Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — HY09 Earnings Presentation
39 slides from Challenger's earnings presentation, Feb 11, 2009
Slide 1: Challenger Diversified Property Group (ASX:CDI)
Challenger Diversified Property Group (ASX:CDI) Results for half-year ended 31 December 2008 (HY09) Trevor Hardie - Fund Manager Tim Evans - Assistant Fund Manager 11 February 2009
Slide 2: Important notice
Important notice Information contained in this publication is current as at 11 February 2009 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: Key points
Key points ¾ HY09 operating performance in line with guidance - Profit from operating activities (before write downs): $20.8 million ¾ HY09 distribution: 3.7 cpu representing 96% of operating cash flow ¾ NPAT impacted by property revaluations, mark-to-market adjustments of hedges, and currency movem
Slide 4: Financial performance and FY09 guidance
Financial performance and FY09 guidance ¾ Solid operating performance – in line with guidance – Net property income: $33.31 million – Profit from operating activities (before write downs): $20.8 million – Strong portfolio fundamentals: occupancy at 99.95% and WALE at 5.9 years – 1H09 distribution: 3
Slide 5: Financial performance
Financial performance
Slide 6: Operating performance on track – payout ratio 96%
Operating performance on track – payout ratio 96% ¾ Net property income: $33.3m (up 4.3% on pcp) ¾ Profit from operating activities (before write downs): $20.8m (down 7.7%) − Financing costs up $3.1m ¾ NPAT: ($58.6)m − Includes impact of property revaluations, hedges and currency movements ¾ Half-ye
Slide 7: NTA at 88 cpu impacted by mark-to-market revaluations
NTA at 88 cpu impacted by mark-to-market revaluations 31 Dec 08 30 Jun 08 Variance Total assets $m 874.3 890.0 (15.7) Net assets $m 478.3 545.1 (66.8) NTA per unit cents 88 101 (13) ¾ Accounting treatment requires recognition of $9.4m (2 cpu) FX loss, which is offset by $8.2m (2 cpu) increase in FCT
Slide 8: Simple debt structure
Simple debt structure ¾ One multi currency facility of $500m with domestic banks Westpac & CBA ¾ Covenants at the consolidated level − No market capitalisation covenants − Covenant gearing ratio (total liabilities / total assets) < 50% − Interest cover ratio (ICR) > 2 times ¾ CDI operating within th
Slide 9: Covenant gearing
Covenant gearing ¾ Covenant gearing ratio (total liabilities / total assets): − At 45.3% at 31 December 2008 − Major impacts include mark-to-market on derivatives, property revaluations & depreciation of the Australian dollar ¾ Asset sale of only $50 million at book value would reduce gearing & impr
Slide 10: Hedges – interest rate (IR) swaps
Hedges – interest rate (IR) swaps ¾ 93% hedged against interest rate movements − Average weighted maturity of 3.1 years, compared to WALE of 5.9 years ¾ Fair value: net liability of 21.3m − Was $4.1 million net asset at 30 June 2008 ¾ Interest rate swaps have a staggered maturity over 10 years − $7.
Slide 11: Debt
Debt ¾ Total borrowings of $344 million ¾ Average cost of debt – 6.3% (includes average margin of 59 bps on drawn debt) ¾ Weighted average commitment fee on undrawn debt is 35 bps 31 December 2008 30 Jun 08 $ € Total denominated denominated borrowings borrowings Borrowings ($m1) 255.6 44.1 343.5 307
Slide 12: Staggered maturity profile with capacity
Staggered maturity profile with capacity ¾ $344 million drawn at 31 December 2008 – undrawn $156 million − Current development commitments over next 12 months - $21 million ¾ $128.6 million tranches of $500 million facility maturing October 2009 − Discussions with both banks commenced − Expect to re
Slide 13: Portfolio performance
Portfolio performance
Slide 14: State of play – CDI key markets
State of play – CDI key markets ¾ Australian Office (53%1 exposure) – Slowdown in demand across all markets, particularly financial services centres in Melbourne & Sydney and resources-driven Perth & Brisbane markets, has led to rise in vacancies & negative effective rental growth due to increased i
Slide 15: Portfolio overview – 31 December 2008
Portfolio overview – 31 December 2008 ¾ Portfolio characterised by sound fundamentals ¾ Domestic focus – 89% Australian (offshore strategy on hold) ¾ Occupancy – 99.95% (FY08: 99.97%); Long WALE – 5.9 years (FY08: 6.2 years) ¾ Total investment property portfolio value - $824.8 million ¾ Total develo
Slide 16: Diversification enhances portfolio quality
Diversification enhances portfolio quality Sector diversification (by value) Geographic diversification (by value) 10% 11% 2% Office 3% 28% NSW Retail 4% ACT 20% VIC Industrial - DC 7% QLD 53% Industrial - HT SA WA 20% TAS 18% 25% France Tenant diversification by corporate type Tenant credit rating
Slide 17: Tenant industry diversification
Tenant industry diversification1 ¾ 30% of CDI portfolio leased to government tenants ¾ Financial services sector exposure low at 2.5% ¾ Strong diversity 29.6% % Of Gross Inc. 19.0% 11.3% 10.0% 8.1% 8.6% 3.1% 2.9% 2.5% 1.7% 1.6% 1.5% du T l a Ed ied n ls ns e g un als er t ai en m I io ar rin ria th
Slide 18: Portfolio revaluations as at 31 Dec 08
Portfolio revaluations as at 31 Dec 08 ¾ 94% of assets independently revalued at 31 December 2008 ¾ Valuations have fallen $34.6 million or 4.0%1 ¾ Market cap rates softened 41bps from 7.42% to 7.83% ¾ French portfolio down 8%. Market cap rates average 6.99% Valuation Valuation Variance Market cap M
Slide 19: Weighted average cap rates
Weighted average cap rates CDI cap rates for portfolio 10% ¾ Cap rates softening Actual CDI forecast ¾ CDI cap rates above 9% benchmark in all sectors 8% ¾ Cap rates forecast at 7% end 09 will be under CDI gearing covenant 6% 5% Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 CDI Office CDI
Slide 20: Leasing transactions underpin fundamentals
Leasing transactions underpin fundamentals ¾ Proactive focus on leasing – occupancy at 99.95% ¾ FY09 - Deals completed year to date include renewal and new leases at: Makerston St, Brisbane; Jam Factory and Century City Walk, Melbourne; Enfield, Tetra Pak and Goodman Fielder in NSW ¾ WALE by income
Slide 21: Strategies in place for upcoming lease expiries
Strategies in place for upcoming lease expiries 54.0% ¾ Lease expiries proactively managed Lease expiry profile (by income) − emphasis on retaining tenants ¾ Portfolio 99.95% occupied ¾ Only 1.7% of portfolio expiring in 15.3% 11.0% 10.8% remainder of FY09 7.1% 1.7% 0.1% 0.05% Vacant FY09 FY10 FY11
Slide 22: Rent review profile provides built-in growth
Rent review profile provides built-in growth ¾ Significant weighting to fixed and indexed reviews over next three years ¾ 92% of portfolio subject to review in FY10 Rent review profile (by income) Review type FY10 rental Rent reviews proportion (%) 9% 13% 20% Fixed 55% Average 3.4% 11% 10% No Review
Slide 23: Cinemas – 10% of CDI portfolio income
Cinemas – 10% of CDI portfolio income ¾ Australia ranks globally: − 4th in cinema admissions per capita & − 15th in number of admissions ¾ Experiencing strong year-on-year growth − 2008 a record year at box office (up 6%) ¾ Cinemas in 3 of 4 CDI retail properties – 41 screens (2% of market) − Averag
Slide 24: Century City Walk repositioning adds value
Century City Walk repositioning adds value Century City Walk Glen Waverley Victoria Net lettable area 8,437 sqm Occupancy on completion 100%1 WALE 7.4 years Valuation pre development $23.7 million Refurbishment cost $2.6 million Valuation on completion $29.0 million Major tenants Village (53%) CC En
Slide 25: Developments - update
Developments - update Enfield ¾ Practical completion of Stage 1 warehouse achieved 30 Dec 08 ¾ Stage 1 fully leased, commencing 1 Jan 09 with term of 7 + 3 years lease to KW Doggett ¾ Stage 2 enquiries at various stages of negotiation with pre-commitment needed to commence construction Smithfield ¾
Slide 26: Summary
Summary ¾ HY09 operating performance in line with guidance - Profit from operating activities (before write downs): $20.8 million ¾ HY09 distribution: 3.7 cpu representing 96% of operating cash flow ¾ NPAT impacted by property revaluations, mark-to-market adjustments of hedges, and currency movement
Slide 27: Questions
Questions
Slide 28: Contacts
Contacts Trevor Hardie Fund Manager Tel: + 61 (0)2 9994 7546 Email: [email protected] Tim Evans Assistant Fund Manager Tel: + 61 (0)2 9994 7131 Email: [email protected] Luke Keighery Investor Relations Tel: + 61 (0)2 9994 7633 Email: [email protected] Website www.challenger.
Slide 29: Appendices
Appendices
Slide 30: 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, leasing costs, debt establishment fees and capital expenditure incurred to maintain the investment properties, subject to the ongoing
Slide 31: Fixed interest hedges
Fixed interest hedges Notional Hedge rate* Start date Maturity date $A denominated hedges $25m 4.83% Oct 08 Oct 09 $48m 6.28% May 08 Nov 09 $20m 4.78% Nov 08 Nov 10 $80m 6.94% May 08 Feb 11 $25m 4.57% Oct 09 Oct 11 $20m 5.83% Nov 09 Nov 12 $25m 6.99% Oct 08 Oct 13 $25m 7.54% Jul 08 Jul 15 $10m 7.40%
Slide 32: Income hedge profiles
Income hedge profiles Financial year ending AUD/EUR 30 June 2009 0.550 30 June 2010 0.528 30 June 2011 0.528 30 June 2012 0.484 30 June 2013 0.482 30 June 2014 0.484 30 June 2015 0.490 30 June 2016 0.454 32
Slide 33: Portfolio Summary as at 31 December 2008
Challenger Diversified Property Group - Portfolio Summary as at 31 December 2008 Occupancy at Weighted average Prior Current Average CDI ownership Net lettable Purchase Prior Prior Current Current Valuation Discount Terminal Book value Book Value Average 31 Dec 08 lease expiry Date market market gro
Slide 34: CDI diversification by geography & sector
CDI diversification by geography & sector Geographic Sector Diversification $300 28% $250 25% $200 20% Industrial - High Tech Value ($m) Industrial-DC $150 Retail 11% Office $100 7% $50 4% 3% 2% - NSW ACT VICGeographic QLD Sector SADiversification WA TAS France $500 53% $450 $400 France $350 TAS $30
Slide 35: Lease expiry profile (by gross passing income)
Lease expiry profile (by gross passing income) 12% 11.0% Forum Properties Pty Limited (Forum - Cisco) Kings Parking (Makerston) 10% Telstra (Makerston) 4.76% 8% Kraft Foods 7.1% 0.49% 0.46% Verizon (The Forum Verizon) 6% 1.20% 1.54% Heidelberg Graphic Equipment 1.64% 4% Australian Pharmaceutical 2.1
Slide 36: Net property income
Net property income Australian portfolio Calendar year ($'000s) Variance 31-Dec-08 31-Dec-07 ($'000) % Office ABS Building, Belconnen, ACT 6,797 6,459 338 5.23% The Forum, Cisco, St Leonards, NSW 4,981 5,226 (245) -4.69% DIAC ("DIMA") Building, Belconnen, ACT 4,741 4,601 140 3.04% Discovery House, W
Slide 37: Net property income
Net property income European portfolio Half year (€'000s) Variance 31-Dec-08 31-Dec-07 (€'000) % 105, Route d'Orleans, Sully sur Loire 493 492 1 0.20% Avenue Savigny, Aulnay sous Bois 308 298 10 3.36% Rue Charles Nicolle, Villeneuve les Beziers 404 386 18 4.66% 140, Avenue Marcel Paul, Gennevilliers
Slide 38: Management
Management ¾ Management agreements published on website ¾ Management expense ratio (MER): 48.84bps ¾ Management fees: Fee type Calculation Base management fee 0.5% of gross assets of CDPG per annum, however this fee is reduced to 0.3% per annum for the period from allotment to June 2008 for IPO asse
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