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IOF INVESTA OFFICE FUND Unitholders Meeting 27 March 2012 - PowerPoint PPT Presentation

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IOF INVESTA OFFICE FUND Unitholders Meeting 27 March 2012 CHAIRMANS WELCOME 3 | IOF Unitholders Meeting Presentation | 27 March 2012 AGENDA 1. CHAIRMANS WELCOME 2. FUND UPDATE 3. PROPOSED ACQUISITIONS 4. FORMAL BUSINESS 5.

  1. IOF INVESTA OFFICE FUND Unitholders ’ Meeting 27 March 2012

  2. CHAIRMAN’S WELCOME

  3. 3 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  4. AGENDA 1. CHAIRMAN’S WELCOME 2. FUND UPDATE 3. PROPOSED ACQUISITIONS 4. FORMAL BUSINESS 5. CONCLUSION

  5. Overarching strategy: to be Australia’s pre-eminent CBD office fund  Completed on-market 10% unit buyback in four months Completed   Average purchase price of $0.608 or a 17% discount to the 30 June buyback 2011 NTA per unit  Well progressed with offshore asset sales  Completed sale of US portfolio and Paris asset Offshore   asset sales Asset sales since December last year completed at an overall premium of 9.7% to book value Refocus portfolio on Proposed acquisition of 25% interest in 126 Phillip Street, Sydney and  high quality 50% interest in 242 Exhibition Street, Melbourne Australian assets The Proposal  Reduce number of units on issue Unit  Improves market perception and broadens investor universe consolidation  and sale  Sale facility for unitholders with small unitholdings for no brokerage facility  Expect documents to be sent to unitholders during Q2 2012 5 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  6.  Assessment of the merits of the Proposal was only Proposal considered by the Independent Directors , Executive Evaluation Directors abstained from the consideration  Verification by an external valuer that the purchase price for Valuation the interests in the properties represents market value  KPMG was appointed to provide an independent expert’s Independent report. It was concluded the proposal is on arm’s length Expert Opinion terms and is fair and reasonable The Independent Directors unanimously recommend that you vote in favour of the Proposal 6 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  7. FUND UPDATE

  8. Strategy Financial Portfolio Australian Last 6 months  Distributions of 1.95 cpu in line with guidance  Earnings impacted by offshore portfolio  Material increase in NTA to $0.79 per unit  Gearing of 24.5% at low end of targeted range  19.5% of the portfolio re-leased  Improved occupancy to 97%  Extended average lease expiry to 5.3 years  Progress on major lease expiries  Executing on strategic initiatives  Significant progress with offshore sales  Further repositioning with targeted acquisitions 8 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  9. Half Year to 31 December 2011 31 Dec 2011 31 Dec 2010 Net profit (statutory) $172.3m $117.6m Operating income $70.3m 3 $63.3m Operating income per unit 2.4c 2.6c Distributions per unit 1.95c 1.95c Unit closing price 1 $0.60 $0.55 31 Dec 2011 30 Jun 2011 Gearing (look through) 2 24.5% 20.5% Net tangible assets per unit (NTA) $0.79 $0.73  Net profit driven by positive revaluations  Operating income impacted by offshore NPI and portfolio repositioning  Gearing impacted as a result of completed buyback  NTA uplift driven by improving valuations and offshore sales results 1. Source: IRESS 2. Based on debt to total assets, including share of associates’ and DOF’s assets and debt 3. Prior year historical operating income adjusted for revised accounting treatment of amortisation of leasing commissions, previously reported $71.7m 9 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  10. Australian portfolio and offshore sales drive NTA Movement in NTA per unit $ 0.79 0.80 0.01 0.01 0.04 +8.2% 0.75 0.73 0.70 0.65 0.60 30-Jun-11 Revaluations Buyback FX impact 31-Dec-11 1 & other  Australian values driven by Bond Street completion and lease renewals  Sale of US and Paris assets above book drives offshore values  Positive contribution from completed buyback on NTA per unit 1. Includes deferred tax liability and retained earnings 10 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  11. Robust performance and improved market conditions Key Metrics 31 Dec 2011  19.5% of Australian portfolio re-leased Net property income (NPI) 1 $60.3m  Positive income growth maintained 1.5%  Like-for-like NPI growth 1 High tenant retention and rental growth achieved on renewals Average face rental increase on renewals 2 7.5% 97% Occupancy (by income) Leased 70,684 sqm Tenant retention (by income) 90% Weighted average lease expiry 3 5.3 years Weighted average cap rate 7.8% Number of properties 16 383 La Trobe Street, Melbourne 1. Effective like-for-like income growth including amortisation of leasing incentives 2. Percentage increase in face rents from previous passing rent to new rent post renewal 3. Includes leasing completed post balance sheet date 11 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  13. Portfolio needs re-balancing Classification Asset Characteristics Risk/Return Core Assets - Premium / A-grade assets - Stable rate of return - Longer lease expiry (4 years +) - Stable income profile - Higher credit tenants - Income base for distribution payments - Limited capex requirements Core Plus / Value Add - Capable of being A-grade - Higher rate of return - Lease expiry to match market opportunity - Potential short-term income volatility - Opportunity to add value through lease-up, - Likely higher capex spend refurbishment or redevelopment - Secondary markets or fringe CBD locations - Higher rate of return Tactical - Smaller, potentially more liquid assets - Limited longer term return potential  IOF portfolio currently overweight tactical assets while underweight core and value-add assets 13 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  14. To be the pre-eminent Australian CBD office fund Redeploy Active Optimise risk capital from investment adjusted offshore assets management returns   Improve quality of Sell remaining Australian portfolio offshore assets   Increase exposure Further re-balance to core assets Australian portfolio   Increase exposure Continue pro-active to Melbourne management of balance sheet 14 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  15. A transformational opportunity 25% interest in 50% interest in 126 Phillip Street, Sydney 242 Exhibition Street, Melbourne Price: $176.3m Price: $217.5 m 15 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  16. Proposed acquisitions are earnings accretive Assumed Yield Yield Incremental Look acquisition NTA (before (after Cost of through price per unit Debt 1 costs) costs) gearing (before costs) Effect of Proposal $393.75m 6.8% 6.6% 5.2% 25% $0.78 2 Incremental earnings impact 3 (cents per unit) Forecast FY 2012 0.03 - 0.04c 0.21 – 0.29c Forecast FY 2013 1. Calculated as the incremental cost of debt required to fund the Proposal as at 14 February 2012 taking into account undrawn debt capacity under the existing facility and a new tranche of debt under that facility and includes, where appropriate, base rates, margins, line fees and amortisation of established fees. The majority of the debt drawn is Australian dollar denominated with a small portion being Euro denominated. Assumed Australian base interest rate is 4.25% 2. NTA per unit decreases by approximately $0.01 due to writing off stamp duty and other acquisition costs immediately after the proposed acquisitions 3. Incremental earnings on a pre-consolidated basis of the proposal as compared to a base case of no acquisition and pay off debt. The range shows the outcome assuming Australian base interest rates of 4.0% to 4.5% 16 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  17. Disadvantages/Risks Advantages  Efficient redeployment of capital  Risks associated with commercial  Earnings accretive property   Higher risk adjusted returns Cost of debt   Increases geographic weighting to key Gearing levels CBD markets  Joint ownership arrangements  High quality tenants  Completion of sale of 900 Third  Reduced portfolio vacancy Avenue, New York   Minimal capital expenditure Unitholders may disagree with the requirements conclusions of the Independent  A unique opportunity Directors  Fair Price  No direct change to Responsible Entity fee 17 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  18. FORMAL BUSINESS

  19. Proposed acquisition of:  A 25% interest in the iconic 126 Phillip Street, Sydney, one of the premier CBD office properties in Australia; and  A 50% interest in 242 Exhibition Street, Melbourne, an A-Grade CBD office property that serves as the Telstra Global Headquarters from members of the Investa Property Group 19 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  20. 20 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

  21. The acquisition of interests To consider and, if thought fit, to pass the following resolution as an ordinary resolution: “That, for the purposes of rule 10.1 of the Listing Rules of the Australian Securities Exchange and for all other purposes, the acquisition of a 50% interest in 242 Exhibition Street, Melbourne, Victoria and up to a 50% interest in 126 Phillip Street, Sydney, New South Wales as described in the notice accompanying this resolution be approved.” 21 | IOF Unitholders ’ Meeting Presentation | 27 March 2012

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