CHALLENGER DIVERSIFIED PROPERTY GROUP 
By MARKET RELEASE
STRATEGY DELIVERING RESULTS Key Points Profit from operating activities: $44.8 million (FY11: $44.4 million) FY12 normalised earnings per unit (epu) 5.06 cents (FY11: 4.86 cpu) FY12 distribution per unit (dpu) 4.20 cents (FY11: 4.00 cpu) FY13 guidance: normalised epu 5.25 cents and dpu 4.35 cents Statutory net profit after tax: $36.2 million (FY11: $51.5 million) Net tangible assets (NTA) per unit of 68 cents (FY11: 67 cents) Balance sheet gearing 29.8%1 Property valuations up $17.1 million (2.2%) from FY112 Occupancy: 94.1%; WALE: 5.0 years Strategy producing results, continued focus on; portfolio enhancement, improving leasing metrics and active capital management
7 August 2012, Sydney - Challenger Diversified Property Group
(ASX:CDI) today announced profit from operating activities of
$44.8 million for the full year ended 30 June 2012 (FY12).
Normalised epu increased
4% to 5.06 cents, primarily due to portfolio rental growth
and the benefits of the accretion from the unit buyback.
Statutory net profit after tax of $36.2 million was primarily
impacted by the unrealised adverse movement in interest rate
swaps.
CDI Fund Manager Trevor Hardie said: "CDI has delivered a
solid profit from operating activities for the year,
outperforming FY12 upgraded earnings guidance. These results
demonstrate the resilience of the portfolio and strength of
the underlying strategy.
"Over the period CDI has made good progress on its three
strategic objectives; portfolio enhancement, improve leasing
metrics and active capital management. We have been pleased
with the completion of two strategic value add initiatives
this period; the upgrade of the Domain Car Park and the
development of Stage
2, The Junction. These projects represent the delivery of a
key component in the portfolio enhancement strategy for the
Fund. On improving leasing metrics, numerous key leasing
deals have been completed
1 Pro forma post payment of 2H12 distribution in August 2012
2 Fair value movement down $0.7 million, excluding properties sold in FY12 and including capital expenditure
Further enquiry: Chantal Travers, Investor Relations, Challenger Financial Services Group, 02 9994 7560
Nicole Webb, Corporate Communications, Challenger Financial Services Group, 02 9994 7806
Challenger Diversified Property Group
(comprising Challenger Diversified Property Trust 1 ARSN 121 484 606 and Challenger Diversified Property Trust 2 ARSN 121 484 713) Responsible Entity Challenger Listed Investments Limited ABN 94 055 293 644 AFSL 236887
during the year, significantly de-risking the portfolio by
reducing the lease expiries for the 2013 financial year. The
on market unit buyback has been our primary capital
management tool employed during the period, benefitting from
our capital recycling strategy. The proceeds from the sale of
Talavera Rd have been deployed for the buyback, increasing
the percentage complete to 6.2% of issued capital, as well as
maintaining our target gearing level of 30%. These three
strategic objectives remain our focus, with the goal to grow
earnings and close the price to NTA gap.
"I am pleased today to announce growth in both our normalised
earnings and distribution guidance for the financial year
2013. Normalised earnings guidance is 5.25cpu and
distribution guidance is 4.35cpu, representing growth of 3.8%
and 3.6% respectively. The key drivers of the growth are
portfolio rental increases and the accretion from the
buyback.
"CDI remains well positioned to deliver future growth and
earnings upside in the context of difficult domestic
operating conditions and a volatile global economy."
CDI has progressed and completed a number of portfolio
enhancement projects. Practical completion was achieved on
both the upgrade of The Domain Car Park and the development
of Stage 2, The Junction. These projects were completed on
time and to budget. The Jam Factory repositioning is
progressing well and expected to complete in December 2012.
All projects aim to realise latent value within the
portfolio.
Stage 2 of The Junction development commenced after securing
a 10 year lease pre-commitment for a
20,200sqm distribution facility. The site is located in the
inner west, the geographical heart of Sydney, and the
facility's attributes ensure a prime industrial grading that
will meet the requirements of a broad group of distribution
and warehouse users in the future. The lease commenced 3 July
2012 and will add to net property income in the coming
period.
The Domain Car Park upgrade is now complete. The key aim of
the upgrade was to improve the customer experience. The works
included upgrading the façade and travelator, installing new
lifts and service improvements. The car park is expected to
provide an increased contribution to earnings now that the
upgrade is complete and it can operate to its full
potential.
The aim of the Jam Factory repositioning is to make the
centre more contemporary, accessible and sought after by a
broader demographic. The tenancy remix is nearing completion;
focusing on popular food, fashion and entertainment brands
like TOPSHOP, Urban by Target, Salsa's, Groove Train, Lindt
Chocolates and Nando's to complement the existing Village
Cinemas. The food court commenced trading in June, while the
upgrade of the 970 bay car park has commenced and is due to
complete in September 2012. The signing of the 12 year
Village office lease includes additional office space which
will result in further works. The cost of this construction
is estimated at $2.4 million (CDI 60% share) and the income
yield on cost for the entire
Further enquiry: Chantal Travers, Investor Relations, Challenger Financial Services Group, 02 9994 7560
Nicole Webb, Corporate Communications, Challenger Financial Services Group, 02 9994 7806
Challenger Diversified Property Group
(comprising Challenger Diversified Property Trust 1 ARSN 121 484 606 and Challenger Diversified Property Trust 2 ARSN 121 484 713) Responsible Entity Challenger Listed Investments Limited ABN 94 055 293 644 AFSL 236887
development is forecast at 8.8%. TOPSHOP is trading well,
exceeding turnover expectations and cementing the Jam Factory
as a shopping destination on Chapel Street.
Occupancy as at June 2012 of 94.1% is up on December 2011 at
93.5%, while the Weighted Average Lease Expiry (WALE)
remained constant at 5.0 years across the periods. CDI has
had significant success with tenant retention (FY12 70.5% by
income) and continues to make inroads into current vacancies
and upcoming lease expiries. While market conditions remain
challenging, CDI has secured a number of key leasing deals
over the year, namely a 12 year office lease with Village and
a 10 year lease with TOPSHOP
in the Jam Factory. Further lease deals have been completed
in 31 Queen Street and Makerston House, together with a
17,000sqm lease signed at Foray St. Over the year CDI has
leased a total of 71,000sqm representing 14.3% of its gross
rent.
CDI has significantly reduced the expiry risk for the
financial year 2013, down from 12% as at June 2011 to
4%. The leasing of existing vacancies represents an
opportunity to grow earnings further.
CDI has bought back 6.2% of issued capital in the on-market
unit buyback since April 2011. Since the buyback commenced,
CDI has purchased ~57 million units at an average of 23%
discount to NTA per un it, generating $9 million in value.
The increase in the buyback during the period has been funded
through the capital recycling strategy, specifically the sale
of 75 Talavera Road. Further progress of the buyback will
continue in line with future asset sales, subject to the most
efficient use of capital.
CDI maintains a gearing target of 30%, currently pro forma
gearing is 29.8%. CDI actively manages balance sheet gearing
between a range of 25% - 35%. During the period the average
cost of Australian drawn debt fell to 6.5% due to the falling
interest rate environment and the incremental cost of drawing
additional Australian debt has also reduced further to
4.6%.
CDI will undertake a 1 for 4 unit consolidation commencing 10
August 2012. It should not affec t the underlying value of a
unitholder's investment in CDI. Please refer to the
additional ASX announcement released today, which further
outlines the detail and timetable for the consolidation.
The CDI total portfolio comprises interests in 28 quality
office, retail and industrial assets located in Australia
(94.5%) and five properties (5.5%) in France.
All properties in CDI's portfolio were valued as at 30 June
2012, 66% were independently valued while internal valuations
were undertaken for the remainder. These valuations resulted
in a $4.1 million (0.5%)
Further enquiry: Chantal Travers, Investor Relations, Challenger Financial Services Group, 02 9994 7560
Nicole Webb, Corporate Communications, Challenger Financial Services Group, 02 9994 7806
Challenger Diversified Property Group
(comprising Challenger Diversified Property Trust 1 ARSN 121 484 606 and Challenger Diversified Property Trust 2 ARSN 121 484 713) Responsible Entity Challenger Listed Investments Limited ABN 94 055 293 644 AFSL 236887
uplift from 31 December 2011 and a $17.1
million3 (2.2%) uplift from 30 June 2011. The
carrying value of the
total investment portfolio at 30 June 2012 was $852.0
million.
CDI's weighted average capitalisation (cap) rates on the
whole have remained largely unchanged, with a weighted
average cap rate for the total portfolio of 8.23% compared to
8.19% at December 2011. The Australian portfolio has softened
marginally to 8.26% and the French portfolio cap rate has
remained virtually flat at 7.81% as at June 2012 from 7.82%
(December 2011).
The average weighted NABERS rating for our office portfolio
has increased from 3.6 stars as at June 2011 to
4.0 stars today. This increase is the result of three
sustainability capex projects being completed across; The
Forum Verizon, Makerston House and Discovery House Stage 1.
CDI remains committed to lifting its NABERS rating. Over the
next 12 months we have a pipeline of further projects which
we expect will lift the NABERS rating across the office
portfolio closer to our medium term target of 4.5 stars.
CDI remains committed to its strategy of becoming a purely
Australian focused A-REIT. The French portfolio is comprised
of five properties, fully occupied with a WALE of 5.3 years.
CDI is committed to an orderly sale of the French portfolio
and as a result expects the sale to be a medium term goal.
The uncertainty in Europe and hence the lack of demand and
available credit is the primary driver for the extension in
our expected timetable for the divestment of these
properties. The strong operating profit generated by these
properties enables CDI to hold these assets until the
European market stabilises.
In regards to outlook, Mr Hardie said: "The fund
has today delivered operating earnings of $44.8 million
or
5.06 cents per unit, a credible result given the current
market conditions. We are pleased with the results of CDI's
strategic objectives through the period, particularly in the
areas of portfolio enhancement and improved leasing, and the
effect this has had on both earnings growth and the unit
price. FY13 earnings and distribution guidance have both
increased approximately 4% from FY12 to 5.25 and 4.35 cents
per unit respectively. CDI is well positioned going into FY13
to further grow earnings and bridge the gap between the unit
price and NTA."
Unitholders will be sent a consolidation notice on 10 August
2012 containing details of the unit consolidation. The
distribution for the six months ending 30 June 2012 of 2.15
cents per unit on a pre-consolidated basis will be paid on 30
August 2012 along with which unit holders will be sent their
annual tax statement and final statement of their post
consolidation holdings.
ENDS
3 Fair value movement down $0.7 million, excluding properties sold in FY12 and including capital expenditure
Further enquiry: Chantal Travers, Investor Relations, Challenger Financial Services Group, 02 9994 7560
Nicole Webb, Corporate Communications, Challenger Financial Services Group, 02 9994 7806
Challenger Diversified Property Group
(comprising Challenger Diversified Property Trust 1 ARSN 121 484 606 and Challenger Diversified Property Trust 2 ARSN 121 484 713) Responsible Entity Challenger Listed Investments Limited ABN 94 055 293 644 AFSL 236887
About Challenger Diversified Property Group (CDI):CDI provides investors with exposure to a diversified portfolio of quality, well located properties which offer stable income returns and potential for capital growth. With total assets of $880 million at 30 June 2012, CDI holds investment interests in 28 office, industrial and retail properties located in Australia and France as well as a development portfolio comprising a single industrial land bank. In addition, CDI holds a cumulative 25 year leasehold interest in Sydney's Domain car park. Further details are provided on CDI's website www.challenger.com.au/cdi
Important notice:Any forward looking statements included in this document are by nature subject to significant uncertainties, risks and contingencies, many of which are outside the control of, and are unknown to, Challenger, so that actual results or events may vary from thos e forward looking statements, and the assumptions on which they are based. Challenger makes no representation, gives no warranty and does not accept any responsibility for the accuracy or completeness of any recommendation, information or advice contained herein. Information presented in this release is presented on an operational basis (rather than statutory) to reflect a management view of the business. The operational numbers are not reviewed or audited, however the financial information has been extracted from audited financial accounts. The audited full year financial report is available from CDI's website at www.challenger.com.au/CDI.
Further enquiry: Chantal Travers, Investor Relations, Challenger Financial Services Group, 02 9994 7560
Nicole Webb, Corporate Communications, Challenger Financial Services Group, 02 9994 7806
Challenger Diversified Property Group
(comprising Challenger Diversified Property Trust 1 ARSN 121 484 606 and Challenger Diversified Property Trust 2 ARSN 121 484 713) Responsible Entity Challenger Listed Investments Limited ABN 94 055 293 644 AFSL 236887
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