Challenger Limited · ASX:CGF
Challenger — Challenger Diversified Property Group — H1 FY2007 Earnings Presentation
39 slides from Challenger's earnings presentation, Feb 14, 2007
Slide 1: Challenger Diversified Property Group FY07 interim results
Challenger Diversified Property Group FY07 interim results Carmel Hourigan – Fund Manager Trevor Hardie – Portfolio Manager 14 February 2007
Slide 2: Important notice
Important notice Information contained in this publication is current as at 14 February 2007 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: Highlights
Highlights • Focussed portfolio management team delivering results – significant reduction of FY09 lease expiry – progression of value-add projects identified in PDS • Positive outlook for growth – capacity to transact – exploring new domestic valued-add opportunities – offshore pipeline established
Slide 4: Investment performance since listing
Investment performance since listing Relative price performance 23 October 2006 – 12 February 2007 Price Total return return 121 (%) (%) 116 23 Oct 06 - 31 Dec 06 111 CDI 7.0 8.6 106 S&P/ASX 300 Prop 10.2 11.9 101 23 Oct 06 – 12 Feb 07 96 20-Oct-06 03-Nov-06 17-Nov-06 01-Dec-06 15-Dec-06 29-Dec-06 1
Slide 5: Strategic objectives
Strategic objectives Strategy Investing in domestic and offshore core and value add opportunities Pipeline Execution • Domestic - Challenger ROFO • Challenger funds management, assets and preferred partner asset management, development assets management, treasury, tax and • Offshore -Strategic partn
Slide 6: Agenda
Agenda Financial results 7 Portfolio update 11 Strategic initiatives 26 Summary and outlook 35 6
Slide 7: Financial results
Financial results
Slide 8: Financial performance meeting forecasts
Financial performance meeting forecasts • On track to deliver PDS forecast DPU 5.40 cents 12-Sep-06 to 31-Dec-06 $000 Net property income 11,214 Profit from operating activities 9,203 Net profit 3,623 Adjusted for: Fair value movements 5,580 Straight-lining of rental income (1,040) Management fee pa
Slide 9: Financial position
Financial position • NTA of $0.96 consistent with PDS forecast • Objection lodged December 2006 on VIC stamp duty assessment – contingent liability of $8.0 million disclosed – CDI confident of successful outcome 31-Dec-06 Total Assets ($000) 673,869 Total Liabilities ($000) 159,242 Net assets ($000)
Slide 10: Significant funding capacity available
Significant funding capacity available • Low gearing provides significant borrowing capacity – preferred gearing range 35-45% – commitments identified in PDS $96 million – current capacity assuming 45% LVR provides potential 40% increase in portfolio size • Currently 100% hedged 31-Dec-06 Borrowings
Slide 11: Portfolio Update
Portfolio Update Focussed portfolio management team delivering results
Slide 12: Portfolio snapshot
Portfolio snapshot • 25 properties valued at $666 million • Well diversified by asset type and geography • High occupancy of 99.4% (by income) • Long lease terms with WALE (by income) of 7.1 years • Strong tenant covenants – 50%+ with BBB and above credit rating • Identified value-add opportunities
Slide 13: Complementary core and value-add portfolio strategy
Complementary core and value-add portfolio strategy Core assets Hold to generate secure/stable returns On sell to Passive trust Active trust realise gains Value-add assets Existing and new assets New assets 13
Slide 14: Portfolio achievements
Portfolio achievements • Strengthening of core portfolio – Heads of agreement reached with Cisco Systems at the Forum – Positive rent review outcome at Executive Building in Hobart • Significant progression of value-add opportunities identified in PDS – Industrial: Enfield and Tetra Pak – Office: Di
Slide 15: Strengthening of core portfolio
Strengthening of core portfolio • Heads of Agreement reached with Cisco Systems at The Forum • FY09 lease expiry moves from 13.9% to 9.5% post Cisco Systems deal Lease expiry profile (by income) at 31 December 2006 70.0% 61.4% 60.0% 50.0% 40.0% 30.0% 20.0% 13.9% 13.6% 10.0% 7.5% 9.5% 0.6% 1.1% 0.8%
Slide 16: Progression of value-add projects – industrial
Progression of value-add projects – industrial • Enfield site – Deferred settlement schedule • Two payments of $12.1 million due in March and October 2007 – CDI to debt fund project • Estimated total cost of $38 million (including capitalised interest) – CDI has entered into development agreement wi
Slide 17: Enfield development perspective
Enfield development perspective 17
Slide 18: Enfield development site plan
Enfield development site plan 18
Slide 19: Progression of value-add projects – industrial
Progression of value-add projects – industrial • Tetra Pak site – Tetra Pak have indicated intention to vacate premises in May 2009 – Potential for early surrender currently being negotiated – Masterplan being prepared for site • opportunity to develop industrial park with NLA approx. 22,000sqm • Wa
Slide 20: Progression of value-add projects – office
Progression of value-add projects – office • Discovery House Stage 2 – On schedule for completion October 2007 • DIMA building – Project scope expanded from 12,000sqm to 20,000sqm NLA – Detailed proposal submitted in response to formal RFP – CDI’s proposed scheme provides for additional area to be s
Slide 21: DIMA building development proposal
DIMA building development proposal 21
Slide 22: Progression of value-add projects – retail
Progression of value-add projects – retail • Century City Walk – repositioning project – proposed tenancy remix with focus on entertainment offer – currently discussing with existing and prospective tenants – CY07 estimated spend $2.0 million • Jam Factory – prime retail location on Chapel Street, S
Slide 23: Jam Factory perspective
Jam Factory perspective 23
Slide 24: Actively sourcing domestic value-add opportunities
Actively sourcing domestic value-add opportunities • Internal transaction capability • Currently working with Walker ICPS on value add opportunities – sourcing industrial assets – provision of development management services – preferred partner status but no exclusivity • CDI has option to acquire a
Slide 25: Portfolio summary
Portfolio summary • Core portfolio in position of strength – significant progress on FY09 expiries • Delivery of value-add projects – Century City Walk – Jam Factory – Enfield – Tetra Pak – DIMA Building • Sourcing domestic value-add opportunities – portfolio team actively sourcing market opportunit
Slide 26: Strategic initiative
Strategic initiative Challenger European partnership with Protego Real Estate Investors
Slide 27: CDI strategy
CDI strategy • Core plus strategy – 80%/20% exposure to core and value-add • CDI strategy to limit offshore to 40% of gross assets – restricted to natural hedging position • Offshore platform key requirement 27
Slide 28: Protego Real Estate Investors LLP
Protego Real Estate Investors LLP • Specialist real estate investment manager – Established in 2004 by executives from Aberdeen, PGGM and L&G – Independent ownership and management – Highly experienced principals – £1.4 billion assets under management – Blue chip client base – Active in UK and Europ
Slide 29: Protego key executives
Protego key executives • Iain Reid – CEO and CIO – International Head of Research at Richard Ellis (Six years) – CEO / CIO at BZW / Barclays Property Investment and Aberdeen Property Investors (API) (8 years) – €10 billion FUM Europe • Peter de Haas – Head of International Investment Strategy – Head
Slide 30: Protego’s current business
Protego’s current business • Four funds created since launch in 2004 – Protego UK Property Fund – UK actively managed Shopping Centre Fund – Protego Industrial Income Trust – Nordic Retail Fund (Q1 2007) • Segregated account clients – UBS Global Wealth Management – Allianz Life – Cazenove Multi-Stra
Slide 31: CDI leveraging off local expertise
CDI leveraging off local expertise Challenger Funds management and investment services Domestic market European market Origination Investment management Challenger Protego Asset management Development Knight Frank Property management King Sturge 31
Slide 32: Protego and King Sturge strategic alliance
Protego and King Sturge strategic alliance King Sturge • 41 offices in 17 countries • 2,010 staff and partners • investment teams in each market • director involvement • property origination and related services 32
Slide 33: Challenger Protego relationship mechanics
Challenger Protego relationship mechanics • Aligned economic structure – Challenger will share existing base fee and transaction fees with Protego – Protego asset performance fee to ensure long term performance and alignment of interest • IRR hurdle with appropriate earnback mechanism • Establishmen
Slide 34: Strategic initiative – summary
Strategic initiative – summary • Access to investment grade stock – ability to diversify risk • Inefficiency in the market allows for a transactionally opportunistic strategy – ability for CDI to expand core plus strategy • Improving general economic and market conditions 34
Slide 35: Summary and outlook
Summary and outlook
Slide 36: Successful delivery of key IPO objectives
Successful delivery of key IPO objectives • Minimising risks to income from core portfolio • Progressing repositioning and development opportunities identified in PDS • Domestic value-add acquisition opportunities • Securing JV platform to enhance capacity to transact offshore 36
Slide 37: Positive outlook
Positive outlook • Significant capacity to fund growth • Opportunities to realise upside from existing portfolio • Domestic opportunities – ROFO assets – Preferred partner status • Strong offshore partner to source European assets • On track to meet PDS forecast DPU of 5.4 cpu 37
Slide 38: Questions
Questions
Slide 39: CDI contacts
CDI contacts Carmel Hourigan Fund Manager Tel: 02 9994 7875 Email: [email protected] Trevor Hardie Portfolio Manager Tel: 02 9994 7546 Email: [email protected] Susie McPherson Investor Relations Tel: 02 9994 7958 Email: [email protected] 39
Challenger Diversified Property Group — H1 FY2007 Earnings Presentation on 6ix