Half Year Results
31 December 2011
IOFLetter from the Fund Manager
Half year in review
19 March 2012
Dear Unitholder,
I am pleased to be given the opportunity to be the new Fund
Manager for Investa Office Fund (IOF) and look forward to
working with the Board, and my colleagues at Investa Property
Group to deliver the best possible returns for
unitholders.
IOF delivered a number of key outcomes since last reporting
to you, including:
> Significant leasing activity with 19.5% of the
Australian portfolio re-leased, at an average rental increase
of 7.5% and high tenant retention of 90% achieved;
> Australian portfolio value increased 3.4% following the
completion of independent valuations of 52% of the Australian
portfolio;
> Strong progress on offshore sales following the sale of
the entire US Portfolio and the Paris asset, at an overall
9.7% premium to book value; and
> The completion of a 10% on-market buyback in four months
at an average price of $0.608, which was a significant
discount to the NTA per unit.
IOF is committed to executing the Fund's stated strategy of
being the pre-eminent Australian CBD office fund by
repositioning the portfolio to focus on high quality core
assets in prime CBD locations. As a result, IOF announced a
proposal for the acquisition of:
> Up to a 50% interest in the iconic "Deutsche Bank Place"
at 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 Investa Property Group, subject to unitholder
approval. This opportunity will enhance the risk adjusted
returns for the Fund by:
> Significantly improving the overall quality of the
Australian portfolio, being earnings accretive; and
> Providing an efficient redeployment of capital following
the offshore asset sales.
The Unitholder meeting for the consideration and vote on the
proposal will be held at 10.00am (Sydney time) on Tuesday 27
March 2012 in the Blaxland Room at the Swissotel, 68 Market
Street, Sydney NSW.
In terms of outlook, FY2012 earnings are forecast to be
favourably impacted by the effect of the buyback, offset by
loss of earnings from offshore asset sales. Future earnings
are dependent on the outcome of the proposed acquisitions.
Forecast distributions per unit for FY2012 are expected to
remain in line with the prior year at 3.9 cents per unit.
On behalf of the IOF team, thank you for your continued
support of IOF.
Toby Phelps
Fund Manager, Investa Office Fund
Toby Phelps
Fund Manager,
Investa Office Fund (IOF)
Toby Phelps is the Fund Manager of IOF and is responsible for actively driving the long-term strategy and performance of the Fund.
Toby was most recently Head of Real Estate at Barclays Capital in Australia, and before this was Managing Director of both GreenOak Real Estate and Tishman Speyer Properties in the UK. Prior to this Toby was a Managing Director and Head of UK Investing with Europe-wide responsibilities at Morgan Stanley Real Estate.
Toby has extensive experience in global real estate investing, asset management, capital raising and corporate finance, and is an accomplished leader of successful investment
management teams.
INVESTA OFFICE FUND HALF YEAR RESULTS | 2012
Results at a glance
Investa's strategic objective is to reposition IOF as Australia's
pre-eminent CBD office Fund with a diverse portfolio of high performing investment grade office properties in prime
CBD locations.
Key achievements for the six monthsFinancial > Distributions of $1.95c in line with guidance
> Earnings impacted by declining income from offshore
assets and the inclusion
of leasing fee amortisation within operating income
> Material increase in NTA per unit of 8.2%
> Gearing of 24.5% at low end of targeted range
Australian portfolio > Significant leasing activity completed with over
70,000sqm re-leased
> Face rents on renewals increased by 7.5% on average
> Occupancy increased to 97%
> Weighted average lease expiry increased to 5.3 years
> Significant progress on major lease expiries
including
MLC (26,709sqm) and QBE (10,012sqm)
Strategy > Ongoing execution of strategic initiatives
> Significant progress with offshore asset sales
> Further repositioning with proposed acquisitions
The Fund reported a net profit of $172.3 million up from $117.6 million in the prior corresponding period. Operating income of $63.3 million was largely impacted by a decline in US net property income, although these assets have subsequently been sold.
31 Dec 2011 31 Dec 2010
Net profit (statutory) $172.3m $117.6m Operating income $63.3m $71.7m Operating income per unit 2.4¢ 2.6¢ Distributions per unit 1.95¢ 1.95¢
31 Dec 2011 30 June 2011
Gearing (look through)1 24.5% 20.5% Net tangible assets per unit (NTA) $0.79 $0.73
Movement in nTa per unit
$
0.80
0.75
0.04
0.01
0.01
0.79
+8.2%
0.70
0.73
0.65
0.60
30 JUN 11
REVALUATIONS
BUYBACK
FX IMPACT & OTHER
31 DEC 11
1. Based on debt to total assets, including share of associates' and DOF's assets and debt.
INVESTA OFFICE FUND HALF YEAR RESULTS | 2012
Fund performance highlights
We are pleased with the progress made towards
our stated objectives, namely completion of the 10% unit buyback at a 17% discount
to the prior period NTA per unit and execution of the offshore sales at an overall premium to book value.
Portfolio performanceAustralian portfolio update
IOF's Australian portfolio saw a significant level of leasing activity with 19.5% re-leased during the six months. The management team have been able to leverage their strong relationships and knowledge of the office market to attract and retain quality tenants, and maintain high occupancy.
Key metrics for the Australian portfolio during the period were:
Occupancy 97% Tenant retention 90% Like-for-like net property income growth +1.5% Average face rental increase on renewals 7.5% Weighted average lease expiry 5.3 years1
Portfolio book value +3.4%
Offshore portfolio update
Significant progress has been made to date with the offshore sales, with four of the six investments sold since August last year. The Fund has divested all property assets in the US and one in Europe, at an overall premium of 9.7% to the 30 June 2011 book values, demonstrating the measured and timely approach adopted for offshore divestments.
capital management
During the period, the Fund completed an on-market buyback of
10% of the units on issue at an average purchase price of
$0.608, which was a 17% discount to the prior period NTA per
unit.
The Fund's look through gearing at 31 December 2011 was
24.5%, with settlement
of the offshore asset sales significantly reducing the
gearing level to below the targeted range of 25% to 30%.
Weighted average cost of debt is 4.8%, weighted average debt
maturity is 2.8 years and interest cover ratio is 5.2 times.
8.2%
increase in
NTA per unit
$0.79
NTA per unit
95% Overall portfolio occupancy2
19.5% of Australian portfolio released during period
1. Includes leasing completed post balance sheet date.
2. Includes existing offshore assets of DOF and Bastion Tower.
Delivering on strategy
Since assuming management of IOF in
April 2011, Investa has been committed to progressively implementing a range of initiatives designed to
create value for unitholders. We expect to be judged
on our performance and believe that consistently
OutlookThe Fund's overarching strategy is to be the pre-eminent Australian CBD office fund. The Fund's FY12 earnings are forecast to be favourably impacted by the effect of the buyback, offset by the loss of earnings from offshore asset sales. Future earnings are dependent on the re-investment of sale proceeds from the sale of offshore assets. Baseline FY12 EPU is expected to be 4.9 cents and DPU is to remain at 3.9 cents subject to prevailing market conditions.
Our approachInitiative Progress Status
delivering on our objectives should be a key measure
of our progress.
Align management fees
Enhance corporate governance
Early refinance of syndicated debt facility
Completed 10%
unit buyback
Executed offshore asset sales
Refocus portfolio on high quality assets in Australia
RE fee fixed at $8.6 million per annum until
30 June 2012, thereafter 0.55% per annum of IOF's total
equity market capitalisation subject to cap and floor of 2.5%
per quarter.
New RE Board with independent Chairman and majority of
independent Directors appointed July
2011 and ability granted to unitholders to ratify the
appointment or renewal of independent Directors.
This refinancing was announced on 15 August
2011. The new facility of $552 million expires
August 2014 and enabled IOF to undertake a buyback.
Completed unit buyback in four months at an average purchase
price of $0.608 which was a
17% discount to the 30 June 2011 NTA per unit.
Offshore asset sales well progressed, completed sale of US
portfolio and Paris asset at overall premium to book
value.
Proposed acquisition of interests in 126 Phillip Street,
Sydney and 242 Exhibition Street, Melbourne.