Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — FY2008 Earnings Presentation
38 slides from Challenger's earnings presentation, Aug 14, 2008
Slide 1: Challenger Diversified Property Group (ASX:CDI)
Challenger Diversified Property Group (ASX:CDI) Results for year ended 30 June 2008 (including guidance for FY09) Trevor Hardie - Fund Manager Tim Evans - Assistant Fund Manager 14 August 2008
Slide 2: Important notice
Important notice Information contained in this publication is current as at 14 August 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 (ARSN
Slide 3: Key takeouts
Key takeouts ¾ FY08 results ¾ Distribution guidance for FY09 ¾ Sound portfolio fundamentals ¾ Conservative management ¾ Old-fashioned LPT with Australian focus ¾ Focus on current portfolio & organic value-add opportunities 3
Slide 4: Financial results and FY09 guidance
Financial results and FY09 guidance ¾ FY08 financial results – Net operating income $64.61 million – Profit from operating activities (before write downs) $42.9 million – Net profit after tax $36.0 million – Distribution for FY08 of 8.45 cents per unit (cpu) ¾ FY09 distribution guidance – 7.5 cents2
Slide 5: FY09 distribution guidance
FY09 distribution guidance Impact of When fees paid in policy cash - applicable cents Impact of operating changes change from FY101 9.00 0.28 0.20 FY09 8.50 guidance 0.40 8.00 0.14 0.49 7.50 8.45 0.55 7.00 FY09 pre impact of 7.50 policy 6.50 If fees paid change in cash 6.00 FY08 Portfolio Incentives
Slide 6: Financial performance
Financial performance
Slide 7: Financial performance
Financial performance ¾ Profit from operating activities: $41.3 million ¾ Net profit after tax: $36.0 million ¾ Distribution per unit - 8.45 cents $’000 FY08 12 Sep 06 to 30 Jun 07 Net property income 64,660 39,482 Profit from operating activities (before write downs) 42,930 31,856 Fair value moveme
Slide 8: NTA impacted by asset revaluations
NTA impacted by asset revaluations ¾ Total assets increased by 10% to $890.0 million – Acquisition of Discovery House Stage 2 – $33.3 million – Acquisition and development of Smithfield site – $17.6 million to date – Development of Enfield site - $38.8 million to date – Acquisition of remaining 40%
Slide 9: Capital management
Capital management ¾ Total borrowings of $307.9 million ¾ Gearing (debt / total assets) at 34.6% remains well below upper gearing guidance limit of 45% ¾ 81% of borrowings hedged with average hedge duration of 3.4 years2 ¾ Average cost of debt – 6.8% (including average margin of 54bps) 30 June 2008
Slide 10: Simple debt structure
Simple debt structure ¾ One syndicated multi currency facility of $500 million – Westpac & CBA ¾ Covenants at the consolidated level − No market capitalisation covenants − Gearing ratio (total liabilities / total assets) covenant - 50% − Interest cover ratio (ICR) – 2 times ¾ As at 30 June 08 CDI op
Slide 11: Staggered maturity profile with capacity
Staggered maturity profile with capacity ¾ $100 million tranche of $500 million facility successfully refinanced − Refinanced prior to expiry in October 2008 − $100m split into 3 tranches with staggered maturity dates in Oct-09, Aug-10 & Aug-11 − Extended profile of the facility by 21% from 1.9 year
Slide 12: Portfolio performance
Portfolio performance
Slide 13: Core plus strategy – adjust to short-term market conditions
Core plus strategy – adjust to short-term market conditions ¾ Core plus portfolio objective to be maintained through real estate cycles – Current focus on domestic portfolio and value-add opportunities – Core portfolio – strategic target 80% of portfolio value • Focussed on predictable and secure lo
Slide 14: State of play – CDI key markets
State of play – CDI key markets ¾ Australian Office (52% exposure) – Slowdown in demand, especially from smaller financial services groups, which may lead to rise in vacancies & dampening of rental growth – Limited uncommitted supply coming to market – Any change in market conditions will be demand-
Slide 15: Portfolio overview – 30 June 2008
Portfolio overview – 30 June 2008 ¾ Portfolio characterised by sound fundamentals ¾ Domestic focus – 91% Australian (offshore strategy on hold) ¾ Occupancy – 99.97% (FY07: 99.3%) ¾ Long WALE – 6.2 years (FY07: 6.9 years) ¾ Total investment property portfolio value - $820.3 million ¾ Sound diversific
Slide 16: Portfolio revaluations as at 30 June 2008
Portfolio revaluations as at 30 June 2008 ¾ All assets independently revalued at 30 June 2008 ¾ Valuations have fallen $26.6 million or 3.1%1 ¾ Market cap rates softened 29bps from 7.13% to 7.42% ¾ French portfolio down 6.7%. Market cap rates average 6.38% compared to 5.91% previously Valuation Valu
Slide 17: Diversification enhances portfolio quality
Diversification enhances portfolio quality Sector diversification June 2008 (by value) Geographic diversification June 2008 (by value) 10% 9% Office 2% 4% NSW 2% 33% VIC Retail 7% ACT 22% QLD WA 52% Industrial - SA distribution TAS centres FRANCE Industrial - high 25% tech 18% 16% Tenant diversifica
Slide 18: Strategies in place for upcoming lease expiries
Strategies in place for upcoming lease expiries 60% Lease expiry profile (by income) ¾ Lease expiries proactively 49.88% 50% managed − emphasis on retaining tenants 40% ¾ Portfolio 99.97% occupied 30% ¾ Only 5.2% of portfolio expiring in 20% 12.59% 13.48% 11.60% FY09 10% 5.22% 7.19% 0.03% − main lea
Slide 19: 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 83% of portfolio subject to review in FY09 Rent review profile (by income) 100% Review type FY09 rental Rent reviews 11% proportion 17% 17% 9% (%) 80% 9% 3% 9% 1% 3% Fixed 51% Av
Slide 20: Organic development pipeline
Organic development pipeline
Slide 21: Significant organic development available
Significant organic development available Calendar year Trust Sector Estimated cost* Area 2008 2009 2010 2011 2012 $ millions Cost to Organic development opportunities Total complete sqm Committed : Century City Walk, Glen Waverley Passive Retail 3 2 Domain Car Park Active Car park 8 7 Cooper Street
Slide 22: Century City Walk repositioning to add value
Century City Walk repositioning to add value Century City Walk Glen Waverley Victoria Net lettable area 8,378 sqm Occupancy on completion 100%1 WALE on completion 7.7 years Valuation pre development $23.7 million Refurbishment cost $2.6 million Valuation on completion $29.0 million Major tenants Vil
Slide 23: Domain Car Park
Domain Car Park Leasehold 25 year leasehold with Royal Botanic Gardens Trust Car spaces 1,144 Date commenced May 2008 ¾ 25 year leasehold1 with Royal Botanic Gardens Trust ¾ Lease commenced May 08 ¾ Upgrade and management of car park ¾ Total upgrade cost estimate $8 million (expected completion – Ju
Slide 24: Enfield stage 1 nearing completion
Enfield stage 1 nearing completion Enfield, NSW Net lettable area: Stage 1 13,450 sqm Stage 2 & 3 32,000 sqm Forecast total cost $66.4 million Targeted yield on cost 8.0% Target completion (stage 1) Aug 08 Stage 2 & 3 12 months from pre-commitment Vacancy on completion 100% Development Partner ICPS
Slide 25: Smithfield nearing completion
Smithfield nearing completion Smithfield, NSW Net lettable area: New warehouse 4,820 sqm Existing warehouse 10,214 sqm Forecast total cost $19.0 million Targeted yield on cost 7.5% Targeted completion Aug 08 Vacancy on completion 100% Development Partner ICPS ¾ Completion of new warehouse anticipate
Slide 26: Jam Factory redevelopment
Jam Factory redevelopment ¾ Master plan progressing ¾ To include a mixed-use development ¾ Strong retail offering ¾ Key planning milestones in place ¾ Remains subject to ongoing commercial assessment ¾ Interest from major tenants 26
Slide 27: Summary
Summary ¾ Profit from operating activities $42.91 million in first full FY since IPO ¾ Distribution of 8.45 cents per unit in FY08 ¾ FY09 distribution guidance of 7.5 cents per unit. Major impacts: ¾ Changed distribution policy & treatment of maintenance capex ¾ Cost of borrowings ¾ Sound portfolio
Slide 28: Questions
Questions
Slide 29: 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 30: Appendices
Appendices
Slide 31: Income statement
Income statement FY 2008 FY 2007 $000 $000 Net property income 64,660 39,482 Net loss from operating business (97) - Other income 435 178 Borrowing costs (15,174) (5,853) Other expenses1 (8,530) (1,951) Profit from operating activities 41,294 31,856 Net gain on revaluation of financial derivatives 1
Slide 32: Distribution statement
Distribution statement FY 2008 FY 2007 $000 $000 Net profit attributable to unitholders 36,032 61,379 Adjusted for Fair value movement on investment properties 7,248 (27,275) Write down of development property 1,636 - Fair value movement on derivatives (1,805) (2,356) Straight lining of rental incom
Slide 33: Balance sheet (page 1 of 2)
Balance sheet (page 1 of 2) 30 Jun 2008 30 Jun 2007 $’000 Cash and cash equivalents 7,540 7,517 Trade and other receivables 777 4,069 Other assets 1,596 623 Development Property 16,000 - Total current assets 25,913 12,209 Derivative financial instruments 4,161 2,356 Property, Plant and Equipment 587
Slide 34: Balance sheet (page 2 of 2)
Balance sheet (page 2 of 2) 30 June 2008 30 Jun 2007 $000 $000 Unitholders Equity Contributed equity 522,463 520,038 Undistributed income 858 858 Unrealised gains reserve 21,802 31,154 Total equity attributable to unitholders of the parent 545,123 552,050 Attributable to: CDPT1 546,702 551,994 CDPT2
Slide 35: Fixed interest hedges
Fixed interest hedges Term to Notional Hedge rate* Maturity date expiry (yrs) $A denominated hedges $48m 6.28% Nov 09 1.3 $80m 6.94% Feb 11 2.6 $25m 6.99% Oct 13 5.0 $25m 7.54% Jul 15 7.0 $10m 7.40% Jul 18 10.0 Weighted average 6.88% 3.6 € Euro denominated hedges €38m 4.30% May 11 2.9 * Exclusive of
Slide 36: Income hedge profiles
Income hedge profiles Financial year ending AUD/EUR 30 June 2009 0.582 30 June 2010 0.576 30 June 2011 0.568 30 June 2012 0.552 30 June 2013 0.525 30 June 2014 0.541 30 June 2015 0.509 36
Slide 37: CDI lease expiry profile (by income)
CDI lease expiry profile (by income) 14.00% 12.6% Kraft Foods (Kraft) 12.00% 1.69% Telstra (Makerston) Kings Parking (Makerston) 10.00% 3.31% Forum Properties - (The Forum - Cisco) 8.00% 7.2% Australian Pharmaceutical Industries (API Richalnds) % 1.29% GF Services Company Pty Ltd (Goodman Fielder) 6
Slide 38: Slide 38
Challenger Diversified Property Group — FY2008 Earnings Presentation on 6ix