Financing costs 6.9 3.
Slide 13: FY12 earnings guidance – Upgraded
FY12 earnings guidance – Upgraded 5.1 5.0 5 0.13 4.9 0.13 4.8 0.11 0.13 4.7 (0.20) 4.7 4.6 4.5 Original FY12 Extended sale of Domain Increased downtime Net property Finance & opex FY12 forecast guidance French portfolio outperformance outperformance savings Upgraded EPU guidance now Upgraded DPU
Slide 14: Capital management
Capital management Inside The Jam Factory 14 Melbourne, VIC
Slide 15: On market buyback
On market buyback Buyback funded through combination of debt and asset sales Buyback 30% complete • Total of 29.6m units ($15.2m) acquired (3.2% of issued capital) Buyback slowed given status of asset sales Buyback metrics • Average vwap of 51.47 cents compared to market VWAP of 52.75 cents
Slide 16: Debt metrics
Debt metrics Average cost of Australian drawn debt post refinance – 7.0% • includes average margin of 183 bps on drawn debt Weighted average undrawn commitment fee: 100 bps Incremental cost of drawing additional Australian debt - 5.3% Pro forma 31 December 20112 AUD denominated Euro Total borr
Slide 17: Facility expiry profile
Facility expiry profile Facility limit increased to $300m with no expiries until FY14 Undrawn $42m to fund committed developments and provide financial flexibility • 31 December 2011 pro forma expiry profile1 200 150 $m 100 20 - $25 22 50 90 100 68 - - Jul-12 Jul-13 Jul-14 Jul-15 Expiry Drawn Un
Slide 18: Development progress
Development progress The Junction Industrial Park – Stage 2 18 Enfield, NSW
Slide 19: The Junction Industrial Park
The Junction Industrial Park Bunzl The project is forecast to complete Stage 2 within budget GLA 20,200sqm Key activities undertaken to date Lease term 10 yrs include: • Earthwork compaction and piering complete Total project cost $21m • Structural steel 79% complete - excluding land • Precast c
Slide 20: The Jam Factory
The Jam Factory Repositioning to make the centre more contemporary, accessible and sought after by a broader demographic Repositioning Works Operations World record opening for a Topshop franchise store Project cost $16m (100%) – 540 stores in 34 countries Centre traffic increased by 27% in De
Slide 21: The Domain car park
The Domain car park Refurbishment Targeting completion May 2012, ahead of contract completion date 18 July 2012 Key activities undertaken to date include: • Lift installation 45% complete • Services upgrades and painting car park pods complete • Façade upgrade 95% complete • Travelator upgrade c
Slide 22: Portfolio performance
Portfolio performance The Forum 22 St Leonards, NSW
Slide 23: State of play
State of play Office • Demand for office space in most markets is likely to be subdued (excluding Perth and Brisbane) • Incentive levels are forecast to remain high through 2012 • Prime stock with long WALE’s will remain attractive to investors. Cap rates to remain flat until more certainty exists
Slide 24: Portfolio overview – 31 December 2011
Portfolio overview – 31 December 2011 Key portfolio metrics • Occupancy – 92.9% (June 11: 93.7%); WALE – 5.0 years (June 11: 5.0 years) Domestic focus • 94.51% Australian; continuing orderly disposal of French portfolio Australian portfolio French portfolio Total portfolio Total property portfol
Slide 25: Portfolio revaluations at December 2011
Portfolio revaluations at 31 December 2011 All properties revalued: 46% (by value) independently revalued Total Portfolio up $9.3m, up 1.1% from FY11 • A-IFRS fair valuation movements down $1.1m Market capitalisation rates remain unchanged at 8.19% French portfolio value down 7.7% Currentl
Slide 26: Lease expiry profile (by gross income)
Lease expiry profile (by gross income) Investment portfolio 92.9%1 occupied WALE 5.01 years 8.0% 7.1% 6.9% 7.0% 1.5% 1.1% The Forum, 6.0% Beziers (France) Verizon 0.7% 0.9% Tours (France) 5.0% 75 Talavera Rd 0.9% 0.9% Makerston Ave 4.0% 6 Foray Street 3.3% 1.1% Village Roadshow Jam Factory 3.0%
Slide 27: Summary
Summary Jam Factory – Tenants Logos Melbourne, VIC
Slide 28: Summary
Summary Operating results on target • 1H12 normalised earnings and distribution of 2.67 and 2.05 cpu delivered • Net tangible assets (NTA): 68 cpu • Pro forma balance sheet gearing at 28.9% Property metrics • Investment property valuations up $9.3 million from 30 June 2011 • Occupancy: 92.9%; WA
Slide 29: Contacts
Contacts Trevor Hardie Fund Manager Tel: + 61 (0)2 9994 7546 Email: [email protected] Website www.challenger.com.au/cdi Tim Evans Assistant Fund Manager Tel: + 61 (0)2 9994 7131 Email: [email protected] 29
Slide 30: Appendices
Appendices
Slide 31: 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 32: Management
Management Management agreements published on website Management expense ratio: 57.0 bps Management fees: Fee type Calculation Base management fee From 1 July 2010, 0.5% of gross assets of CDI per annum, payable in cash 5% of first 2% out performance against S&P/ASX200 property accumulation in
Slide 33: Hedge profiles
Hedge profiles Interest rate hedges $ A denominated hedges Notional Hedge rate Maturity date $15m 4.83% April 2012 Income hedges $40m 5.37% Feb 2014 Half year ending AUD/EUR $25m 5.11% April 2014 30 June 2012 0.7972 $20m 5.10% June 2014 31 December 2012 0.7828 $12.5m 5.55% Oct 2015 $12.5m 5.39% Oct
Slide 34: Diversification enhances portfolio quality
Diversification enhances portfolio quality As at 31 December 2011 Sector diversification (by value) Geographic diversification (by value) 5% 2% 6% 3% NSW 3% 17% 28% ACT 5% Office VIC Retail QLD Industrial - DC Industrial - HT SA WA 16% 61% 27% TAS France 25% Tenant diversification by type (by gross
Slide 35: Tenant industry diversification
Tenant industry diversification 33% 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) Portfolio Gross Industry representation Income 35% 33% 1 ABS Government ABS House 9.3% 2 Vil
Slide 36: Lease expiry profile (by gross income)
Lease expiry profile (by gross income) 80% % Expiry by gross income 70% 65.9% 60% 50% 40% 30% 20% 11.0% 10% 7.1% 6.9% 5.7% 3.3% 0% Vacant Jun-12 Jun-13 Jun-14 Jun-15 FY 2016 Beyond 36
Slide 37: 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 76% of portfolio subject to rental reviews in FY12 Rent review profile (by income) 100% Review type FY12 rental Rent reviews 90% 20% 22% proportion 23% (%) 80% 7% 7% 7% Fi
Slide 38: CDI investment portfolio diversification
CDI investment portfolio diversification $300 Geographic Sector Diversification 28% $250 25% $200 27% $150 Value ($m) $100 5% 5% $50 3% 3% 2% - NSW ACT VIC QLD SA WA TAS France Office Retail Industrial-DC Industrial - High Tech Sector Geographic Diversification $600 61% $500 $400 Value ($m) $300 $20
Slide 39: Income statement
Income statement 31 December 2011 31 December 2010 $’000 $’000 Rental income 36,811 34,375 Other property income 6,439 4,890 Income from operating business activities 3,772 3,658 Interest income 301 176 Revenue 47,323 43,099 Property related expenses (9,438) (8,371) Expenses from operating business
Slide 40: Reconciliation of profit
Reconciliation of profit 31 December 31 December Reconciliation of net profit after tax to profit from operating activities 2011 2010 $’000 $’000 Net profit after tax attributable to unitholders of CDI 18,847 30,050 Adjusted for: Straight-lining of rental (income)/expense (2,020) (1,476) Fair value
Slide 41: Distribution statement
Distribution statement 31 December 2011 31 December 2010 $’000 $’000 Profit from operating activities 23,859 23,982 Non-cash expenses Amortisation of borrowing costs 590 118 Other transfers per distribution policy Debt establishment costs (1,210) (575) Maintenance capital expenditure (1,345) (1,597)
Slide 42: Available funds from operations (AFFO)
Available funds from operations (AFFO) 31 December 31 December Available funds from operations (AFFO) 2011 2010 $’000 $’000 Profit from operating activities 23,859 23,982 Add/(deduct): Amortisation of borrowing costs 590 118 Leasing costs (2,880) (260) Maintenance capital expenditure (1,345) (1,597)
Slide 43: Net property income
Net property income Australian portfolio 1H12 1H11 Variance ($'000) ($'000) ($'000) % Office ABS House, Belconnen, ACT 3,693 3,593 100 3 31 Queen Street, Melbourne, VIC 3,181 - 3,181 Large Acquisition DIAC Building, Belconnen, ACT 2,582 2,505 77 3 The Forum, Cisco, St Leonards, NSW 2,560 2,397 163 7
Slide 44: Net property income - continued
Net property income - continued French portfolio 1H12 1H11 Variance (€'000) (€'000) (€'000) % Sully, Sully sur Loire 533 521 12 2 Aulnay, Aulnay sous Bois, Paris 337 289 48 17 Beziers, Villeneuve les Beziers 357 336 21 6 Gennevillers, Gennevilliers, Paris 337 333 4 1 Tours, Parcay-Meslay, Tours 223
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Challenger Diversified Property Group — H1 FY2012 Earnings Presentation on 6ix