Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — FY2013 Earnings Presentation
39 slides from Challenger's earnings presentation, Aug 6, 2013
Slide 1: Challenger Diversified Property Group Results for the year ended 30 June 2013
Challenger Diversified Property Group (ASX:CDI) Results for the year ended 30 June 2013 Trevor Hardie Fund Manager Tim Evans Assistant Fund Manager 6 August 2013
Slide 2: Outline
Outline Key highlights Trevor Hardie Fund Manager Vision and strategy Financial results Tim Evans Assistant Fund Manager Portfolio performance Trevor Hardie Fund Manager Key highlights 2
Slide 3: Key highlights
Key highlights
Slide 4: Key highlights
Key highlights Strategy continues to deliver • Strong business metrics Earnings and distributions growth achieved • Portfolio enhancement Actively repositioning portfolio • Improved leasing Focused approach and progress providing earnings growth • Active capital management Efficient cost of capital
Slide 5: Strong business metrics
Strong business metrics Earnings and distribution growth achieved FY13 normalised FY13 DPU Statutory EPU1 up 3% up 6% NPAT to 20.8 cents to 17.8 cents up 9% (21.5 cents pre performance fee ) Like-for-like Occupancy WALE net property income up to stable at 4.9 up 3% 95.7% years Entire debt FY14 norma
Slide 6: Delivering enhanced returns
Delivering enhanced returns Attractive yield supported by strong fundamentals • CDI distribution yield CDI trading metrics – ~180 bps spread to S&P/ASX 200 1 Implied earnings yield 9.0% Property index – ~370 bps spread to 10 year Implied distribution yield 1 7.5% government bond rate NTA 30 June 201
Slide 7: Vision and strategy
Vision and strategy Full year 30 June 2013 > Vision and Strategy
Slide 8: Vision and Strategy
Vision and Strategy Our Vision Be the preferred mid-cap Australian diversified REIT and a member of the S&P/ASX 200 Property Index Our Strategy Our Strategy Our Strategy Portfolio enhancement Leasing Capital management Actively manage and add Actively manage tenant Actively manage capital value to a
Slide 9: Portfolio enhancement
Portfolio enhancement Actively repositioning portfolio 31 Queen Street, Melbourne, VIC • Maximise exposure to efficient leasing markets Office • Continue upgrades and refurbishment • Diversify tenant exposure • Continue to enhance the Jam Factory – Village Cinema refurbishment Retail • Activate deve
Slide 10: Improved leasing
Improved leasing Focused approach and progress providing earnings growth • Progress made in a challenging market Future expiries de-risked 8% – 187 Todd Road – ~5,000 sqm leased 7% to Pacific Brands to 2022 6% 5.9% 5.7% 6.0% – Jam Factory – Village Cinema lease 5% 4.3% extended to 2029 4% 2.8% 3% 2.
Slide 11: Active capital management
Active capital management Efficient cost of capital Debt facility Debt maturity profile 1 150 • Refinanced entire $300m – weighted average margin reduced 100 by 33 bps 24 $m – weighted average term increased 50 110 76 from 1 year to 3.2 years 90 – no refinancing until FY16 - – cost of debt continues
Slide 12: Financial results
Financial results ail Ks
Slide 13: Operating results
Operating results Earnings driven by higher property income Operating results 1 FY13 FY12 • Net property income up 2% Net property income - $m 2 67.2 66.0 – on like-for-like basis up 3%2 Financing costs - $m 14.3 13.3 • Finance costs reflect higher average debt balance in FY13 Normalised earning
Slide 14: FY13 normalised epu
FY13 normalised epu Strategy delivering earnings growth 23.0 22.0 0.6 (0.3) cents per unit 21.0 0.3 (0.7) 0.7 20.0 21.5 20.8 19.0 20.2 18.0 FY12 epu Higher Buy back Reduced Higher debt FY13 epu FY13 FY13 epu net property income accretion operating expenses and other pre performance fee performance f
Slide 15: FY13 distribution
FY13 distribution 6% growth in distribution per unit FY13 FY12 • AFFO exceeds distribution to Distribution to unitholders 17.8 16.8 unitholders Available funds from operations (AFFO) 18.7 17.1 AFFO payout ratio – lifecycle capex and leasing costs are 95.2% 98.3% funded from operating earnings Distri
Slide 16: FY14 guidance
FY14 guidance Guidance represents a 4% increase in epu and dpu 23.0 0.4 (0.6) 22.0 0.3 0.7 cents per unit 21.0 20.0 22.3 21.5 19.0 18.0 1 FY13 epu Higher net Lower Normalised Other FY14 epu (pre performance fee) property income debt costs operating costs (pre performance fee) guidance • Higher net p
Slide 17: Improved debt metrics
Improved debt metrics Strong balance sheet 30 June 2013 Australia France Consolidated • Average cost of Australian drawn debt 5.9%, down from 6.4% 1 4 Borrowings – A$ 219m 55m 274m – average margin of 1.5% on drawn debt Pro forma balance sheet 1 26.4% 96.7% 30.8% • Incremental cost of drawing additi
Slide 18: Portfolio performance
Portfolio performance |
Slide 19: State of play
State of play Subdued leasing fundamentals • Investment demand for prime well leased stock expected to continue • Vacancy up across majority of markets Office • Business confidence remains low • Incentives up across most markets and expected to remain elevated • Cinema MAT growth of 6% across CDI po
Slide 20: Portfolio overview
Portfolio overview Strong portfolio metrics Australian French Total Portfolio overview – 30 Jun 2013 portfolio portfolio portfolio Portfolio metrics Total property portfolio - $m 803.1 55.8 2 858.9 • Occupancy 95.7% Number of investment properties 22 5 27 • WALE 4.9 years Portfolio weighting - % (by
Slide 21: Lease expiry profile
Lease expiry profile Actively managing expiries • Vacancies down from 5.7% at December 2012 to 4.3% at June 2013 14.0% 12.8% 12.0% The Forum, Cisco, 2.1% 10.0% Executive Building, 2.6% 8.0% 6 Foray Street, 1.7% 4.3% 6.0% Makerston House, 2.0% 4.3% 4.0% Makerston House, 0.9% The Forum, Verizon, 1.4%
Slide 22: Rent review profile
Rent review profile Provides built-in growth through fixed and CPI increases • Majority of portfolio has fixed or CPI Rent review profile rental reviews over next three years 100% 13% 12% 13% • 87% of portfolio subject to rental 80% 6% 2% 6% 2% 6% 11% 11% 11% No review reviews in FY14 Market review
Slide 23: Key highlights
Key highlights
Slide 24: Key highlights
Key highlights Strategy continues to deliver • Strong business metrics Earnings and distributions growth achieved • Portfolio enhancement Actively repositioning portfolio • Improved leasing Focused approach and progress providing earnings growth • Active capital management Efficient cost of capital
Slide 25: 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] www.challenger.com.au/cdi Full year 30 June 2013 > Contacts 25
Slide 26: Appendices
Appendices
Slide 27: Appendices table of contents
Appendices Table of contents Portfolio metrics Innaloo Cinema Centre, Woodlands, WA • Diversified investment portfolio 28 • Tenant diversification 30 Financial results • Income statement 31 • Distribution statement 32 • Available Funds From Operations 33 • Net property income – Australia 34 – France
Slide 28: Diversified investment portfolio
Diversified investment portfolio Sector diversification (by value) Geographic diversification (by value) 4% 2% 7% 3% 3% 25% 18% 5% Office NSW Retail ACT Industrial VIC Hi-tech office QLD 59% SA 19% WA 30% TAS 25% France 1 Tenant diversification by type (by gross income) Tenant credit rating (by gros
Slide 29: Diversified investment portfolio
Diversified investment portfolio Geographic Sector Diversification Sector Geographic Diversification $600 $300 59% 30% $500 $250 25% 25% $200 $400 Value ($m) Value ($m) $150 $300 $100 $200 19% 18% 7% $50 5% $100 3% 3% 2% 4% - - NSW ACT VIC QLD SA WA TAS France Office Retail Industrial Hi-tech office
Slide 30: Tenant diversification
Tenant diversification 1 Top 20 tenants Rank Tenant name Tenant industry Property(s) % Industry representation 1 ABS Government ABS House 9.8% 2 DIAC Government DIAC Building 6.7% 40% 33% % of gross income 3 IP Australia Government Discovery House 6.2% 30% Jam Factory, CCW, 20% 15% 4 Village Cinemas
Slide 31: Income statement
Income statement 30 June 30 June Reconciliation of net profit after tax to normalised 30 June 30 June Income statement 2013 2012 earnings 2013 2012 $’000 $’000 $’000 $’000 Rental income 75,477 73,598 11,233 11,727 Net profit after tax 39,324 36,151 Other property income Income from operating busines
Slide 32: Distribution statement
Distribution statement Distribution statement 30 June 2013 $’000 30 June 2012 $’000 • CDI’s distribution policy is to distribute Normalised earnings 44,515 44,781 accounting profit earned from operating Non-cash expenses activities (“normalised earnings”), adjusted Amortisation of borrowing costs 43
Slide 33: Available Funds From Operations
Available Funds From Operations 30 June 2013 30 June 2012 Available Funds From Operations (AFFO) $’000 $’000 • Calculation aligned with Property Normalised earnings 44,515 44,781 Council of Australia (PCA) methodology Add/(deduct): released in June 2013 Life-cycle capital expenditure (4,191) (3,206)
Slide 34: Net property income – Australia
Net property income – Australia Australian portfolio 30 June 2013 30 June 2012 Variance $'000 $'000 $'000 % Office ABS House, Belconnen, ACT 7,624 7,414 210 3% 31 Queen Street, Melbourne, VIC 6,676 6,603 73 1% DIAC Building, Belconnen, ACT 5,352 5,237 115 2% The Forum, Cisco, St Leonards, NSW 5,015
Slide 35: Net property income – France
Net property income – France French portfolio 30 June 2013 30 June 2012 Variance €’000 €’000 €’000 % Sully, Sully sur Loire 889 1,089 (200) (18%) Aulnay, Aulnay sous Bois, Paris 700 681 19 3% Beziers, Villeneuve les Beziers 739 713 26 4% Gennevillers, Gennevilliers, Paris 627 656 (29) (4%) Tours, Pa
Slide 36: Net property income – reconciliation
Net property income – reconciliation Reconciliation to financials 30 June 2013 30 June 2012 Variance ($'000) ($'000) ($'000) % Australia 61,188 57,916 3,272 6% Straight–lining of rental income 2,105 2,425 (320) (13%) AIFRS prior year adjustment (604) - (604) -% Total Australia 62,689 60,341 2,348 4%
Slide 37: Hedge profiles
Hedge profiles $A denominated hedges CDI interest rate risk policy Notional Hedge rate Maturity date • CDI’s interest rate risk policy is to $20.0m 4.16% Sep 2015 – effectively hedge interest rates on a $40.0m 5.07% Feb 2016 minimum of 60% of expected debt $20.0m 3.77% Jun 2016 (30 June 2013 72%) $2
Slide 38: Management fees
Management fees • Management agreements published Management fees on CDI website Fee type Calculation 1 • Management expense ratio 81.4 bps Base management fee 0.5% of gross assets of CDI per annum, payable in cash. (including performance fee of $1.5 Performance fee 5% of first 2% outperformance aga
Slide 39: Important notice
Important notice Disclaimer: The material in this presentation is provided by Challenger Listed Investments Limited (ABN 94 055 293 644) (AFSL 236887) (“Challenger” or “CLIL”), as Responsible Entity of the Challenger Diversified Property Trust 1 (ARSN 121 484 606) and the Challenger Diversified Prop
Challenger Diversified Property Group — FY2013 Earnings Presentation on 6ix