Challenger Diversified Property Group : CDI Upgraded full year earnings and distribution guidance

MARKET RELEASE

UPGRADED FULL YEAR EARNINGS AND DISTRIBUTION GUIDANCE Key Points FY12 guidance upgrade normalised earnings per unit (epu) up to 5.0 cents and distribution up to 4.2 cents per unit (dpu) Statutory net profit after tax: $18.8 million (HY11: $30.1 million) Profit from operating activities: $23.9 million (HY11: $24.0 million) HY12 normalised epu 2.67 cents and dpu 2.05 cents Net tangible assets (NTA) per unit of 68 cents (FY11: 67 cents) Balance sheet gearing 28.9%1 Property valuations up $9.3 million (1.1% on FY11) Occupancy: 92.92%; WALE: 5.02 years Strategy progressing; portfolio enhancement, improve leasing metrics and active capital management

7 February 2012, Sydney - Challenger Diversified Property Group (ASX:CDI) today announced a statutory net profit after tax of $18.8 million for the half year ended 31 December 2011 (HY12). Profit from operating activities of $23.9 million (CPU 2.67) was on par with the prior period of $24.0 million (CPU 2.63). This is primarily due to the acquisition of 31 Queen Street and other portfolio rental growth.
Statutory net profit after tax of $18.8 million was impacted by unrealised adverse movement of the interest rate swaps and the reduction in value of the French properties. These have been impacted by the European sovereign debt crisis.
CDI Fund Manager Trevor Hardie said: "CDI's financial performance has been solid in the context of a volatile macroeconomic environment. We continue to progress our three strategic objectives; enhance the portfolio; improve leasing metrics and actively manage our capital with the goal to close our price to NTA
gap.

1 Pro forma post payment of 1H12 distribution in February 2012

2 Includes The Junction, Stage 2 "As if Complete"

Further enquiry: Chantal Travers, Investor Relations, Challenger Limited, 02 9994 7560

Nicole Webb, Corporate Communications, Challenger Limited, 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

"I am pleased today to announce an upgrade to both our normalised earnings and distribution guidance to
5.0 and 4.2 cents per unit. The key drivers of the upgrade include; extending the timetable on the French sales and the associated earnings accretion, the strong performance of the Domain car park, outperformance of other properties and lower than expected finance and operating costs. There are a number of assumptions which underpin this guidance which are further detailed in today's presentation.
"The volatile economic climate both in Australia and overseas has led to a challenging leasing market with tenants typically preferring to renew rather than relocate. CDI has made good progress on renewals, achieving a number of renewals prior to expiry.
"While new tenant demand has wavered the later part of 2011, CDI has completed leasing deals representing 7% of its annualised gross income over the period. Lease renewals for the half remained strong accounting for 71% of all leasing deals."
Occupancy as at December 2011 of 92.9% was down marginally on June 11 at 93.7%, while the WALE
remained constant at 5.0 years across the periods.

Portfolio Enhancement

CDI has embarked on a number of portfolio enhancement projects this period, namely the repositioning of The Jam Factory, the development of the second stage at The Junction Industrial Park in Enfield and the refurbishment of The Domain car park. These projects are all on track for forecast completion within both budget and timetable.
All three projects aim to capitalise on latent value within the portfolio. Stage 2 of The Junction Industrial Park development in Enfield commenced after securing a 10 year lease pre-commitment for a 20,200m2 distribution facility with Bunzl Australasia Limited. On completion the industrial park will be a 46,500m2 multi- tenanted facility in a key location close to the Sydney CBD. Construction is tracking within forecast time and
budget, with forecast completion set for June 2012.
The Jam Factory repositioning will make the centre more contemporary, accessible and sought after by a broader demographic. The repositioning includes a tenancy remix, focussing on popular food, fashion and entertainment brands like TopShop, Urban by Target and Nando's to complement the existing Village Cinemas. It will also include a new and significantly expanded food court, due to open in April this year along with a refurbishment of the 970 bay car park which is due to commence in March 2012. TopShop opened on
the 7th of December 2011 with much fanfare, queues around the building and increased foot traffic numbers
for the centre (up 27% for December).

Further enquiry: Chantal Travers, Investor Relations, Challenger Limited, 02 9994 7560

Nicole Webb, Corporate Communications, Challenger Limited, 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

The Domain car park refurbishment currently underway, aims to make the 1091 bays more accessible and provide the consumer with an enhanced customer experience. The works include upgrading the façade and travelator, installation of new lifts and service improvements. The car park has performed better than forecast during the refurbishment period, delivering above budget operating profit.

Portfolio

The CDI total portfolio comprises interests in 29 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 revalued as at 31 December 2011 - 46% (by value) by independent valuation and the remainder by internal valuation. The revaluation resulted in a $9.3 million (1.1%) uplift in property valuations from 30 June 2011 and an $19.6 million (2.31%) uplift from 31 December 2010. The carrying value of the total investment portfolio at 31 December 2011 was $786 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 8.19%. The Australian portfolio has tightened marginally at 8.21% and the French market has cap rate moved up from 7.66% at June to 7.82% at December 2011.
CDI remains committed to its strategy of becoming a purely Australian focused A-REIT. The French portfolio is comprised of five quality properties with occupancy of 100% creating accretion to earnings. The turmoil in Europe is the primary driver for the extension in our expected timetable for the orderly divestment of these five properties. The strong net income generated by these properties enables CDI to hold these assets until the European market stabilises.

Capital Management

CDI has completed approximately 30% of its stated on-market buyback target of the purchase of 10% of issued capital since April 2011. Since the buyback commenced, CDI has purchased ~29.6 million units (more than 3% of issued capital) at an average of 24% discount to NTA per unit - equivalent to an implied cap rate of 9.7%. The buyback has been the primary contributor to the NTA per unit increase from 67 cents to 68 cents. It is being funded through a combination of debt and asset sales and its progress will continue in line with asset sales.
CDI has successfully negotiated an increase of $20 million to the existing facility, priced at the same margin as those refinanced in August 2011. This additional capacity will increase CDI's financial flexibility and liquidity at a time when credit and flexibility are highly sought after. CDI actively manages its balance sheet
gearing between a 25% - 35% range.

Further enquiry: Chantal Travers, Investor Relations, Challenger Limited, 02 9994 7560

Nicole Webb, Corporate Communications, Challenger Limited, 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

Outlook

In regards to outlook, Mr Hardie said: "CDI has today upgraded guidance, earnings to 5.0 cents per unit and distribution to 4.2 cents per unit. This is a positive outcome in the context of both a difficult leasing market and challenging medium term outlook for the sector. CDI is well positioned and continues to make progress towards its stated objectives, through portfolio enhancement, focus on improving leasing metrics and active capital management. Bridging the gap between unit price and NTA remains our key priority, in order to maximise unit holder value."

END

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 $879 million at 31 December 2011, CDI holds investment interests in 29 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/cd i

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 those forward looking statements, and the assumptions on which they are based.

Further enquiry: Chantal Travers, Investor Relations, Challenger Limited, 02 9994 7560

Nicole Webb, Corporate Communications, Challenger Limited, 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